<PAGE>
Prospectus
PRIMARY A SHARES
JULY 31, 1996
MONEY MARKET FUNDS
Nations Prime Fund
Nations Treasury Fund
Nations Government Money Market
Fund
Nations Tax Exempt Fund
EQUITY FUNDS
Nations Value Fund
Nations Equity Income Fund
Nations International Equity Fund
Nations Emerging Markets Fund
Nations Pacific Growth Fund
Nations Capital Growth Fund
Nations Emerging Growth Fund
Nations Disciplined Equity Fund
Nations Equity Index Fund
BALANCED FUND
Nations Balanced Assets Fund
BOND FUNDS
Nations Short-Intermediate Government
Fund
Nations Government Securities Fund
Nations Short-Term Income Fund
Nations Diversified Income Fund
Nations Strategic Fixed Income Fund
Nations Global Government
Income Fund
Nations Municipal Income Fund
Nations Short-Term Municipal Income
Fund
Nations Intermediate Municipal
Bond Fund
Nations Florida Intermediate Municipal
Bond Fund
Nations Florida Municipal Bond Fund
Nations Georgia Intermediate Municipal
Bond Fund
Nations Georgia Municipal Bond Fund
Nations Maryland Intermediate
Municipal Bond Fund
Nations Maryland Municipal Bond Fund
Nations North Carolina Intermediate
Municipal Bond Fund
Nations North Carolina Municipal Bond
Fund
Nations South Carolina Intermediate
Municipal Bond Fund
Nations South Carolina Municipal Bond
Fund
Nations Tennessee Intermediate
Municipal Bond Fund
Nations Tennessee Municipal Bond Fund
Nations Texas Intermediate Municipal
Bond Fund
Nations Texas Municipal Bond Fund
Nations Virginia Intermediate Municipal
Bond Fund
Nations Virginia Municipal Bond Fund
(Logo of Nations Fund appears here)
INVESTMENT ADVISER: NationsBanc Advisors, Inc.
SUB-INVESTMENT ADVISER: TradeStreet Investment Associates, Inc.
SUB-INVESTMENT ADVISER: Gartmore Global Partners
DISTRIBUTOR: Stephens Inc.
<PAGE>
Prospectus
PRIMARY A SHARES
JULY 31, 1996
This Prospectus describes the investment portfolios
listed in the column to the right (each a "Fund") of
Nations Fund Trust, Nations Fund, Inc. and Nations
Fund Portfolios, Inc. ("Nations Portfolios"), each
an open-end management investment company in the
Nations Fund Family ("Nations Fund" or "Nations Fund
Family"). This Prospectus describes one class of
shares of each Fund -- Primary A Shares (formerly
called Trust A Shares). Nations Disciplined Equity
Fund was formerly called "Nations Special Equity
Fund."
NATIONS PRIME FUND, NATIONS TREASURY FUND, NATIONS
GOVERNMENT MONEY MARKET FUND AND NATIONS TAX EXEMPT
FUND (THE "MONEY MARKET FUNDS") SEEK TO MAINTAIN A
NET ASSET VALUE OF $1.00 PER SHARE.
INVESTMENTS IN THE MONEY MARKET FUNDS ARE NEITHER
INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT AND
THERE CAN BE NO ASSURANCE THAT THESE FUNDS WILL BE
ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00
PER SHARE.
This Prospectus sets forth concisely the information
about each Fund that a prospective purchaser of
Primary A Shares should consider before investing.
Investors should read this Prospectus and retain it
for future reference. Additional information about
Nations Fund Trust, Nations Fund, Inc. and Nations
Portfolios is contained in separate Statements of
Additional Information (the "SAIs"), that have been
filed with the Securities and Exchange Commission
(the "SEC") and are available upon request without
charge by writing or calling Nations Fund at its
address or telephone number shown below. The SAIs
for Nations Fund Trust, Nations Fund, Inc. and
Nations Portfolios, each dated July 31, 1996, are
incorporated by reference in their entirety into
this Prospectus. NationsBanc Advisors, Inc. ("NBAI")
is the investment adviser to the Funds. TradeStreet
Investment Associates, Inc. ("TradeStreet") is
sub-investment adviser to certain of the Funds and
Gartmore Global Partners ("Gartmore") is
sub-investment adviser to the other Funds. As used
herein the "Adviser" shall mean NBAI, TradeStreet
and/or Gartmore as the context may require.
SHARES OF NATIONS FUND ARE NOT DEPOSITS OR OTHER
OBLIGATIONS OF, OR ISSUED, ENDORSED OR GUARANTEED
BY, NATIONSBANK, N.A. ("NATIONSBANK") OR ANY OF ITS
AFFILIATES. SUCH SHARES ARE NOT INSURED BY THE U.S.
GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER
GOVERNMENT AGENCY. AN INVESTMENT IN THE FUNDS
INVOLVES CERTAIN RISKS, INCLUDING POSSIBLE LOSS OF
PRINCIPAL.
NATIONSBANK AND CERTAIN OF ITS AFFILIATES PROVIDE
CERTAIN OTHER SERVICES TO NATIONS FUND, FOR WHICH
THEY ARE COMPENSATED. STEPHENS INC., WHICH IS NOT
AFFILIATED WITH NATIONSBANK, IS THE SPONSOR AND
ADMINISTRATOR AND SERVES AS THE DISTRIBUTOR FOR
NATIONS FUND.
THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
MONEY MARKET FUNDS:
Nations Prime Fund
Nations Treasury Fund
Nations Government Money Market Fund
Nations Tax Exempt Fund
EQUITY FUNDS:
Nations Value Fund
Nations Equity Income Fund
Nations International Equity Fund
Nations Emerging Markets Fund
Nations Pacific Growth Fund
Nations Capital Growth Fund
Nations Emerging Growth Fund
Nations Disciplined Equity Fund
Nations Equity Index Fund
BALANCED FUND:
Nations Balanced Assets Fund
BOND FUNDS:
Nations Short-Intermediate Government Fund
Nations Government Securities Fund
Nations Short-Term Income Fund
Nations Diversified Income Fund
Nations Strategic Fixed Income Fund
Nations Global Government Income Fund
Nations Municipal Income Fund
Nations Short-Term Municipal Income Fund
Nations Intermediate Municipal Bond Fund
Nations Florida Intermediate Municipal Bond Fund
Nations Florida Municipal Bond Fund
Nations Georgia Intermediate Municipal Bond Fund
Nations Georgia Municipal Bond Fund
Nations Maryland Intermediate Municipal Bond Fund
Nations Maryland Municipal Bond Fund
Nations North Carolina Intermediate Municipal Bond Fund
Nations North Carolina Municipal Bond Fund
Nations South Carolina Intermediate Municipal Bond Fund
Nations South Carolina Municipal Bond Fund
Nations Tennessee Intermediate
Municipal Bond Fund
Nations Tennessee Municipal Bond Fund
Nations Texas Intermediate Municipal Bond Fund
Nations Texas Municipal Bond Fund
Nations Virginia Intermediate Municipal Bond Fund
Nations Virginia Municipal Bond Fund
For Fund information call:
1-800-626-2275
Nations Fund
c/o Stephens Inc.
One NationsBank Plaza
33rd Floor
Charlotte, NC 28255
(Nations Fund logo appears here)
<PAGE>
Table Of Contents
About The Prospectus Summary 3
Funds
Expenses Summary 7
Financial Highlights 12
Objectives 37
How Objectives Are Pursued 40
How Performance Is Shown 54
How The Funds Are Managed 55
Organization And History 63
About Your How To Buy Shares 65
Investment How To Redeem Shares 66
How To Exchange Shares 66
How The Funds Value Their Shares 67
How Dividends And Distributions Are Made;
Tax Information 68
Appendix A -- Portfolio Securities 70
Appendix B -- Description Of Ratings 80
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT
CONTAINED IN THIS PROSPECTUS, OR IN THE FUNDS' SAIS
INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH
THE OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY
NATIONS FUND OR ITS DISTRIBUTOR. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFERING BY NATIONS FUND OR
BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH
OFFERING MAY NOT LAWFULLY BE MADE.
2
<PAGE>
About The Funds
Prospectus Summary
(Bullet) TYPE OF COMPANIES: Open-end management investment companies.
(Bullet) INVESTMENT OBJECTIVES AND POLICIES:
(Bullet) MONEY MARKET FUNDS:
(Bullet) Nations Prime Fund's investment objective is to seek the
maximization of current income to the extent consistent with
the preservation of capital and the maintenance of liquidity.
(Bullet) Nations Treasury Fund's investment objective is the
maximization of current income to the extent
consistent with the preservation of capital and the
maintenance of liquidity.
(Bullet) Nations Government Money Market Fund's investment
objective is to seek as high a level of current income
as is consistent with liquidity and stability of
principal.
(Bullet) Nations Tax Exempt Fund's investment objective is to
seek as high a level of current interest income exempt
from Federal income taxes as is consistent with
liquidity and stability of principal.
(Bullet) EQUITY FUNDS:
(Bullet) Nations Value Fund's investment objective is to seek growth of
capital by investing in companies that are believed to be
undervalued.
(Bullet) Nations Equity Income Fund's investment objective is
to seek current income and growth of capital by
investing primarily in companies with above average
dividend yields.
(Bullet) Nations International Equity Fund's investment
objective is to seek long-term capital growth by
investing primarily in equity securities of non-United
States companies in Europe, Australia, the Far East
and other regions, including developing countries.
(Bullet) Nations Emerging Markets Fund's investment objective
is to seek long-term capital growth by investing
primarily in equity securities of companies in
emerging market countries, such as those in Latin
America, Eastern Europe, the Pacific Basin, the Far
East, Africa and India.
(Bullet) Nations Pacific Growth Fund's investment objective is
to seek long-term capital growth by investing
primarily in equity securities of companies in the
Pacific Basin and the Far East (excluding Japan).
(Bullet) Nations Capital Growth Fund's investment objective is
to seek growth of capital by investing in companies
that are believed to have superior earnings growth
potential.
(Bullet) Nations Emerging Growth Fund's investment objective is
to seek capital appreciation by investing in emerging
growth companies that are believed to have superior
long-term earnings growth prospects.
(Bullet) Nations Disciplined Equity Fund's investment objective
is to seek growth of capital by investing in companies
that are expected to produce significant increases in
earnings per share.
(Bullet) Nations Equity Index Fund's investment objective is to
seek investment results that correspond, before fees
and expenses, to the total return of the Standard &
Poor's 500 Composite Stock Price Index.
3
<PAGE>
(Bullet) BALANCED FUND:
(Bullet) Nations Balanced Assets Fund's investment objective is to seek
total return by investing in equity and fixed income
securities.
(Bullet) BOND FUNDS:
(Bullet) Nations Short-Intermediate Government Fund's investment
objective is to seek high current income consistent with
modest fluctuation of principal. The Fund invests primarily in
securities issued or guaranteed by the U.S. Government, its
agencies or instrumentalities.
(Bullet) Nations Government Securities Fund's investment
objective is to seek high current income consistent
with moderate fluctuation of principal. The Fund
invests primarily in intermediate-term securities
issued or guaranteed by the U.S. Government, its
agencies or instrumentalities.
(Bullet) Nations Short-Term Income Fund's investment objective
is to seek high current income consistent with minimal
fluctuation of principal. The Fund invests in
investment grade debt securities.
(Bullet) Nations Diversified Income Fund's investment objective
is to seek total return with an emphasis on current
income by investing in a diversified portfolio of fixed
income securities.
(Bullet) Nations Strategic Fixed Income Fund's investment
objective is to seek total return by investing in
investment grade fixed income securities.
(Bullet) Nations Global Government Income Fund's investment
objective is to seek total return by investing
primarily in high quality debt securities issued by
governments, banks and supranational entities located
throughout the world.
(Bullet) Nations Municipal Income Fund's investment objective is
to seek high current income exempt from Federal income
tax with the potential for principal fluctuation
associated with investments in long-term municipal
securities. The Fund invests in investment grade,
long-term municipal securities.
(Bullet) Nations Short-Term Municipal Income Fund's investment
objective is to seek high current income exempt from
Federal income tax consistent with minimal fluctuation
of principal. The Fund invests in investment grade,
short-term municipal securities.
(Bullet) Nations Intermediate Municipal Bond Fund's investment
objective is to seek high current income exempt from
Federal income tax consistent with moderate fluctuation
of principal. The Fund invests in investment grade,
intermediate-term municipal securities.
(Bullet) Nations Florida Intermediate Municipal Bond Fund's
investment objective is to seek high current income
exempt from Federal income and the Florida state
intangibles taxes consistent with moderate fluctuation
of principal. The Fund invests in investment grade,
intermediate-term municipal securities.
(Bullet) Nations Florida Municipal Bond Fund's investment
objective is to seek high current income exempt from
Federal income and the Florida state intangibles taxes
with the potential for principal fluctuation associated
with investments in long-term municipal securities. The
Fund invests in investment grade, long-term municipal
securities.
(Bullet) Nations Georgia Intermediate Municipal Bond Fund's
investment objective is to seek high current income
exempt from Federal and Georgia state income taxes
consistent with moderate fluctuation of principal. The
Fund invests in investment grade, intermediate-term
municipal securities.
(Bullet) Nations Georgia Municipal Bond Fund's investment
objective is to seek high current income exempt from
Federal and Georgia state income taxes with the
potential for principal fluctuation associated with
investments in long- term municipal securities. The Fund
invests in investment grade, long-term municipal
securities.
(Bullet) Nations Maryland Intermediate Municipal Bond Fund's
investment objective is to seek high current income
exempt from Federal and Maryland state income taxes
consistent with moderate fluctuation of principal. The
Fund invests in investment grade, intermediate-term
municipal securities.
(Bullet) Nations Maryland Municipal Bond Fund's investment
objective is to seek high current income exempt from
Federal and Maryland state income taxes with the
potential for principal fluctuation associated with
investments in long-term municipal securities. The Fund
invests in investment grade, long-term municipal
securities.
4
<PAGE>
(Bullet) Nations North Carolina Intermediate Municipal Bond
Fund's investment objective is to seek high current
income exempt from Federal and North Carolina state
income taxes consistent with moderate fluctuation of
principal. The Fund invests in investment grade,
intermediate-term municipal securities.
(Bullet) Nations North Carolina Municipal Bond Fund's
investment objective is to seek high current income
exempt from Federal and North Carolina state income
taxes with the potential for principal fluctuation
associated with investments in long-term municipal
securities. The Fund invests in investment grade,
long-term municipal securities.
(Bullet) Nations South Carolina Intermediate Municipal Bond
Fund's investment objective is to seek high current
income exempt from Federal and South Carolina state
income taxes consistent with moderate fluctuation of
principal. The Fund invests in investment grade,
intermediate-term municipal securities.
(Bullet) Nations South Carolina Municipal Bond Fund's
investment objective is to seek high current income
exempt from Federal and South Carolina state income
taxes with the potential for principal fluctuation
associated with investments in long-term municipal
securities. The Fund invests in investment grade,
long-term municipal securities.
(Bullet) Nations Tennessee Intermediate Municipal Bond Fund's
investment objective is to seek high current income
exempt from Federal income tax and the Tennessee Hall
Income Tax on unearned income consistent with moderate
fluctuation of principal. The Fund invests in
investment grade, intermediate-term municipal
securities.
(Bullet) Nations Tennessee Municipal Bond Fund's investment
objective is to seek high current income exempt from
Federal income tax and the Tennessee Hall Income Tax
on unearned income with the potential for principal
fluctuation associated with investments in long-term
municipal securities. The Fund invests in investment
grade, long- term municipal securities.
(Bullet) Nations Texas Intermediate Municipal Bond Fund's
investment objective is to seek high current income
exempt from Federal income tax consistent with
moderate fluctuation of principal. The Fund invests in
investment grade, intermediate-term municipal
securities.
(Bullet) Nations Texas Municipal Bond Fund's investment
objective is to seek high current income exempt from
Federal income tax with the potential for principal
fluctuation associated with investments in long-term
municipal securities. The Fund invests in investment
grade, long-term municipal securities.
(Bullet) Nations Virginia Intermediate Municipal Bond Fund's
investment objective is to seek high current income
exempt from Federal and Virginia state income taxes
consistent with moderate fluctuation of principal. The
Fund invests in investment grade, intermediate-term
municipal securities.
(Bullet) Nations Virginia Municipal Bond Fund's investment
objective is to seek high current income exempt from
Federal and Virginia state income taxes with the
potential for principal fluctuation associated with
investments in long- term municipal securities. The
Fund invests in investment grade, long-term municipal
securities.
(Bullet) INVESTMENT ADVISER: NationsBanc Advisors, Inc. serves as the investment
adviser to the Funds. NBAI provides investment advice to more than 43
investment company portfolios in the Nations Fund Family. TradeStreet
Investment Associates, Inc. provides sub-advisory services to certain
of the Funds and Gartmore Global Partners provides sub-advisory
services to the other Funds. See "How The Funds Are Managed."
(Bullet) DIVIDENDS AND DISTRIBUTIONS: The Equity Funds and the Balanced Fund
declare and pay dividends from net investment income each calendar
quarter. The Money Market Funds and the Bond Funds declare dividends
daily and pay them monthly. Each Fund's net realized capital gains,
including net short-term capital gains, are distributed at least
annually.
(Bullet) RISK FACTORS: Although the Adviser seeks to achieve the investment
objective of each Fund, there is no assurance that it will be able to
do so. Investments in a Fund are not insured against loss of principal.
Investments by a Fund in common stocks and other equity securities are
subject to stock market risk, which is the risk that the value of the
stocks the Fund holds may decline over short or even extended periods.
Investments by a Fund in debt securities are subject to interest rate
risk, which is the risk that increases in market interest rates will
adversely affect a Fund's investments in debt securities. The value of
a Fund's investments in debt securities, including U.S. Government
Obligations (as defined below), will tend to decrease when interest
rates rise and increase when interest rates fall. In general,
longer-term debt instruments tend to fluctuate in value more than
shorter-term debt instruments in response to interest rate movements.
In addition, debt securities which are not backed by the United States
Government are subject to credit risk, which is the risk that the
issuer may not be able to pay principal and/or interest when due.
Certain of the Funds' investments constitute derivative securities.
Certain types of derivative securities can,
5
<PAGE>
under certain circumstances, significantly increase an investor's
exposure to market or other risks. Since the State Intermediate
Municipal Bond Funds and State Municipal Bond Funds invest primarily in
securities issued by entities located in a single state, such Funds are
more susceptible to changes in value due to political or economic
changes affecting such states or their subdivisions. For a discussion
of these and other factors, see "How Objectives Are Pursued -- Risk
Considerations" and "Appendix A -- Portfolio Securities."
Nations International Equity Fund, Nations Emerging Markets Fund,
Nations Pacific Growth Fund and Nations Global Government Income Fund
are designed for long-term investors seeking international
diversification and who are willing to bear the risks associated with
international investing, such as foreign currency fluctuations and
economic and political risks. For a discussion of these factors, see
"How Objectives Are Pursued -- Special Risk Considerations Relevant to
an Investment in the Nations International Equity Fund, Nations
Emerging Markets Fund, Nations Pacific Growth Fund and Nations Global
Government Income Fund."
(Bullet) MINIMUM PURCHASE: $1,000 minimum initial investment per record holder.
See "How To Buy Shares."
6
<PAGE>
Expenses Summary
Expenses are one of several factors to consider when investing in the Funds. The
following tables summarize shareholder transaction and operating expenses for
Primary A Shares of the Funds. The Examples show the cumulative expenses
attributable to a hypothetical $1,000 investment in the Funds over specified
periods.
NATIONS FUND MONEY MARKET FUNDS PRIMARY A SHARES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
Nations Nations
Government Tax
Nations Prime Nations Money Market Exempt
Fund Treasury Fund Fund Fund
<S> <C> <C> <C> <C>
Sales Load Imposed on Purchases None None None None
Deferred Sales Load None None None None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees (After Fee Waivers)1 .20% .20% .20% .20%
All Other Expenses (After Expense Reimbursements)1 .10% .10% .10% .10%
Total Operating Expenses (After Fee Waivers and Expense Reimbursements)1 .30% .30% .30% .30%
</TABLE>
1 See page 11 for a discussion of the actual expenses absent such fee waivers
and/or expense reimbursements.
NATIONS FUND EQUITY/BALANCED FUNDS PRIMARY A SHARES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
Nations Nations
Nations Equity Nations Nations Pacific
Value Income International Emerging Growth
Fund Fund Equity Fund Markets Fund Fund
<S> <C> <C> <C> <C> <C>
Sales Load Imposed on Purchases None None None None None
Deferred Sales Load None None None None None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees .75% .70% .90% 1.10% .90%
All Other Expenses .21% .20% .27% 1.03% .86%
Total Operating Expenses (After Expense Reimbursements)1 .96% .90% 1.17% 2.13% 1.76%
</TABLE>
1 See page 11 for a discussion of the actual expenses absent such expense
reimbursements.
7
<PAGE>
NATIONS FUND EQUITY/BALANCED FUNDS PRIMARY A SHARES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
Nations Nations Nations Nations Nations
Capital Emerging Disciplined Equity Balanced
Growth Growth Equity Index Assets
Fund Fund Fund Fund Fund
<S> <C> <C> <C> <C> <C>
Sales Load Imposed on Purchases None None None None None
Deferred Sales Load None None None None None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees (After Fee Waivers)1 .75% .75% .75% .10% .75%
All Other Expenses .21% .24% .27% .25% .25%
Total Operating Expenses (After Fee Waivers)1 .96% .99% 1.02% .35% 1.00%
</TABLE>
1 See page 11 for a discussion of the actual expenses absent such fee waivers.
NATIONS FUND BOND FUNDS PRIMARY A SHARES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
Nations Nations
Short- Nations Nations Nations Global
Intermediate Government Short-Term Nations Strategic Governmnet
Government Securities Income Diversified Fixed Income
Fund Fund Fund Income Fund Income Fund Fund
<S> <C> <C> <C> <C> <C> <C>
Sales Load Imposed on Purchases None None None None None None
Deferred Sales Load None None None None None None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees (After Fee Waivers)1 .40% .50% .30% .50% .50% .70%
All Other Expenses .23% .30% .25% .27% .22% .62%
Total Operating Expenses (After Fee Waivers)1 .63% .80% .55% .77% .72% 1.32%
</TABLE>
1 See page 11 for a discussion of the actual expenses absent such fee waivers.
NATIONS FUND TAX-EXEMPT BOND FUNDS PRIMARY A SHARES
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES
Nations Nations
Nations Short-Term Nations Nations Florida
Municipal Municipal Intermediate Florida Municipal
Income Income Municipal Intermediate Bond
Fund Fund Bond Fund Bond Fund Fund
<S> <C> <C> <C> <C> <C>
Sales Load Imposed on Purchases None None None None None
Deferred Sales Load None None None None None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees (After Fee Waivers)1 .40% .30% .40% .30% .40%
All Other Expenses (After Expense Reimbursements)1 .20% .10% .10% .20% .20%
Total Operating Expenses (After Fee Waivers and Expense
Reimbursements)1 .60% .40% .50% .50% .60%
</TABLE>
1 See page 11 for a discussion of the actual expenses absent such fee waivers
and/or expense reimbursements.
8
<PAGE>
NATIONS FUND TAX-EXEMPT BOND FUNDS PRIMARY A SHARES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
Nations Nations
Georgia Nations Maryland Nations
Intermediate Georgia Intermediate Maryland
Municipal Municipal Municipal Municipal
Bond Fund Bond Fund Bond Fund Bond Fund
<S> <C> <C> <C> <C>
Sales Load Imposed on Purchases None None None None
Deferred Sales Load None None None None
<CAPTION>
Nations
North
Carolina
Intermediate
Municipal
Bond Fund
Sales Load Imposed on Purchases None
Deferred Sales Load None
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
<TABLE>
<CAPTION>
Nations Nations
Georgia Nations Maryland Nations
Intermediate Georgia Intermediate Maryland
Municipal Municipal Municipal Municipal
Bond Fund Bond Fund Bond Fund Bond Fund
<S> <C> <C> <C> <C>
Management Fees (After Fee Waivers)1 .30% .30% .30% .30%
All Other Expenses (After Expense Reimbursements)1 .20% .30% .20% .30%
Total Operating Expenses (After Fee Waivers and Expense
Reimbursements)1 .50% .60% .50% .60%
</TABLE>
<TABLE>
<CAPTION>
Nations
North
Carolina
Intermediate
Municipal
Bond Fund
<S> <C>
Management Fees (After Fee Waivers)1 .30%
All Other Expenses (After Expense Reimbursements)1 .20%
Total Operating Expenses (After Fee Waivers and Expense
Reimbursements)1 .50%
</TABLE>
1 See page 11 for a discussion of the actual expenses absent such fee waivers
and/or expense reimbursements.
NATIONS FUND TAX-EXEMPT BOND FUNDS PRIMARY A SHARES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
Nations
Nations South Nations Nations
North Carolina South Tennessee
Carolina Intermediate Carolina Intermediate
Municipal Municipal Municipal Municipal
Bond Fund Bond Fund Bond Fund Bond Fund
<S> <C> <C> <C> <C>
Sales Load Imposed on Purchases None None None None
Deferred Sales Load None None None None
<CAPTION>
Nations
Tennessee
Municipal
Bond Fund
Sales Load Imposed on Purchases None
Deferred Sales Load None
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
<TABLE>
<CAPTION>
Nations
Nations South Nations Nations
North Carolina South Tennessee
Carolina Intermediate Carolina Intermediate
Municipal Municipal Municipal Municipal
Bond Fund Bond Fund Bond Fund Bond Fund
<S> <C> <C> <C> <C>
Management Fees (After Fee Waivers)1 .30% .30% .30% .30%
All Other Expenses (After Expense Reimbursements)1 .30% .20% .30% .20%
Total Operating Expenses (After Fee Waivers and Expense
Reimbursements)1 .60% .50% .60% .50%
<CAPTION>
Nations
Tennessee
Municipal
Bond Fund
Management Fees (After Fee Waivers)1 .30%
All Other Expenses (After Expense Reimbursements)1 .30%
Total Operating Expenses (After Fee Waivers and Expense
Reimbursements)1 .60%
</TABLE>
1 See page 11 for a discussion of the actual expenses absent such fee waivers
and/or expense reimbursements.
NATIONS FUND TAX-EXEMPT BOND FUNDS PRIMARY A SHARES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
Nations Nations
Texas Nations Virginia
Intermediate Texas Intermediate
Municipal Municipal Municipal
Bond Fund Bond Fund Bond Fund
<S> <C> <C> <C>
Sales Load Imposed on Purchases None None None
Deferred Sales Load None None None
<CAPTION>
Nations
Virginia
Municipal
Bond Fund
Sales Load Imposed on Purchases None
Deferred Sales Load None
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
<TABLE>
<CAPTION>
Nations Nations
Texas Nations Virginia
Intermediate Texas Intermediate
Municipal Municipal Municipal
Bond Fund Bond Fund Bond Fund
<S> <C> <C> <C>
Management Fees (After Fee Waivers)1 .30% .30% .30%
All Other Expenses (After Expense Reimbursements)1 .20% .30% .20%
Total Operating Expenses (After Fee Waivers and Expense Reimbursements)1 .50% .60% .50%
<CAPTION>
Nations
Virginia
Municipal
Bond Fund
Management Fees (After Fee Waivers)1 .30%
All Other Expenses (After Expense Reimbursements)1 .30%
Total Operating Expenses (After Fee Waivers and Expense Reimbursements)1 .60%
</TABLE>
1 See page 11 for a discussion of the actual expenses absent such fee waivers
and/or expense reimbursements.
9
<PAGE>
EXAMPLES:
You would pay the following expenses on a $1,000 investment in Primary A Shares
of the indicated Fund, assuming (1) a 5% annual return and (2) redemption at the
end of each time period.
<TABLE>
<CAPTION>
Nations
Government Nations Nations Nations
Nations Nations Money Tax Nations Equity International
Prime Treasury Market Exempt Value Income Equity
Fund Fund Fund Fund Fund Fund Fund
<S> <C> <C> <C> <C> <C> <C> <C>
1 Year $ 3 $ 3 $ 3 $ 3 $ 10 $ 9 $ 12
3 Years $10 $10 $10 $10 $ 31 $ 29 $ 37
5 Years $17 $17 $17 $17 $ 53 $ 50 $ 64
10 Years $38 $38 $38 $38 $118 $111 $142
<CAPTION>
Nations Nations
Emerging Pacific
Markets Growth
Fund Fund
1 Year $ 22 $ 18
3 Years $ 67 $ 55
5 Years $114 $ 95
10 Years $246 $207
</TABLE>
<TABLE>
<CAPTION>
Nations
Nations Nations Nations Nations Short- Nations
Nations Emerging Disciplined Equity Balanced Intermediate Government
Capital Growth Growth Equity Index Assets Government Securities
Fund Fund Fund Fund Fund Fund Fund
<S> <C> <C> <C> <C> <C> <C> <C>
1 Year $ 10 $ 10 $ 10 $ 4 $ 10 $ 6 $ 8
3 Years $ 31 $ 32 $ 32 $11 $ 32 $20 $26
5 Years $ 53 $ 55 $ 56 $20 $ 55 $35 $44
10 Years $118 $121 $125 $44 $122 $79 $99
<CAPTION>
Nations Nations
Short-Term Diversified
Income Income
Fund Fund
1 Year $ 6 $ 8
3 Years $18 $25
5 Years $31 $43
10 Years $69 $95
</TABLE>
<TABLE>
<CAPTION>
Nations
Nations Nations Nations Nations Florida Nations
Strategic Global Nations Short-Term Intermediate Intermediate Florida
Fixed Government Municipal Municipal Municipal Municipal Municipal
Income Income Income Income Bond Bond Bond
Fund Fund Fund Fund Fund Fund Fund
<S> <C> <C> <C> <C> <C> <C> <C>
1 Year $ 7 $ 13 $ 6 $ 4 $ 5 $ 5 $ 6
3 Years $23 $ 42 $19 $13 $16 $16 $19
5 Years $40 $ 72 $33 $22 $28 $28 $33
10 Years $89 $159 $75 $51 $63 $63 $75
<CAPTION>
Nations Nations
Georgia Georgia
Intermediate Municipal
Municipal Bond
Bond Fund Fund
1 Year $ 5 $ 6
3 Years $16 $19
5 Years $28 $33
10 Years $63 $75
</TABLE>
<TABLE>
<CAPTION>
Nations Nations
Nations North Nations South Nations Nations
Maryland Carolina North Carolina South Tennessee
Intermediate Nations Intermediate Carolina Intermediate Carolina Intermediate
Municipal Maryland Municipal Municipal Municipal Municipal Municipal
Bond Municipal Bond Bond Bond Bond Bond Bond
Fund Fund Fund Fund Fund Fund Fund
<S> <C> <C> <C> <C> <C> <C> <C>
1 Year $ 5 $ 6 $ 5 $ 6 $ 5 $ 6 $ 5
3 Years $16 $19 $16 $19 $16 $19 $16
5 Years $28 $33 $28 $33 $28 $33 $28
10 Years $63 $75 $63 $75 $63 $75 $63
<CAPTION>
Nations
Nations Texas
Tennessee Intermediate
Municipal Municipal
Bond Bond
Fund Fund
1 Year $ 6 $ 5
3 Years $19 $16
5 Years $33 $28
10 Years $75 $63
</TABLE>
<TABLE>
<CAPTION>
Nations
Nations Virginia Nations
Texas Intermediate Virginia
Municipal Municipal Municipal
Bond Bond Bond
Fund Fund Fund
<S> <C> <C> <C>
1 Year $ 6 $ 5 $ 6
3 Years $19 $16 $19
5 Years $33 $28 $33
10 Years $75 $63 $75
</TABLE>
10
<PAGE>
The purpose of the foregoing tables is to assist an investor in understanding
the various shareholder transaction and operating expenses that an investor in
Primary A Shares will bear either directly or indirectly. Except for the Nations
Emerging Markets Fund, Nations Global Government Income Fund and Nations Pacific
Growth Fund, which fees and expenses are based on estimates, certain figures
contained in the above tables are based on amounts incurred during each Fund's
most recent fiscal year and have been adjusted as necessary to reflect current
service provider fees. There is no assurance that any fee waivers and
reimbursements will continue beyond the current fiscal year. If fee waivers
and/or reimbursements are discontinued, the amounts contained in the "Examples"
above may increase. For more complete descriptions of the Funds' operating
expenses, see "How The Funds Are Managed."
Absent fee waivers and expense reimbursements, "Management Fees," "Other
Expenses" and "Total Operating Expenses" for Primary A Shares of the indicated
Fund would have been as follows: Nations Government Money Market Fund -- .40%,
.19% and .59%, respectively; Nations Tax Exempt Fund -- .40%, .18% and .58%,
respectively; Nations Municipal Income Fund -- .60%, .30% and .90%;
respectively; Nations Short-Term Municipal Income Fund -- .50%, .34% and .84%,
respectively; Nations Intermediate Municipal Bond Fund -- .50%, .33% and .83%,
respectively; Nations Florida Intermediate Municipal Bond Fund -- .50%, .36% and
.86%, respectively; Nations Georgia Intermediate Municipal Bond Fund -- .50%,
.33% and .83%, respectively; Nations Maryland Intermediate Municipal Bond
Fund -- .50%, .30% and .80%, respectively; Nations South Carolina Intermediate
Municipal Bond Fund -- .50%, .32% and .82%, respectively; Nations Florida
Municipal Bond Fund -- .60%, .34% and .94%, respectively; Nations Georgia
Municipal Bond Fund, .60%, .50%, and 1.10%, respectively; Nations Maryland
Municipal Bond Fund -- .60%, .48% and 1.08%, respectively; Nations North
Carolina Municipal Bond Fund -- .60%, .37% and .97%, respectively; Nations South
Carolina Municipal Bond Fund -- .60%, .50% and 1.10%, respectively; Nations
Tennessee Municipal Bond Fund -- .60%, .58% and 1.18%, respectively; Nations
Texas Municipal Bond Fund -- .60%, .48% and 1.08%, respectively; Nations
Virginia Municipal Bond Fund -- .60%, .44% and 1.04%, respectively; Nations
Virginia Intermediate Municipal Bond Fund -- .50%, .26% and .76%, respectively;
Nations North Carolina Intermediate Municipal Bond Fund -- .50%, .37% and .87%,
respectively; Nations Tennessee Intermediate Municipal Bond Fund -- .50%, .43%
and .93%, respectively; Nations Texas Intermediate Municipal Bond Fund -- .50%,
.39% and .89%, respectively. Absent fee waivers, "Management Fees" and "Total
Operating Expenses" for Primary A Shares of the indicated Fund would have been
as follows: Nations Equity Index Fund -- .50% and .75%, respectively; Nations
Short-Term Income Fund -- .60% and .85%, respectively; Nations
Short-Intermediate Government Fund -- .60% and .83%, respectively; Nations
Government Securities Fund -- .64% and .94%, respectively; Nations Diversified
Income Fund -- .60% and .87%, respectively; and Nations Strategic Fixed Income
Fund -- .60% and .82%, respectively. Absent expense reimbursements, "All Other
Expenses" and "Total Operating Expenses" for Primary A Shares of the indicated
Fund would have been as follows: Nations Prime Fund -- .17% and .37%,
respectively; Nations Treasury Fund -- 17% and .37%, respectively; and Nations
International Equity Fund -- .28% and 1.18%.
THE FOREGOING SHOULD NOT BE CONSIDERED TO BE AN ACTUAL REPRESENTATION OF PAST OR
FUTURE PERFORMANCE. ACTUAL EXPENSES AND RATES OF RETURN MAY BE GREATER OR LESS
THAN THOSE SHOWN.
11
<PAGE>
Financial Highlights
The audited financial information on the following pages has been derived from
the financial statements of Nations Fund Trust, Nations Fund, Inc. and Nations
Portfolios. Price Waterhouse LLP is the independent accountant to Nations Fund
Trust, Nations Fund, Inc. and Nations Portfolios. The reports of Price
Waterhouse LLP for the most recent fiscal years of Nations Fund Trust, Nations
Fund, Inc. and Nations Portfolios accompany the financial statements for such
periods and are incorporated by reference in the SAIs, which are available upon
request. For more information see "Organization And History." Shareholders of a
Fund will receive unaudited semi-annual reports describing the Funds' investment
operations and annual financial statements audited by the Funds' independent
accountant.
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS PRIME FUND
<TABLE>
<CAPTION>
PERIOD YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
PRIMARY A SHARES 03/31/96(a) 05/31/95 5/31/94 5/31/93 5/31/92
<S> <C> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Net investment income 0.0468 0.0519 0.0318 0.0328 0.0506
Dividends from net investment income (0.0468) (0.0519) (0.0318) (0.0328) (0.0506)
Total dividends and distributions (0.0468) (0.0519) (0.0318) (0.0328) (0.0506)
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Total return++ 4.79% 5.32% 3.22% 3.33% 5.19%+++
Ratios to average net assets/supplemental
data:
Net assets, end of period (in 000's) $ 2,472,469 $ 2,873,096 $ 2,883,762 $ 1,156,266 $ 500,476
Ratio of operating expenses to average net
assets 0.30%+ 0.30% 0.30% 0.30% 0.30%
Ratio of net investment income to average
net assets 5.62%+ 5.23% 3.20% 3.25% 5.03%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 0.37%+ 0.38% 0.37% 0.36% 0.42%
Net investment income per share without
waivers and/or expense reimbursements $ 0.0463 $ 0.0511 $ 0.0311 $ 0.0322 $ 0.0494
<CAPTION>
YEAR
ENDED
PRIMARY A SHARES 5/31/91
Operating performance:
Net asset value, beginning of period $ 1.00
Net investment income 0.0749
Dividends from net investment income (0.0749)
Total dividends and distributions (0.0749)
Net asset value, end of period $ 1.00
Total return++ 7.75%+++
Ratios to average net assets/supplemental
data:
Net assets, end of period (in 000's) $ 574,993
Ratio of operating expenses to average net
assets 0.30%
Ratio of net investment income to average
net assets 7.47%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 0.44%
Net investment income per share without
waivers and/or expense reimbursements $ 0.0735
</TABLE>
NATIONS PRIME FUND (CONT.)
<TABLE>
<CAPTION>
YEAR YEAR YEAR
ENDED ENDED ENDED
PRIMARY A SHARES 5/31/90 5/31/89 5/31/88
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00
Net investment income 0.0855 0.0839 0.0675
Dividends from net investment income (0.0855) (0.0839) (0.0675)
Total dividends and distributions (0.0855) (0.0839) (0.0675)
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00
Total return++ 8.88%+++ 8.71%+++ 6.94%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 433,298 $ 115,295 $ 264,063
Ratio of operating expenses to average net assets 0.32% 0.35% 0.36%
Ratio of net investment income to average net assets 8.43% 8.11% 6.73%
Ratio of operating expenses to average net assets without waivers and/or
expense reimbursements 0.50%+++ 0.55%+++ 0.56%+++
Net investment income per share without waivers and/or expense
reimbursements $ 0.0731+++ $ 0.0819+/+++ $ 0.0655+++
<CAPTION>
PERIOD
ENDED
PRIMARY A SHARES 5/31/87*
Operating performance:
Net asset value, beginning of period $ 1.00
Net investment income 0.0277
Dividends from net investment income (0.0277)
Total dividends and distributions (0.0277)
Net asset value, end of period $ 1.00
Total return++ 2.79%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 252,562
Ratio of operating expenses to average net assets 0.35%+
Ratio of net investment income to average net assets 5.99%+
Ratio of operating expenses to average net assets without waivers and/or
expense reimbursements 0.65%+/+++
Net investment income per share without waivers and/or expense
reimbursements $ 0.0247+++
</TABLE>
* The Nations Prime Fund Primary A Shares commenced operations on December 15,
1986.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
May 31.
12
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS TREASURY FUND
<TABLE>
<CAPTION>
PERIOD YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
PRIMARY A SHARES 03/31/96(a) 5/31/95 5/31/94 5/31/93 5/31/92
<S> <C> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Net investment income 0.0458 0.0494 0.0297 0.0307 0.0483
Dividends from net investment income (0.0458) (0.0494) (0.0297) (0.0307) (0.0483)
Distributions from net realized capital
gains (0.0000)# (0.0000)# -- -- --
Total dividends and distributions (0.0458) (0.0494) (0.0297) (0.0307) (0.0483)
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Total return++ 4.67% 5.05% 2.99% 3.12% 4.95%+++
Ratios to average net assets/supplemental
data:
Net assets, end of period (in 000's) $ 821,030 $ 2,896,868 $ 2,679,992 $ 2,956,796 $1,094,741
Ratio of operating expenses to average net
assets 0.30%+ 0.30% 0.30% 0.30% 0.29%
Ratio of net investment income to average
net assets 5.52%+ 4.99% 2.97% 3.02% 4.82%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 0.37%+ 0.35% 0.36% 0.36% 0.42%
Net investment income per share without
waivers and/or expense reimbursements $ 0.0453 $ 0.0489 $ 0.0292 $ 0.0302 $ 0.0470
<CAPTION>
YEAR
ENDED
PRIMARY A SHARES 5/31/91
Operating performance:
Net asset value, beginning of period $ 1.00
Net investment income 0.0721
Dividends from net investment income (0.0721)
Distributions from net realized capital
gains --
Total dividends and distributions (0.0721)
Net asset value, end of period $ 1.00
Total return++ 7.46%+++
Ratios to average net assets/supplemental
data:
Net assets, end of period (in 000's) $ 955,186
Ratio of operating expenses to average net
assets 0.25%
Ratio of net investment income to average
net assets 7.04%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 0.43%
Net investment income per share without
waivers and/or expense reimbursements $ 0.0703
</TABLE>
NATIONS TREASURY FUND (CONT.)
<TABLE>
<CAPTION>
YEAR YEAR YEAR
ENDED ENDED ENDED
PRIMARY A SHARES 5/31/90 5/31/89 5/31/88
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00
Net investment income 0.0829 0.0802 0.0630
Dividends from net investment income (0.0829) (0.0802) (0.0630)
Distributions from net realized capital gains -- -- --
Total dividends and distributions (0.0829) (0.0802) (0.0630)
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00
Total return++ 8.61%+++ 8.33%+++ 6.49%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 392,843 $ 90,946 $ 111,414
Ratio of operating expenses to average net assets 0.25% 0.39% 0.38%
Ratio of net investment income to average net assets 8.18% 7.93% 6.31%
Ratio of operating expenses to average net assets without waivers and/or
expense reimbursements 0.59%+++ 0.58%+++ 0.65%+++
Net investment income per share without waivers and/or expense
reimbursements $ 0.0693+++ $ 0.0783+++ $ 0.0603+++
<CAPTION>
PERIOD
ENDED
PRIMARY A SHARES 5/31/87*
Operating performance:
Net asset value, beginning of period $ 1.00
Net investment income 0.0262
Dividends from net investment income (0.0262)
Distributions from net realized capital gains --
Total dividends and distributions (0.0262)
Net asset value, end of period $ 1.00
Total return++ 2.64%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 66,221
Ratio of operating expenses to average net assets 0.35%+
Ratio of net investment income to average net assets 5.68%+
Ratio of operating expenses to average net assets without waivers and/or
expense reimbursements 0.75%+/+++
Net investment income per share without waivers and/or expense
reimbursements $ 0.0222+++
</TABLE>
* Nations Treasury Fund Primary A Shares commenced operations on December 15,
1986.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# Amount represents less than $0.0001.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
May 31.
13
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS GOVERNMENT MONEY MARKET FUND
<TABLE>
<CAPTION>
PERIOD YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
PRIMARY A SHARES 03/31/96(a) 11/30/95 11/30/94 11/30/93
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00
Net investment income 0.0173 0.0558 0.0375 0.0294
Distributions:
Dividends from net investment income (0.0173) (0.0558) (0.0375) (0.0294)
Distributions from net realized capital gains -- -- (0.0000)# --
Total dividends and distributions (0.0173) (0.0558) (0.0375) (0.0294)
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00
Total return++ 1.74% 5.72% 3.84% 2.96%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 336,771 $ 332,895 $ 432,729 $ 475,180
Ratio of operating expenses to average net assets 0.30%+ 0.30% 0.30% 0.30%
Ratio of net investment income to average net assets 5.20%+ 5.58% 3.79% 2.91%
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 0.59%+ 0.57% 0.59% 0.56%
Net investment income per share without waivers and/or
expense reimbursements $ 0.0163 $ 0.0531 $ 0.0347 $ 0.0269
<CAPTION>
YEAR PERIOD
ENDED ENDED
PRIMARY A SHARES 11/30/92 11/30/91*
Operating performance:
Net asset value, beginning of period $ 1.00 $ 1.00
Net investment income 0.0358 0.0571
Distributions:
Dividends from net investment income (0.0358) (0.0571)
Distributions from net realized capital gains -- --
Total dividends and distributions (0.0358) (0.0571)
Net asset value, end of period $ 1.00 $ 1.00
Total return++ 3.63%+++ 5.87%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 414,412 $ 333,979
Ratio of operating expenses to average net assets 0.42% 0.43%+
Ratio of net investment income to average net assets 3.55% 5.49%+
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 0.58% 0.62%+
Net investment income per share without waivers and/or
expense reimbursements $ 0.0341 $ 0.0551
</TABLE>
* Nations Government Money Market Fund Primary A Shares commenced operations on
December 3, 1990.
+ Annualized.
++ Total return represents aggregate return for the periods indicated and does
not reflect the deduction of any applicable sales charge.
+++ Unaudited.
# Amount represents less than $0.0001 per share.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
NATIONS TAX EXEMPT FUND
<TABLE>
<CAPTION>
PERIOD YEAR YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED ENDED ENDED
PRIMARY A SHARES 03/31/96(a) 11/30/95 11/30/94 11/30/93 11/30/92 11/30/91 11/30/90
<S> <C> <C> <C> <C> <C> <C> <C>
Operating performance:
Net asset value,
beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Net investment income 0.0112 0.0361 0.0257 0.0223 0.0267 0.0422 0.0550
Dividends from net
investment income (0.0112) (0.0361) (0.0257) (0.0223) (0.0267) (0.0422) (0.0550)
Total dividends and
distributions (0.0112) (0.0361) (0.0257) (0.0223) (0.0267) (0.0422) (0.0550)
Net asset value, end
of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Total return++ 1.12% 3.68% 2.60% 2.27% 2.70%+++ 4.31%+++ 5.63%+++
Ratios to average net
assets/supplemental
data:
Net assets, end of
period (in 000's) $1,078,764 $ 905,125 $ 820,677 $ 701,403 $ 329,265 $ 168,829 $ 173,834
Ratio of operating
expenses to average
net assets 0.30%+ 0.30% 0.27% 0.23% 0.40% 0.42% 0.40%
Ratio of net
investment income to
average net assets 3.35%+ 3.62% 2.59% 2.23% 2.65% 4.23% 5.51%
Ratio of operating
expenses to average
net assets without
waivers and/or
expense
reimbursements 0.58%+ 0.57% 0.59% 0.59% 0.57% 0.60% 0.75%
Net investment income
per share without
waivers and/or
expense
reimbursements $ 0.0103 $ 0.0335 $ 0.0226 $ 0.0187 $ 0.0250 $ 0.0404 $ 0.0515
<CAPTION>
YEAR PERIOD
ENDED ENDED
PRIMARY A SHARES 11/30/89 11/30/88*
Operating performance:
Net asset value,
beginning of period $ 1.00 $ 1.00
Net investment income 0.0600 0.0350
Dividends from net
investment income (0.0600) (0.0350)
Total dividends and
distributions (0.0600) (0.0350)
Net asset value, end
of period $ 1.00 $ 1.00
Total return++ 6.17%+++ 3.55%+++
Ratios to average net
assets/supplemental
data:
Net assets, end of
period (in 000's) $ 145,109 $ 143,245
Ratio of operating
expenses to average
net assets 0.40% 0.40%+
Ratio of net
investment income to
average net assets 6.00% 4.97%+
Ratio of operating
expenses to average
net assets without
waivers and/or
expense
reimbursements 0.74% 0.75%+
Net investment income
per share without
waivers and/or
expense
reimbursements $ 0.0566 $ 0.0325
</TABLE>
* Nations Tax Exempt Fund Primary A Shares commenced operations on March 14,
1988.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
14
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS VALUE FUND
<TABLE>
<CAPTION>
PERIOD YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED ENDED
PRIMARY A SHARES 03/31/96(a) 11/30/95 11/30/94 11/30/93 11/30/92 11/30/91
<S> <C> <C> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of
period $ 16.21 $ 12.98 $ 13.74 $ 12.45 $ 11.16 $ 9.71
Net investment income/loss 0.07 0.27 0.24 0.24 0.28 0.34
Net realized and unrealized
gain/(loss) on investments 1.06 3.91 (0.23) 1.38 1.57 1.47
Net increase/(decrease) in net
asset value from operations 1.13 4.18 0.01 1.62 1.85 1.81
Distributions:
Dividends from net investment
income (0.12) (0.28) (0.23) (0.24) (0.27) (0.36)
Distributions from net realized
capital gains (0.62) (0.67) (0.54) (0.09) (0.29) --
Total dividends and distributions (0.74) (0.95) (0.77) (0.33) (0.56) (0.36)
Net asset value, end of period $ 16.60 $ 16.21 $ 12.98 $ 13.74 $ 12.45 $ 11.16
Total return++ 7.20% 34.53% (0.08)% 13.19% 17.00%+++ 18.79%+++
Ratios to average net
assets/supplemental data:
Net assets, end of period (in
000's) $ 998,957 $ 956,669 $ 799,743 $ 707,185 $ 282,138 $ 82,360
Ratio of operating expenses to
average net assets 0.96%+ 0.94% 0.93% 0.96% 0.90% 0.53%
Ratio of net investment
income/(loss) to average net
assets 1.30%+ 1.90% 1.85% 1.98% 2.31% 3.33%
Portfolio turnover rate 12% 63% 75% 64% 60% 51%
Ratio of operating expenses to
average net assets without
waivers and/or expense
reimbursements 0.96%+ 0.94% 0.93% 0.97% 0.97% 0.99%
Net investment income/(loss) per
share without waivers and/or
expense reimbursements $ 0.07% $ 0.27 $ 0.24 $ 0.24 $ 0.27 $ 0.30
Average commission rate paid (b) $ 0.0648 N/A N/A N/A N/A N/A
<CAPTION>
YEAR PERIOD
ENDED ENDED
PRIMARY A SHARES 11/30/90 11/30/89*#
Operating performance:
Net asset value, beginning of
period $ 10.04 $ 10.00
Net investment income/loss 0.35 0.08
Net realized and unrealized
gain/(loss) on investments (0.36) (0.04)
Net increase/(decrease) in net
asset value from operations (0.01) 0.04
Distributions:
Dividends from net investment
income (0.32) --
Distributions from net realized
capital gains -- --
Total dividends and distributions (0.32) --
Net asset value, end of period $ 9.71 $ 10.04
Total return++ (0.16)%+++ 0.40%+++
Ratios to average net
assets/supplemental data:
Net assets, end of period (in
000's) $ 19,769 $ 5,161
Ratio of operating expenses to
average net assets 0.21% 0.49%+
Ratio of net investment
income/(loss) to average net
assets 4.19% 4.41%+
Portfolio turnover rate 24% --
Ratio of operating expenses to
average net assets without
waivers and/or expense
reimbursements 1.11% 1.41%+
Net investment income/(loss) per
share without waivers and/or
expense reimbursements $ 0.26 $ 0.06
Average commission rate paid (b) N/A N/A
</TABLE>
* Nations Value Fund Primary A Shares commenced operations on September 19,
1989.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# Per share numbers have been calculated using the monthly average share
method, which more appropriately presents the per share data for the period
since the use of the undistributed method did not accord with the results of
operations.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
(b) Average commission rate paid per share of securities purchased and sold by
the Fund.
15
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS EQUITY INCOME FUND
<TABLE>
<CAPTION>
PERIOD YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
PRIMARY A SHARES 03/31/96(b) 05/31/95 5/31/94 5/31/93 5/31/92
<S> <C> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 11.81 $ 11.43 $ 12.06 $ 11.41 $ 10.19
Net investment income/(loss) 0.30 0.42 0.38 0.37 0.34
Net realized and unrealized gain/(loss) on
investments 1.77 1.11 0.22 1.08 1.25
Net increase/(decrease) in net asset value
from operations 2.07 1.53 0.60 1.45 1.59
Distributions:
Dividends from net investment income (0.37) (0.42) (0.42) (0.35) (0.30)
Distributions from net realized capital
gains (0.37) (0.73) (0.81) (0.45) (0.07)
Total dividends and distributions (0.74) (1.15) (1.23) (0.80) (0.37)
Net asset value, end of period $ 13.14 $ 11.81 $ 11.43 $ 12.06 $ 11.41
Total return++ 17.98% 14.79% 5.00% 13.30% 15.91%+++
Ratios to average net assets/supplemental
data:
Net assets, end of period (in 000's) $ 283,142 $ 283,082 $ 225,740 $ 175,949 $ 18,104
Ratio of operating expenses to average net
assets 0.90%+ 0.92% 0.94% 0.92% 1.10%
Ratio of net investment income/(loss) to
average net assets 2.84%+ 3.75% 3.41% 3.37% 3.15%
Portfolio turnover rate 59% 158% 116% 55% 84%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 0.90%+ 0.93% 0.95% 1.04% 2.21%
Net investment income/(loss) per share
without waivers and/or expense
reimbursements $ 0.30 $ 0.42 $ 0.38 $ 0.36 $ 0.22
Average commission rate paid (c) $ 0.0287 N/A N/A N/A N/A
<CAPTION>
PERIOD
ENDED
PRIMARY A SHARES 5/31/91*
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income/(loss) 0.05
Net realized and unrealized gain/(loss) on
investments 0.14
Net increase/(decrease) in net asset value
from operations 0.19
Distributions:
Dividends from net investment income --
Distributions from net realized capital
gains --
Total dividends and distributions --
Net asset value, end of period $ 10.19
Total return++ 1.90%+++
Ratios to average net assets/supplemental
data:
Net assets, end of period (in 000's) $ 10,194
Ratio of operating expenses to average net
assets 1.12%+
Ratio of net investment income/(loss) to
average net assets 3.66%+
Portfolio turnover rate 9%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 1.80%+
Net investment income/(loss) per share
without waivers and/or expense
reimbursements $ (0.06)
Average commission rate paid (c) N/A
</TABLE>
* Nations Equity Income Fund Primary A Shares commenced operations on April
11, 1991.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
May 31.
(c) Average commission rate paid per share of securities purchased and sold by
the Fund.
16
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS INTERNATIONAL EQUITY FUND
<TABLE>
<CAPTION>
PERIOD YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
PRIMARY A SHARES 03/31/96(a)# 05/31/95# 5/31/94# 5/31/93#
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 11.75 $ 12.06 $ 10.60 $ 10.40
Net investment income/(loss) 0.07 0.14 0.09 0.09
Net realized and unrealized gain/(loss) on investments 1.80 (0.20) 1.44 0.21
Net increase/(decrease) in net asset value from
operations 1.87 (0.06) 1.53 0.30
Distributions:
Dividends from net investment income (0.06) (0.03) (0.05) (0.08)
Distributions in excess of net investment income (0.04) -- -- --
Distributions from net realized capital gains (0.02) (0.12) (0.02) (0.02)
Distributions in excess of net realized capital gains -- (0.10) -- --
Total dividends and distributions (0.12) (0.25) (0.07) (0.10)
Net asset value, end of period $ 13.50 $ 11.75 $ 12.06 $ 10.60
Total return++ 16.01% (0.46)% 14.37% 3.14%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 849,731 $ 572,940 $ 401,559 $ 118,873
Ratio of operating expenses to average net assets 1.17%+ 1.03% 1.17% 1.30%
Ratio of net investment income/(loss) to average net
assets 0.65%+ 1.17% 0.75% 1.03%
Portfolio turnover rate 26% 92% 39% 41%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 1.18%+ 1.04% 1.18% 1.32%
Net investment income/(loss) per share without waivers
and/or expense reimbursements $ 0.07 $ 0.14 $ 0.08 $ 0.10
Average commission rate paid (b) $ 0.0272 -- -- --
<CAPTION>
PERIOD
ENDED
PRIMARY A SHARES 5/31/92*
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income/(loss) 0.08
Net realized and unrealized gain/(loss) on investments 0.36
Net increase/(decrease) in net asset value from
operations 0.44
Distributions:
Dividends from net investment income (0.04)
Distributions in excess of net investment income --
Distributions from net realized capital gains --
Distributions in excess of net realized capital gains --
Total dividends and distributions (0.04)
Net asset value, end of period $ 10.40
Total return++ 4.43%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 83,970
Ratio of operating expenses to average net assets 1.33%+
Ratio of net investment income/(loss) to average net
assets 1.81%+
Portfolio turnover rate 11%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 1.43%+
Net investment income/(loss) per share without waivers
and/or expense reimbursements $ 0.03
Average commission rate paid (b) --
</TABLE>
* Nations International Equity Fund Primary A Shares commenced operations on
December 2, 1991.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# Per share numbers have been calculated using the monthly average shares
method, which more appropriately presents the per share data for the period
since the use of the undistributed income method did not accord with the
results of operations.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
May 31.
(b) Average commission rate paid per share of securities purchased and sold by
the Fund.
17
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS EMERGING MARKETS FUND
<TABLE>
<CAPTION>
PERIOD
ENDED
PRIMARY A SHARES 03/31/96*#
<S> <C>
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income/(loss) (0.03)
Net realized and unrealized gain on investments 0.37
Net increase in net asset value from operations 0.34
Distributions:
Dividends from net investment income --
Distributions in excess of net investment income 0.00**
Distributions from net realized capital gains --
Total dividends and distributions 0.00**
Net asset value, end of period $ 10.34
Total return++ 3.42%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 47,560
Ratio of operating expenses to average net assets 2.13%+
Ratio of net investment income to average net assets (0.38)%+
Portfolio turnover rate 17%
Average commission rate paid (a) $ 0.0004
</TABLE>
* Nations Emerging Markets Fund Primary A Shares commenced operations on June
30, 1995.
** Amount represents less than $0.01 per share.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
# Per share numbers have been calculated using the average shares method, which
more appropriately presents the per share data for the period, since the use
of the undistributed income method did not accord with the results of
operations.
(a) Average commission rate paid per share of securities purchased and sold by
the Fund.
NATIONS PACIFIC GROWTH FUND
<TABLE>
<CAPTION>
PERIOD
ENDED
PRIMARY A SHARES 03/31/96*#
<S> <C>
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income/(loss) (0.02)
Net realized and unrealized gain/(loss) on investments 0.29
Net increase/(decrease) in net asset value from operations 0.27
Distributions:
Dividends from net investment income --
Distributions in excess of net investment income (0.03)
Total dividends and distributions (0.03)
Net asset value, end of period $ 10.24
Total return++ 2.66%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 95,210
Ratio of operating expenses to average net assets 1.76%+
Ratio of net investment income/(loss) to average net assets (0.27)%+
Portfolio turnover rate 23%
Average commission rate paid (b) $ 0.0178
</TABLE>
* Nations Pacific Growth Fund Primary A Shares commenced operations on June 30,
1995.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
# Per share numbers have been calculated using the average shares method, which
more appropriately presents the per share data for the period since the use
of the undistributed income method did not accord with the results of
operations.
(b) Average commission rate paid per share of securities purchased and sold by
the Fund.
18
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS CAPITAL GROWTH FUND
<TABLE>
<CAPTION>
PERIOD YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
PRIMARY A SHARES 03/31/96(a) 11/30/95 11/30/94 11/30/93
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 14.24 $ 11.23 $ 11.08 $ 10.68
Net investment income/(loss) 0.02 0.09 0.09 0.09
Net realized and unrealized gain on investments 0.38 3.28 0.14 0.42
Net increase in net asset value from operations 0.40 3.37 0.23 0.51
Distributions:
Dividends from net investment income (0.02) (0.10) (0.08) (0.10)
Distributions from net realized capital gains (1.19) (0.26) (0.00)(b) (0.01)
Total dividends and distributions (1.21) (0.36) (0.08) (0.11)
Net asset value, end of period $ 13.43 $ 14.24 $ 11.23 $ 11.08
Total return++ 3.14% 30.96% 2.14% 4.84%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 839,300 $ 867,361 $ 717,914 $ 646,661
Ratio of operating expenses to average net assets 0.96%+ 0.98% 0.90% 0.80%
Ratio of net investment income/(loss) to average net
assets 0.38%+ 0.71% 0.85% 0.84%
Portfolio turnover rate 25% 80% 56% 81%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 0.96%+ 0.98% 0.91% 0.89%
Net investment income/(loss) per share without waivers
and/or expense reimbursements $ 0.02 $ 0.09 $ 0.09 $ 0.08
Average commission rate paid (c) $ 0.0632 N/A N/A N/A
<CAPTION>
PERIOD
ENDED
PRIMARY A SHARES 11/30/92*
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income/(loss) 0.02
Net realized and unrealized gain on investments 0.66#
Net increase in net asset value from operations 0.68
Distributions:
Dividends from net investment income --
Distributions from net realized capital gains --
Total dividends and distributions --
Net asset value, end of period $ 10.68
Total return++ 6.80%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 728,629
Ratio of operating expenses to average net assets 0.30%+
Ratio of net investment income/(loss) to average net
assets 1.33%+
Portfolio turnover rate 7%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 1.05%+
Net investment income/(loss) per share without waivers
and/or expense reimbursements $ 0.01
Average commission rate paid (c) N/A
</TABLE>
* Nations Capital Growth Fund Primary A Shares commenced operations on
September 30, 1992.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# The amount shown at this caption for each share outstanding throughout the
period may not accord with the change in the aggregate gains and losses in
the portfolio securities for the period because of the timing of purchases
and withdrawals of shares in relation to the fluctuating market values of the
portfolio.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
(b) Amount represents less than $0.01 per share.
(c) Average commission rate paid per share of securities purchased and sold by
the Fund.
19
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS EMERGING GROWTH FUND
<TABLE>
<CAPTION>
PERIOD YEAR YEAR
ENDED ENDED ENDED
PRIMARY A SHARES 03/31/96#(a) 11/30/95 11/30/94#
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 14.28 $ 11.41 $ 10.87
Net investment income/(loss) (0.00)(b) 0.01 (0.03)
Net realized and unrealized gain on investments 1.26 3.26 0.71
Net increase in net asset value from operations 1.26 3.27 0.68
Distributions:
Distributions from net realized capital gains (1.50) (0.40) (0.14)
Total dividends and distributions (1.50) (0.40) (0.14)
Net asset value, end of period $ 14.04 $ 14.28 $ 11.41
Total return++ 9.87% 29.95% 6.26%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 295,764 $ 269,484 $ 182,459
Ratio of operating expenses to average net assets 0.99%+ 0.98% 1.01%
Ratio of net investment income/(loss) to average net assets (0.06)%+ 0.08% (0.29)%
Portfolio turnover rate 39% 139% 129%
Ratio of operating expenses to average net assets without waivers and/or
expense reimbursements 0.99%+ 0.98% 1.01%
Net investment income/(loss) per share without waivers and/or expense
reimbursements (0.00)(b) $ 0.01 $ (0.03)
Average commission rate paid (c) $ 0.0599 N/A N/A
<CAPTION>
PERIOD
ENDED
PRIMARY A SHARES 11/30/93*
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income/(loss) (0.01)
Net realized and unrealized gain on investments 0.89
Net increase in net asset value from operations 0.88
Distributions:
Distributions from net realized capital gains (0.01)
Total dividends and distributions (0.01)
Net asset value, end of period $ 10.87
Total return++ 8.81%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 121,281
Ratio of operating expenses to average net assets 0.80%+
Ratio of net investment income/(loss) to average net assets (0.15)%+
Portfolio turnover rate 159%
Ratio of operating expenses to average net assets without waivers and/or
expense reimbursements 1.01%+
Net investment income/(loss) per share without waivers and/or expense
reimbursements $ (0.03)
Average commission rate paid (c) N/A
</TABLE>
* Nations Emerging Growth Fund Primary A Shares commenced operations on
December 4, 1992.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
# Per share numbers have been calculated using the monthly average share
method, which more appropriately presents the per share data for the period
since the use of the undistributed income method did not accord with the
results of operations.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
(b) Amount represents less than $0.01 per share.
(c) Average commission rate paid per share of securities purchased and sold by
the Fund.
20
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS DISCIPLINED EQUITY FUND
<TABLE>
<CAPTION>
PERIOD YEAR PERIOD PERIOD
ENDED ENDED ENDED ENDED
PRIMARY A SHARES 03/31/96(a) 11/30/95 11/30/94* 04/29/94*
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 17.06 $ 13.08 $ 13.31 $ 13.65
Net investment income/(loss) 0.05 0.10 0.01 (0.05)
Net realized and unrealized gain/(loss) on investments 0.35 3.96 (0.23)# 2.66
Net increase/(decrease) in net asset value from
operations 0.40 4.06 (0.22) 2.61
Distributions:
Dividends from net investment income (0.04) (0.08) (0.01) --
Distributions from net realized capital gains (0.23) -- -- (2.95)
Return of capital -- -- (0.00)(b) --
Total dividends and distributions (0.27) (0.08) (0.01) (2.95)
Net asset value, end of period $ 17.19 $ 17.06 $ 13.08 $ 13.31
Total return++ 2.44% 31.13% (1.62)% 18.79%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 116,469 $ 109,939 $ 9,947 $ 8,079
Ratio of operating expenses to average net assets 1.02%+ 1.30% 1.13%+ 1.20%+
Ratio of net investment income/(loss) to average net
assets 0.82%+ 0.85% 0.12%+ (0.60)%+
Portfolio turnover rate 47% 124% 177% 475%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 1.02%+ 1.30% 1.56%+ 1.53%+
Net investment income/(loss) per share without waivers
and/or expense reimbursements $ 0.05 $ 0.10 $ (0.03) $ (0.08)
Average commission rate paid (c) 0.0627 N/A N/A N/A
<CAPTION>
PERIOD
ENDED
PRIMARY A SHARES 04/30/93*
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income/(loss) (0.03)
Net realized and unrealized gain/(loss) on investments 3.74
Net increase/(decrease) in net asset value from
operations 3.71
Distributions:
Dividends from net investment income --
Distributions from net realized capital gains (0.06)
Return of capital --
Total dividends and distributions (0.06)
Net asset value, end of period $ 13.65
Total return++ 37.13%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 4,638
Ratio of operating expenses to average net assets 1.20%+
Ratio of net investment income/(loss) to average net
assets (0.58)%+
Portfolio turnover rate 203%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 1.31%+
Net investment income/(loss) per share without waivers
and/or expense reimbursements $ (0.03)
Average commission rate paid (c) N/A
</TABLE>
* The period for Nations Disciplined Equity Fund Primary A Shares reflects
operations from April 30, 1994 through November 30, 1994. The financial
information for the fiscal periods through April 29, 1994 is based on the
financial information for The Capitol Mutual Funds Special Equity Portfolio
Class A Shares, which were reorganized into Primary A Shares of Nations
Disciplined Equity Fund (then named Nations Special Equity Fund) as of the
close of business on April 29, 1994. The Capitol Mutual Funds Special Equity
Portfolio Class A Shares commenced operations on October 1, 1992.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
# The amount shown at this caption for each share outstanding throughout the
period may not accord with the change in the aggregate gains and losses in
the portfolio securities for the period because of the timing of purchases
and withdrawals of shares in relation to the fluctuating market value of the
portfolio.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
(b) Value represents less than $0.01 per share.
(c) Average commission rate paid per share of securities purchased and sold by
the Fund.
21
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS EQUITY INDEX FUND
<TABLE>
<CAPTION>
PERIOD YEAR
ENDED ENDED
PRIMARY A SHARES 03/31/96(a) 11/30/95
<S> <C> <C>
Operating performance:
Net asset value, beginning of period $ 12.91 $ 9.84
Net investment income 0.08 0.28
Net realized and unrealized gain/(loss) on investments 0.86 3.20
Net increase in net asset value from operations 0.94 3.48
Distributions:
Dividends from net investment income (0.13) (0.28)
Distributions from net realized capital gains (0.14) (0.13)
Total dividends and distributions (0.27) (0.41)
Net asset value, end of period $ 13.58 $ 12.91
Total return++ 7.33% 36.35%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 192,388 $ 145,021
Ratio of operating expenses to average net assets 0.35%+ 0.37%
Ratio of operating expenses to average net assets including interest expense 0.35%+ 0.38%
Ratio of net investment income to average net assets 1.99%+ 2.44%
Portfolio turnover rate 2% 18%
Ratio of operating expenses to average net assets without waivers and/or expense
reimbursements 0.73%+ 0.78%
Net investment income per share without waivers and/or expense reimbursements $ 0.07 $ 0.23
Average commission rate paid (b) $ 0.0291 N/A
<CAPTION>
PERIOD
ENDED
PRIMARY A SHARES 11/30/94*
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income 0.24
Net realized and unrealized gain/(loss) on investments (0.21)
Net increase in net asset value from operations 0.03
Distributions:
Dividends from net investment income (0.19)
Distributions from net realized capital gains --
Total dividends and distributions (0.19)
Net asset value, end of period $ 9.84
Total return++ 0.29%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 123,147
Ratio of operating expenses to average net assets 0.35%+
Ratio of operating expenses to average net assets including interest expense --
Ratio of net investment income to average net assets 2.64%+
Portfolio turnover rate 14%
Ratio of operating expenses to average net assets without waivers and/or expense
reimbursements 0.79%+
Net investment income per share without waivers and/or expense reimbursements $ 0.20
Average commission rate paid (b) N/A
</TABLE>
* Nations Equity Index Fund Primary A Shares commenced operations on December
15, 1993.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
(b) Average commission rate paid per share of securities purchased and sold by
the Fund.
NATIONS BALANCED ASSETS FUND
<TABLE>
<CAPTION>
PERIOD YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
PRIMARY A SHARES 03/31/96(a) 11/30/95 11/30/94 11/30/93
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 12.68 $ 10.44 $ 10.87 $ 10.24
Net investment income 0.11 0.38 0.25 0.29
Net realized and unrealized gain/(loss) on investments 0.45 2.21 (0.43) 0.64
Net increase/(decrease) in net asset value from
operations 0.56 2.59 (0.18) 0.93
Distributions:
Dividends from net investment income (0.18) (0.33) (0.25) (0.30)
Distributions from net realized capital gains (1.41) (0.02) -- --
Total dividends and distributions (1.59) (0.35) (0.25) (0.30)
Net asset value, end of period $ 11.65 $ 12.68 $ 10.44 $ 10.87
Total return++ 4.90% 25.27% (1.73)% 9.22%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 164,215 $ 163,198 $ 162,215 $ 178,270
Ratio of operating expenses to average net assets 1.00%+ 0.99% 0.98% 0.90%
Ratio of net investment income to average net assets 2.91%+ 3.25% 2.31% 2.82%
Portfolio turnover rate 83% 174% 156% 50%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 1.00%+ 0.99% 0.99% 0.97%
Net investment income per share without waivers and/or
expense reimbursements $ 0.11 $ 0.38 $ 0.25 $ 0.29
Average commission rate paid (c) $ 0.0598 N/A N/A N/A
<CAPTION>
PERIOD
ENDED
PRIMARY A SHARES 11/30/92*
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income 0.06
Net realized and unrealized gain/(loss) on investments 0.18#
Net increase/(decrease) in net asset value from
operations 0.24
Distributions:
Dividends from net investment income --
Distributions from net realized capital gains --
Total dividends and distributions --
Net asset value, end of period $ 10.24
Total return++ 2.40%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 111,953
Ratio of operating expenses to average net assets 0.30%+
Ratio of net investment income to average net assets 3.85%+
Portfolio turnover rate 79%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 1.05%+
Net investment income per share without waivers and/or
expense reimbursements $ 0.05
Average commission rate paid (c) N/A
</TABLE>
* Nations Balanced Assets Fund Primary A Shares commenced operations on
September 30, 1992.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# The amount shown at this caption for each share outstanding throughout the
period may not accord with the change in the aggregate gains and losses in
the portfolio securities for the period because of the timing of purchases
and withdrawals of shares in relation to the fluctuating market values of
the portfolio.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
(c) Average commission rate paid per share of securities purchased and sold by
the Fund.
22
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS SHORT-INTERMEDIATE GOVERNMENT FUND
<TABLE>
<CAPTION>
PERIOD YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
PRIMARY A SHARES 03/31/96(b)# 11/30/95# 11/30/94 11/30/93 11/30/92
<S> <C> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 4.14 $ 3.93 $ 4.28 $ 4.16 $ 4.17
Net investment income 0.07 0.24 0.23 0.23 0.28
Net realized and unrealized gain/(loss) on
investments (0.07) 0.21 (0.33) 0.14 (0.01)
Net increase/(decrease) in net asset value
from operations 0.00 0.45 (0.10) 0.37 0.27
Distributions:
Dividends from net investment income (0.07) (0.24) (0.23) (0.23) (0.28)
Distributions in excess of net investment
income (0.00)(a) (0.00)(a) (0.00)(a) -- --
Distributions from net realized capital
gains -- -- (0.02) (0.02) --
Total dividends and distributions (0.07) (0.24) (0.25) (0.25) (0.28)
Net asset value, end of period $ 4.07 $ 4.14 $ 3.93 $ 4.28 $ 4.16
Total return++ 0.07% 11.70% (2.23)% 9.03% 6.70%+++
Ratios to average net assets/supplemental
data:
Net assets, end of period (in 000's) $ 399,915 $ 425,200 $ 433,278 $ 443,426 $ 360,497
Ratio of operating expenses to average net
assets 0.63%+ 0.60% 0.59% 0.55% 0.37%
Ratio of net investment income to average
net assets 5.32%+ 5.88% 5.76% 5.40% 6.48%
Portfolio turnover rate 189% 328% 133% 92% 25%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 0.86%+ 0.80% 0.80% 0.79% 0.77%
Net investment income per share without
waivers and/or expense reimbursements $ 0.06 $ 0.23 $ 0.22 $ 0.22 $ 0.26
<CAPTION>
PERIOD
ENDED
PRIMARY A SHARES 11/30/91*
Operating performance:
Net asset value, beginning of period $ 4.00##
Net investment income 0.10
Net realized and unrealized gain/(loss) on
investments 0.17
Net increase/(decrease) in net asset value
from operations 0.27
Distributions:
Dividends from net investment income (0.10)
Distributions in excess of net investment
income --
Distributions from net realized capital
gains --
Total dividends and distributions (0.10)
Net asset value, end of period $ 4.17
Total return++ 6.81%+++
Ratios to average net assets/supplemental
data:
Net assets, end of period (in 000's) $ 158,435
Ratio of operating expenses to average net
assets 0.08%+
Ratio of net investment income to average
net assets 7.21%+
Portfolio turnover rate 11%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 0.82%+
Net investment income per share without
waivers and/or expense reimbursements $ 0.00 (a)
</TABLE>
* Nations Short-Intermediate Government Fund Primary A Shares commenced
operations on August 1, 1991.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# Per share numbers have been calculated using the monthly average share
method, which more appropriately presents the per share data for the period
since the use of the undistributed income method did not accord with the
results of operations.
## Nations Short-Intermediate Government Fund's net asset value upon
commencement of operations was $2.00 per share. Effective September 25, 1991,
the net asset value doubled as a result of the reclassification of each
outstanding share into half as many shares (reverse split).
(a) Amount represents less than $0.01.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
23
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS GOVERNMENT SECURITIES FUND
<TABLE>
<CAPTION>
PERIOD YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
PRIMARY A SHARES 03/31/96(b)# 05/31/95# 05/31/94 05/31/93
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 9.86 $ 9.80 $ 10.46 $ 10.36
Net investment income 0.52 0.64 0.64 0.71
Net realized and unrealized gain/(loss) on
investments (0.19) 0.06 (0.61) 0.13
Net increase/(decrease) in net asset value from
operations 0.33 0.70 0.03 0.84
Distributions:
Dividends from net investment income (0.50) (0.60) (0.58) (0.70)
Dividends in excess of net investment income 0.02 -- (0.02) --
Distributions from net realized capital gains -- -- -- --
Distributions in excess of net realized capital
gains -- -- (0.05) (0.04)
Distributions from capital -- (0.04) (0.04) --
Total dividends and distributions (0.52) (0.64) (0.69) (0.74)
Net asset value, end of period $ 9.67 $ 9.86 $ 9.80 $ 10.46
Total return++ 3.41% 7.55% 0.06% 8.37%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 55,962 $ 39,909 $ 44,536 $ 40,472
Ratio of operating expenses to average net assets 0.80%+ 0.76% 0.73% 0.85%
Ratio of net investment income to average net
assets 6.36%+ 6.69% 6.08% 6.67%
Portfolio turnover rate 199% 413% 56% 103%
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 0.95%+ 0.94% 0.94% 1.00%
Net investment income per share without waivers
and/or expense reimbursements $ 0.51 $ 0.62 $ 0.61 $ 0.60
<CAPTION>
YEAR PERIOD
ENDED ENDED
PRIMARY A SHARES 05/31/92 05/31/91*
Operating performance:
Net asset value, beginning of period $ 10.05 $ 10.00
Net investment income 0.74 0.10
Net realized and unrealized gain/(loss) on
investments 0.37 0.02
Net increase/(decrease) in net asset value from
operations 1.11 0.12
Distributions:
Dividends from net investment income (0.77) (0.07)
Dividends in excess of net investment income -- --
Distributions from net realized capital gains -- --
Distributions in excess of net realized capital
gains (0.03) --
Distributions from capital -- --
Total dividends and distributions (0.80) (0.07)
Net asset value, end of period $ 10.36 $ 10.05
Total return++ 11.43%+++ 1.19%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 42,256 $ 10,047
Ratio of operating expenses to average net assets 1.06% 1.10%+
Ratio of net investment income to average net
assets 7.15% 7.18%+
Portfolio turnover rate 130% 5%
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 1.72% 1.69%+++
Net investment income per share without waivers
and/or expense reimbursements $ 0.07 $ 0.09+++
</TABLE>
* Nations Government Securities Fund Primary A Shares commenced operations on
April 11, 1991.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# Per share numbers have been calculated using the average shares method, which
more appropriately presents the per share data for the period since the use
of the undistributed income method did not accord with the results of
operations.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
May 31.
24
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS SHORT-TERM INCOME FUND
<TABLE>
<CAPTION>
PERIOD YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
PRIMARY A SHARES 03/31/96(b)# 11/30/95# 11/30/94# 11/30/93
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 9.84 $ 9.48 $ 10.01 $ 9.75
Net investment income 0.20 0.61 0.50 0.53
Net realized and unrealized gain/(loss) on investments (0.08) 0.36 (0.51) 0.26
Net increase/(decrease) in net asset value from
operations 0.12 0.97 (0.01) 0.79
Distributions:
Dividends from net investment income (0.20) (0.61) (0.48) (0.53)
Distributions in excess of net investment income -- -- (0.02) --
Distributions from capital -- -- (0.02) --
Total dividends and distributions (0.20) (0.61) (0.52) (0.53)
Net asset value, end of period $ 9.76 $ 9.84 $ 9.48 $ 10.01
Total return++ 1.19% 10.48% (0.11)% 8.26%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 179,957 $ 169,291 $ 176,712 $ 201,738
Ratio of operating expenses to average net assets 0.55%+ 0.56% 0.50% 0.37%
Ratio of net investment income to average net assets 6.07%+ 6.32% 5.23% 5.27%
Portfolio turnover rate 73% 224% 293% 121%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 0.87%+ 0.86% 0.82% 0.79%
Net investment income per share without waivers and/or
expense reimbursements $ 0.19 $ 0.58 $ 0.47 $ 0.48
<CAPTION>
PERIOD
ENDED
PRIMARY A SHARES 11/30/92*
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income 0.09
Net realized and unrealized gain/(loss) on investments (0.25)
Net increase/(decrease) in net asset value from
operations (0.16)
Distributions:
Dividends from net investment income (0.09)
Distributions in excess of net investment income --
Distributions from capital --
Total dividends and distributions (0.09)
Net asset value, end of period $ 9.75
Total return++ (1.58)%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 190,680
Ratio of operating expenses to average net assets 0.30%+
Ratio of net investment income to average net assets 5.54%+
Portfolio turnover rate 45%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 0.90%+
Net investment income per share without waivers and/or
expense reimbursements $ 0.08
</TABLE>
* Nations Short-Term Income Fund Primary A Shares commenced operations on
September 30, 1992.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# Per share numbers have been calculated using the monthly average share
method, which more appropriately presents the per share data for the period
since the use of the undistributed method did not accord with the results of
operations.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
25
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS DIVERSIFIED INCOME FUND
<TABLE>
<CAPTION>
PERIOD YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
PRIMARY A SHARES 03/31/96(b) 11/30/95 11/30/94# 11/30/93#
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 10.82 $ 9.67 $ 10.88 $ 9.97
Net investment income 0.23 0.73 0.74 0.78
Net realized and unrealized gain/(loss) on investments (0.40) 1.15 (1.06) 0.91
Net increase/(decrease) in net asset value from
operations (0.17) 1.88 (0.32) 1.69
Distributions:
Dividends from net investment income (0.23) (0.73) (0.74) (0.78)
Distributions in excess of net investment income -- -- (0.00)(a) --
Distributions from net realized capital gains -- -- (0.15) --
Total dividends and distributions (0.23) (0.73) (0.89) (0.78)
Net asset value, end of period $ 10.42 $ 10.82 $ 9.67 $ 10.88
Total return++ (1.59)% 20.11% (3.05)% 17.40%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 65,081 $ 64,800 $ 22,298 $ 28,553
Ratio of operating expenses to average net assets 0.77%+ 0.80% 0.74% 0.55%
Ratio of net investment income to average net assets 6.49%+ 7.03% 7.31% 7.02%
Portfolio turnover rate 69% 96% 144% 86%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 0.87%+ 0.93% 0.95% 0.95%
Net investment income per share without waivers and/or
expense reimbursements $ 0.23 $ 0.72 $ 0.72 $ 0.70
<CAPTION>
PERIOD
ENDED
PRIMARY A SHARES 11/30/92*
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income 0.06
Net realized and unrealized gain/(loss) on investments (0.03)
Net increase/(decrease) in net asset value from
operations 0.03
Distributions:
Dividends from net investment income (0.06)
Distributions in excess of net investment income --
Distributions from net realized capital gains --
Total dividends and distributions (0.06)
Net asset value, end of period $ 9.97
Total return++ 0.32%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 23,962
Ratio of operating expenses to average net assets 0.25%+
Ratio of net investment income to average net assets 7.76%+
Portfolio turnover rate 46%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 0.85%+
Net investment income per share without waivers and/or
expense reimbursements $ 0.05
</TABLE>
* Nations Diversified Income Fund Primary A Shares commenced operations on
October 30, 1992.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# Per share numbers have been calculated using the monthly average share
method, which more appropriately presents the per share data for the period
since the use of the undistributed income method did not accord with the
results of operations.
(a) Amount represents less than $0.01.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
NATIONS STRATEGIC FIXED INCOME FUND
<TABLE>
<CAPTION>
PERIOD YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
PRIMARY A SHARES 03/31/96(a) 11/30/95 11/30/94 11/30/93
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 10.22 $ 9.32 $ 10.55 $ 9.94
Net investment income 0.19 0.59 0.53 0.56
Net realized and unrealized gain/(loss) on investments (0.29) 0.90 (0.89) 0.62
Net increase/(decrease) in net asset value from operations (0.10) 1.49 (0.36) 1.18
Distributions:
Dividends from net investment income (0.19) (0.59) (0.51) (0.56)
Distributions in excess of net investment income -- -- (0.02) --
Distributions from net realized capital gains -- -- (0.34) (0.01)
Total dividends and distributions (0.19) (0.59) (0.87) (0.57)
Net asset value, end of period $ 9.93 $ 10.22 $ 9.32 $ 10.55
Total return++ (1.04)% 16.45% (3.58)% 12.05%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 823,890 $ 823,098 $ 550,697 $ 545,538
Ratio of operating expenses to average net assets 0.72%+ 0.71% 0.68% 0.61%
Ratio of net investment income to average net assets 5.49% 6.05% 5.43% 5.40%
Portfolio turnover rate 1.33% 228% 307% 161%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 0.83%+ 0.81% 0.76% 0.77%
Net investment income per share without waivers and/or
expense reimbursements $ 0.19 $ 0.58 $ 0.52 $ 0.55
<CAPTION>
PERIOD
ENDED
PRIMARY A SHARES 11/30/92*
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income 0.05
Net realized and unrealized gain/(loss) on investments (0.06)
Net increase/(decrease) in net asset value from operations (0.01)
Distributions:
Dividends from net investment income (0.05)
Distributions in excess of net investment income --
Distributions from net realized capital gains --
Total dividends and distributions (0.05)
Net asset value, end of period $ 9.94
Total return++ (0.11)%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 581,329
Ratio of operating expenses to average net assets 0.26%+
Ratio of net investment income to average net assets 6.15%+
Portfolio turnover rate 12%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 0.86%+
Net investment income per share without waivers and/or
expense reimbursements $ 0.04
</TABLE>
* Nations Strategic Fixed Income Fund Primary A Shares commenced operations on
October 30, 1992.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year was
November 30.
26
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS GLOBAL GOVERNMENT INCOME FUND
<TABLE>
<CAPTION>
PERIOD
ENDED
PRIMARY A SHARES 03/31/96*#
<S> <C>
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income/(loss) 0.39
Net realized and unrealized gain/(loss) on investments 0.11
Net increase in net asset value from operations 0.50
Distributions:
Dividends from net investment income (0.37)
Distributions in excess of net investment income (0.02)
Distributions from net realized capital gains (0.04)
Total dividends and distributions (0.43)
Net asset value, end of period $ 10.07
Total return++ 5.03%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 24,753
Ratio of operating expenses to average net assets 1.32%+
Ratio of net investment income/(loss) to average net assets 5.17%+
Portfolio turnover rate 213%
</TABLE>
* Nations Global Government Income Fund Primary A Shares commenced operations
on June 30, 1995.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
# Per share numbers have been calculated using the monthly average shares
method, which more appropriately represents the per share data for the
period, since the use of the undistributed income method did not accord with
the results of operations.
NATIONS MUNICIPAL INCOME FUND
<TABLE>
<CAPTION>
PERIOD YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
PRIMARY A SHARES 03/31/96(b) 11/30/95 11/30/94 11/30/93
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 11.08 $ 9.64 $ 11.33 $ 10.65
Net investment income 0.20 0.59 0.57 0.59
Net realized and unrealized gain/(loss) on
investments (0.24) 1.44 (1.44) 0.72
Net increase/(decrease) in net asset value
from operations (0.04) 2.03 (0.87) 1.31
Distributions:
Dividends from net investment income (0.20) (0.59) (0.57) (0.59)
Distributions in excess of net investment
income -- -- (0.00)# --
Distributions from net realized capital gains -- -- (0.25) (0.04)
Total dividends and distributions (0.20) (0.59) (0.82) (0.63)
Net asset value, end of period $ 10.84 $ 11.08 $ 9.64 $ 11.33
Total return++ (0.41)% 21.55% (8.17)% 12.54%
Ratios to average net assets/supplemental
data:
Net assets, end of period (in 000's) $ 68,022 $ 68,836 $ 59,279 $ 88,386
Ratio of operating expenses to average net
assets 0.60%+ 0.60% 0.61% 0.52%
Ratio of operating expenses to average net
asset including interest expense --(a) --(a) 0.62% --
Ratio of net investment income to average net
assets 5.35%+ 5.63% 5.42% 5.24%
Portfolio turnover rate 4% 49% 63% 48%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 0.91%+ 0.88% 0.90% 0.84%
Net investment income per share without
waivers and/or expense reimbursements $ 0.19 $ 0.56 $ 0.54 $ 0.55
<CAPTION>
YEAR PERIOD
ENDED ENDED
PRIMARY A SHARES 11/30/92 11/30/91*
Operating performance:
Net asset value, beginning of period $ 10.25 $ 10.00
Net investment income 0.59 0.52
Net realized and unrealized gain/(loss) on
investments 0.41 0.25
Net increase/(decrease) in net asset value
from operations 1.00 0.77
Distributions:
Dividends from net investment income (0.59) (0.52)
Distributions in excess of net investment
income -- --
Distributions from net realized capital gains (0.01) --
Total dividends and distributions (0.60) (0.52)
Net asset value, end of period $ 10.65 $ 10.25
Total return++ 9.97%+++ 7.87%+++
Ratios to average net assets/supplemental
data:
Net assets, end of period (in 000's) $ 62,387 $ 23,631
Ratio of operating expenses to average net
assets 0.43% 0.20%+
Ratio of operating expenses to average net
asset including interest expense -- --
Ratio of net investment income to average net
assets 5.51% 6.07%+
Portfolio turnover rate 19% 54%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 0.90% 0.88%+
Net investment income per share without
waivers and/or expense reimbursements $ 0.54 $ 0.45
</TABLE>
* Nations Municipal Income Fund Primary A Shares commenced operations on
February 1, 1991.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# Amount represents less than $0.01 per share.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
27
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS SHORT-TERM MUNICIPAL INCOME FUND
<TABLE>
<CAPTION>
PERIOD YEAR YEAR
ENDED ENDED ENDED
PRIMARY A SHARES 03/31/96(b) 11/30/95 11/30/94
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 10.03 $ 9.69 $ 9.96
Net investment income 0.15 0.44 0.38
Net realized and unrealized gain/(loss) on investments (0.05) 0.34 (0.27)
Net increase in net asset value from operations 0.10 0.78 0.11
Distributions:
Dividends from net investment income (0.15) (0.44) (0.38)
Distributions from net realized capital gains -- -- (0.00)#
Total dividends and distributions (0.15) (0.44) (0.38)
Net asset value, end of period $ 9.98 $ 10.03 $ 9.69
Total return++ 0.96% 8.16% 1.09%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 48,511 $ 49,961 $ 33,488
Ratio of operating expenses to average net assets 0.40%+(a) 0.45%(a) 0.34%(a)
Ratio of net investment income to average net assets 4.37%+ 4.38% 3.83%
Portfolio turnover rate 16% 82% 57%
Ratio of operating expenses to average net assets without waivers and/or
expense reimbursements 0.86%+ 0.93% 0.80%
Net investment income per share without waivers and/or expense
reimbursements $ 0.13 $ 0.39 $ 0.33
<CAPTION>
PERIOD
ENDED
PRIMARY A SHARES 11/30/93*
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income 0.05
Net realized and unrealized gain/(loss) on investments (0.04)
Net increase in net asset value from operations 0.01
Distributions:
Dividends from net investment income (0.05)
Distributions from net realized capital gains --
Total dividends and distributions (0.05)
Net asset value, end of period $ 9.96
Total return++ 0.06%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 5,999
Ratio of operating expenses to average net assets 0.09%+
Ratio of net investment income to average net assets 3.16%+
Portfolio turnover rate 45%
Ratio of operating expenses to average net assets without waivers and/or
expense reimbursements 1.04%+
Net investment income per share without waivers and/or expense
reimbursements $ 0.04
</TABLE>
* Nations Short-Term Municipal Income Fund Primary A Shares commenced
operations on October 7, 1993.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
# Amount represents less than $0.01 per share.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
NATIONS INTERMEDIATE MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
PERIOD YEAR YEAR
ENDED ENDED ENDED
PRIMARY A SHARES 03/31/96(b) 11/30/95 11/30/94
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 10.17 $ 9.24 $ 10.11
Net investment income 0.16 0.48 0.45
Net realized and unrealized gain/(loss) on investments (0.14) 0.93 (0.86)
Net increase/(decrease) in net asset value from operations 0.02 1.41 (0.41)
Distributions:
Dividends from net investment income (0.16) (0.48) (0.45)
Distributions in excess of net investment income -- -- (0.00)#
Distributions from net realized capital gains -- -- (0.01)
Total dividends and distributions (0.16) (0.48) (0.46)
Net asset value, end of period $ 10.03 $ 10.17 $ 9.24
Total return++ 0.20% 15.60% (4.25)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 77,423 $ 73,897 $ 38,055
Ratio of operating expenses to average net assets 0.50%+(a) 0.45%(a) 0.35%(a)
Ratio of net investment income to average net assets 4.75%+ 4.91% 4.59%
Portfolio turnover rate 4% 31% 51%
Ratio of operating expenses to average net assets without waivers and/or
expense reimbursements 0.83%+ 0.84% 0.88%
Net investment income per share without waivers and/or expense
reimbursements $ 0.15 $ 0.45 $ 0.40
<CAPTION>
PERIOD
ENDED
PRIMARY A SHARES 11/30/93*
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income 0.14
Net realized and unrealized gain/(loss) on investments 0.11
Net increase/(decrease) in net asset value from operations 0.25
Distributions:
Dividends from net investment income (0.14)
Distributions in excess of net investment income --
Distributions from net realized capital gains --
Total dividends and distributions (0.14)
Net asset value, end of period $ 10.11
Total return++ 2.46%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 28,335
Ratio of operating expenses to average net assets 0.24%+
Ratio of net investment income to average net assets 4.07%+
Portfolio turnover rate 23%
Ratio of operating expenses to average net assets without waivers and/or
expense reimbursements 0.96%+
Net investment income per share without waivers and/or expense
reimbursements $ 0.12
</TABLE>
* Nations Intermediate Municipal Bond Fund Primary A Shares commenced
operations on July 30, 1993.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
# Amount represents less than $0.01 per share.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
28
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS FLORIDA INTERMEDIATE MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
PERIOD YEAR YEAR
ENDED ENDED ENDED
PRIMARY A SHARES 03/31/96(b) 11/30/95 11/30/94
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 10.63 $ 9.61 $ 10.50
Net investment income 0.17 0.48 0.45
Net realized and unrealized gain/(loss) on investments (0.17) 1.02 (0.88)
Net increase/(decrease) in net asset value from operations 0.00 1.50 (0.43)
Distributions:
Dividends from net investment income (0.17) (0.48) (0.45)
Distributions in excess of net investment income -- -- (0.00)#
Distributions from net realized capital gains -- -- (0.01)
Total dividends and distributions (0.17) (0.48) (0.46)
Net asset value, end of period $ 10.46 $ 10.63 $ 9.61
Total return++ (0.06)% 15.92% (4.26)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 44,988 $ 44,038 $ 42,717
Ratio of operating expenses to average net assets 0.50%+(a) 0.55%(a) 0.55%(a)
Ratio of net investment income to average net assets 4.66%+ 4.70% 4.44%
Portfolio turnover rate 18% 27% 34%
Ratio of operating expenses to average net assets without waivers and/or
expense reimbursements 0.86%+ 0.81% 0.76%
Net investment income per share without waivers and/or expense
reimbursements $ 0.15 $ 0.46 $ 0.43
<CAPTION>
PERIOD
ENDED
PRIMARY A SHARES 11/30/93*
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income 0.44
Net realized and unrealized gain/(loss) on investments 0.50
Net increase/(decrease) in net asset value from operations 0.94
Distributions:
Dividends from net investment income (0.44)
Distributions in excess of net investment income --
Distributions from net realized capital gains --
Total dividends and distributions (0.44)
Net asset value, end of period $ 10.50
Total return++ 9.50%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 41,489
Ratio of operating expenses to average net assets 0.44%+
Ratio of net investment income to average net assets 4.28%+
Portfolio turnover rate 15%
Ratio of operating expenses to average net assets without waivers and/or
expense reimbursements 0.80%+
Net investment income per share without waivers and/or expense
reimbursements $ 0.40
</TABLE>
* Nations Florida Intermediate Municipal Bond Fund Primary A Shares commenced
operations on December 11, 1992.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
# Amount represents less than $0.01 per share.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
NATIONS FLORIDA MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
PERIOD YEAR
ENDED ENDED
PRIMARY A SHARES 03/31/96(b) 11/30/95
<S> <C> <C>
Operating performance:
Net asset value, beginning of period $ 9.76 $ 8.40
Net investment income 0.16 0.51
Net realized and unrealized gain/(loss) on investments (0.29) 1.36
Net increase/(decrease) in net asset value from operations (0.13) 1.87
Dividends from net investment income (0.16) (0.51)
Total dividends and distributions (0.16) (0.51)
Net asset value, end of period $ 9.47 $ 9.76
Total return++ (1.33)% 22.69%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 13,044 $ 11,219
Ratio of operating expenses to average net assets 0.60%+(a) 0.39%(a)
Ratio of net investment income to average net assets 5.03%+ 5.44%
Portfolio turnover rate 7% 13%
Ratio of operating expenses to average net assets without waivers and/or expense
reimbursements 0.96%+ 0.95%
Net investment income per share without waivers and/or expense reimbursements $ 0.15 $ 0.46
<CAPTION>
PERIOD
ENDED
PRIMARY A SHARES 11/30/94*
Operating performance:
Net asset value, beginning of period $ 9.93
Net investment income 0.49
Net realized and unrealized gain/(loss) on investments (1.53)
Net increase/(decrease) in net asset value from operations (1.04)
Dividends from net investment income (0.49)
Total dividends and distributions (0.49)
Net asset value, end of period $ 8.40
Total return++ (10.70)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 4,258
Ratio of operating expenses to average net assets 0.21%+(a)
Ratio of net investment income to average net assets 5.55%+
Portfolio turnover rate 46%
Ratio of operating expenses to average net assets without waivers and/or expense
reimbursements 0.91%+
Net investment income per share without waivers and/or expense reimbursements $ 0.43
</TABLE>
* Nations Florida Municipal Bond Fund Primary A Shares commenced operations on
December 13, 1993.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
29
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS GEORGIA INTERMEDIATE MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
PERIOD YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
PRIMARY A SHARES 03/31/96(b) 11/30/95 11/30/94 11/30/93
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 10.81 $ 9.82 $ 10.82 $ 10.29
Net investment income 0.17 0.50 0.49 0.50
Net realized and unrealized gain/(loss) on investments (0.18) 0.99 (0.98) 0.56
Net increase/(decrease) in net asset value from operations (0.01) 1.49 (0.49) 1.06
Distributions:
Dividends from net investment income (0.17) (0.50) (0.49) (0.50)
Distributions in excess of net investment income -- -- (0.00)# --
Distributions from net realized capital gains -- -- (0.02) (0.03)
Total dividends and distributions (0.17) (0.50) (0.51) (0.53)
Net asset value, end of period $ 10.63 $ 10.81 $ 9.82 $ 10.82
Total return++ (0.13)% 15.42% (4.70)% 10.43%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 38,222 $ 40,383 $ 33,111 $ 30,738
Ratio of operating expenses to average net assets 0.50%+ 0.55% 0.54% 0.46%
Ratio of operating expenses to average net assets including
interest expense --(a) --(a) 0.55% --
Ratio of net investment income to average net assets 4.67%+ 4.76% 4.74% 4.57%
Portfolio turnover rate 3% 17% 22% 6%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 0.83%+ 0.80% 0.75% 0.77%
Net investment income per share without waivers and/or
expense reimbursements $ 0.16 $ 0.47 $ 0.47 $ 0.46
<CAPTION>
PERIOD
ENDED
PRIMARY A SHARES 11/30/92*
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income 0.41
Net realized and unrealized gain/(loss) on investments 0.29
Net increase/(decrease) in net asset value from operations 0.70
Distributions:
Dividends from net investment income (0.41)
Distributions in excess of net investment income --
Distributions from net realized capital gains --
Total dividends and distributions (0.41)
Net asset value, end of period $ 10.29
Total return++ 7.07%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 20,584
Ratio of operating expenses to average net assets 0.20%+
Ratio of operating expenses to average net assets including
interest expense --
Ratio of net investment income to average net assets 5.25%+
Portfolio turnover rate 12%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 0.77%+
Net investment income per share without waivers and/or
expense reimbursements $ 0.37
</TABLE>
* Nations Georgia Intermediate Municipal Bond Fund Primary A Shares commenced
operations on March 1, 1992.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# Amount represents less than $0.01 per share.
(a) The effect of interest expense on the operating ratio was less than 0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
NATIONS GEORGIA MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
PERIOD YEAR
ENDED ENDED
PRIMARY A SHARES 03/31/96(b) 11/30/95
<S> <C> <C>
Operating performance:
Net asset value, beginning of period $ 9.72 $ 8.38
Net investment income 0.16 0.51
Net realized and unrealized gain/(loss) on investments (0.24) 1.34
Net increase/(decrease) in net asset value from operations (0.08) 1.85
Dividends from net investment income (0.16) (0.51)
Total dividends and distributions (0.16) (0.51)
Net asset value, end of period $ 9.48 $ 9.72
Total return++ (0.84)% 22.48%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 2,068 $ 2,628
Ratio of operating expenses to average net assets 0.60%+(a) 0.40%(a)
Ratio of net investment income to average net assets 4.96%+ 5.42%
Portfolio turnover rate 7% 26%
Ratio of operating expenses to average net assets without waivers and/or expense
reimbursements 1.14%+ 1.09%
Net investment income per share without waivers and/or expense reimbursements $ 0.14 $ 0.44
<CAPTION>
PERIOD
ENDED
PRIMARY A SHARES 11/30/94*
Operating performance:
Net asset value, beginning of period $ 10.02
Net investment income 0.46
Net realized and unrealized gain/(loss) on investments (1.64)
Net increase/(decrease) in net asset value from operations (1.18)
Dividends from net investment income (0.46)
Total dividends and distributions (0.46)
Net asset value, end of period $ 8.38
Total return++ (12.07)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 232
Ratio of operating expenses to average net assets 0.21%+(a)
Ratio of net investment income to average net assets 5.60%+
Portfolio turnover rate 35%
Ratio of operating expenses to average net assets without waivers and/or expense
reimbursements 1.04%+
Net investment income per share without waivers and/or expense reimbursements $ 0.39
</TABLE>
* Nations Georgia Municipal Bond Fund Primary A Shares commenced operations on
January 13, 1994.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
(a) The effect of interest expense on the operating ratio was less than 0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
30
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS MARYLAND INTERMEDIATE MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
PERIOD YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
PRIMARY A SHARES 03/31/96(b) 11/30/95 11/30/94 11/30/93
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 10.95 $ 10.00 $ 11.09 $ 10.72
Net investment income 0.17 0.51 0.50 0.52
Net realized and unrealized gain/(loss) on
investments (0.15) 0.98 (0.99) 0.44
Net increase/(decrease) in net asset value from
operations 0.02 1.49 (0.49) 0.96
Distributions:
Dividends from net investment income (0.17) (0.51) (0.50) (0.52)
Distributions from net realized capital gains -- (0.03) (0.10) (0.07)
Distributions in excess of net realized capital
gains -- -- (0.00)# --
Total dividends and distributions (0.17) (0.54) (0.60) (0.59)
Net asset value, end of period $ 10.80 $ 10.95 $ 10.00 $ 11.09
Total return++ 0.16% 15.16% (4.64)% 9.11%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 61,337+ $ 62,460 $ 61,349 $ 61,552
Ratio of operating expenses to average net assets 0.50%+(a) 0.55%(a) 0.53%(a) 0.49%
Ratio of net investment income to average net
assets 4.62%+ 4.76% 4.73% 4.73%
Portfolio turnover rate 4% 11% 22% 26%
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 0.81%+ 0.80% 0.73% 0.73%
Net investment income per share without waivers
and/or expense reimbursements $ 0.16 $ 0.48 $ 0.48 $ 0.49
<CAPTION>
YEAR YEAR PERIOD
ENDED ENDED ENDED
PRIMARY A SHARES 11/30/92 11/30/91 11/30/90*
Operating performance:
Net asset value, beginning of period $ 10.44 $ 10.21 $ 10.00
Net investment income 0.55 0.60 0.16
Net realized and unrealized gain/(loss) on
investments 0.31 0.24 0.21
Net increase/(decrease) in net asset value from
operations 0.86 0.84 0.37
Distributions:
Dividends from net investment income (0.55) (0.60) (0.16)
Distributions from net realized capital gains (0.03) (0.01) --
Distributions in excess of net realized capital
gains -- -- --
Total dividends and distributions (0.58) (0.61) (0.16)
Net asset value, end of period $ 10.72 $ 10.44 $ 10.21
Total return++ 8.41%+++ 8.46%+++ 3.72%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 48,192 $ 31,088 $ 11,087
Ratio of operating expenses to average net assets 0.39% 0.20% 0.21%+
Ratio of net investment income to average net
assets 5.12% 5.76% 6.12%+
Portfolio turnover rate 38% 26% 49%
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 0.78% 0.71% 0.84%+
Net investment income per share without waivers
and/or expense reimbursements $ 0.51 $ 0.55 $ 0.13
</TABLE>
* Nations Maryland Intermediate Municipal Bond Fund Primary A Shares commenced
operations on September 1, 1990.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# Amount represents less than $0.01 per share.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
NATIONS MARYLAND MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
PERIOD YEAR
ENDED ENDED
PRIMARY A SHARES 03/31/96(b) 11/30/95
<S> <C> <C>
Operating performance:
Net asset value, beginning of period $ 9.63 $ 8.37
Net investment income 0.15 0.48
Net realized and unrealized gain/(loss) on investments (0.24) 1.26
Net increase/(decrease) in net asset value from operations (0.09) 1.74
Dividends from net investment income (0.15) (0.48)
Total dividends and distributions (0.15) (0.48)
Net asset value, end of period $ 9.39 $ 9.63
Total return++ (0.95)% 21.23%
Ratios to average net assets/supplemental data:
Net assets, end of year (in 000's) $ 2,788 $ 2,595
Ratio of operating expenses to average net assets 0.60%+ 0.40%
Ratio of net investment income to average net assets 4.72%+ 5.14%
Portfolio turnover rate 7% 11%
Ratio of operating expenses to average net assets without waivers and/or expense
reimbursements 1.23%+ 1.26%
Net investment income per share without waivers and/or expense reimbursements $ 0.13 $ 0.40
<CAPTION>
PERIOD
ENDED
PRIMARY A SHARES 11/30/94*
Operating performance:
Net asset value, beginning of period $ 8.90
Net investment income 0.11
Net realized and unrealized gain/(loss) on investments (0.53)
Net increase/(decrease) in net asset value from operations (0.42)
Dividends from net investment income (0.11)
Total dividends and distributions (0.11)
Net asset value, end of period $ 8.37
Total return++ (4.89)%
Ratios to average net assets/supplemental data:
Net assets, end of year (in 000's) $ 39
Ratio of operating expenses to average net assets 0.21%+(a)
Ratio of net investment income to average net assets 5.48%+
Portfolio turnover rate 39%
Ratio of operating expenses to average net assets without waivers and/or expense
reimbursements 1.30%+
Net investment income per share without waivers and/or expense reimbursements $ 0.09
</TABLE>
* Nations Maryland Municipal Bond Fund Primary A Shares commenced operations
on September 20, 1994.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
31
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS NORTH CAROLINA INTERMEDIATE MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
PERIOD YEAR YEAR
ENDED ENDED ENDED
PRIMARY A SHARES 03/31/96(b) 11/30/95 11/30/94
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 10.51 $ 9.53 $ 10.46
Net investment income 0.16 0.45 0.44
Net realized and unrealized gain/(loss) on investments (0.15) 0.99 (0.88)
Net increase/(decrease) in net asset value from operations 0.01 1.44 (0.44)
Distributions:
Dividends from net investment income (0.16) (0.45) (0.44)
Distributions in excess of net investment income -- (0.00)# --
Distributions from net realized capital gains -- (0.01) (0.05)
Total dividends and distributions (0.16) (0.46) (0.49)
Net asset value, end of period $ 10.36 $ 10.51 $ 9.53
Total return++ 0.05% 15.41% (4.34)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 21,161 $ 20,916 $ 14,148
Ratio of operating expenses to average net assets 0.50%+ 0.57%(a) 0.55%(a)
Ratio of net investment income to average net assets 4.47%+ 4.47% 4.38%
Portfolio turnover rate 3% 57% 37%
Ratio of operating expenses to average net assets without waivers and/or
expense reimbursements 0.87%+ 0.84% 0.82%
Net investment income per share without waivers and/or expense
reimbursements $ 0.15 $ 0.43 $ 0.42
<CAPTION>
PERIOD
ENDED
PRIMARY A SHARES 11/30/93*
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income 0.43
Net realized and unrealized gain/(loss) on investments 0.46
Net increase/(decrease) in net asset value from operations 0.89
Distributions:
Dividends from net investment income (0.43)
Distributions in excess of net investment income --
Distributions from net realized capital gains --
Total dividends and distributions (0.43)
Net asset value, end of period $ 10.46
Total return++ 9.03%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 11,814
Ratio of operating expenses to average net assets 0.42%+
Ratio of net investment income to average net assets 4.23%+
Portfolio turnover rate 29%
Ratio of operating expenses to average net assets without waivers and/or
expense reimbursements 0.85%+
Net investment income per share without waivers and/or expense
reimbursements $ 0.39
</TABLE>
* Nations North Carolina Intermediate Municipal Bond Fund Primary A Shares
commenced operations on December 11, 1992.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
# Amount represents less than $0.01 per share.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
NATIONS NORTH CAROLINA MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
PERIOD YEAR
ENDED ENDED
PRIMARY A SHARES 03/31/96(b) 11/30/95
<S> <C> <C>
Operating performance:
Net asset value, beginning of period $ 9.73 $ 8.36
Net investment income 0.16 0.50
Net realized and unrealized gain/(loss) on investments (0.24) 1.37
Net increase/(decrease) in net asset value from operations (0.08) 1.87
Dividends from net investment income (0.16) (0.50)
Total dividends and distributions (0.16) (0.50)
Net asset value, end of period $ 9.49 $ 9.73
Total return++ (0.87)% 22.87%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 1,593 $ 1,293
Ratio of operating expenses to average net assets 0.60%+ 0.38%(a)
Ratio of net investment income to average net assets 4.86%+ 5.43%
Portfolio turnover rate 22% 40%
Ratio of operating expenses to average net assets without waivers and/or expense
reimbursements 0.99%+ 0.96%
Net investment income per share without waivers and/or expense reimbursements $ 0.15 $ 0.45
<CAPTION>
PERIOD
ENDED
PRIMARY A SHARES 11/30/94*
Operating performance:
Net asset value, beginning of period $ 10.06
Net investment income 0.45
Net realized and unrealized gain/(loss) on investments (1.70)
Net increase/(decrease) in net asset value from operations (1.25)
Dividends from net investment income (0.45)
Total dividends and distributions (0.45)
Net asset value, end of period $ 8.36
Total return++ (12.65)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 531
Ratio of operating expenses to average net assets 0.21%+(a)
Ratio of net investment income to average net assets 5.53%+
Portfolio turnover rate 29%
Ratio of operating expenses to average net assets without waivers and/or expense
reimbursements 0.92%+
Net investment income per share without waivers and/or expense reimbursements $ 0.40
</TABLE>
* Nations North Carolina Municipal Bond Fund Primary A Shares commenced
operations on January 11, 1994.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
32
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS SOUTH CAROLINA INTERMEDIATE MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
PERIOD YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
PRIMARY A SHARES 03/31/96(b) 11/30/95 11/30/94 11/30/93
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 10.69 $ 9.76 $ 10.61 $ 10.18
Net investment income 0.17 0.51 0.50 0.50
Net realized and unrealized gain/(loss) on investments (0.17) 0.93 (0.84) 0.43
Net increase/(decrease) in net asset value from
operations 0.00 1.44 (0.34) 0.93
Distributions:
Dividends from net investment income (0.17) (0.51) (0.50) (0.50)
Distributions in excess of net investment income -- -- (0.00)# --
Distributions from net realized capital gains -- -- (0.01) --
Total dividends and distributions (0.17) (0.51) (0.51) (0.50)
Net asset value, end of period $ 10.52 $ 10.69 $ 9.76 $ 10.61
Total return++ 0.00%## 15.02% (3.37)% 9.32%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 41,817 $ 45,255 $ 49,030 $ 56,995
Ratio of operating expenses to average net assets 0.50%+(a) 0.55%(a) 0.54%(a) 0.45%
Ratio of net investment income to average net assets 4.81%+ 4.92% 4.82% 4.68%
Portfolio turnover rate 6% 11% 30% 11%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 0.82%+ 0.75% 0.75% 0.75%
Net investment income per share without waivers and/or
expense reimbursements $ 0.16 $ 0.49 $ 0.48 $ 0.47
<CAPTION>
PERIOD
ENDED
PRIMARY A SHARES 11/30/92*
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income 0.47
Net realized and unrealized gain/(loss) on investments 0.18
Net increase/(decrease) in net asset value from
operations 0.65
Distributions:
Dividends from net investment income (0.47)
Distributions in excess of net investment income --
Distributions from net realized capital gains --
Total dividends and distributions (0.47)
Net asset value, end of period $ 10.18
Total return++ 6.62%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 39,535
Ratio of operating expenses to average net assets 0.20%+
Ratio of net investment income to average net assets 4.11%+
Portfolio turnover rate 7%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 0.74%+
Net investment income per share without waivers and/or
expense reimbursements $ 0.42
</TABLE>
* Nations South Carolina Intermediate Municipal Bond Fund Primary A Shares
commenced operations on January 6, 1992.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# Amount represents less than $0.01 per share.
## Amount represents less than 0.01%.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
NATIONS SOUTH CAROLINA MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
PERIOD YEAR
ENDED ENDED
PRIMARY A SHARES 03/31/96(b) 11/30/95
<S> <C> <C>
Operating performance:
Net asset value, beginning of period $ 9.99 $ 8.65
Net investment income 0.17 0.52
Net realized and unrealized gain/(loss) on investments (0.22) 1.34
Net increase/(decrease) in net asset value from operations (0.05) 1.86
Dividends from net investment income (0.17) (0.52)
Total dividends and distributions (0.17) (0.52)
Net asset value, end of period $ 9.77 $ 9.99
Total return++ (0.57)% 21.99%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 2,058 $ 1,782
Ratio of operating expenses to average net assets 0.60%+(a) 0.40%(a)
Ratio of net investment income to average net assets 4.96%+ 5.44%
Portfolio turnover rate 20% 13%
Ratio of operating expenses to average net assets without waivers and/or expense
reimbursements 1.13%+ 1.08%
Net investment income per share without waivers and/or expense reimbursements $ 0.15 $ 0.46
<CAPTION>
PERIOD
ENDED
PRIMARY A SHARES 11/30/94*
Operating performance:
Net asset value, beginning of period $ 10.02
Net investment income 0.48
Net realized and unrealized gain/(loss) on investments (1.37)
Net increase/(decrease) in net asset value from operations (0.89)
Dividends from net investment income (0.48)
Total dividends and distributions (0.48)
Net asset value, end of period $ 8.65
Total return++ (9.12)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 400
Ratio of operating expenses to average net assets 0.21%+(a)
Ratio of net investment income to average net assets 5.48%+
Portfolio turnover rate 14%
Ratio of operating expenses to average net assets without waivers and/or expense
reimbursements 1.12%+
Net investment income per share without waivers and/or expense reimbursements $ 0.41
</TABLE>
* Nations South Carolina Municipal Bond Fund Primary A Shares commenced
operations on December 27, 1993.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
33
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS TENNESSEE INTERMEDIATE MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
PERIOD YEAR YEAR
ENDED ENDED ENDED
PRIMARY A SHARES 03/31/96(b) 11/30/95 11/30/94
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 10.23 $ 9.30 $ 10.18
Net investment income 0.15 0.46 0.45
Net realized and unrealized gain/(loss) on investments (0.14) 0.93 (0.87)
Net increase/(decrease) in net asset value from operations 0.01 1.39 (0.42)
Distributions:
Dividends from net investment income (0.15) (0.46) (0.45)
Distributions in excess of net investment income -- -- (0.00)#
Distributions from net realized capital gains -- -- (0.01)
Total dividends and distributions (0.15) (0.46) (0.46)
Net asset value, end of period $ 10.09 $ 10.23 $ 9.30
Total return++ 0.12% 15.22% (4.24)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 8,408 $ 7,160 $ 4,116
Ratio of operating expenses to average net assets 0.50%+ 0.57% 0.52%
Ratio of operating expenses to average net assets including interest
expense -- -- (a) 0.53%
Ratio of net investment income to average net assets 4.51%+ 4.65% 4.56%
Portfolio turnover rate 3% 34% 41%
Ratio of operating expenses to average net assets without waivers and/or
expense reimbursements 1.02%+ 0.92% 0.89%
Net investment income per share without waivers and/or expense
reimbursements $ 0.13 $ 0.43 $ 0.41
<CAPTION>
PERIOD
ENDED
PRIMARY A SHARES 11/30/93*
Operating performance:
Net asset value, beginning of period $ 10.06
Net investment income 0.29
Net realized and unrealized gain/(loss) on investments 0.12
Net increase/(decrease) in net asset value from operations 0.41
Distributions:
Dividends from net investment income (0.29)
Distributions in excess of net investment income --
Distributions from net realized capital gains --
Total dividends and distributions (0.29)
Net asset value, end of period $ 10.18
Total return++ 4.09%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 2,123
Ratio of operating expenses to average net assets 0.27%+
Ratio of operating expenses to average net assets including interest
expense --
Ratio of net investment income to average net assets 4.31%+
Portfolio turnover rate 16%
Ratio of operating expenses to average net assets without waivers and/or
expense reimbursements 0.94%+
Net investment income per share without waivers and/or expense
reimbursements $ 0.24
</TABLE>
* Nations Tennessee Intermediate Municipal Bond Fund Primary A Shares commenced
operations on April 13, 1993.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
# Amount represents less than $0.01 per share.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
NATIONS TENNESSEE MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
PERIOD YEAR
ENDED ENDED
PRIMARY A SHARES 03/31/96(b) 11/30/95
<S> <C> <C>
Operating performance:
Net asset value, beginning of period $ 9.87 $ 8.58
Net investment income 0.16 0.52
Net realized and unrealized gain/(loss) on investments (0.19) 1.29
Net increase/(decrease) in net asset value from operations (0.03) 1.81
Dividends from net investment income (0.16) (0.52)
Total dividends and distributions (0.16) (0.52)
Net asset value, end of period $ 9.68 $ 9.87
Total return++ (0.30)% 21.52%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 975 $ 768
Ratio of operating expenses to average net assets 0.60%+ 0.40%(a)
Ratio of operating expenses to average net assets including interest expense 0.61%+ --
Ratio of net investment income to average net assets 4.92%+ 5.49%
Portfolio turnover rate 2% 45%
Ratio of operating expenses to average net assets without waivers and/or expense
reimbursements 1.47%+ 1.27%
Net investment income per share without waivers and/or expense reimbursements $ 0.13 $ 0.44
<CAPTION>
PERIOD
ENDED
PRIMARY A SHARES 11/30/94*
Operating performance:
Net asset value, beginning of period $ 9.59
Net investment income 0.39
Net realized and unrealized gain/(loss) on investments (1.01)
Net increase/(decrease) in net asset value from operations (0.62)
Dividends from net investment income (0.39)
Total dividends and distributions (0.39)
Net asset value, end of period $ 8.58
Total return++ (6.66 )%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 311
Ratio of operating expenses to average net assets 0.21%+(a)
Ratio of operating expenses to average net assets including interest expense --
Ratio of net investment income to average net assets 5.56%+
Portfolio turnover rate 38%
Ratio of operating expenses to average net assets without waivers and/or expense
reimbursements 1.20%+
Net investment income per share without waivers and/or expense reimbursements $ 0.32
</TABLE>
* Nations Tennessee Municipal Bond Fund Primary A Shares commenced operations
on March 2, 1994.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
34
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS TEXAS INTERMEDIATE MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
PERIOD YEAR YEAR
ENDED ENDED ENDED
PRIMARY A SHARES 03/31/96(b) 11/30/95 11/30/94
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 10.36 $ 9.53 $ 10.35
Net investment income 0.16 0.46 0.44
Net realized and unrealized gain/(loss) on investments (0.15) 0.83 (0.79)
Net increase/(decrease) in net asset value from operations 0.01 1.29 (0.35)
Distributions:
Dividends from net investment income (0.16) (0.46) (0.44)
Distributions in excess of net investment income -- -- (0.00)#
Distributions from net realized capital gains -- -- (0.03)
Total dividends and distributions (0.16) (0.46) (0.47)
Net asset value, end of period $ 10.21 $ 10.36 $ 9.53
Total return++ 0.05% 13.83% (3.48)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 27,176 $ 26,382 $ 24,066
Ratio of operating expenses to average net assets 0.50%+ 0.57%(a) 0.55%(a)
Ratio of net investment income to average net assets 4.52%+ 4.62% 4.40%
Portfolio turnover rate 11% 64% 61%
Ratio of operating expenses to average net assets without waivers and/or
expense reimbursements 0.89% 0.83% 0.78%
Net investment income per share without waivers and/or expense
reimbursements $ 0.15 $ 0.44 $ 0.42
<CAPTION>
PERIOD
ENDED
PRIMARY A SHARES 11/30/93*
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income 0.41
Net realized and unrealized gain/(loss) on investments 0.35
Net increase/(decrease) in net asset value from operations 0.76
Distributions:
Dividends from net investment income (0.41)
Distributions in excess of net investment income --
Distributions from net realized capital gains --
Total dividends and distributions (0.41)
Net asset value, end of period $ 10.35
Total return++ 7.72%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 31,875
Ratio of operating expenses to average net assets 0.44%+
Ratio of net investment income to average net assets 4.43%+
Portfolio turnover rate 63%
Ratio of operating expenses to average net assets without waivers and/or
expense reimbursements 0.82%+
Net investment income per share without waivers and/or expense
reimbursements $ 0.38
</TABLE>
* Nations Texas Intermediate Municipal Bond Fund Primary A Shares commenced
operations on January 12, 1993.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
# Amount represents less than $0.01 per share.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
NATIONS TEXAS MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
PERIOD YEAR
ENDED ENDED
PRIMARY A SHARES 03/31/96(b) 11/30/95
<S> <C> <C>
Operating performance:
Net asset value, beginning of period $ 9.70 $ 8.39
Net investment income 0.16 0.50
Net realized and unrealized gain/(loss) on investments (0.21) 1.31
Net increase/(decrease) in net asset value from operations (0.05) 1.81
Dividends from net investment income (0.16) (0.50)
Total dividends and distributions (0.16) (0.50)
Net asset value, end of period $ 9.49 $ 9.70
Total return++ (0.55)% 22.09%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 5,138 $ 4,613
Ratio of operating expenses to average net assets 0.60%+ 0.39%(a)
Ratio of net investment income to average net assets 4.92%+ 5.45%
Portfolio turnover rate 6% 50%
Ratio of operating expenses to average net assets without waivers and/or expense
reimbursements 1.11%+ 1.05%
Net investment income per share without waivers and/or expense reimbursements $ 0.14 $ 0.44
<CAPTION>
PERIOD
ENDED
PRIMARY A SHARES 11/30/94*
Operating performance:
Net asset value, beginning of period $ 10.01
Net investment income 0.42
Net realized and unrealized gain/(loss) on investments (1.62)
Net increase/(decrease) in net asset value from operations (1.20)
Dividends from net investment income (0.42)
Total dividends and distributions (0.42)
Net asset value, end of period $ 8.39
Total return++ (12.21)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 2,285
Ratio of operating expenses to average net assets 0.22%+(a)
Ratio of net investment income to average net assets 5.52%+
Portfolio turnover rate 107%
Ratio of operating expenses to average net assets without waivers and/or expense
reimbursements 1.06%+
Net investment income per share without waivers and/or expense reimbursements $ 0.35
</TABLE>
* Nations Texas Municipal Bond Fund Primary A Shares commenced operations on
February 3, 1994.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
35
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS VIRGINIA INTERMEDIATE MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
PERIOD YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED ENDED
PRIMARY A SHARES 03/31/96(b) 11/30/95 11/30/94 11/30/93 11/30/92 11/30/91
<S> <C> <C> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning
of period $ 10.83 $ 9.94 $ 10.99 $ 10.59 $ 10.34 $ 10.14
Net investment income 0.17 0.51 0.50 0.48 0.54 0.58
Net realized and unrealized
gain/(loss) on
investments (0.14) 0.89 (0.96) 0.42 0.29 0.21
Net increase/(decrease) in
net asset value from
operations 0.03 1.40 (0.46) 0.90 0.83 0.79
Distributions:
Dividends from net
investment income (0.17) (0.51) (0.50) (0.48) (0.54) (0.58)
Distributions from net
realized capital gains -- (0.00)# (0.09) (0.02) (0.04) (0.01)
Distributions in excess of
net realized capital
gains -- -- (0.00)# -- -- --
Total dividends and
distributions (0.17) (0.51) (0.59) (0.50) (0.58) (0.59)
Net asset value, end of
period $ 10.69 10.83 $ 9.94 $ 10.99 $ 10.59 $ 10.34
Total return++ 0.27% 14.39% (4.35)% 9.08% 8.28%+++ 8.04%+++
Ratios to average net
assets/supplemental data:
Net assets, end of period
(in 000's) $ 155,464 $ 157,252 $ 167,405 $ 193,084 $ 157,773 $ 119,757
Ratio of operating expenses
to average net assets 0.50%+(a) 0.56%(a) 0.61%(a) 0.57% 0.56% 0.45%
Ratio of net investment
income to average net
assets 4.72%+ 4.87% 4.76% 4.80% 5.17% 5.67%
Portfolio turnover rate 2% 22% 14% 26% 13% 24%
Ratio of operating expenses
to average net assets
without waivers and/or
expense reimbursements 0.76%+ 0.74% 0.73% 0.69% 0.68% 0.73%
Net investment income per
share without waivers
and/or expense
reimbursements $ 0.16 $ 0.49 $ 0.49 $ 0.47 $ 0.53 $ 0.55
<CAPTION>
YEAR PERIOD
ENDED ENDED
PRIMARY A SHARES 11/30/90 11/30/89*
Operating performance:
Net asset value, beginning
of period $ 10.08 $ 10.00
Net investment income 0.61 0.12
Net realized and unrealized
gain/(loss) on
investments 0.11 0.03
Net increase/(decrease) in
net asset value from
operations 0.72 0.15
Distributions:
Dividends from net
investment income (0.66) (0.07)
Distributions from net
realized capital gains -- --
Distributions in excess of
net realized capital
gains -- --
Total dividends and
distributions (0.66) (0.07)
Net asset value, end of
period $ 10.14 $ 10.08
Total return++ 7.41%+++ 1.46%+++
Ratios to average net
assets/supplemental data:
Net assets, end of period
(in 000's) $ 75,962 $ 46,560
Ratio of operating expenses
to average net assets 0.26% 0.16%+
Ratio of net investment
income to average net
assets 6.09% 6.09%+
Portfolio turnover rate 19% 12%
Ratio of operating expenses
to average net assets
without waivers and/or
expense reimbursements 0.80% 0.81%+
Net investment income per
share without waivers
and/or expense
reimbursements $ 0.55 $ 0.08
</TABLE>
* Nations Virginia Intermediate Municipal Bond Fund Primary A Shares commenced
operations on September 20, 1989.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# Amount represents less than $0.01 per share.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
36
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS VIRGINIA MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
PERIOD YEAR
ENDED ENDED
PRIMARY A SHARES 03/31/96(b) 11/30/95
<S> <C> <C>
Operating performance:
Net asset value, beginning of period $ 9.62 $ 8.29
Net investment income 0.16 0.51
Net realized and unrealized gain/(loss) on investments (0.24) 1.33
Net increase/(decrease) in net asset value from operations (0.08) 1.84
Dividends from net investment income (0.16) (0.51)
Total dividends and distributions (0.16) (0.51)
Net asset value, end of period $ 9.38 $ 9.62
Total return++ (0.84)% 22.63%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 3,296 $ 3,527
Ratio of operating expenses to average net assets 0.60%+ 0.39%(a)
Ratio of operating expenses to average net assets including interest expense 0.61%+ --
Ratio of net investment income to average net assets 5.06%+ 5.51%
Portfolio turnover rate 8% 16%
Ratio of operating expenses to average net assets without waivers and/or expense
reimbursements 1.07%+ 1.04%
Net investment income per share without waivers and/or expense reimbursements $ 0.14 $ 0.46
<CAPTION>
PERIOD
ENDED
PRIMARY A SHARES 11/30/94*
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income 0.45
Net realized and unrealized gain/(loss) on investments (1.71)
Net increase/(decrease) in net asset value from operations (1.26)
Dividends from net investment income (0.45)
Total dividends and distributions (0.45)
Net asset value, end of period $ 8.29
Total return++ (12.86)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 432
Ratio of operating expenses to average net assets 0.21%+(a)
Ratio of operating expenses to average net assets including interest expense --
Ratio of net investment income to average net assets 5.52%+
Portfolio turnover rate 61%
Ratio of operating expenses to average net assets without waivers and/or expense
reimbursements 0.99%+
Net investment income per share without waivers and/or expense reimbursements $ 0.38
</TABLE>
* Nations Virginia Municipal Bond Fund Primary A Shares commenced operations on
January 11, 1994.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
Objectives
MONEY MARKET FUNDS:
Each Money Market Fund endeavors to achieve its investment objective by
investing in a diversified portfolio of high quality money market instruments
with maturities of 397 days or less from the date of purchase. Securities
subject to repurchase agreements may bear longer maturities.
NATIONS PRIME FUND: Nations Prime Fund's investment objective is to seek the
maximization of current income to the extent consistent with the preservation of
capital and the maintenance of liquidity.
NATIONS TREASURY FUND: Nations Treasury Fund's investment objective is the
maximization of current income to the extent consistent with the preservation of
capital and the maintenance of liquidity.
NATIONS GOVERNMENT MONEY MARKET FUND: Nations Government Money Market Fund's
investment objective is to seek as high a level of current income as is
consistent with liquidity and stability of principal.
NATIONS TAX EXEMPT FUND: Nations Tax Exempt Fund's investment objective is to
seek as high a level of current interest income exempt from Federal income taxes
as is consistent with liquidity and stability of principal.
EQUITY FUNDS:
NATIONS VALUE FUND: Nations Value Fund's investment objective is to seek growth
of capital by investing in companies that are believed to be undervalued.
NATIONS EQUITY INCOME FUND: Nations Equity Income Fund's investment objective is
to seek current income and growth of capital by investing primarily in companies
with above average dividend yields.
NATIONS INTERNATIONAL EQUITY FUND: Nations International Equity Fund's
investment objective is to seek long-term capital growth by investing primarily
in equity securities of non-United States companies in Europe, Australia, the
Far East and other regions, including developing countries.
NATIONS EMERGING MARKETS FUND: Nations Emerging Markets Fund's investment
objective is to seek long-term capital growth by investing primarily in equity
securities of companies in emerging market countries, such as those in Latin
America, Eastern Europe, the Pacific Basin, the Far East, Africa and India.
NATIONS PACIFIC GROWTH FUND: Nations Pacific Growth Fund's investment objective
is to seek long-term capital growth by investing primarily in equity securities
37
<PAGE>
of companies in the Pacific Basin and the Far East (excluding Japan).
NATIONS CAPITAL GROWTH FUND: Nations Capital Growth Fund's investment objective
is to seek growth of capital by investing in companies that are believed to have
superior earnings growth potential.
NATIONS EMERGING GROWTH FUND: Nations Emerging Growth Fund's investment
objective is to seek capital appreciation by investing in emerging growth
companies that are believed to have superior long-term earnings growth
prospects.
NATIONS DISCIPLINED EQUITY FUND: Nations Disciplined Equity Fund's investment
objective is to seek growth of capital by investing in companies that are
expected to produce significant increases in earnings per share.
NATIONS EQUITY INDEX FUND: Nations Equity Index Fund's investment objective is
to seek investment results that correspond, before fees and expenses, to the
total return of the Standard & Poor's 500 Composite Stock Price Index (the "S&P
500 Index" or the "Index").(1)
BALANCED FUND:
NATIONS BALANCED ASSETS FUND: Nations Balanced Assets Fund's investment
objective is to seek total return by investing in equity and fixed income
securities.
BOND FUNDS:
NATIONS SHORT-INTERMEDIATE GOVERNMENT FUND: Nations Short-Intermediate
Government Fund's investment objective is to seek high current income consistent
with modest fluctuation of principal. The Fund invests primarily in securities
issued or guaranteed by the U.S. Government, its agencies or instrumentalities.
NATIONS GOVERNMENT SECURITIES FUND: Nations Government Securities Fund's
investment objective is to seek high current income consistent with moderate
fluctuation of principal. The Fund invests primarily in intermediate-term
securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities.
NATIONS SHORT-TERM INCOME FUND: Nations Short-Term Income Fund's investment
objective is to seek high current income consistent with minimal fluctuation of
principal. The Fund invests in investment grade debt securities.
(1) "Standard & Poor's 500" is a registered service mark of Standard & Poor's
Corporation ("S&P").
NATIONS DIVERSIFIED INCOME FUND: Nations Diversified Income Fund's investment
objective is to seek total return with an emphasis on current income by
investing in a diversified portfolio of fixed income securities.
NATIONS STRATEGIC FIXED INCOME FUND: Nations Strategic Fixed Income Fund's
investment objective is to seek total return by investing in investment grade
fixed income securities.
NATIONS GLOBAL GOVERNMENT INCOME FUND: Nations Global Government Income Fund's
investment objective is to seek total return by investing primarily in high
quality debt securities issued by governments, banks and supranational entities
located throughout the world.
NATIONS MUNICIPAL INCOME FUND: The investment objective of Nations Municipal
Income Fund is to seek high current income exempt from Federal income tax with
the potential for principal fluctuation associated with investments in long-term
municipal securities. The Fund invests in investment grade, long-term municipal
securities.
NATIONS SHORT-TERM MUNICIPAL INCOME FUND: The investment objective of Nations
Short-Term Municipal Income Fund is to seek high current income exempt from
Federal income tax consistent with minimal fluctuation of principal. The Fund
invests in investment grade, short-term municipal securities.
NATIONS INTERMEDIATE MUNICIPAL BOND FUND: Nations Intermediate Municipal Bond
Fund's investment objective is to seek high current income exempt from Federal
income tax consistent with moderate fluctuation of principal. The Fund invests
in investment grade, intermediate-term municipal securities.
NATIONS FLORIDA INTERMEDIATE MUNICIPAL BOND FUND: Nations Florida Intermediate
Municipal Bond Fund's investment objective is to seek high current income exempt
from Federal income and the Florida state intangibles taxes consistent with
moderate fluctuation of principal. The Fund invests in investment grade,
intermediate-term municipal securities.
NATIONS FLORIDA MUNICIPAL BOND FUND: Nations Florida Municipal Bond Fund's
investment objective is to seek high current income exempt from Federal income
and the Florida state intangibles taxes with the potential for principal
fluctuation associated with investments in long-term municipal securities. The
Fund invests in investment grade, long-term municipal securities.
NATIONS GEORGIA INTERMEDIATE MUNICIPAL BOND FUND: Nations Georgia Intermediate
Municipal Bond
38
<PAGE>
Fund's investment objective is to seek high current income exempt from Federal
and Georgia state income taxes consistent with moderate fluctuation of
principal. The Fund invests in investment grade, intermediate-term municipal
securities.
NATIONS GEORGIA MUNICIPAL BOND FUND: Nations Georgia Municipal Bond Fund's
investment objective is to seek high current income exempt from Federal and
Georgia state income taxes with the potential for principal fluctuation
associated with investments in long-term municipal securities. The Fund invests
in investment grade, long-term municipal securities.
NATIONS MARYLAND INTERMEDIATE MUNICIPAL BOND FUND: Nations Maryland Intermediate
Municipal Bond Fund's investment objective is to seek high current income exempt
from Federal and Maryland state income taxes consistent with moderate
fluctuation of principal. The Fund invests in investment grade, intermediate-
term municipal securities.
NATIONS MARYLAND MUNICIPAL BOND FUND: Nations Maryland Municipal Bond Fund's
investment objective is to seek high current income exempt from Federal and
Maryland state income taxes with the potential for principal fluctuation
associated with investments in long-term municipal securities. The Fund invests
in investment grade, long-term municipal securities.
NATIONS NORTH CAROLINA INTERMEDIATE MUNICIPAL BOND FUND: Nations North Carolina
Intermediate Municipal Bond Fund's investment objective is to seek high current
income exempt from Federal and North Carolina state income taxes consistent with
moderate fluctuation of principal. The Fund invests in investment grade,
intermediate-term municipal securities.
NATIONS NORTH CAROLINA MUNICIPAL BOND FUND: Nations North Carolina Municipal
Bond Fund's investment objective is to seek high current income exempt from
Federal and North Carolina state income taxes with the potential for principal
fluctuation associated with investments in long-term municipal securities. The
Fund invests in investment grade, long-term municipal securities.
NATIONS SOUTH CAROLINA INTERMEDIATE MUNICIPAL BOND FUND: Nations South Carolina
Intermediate Municipal Bond Fund's investment objective is to seek high current
income exempt from Federal and South Carolina state income taxes consistent with
moderate fluctuation of principal. The Fund invests in investment grade,
intermediate-term municipal securities.
NATIONS SOUTH CAROLINA MUNICIPAL BOND FUND: Nations South Carolina Municipal
Bond Fund's investment objective is to seek high current income exempt from
Federal and South Carolina state income taxes with the potential for principal
fluctuation associated with investments in long-term municipal securities. The
Fund invests in investment grade, long-term municipal securities.
NATIONS TENNESSEE INTERMEDIATE MUNICIPAL BOND FUND: Nations Tennessee
Intermediate Municipal Bond Fund's investment objective is to seek high current
income exempt from Federal income tax and the Tennessee Hall Income Tax on
unearned income consistent with moderate fluctuation of principal. The Fund
invests in investment grade, intermediate-term municipal securities.
NATIONS TENNESSEE MUNICIPAL BOND FUND: Nations Tennessee Municipal Bond Fund's
investment objective is to seek high current income exempt from Federal income
tax and the Tennessee Hall Income Tax on unearned income with the potential for
principal fluctuation associated with investments in long-term municipal
securities. The Fund invests in investment grade, long-term municipal
securities.
NATIONS TEXAS INTERMEDIATE MUNICIPAL BOND FUND: Nations Texas Intermediate
Municipal Bond Fund's investment objective is to seek high current income exempt
from Federal income tax consistent with moderate fluctuation of principal. The
Fund invests in investment grade, intermediate-term municipal securities.
NATIONS TEXAS MUNICIPAL BOND FUND: Nations Texas Municipal Bond Fund's
investment objective is to seek high current income exempt from Federal income
tax with the potential for principal fluctuation associated with investments in
long-term municipal securities. The Fund invests in investment grade, long-term
municipal securities.
NATIONS VIRGINIA INTERMEDIATE MUNICIPAL BOND FUND: Nations Virginia Intermediate
Municipal Bond Fund's investment objective is to seek high current income exempt
from Federal and Virginia state income taxes consistent with moderate
fluctuation of principal. The Fund invests in investment grade, intermediate-
term municipal securities.
NATIONS VIRGINIA MUNICIPAL BOND FUND: Nations Virginia Municipal Bond Fund's
investment objective is to seek high current income exempt from Federal and
Virginia state income taxes with the potential for principal fluctuation
associated with investments in long-term municipal securities. The Fund invests
in investment grade, long-term municipal securities.
Nations Florida Intermediate Municipal Bond Fund, Nations Georgia Intermediate
Municipal Bond Fund, Nations Maryland Intermediate Municipal Bond Fund, Nations
North Carolina Intermediate Municipal Bond Fund, Nations South Carolina
Intermediate Municipal Bond Fund, Nations Tennessee Intermediate Municipal Bond
Fund, Nations Texas Intermediate Municipal Bond
39
<PAGE>
Fund and Nations Virginia Intermediate Municipal Bond Fund are sometimes
collectively referred to as the "State Intermediate Municipal Bond Funds," and
Nations Florida Municipal Bond Fund, Nations Georgia Municipal Bond Fund,
Nations Maryland Municipal Bond Fund, Nations North Carolina Municipal Bond
Fund, Nations South Carolina Municipal Bond Fund, Nations Tennessee Municipal
Bond Fund, Nations Texas Municipal Bond Fund and Nations Virginia Municipal Bond
Fund are sometimes collectively referred to as the "State Municipal Bond Funds".
How Objectives Are Pursued
MONEY MARKET FUNDS:
NATIONS PRIME FUND: In pursuing its investment objective, the Fund may invest in
U.S. Treasury bills, notes and bonds and other instruments issued directly by
the U.S. Government ("U.S. Treasury Obligations") and other obligations issued
or guaranteed as to payment of principal and interest by the U.S. Government,
its agencies or instrumentalities ("U.S. Government Obligations"), 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 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 organiza-
40
<PAGE>
tions (collectively, "NRSROs"). Securities that are unrated at the time of
purchase will be determined to be of comparable quality by the Adviser pursuant
to guidelines approved by Nations Fund Trust's Board of Trustees. The applicable
Municipal Securities ratings are described in "Appendix B."
The payment of principal and interest on most securities purchased by the Fund
will depend upon the ability of the issuers to meet their obligations. The
District of Columbia, each state, each of their political subdivisions,
agencies, instrumentalities and authorities and each multi-state agency of which
a state is a member is a separate "issuer" as that term is used in this
Prospectus and the related SAI. The non-governmental user of facilities financed
by private activity bonds also is considered to be an "issuer." For more
information concerning Municipal Securities, see "Appendix A -- Municipal
Securities."
The Fund may hold uninvested cash reserves pending investment, during temporary
defensive periods, or if, in the opinion of the Adviser, desirable tax-exempt
obligations are unavailable. Uninvested cash reserves will not earn income. As a
matter of fundamental policy, under normal market conditions, at least 80% of
the Fund's net assets will be invested in Municipal Securities. Investments in
private activity bonds, the interest on which may be treated as a specific tax
preference item under the Federal alternative minimum tax, will not be treated
as Municipal Securities in determining whether the Fund is in compliance with
this 80% requirement. The Fund also may invest in securities issued by other
investment companies, 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."
EQUITY FUNDS:
NATIONS VALUE FUND: The Fund invests in stocks drawn from a broad universe of
companies monitored by the Adviser. The Adviser closely monitors these
companies, rating them for quality and projecting their future earnings and
dividends as well as other factors. To qualify for purchase, an issuer would
normally have a market capitalization of $500 million or more and have an
average daily trading volume of at least $3 million. These requirements are
generally considered by the Adviser to be adequate to support normal purchase
and sale activity without materially affecting prevailing market prices of the
issuer's shares. The Adviser also analyzes key financial ratios that measure the
growth, profitability, and leverage of such issuers that it believes will help
maintain a portfolio of above-average quality.
Stocks are selected from this universe based on the Adviser's judgment of their
total return potential. The Adviser buys stocks that it believes are undervalued
relative to the overall stock market. The principal factor considered by the
Adviser in making these determinations is the ratio of a stock's price to
earnings relative to corresponding ratios of other stocks in the same industry
or economic sector. The Adviser believes that companies with lower
price-to-earnings ratios are more likely to provide better opportunities for
capital appreciation. This "value" approach generally produces a dividend yield
greater than the market average. The Adviser will attempt to temper risk by
broad diversification among economic sectors and industries. Through this
strategy, the Fund pursues above-average returns while seeking to avoid
above-average risks.
The Fund invests under normal market conditions at least 65% of its total assets
in common stocks. In addition to common stocks, the Fund also may invest in
preferred stocks, securities convertible into common stock and other types of
securities having common stock characteristics (such as rights and warrants to
purchase equity securities). Although the Fund invests primarily in
publicly-traded common stocks of companies incorporated in the United States,
the Fund may invest up to 20% of its assets in foreign securities. The Fund also
may hold up to 20% of its total assets in U.S. Government Obligations, and
investment grade securities of domestic companies. Obligations with the lowest
investment grade rating (E.G. rated "BBB" by S&P or "Baa" by Moody's) have
speculative characteristics and changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity to make principal
and interest payments than is the case with higher grade debt obligations.
Subsequent to its purchase by the Fund, an issue of securities may cease to be
rated or its rating may be reduced below the minimum rating required for
purchase by the Fund. The Adviser will consider such an event in determining
whether the Fund should continue to hold the obligation. Unrated obligations may
be acquired by the Fund if they are determined by the Adviser to be of
comparable quality at the time of purchase to rated obligations that may be
acquired.
The Fund may invest in various money market instruments and repurchase
agreements. The Fund may invest without limitation in such instruments pending
investment, to meet anticipated redemption requests, or as a temporary defensive
measure if market conditions warrant.
NATIONS EQUITY INCOME FUND: The investment program of the Fund is based on
several premises. First, dividends are normally a more stable and predictable
source of return than capital appreciation. While the price of a company's stock
generally increases or decreases in response to short-term earnings and market
41
<PAGE>
fluctuations, its dividends are generally less volatile. Second, diversifying
equity holdings in a manner that includes every major economic sector
contributes to reduced volatility, without a commensurate reduction in expected
investment return. Finally, investing in dividend paying stocks in all the
economic sectors can provide greater income than the Standard & Poor's 500
Composite Stock Price Index ("S&P 500 Index") with less volatility.
Collectively, these traits may be combined in such a fashion as to produce
returns in excess of the market (S&P 500 Index) on a comparable risk basis.
New purchases for the Fund will generally be made in equity securities that:
(Bullet) are income producing;
(Bullet) appear undervalued relative to the S&P 500 Index on a risk adjusted
basis; and
(Bullet) have favorable trends in personal stock ownership by the underlying
company's officers and/or directors.
To achieve its objective, the Fund, under normal circumstances, will invest at
least 65% of its assets in income-producing common stocks, including securities
convertible into or ultimately exchangeable for common stock (I.E., convertible
bonds or convertible preferred stock), whose prospects for dividend growth and
capital appreciation are considered favorable by the Adviser. The securities
held by the Fund generally will be listed on a national exchange or, if not so
listed, will usually have an established over-the-counter market.
In order to further enhance its income, the Fund also may invest its assets in
fixed-income securities (corporate and government bonds of various maturities),
preferred stocks and warrants. The Fund may invest in debt securities that are
considered investment grade (E.G. securities rated in one of the top four
investment categories by S&P or Moody's, or if not rated, are of equivalent
investment quality as determined by the Adviser). Obligations rated in the
lowest of the top four investment grade rating categories (E.G., rated "BBB" by
S&P) have speculative characteristics and changes in economic conditions or
other circumstances are more likely to lead to a weakened capacity to make
principal and interest payments than is the case with higher grade debt
obligations. The Fund also may invest up to 5% of its assets in debt securities
that are rated below investment grade (E.G. rated "BB" by S&P) or if not rated,
are of equivalent investment quality as determined by the Adviser.
Non-investment-grade debt securities are sometimes referred to as "high yield
bonds" or "junk bonds," tend to have speculative characteristics, generally
involve more risk of principal and income than higher rated securities, and have
yields and market values that tend to fluctuate more than higher quality
securities. The Fund will invest in such high-yield debt securities only when
the Adviser believes that the issue presents minimal credit risk. For a
description of corporate debt ratings, see "Appendix B." Although the Fund
invests primarily in securities of U.S. issuers, the Fund may invest up to 20%
of its total assets in foreign securities. The Fund will treat foreign
securities as illiquid unless there is an active and substantial secondary
market for such securities.
The Fund also may invest in various money market instruments and repurchase
agreements. The Fund may invest without limitation in such instruments pending
investment, to meet anticipated redemption requests, or as a temporary defensive
measure if market conditions warrant.
NATIONS INTERNATIONAL EQUITY FUND: The Fund intends to diversify investments
broadly among countries and normally to invest in securities representing at
least three different countries. The Fund may invest in companies in the Far
East and Western Europe as well as Australia, Canada, and other areas (including
developing countries). Under unusual circumstances, however, the Fund may invest
substantially all of its assets in companies in one or two countries.
In seeking to achieve its objective, the Fund will invest at least 65% of its
assets in common stocks of established non-United States companies that the
Adviser believes have potential for growth of capital. The Fund may invest up to
35% of its assets in any other type of security including: convertible
securities; preferred stocks; bonds, notes and other debt securities (including
Eurodollar securities); and obligations of domestic or foreign governments and
their political subdivisions.
The Fund also may invest in American Depository Receipts ("ADRs"), Global
Depositary Receipts ("GDRs"), European Depository Receipts ("EDRs"), American
Depository Shares ("ADSs"), bonds, notes, other debt securities of foreign
issuers and securities of foreign investment funds or trusts and real estate
investment trust securities.
NATIONS EMERGING MARKETS FUND: In seeking to achieve its objective, the Fund
will invest under normal market conditions at least 65% of its total assets in
equity securities of companies in emerging markets.
The Fund considers countries with emerging markets to include the following: (i)
countries with an emerging stock market as defined by the International Finance
Corporation; (ii) countries with low- to middle-income economies according to
the International Bank For Reconstruction and Development (more commonly
referred to as the World Bank); and (iii) countries listed in World Bank
publications as developing. The Adviser seeks to identify and invest in those
emerging markets that have a relatively low gross national product per capita,
compared to the world's major economies, and which exhibit potential for rapid
economic growth. The Adviser believes that investment in equity securities of
emerging
42
<PAGE>
market issuers offers significant potential for long-term capital appreciation.
Emerging market countries include, but are not limited to: Argentina, Brazil,
Chile, China, the Czech Republic, Colombia, Ecuador, Greece, Hong Kong,
Indonesia, India, Malaysia, Mexico, the Philippines, Poland, Portugal, Peru,
Russia, Singapore, South Africa, Thailand, Taiwan and Turkey.
A company will be considered in a country, market or region if it conducts its
principal business activities in the country, market or region. A company will
be considered to conduct its principal business activities in a country, market
or region if it derives a significant portion (at least 50%) of its revenues or
profits from goods produced or sold, investments made, or services performed in
such country, market or region or has at least 50% of its assets situated in
such country, market or region.
Equity securities of emerging market issuers may include common stocks,
preferred stocks (including convertible preferred stocks) and warrants; bonds,
notes and debentures convertible into common or preferred stock; equity
interests in foreign investment funds or trusts and real estate investment trust
securities. The Fund may invest in ADRs, GDRs, EDRs, and ADSs of such issuers.
The Fund also may invest in other types of instruments, including debt
obligations. Debt obligations acquired by the Fund will be rated investment
grade at the time of purchase by Moody's or S&P or, if unrated, determined by
the Adviser to be comparable in quality to instruments so rated. Obligations
with the lowest investment grade rating (E.G., rated "Baa" by Moody's or "BBB"
by S&P) have speculative characteristics, and changes in economic conditions or
other circumstances are more likely to lead to a weakened capacity to make
principal and interest payments than is the case with higher grade debt
obligations. See "Appendix B" for a description of these ratings designations.
The Fund is a diversified fund that intends, under normal market conditions, to
invest in at least three different countries, although it may, from time to
time, invest all of its assets in a single country. If the Fund invests all or a
significant portion of its assets at any time in a single country, events
occurring in such country are more likely to affect the Fund's investments. For
additional information concerning risk, see "Special Risk Considerations
Relevant to an Investment in Nations International Equity Fund, Nations Emerging
Markets Fund, Nations Pacific Growth Fund and Nations Global Government Income
Fund," below. When allocating investments among individual countries, the
Adviser will consider various criteria, such as the relative economic growth
potential of the various economies and securities markets, expected levels of
inflation, government policies influencing business conditions and the outlook
for currency relationships.
For defensive purposes, the Fund may temporarily invest substantially all of its
assets in U.S. financial markets or in U.S. dollar-denominated instruments.
NATIONS PACIFIC GROWTH FUND: The Fund seeks to achieve its objective by
investing primarily in securities of issuers in the regions known as the Pacific
Basin and the Far East. An issuer will be considered in a region if it conducts
its principal business activities in the region. An issuer will be considered to
conduct its principal business activities in a region if it derives a
significant portion (at least 50%) of its revenues or profits from goods
produced or sold, investments made, or services performed in such region or has
at least 50% of its assets situated in such region. The Pacific Basin and Far
East include Australia, Hong Kong, India, Indonesia, South Korea, Malaysia, New
Zealand, Pakistan, the People's Republic of China, the Philippines, Singapore,
Sri Lanka, Taiwan and Thailand and may include other markets that develop in the
region. The Fund will not invest in securities of issuers in Japan.
The Fund will focus on equity securities, but may also invest in debt
obligations. Such equity securities may include common stocks, preferred stocks
(including convertible preferred stocks) and warrants; bonds, notes and
debentures convertible into common or preferred stock; equity interests in
foreign investment funds or trusts and real estate investment trust securities.
Debt obligations acquired by the Fund will be rated investment grade at the time
of purchase by Moody's or S&P or, if unrated, determined by the Adviser to be
comparable in quality to instruments so rated. Obligations with the lowest
investment grade rating (E.G., rated "Baa" by Moody's or "BBB" by S&P) have
speculative characteristics, and changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity to make principal
and interest payments than is the case with higher grade debt obligations. See
"Appendix B" for a description of these ratings designations.
In seeking to achieve its objective, the Fund will invest under normal market
conditions at least 65% of its total assets in securities of issuers that
conduct their principal business activities in countries of the Pacific Basin
and Far East, except for Japan. Although the Fund may not invest in securities
issued by companies that conduct their principal business activities in Japan,
the Fund may invest in securities that are listed on a Japanese exchange.
The Fund is a diversified fund that intends, under normal market conditions, to
invest in at least three different countries, although it may, from time to
time, invest all of its assets in a single country. If the Fund invests all or a
significant portion of its assets at any time in a single country, events
occurring in such country are more
43
<PAGE>
likely to affect the Fund's investments. For additional information concerning
risk, see "Special Risk Considerations Relevant to an Investment in Nations
International Equity Fund, Nations Emerging Markets Fund, Nations Pacific Growth
Fund and Nations Global Government Income Fund," below. When allocating
investments among individual countries, the Adviser will consider various
criteria, such as the relative economic growth potential of the various
economies and securities markets, expected levels of inflation, government
policies influencing business conditions and the outlook for currency
relationships.
For defensive purposes, the Fund may temporarily invest substantially all of its
assets in U.S. financial markets or in U.S. dollar-denominated instruments.
NATIONS CAPITAL GROWTH FUND: The investment philosophy of the Fund is based on
the belief that companies with superior growth characteristics selling at
reasonable prices will, over time, outperform the market. Therefore, the Fund
will generally seek to invest in larger capitalization, high-quality companies
which possess above average earnings growth potential.
The Fund's equity investments will generally be made in companies which share
some of the following characteristics:
(Bullet) above-average earnings growth relative to the S&P 500 Index;
(Bullet) established operating histories, strong balance sheets and favorable
financial characteristics; and
(Bullet) above average return on equity relative to the S&P 500 Index.
In addition, the Fund's investment program enables it to invest in the following
types of companies:
(Bullet) companies that generate or apply new technologies, new and improved
distribution techniques, or new services, such as those in the business
equipment, electronics, specialty merchandising and health service
industries;
(Bullet) companies that own or develop natural resources, such as energy
exploration companies;
(Bullet) companies that may benefit from changing consumer demands and
lifestyles, such as financial service organizations and
telecommunication companies;
(Bullet) foreign companies, including those in countries with more rapid
economic growth than the U.S.;
(Bullet) companies whose earnings growth is projected at a pace in excess of the
average company (I.E., growth companies); and
(Bullet) companies whose earnings are temporarily depressed and are currently
out of favor with most investors.
Through intensive research, visits to many companies each year and efficient
response to changing market conditions, the Adviser seeks to make the most of
the Fund's flexible charter.
Under normal market conditions, the Fund invests at least 65% of its total
assets in common stocks. In addition to common stocks, the Fund also may invest
in preferred stocks, securities convertible into common stocks and other types
of securities having common stock characteristics (such as rights and warrants
to purchase equity securities). Although the Fund invests primarily in publicly
traded common stocks of companies incorporated in the United States, the Fund
may invest up to 20% of its total assets in foreign securities.
The Fund also may invest in various money market instruments and repurchase
agreements. The Fund may invest without limitation in such instruments pending
investment, to meet anticipated redemption requests, or as a temporary defensive
measure if market conditions warrant.
NATIONS EMERGING GROWTH FUND: The Fund will invest in common stocks and
securities convertible into common stocks selected from a universe of emerging
growth companies monitored by the Adviser. Most of the companies will have
revenues between $50 million and $1.5 billion and a debt ratio of less than 50%
of capitalization. The universe focuses on companies with above average earnings
growth rates and profit margins, yet the portfolio may include positions of
special situation companies whose growth is expected to accelerate. These
companies are believed to offer significant opportunities for capital
appreciation and the Adviser will attempt to identify these opportunities before
their potential is recognized by investors in general.
In selecting industries and companies for investment, the Adviser will consider
overall growth prospects, financial condition, competitive position, technology,
research and development, innovative products, marketing expertise,
productivity, labor costs, raw material costs and sources, profit margins,
return on investment, structural changes in local economies, capital resources,
the degree of governmental regulation or deregulation, management and other
factors.
Under normal market conditions, the Fund invests at least 65% of its total
assets in common stocks. The Fund also may invest in various money market
instruments and repurchase agreements. The Fund may invest without limitation in
such instruments pending investment, to meet anticipated redemption requests, or
as a temporary defensive measure if market conditions warrant.
The volatility of emerging growth stocks is higher than that of larger
companies. Many of these stocks trade over the counter and may not have
widespread interest among institutional investors. These securities may have
larger potential for gains but also carry more risk if unexpected company
developments adversely affect the
44
<PAGE>
stock prices. To help reduce risk, the Fund is diversified and typically invests
in 75 to 100 companies which represent a broad range of industries and sectors,
both in the United States and abroad. Although the Fund invests primarily in
securities of U.S. issuers, the Fund may invest up to 20% of its total assets in
foreign securities.
NATIONS DISCIPLINED EQUITY FUND: The investment philosophy of the Fund is based
on the premise that companies with positive earnings trends also should
experience positive trends in their share price. Based on this philosophy, the
Fund invests primarily in the common stocks of companies that the Adviser
believes are likely to experience significant increases in earnings. By pursuing
this investment philosophy, the Fund seeks to provide investors with long-term
capital appreciation which exceeds that of the S&P 500 Index.
In selecting stocks for purchase by the Fund, the Adviser utilizes quantitative
analysis supported by fundamental research. This approach seeks to identify
companies that have experienced positive historical earnings trends, as
evidenced by earnings forecasts issued by investment banks, broker/dealers and
other investment professionals. The Adviser believes that companies experiencing
such earnings trends have the potential to generate significant increases in per
share earnings. The Adviser also believes that companies with increasing
earnings should experience positive trends in their stock price. Although the
Fund seeks to invest in companies with increasing earnings, the Fund's
investment objective focuses on long-term capital appreciation; income is not an
objective of the Fund.
Under normal market conditions, the Fund invests at least 65% of its total
assets in common stocks of domestic issuers. With respect to the remainder of
the Fund's assets, the Fund may invest in a broad range of equity and debt
instruments, including preferred stocks, securities (debt and preferred stock)
convertible into common stock, warrants and rights to purchase common stocks,
options, U.S. government and corporate debt securities and various money market
instruments. The Fund will invest primarily in medium- and large-sized companies
(I.E. companies with market capitalizations of $500 million or greater) that are
determined to have favorable price/earnings ratios. The Fund also may invest in
securities issued by companies with market capitalizations of less than $500
million. The volatility of small-capitalization stocks is typically greater than
that of larger companies. To help reduce risk, the Fund will invest in the
securities of companies representing a broad range of industries and economic
sectors.
The Fund's investments in debt securities, including convertible securities,
will be limited to securities rated investment grade (E.G. securities rated in
one of the top four investment categories by an NRSRO or, if not rated, are of
equivalent quality as determined by the Adviser). Obligations rated in the
lowest of the top four investment grade rating categories have speculative
characteristics and changes in economic conditions or other circumstances are
more likely to lead to a weakened capacity to make principal and interest
payments than is the case with higher grade debt obligations.
The Fund may invest up to 20% of its total assets in foreign securities. For
temporary defensive purposes if market conditions warrant, the Fund may invest
without limitation in preferred stocks, investment grade debt instruments, money
market instruments and repurchase agreements.
NATIONS EQUITY INDEX FUND: Under normal conditions, the Fund will invest at
least 80% of its assets in equity securities of companies which compose the S&P
500 Index. The S&P 500 Index consists of 500 selected common stocks, most of
which are listed on the New York Stock Exchange. Different stocks have different
weightings in the Index, depending on the amount of stock outstanding and its
current price. In seeking to duplicate the performance of the S&P 500 Index, the
Adviser will attempt to allocate the Fund's portfolio among common stocks in
approximately the same weightings as the S&P 500 Index, beginning with the
heaviest weighted stocks that make up a larger portion of the Index's value.
The Adviser generally will seek to match the composition of the S&P 500 Index as
closely as possible, but may not always invest the Fund's portfolio to mirror
the Index exactly. Because of the difficulty and expense of executing relatively
small stock transactions, the Fund may not always be invested in the less
heavily weighted S&P 500 Index stocks and may at times have its portfolio
weighted differently from the S&P 500 Index. The Fund may omit or remove an S&P
500 Index stock from its portfolio if, following objective criteria, the Adviser
judges the stock to be insufficiently liquid or believes the merit of the
investment has been substantially impaired by extraordinary events or financial
conditions. The Adviser may purchase stocks that are not included in the S&P 500
Index to compensate for these differences if it believes that their prices will
move together with the prices of S&P 500 Index stocks omitted from the
portfolio.
The Fund is not managed according to traditional methods of "active" investment
management, which involve the buying and selling of securities based upon
economic, financial, and market analyses and investment judgment. Instead, the
Fund, utilizing a "passive" or "indexing" investment approach, attempts to
duplicate the performance of the S&P 500 Index.
The correlation between the performance of Nations Equity Index Fund (before
fees and expenses) and the S&P 500 Index is expected to be over 0.95 on an
annual basis. A correlation of 1.00 would indicate perfect corre-
45
<PAGE>
lation, which would be achieved when the net asset value of the Fund, including
the value of its dividend and capital gains distributions, increases or
decreases in exact proportion to changes in the S&P 500 Index. The Fund's
ability to track the S&P 500 Index, however, may be affected by, among other
things, transaction costs, changes in either the composition of the S&P 500
Index or the number of shares outstanding for the components of the S&P 500
Index, and the timing and amount of shareholder purchase and redemptions. The
Fund may utilize stock index futures contracts to minimize tracking error. In
connection with engaging in futures transactions, the Fund may hold cash, cash
equivalents, and/or U.S. Government securities.
Under normal conditions, the Adviser will attempt to invest as much of the
Fund's assets as is practical in common stocks. However, the Fund will maintain
a reasonable position in high-quality short-term debt securities and money
market instruments to meet redemption requests. If the Adviser believes that
market conditions warrant a temporary defensive posture, the Fund may invest
without limitation in high-quality short-term debt securities and money market
instruments. These securities and money market instruments may include domestic
and foreign commercial paper, certificates of deposit, bankers' acceptances and
time deposits, U.S. government securities and repurchase agreements.
The Fund may also invest a portion of its portfolio in instruments whose return
depends on stock market prices. These may include debt securities whose prices
or interest rates are indexed to the return of the S&P 500 Index, or swap
agreements linked to the S&P 500 Index, and options and futures contracts. The
Fund would invest in these types of instruments in order to seek to match the
total return of the Index in accordance with its investment objective. However,
instruments linked to stock market returns may not track the return of the Index
in all cases, and may involve additional credit risks. The Fund may also invest
in warrants.
ABOUT THE INDEX: The S&P 500 Index is composed of 500 common stocks, which are
chosen by S&P on a statistical basis. The inclusion of a stock in the S&P 500
Index in no way implies that S&P believes the stock to be an attractive
investment. The Index is determined, composed and calculated by S&P without
regard to the Fund. S&P is neither a sponsor of, nor in any way affiliated with,
the Fund and S&P makes no representation or warranty, expressed or implied, on
the advisability of investing in the Fund or as to the ability of the Index to
track general stock market performance. S&P disclaims all warranties of
merchantability or fitness for a particular purpose or use with respect to the
Index or any data included therein.
GENERAL: Each Equity Fund also may invest in certain specified derivative
securities including: exchange-traded options; over-the-counter options executed
with primary dealers, including long calls and puts and covered calls to enhance
return; and U.S. and foreign exchange-traded financial futures approved by the
Commodity Futures Trading Commission ("CFTC") and options thereon for market
exposure risk management. Each Equity Fund may lend its portfolio securities to
qualified institutional investors. Each Equity Fund also may invest in
restricted, private placement and other illiquid securities. Each Equity Fund
(except Nations Equity Index Fund) also may invest in real estate investment
trust securities. In addition, each Equity Fund may invest in securities issued
by other investment companies, consistent with the Fund's investment objective
and policies. Nations International Equity Fund, Nations Pacific Growth Fund and
Nations Emerging Markets Fund may invest in forward foreign exchange contracts
and repurchase agreements.
For more information concerning these and other investments in which the Funds
may invest and their investment practices, see "Appendix A."
BALANCED FUND:
NATIONS BALANCED ASSETS FUND: In pursuing the Fund's objective, the Adviser will
allocate the Fund's assets based upon its judgment of the relative valuation and
the expected returns of the three major asset classes in which the Fund invests:
common stocks, fixed income securities, and cash equivalents. In assessing
relative value and expected returns, the Adviser will evaluate current economic
and financial market conditions (both domestically and internationally), current
interest rate trends, earnings and dividend prospects for common stocks, and
overall financial market stability. These asset classes are actively managed in
an effort to maximize total return. In general, the Adviser believes that common
stocks offer the best opportunity for long-term capital appreciation.
The Fund invests in common and preferred stocks of U.S. corporations and of
foreign issuers, as well as securities convertible into common stocks, and other
types of securities having common stock characteristics (such as rights and
warrants to purchase equity securities) that meet the Adviser's stringent
criteria. Fundamental research and valuation analysis are emphasized in the
stock selection process. Stock holdings are typically those of seasoned,
financially strong companies with favorable industry positioning.
Under normal circumstances, at least 25% of the total value of the Fund's assets
will be invested in fixed income securities. The Fund may invest in government,
corporate and municipal debt securities, as well as mortgage-backed and
asset-backed securities. Most obligations acquired by the Fund will be issued by
companies or governmental entities located within the United States. Debt
obligations acquired by the Fund will be
46
<PAGE>
rated investment grade at the time of purchase by D&P, Fitch, S&P, Moody's, IBCA
or BankWatch, or, if unrated, determined by the Adviser to be comparable in
quality to instruments so rated. Obligations with the lowest investment grade
rating (E.G. rated "BBB" by S&P or "Baa" by Moody's) have speculative
characteristics and changes in economic conditions or other circumstances are
more likely to lead to a weakened capacity to make principal and interest
payments than is the case with higher grade debt obligations. See "Appendix B"
for a description of these ratings designations. Subsequent to its purchase by
the Fund, an issue of securities may cease to be rated or its rating may be
reduced below the minimum rating required for purchase by the Fund. The Adviser
will consider such an event in determining whether the Fund should continue to
hold the obligation. Unrated obligations may be acquired by the Fund if they are
determined by the Adviser to be of comparable quality at the time of purchase to
rated obligations that may be acquired.
Although the Fund invests primarily in securities of U.S. issuers, the Fund may
invest up to 25% of its total assets in foreign securities.
The Fund also may invest in various money market instruments and repurchase
agreements. The Fund may invest without limitation in such instruments pending
investment, to meet anticipated redemption requests, or as a temporary defense
measure if market conditions warrant.
The Fund also may invest in certain specified derivative securities, including:
interest rate swaps, caps and floors for hedging purposes; exchange-traded
options; over-the-counter options executed with primary dealers, including long
calls and puts and covered calls to enhance return; and CFTC-approved U.S. and
foreign exchange-traded financial futures and options thereon for market
exposure risk management. The Fund may lend its portfolio securities to
qualified institutional investors and engage in dollar roll transactions. The
Fund may invest in real estate investment trust securities. The Fund also may
invest in restricted, private placement and other illiquid securities, and also
may purchase securities issued by other investment companies, consistent with
the Fund's investment objective and policies. See "Appendix A" below for
additional information concerning the investment practices of this Fund.
BOND FUNDS:
NATIONS SHORT-INTERMEDIATE GOVERNMENT FUND: In pursuing its investment
objective, Nations Short-Intermediate Government Fund invests substantially all
of its assets in U.S. Government Obligations and repurchase agreements relating
to such obligations. Under normal market conditions, it is expected that the
average dollar-weighted maturity of the Fund's portfolio will be between three
and five years and the duration will not exceed five years. U.S. Government
Obligations have historically involved little risk of loss of principal if held
to maturity. However, due to fluctuations in interest rates, the market value of
such securities may vary during the period a shareholder owns shares of the
Fund. The value of the Fund's portfolio generally will vary inversely with
changes in prevailing interest rates.
The Fund also may invest in corporate convertible and non-convertible debt
obligations, including bonds, notes and debentures rated investment grade at the
time of purchase by one of the six NRSROs, or if not so rated, determined by the
Adviser to be of comparable quality to instruments so rated; dollar-denominated
debt obligations of foreign issuers, including foreign corporations and foreign
governments; mortgage-backed securities of governmental issuers or of private
issuers, including mortgage pass-through certificates, collateralized mortgage
obligations or "CMOs", real estate investment trust securities or
mortgage-backed bonds; other asset-backed and municipal securities rated by one
of the six NRSROs, or if not so rated, determined by the Adviser to be of
comparable quality.
The Fund also may invest in "high quality" money market instruments (I.E., those
within the two highest rating categories or unrated instruments deemed by the
Adviser to be of comparable quality), repurchase agreements and cash. Such
obligations may include those issued by foreign banks and foreign branches of
U.S. banks. These investments may be in such proportion as, in the Adviser's
opinion, prevailing market or economic circumstances warrant.
NATIONS GOVERNMENT SECURITIES FUND: In pursuing its investment objective,
Nations Government Securities Fund invests at least 65% of its assets in U.S.
Government Obligations. Under normal market conditions, it is expected that the
average dollar-weighted maturity of the Fund's portfolio will be between three
and 10 years and the Fund's duration is expected to be in a range of 3.5 to six
years.
The Fund also may invest in corporate convertible and non-convertible debt
obligations, including bonds, notes and debentures rated investment grade at the
time of purchase by one of the six NRSROs, or if not so rated, determined by the
Adviser to be of comparable quality to instruments so rated; dollar-denominated
debt obligations of foreign issuers, including foreign corporations and foreign
governments; mortgage-backed securities of governmental issuers or of private
issuers, including mortgage pass-through certificates, CMOs, real estate
investment trust securities or mortgage-backed bonds; other asset-backed and
municipal securities rated by one of the six NRSROs, or if not so rated,
determined by the Adviser to be of comparable quality.
47
<PAGE>
The Fund also may invest in "high quality" money market instruments (I.E., those
within the two highest rating categories or unrated instruments deemed by the
Adviser to be of comparable quality), repurchase agreements and cash. Such
obligations may include those issued by foreign banks and foreign branches of
U.S. banks. These investments may be in such proportion as, in the Adviser's
opinion, prevailing market or economic circumstances warrant.
NATIONS SHORT-TERM INCOME FUND: In pursuing its investment objective, the Fund
will, under normal market conditions, invest at least 65% of the total value of
its assets in investment grade debt obligations. It is expected that the average
dollar-weighted maturity and duration of the Fund's portfolio will not exceed
three years.
The Fund may invest in corporate convertible and non-convertible debt
obligations, including bonds, notes and debentures rated investment grade by one
of the six NRSROs, or, if not so rated, determined by the Adviser to be of
comparable quality to instruments so rated; dollar-denominated debt obligations
of foreign issuers, including foreign corporations and foreign governments; and
mortgage-related securities of governmental issuers or of private issuers,
including mortgage pass-through certificates, CMOs, real estate investment trust
securities or mortgage-backed bonds; other asset-backed and municipal securities
rated by one of the six NRSROs, or, if not so rated, determined by the Adviser
to be of comparable quality to instruments so rated. The Fund also may invest in
U.S. Government Obligations.
Most obligations acquired by the Fund will be issued by companies or
governmental entities located within the United States. The Fund may invest up
to 25% of its assets in foreign securities.
As noted above, the Fund will invest in investment grade debt obligations.
Obligations rated in the lowest of the top four investment grade rating
categories (E.G. rated "BBB" by S&P or "Baa" by Moody's) have speculative
characteristics and changes in economic conditions or other circumstances are
more likely to lead to a weakened capacity to make principal and interest
payments than is the case with higher grade debt obligations. Subsequent to its
purchase by the Fund, an issue of securities may cease to be rated or its rating
may be reduced below the minimum rating required for purchase by the Fund. The
Adviser will consider such an event in determining whether the Fund should
continue to hold the obligation. See "Appendix B" below for a description of
these rating designations.
The Fund also may invest in "high quality" money market instruments (I.E., those
within the two highest rating categories or unrated instruments determined by
the Adviser to be of comparable quality), repurchase agreements and cash. Such
obligations may include those issued by foreign banks and foreign branches of
U.S. banks. These investments may be in such proportions as, in the Adviser's
opinion, prevailing market or economic circumstances warrant.
NATIONS DIVERSIFIED INCOME FUND: In pursuing its investment objective, the Fund
will, under normal market conditions, invest at least 65% of the total value of
its assets in investment grade debt obligations. It is expected that the average
dollar-weighted maturity of the Fund's portfolio will be greater than five
years.
The Fund may invest in corporate convertible and non-convertible debt
obligations such as fixed- and variable-rate bonds; U.S. Government Obligations;
dollar-denominated and non-dollar-denominated debt obligations of foreign
issuers, including foreign corporations and foreign governments; mortgage-backed
securities of governmental issuers or of private issuers, including mortgage
pass-through certificates, CMOs, real estate investment trust securities or
mortgage-backed bonds; other asset-backed and municipal securities rated by one
of the six NRSROs, or if not so rated, determined by the Adviser to be of
comparable quality. The Fund also may invest in dividend-paying convertible and
non-convertible preferred and common stocks.
Most obligations acquired by the Fund will be issued by companies or
governmental entities located within the United States. The Fund may invest up
to 25% of its assets in foreign securities.
Obligations rated in the lowest of the top four investment grade rating
categories (E.G. rated "BBB" by S&P or "Baa" by Moody's) have speculative
characteristics and changes in economic conditions or other circumstances are
more likely to lead to a weakened capacity to make principal and interest
payments than is the case with higher grade debt obligations.
Up to 35% of the total value of the Fund's assets may be invested in
lower-quality fixed income securities rated "B" or better by Moody's or S&P, or
if not so rated, determined by the Adviser to be of comparable quality.
Securities which are rated "B" generally lack characteristics of the desirable
investment, and assurance of interest and principal payment over any long period
of time may be limited. Non-investment-grade debt securities are sometimes
referred to as "high yield bonds" or "junk bonds," and tend to have speculative
characteristics, generally involve more risk of principal and income than higher
rated securities, and have yields and market values that tend to fluctuate more
than higher quality securities.
Subsequent to its purchase by the Fund, an issue of securities may cease to be
rated or its rating may be reduced below the minimum rating required for
purchase by the Fund. The Adviser will consider such an event in determining
whether the Fund should continue
48
<PAGE>
to hold the obligation. See "Appendix B" below for a description of these rating
designations.
The Fund may hold or invest in "high quality" money market instruments (I.E.,
those within the two highest rating categories or unrated instruments deemed by
the Adviser to be of comparable quality), repurchase agreements and cash. Such
obligations may include those issued by foreign banks and foreign branches of
U.S. banks. These investments may be in such proportions as, in the Adviser's
opinion, prevailing market or economic circumstances warrant.
NATIONS STRATEGIC FIXED INCOME FUND: In pursuing its investment objective, the
Fund will, under normal market conditions, invest at least 65% of the total
value of its assets in investment grade fixed income securities. It is expected
that the average dollar-weighted maturity of the Fund's portfolio will be 10
years or less and under no circumstances will it exceed 15 years.
The Fund may invest in corporate convertible and non-convertible debt
obligations, including bonds, notes and debentures rated investment grade at the
time of purchase by one of the six NRSROs, or if not so rated, determined by the
Adviser to be of comparable quality to instruments so rated; U.S. Government
Obligations; dollar-denominated debt obligations of foreign issuers, including
foreign corporations and foreign governments; mortgage-backed securities of
governmental issuers or of private issuers, including mortgage pass-through
certificates, CMOs, real estate investment trust securities or mortgage-backed
bonds; other asset-backed and municipal securities rated by one of the six
NRSROs, or if not so rated, determined by the Adviser to be of comparable
quality. The Fund also may invest in dividend paying preferred and common stock.
Most obligations acquired by the Fund will be issued by companies or
governmental entities located within the United States. The Fund may invest up
to 25% of its assets in foreign securities.
The Fund will invest in investment grade debt obligations. Obligations rated in
the lowest of the top four investment grade rating categories (E.G. rated "BBB"
by S&P or "Baa" by Moody's) have speculative characteristics and changes in
economic conditions or other circumstances are more likely to lead to a weakened
capacity to make principal and interest payments than is the case with higher
grade debt obligations. Subsequent to its purchase by the Fund, an issue of
securities may cease to be rated or its rating may be reduced below the minimum
rating required for purchase by the Fund. The Adviser will consider such an
event in determining whether the Fund should continue to hold the obligation.
See "Appendix B" below for a description of these rating designations.
The Fund also may invest in "high quality" money market instruments (I.E., those
within the two highest rating categories or unrated instruments deemed by the
Adviser to be of comparable quality), repurchase agreements and cash. Such
obligations may include those issued by foreign banks and foreign branches of
U.S. banks. These investments may be in such proportions as, in the Adviser's
opinion, prevailing market or economic circumstances warrant.
NATIONS GLOBAL GOVERNMENT INCOME FUND: In seeking to achieve its investment
objective, the Fund will invest under normal market conditions at least 65% of
its total assets in debt securities issued or guaranteed by U.S. or foreign
governments (including states, provinces and municipalities) or their agencies,
instrumentalities or subdivisions ("Government Securities"). Except for
temporary defensive purposes, the Fund will concentrate its investments in
foreign Government Securities. Concentration in this context means the
investment of more than 25% of the Fund's total assets in such securities. The
Fund may invest in the debt securities of any type of issuer, including
corporations, banks and supranational entities.
The Fund, under normal market conditions, will invest in at least three
different countries. These countries may include the U.S., the countries of
Western Europe, Japan, Australia, New Zealand and Canada. If the Fund invests a
significant portion of its assets at any time in a single country, events
occurring in such country are more likely to affect the Fund's investments. For
additional information concerning risk, see "Special Risk Considerations
Relevant to an Investment in Nations International Equity Fund, Nations Emerging
Markets Fund, Nations Pacific Growth Fund and Nations Global Government Income
Fund," below. Because the Fund intends to invest a large portion of its assets
in foreign Government Securities, the Fund is a "non-diversified" investment
company for purposes of the Investment Company Act of 1940 (the "1940 Act"). The
Fund may invest in securities of issuers located in any region or country and
that are denominated in any currency.
The Fund is managed in accordance with an overall global investment strategy
which means that Fund investments are allocated among securities denominated in
U.S. dollars and the currencies of a number of foreign countries. The Fund's
exposure to various countries and currencies will vary in accordance with the
Adviser's assessment of the relative yield and appreciation of such securities.
Fundamental economic strength, credit quality and interest rate trends are the
principal factors considered by the Adviser in determining whether to increase
or decrease the emphasis placed upon a particular country or particular type of
security within the Fund's investment portfolio.
Under normal market conditions, the Fund intends to invest primarily in
securities rated "A" or better at the
49
<PAGE>
time of purchase by Moody's or S&P and unrated securities that, at the time of
purchase will be determined to be of comparable quality by the Adviser. The Fund
also may invest in securities rated "Baa" by Moody's or "BBB" by S&P, but does
not, as a general matter, intend to invest more than 10% of its total assets in
such securities. Subsequent to its purchase by the Fund, an issue of securities
may cease to be rated or its rating may be reduced below the minimum rating
required for purchase by the Fund. The Adviser will consider such event in
determining whether the Fund should continue to hold the obligation. In no event
will the Fund hold more than 5% of its total net assets in securities rated
below investment grade. See "Appendix B" below for a description of these rating
designations. The Adviser expects that the Fund's dollar-weighted average
maturity will not be greater than 15 years under normal market conditions.
Supranational entities are international organizations jointly operated by
multiple sovereign governments including, for example, the World Bank, the
European Coal and Steel Community, the Asian Development Bank, the European
Investment Bank and the Inter-American Development Bank. Supranational entities
generally have no taxing authority and are dependent upon their members for the
funds necessary to pay principal and interest on their debt obligations.
The Fund also may invest in money market instruments, certain specified
derivative securities, including: exchange-traded options; over-the-counter
options executed with primary dealers, including long calls and puts and covered
calls to enhance return and forward foreign exchange contracts; and U.S. and
foreign exchange-traded financial futures approved by the CFTC and options
thereon for market exposure risk management. The Fund may lend its portfolio
securities to qualified institutional investors. The Fund may invest in
restricted, private placement and other illiquid securities, repurchase
agreements and securities issued by other investment companies, consistent with
the Fund's investment objective and policies.
For defensive purposes, the Fund may temporarily invest substantially all of its
assets in U.S. financial markets or in U.S. dollar-denominated instruments. The
Fund also may invest in money market instruments.
NATIONS MUNICIPAL INCOME FUND, NATIONS SHORT-TERM MUNICIPAL INCOME FUND AND
NATIONS INTERMEDIATE MUNICIPAL BOND FUND: In pursuing their objectives, the
Funds will invest at least 80% of their total net assets in investment grade
obligations issued by or on behalf of states, territories, and possessions of
the United States, the District of Columbia, and their political subdivisions,
agencies, instrumentalities, and authorities, the interest on which, in the
opinion of counsel to the issuer or bond counsel, is exempt from Federal income
tax. To the extent consistent with the Funds' investment approach described in
this Prospectus, the Funds are managed to seek capital appreciation and minimize
capital losses due to interest rate movements.
Under normal market conditions, the average weighted maturity and duration of
each of the Funds' portfolios are expected to be as follows: Nations Municipal
Income Fund -- average dollar-weighted maturity greater than 10 years and
duration between 7.5 and 9.5 years; Nations Intermediate Municipal Bond
Fund -- average dollar-weighted maturity between three and 10 years and duration
between five and six years; Nations Short-Term Municipal Income Fund -- average
dollar-weighted maturity less than three years and duration between 1.25 and
2.75 years.
Municipal Securities will be rated investment grade at the time of purchase by
at least one of the six NRSROs or, if unrated, determined by the Adviser to be
of comparable quality at the time of purchase to rated obligations that may be
acquired by a Fund. Obligations rated in the lowest of the top four investment
grade rating categories (E.G. rated "BBB" by S&P or "Baa" by Moody's) have
speculative characteristics and changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity to make principal
and interest payments than is the case with higher grade debt obligations.
Subsequent to its purchase by a Fund, an issue of Municipal Securities may cease
to be rated, or its rating may be reduced below the minimum rating required for
purchase by a Fund. The Adviser will consider such an event in determining
whether a Fund should continue to hold the obligation. See "Appendix B" for a
description of these rating designations.
During temporary defensive periods, the Funds may invest in short-term taxable
and non-taxable obligations in such proportions as, in the opinion of the
Adviser, prevailing market or economic conditions warrant. Taxable obligations
that may be acquired by a Fund include repurchase agreements and short-term debt
securities. Under normal market conditions, each Fund's investments in taxable
obligations and private activity bonds, the interest on which may be treated as
a specific tax preference item under the Federal alternative minimum tax, will
not exceed 20% of its total assets at the time of purchase. The Funds may hold
uninvested cash reserves pending investment or during defensive periods.
STATE INTERMEDIATE MUNICIPAL BOND FUNDS AND STATE MUNICIPAL BOND FUNDS: Under
normal market conditions, at least 80% of the total net assets of the State
Intermediate Municipal Bond Funds and the State Municipal Bond Funds will be
invested in Municipal Securities, and substantially all of each Fund's assets
will be invested in debt instruments issued by or on behalf of the pertinent
state and its political subdivisions, agencies, instrumentalities and
authorities.
50
<PAGE>
Under normal market conditions, the average dollar-weighted maturity and
duration of each of the State Intermediate Municipal Bond Funds and State
Municipal Bond Funds are expected to be as follows: State Intermediate Municipal
Bond Funds -- average dollar-weighted maturity between three and 10 years and
duration between five and six years; State Municipal Bond Funds -- average
dollar-weighted maturity greater than 10 years and duration greater than 10
years.
Each of the State Intermediate Municipal Bond Funds and the State Municipal Bond
Funds operates as a non-diversified fund (except to the extent diversification
is required for Federal income tax purposes).
Dividends paid by each of these Funds which are derived from interest
attributable to tax-exempt obligations of the pertinent state and that state's
political subdivisions, agencies, instrumentalities and authorities, as well as
certain other governmental issuers such as Puerto Rico, will be exempt from
regular Federal income tax and (with the exception of Texas and Florida) the
income tax of the pertinent state. Texas and Florida do not impose a state
income tax; however, Florida imposes a state intangibles tax. Dividends derived
from interest on obligations of other governmental issuers will be exempt from
regular Federal income tax, but generally will be subject to state income tax
(with the exception of Texas and Florida). (See "How Dividends And Distributions
are Made; Tax Information.") During normal market conditions and as a matter of
fundamental investment policy, each of these Funds will invest at least 80% of
its total net assets in obligations the interest on which will be exempt from
regular Federal income tax and (with the exception of Texas and Florida) the
income tax of the pertinent state.
Municipal Securities acquired by the Funds will be rated investment grade at the
time of purchase by at least one NRSRO or, if unrated, determined by the Adviser
to be of comparable quality at the time of purchase to rated obligations that
may be acquired by the Funds. Obligations rated in the lowest of the top four
investment grade rating categories (E.G. rated "BBB" by S&P or "Baa" by Moody's)
have speculative characteristics and changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity to make principal
and interest payments than is the case with higher grade debt obligations.
Subsequent to its purchase by a Fund, an issue of Municipal Securities may cease
to be rated or its rating may be reduced below the minimum rating required for
purchase by a Fund. The Adviser will consider such an event in determining
whether a Fund should continue to hold the obligation. See "Appendix B" below
for a description of these rating designations.
During temporary defensive periods, the Funds may invest in short-term taxable
and non-taxable obligations in such proportions as, in the opinion of the
Adviser, prevailing market or economic conditions warrant. Taxable obligations
that may be acquired by the Funds include repurchase agreements and short-term
debt securities. Under normal market conditions, each Fund's investments in
taxable obligations and private activity bonds, the interest on which may be
treated as a specific tax preference item under the Federal alternative minimum
tax, will not exceed 20% of its total assets at the time of purchase.
GENERAL: Each of the Funds may invest in certain specified derivative
securities, including: interest rate swaps, caps and floors for hedging
purposes; exchange-traded options; over-the-counter options executed with
primary dealers, including long calls and puts and covered calls to enhance
return; and CFTC-approved U.S. and foreign exchange-traded financial futures and
options thereon for market exposure risk-management. Each of the Funds also may
lend its portfolio securities to qualified institutional investors and may
invest in restricted, private placement and other illiquid securities. Nations
Short-Intermediate Government Fund, Nations Government Securities Fund, Nations
Short-Term Income Fund, Nations Diversified Income Fund and Nations Strategic
Fixed Income Fund may engage in reverse repurchase agreements and dollar roll
transactions. Additionally, each Fund may purchase securities issued by other
investment companies, consistent with the Fund's investment objective and
policies.
The Funds also may invest in instruments issued by trusts or certain
partnerships including pass-through certificates representing participations in,
or debt instruments backed by, the securities and other assets owned by such
trusts and partnerships.
Certain securities that have variable or floating interest rates or demand, put
or prepayment features may be deemed to have remaining maturities shorter than
their nominal maturities for purposes of determining the average weighted
maturity and duration of the Funds.
For more information concerning these and other investments in which the Funds
may invest and their investment practices, see "Appendix A."
Although changes in the value of securities subsequent to their acquisition are
reflected in the net asset value of the Funds' shares, such changes will not
affect the income received by the Funds from such securities. However, since
available yields vary over time, no specific level of income can ever be
assured. The dividends paid by the Funds will increase or decrease in relation
to the income received by the Funds from their investments, which will in any
case be reduced by the Funds' expenses before being distributed to the Funds'
shareholders.
SPECIAL RISK CONSIDERATIONS RELEVANT TO AN INVESTMENT IN NATIONS INTERNATIONAL
EQUITY FUND, NATIONS EMERGING MARKETS FUND, NATIONS PACIFIC
51
<PAGE>
GROWTH FUND AND NATIONS GLOBAL GOVERNMENT INCOME FUND: Investors should
understand and consider carefully the special risks involved in foreign
investing. In addition, each Fund presents unique risks of which investors
should be aware.
Investors in Nations International Equity Fund should be aware that the Fund
may, from time to time, invest up to 5% of its total assets in securities of
companies located in Eastern Europe. Economic and political reforms in this
region are still in their infancy. As a result, investment in such countries
would be highly speculative and could result in losses to the Fund and, thus, to
its shareholders.
Investors in Nations Pacific Growth Fund should understand and consider
carefully the special risks involved in investing in the Pacific Basin and Far
East. Countries in the Pacific Basin and Far East are in various stages of
economic development, ranging from emerging markets to mature economies, but
each has unique risks. Most countries in this region are heavily dependent on
international trade, and some are especially vulnerable to recessions in other
countries. Many of these countries are also sensitive to world commodity prices.
Some countries that have experienced rapid growth may still have obsolete
financial systems, economic problems or archaic legal systems. In addition, many
of these nations are experiencing political and social uncertainties.
The same is true, but even more so, for the emerging market countries in which
the Nations Emerging Markets Fund will invest. Although the Fund believes that
its investments present the possibility for significant growth over the long
term, they also entail significant risks. Many investments in emerging markets
can be considered speculative, and their prices can be much more volatile than
in the more developed nations of the world. This difference reflects the greater
uncertainties of investing in less established markets and economies. The
financial markets of emerging markets countries are generally less well
capitalized and thus securities of issuers based in such countries may be less
liquid.
Nations Global Government Income Fund's yield and share price will change based
on changes in domestic or foreign interest rates and in an issuer's
creditworthiness. In general, bond prices rise when interest rates fall, and
vice versa.
Moreover, for each of the Funds, investing in securities denominated in foreign
currencies and utilization of forward foreign currency exchange contracts and
other currency hedging techniques involve certain considerations comprising both
opportunities and risks not typically associated with investing in U.S.
dollar-denominated securities. Additionally, changes in the value of foreign
currencies can significantly affect a Fund's share price. General economic and
political factors in the various world markets also can impact a Fund's share
price.
The expenses to individual investors of investing directly in foreign securities
are very high relative to similar costs for investing in U.S. securities. While
the Funds offer a more efficient way for individual investors to participate in
foreign markets, their expenses, including custodial fees, are also higher than
the typical domestic equity mutual fund.
Risks unique to international investing include: (1) restrictions on foreign
investment and repatriation of capital; (2) fluctuations in currency exchange
rates; (3) costs of converting foreign currency into U.S. dollars and U.S.
dollars into foreign currencies; (4) greater price volatility and less
liquidity; (5) settlement practices, including delays, which may differ from
those customary in United States markets; (6) exposure to political and economic
risks, including the risk of nationalization, expropriation of assets and war;
(7) possible imposition of foreign taxes and exchange control and currency
restrictions; (8) lack of uniform accounting, auditing and financial reporting
standards; (9) less governmental supervision of securities markets, brokers and
issuers of securities; (10) less financial information available to investors;
and (11) difficulty in enforcing legal rights outside the United States. These
risks often are heightened for investments in emerging or developing countries.
See "Appendix A" for additional discussion of the risks associated with an
investment in the Nations International Equity Fund, Nations Emerging Markets
Fund, Nations Pacific Growth Fund and Nations Global Government Income Fund.
PORTFOLIO TURNOVER (NON-MONEY MARKET FUNDS): Generally, the Equity Funds, the
Balanced Fund and the Bond Funds (the "Non-Money Market Funds") will purchase
portfolio securities for capital appreciation or investment income, or both, and
not for short-term trading profits. If a Fund's annual portfolio turnover rate
exceeds 100%, it may result in higher brokerage costs and possible tax
consequences for the Fund and its shareholders. For the Funds' portfolio
turnover rates, see "Financial Highlights."
RISK CONSIDERATIONS: Although the Adviser will seek to achieve the investment
objective of each Fund, there is no assurance that it will be able to do so. No
single Fund should be considered, by itself, to provide a complete investment
program for any investor. Investments in a Fund are not insured against loss of
principal.
Investments by a Fund in common stocks and other equity securities are subject
to stock market risks. The value of the stocks that the Fund holds, like the
broader stock market, may decline over short or even extended periods.
The value of a Fund's investments in debt securities, including U.S. Government
Obligations, will tend to decrease when interest rates rise and increase when
interest rates fall. In general, longer-term debt instru-
52
<PAGE>
ments tend to fluctuate in value more than shorter-term debt instruments in
response to interest rate movements. In addition, debt securities that are not
backed by the United States Government are subject to credit risk, which is the
risk that the issuer may not be able to pay principal and/or interest when due.
Since each of the State Intermediate Municipal Bond Funds and State Municipal
Bond Funds invests primarily in securities issued by entities located in a
single state, such Funds are more susceptible to changes in value due to
political or economic changes affecting that state or its subdivisions.
Certain of the Funds' investments constitute derivative securities, which are
securities whose value is derived, at least in part, from an underlying index or
reference rate. There are certain types of derivative securities that can, under
certain circumstances, significantly increase a purchaser's exposure to market
or other risks. The Adviser, however, only purchases derivative securities in
circumstances where it believes such purchases are consistent with such Funds'
investment objectives and do not unduly increase the Funds' exposure to market
or other risks. For additional risk information regarding the Funds' investments
in particular instruments, see "Appendix A -- Portfolio Securities."
INVESTMENT LIMITATIONS: Each Fund is subject to a number of investment
limitations. The following investment limitations are matters of fundamental
policy and may not be changed without the affirmative vote of the holders of a
majority of the Fund's outstanding shares. Other investment limitations that
cannot be changed without such a vote of shareholders are described in the SAIs.
Each Fund may not:
1. Purchase any securities which would cause 25% or more of the value of the
Fund's total assets at the time of such purchase to be invested in the
securities of one or more issuers conducting their principal activities in the
same industry, provided that this limitation does not apply (a) with respect to
the Nations Global Government Income Fund, to investments in foreign Government
Securities; and (b) to investments in obligations issued or guaranteed by the
U.S. Government or its agencies and instrumentalities. In addition, this
limitation does not apply to investments by "money market funds" as that term is
used under the 1940 Act, in obligations of domestic banks.
2. Make loans, except that a Fund may purchase and hold debt instruments
(whether such instruments are part of a public offering or privately placed),
may enter into repurchase agreements and may lend portfolio securities in
accordance with its investment policies.
Nations Prime Fund, Nations Treasury Fund, Nations Government Money Market Fund,
Nations Tax Exempt Fund, Nations Value Fund, Nations Equity Income Fund, Nations
International Equity Fund, Nations Emerging Markets Fund, Nations Pacific Growth
Fund, Nations Capital Growth Fund, Nations Emerging Growth Fund, Nations
Disciplined Equity Fund, Nations Equity Index Fund, Nations Balanced Assets
Fund, Nations Short-Intermediate Government Fund, Nations Government Securities
Fund, Nations Short-Term Income Fund, Nations Diversified Income Fund, Nations
Strategic Fixed Income Fund, Nations Intermediate Municipal Bond Fund, Nations
Municipal Income Fund and Nations Short-Term Municipal Income Fund may not:
Purchase securities of any one issuer (other than securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities) if,
immediately after such purchase, more than 5% of the value of such Fund's
total assets would be invested in the securities of such issuer, except
that up to 25% of the value of the Fund's total assets may be invested
without regard to these limitations and with respect to 75% of such Fund's
assets, such Fund will not hold more than 10% of the voting securities of
any issuer.
The Nations Global Government Income Fund, the State Intermediate Municipal Bond
Funds and the State Municipal Bond Funds may not:
Purchase securities of any one issuer (other than securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities) if,
immediately after such purchase, more than 25% of the value of a Fund's
total assets would be invested in the securities of one issuer, and with
respect to 50% of such Fund's total assets, more than 5% of its assets
would be invested in the securities of one issuer.
In addition, as a matter of non-fundamental policy, the Nations Tax Exempt Fund
may not purchase any securities other than obligations the interest on which is
exempt from Federal income tax and stand-by commitments with respect to such
obligations.
Also, as a matter of fundamental policy, except during defensive periods, the
State Intermediate Municipal Bond Funds and the State Municipal Bond Funds will
invest at least 80% of their respective total net assets in Municipal Securities
the interest on which is exempt from Federal income tax and the pertinent
state's income taxes (with the exception of Texas and Florida). Similarly, as a
matter of fundamental policy, except during defensive periods, Nations Municipal
Income Fund, Nations Short-Term Municipal Income Fund and Nations Intermediate
Municipal Bond Fund will invest at least 80% of their respective total net
assets in
Munic-
53
<PAGE>
ipal Securities the interest on which is exempt from Federal income taxes. For
purposes of these fundamental policies, private activity bonds are included in
the term "Municipal Securities" only if the interest paid thereon is exempt from
Federal income tax and not treated as a specific tax preference item under the
Federal alternative minimum tax.
The investment objective and policies of each Fund, unless otherwise specified,
may be changed without a vote of the Fund's shareholders. If the investment
objective or policies of a Fund change, shareholders should consider whether the
Fund remains an appropriate investment in light of their current position and
needs.
In order to register a Fund's shares for sale in certain states, a Fund may make
commitments more restrictive than the investment policies and limitations
described in this Prospectus and the SAIs. Should a Fund determine that any such
commitment is no longer in the best interests of the Fund, it may consider
terminating sales of its shares in the states involved.
RESTRAINTS ON INVESTMENTS BY MONEY MARKET FUNDS: In order for the Money Market
Funds to value their investments on the basis of amortized cost, investments
must be in accordance with the requirements of Rule 2a-7 under the 1940 Act,
some of which are described below. A Money Market Fund is limited to acquiring
obligations with a remaining maturity of 397 days or less, or obligations with
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. Additionally,
(except for Nations Tax Exempt Fund) no more than 5% of total assets may be
invested, at the time of the acquisition, in second tier securities in the
aggregate, and any investment in second tier securities of one issuer is limited
to the greater of 1% of total assets or one million dollars. Securities issued
by the U.S. Government, its agencies, authorities or instrumentalities, are
exempt from the quality requirements, other than minimal credit risk. In the
event that a Money Market Fund's investment restrictions or permissible
investments are more restrictive than the requirements of Rule 2a-7, the Money
Market Fund's own restrictions will govern.
How Performance Is Shown
MONEY MARKET FUNDS: From time to time the Money Market Funds may advertise the
yield and effective yield on a class of shares and Nations Tax Exempt Fund also
may advertise the tax-equivalent yield of a class of shares. YIELD, EFFECTIVE
YIELD AND TAX-EQUIVALENT YIELD FIGURES ARE BASED ON HISTORICAL DATA AND ARE NOT
INTENDED TO INDICATE FUTURE PERFORMANCE. The "yield" of a class of shares in a
Fund refers to the income generated by an investment in such class over a
seven-day period identified in the advertisement. This income is then
"annualized." That is, the amount of income generated by the investment during
that week is assumed to be generated each week over a 52-week period and is
shown as a percentage of the investment. The "effective yield" is calculated
similarly, but, when annualized, the income earned by an investment in a class
of shares in the Fund is assumed to be reinvested. The "effective yield" will be
slightly higher than the "yield" because of the compounding effect of this
assumed reinvestment. The "tax-equivalent yield" of each class of shares in
Nations Tax Exempt Fund shows the level of taxable yield needed to produce an
after-tax equivalent to such class's tax-free yield. This is done by increasing
the class's yield (calculated as above) by the amount necessary to reflect the
payment of Federal income tax at a stated tax rate.
NON-MONEY MARKET FUNDS: From time to time the Non-Money Market Funds may
advertise the total return and yield on a class of shares. Nations Municipal
Income Fund, Nations Short-Term Municipal Income Fund, Nations Intermediate
Municipal Bond Fund, the State Intermediate Municipal Bond Funds and the State
Municipal Bond Funds also may advertise the tax-equivalent yield of a class of
shares. TOTAL RETURN, YIELD AND TAX-EQUIVALENT YIELD FIGURES ARE BASED ON
HISTORICAL EARNINGS AND ARE NOT INTENDED TO INDICATE FUTURE PERFORMANCE. The
"total return" of a class of shares of a Non-Money Market Fund may be calculated
on an average annual total return basis or an aggregate total return basis.
Average annual total return refers to the average annual compounded rates of
return over one-, five-, and ten-year periods or the life of the Fund (as stated
in the advertisement) that would equate an initial amount invested at the
beginning of a stated period to the ending
54
<PAGE>
redeemable value of the investment, assuming the reinvestment of all dividend
and capital gain distributions. Aggregate total return reflects the total
percentage change in the value of the investment over the measuring period again
assuming the reinvestment of all dividends and capital gain distributions. Total
return may also be presented for other periods.
"Yield" is calculated by dividing the annualized net investment income per share
during a recent 30-day (or one month) period of a class of shares of a Fund by
the maximum public offering price per share on the last day of that period.
The "tax-equivalent yield" of Nations Municipal Income Fund, Nations Short-Term
Municipal Income Fund, Nations Intermediate Municipal Bond Fund, the State
Intermediate Municipal Bond Funds and the State Municipal Bond Funds also may be
quoted from time to time, which shows the level of taxable yield needed to
produce an after-tax equivalent to the Fund's tax-free yield. This is done by
increasing the Fund's yield (calculated as above) by the amount necessary to
reflect the payment of Federal income tax at a stated tax rate.
Investment performance, which will vary, is based on many factors, including
market conditions, the composition of a Fund's portfolio and such Fund's
operating expenses. Investment performance also often reflects the risks
associated with a Fund's investment objective and policies. These factors should
be considered when comparing a Fund's investment results to those of other
mutual funds and other investment vehicles. Since yields fluctuate, yield data
cannot necessarily be used to compare an investment in the Funds with bank
deposits, savings accounts, and similar investment alternatives which often
provide an agreed-upon or guaranteed fixed yield for a stated period of time.
In addition to Primary A Shares, the Money Market Funds offer Primary B,
Investor A, Investor B, Investor C and Investor D Shares. In addition to Primary
A Shares, the Non-Money Market Funds offer Primary B, Investor A, Investor C and
Investor N Shares. Each class of shares may bear different sales charges,
shareholder servicing fees, loads and other expenses, which may cause the
performance of a class to differ from the performance of the other classes.
Performance quotations will be computed separately for each class of a Fund's
shares. Any fees charged by an institution directly to its customers' accounts
in connection with investments in the Funds will not be included in calculations
of total return or yield. Each Fund's annual report contains additional
performance information and is available upon request without charge from the
Funds' distributor or an investor's Institution, as defined below.
How The Funds Are Managed
The business and affairs of each of Nations Fund Trust, Nations Fund, Inc. and
Nations Portfolios are managed under the direction of their Board of Trustees
and Boards of Directors, respectively. Nations Fund Trust's SAI contains the
names of and general background information concerning each Trustee of Nations
Fund Trust. Nations Fund, Inc.'s and Nations Portfolios' SAIs contain the names
of and general background information concerning each Director of Nations Fund,
Inc. and Nations Portfolios.
Nations Fund and the Adviser have adopted codes of ethics which contain policies
on personal securities transactions by "access persons," including portfolio
managers and investment analysts. These policies substantially comply in all
material respects with the recommendations set forth in the May 9, 1994 Report
of the Advisory Group on Personal Investing of the Investment Company Institute.
INVESTMENT ADVISER: NationsBanc Advisors, Inc. serves as investment adviser to
the Funds. NBAI is a wholly owned subsidiary of NationsBank, which in turn is a
wholly owned banking subsidiary of NationsBank Corporation, a bank holding
company organized as a North Carolina corporation. NBAI has its principal
offices at One NationsBank Plaza, Charlotte, North Carolina 28255.
TradeStreet Investment Associates, Inc., with principal offices at One
NationsBank Plaza, Charlotte, North Carolina 28255, serves as sub-investment
adviser to all of the Funds except for those Funds listed below, for which
Gartmore Global Partners serves as sub-investment adviser. TradeStreet is a
wholly owned subsidiary of NationsBank. TradeStreet provides investment
management services to individuals, corporations and institutions.
Gartmore, with principal offices at One NationsBank Plaza, Charlotte, North
Carolina 28255, serves as sub-investment adviser to Nations International Equity
Fund, Nations Emerging Markets Fund, Nations Pacific Growth Fund and Nations
Global Government Income Fund pursuant to a sub-advisory agreement. Gartmore is
a joint venture structured as a general partnership between NB Partner Corp., a
wholly owned subsidiary of NationsBank, and Gartmore U.S. Limited, an indirect
wholly owned subsidiary of Gartmore Investment Management plc ("Gartmore plc"),
a UK company which is the holding company for a leading UK-based international
fund management group of companies, National Westminster Bank plc and affiliated
entities (collectively,
55
<PAGE>
"NatWest") own 100% of the equity of Gartmore Investment Management plc.
Through April 10, 1996, sub-advisory services were provided to NBAI and the
Funds by Nations Gartmore Investment Management ("Nations Gartmore"), the
predecessor to Gartmore, pursuant to sub-advisory agreements among NBAI, Nations
Gartmore and Nations Fund, Inc. and Nations Portfolios, respectively, on behalf
of the Funds. Nations Gartmore was a joint venture structured as a general
partnership between NB Partner Corp. and Gartmore U.S. Limited. On April 10,
1996, NatWest acquired a controlling interest in Gartmore plc from Compagnie de
Suez and affiliated entities ("Compagnie de Suez") through a direct purchase
from Compagnie de Suez of its indirect subsidiary Indosuez UK Asset Management
Limited, which held 75% of Gartmore plc's outstanding voting securities (the
"Acquisition"). NatWest acquired the remaining portion of Gartmore plc's shares
held by public shareholders through a tender offer. Gartmore is the successor
entity resulting from the Acquisition and change of control of Nations Gartmore.
On July 17, 1996, the shareholders of the Funds approved the new sub-advisory
arrangement with Gartmore and Sub-Advisory Agreements dated April 10, 1996 among
NBAI, Gartmore and Nations Fund, Inc. and Nations Portfolios, respectively.
There were no material changes in the personnel who provide services under the
new Sub-Advisory Agreements, and the Funds receive the same sub-advisory
services, provided in the same manner and at the same fee levels, as they
received under the Previous Sub-Advisory Agreements.
Subject to the general supervision of Nations Fund Trust's Board of Trustees and
Nations Fund, Inc.'s and Nations Portfolios' Boards of Directors, and in
accordance with each Fund's investment policies, the Adviser formulates
guidelines and lists of approved investments for each Fund, makes decisions with
respect to and places orders for each Fund's purchases and sales of portfolio
securities and maintains records relating to such purchases and sales. With
respect to the Non-Money Market Funds and Nations Tax Exempt Fund, the Adviser
is authorized to allocate purchase and sale orders for portfolio securities to
certain financial institutions, including, in the case of agency transactions,
financial institutions which are affiliated with the Adviser or which have sold
shares in such Funds, if the Adviser believes that the quality of the
transaction and the commission are comparable to what they would be with other
qualified brokerage firms. From time to time, to the extent consistent with its
investment objective, policies and restrictions, each Fund may invest in
securities of companies with which NationsBank has a lending relationship.
For the services provided and expenses assumed pursuant to various Investment
Advisory Agreements, NBAI is entitled to receive advisory fees, computed daily
and paid monthly, at the annual rates of: 0.25% of the first $250 million of the
combined average daily net assets of both Nations Prime Fund and Nations
Treasury Fund, plus 0.20% of the combined average daily net assets of such Funds
in excess of $250 million; 0.40% of the average daily net assets of each of
Nations Government Money Market Fund and Nations Tax Exempt Fund; 0.50% of the
average daily net assets of each of the Nations Equity Index Fund, Nations
Short-Term Municipal Income Fund, Nations Intermediate Municipal Bond Fund and
the State Intermediate Municipal Bond Funds; 0.60% of the average daily net
assets of each of the Nations Short-Intermediate Government Fund, Nations
Short-Term Income Fund, Nations Diversified Income Fund, Nations Strategic Fixed
Income Fund, Nations Municipal Income Fund and the State Municipal Bond Funds;
0.75% of the average daily net assets of each of Nations Value Fund, Nations
Capital Growth Fund, Nations Emerging Growth Fund, Nations Disciplined Equity
Fund and Nations Balanced Assets Fund; 0.65% of the first $100 million of
Nations Government Securities Fund's average daily net assets, plus 0.55% of the
Fund's average daily net assets in excess of $100 million and up to $250
million, plus 0.50% of the Fund's average daily net assets in excess of $250
million; 0.75% of the first $100 million of Nations Equity Income Fund's average
daily net assets, plus 0.70% of the Fund's average daily net assets in excess of
$100 million and up to $250 million, plus 0.60% of the Fund's average daily net
assets in excess of $250 million; 0.90% of the average daily net assets of
Nations International Equity Fund; 1.10% of the average daily net assets of
Nations Emerging Markets Fund; 0.90% of the average daily net assets of Nations
Pacific Growth Fund; and 0.70% of the average daily net assets of Nations Global
Government Income Fund.
For the services provided and expenses assumed pursuant to sub-advisory
agreements, NBAI will pay TradeStreet sub-advisory fees, computed daily and paid
monthly, at the annual rates of: 0.055% of Nations Prime Fund's, Nations
Treasury Fund's, Nations Government Money Market Fund's and Nations Tax Exempt
Fund's average daily net assets; 0.20% of Nations Equity Income Fund's average
daily net assets; 0.10% of Nations Equity Index Fund's average daily net assets;
0.25% of Nations Value Fund's, Nations Balanced Assets Fund's, Nations Capital
Growth Fund's, Nations Emerging Growth Fund's and Nations Disciplined Equity
Fund's average daily net assets; 0.15% of Nations Short-Intermediate Government
Fund's, Nation's Government Securities Fund's, Nations Short-Term Income Fund's,
Nations Diversified Income Fund's and Nations Strategic Fixed Income Fund's
average daily net assets; and 0.07% of Nations Municipal Income Fund's, Nations
Short-Term Municipal Income Fund's, Nations Intermediate Municipal Bond Fund's,
Nations Florida Municipal Bond Fund's, Nations Georgia Municipal Bond Fund's,
56
<PAGE>
Nations Maryland Municipal Bond Fund's, Nations North Carolina Municipal Bond
Fund's, Nations South Carolina Municipal Bond Fund's, Nations Tennessee
Municipal Bond Fund's, Nations Texas Municipal Bond Fund's, Nations Virginia
Municipal Bond Fund's, Nations Florida Intermediate Municipal Bond Fund's,
Nations Georgia Intermediate Municipal Bond Fund's, Nations Maryland
Intermediate Municipal Bond Fund's, Nations North Carolina Intermediate
Municipal Bond Fund's, Nations South Carolina Intermediate Municipal Bond
Fund's, Nations Tennessee Intermediate Municipal Bond Fund's, Nations Texas
Intermediate Municipal Bond Fund's and Nations Virginia Intermediate Municipal
Bond Fund's average daily net assets.
For services provided and expenses assumed pursuant to a sub-advisory agreement,
Gartmore is entitled to receive from NBAI sub-advisory fees, computed daily and
paid monthly, at the annual rate of 0.70% of Nations International Equity Fund's
average daily net assets; 0.85% of Nations Emerging Markets Fund's average daily
net assets; 0.70% of Nations Pacific Growth Fund's average daily net assets and
0.54% of Nations Global Government Income Fund's average daily net assets.
From time to time, NBAI (and/or TradeStreet and/or Nations Gartmore) may waive
or reimburse (either voluntarily or pursuant to applicable state limitations)
advisory fees or expenses payable by a Fund.
For the fiscal period from December 1, 1995 to December 31, 1995, after waivers,
Nations Fund Trust paid NationsBank under a prior Investment Advisory Agreement
advisory fees at the indicated rates of the following Funds' average daily net
assets: Nations Government Money Market Fund -- 0.12%; Nations Tax Exempt
Fund -- 0.13%; Nations Value Fund -- 0.75%; Nations Capital Growth
Fund -- 0.75%; Nations Emerging Growth Fund -- 0.75%; Nations Disciplined Equity
Fund -- 0.75%; Nations Equity Index Fund -- 0.09%; Nations Balanced Assets
Fund -- 0.75%; Nations Short-Intermediate Government Fund -- 0.37%; Nations
Short-Term Income Fund -- 0.27%; Nations Diversified Income Fund -- 0.50%;
Nations Strategic Fixed Income Fund -- 0.50%; Nations Municipal Income Fund --
0.30%; Nations Short-Term Municipal Income Fund -- 0.06%; Nations Intermediate
Municipal Bond Fund -- 0.17%; Nations Florida Intermediate Municipal Bond
Fund -- 0.14%; Nations Florida Municipal Bond Fund -- 0.26%; Nations Georgia
Intermediate Municipal Bond Fund -- 0.17%; Nations Georgia Municipal Bond
Fund -- 0.10%; Nations Maryland Intermediate Municipal Bond Fund -- 0.20%;
Nations Maryland Municipal Bond Fund -- 0%; Nations North Carolina Intermediate
Municipal Bond Fund -- 0.13%; Nations North Carolina Municipal Bond
Fund -- 0.23%; Nations South Carolina Intermediate Municipal Bond Fund -- 0.18%;
Nations South Carolina Municipal Bond Fund -- 0.10%; Nations Tennessee
Intermediate Municipal Bond Fund -- 0%; Nations Tennessee Municipal Bond
Fund -- 0%; Nations Texas Intermediate Municipal Bond Fund -- 0.11%; Nations
Texas Municipal Bond Fund -- 0.12%; Nations Virginia Intermediate Municipal Bond
Fund -- 0.24%; and Nations Virginia Municipal Bond Fund -- 0.16%.
For the fiscal period ended March 31, 1996, NationsBank reimbursed expenses at
the indicated rates of the following Funds' average daily net assets: Nations
Georgia Municipal Bond Fund -- 0.02%; Nations Maryland Municipal Bond
Fund -- 0.16%; Nations South Carolina Municipal Bond Fund -- 0.01%; Nations
Tennessee Municipal Bond Fund -- 0.19%.
For the fiscal period from June 1, 1995 to December 31, 1995, after waivers,
Nations Fund, Inc. paid NationsBank under a prior Investment Advisory Agreement
advisory fees at the indicated rates of the following Funds' average daily net
assets: Nations Prime Fund -- 0.18%; Nations Treasury Fund -- 0.18%; Nations
Equity Income Fund -- 0.67%; Nations International Equity Fund -- 0.22%; and
Nations Government Securities Fund -- 0.48%.
For the fiscal period from June 30, 1995 to December 31, 1995, after waivers,
Nations Portfolios paid NationsBank under a prior Investment Advisory Agreement
advisory fees at the indicated rates of the following Funds' average daily net
assets: Nations Emerging Markets Fund -- 0.25%; Nations Pacific Growth Fund --
0.20%; and Nations Global Government Income Fund -- 0.16%.
For the fiscal period from January 1, 1996 to March 31, 1996, after waivers,
Nations Fund Trust paid NBAI under the current Investment Advisory Agreement
advisory fees at the indicated rates of the following Funds' average daily net
assets: Nations Government Money Market Fund -- 0.12%; Nations Tax Exempt
Fund -- 0.13%; Nations Value Fund -- 0.75%; Nations Capital Growth
Fund -- 0.75%; Nations Emerging Growth Fund -- 0.75%; Nations Disciplined Equity
Fund -- 0.75%; Nations Equity Index Fund -- 0.09%; Nations Balanced Assets
Fund -- 0.75% Nations Short-Intermediate Government Fund -- 0.37%; Nations
Short-Term Income Fund -- 0.27%; Nations Diversified Income Fund -- 0.50%;
Nations Strategic Fixed Income Fund -- 0.50%; Nations Municipal Income
Fund -- 0.30%; Nations Short-Term Municipal Income Fund -- 0.06%; Nations
Intermediate Municipal Bond Fund -- 0.17%; Nations Florida Intermediate
Municipal Bond Fund -- 0.14%; Nations Florida Municipal Bond Fund -- 0.26%;
Nations Georgia Intermediate Municipal Bond Fund -- 0.17%; Nations Georgia
Municipal Bond Fund -- 0.10%; Nations Maryland Intermediate Municipal Bond
Fund -- 0.20%; Nations Maryland Municipal Bond Fund -- 0%; Nations North
Carolina Intermediate Municipal Bond Fund -- 0.13%; Nations North Carolina
Municipal Bond Fund -- 0.23%; Nations South Carolina Intermediate Municipal Bond
Fund -- 0.18%; Nations
57
<PAGE>
South Carolina Municipal Bond Fund -- 0.10%; Nations Tennessee Intermediate
Municipal Bond Fund -- 0%; Nations Tennessee Municipal Bond Fund -- 0%; Nations
Texas Intermediate Municipal Bond Fund -- 0.11%; Nations Texas Municipal Bond
Fund -- 0.12%; Nations Virginia Intermediate Municipal Bond Fund -- 0.24%; and
Nations Virginia Municipal Bond Fund -- 0.16%.
For the fiscal period from January 1, 1996 to March 31, 1996, after waivers,
Nations Fund, Inc. paid NBAI under the current Investment Advisory Agreement
advisory fees at the indicated rates of the following Funds' average daily net
assets: Nations Prime Fund -- 0.18%; Nations Treasury Fund -- 0.18%; Nations
Equity Income Fund -- 0.67%; Nations International Equity Fund -- 0.22%; and
Nations Government Securities Fund -- 0.48%.
For the fiscal period from January 1, 1996 to March 31, 1996, after waivers,
Nations Portfolios paid NBAI under the current Investment Advisory Agreement
advisory fees at the indicated rates of the following Funds' average daily net
assets: Nations Emerging Markets Fund -- 0.25%; Nations Pacific Growth
Fund -- 0.20%; and Nations Global Government Income Fund -- 0.16%.
For the fiscal period from January 1, 1996 to March 31, 1996, after waivers,
NBAI paid TradeStreet under the current Sub-Advisory Agreement sub-advisory fees
at the indicated rates of the following Funds' average daily net assets: Nations
Government Money Market Fund -- 0.055%; Nations Tax Exempt Fund -- 0.055%;
Nations Value Fund -- 0.25%; Nations Capital Growth Fund -- 0.25%; Nations
Emerging Growth Fund -- 0.25%; Nations Disciplined Equity Fund -- 0.25%; Nations
Equity Index Fund -- 0.10%; Nations Balanced Assets Fund -- 0.25%; Nations
Short-Intermediate Government Fund -- 0.15%; Nations Short-Term Income
Fund -- 0.15%; Nations Diversified Income Fund -- 0.15%; Nations Strategic Fixed
Income Fund -- 0.15%; Nations Municipal Income Fund -- 0.07%; Nations Short-Term
Municipal Income Fund -- 0.07%; Nations Intermediate Municipal Bond
Fund -- 0.07%; Nations Florida Intermediate Municipal Bond Fund -- 0.07%;
Nations Florida Municipal Bond Fund -- 0.07%; Nations Georgia Intermediate
Municipal Bond Fund -- 0.07%; Nations Georgia Municipal Bond Fund -- 0.07%;
Nations Maryland Intermediate Municipal Bond Fund -- 0.07%; Nations Maryland
Municipal Bond Fund -- 0.07%; Nations North Carolina Intermediate Municipal Bond
Fund -- 0.07%; Nations North Carolina Municipal Bond Fund -- 0.07%; Nations
South Carolina Intermediate Municipal Bond Fund -- 0.07%; Nations South Carolina
Municipal Bond Fund -- 0.07%; Nations Tennessee Intermediate Municipal Bond
Fund -- 0.07%; Nations Tennessee Municipal Bond Fund -- 0.07%; Nations Texas
Intermediate Municipal Bond Fund -- 0.07%; Nations Texas Municipal Bond
Fund -- 0.07%; Nations Virginia Intermediate Municipal Bond Fund -- 0.07%;
Nations Virginia Municipal Bond Fund -- 0.07%; Nations Prime Fund -- 0.055%;
Nations Treasury Fund -- 0.055%; Nations Equity Income Fund -- .20%; and Nations
Government Securities Fund -- 0.30%.
For the fiscal period from June 1, 1995 to March 31, 1996, after waivers, NBAI
paid Gartmore or its predecessors sub-advisory fees at the rate of 0.67% of the
average daily net assets of Nations International Equity Fund. For the fiscal
period from January 1, 1996 to March 31, 1996, after waivers, NBAI paid Gartmore
or its predecessors sub-advisory fees at the indicated rates of the following
Funds' average daily net assets: Nations Emerging Markets Fund -- 0.85%; Nations
Pacific Growth Fund -- 0.70%; and Nations Global Government Income
Fund -- 0.54%.
Melinda Allen Crosby is a Product Manager, Municipal Fixed Income Management for
TradeStreet and is Portfolio Manager for Nations Tax Exempt Fund. She has been
Portfolio Manager for Nations Tax Exempt Fund since 1991. 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.
Greg W. Golden is a Structured Products Manager, Equity Management for
TradeStreet and is Portfolio Manager for Nations Equity Index Fund. He has been
Portfolio Manager for Nations Equity Index Fund since 1993. Prior to assuming
his position with TradeStreet, he was Vice President and Structured Products
Manager for the Investment Management Group at NationsBank. He has worked in the
investment community since 1990. His past experience includes portfolio
management, derivatives management and quantitative analysis for the Investment
Management Group at NationsBank and Sovran Bank of Tennessee. Mr. Golden
received a B.B.A.
58
<PAGE>
in Finance from Belmont University. He is a Chartered Financial Analyst
candidate and a member of the Association for Investment Management and Research
as well as the North Carolina Society of Financial Analysts, Inc.
Martha L. Sherman is a Senior Product Manager, Money Market Management for
TradeStreet and is Senior Portfolio Manager for Nations Prime Fund. She has been
Portfolio Manager of the Nations Prime Fund since 1988. Prior to assuming her
position with TradeStreet, she was Vice President and Senior Portfolio Manager
for the Investment Management Group at NationsBank. Ms. Sherman has worked in
the investment community since 1981. Her past experience includes investment
research for William Lowry & Associates. Ms. Sherman received a B.S. in Business
Administration from the University of Texas at Dallas.
Sharon M. Herrmann, CFA, is a Director of Equity Management for TradeStreet and
Senior Portfolio Manager for Nations Value Fund. Ms. Herrmann has been the
Portfolio Manager of Nations Value Fund since 1989. Prior to assuming her
position with TradeStreet, she was Senior Vice President and Portfolio Manager
for the Investment Management Group at NationsBank. Ms. Herrmann has worked for
the Investment Management Group at NationsBank since 1981 where her
responsibilities included fund management and institutional portfolio
management. She attended Virginia Wesleyan College. Ms. Herrmann holds the
Chartered Financial Analyst designation and is a member of the Association for
Investment Management and Research as well as the North Carolina Society of
Financial Analysts, Inc.
Eric S. Williams, CFA, is a Senior Product Manager, Equity Management for
TradeStreet and Senior Portfolio Manager for Nations Equity Income Fund. Mr.
Williams has been the Portfolio Manager for Nations Equity Income Fund since
1991. Prior to assuming his position with TradeStreet, he was Senior Vice
President and Senior Portfolio Manager for the Investment Management Group at
NationsBank. He has worked in the investment community since 1980. His past
experience includes fund analysis and portfolio management for National Bank of
Detroit. Mr. Williams received a B.S. in Accounting from East Carolina
University, Summa Cum Laude and an M.B.A. from Indiana University. He holds the
Chartered Financial Analyst designation, is on the Advisory Board of Indiana
University's Investment Management Academy, and is a member of the Association
for Investment Management and Research as well as the North Carolina Society of
Financial Analysts, Inc.
Stephen Watson is Principal Portfolio Manager of Nations International Equity
Fund and has been the Portfolio Manager since February, 1995. He joined Gartmore
as a Global Fund Manager in 1993 and currently holds the position of Head of the
International and Global Portfolio Team. Previously, Mr. Watson was a director
and global fund manager with James Capel Fund Managers, London, as well as
Client Services Manager for international clients. From 1980 to 1987 he
associated with Capel-Cure Myers in their Portfolio Management Division. He
began his career in 1976 when he joined the investment division at Samuel
Montagu. Mr. Watson is a member of the Securities Institute.
Philip Ehrmann is Principal Portfolio Manager of Nations Emerging Markets Fund
and is the Head of the Gartmore Emerging Markets Team. He has been the Portfolio
Manager for the Fund since 1995. Prior to joining Nations Gartmore in 1995, Mr.
Ehrmann was the Director of Emerging Markets for Invesco in London. He began his
career in 1981 as an institutional stockbroker with Rowe & Pitman Inc. and also
spent a brief period with Prudential Bache Securities as an institutional
salesman before joining Invesco in 1984. Mr. Ehrmann graduated from the London
School of Economics with a degree in Economics, Industry and Trade.
Seok Teoh is Principal Portfolio Manager of Nations Pacific Growth Fund and has
been the Portfolio Manager since the Fund's inception. She has been associated
with Gartmore since 1990 as the London based manager on its Far East Team.
Previously, Ms. Teoh managed Far East equities for Rothschild Asset Management
in Tokyo and in Singapore. She was also responsible for Singaporean and
Malaysian equity sales at Overseas Union Bank Securities in Singapore. Ms. Teoh,
who is a native of Singapore, is fluent in Mandarin and Cantonese and received
an Economics degree from the University of Durham.
Philip J. Sanders, CFA, is a Senior Product Manager, Equity Management for
TradeStreet and Senior Portfolio Manager for Nations Capital Growth Fund. Mr.
Sanders has been Portfolio Manager for Nations Capital Growth Fund since 1995.
Prior to assuming his position with TradeStreet, he was Senior Vice President
and Senior Portfolio Manager for the Investment Management Group at NationsBank.
Mr. Sanders has worked in the financial investment community since 1981. His
past experience includes portfolio management, equity research and financial
analysis for the Investment Management Group at NationsBank and Duke Power
Company. Mr. Sanders received a B.A. in Economics from the University of
Michigan and an M.B.A. from University of North Carolina at Charlotte. He holds
the Chartered Financial Analyst designation and is a member of the Association
for Investment Management and Research as well as the North Carolina Society of
Financial Analysts, Inc.
Edward E. (Jack) Smiley, Jr., CFA, is a Senior Product Manager, Equity
Management for TradeStreet and Senior Portfolio Manager for Nations Emerging
Growth Fund. Mr. Smiley has been the Portfolio Manager for Nations Emerging
Growth Fund since 1992. Prior to assuming his position with TradeStreet, he was
Senior Vice President and Senior Portfolio Manager for the
59
<PAGE>
Investment Management Group at NationsBank. He has worked in the investment
community since 1968. His past experience includes management consulting and
portfolio management for Interfirst Investment Management, Merrill Lynch and
Dean Witter. Mr. Smiley received a B.B.A. in Management from Southern Methodist
University. He holds the Chartered Financial Analyst designation and is a member
of the Association for Investment Management and Research as well as the Dallas
Association of Investment Analysts.
Jeffery C. Moser, CFA, is a Senior Product Manager, Equity Management for
TradeStreet and Senior Portfolio Manager for Nations Disciplined Equity Fund.
Mr. Moser has been Portfolio Manager of the Nations Disciplined Equity Fund
since 1995. Prior to assuming his position with TradeStreet, he was Senior Vice
President and Senior Portfolio Manager for the Investment Management Group at
NationsBank. Mr. Moser has worked for the Investment Management Group at
NationsBank since 1983 where his responsibilities included institutional
portfolio management and equity analysis. Mr. Moser graduated Phi Beta Kappa
with a B.S. in Mathematics from Wake Forest University. He holds the Chartered
Financial Analyst designation and is a member of the Association for Investment
Management and Research as well as the North Carolina Society of Financial
Analysts, Inc.
Julie L. Hale, CFA, is a Senior Product Manager, Equity Management for
TradeStreet and Senior Portfolio Manager for Nations Balanced Assets Fund. Ms.
Hale has been Portfolio Manager for the Nations Balanced Assets Fund since 1995.
Prior to assuming her position with TradeStreet, she was Vice President and
Senior Portfolio Manager for the Investment Management Group at NationsBank. She
has worked in the investment community since 1981. Her past experience includes
research analysis and portfolio management for Mercantile Safe Deposit and
Trust, and National City Bank. Ms. Hale received a B.S. in Business and Finance
from Mount St. Mary's College and an M.B.A. from Kent State University. She
holds the Chartered Financial Analyst designation and is a member of the
Association for Investment Management and Research as well as the North Carolina
Society of Security Analysts, Inc. She is also a member of the National
Association for Petroleum Investment Analysts and the World Affairs Council of
Washington, D.C.
Mark Rimmer is Principal Portfolio Manager of the Nations Global Government
Income Fund and has been the Portfolio since the Fund's inception. He has been
associated with Gartmore since 1990 as an International Fixed Income Fund
Manager. Previously, Mr. Rimmer managed multi-currency funds for institutional
clients at Gulf International Bank in Bahrain, and prior to that he was a senior
trader for Sumitomo Finance International, London. He graduated from Cambridge
University with a degree in Economics.
Gregory H. Cobb is a Senior Product Manager, Fixed Income Management for
TradeStreet and Senior Portfolio Manager for Nations Strategic Fixed Income
Fund. Mr. Cobb has been Portfolio Manager for Nations Strategic Fixed Income
Fund since 1995. Prior to assuming his position with TradeStreet, he was Vice
President and Senior Portfolio Manager for the Investment Management Group at
NationsBank. Mr. Cobb has worked in the investment community since 1987. His
past experience includes portfolio management of intermediate duration and
insurance products for Trust Company Bank and Barnett Bank Trust Company Inc.
Mr. Cobb received a B.A. in Economics from the University of North Carolina at
Chapel Hill.
Mark S. Ahnrud, CFA, is a Director of Fixed Income Management for TradeStreet
and the Senior Portfolio Manager for Nations Diversified Income Fund. Mr. Ahnrud
has been the Portfolio Manager for the Nations Diversified Income Fund since
1992. Prior to assuming his position with TradeStreet, he was Senior Vice
President and Senior Portfolio Manager for the Investment Management Group at
NationsBank. Mr. Ahnrud has worked for the Investment Management Group at
NationsBank since 1985 where his responsibilities initially included
institutional investment management sales and later involved high yield credit
analysis. Mr. Ahnrud received a dual B.S. in Finance and Investments from Babson
College and an M.B.A. from Duke University, Fuqua School of Business. He holds
the Chartered Financial Analyst designation and is a member of the Association
for Investment Management and Research as well as the North Carolina Society of
Financial Analysts, Inc.
John S. Swaim is a Senior Product Manager, Fixed Income Management for
TradeStreet and Senior Portfolio Manager for Nations Short-Intermediate
Government Fund and Nations Government Securities Fund. Mr. Swaim has been
Portfolio Manager for the Funds since 1995. Prior to assuming his position with
TradeStreet, he was Vice President and Senior Portfolio Manager for the
Investment Management Group at NationsBank. Mr. Swaim has worked in the
investment community since 1986. His past experience includes derivative
products manager for the NationsBank Texas Corporate Investment Division
portfolio. Mr. Swaim received a B.S. from University of North Texas and an
M.B.A. from University of Texas at Arlington.
Michele M. Poirier is a Senior Product Manager, Municipal Fixed Income
Management for TradeStreet and Senior Portfolio Manager for Nations Municipal
Income Fund, Nations Florida Intermediate Municipal Bond Fund, Nations Florida
Municipal Bond Fund, Nations Georgia Intermediate Municipal Bond Fund, Nations
Georgia Municipal Bond Fund, Nations South Carolina
60
<PAGE>
Intermediate Municipal Bond Fund and Nations South Carolina Municipal Bond Fund.
Ms. Poirier has been Portfolio Manager for Nations Municipal Income Fund,
Nations Florida Intermediate Municipal Bond Fund, Nations Georgia Intermediate
Municipal Bond Fund, and South Carolina Intermediate Municipal Bond Fund since
1992. She has been Portfolio Manager for the other Funds since 1993. Prior to
assuming her position with TradeStreet, she was Senior Vice President and Senior
Portfolio Manager for the Investment Management Group at NationsBank. She has
worked in the investment community since 1974. Her past experience includes
serving as Director of Trading, Institutional Sales, and Municipal Trader for
Financial Service Corporation, Bankers Trust Company and The Robinson-Humphrey
Company respectively. Ms. Poirier received a B.B.A. in Marketing from Georgia
State University.
Mathew M. Kiselak is a Product Manager, Municipal Fixed Income Management for
TradeStreet and Portfolio Manager for Nations Short-Term Municipal Income Fund,
Nations North Carolina Intermediate Municipal Bond Fund, Nations North Carolina
Municipal Bond Fund, Nations Tennessee Intermediate Municipal Bond Fund, Nations
Tennessee Municipal Bond Fund, Nations Texas Intermediate Municipal Bond Fund
and Nations Texas Municipal Bond Fund. Mr. Kiselak has been Portfolio Manager
for Nations North Carolina Intermediate Municipal Bond Fund and Nations North
Carolina Municipal Bond Fund since 1995. He has been Portfolio Manager for the
other Funds since 1994. Prior to assuming his position with TradeStreet, he was
Vice President and Portfolio Manager for the Investment Management Group at
NationsBank. He has worked in the investment community since 1987. His past
experience includes Portfolio Manager and Municipal Credit Analysis for Reich &
Tang Inc. Mr. Kiselak received a B.A. in Economics from Pace University.
John C. Kohl is a Director of Municipal Fixed Income Management and Municipal
Fixed Income Management for TradeStreet. He is responsible for overseeing all
municipal product management and is the Senior Portfolio Manager for Nations
Intermediate Municipal Bond Fund, Nations Maryland Intermediate Municipal Bond
Fund, Nations Maryland Municipal Bond Fund, Nations Virginia Intermediate
Municipal Bond Fund and Nations Virginia Municipal Bond Fund. Mr. Kohl has been
Portfolio Manager for the Funds since 1994. Prior to assuming his position with
TradeStreet, he was Senior Vice President and Senior Portfolio Manager for the
Investment Management Group at NationsBank. Mr. Kohl has worked in the
investment community since 1979. His past experience includes serving as Chief
Investment Officer for London Pacific Life & Annuity, Team Leader and Portfolio
Manager for Harris Trust and Savings Bank, and Management Consultant for
asset-liability of Continental Bank. Mr. Kohl received a joint B.A. in Economics
and North American Studies from McGill University.
David M. Hetherington, CFA, is a Managing Director of Fixed Income Management.
Mr. Hetherington is responsible for overseeing all fixed income product
management and is Senior Portfolio Manager for Nations Short-Term Income Fund.
Mr. Hetherington has been Portfolio Manager for Nations Short-Term Income Fund
since 1995. Prior to assuming his position with TradeStreet, he was Senior Vice
President and Director of Fixed Income for the Investment Management Group at
NationsBank. Mr. Hetherington has worked in the investment community since 1975.
His past experience includes working as a portfolio manager, a trust investment
officer and a securities analyst for First Citizens Bank and Deposit Guarantee
as well as working as an Economist for the U.S. Department of Labor in the
Bureau of Labor Statistics. Mr. Hetherington received a B.A. in Economics from
Duke University. He holds the Chartered Financial Analyst designation and is a
member of the Association for Investment Management and Research.
Morrison & Foerster LLP, counsel to Nations Fund and special counsel to
NationsBank has advised Nations Fund and NationsBank that NationsBank and its
affiliates may perform the services contemplated by the various Investment
Advisory Agreements and this Prospectus without violation of the Glass-Steagall
Act. Such counsel has pointed out, however, that there are no controlling
judicial or administrative interpretations or decisions and that future judicial
or administrative interpretations of, or decisions relating to, present federal
or state statutes, including the Glass-Steagall Act, and regulations relating to
the permissible activities of banks and their subsidiaries or affiliates, as
well as future changes in such federal or state statutes, regulations and
judicial or administrative decisions or interpretations, could prevent such
entities from continuing to perform, in whole or in part, such services. If any
such entity were prohibited from performing any of such services, it is expected
that new agreements would be proposed or entered into with another entity or
entities qualified to perform such services.
OTHER SERVICE PROVIDERS: Stephens Inc. ("Stephens"), with principal offices at
111 Center Street, Little Rock, Arkansas 72201, serves as the administrator of
Nations Fund pursuant to Administration Agreements. Pursuant to the terms of the
Administration Agreements, Stephens provides various administrative and
corporate secretarial services to the Funds, including providing general
oversight of other service providers, office space, utilities and various legal
and administrative services in connection with the satisfaction of various
regulatory requirements applicable to the Funds.
First Data Investor Services Group, Inc. ("First Data"), formerly The
Shareholder Services Group, Inc., a wholly
61
<PAGE>
owned subsidiary of First Data Corporation, with principal offices at One
Exchange Place, Boston, Massachusetts 02109, serves as the co-administrator of
Nations Fund pursuant to Co-Administration Agreements. Under the
Co-Administration Agreements, First Data provides various administrative and
accounting services to the Funds including performing the calculations necessary
to determine net asset value per share and dividends, preparing tax returns and
financial statements and maintaining the portfolio records and certain of the
general accounting records for the Funds. For the services rendered pursuant to
the Administration and Co-Administration Agreements, Stephens and First Data are
entitled to receive a combined fee at the annual rate of up to 0.10% of each
Fund's average daily net assets.
For the fiscal period from December 1, 1995 to March 31, 1996, after waivers,
Nations Fund Trust paid its administrators combined fees at the indicated rates
of the following Funds' average daily net assets: Nations Government Money
Market Fund, Nations Tax Exempt Fund -- 0.10%; Nations Value Fund, Nations
Capital Growth Fund, Nations Emerging Growth Fund, Nations Disciplined Equity
Fund, Nations Equity Index Fund, Nations Balanced Assets Fund, Nations
Short-Intermediate Government Fund, Nations Short-Term Income Fund, Nations
Diversified Income Fund, Nations Strategic Fixed Income Fund, Nations Municipal
Income Fund, Nations Short-Term Municipal Income Fund, Nations Intermediate
Municipal Bond Fund, Nations Florida Intermediate Municipal Bond Fund, Nations
Florida Municipal Bond Fund, Nations Georgia Intermediate Municipal Bond Fund,
Nations Georgia Municipal Bond Fund, Nations Maryland Intermediate Municipal
Bond Fund, Nations Maryland Municipal Bond Fund, Nations North Carolina
Intermediate Municipal Bond Fund, Nations North Carolina Municipal Bond Fund,
Nations South Carolina Intermediate Municipal Bond Fund, Nations South Carolina
Municipal Bond Fund, Nations Tennessee Intermediate Municipal Bond Fund, Nations
Tennessee Municipal Bond Fund, Nations Texas Intermediate Municipal Bond Fund,
Nations Texas Municipal Bond Fund, Nations Virginia Intermediate Municipal Bond
Fund, and Nations Virginia Municipal Bond Fund -- 0.10%.
For the fiscal period from June 1, 1995 to March 31, 1996, after waivers,
Nations Fund, Inc. paid its administrator combined fees at the indicated rates
of the following Funds' average daily net assets: Nations Prime Fund -- 0.06%;
Nations Treasury Fund -- 0.05%; Nations Equity Income Fund -- 0.10%; Nations
International Equity Fund -- 0.10%; and Nations Government Securities
Fund -- 0.10%.
For the fiscal period from June 30, 1995 to March 31, 1996, after waivers,
Nations Portfolios paid its administrator combined fees at the rate of 0.10% of
the average daily net assets of Nations Pacific Growth Fund, Nations Emerging
Markets Fund and Nations Global Government Fund.
NationsBank serves as sub-administrator for Nations Fund pursuant to a
Sub-Administration Agreement. Pursuant to the terms of the Sub-Administration
Agreement, NationsBank assists Stephens in supervising, coordinating and
monitoring various aspects of the Funds' administrative operations. For
providing such services, NationsBank shall be entitled to receive a monthly fee
from Stephens based on an annual rate of .01% of the Funds' average daily net
assets.
Shares of the Funds are sold on a continuous basis by Stephens, as the Funds'
sponsor and distributor. Stephens is a registered broker/dealer with principal
offices at 111 Center Street, Little Rock, Arkansas 72201. Nations Fund has
entered into distribution agreements with Stephens which provide that Stephens
has the exclusive right to distribute shares of the Funds. Stephens may pay
service fees or commissions to Institutions which assist customers in purchasing
Primary A Shares of the Funds.
Bank of New York, Avenue des Arts, 35 1040 Brussels, Belgium, serves as
custodian for the assets of the Nations International Equity Fund, Nations
Emerging Markets Fund, Nations Pacific Growth Fund and Nations Global Government
Income Fund.
First Data serves as the Transfer Agent for each of the Fund's Primary A Shares.
NationsBank of Texas, N.A. ("NationsBank of Texas" and, collectively with Bank
of New York, called "Custodians") serves as custodian for the assets of each
Fund except Nations International Equity Fund, Nations Emerging Markets Fund,
Nations Pacific Growth Fund and Nations Global Government Income Fund.
NationsBank of Texas, which also serves as the sub-transfer agent for each
Fund's Primary A Shares, is located at 1401 Elm Street, Dallas, Texas 75202, and
is a wholly owned subsidiary of NationsBank Corporation. In return for providing
custodial services, NationsBank of Texas is entitled to receive, in addition to
out-of-pocket expenses, fees payable monthly (i) at the rate of 1.25% of 1% of
the average daily net assets of each Fund for which it acts as custodian, (ii)
$10.00 per repurchase collateral transaction by such Funds, and (iii) $15.00 per
purchase, sale and maturity transaction involving such Funds. In return for
providing sub-transfer agency services for the Primary A Shares of Nations Fund,
NationsBank of Texas is entitled to receive an annual fee from First Data of
$251,000.
Price Waterhouse LLP serves as independent accountant to Nations Funds. Its
address is 160 Federal Street, Boston, Massachusetts 02110.
EXPENSES: The accrued expenses of each Fund are deducted from the Fund's total
accrued income before dividends are declared. These expenses include, but are
62
<PAGE>
not limited to: fees paid to the Adviser, NationsBank, Stephens and First Data;
taxes; interest; fees (including fees paid to Nations Fund's trustees, directors
and officers); federal and state securities registration and qualification fees;
brokerage fees and commissions; costs of preparing and printing prospectuses for
regulatory purposes and for distribution to existing shareholders; charges of
the Custodians and Transfer Agent; certain insurance premiums; outside auditing
and legal expenses; costs of shareholder reports and shareholder meetings; other
expenses which are not expressly assumed by the Adviser, NationsBank, Stephens
or First Data under their respective agreements with Nations Fund; and any
extraordinary expenses. Any general expenses of Nations Fund Trust, Nations
Fund, Inc. and/or Nations Portfolios that are not readily identifiable as
belonging to a particular investment portfolio are allocated among all
portfolios in the proportion that the assets of a portfolio bears to the assets
of Nations Fund Trust, Nations Fund, Inc. and/or Nations Portfolios or in such
other manner as the Board of Trustees or the relevant Board of Directors
determines is fair and equitable.
Organization And History
The Funds are members of the Nations Fund Family, which consists of Nations Fund
Trust, Nations Fund, Inc., Nations Portfolios and Nations Institutional
Reserves. The Nations Fund Family currently has more than 43 distinct investment
portfolios and total assets in excess of $18 billion.
NATIONS FUND TRUST: Nations Fund Trust was organized as a Massachusetts business
trust on May 6, 1985. Nations Fund Trust's fiscal year end is March 31; prior to
1996, Nations Fund Trust's fiscal year end was November 30. The Money Market
Funds currently offer six classes of shares -- Primary A Shares, Primary B
Shares, Investor A Shares, Investor B Shares, Investor C Shares and Investor D
Shares. The Non-Money Market Funds currently offer five classes of
shares -- Primary A Shares, Primary B Shares, Investor A Shares, Investor C
Shares and Investor N Shares. Certain Funds, however, do not offer shares of
each class. This Prospectus relates only to the Primary A Shares of the
following funds of Nations Fund Trust: Nations Government Money Market Fund,
Nations Tax Exempt Fund, Nations Value Fund, Nations Capital Growth Fund,
Nations Emerging Growth Fund, Nations Disciplined Equity Fund, Nations Equity
Index Fund, Nations Balanced Assets Fund, Nations Short-Intermediate Government
Fund, Nations Short-Term Income Fund, Nations Diversified Income Fund, Nations
Strategic Fixed Income Fund, Nations Municipal Income Fund, Nations Short-Term
Municipal Income Fund, Nations Intermediate Municipal Bond Fund, Nations Florida
Intermediate Municipal Bond Fund, Nations Georgia Intermediate Municipal Bond
Fund, Nations Maryland Intermediate Municipal Bond Fund, Nations North Carolina
Intermediate Municipal Bond Fund, Nations South Carolina Intermediate Municipal
Bond Fund, Nations Tennessee Intermediate Municipal Bond Fund, Nations Texas
Intermediate Municipal Bond Fund, Nations Virginia Intermediate Municipal Bond
Fund, Nations Florida Municipal Bond Fund, Nations Georgia Municipal Bond Fund,
Nations Maryland Municipal Bond Fund, Nations North Carolina Municipal Bond
Fund, Nations South Carolina Municipal Bond Fund, Nations Tennessee Municipal
Bond Fund, Nations Texas Municipal Bond Fund and Nations Virginia Municipal Bond
Fund. To obtain additional information regarding the Funds' other classes of
shares which may be available to you, contact your Institution (as defined
below) or Nations Fund at 1-800-626-2275.
Each share of Nations Fund Trust is without par value, represents an equal
proportionate interest in the related fund with other shares of the same class,
and is entitled to such dividends and distributions out of the income earned on
the assets belonging to such fund as are declared in the discretion of Nations
Fund Trust's Board of Trustees. Nations Fund Trust's Declaration of Trust
authorizes the Board of Trustees to classify or reclassify any class of shares
into one or more series of shares.
Shareholders are entitled to one vote for each full share held and a
proportionate fractional vote for each fractional share held. Shareholders of
each fund of Nations Fund Trust will vote in the aggregate and not by fund, and
shareholders of each fund will vote in the aggregate and not by class except as
otherwise expressly required by law or when the Board of Trustees determines
that the matter to be voted on affects only the interests of shareholders of a
particular fund or class. See Nations Fund Trust's SAI for examples of when the
1940 Act requires voting by fund.
As of July 15, 1996, NationsBank and its affiliates possessed or shared power to
dispose or vote with respect to more than 25% of the outstanding shares of
Nations Fund Trust and therefore could be considered to be a controlling person
of Nations Fund Trust for purposes of the 1940 Act. For more detailed
information concerning the percentage of each class or series of shares over
which NationsBank and its affiliates possessed or shared power to dispose or
vote as of a certain date, see Nations Fund Trust's SAI.
Nations Fund Trust does not presently intend to hold annual meetings except as
required by the 1940 Act. Shareholders will have the right to remove Trustees.
Nations Fund Trust's Code of Regulations provides that special meetings of
shareholders shall be called at the
63
<PAGE>
written request of the shareholders entitled to vote at least 10% of the
outstanding shares of Nations Fund Trust entitled to be voted at such meeting.
NATIONS FUND, INC.: Nations Fund, Inc. was incorporated in Maryland on December
13, 1983, but had no operations prior to December 15, 1986. Nations Fund, Inc.'s
fiscal year end is March 31; prior to 1996, Nations Fund, Inc.'s fiscal year end
was May 31. As of the date of this Prospectus, the authorized capital stock of
Nations Fund, Inc. consists of 270,000,000,000 shares of common stock, par value
of $.001 per share, which are divided into series or funds each of which
consists of separate classes of shares. This Prospectus relates only to the
Primary A Shares of the following funds of Nations Fund, Inc.: Nations Prime
Fund, Nations Treasury Fund, Nations Equity Income Fund, Nations International
Equity Fund and Nations Government Securities Fund. To obtain additional
information regarding the Funds' other classes of shares which may be available
to you, contact your Institution (as defined below) or Nations Fund at
1-800-626-2275.
Shares of each fund and class have equal rights with respect to voting, except
that the holders of shares of a particular fund or class will have the exclusive
right to vote on matters affecting only the rights of the holders of such fund
or class. In the event of dissolution or liquidation, holders of each class will
receive pro rata, subject to the rights of creditors, (a) the proceeds of the
sale of that portion of the assets allocated to that class held in the
respective fund of Nations Fund, Inc., less (b) the liabilities of Nations Fund,
Inc. attributable to the respective fund or class or allocated among the funds
or classes based on the respective liquidation value of each fund or class.
Shareholders of Nations Fund, Inc. do not have cumulative voting rights, and
therefore the holders of more than 50% of the outstanding shares of all funds
voting together for election of directors may elect all of the members of the
Board of Directors of Nations Fund, Inc. Meetings of shareholders may be called
upon the request of 10% or more of the outstanding shares of Nations Fund, Inc.
There are no preemptive rights applicable to any of Nations Fund, Inc.'s shares.
Nations Fund, Inc.'s shares, when issued, will be fully paid and non-assessable.
As of July 15, 1996, NationsBank and its affiliates possessed or shared power to
dispose of or vote with respect to more than 25% of the outstanding shares of
Nations Fund, Inc. and therefore could be considered to be a controlling person
of Nations Fund, Inc. for purposes of the 1940 Act. For more detailed
information concerning the percentage of each class or series over which
NationsBank and its affiliates possessed or shared power to dispose or vote as
of a certain date, see Nations Fund, Inc.'s SAI. It is anticipated that Nations
Fund, Inc. will not hold annual shareholder meetings on a regular basis unless
required by the 1940 Act or Maryland law.
NATIONS PORTFOLIOS: Nations Portfolios was incorporated in Maryland on January
23, 1995. Nations Portfolios' fiscal year end is March 31. As of the date of
this Prospectus, the authorized capital stock of Nations Portfolios consists of
150,000,000,000 shares of common stock, par value of $.001 per share, which are
divided into series or funds each of which consists of separate classes of
shares. This Prospectus relates only to the Primary A Shares of Nations Emerging
Markets Fund, Nations Pacific Growth Fund and Nations Global Government Income
Fund of Nations Portfolios. To obtain additional information regarding the
Funds' other classes of shares which may be available to you, contact your
Institution (as defined below) or Nations Fund at 1-800-626-2275.
Shares of a fund and class have equal rights with respect to voting, except that
the holders of shares of a fund or class will have the exclusive right to vote
on matters affecting only the rights of the holders of such fund or class. In
the event of dissolution or liquidation, holders of each class will receive pro
rata, subject to the rights of creditors, (a) the proceeds of the sale of that
portion of the assets allocated to that class held in the respective fund of
Nations Portfolios, less (b) the liabilities of Nations Portfolios attributable
to the respective fund or class or allocated among the funds or classes based on
the respective liquidation value of each fund or class.
Shareholders of Nations Portfolios do not have cumulative voting rights, and
therefore the holders of more than 50% of the outstanding shares of all funds
voting together for election of directors may elect all of the members of the
Board of Directors of Nations Portfolios. Meetings of shareholders may be called
upon the request of 10% or more of the outstanding shares of Nations Portfolios.
There are no preemptive rights applicable to any of Nations Portfolios' shares.
Nations Portfolios' shares, when issued, will be fully paid and non-assessable.
As of July 15, 1996, NationsBank and its affiliates possessed or shared power to
dispose of or vote with respect to more than 25% of the outstanding shares of
Nations Portfolios and, therefore, could be considered to be a controlling
person of Nations Portfolios for purposes of the 1940 Act. For more detailed
information concerning the percentage of each class or series over which
NationsBank and its affiliates possessed or shared power to dispose or vote as
of a certain date, see Nations Portfolios' SAI. It is anticipated that Nations
Portfolios will not hold annual shareholder meetings on a regular basis unless
required by the 1940 Act or Maryland law.
Because this Prospectus combines disclosures on three separate investment
companies, there is a possibility that one investment company could become
liable for a
64
<PAGE>
misstatement, inaccuracy or incomplete disclosure in this Prospectus concerning
the other investment company. Nations Fund Trust, Nations Fund, Inc. and Nations
Portfolios have entered into an indemnification agreement that creates a right
of indemnification from the investment company responsible for any such
misstatement, inaccuracy or incomplete disclosure that may appear in this
Prospectus.
PENDING LEGAL PROCEEDINGS: A purported class action lawsuit against, among
others, Nations Government Securities Fund and Nations Short-Intermediate
Government Fund was filed by Lawrence Bergelt on May 21, 1996. The complaint was
amended and consolidated on July 11, 1996 in the United States District Court
for the Middle District of Florida, Tampa Division by Mr. Bergelt and others in
an action against the two funds, NationsBank Corporation and certain of its
affiliates, Dean Witter Distributors and certain of its affiliates, and Stephens
Inc. (Case No. 94-995-Civ.-T-23E). As relevant to Nations Government Securities
Fund and Nations Short-Intermediate Government Fund, plaintiffs allege that,
among other things, defendants violated the Securities Exchange Act of 1934 and
various state securities fraud statutes by employing a scheme to defraud
plaintiffs into purchasing shares of the funds and making untrue statements of
material fact and omitting to state material facts in connection with sales of
shares of the funds. Plaintiffs further allege that, among other things,
defendants concealed the risks associated with such funds by blurring the
distinctions between banks and non-bank subsidiaries and by obscuring the
differences between traditional, federally insured bank products and uninsured,
non-depository products.
About Your Investment
How To Buy Shares
Primary A Shares may be sold to financial institutions (including NationsBank
and its affiliated and correspondent banks) and fee-based planners acting on
behalf of their customers, employee benefit plans, charitable foundations and
endowments. Primary A Shares may, at times, be sold to other similar categories
of investors.
Primary A Shares are sold at net asset value without the imposition of a sales
charge. Financial institutions ("Institutions") acting on behalf of their
customers ("Customers") may establish certain procedures for processing
Customers' purchase orders and may charge their Customers for services provided
to them in connection with their investments.
Purchases of the Money Market Funds may be effected on days on which the Federal
Reserve Bank of New York is open for business (a "Bank Business Day"). Purchases
of the Non-Money Market Funds may be effected on days on which the New York
Stock Exchange (the "Exchange") is open for business (a "NYSE Business Day").
Unless otherwise specified, the term Business Day in this Prospectus refers to a
Bank Business Day with respect to a Money Market Fund, and a NYSE Business Day
with respect to a Non-Money Market Fund.
There is a minimum initial investment of $1,000 for each record holder; there is
no minimum subsequent investment.
Nations Fund and Stephens reserve the right to reject any purchase order. The
issuance of Primary A Shares is recorded on the books of the Funds, and share
certificates are not issued. It is the responsibility of Institutions, when
applicable, to record beneficial ownership of Primary A Shares and to reflect
such ownership in the account statements provided to their Customers.
EFFECTIVE TIME OF PURCHASES -- MONEY MARKET FUNDS: Purchases will be effected
only when federal funds are available for investment on the Business Day the
purchase order is received by Stephens or by the Transfer Agent. A purchase
order must be received by Stephens or by the Transfer Agent by 3:00 p.m.,
Eastern time (12 noon, Eastern time, with respect to Nations Tax Exempt Fund and
Nations Government Money Market Fund). A purchase order received by Stephens or
the Transfer Agent after such time will not be accepted; notice thereof will be
given to the Institution or investor placing the order, and any funds received
will be returned promptly to the sending Institution or investor. If federal
funds are not available by 4:00 p.m., Eastern time, the order will be canceled.
Primary A Shares are purchased at the net asset value per share next determined
after receipt of the order by Stephens or by the Transfer Agent.
Institutions are responsible for transmitting orders for purchases by their
Customers, and delivering required funds, on a timely basis. It is Stephens'
responsibility to transmit orders it receives to Nations Fund.
EFFECTIVE TIME OF PURCHASES -- NON-MONEY MARKET FUNDS: Purchase orders for
Primary A Shares in
65
<PAGE>
the Non-Money Market Funds which are received by Stephens or by the Transfer
Agent before the close of regular trading hours on the Exchange (currently 4:00
p.m., Eastern time) on any Business Day are priced according to the net asset
value determined on that day but are not executed until 4:00 p.m., Eastern time,
on the Business Day on which immediately available funds in payment of the
purchase price are received by the Fund's Custodian. Such payment must be
received no later than 4:00 p.m., Eastern time, by the third Business Day
following receipt of the order. If funds are not received by such date, the
order will not be accepted and notice thereof will be given to the Institution
or investor placing the order. Payment for orders which are not received or
accepted will be returned after prompt inquiry to the sending Institution or
investor. Primary A Shares are purchased at the net asset value per share next
determined after receipt of the order by Stephens or by the Transfer Agent.
Institutions are responsible for transmitting orders for purchases of Primary A
Shares by their Customers, and for delivering required funds, on a timely basis.
It is Stephens' responsibility to transmit orders it receives to Nations Fund.
How To Redeem Shares
With respect to the Money Market Funds, redemption orders must be received on a
Business Day before 3:00 p.m., Eastern time (12 noon, Eastern time, with respect
to Nations Tax Exempt Fund and Nations Government Money Market Fund), and
payment will normally be wired the same day to the Institution or investor.
Nations Fund reserves the right to wire redemption proceeds within three
Business Days after receiving the redemption orders if, in the judgment of the
Adviser, an earlier payment could adversely impact a Fund. However, redemption
proceeds for shares purchased by check may not be remitted until at least 15
days after the date of purchase to ensure that the check has cleared; a
certified check, however, is deemed to be cleared immediately. Redemption orders
will not be accepted by Stephens or by the Transfer Agent after 3:00 p.m.,
Eastern time (12 noon, Eastern time, with respect to Nations Tax Exempt Fund and
Nations Government Money Market Fund) for execution on that Business Day.
With respect to the Non-Money Market Funds, redemption proceeds are normally
remitted in federal funds wired to the redeeming Institution or investor within
three Business Days following receipt of the order.
Nations Fund may redeem a shareholder's Primary A Shares if the balance in such
shareholder's account with the Fund drops below $500 as a result of redemptions,
and the shareholder does not increase the balance to at least $500 on 60 days'
written notice. If a Customer has agreed with a particular Institution to
maintain a minimum balance in his or her account at the Institution, and the
balance in such Institution account falls below that minimum, the Customer may
be obliged to redeem all or a part of his or her Primary A Shares in the Funds
to the extent necessary to maintain the required minimum balance in such
Institution account. Nations Fund also may redeem shares involuntarily or make
payment for redemption in readily marketable securities or other property under
certain circumstances in accordance with the 1940 Act.
Institutions are responsible for transmitting redemption orders to Stephens or
to the Transfer Agent and for crediting their Customers' accounts with the
redemption proceeds on a timely basis. It is the responsibility of Stephens to
transmit orders it receives to Nations Fund. No charge for wiring redemption
payments is imposed by Nations Fund, although Institutions may charge their
Customer accounts for these or other services provided in connection with the
redemption of Primary A Shares and may establish additional procedures.
Information concerning any charges or procedures is available from the
Institutions. Redemption orders are effected at the net asset value per share
next determined after acceptance of the order by Stephens or by the Transfer
Agent.
How To Exchange Shares
The exchange feature enables a shareholder of Primary A Shares of a Fund to
acquire Primary A Shares of another Fund when that shareholder believes that a
shift between Funds is an appropriate investment decision. An exchange of
Primary A Shares for Primary A Shares of another Fund is made on the basis of
the next calculated net asset value per share of each Fund after the exchange
order is received.
The Funds and each of the other funds of Nations Fund may limit the number of
times this exchange feature may be exercised by a shareholder within a specified
period of time. Also, the exchange feature may be terminated or revised at any
time by Nations Fund upon such notice as may be required by applicable
regulatory agencies (presently 60 days for termination or material revision),
provided that the exchange feature may be termi-
66
<PAGE>
nated or materially revised without notice under certain unusual circumstances.
The current prospectus for each fund of Nations Fund describes its investment
objective and policies, and shareholders should obtain a copy and examine it
carefully before investing. Exchanges are subject to the minimum investment
requirement and any other conditions imposed by each fund. In the case of any
shareholder holding a share certificate or certificates, no exchanges may be
made until all applicable share certificates have been received by the Transfer
Agent and deposited in the shareholder's account. An exchange will be treated
for Federal income tax purposes the same as a redemption of shares, on which the
shareholder may realize a capital gain or loss. However, the ability to deduct
capital losses on an exchange may be limited in situations where there is an
exchange of shares within 90 days after the shares are purchased.
Nations Fund reserves the right to reject any exchange request. Only shares that
may legally be sold in the state of the investor's residence may be acquired in
an exchange. Only shares of a class that is accepting investments generally may
be acquired in an exchange.
If you have telephone exchange privileges, during periods of significant
economic or market change, such telephone exchanges may be difficult to
complete. In such event, shares may be exchanged by mailing your request
directly to the entity through which the original shares were purchased.
Investors should consult their Institution or Stephens for further information
regarding exchanges.
Primary A Shares may be exchanged by directing a request directly to the
Institution, if any, through which the original Primary A Shares were purchased
or in other cases Stephens or the Transfer Agent. Investors should consult their
Institution, Stephens, or the Transfer Agent for further information regarding
exchanges. Your exchange feature may be governed by your account agreement with
your Institution.
How The Funds Value Their Shares
The net asset value of a share of each class is calculated by dividing the total
value of its assets, less liabilities, by the number of shares in the class
outstanding. Shares of the Money Market Funds are valued as of 3:00 p.m.,
Eastern time (1:00 p.m., Eastern time, with respect to Nations Tax Exempt Fund
and Nations Government Money Market Fund), each Bank Business Day. Shares of the
Non-Money Market Funds are valued as of the close of regular trading on the
Exchange (currently 4:00 p.m., Eastern time) on each NYSE Business Day.
Currently, the days on which the Federal Reserve Bank of New York is closed
(other than weekends) are: New Year's Day, Martin Luther King, Jr. Day,
Presidents' Day, Memorial Day (observed), Independence Day, Labor Day, Columbus
Day, Thanksgiving Day and Christmas Day. Currently, the days on which the
Exchange is closed (other than weekends) are: New Year's Day, Presidents' Day,
Good Friday, Memorial Day (observed), Independence Day, Labor Day, Thanksgiving
Day and Christmas Day.
The assets in the Money Market Funds are valued based upon the amortized cost
method. Although Nations Fund seeks to maintain the net asset value per share of
these Funds at $1.00, there can be no assurance that their net asset value per
share will not vary.
With respect to the Non-Money Market Funds, portfolio securities for which
market quotations are readily available are valued at market value. Short-term
investments that will mature in 60 days or less are valued at amortized cost,
which approximates market value. All other securities are valued at their fair
value following procedures approved by the Trustees or Directors.
67
<PAGE>
How Dividends And Distributions Are Made;
Tax Information
DIVIDENDS AND DISTRIBUTIONS
MONEY MARKET FUNDS: Dividends from net investment income of each of the Money
Market Funds are declared daily to shareholders at 3:00 p.m., Eastern time (1:00
p.m., Eastern time, with respect to Nations Tax Exempt Fund and Nations
Government Money Market Fund), on the day of declaration. Primary A Shares begin
earning dividends on the day the purchase order is executed and continue earning
dividends through and including the day before the redemption order is executed
(E.G., the settlement date). Dividends are paid within five Business Days after
the end of each month. Dividends are paid in cash within five Business Days
after a shareholder's complete redemption of his Primary A Shares in a Fund. To
the extent that there are any net short-term capital gains, they will be paid at
least annually.
NON-MONEY MARKET FUNDS: Dividends from net investment income are declared daily
and paid monthly by the Bond Funds. Dividends from net investment income are
declared and paid each calendar quarter by the Equity Funds and the Balanced
Fund. Each Fund's net realized capital gains (including net short-term capital
gains) are distributed at least annually.
Primary A Shares of the Bond Funds are eligible to begin earning dividends that
are declared on the day the purchase order is executed and continue to be
eligible for dividends through and including the day before the redemption order
is executed. Primary A Shares of the Equity Funds and the Balanced Fund are
eligible to receive dividends when declared, provided, however, that the
purchase order for such shares is received at least one day prior to the
dividend declaration and such shares continue to be eligible for dividends
through and including the day before the redemption order is executed.
The net asset value of Primary A Shares in the Non-Money Market Funds will be
reduced by the amount of any dividend or distribution. Dividends and
distributions are paid in cash within five Business Days of the end of the month
or quarter to which the dividend relates. Dividends are paid within five
Business Days after the end of each month. Dividends are paid in the form of
additional Primary A Shares of the same Fund unless the Customer or investor has
elected prior to the date of distribution to receive payment in cash. Such
election, or any revocation thereof, must be made in writing to the Fund's
Transfer Agent and will become effective with respect to dividends paid after
its receipt. Dividends and distributions payable to a shareholder are paid in
cash within five Business Days after a shareholder's complete redemption of his
or her Primary A Shares in a Fund.
TAX INFORMATION
Each of the Funds intends to qualify as a separate "regulated investment
company" under the Internal Revenue Code of 1986, as amended (the "Code"). Such
qualification relieves a Fund of liability for Federal income tax to the extent
its earnings are distributed in accordance with the Code.
Each Fund intends to distribute substantially all of its investment company
taxable income and net tax-exempt income each taxable year. Such distributions
by a Fund of its net investment income (including net foreign currency gains)
and the excess, if any, of its net short-term capital gain over its net
long-term capital loss will be taxable as ordinary income to shareholders who
are not currently exempt from Federal income tax, whether such income is
received in cash or reinvested in additional shares. (Federal income tax for
distributions to an Individual Retirement Account are generally deferred under
the Code.)
Corporate shareholders in the Funds may be entitled to the dividends-received
deduction for distributions from those Funds investing in the stock of domestic
corporations to the extent of the total qualifying dividends received by the
distributing Fund. Corporate shareholders of Nations International Equity,
Nations Emerging Markets and Nations Pacific Growth Funds may be eligible for
the dividends-received deduction on the dividends (excluding the net capital
gains dividends) paid by these Funds to the extent that each such Fund's income
is derived from dividends (which, if received directly, would qualify for such
deduction) received from domestic corporations. In order to qualify for the
dividends-received deduction, a corporate shareholder must hold the fund shares
paying the dividends upon which the deduction is based for at least 46 days.
Substantially all of the net realized long-term capital gains of the Non-Money
Market Funds, if any, will be distributed at least annually to such Funds'
shareholders. These Funds will generally have no tax liability with respect to
such gains, and the distributions will be taxable to such shareholders who are
not currently exempt from Federal income tax as long-term capital gains,
regardless of how long the shareholders have held such Funds' shares and whether
such gains are received in cash or reinvested in additional shares. The Money
Market Funds do not expect to realize long-term capital gains and, therefore, do
not expect to distribute any capital gain dividends.
68
<PAGE>
Each year, shareholders will be notified as to the amount and Federal tax status
of all dividends and capital gains paid during the prior year. Such dividends
and capital gains may also be subject to state and local taxes.
Dividends declared in October, November or December of any year payable to
shareholders of record on a specified date in such months will be deemed to have
been received by shareholders and paid by a Fund on December 31 of such year in
the event such dividends are actually paid during January of the following year.
Federal law requires Nations Fund to withhold 31% from any dividends (other than
exempt-interest dividends) paid by Nations Fund and/or redemptions (including
exchange redemptions) that occur in certain shareholder accounts if the
shareholder has not properly furnished a certified correct Taxpayer
Identification Number and has not certified that withholding does not apply. If
the Internal Revenue Service has notified Nations Fund that the Taxpayer
Identification Number listed on a shareholder account is incorrect according to
its records, or that the shareholder is subject to backup withholding, the Fund
is required by the Internal Revenue Service to withhold 31% of any dividend
(other than exempt-interest dividends) and/or redemption (including exchange
redemptions). Amounts withheld are applied to the shareholder's Federal tax
liability, and a refund may be obtained from the Internal Revenue Service if
withholding results in overpayment of taxes. Federal law also requires the Funds
to withhold 30% or the applicable tax treaty rate from dividends paid to certain
nonresident alien, non-U.S. partnership and non-U.S. corporation shareholder
accounts.
Portions of each Fund's investment income may be subject to foreign income taxes
withheld at their source. Tax conventions between certain countries and the
United States may reduce or eliminate such taxes. Generally, more than 50% of
the value of the total assets of each Fund will consist of securities of foreign
issuers, and therefore each Fund may elect to "pass through" to its shareholders
these foreign taxes, if any. In such event each shareholder will be required to
include his or her pro rata portion thereof in his or her gross income, but will
be able to deduct or (subject to various limitations) claim a foreign tax credit
against U.S. income tax for such amount.
NATIONS TAX EXEMPT FUND, NATIONS MUNICIPAL INCOME FUND, NATIONS SHORT-TERM
MUNICIPAL INCOME FUND, NATIONS INTERMEDIATE MUNICIPAL BOND FUND, THE STATE
INTERMEDIATE MUNICIPAL BOND FUNDS AND THE STATE MUNICIPAL BOND FUNDS
As regulated investment companies, each of these Funds is entitled to pass
through to their shareholders tax-exempt interest income ("exempt-interest
dividends") subject to certain conditions which these Funds intend to satisfy.
To the extent that any of these Funds earn taxable income or realize long-term
capital gains, distributions to shareholders from such sources will be subject
to Federal income tax. The policy of Nations Municipal Income Fund, Nations
Short-Term Municipal Income Fund, Nations Intermediate Municipal Bond Fund, the
State Intermediate Municipal Bond Funds and the State Municipal Bond Funds is to
pay to their shareholders an amount equal to at least 90% of their
exempt-interest income net of certain deductions and 90% of their investment
company taxable income. Nations Tax Exempt Fund does not intend to earn
investment company taxable income or long-term capital gains. Exempt-interest
dividends may be treated by shareholders as items of interest excludable from
their Federal gross income under Section 103(a) of the Code unless, under the
circumstances applicable to the particular shareholder, the exclusion would be
disallowed. (See Nations Fund Trust's SAI under "Additional Information
Concerning Taxes.") Distributions of net investment income by Nations Tax Exempt
Fund, Nations Municipal Income Fund, Nations Intermediate Municipal Bond Fund
and Nations Short-Term Municipal Income Fund may be taxable to investors under
state or local law even though a substantial portion of such distributions may
be derived from interest on tax-exempt obligations which, if realized directly,
would be exempt from such income taxes.
If any of these Funds should hold certain private activity bonds issued after
August 7, 1986, shareholders must include, as an item of tax preference, the
portion of dividends paid by the Fund that is attributable to interest on such
bonds in their Federal alternative minimum taxable income for purposes of
determining liability (if any) for the 28% alternative minimum tax applicable to
individuals and the 20% alternative minimum tax and the environmental tax
applicable to corporations. Corporate shareholders must also take all
exempt-interest dividends into account in determining certain adjustments for
Federal alternative minimum and environmental tax purposes. The environmental
tax applicable to corporations is imposed at the rate of 0.12% on the excess of
the corporation's modified Federal alternative minimum taxable income over
$2,000,000. Shareholders receiving Social Security benefits should note that all
exempt-interest dividends will be taken into account in determining the
taxability of such benefits.
With respect to the State Intermediate Municipal Bond Funds and the State
Municipal Bond Funds, it is anticipated that exempt-interest dividends derived
from tax-exempt interest paid on municipal obligations of the pertinent state
and that state's political subdivisions, agencies, instrumentalities and
authorities, and certain other issuers, including Puerto Rico and Guam, will be
exempt from state income tax with respect to those states which impose a state
income tax. Florida and Texas do not impose income taxes, but Florida imposes a
tax upon intangible personal property which may apply to shares of Nations
Florida Intermediate Municipal Bond Fund and Nations Florida Municipal Bond Fund
held by residents of that state. Florida has issued a Technical Assistance
Advisement indicating that shares in such Funds will not be subject to Florida's
intangibles tax,
69
<PAGE>
subject to certain requirements which the Funds intend to satisfy. See Nations
Fund Trust's SAI for further details about state tax treatment relevant to
shareholders of these Funds.
In addition to annual disclosures as to Federal tax consequences of dividends
and distributions, shareholders of the State Intermediate Municipal Bond Funds
and the State Municipal Bond Funds will also be advised as to the state tax
consequences of dividends and distributions made each year.
The foregoing discussion is based on tax laws and regulations that were in
effect as of the date of this Prospectus and summarizes only some of the
important tax considerations generally affecting the Funds and their
shareholders. It is not intended as a substitute for careful tax planning.
Accordingly, potential investors should consult their tax advisors with specific
reference to their own tax situations. Further tax information is contained in
the SAIs.
Appendix A -- Portfolio Securities
The following are summary descriptions of certain types of instruments in which
a Fund may invest. The "How Objectives Are Pursued" section of this Prospectus
identifies each Fund's permissible investments, and the SAIs contain more
information concerning such investments.
ASSET-BACKED SECURITIES: Asset-backed securities arise through the grouping by
governmental, government-related, and private organizations of loans,
receivables, or other assets originated by various lenders. Asset-backed
securities consist of both mortgage- and non-mortgage-backed securities.
Interests in pools of these assets may differ from other forms of debt
securities, which normally provide for periodic payment of interest in fixed
amounts with principal paid at maturity or specified call dates. Conversely,
asset-backed securities provide periodic payments which may consist of both
interest and principal payments.
The life of an asset-backed security varies depending upon rate of the
prepayment of the underlying debt instruments. The rate of such prepayments will
be a function of current market interest rates and other economic and
demographic factors. For example, falling interest rates generally result in an
increase in the rate of prepayments of mortgage loans while rising interest
rates generally decrease the rate of prepayments. An acceleration in prepayments
in response to sharply falling interest rates will shorten the security's
average maturity and limit the potential appreciation in the security's value
relative to a conventional debt security. Consequently, asset-backed securities
may not be as effective in locking in high, long-term yields. Conversely, in
periods of sharply rising rates, prepayments are generally slow, increasing the
security's average life and its potential for price depreciation.
MORTGAGE-BACKED SECURITIES: Mortgage-backed securities represent an ownership
interest in a pool of mortgage loans.
Mortgage pass-through securities may represent participation interests in pools
of residential mortgage loans originated by U.S. governmental or private lenders
and guaranteed, to the extent provided in such securities, by the U.S.
Government or one of its agencies, authorities or instrumentalities. Such
securities, which are ownership interests in the underlying mortgage loans,
differ from conventional debt securities, which provide for periodic payment of
interest in fixed amounts (usually semi-annually) and principal payments at
maturity or on specified call dates. Mortgage pass-through securities provide
for monthly payments that are a "pass-through" of the monthly interest and
principal payments (including any prepayments) made by the individual borrowers
on the pooled mortgage loans, net of any fees paid to the guarantor of such
securities and the servicer of the underlying mortgage loans.
The guaranteed mortgage pass-through securities in which a Fund may invest may
include those issued or guaranteed by GNMA, by FNMA and FHLMC. Such Certificates
are mortgage-backed securities which represent a partial ownership interest in a
pool of mortgage loans issued by lenders such as mortgage bankers, commercial
banks and savings and loan associations. Such mortgage loans may have fixed or
adjustable rates of interest.
The average life of a mortgage-backed security is likely to be substantially
less than the original maturity of the mortgage pools underlying the securities.
Prepayments of principal by mortgagors and mortgage foreclosures will usually
result in the return of the greater part of principal invested far in advance of
the maturity of the mortgages in the pool.
The yield which will be earned on mortgage-backed securities may vary from their
coupon rates for the following reasons: (i) Certificates may be issued at a
premium or discount, rather than at par; (ii) Certificates may trade in the
secondary market at a premium or discount after issuance; (iii) interest is
earned and compounded monthly which has the effect of raising the effective
yield earned on the Certificates; and (iv) the actual yield of each Certificate
is affected by the prepayment of mortgages included in the mortgage pool
underlying the Certificates and the rate at which principal so prepaid is
reinvested. In addition, prepayment of mortgages included in the mortgage pool
underlying a GNMA
70
<PAGE>
Certificate purchased at a premium may result in a loss to the Fund.
Mortgage-backed securities issued by private issuers, whether or not such
obligations are subject to guarantees by the private issuer, may entail greater
risk than obligations directly or indirectly guaranteed by the U.S. Government.
Collateralized Mortgage Obligations or "CMOs" are debt obligations
collateralized by mortgage loans or mortgage pass-through securities (collateral
collectively hereinafter referred to as "Mortgage Assets"). Multi-class pass-
through securities are interests in a trust composed of Mortgage Assets and all
references herein to CMOs will include multi-class pass-through securities.
Payments of principal of and interest on the Mortgage Assets, and any
reinvestment income thereon, provide the funds to pay debt service on the CMOs
or make scheduled distribution on the multi-class pass-through securities.
Moreover, principal prepayments on the Mortgage Assets may cause the CMOs to be
retired substantially earlier than their stated maturities or final distribution
dates, resulting in a loss of all or part of the premium if any has been paid.
Interest is paid or accrues on all classes of the CMOs on a monthly, quarterly
or semiannual basis.
The principal and interest payments on the Mortgage Assets may be allocated
among the various classes of CMOs in several ways. Typically, payments of
principal, including any prepayments, on the underlying mortgages are applied to
the classes in the order of their respective stated maturities or final
distribution dates, so that no payment of principal is made on CMOs of a class
until all CMOs of other classes having earlier stated maturities or final
distribution dates have been paid in full.
Stripped mortgage-backed securities ("SMBS") are derivative multi-class mortgage
securities. A Fund will only invest in SMBS that are obligations backed by the
full faith and credit of the U.S. Government. SMBS are usually structured with
two classes that receive different proportions of the interest and principal
distributions from a pool of mortgage assets. A Fund will only invest in SMBS
whose mortgage assets are U.S. Government Obligations.
A common type of SMBS will be structured so that one class receives some of the
interest and most of the principal from the Mortgage Assets, while the other
class receives most of the interest and the remainder of the principal. If the
underlying Mortgage Assets experience greater than anticipated prepayments of
principal, a Fund may fail to fully recoup its initial investment in these
securities. The market value of any class which consists primarily or entirely
of principal payments generally is unusually volatile in response to changes in
interest rates.
The average life of mortgage-backed securities varies with the maturities of the
underlying mortgage instruments. The average life is likely to be substantially
less than the original maturity of the mortgage pools underlying the securities
as the result of mortgage prepayments, mortgage refinancings, or foreclosures.
The rate of mortgage prepayments, and hence the average life of the
certificates, will be a function of the level of interest rates, general
economic conditions, the location and age of the mortgage and other social and
demographic conditions. Such prepayments are passed through to the registered
holder with the regular monthly payments of principal and interest and have the
effect of reducing future payments. Estimated average life will be determined by
the Adviser and used for the purpose of determining the average weighted
maturity and duration of the Funds. For additional information concerning
mortgage backed securities, see the related SAI.
NON-MORTGAGE ASSET-BACKED SECURITIES: Non-mortgage asset-backed securities
include interests in pools of receivables, such as motor vehicle installment
purchase obligations and credit card receivables. Such securities are generally
issued as pass-through certificates, which represent undivided fractional
ownership interests in the underlying pools of assets. Such securities also may
be debt instruments, which are also known as collateralized obligations and are
generally issued as the debt of a special purpose entity organized solely for
the purpose of owning such assets and issuing such debt. Such securities also
may include instruments issued by certain trusts, partnerships or other special
purpose issuers, including pass-through certificates representing participations
in, or debt instruments backed by, the securities and other assets owned by such
issuers.
Non-mortgage-backed securities are not issued or guaranteed by the U.S.
Government or its agencies or instrumentalities; however, the payment of
principal and interest on such obligations may be guaranteed up to certain
amounts and for a certain time period by a letter of credit issued by a
financial institution (such as a bank or insurance company) unaffiliated with
the issuers of such securities.
The purchase of non-mortgage-backed securities raises considerations peculiar to
the financing of the instruments underlying such securities. For example, most
organizations that issue asset-backed securities relating to motor vehicle
installment purchase obligations perfect their interests in their respective
obligations only by filing a financing statement and by having the servicer of
the obligations, which is usually the originator, take custody thereof. In such
circumstances, if the servicer were to sell the same obligations to another
party, in violation of its duty not to do so, there is a risk that such party
could acquire an interest in the obligations superior to
71
<PAGE>
that of the holders of the asset-backed securities. Also, although most such
obligations grant a security interest in the motor vehicle being financed, in
most states the security interest in a motor vehicle must be noted on the
certificate of title to perfect such security interest against competing claims
of other parties. Due to the larger number of vehicles involved, however, the
certificate of title to each vehicle financed, pursuant to the obligations
underlying the asset-backed securities, usually is not amended to reflect the
assignment of the seller's security interest for the benefit of the holders of
the asset-backed securities. Therefore, there is the possibility that recoveries
on repossessed collateral may not, in some cases, be available to support
payments on those securities. In addition, various state and Federal laws give
the motor vehicle owner the right to assert against the holder of the owner's
obligation certain defenses such owner would have against the seller of the
motor vehicle. The assertion of such defenses could reduce payments on the
related asset-backed securities. Insofar as credit card receivables are
concerned, credit card holders are entitled to the protection of a number of
state and Federal consumer credit laws, many of which give such holders the
right to set off certain amounts against balances owed on the credit card,
thereby reducing the amounts paid on such receivables. In addition, unlike most
other asset-backed securities, credit card receivables are unsecured obligations
of the card holder.
BANK INSTRUMENTS: Bank instruments consist mainly of certificates of deposit,
time deposits and bankers' acceptances. Nations Prime Fund generally limits
investments in bank instruments to (a) U.S. dollar-denominated obligations of
U.S. banks which have total assets exceeding $1 billion and which are members of
the Federal Deposit Insurance Corporation (including obligations of foreign
branches of such banks) or of the 75 largest foreign commercial banks in terms
of total assets; or (b) U.S. dollar-denominated bank instruments issued by other
banks believed by the Adviser to present minimal credit risks. For purposes of
the foregoing, total assets may be determined on the basis of the bank's most
recent annual financial statements.
Nations Prime Fund may invest up to 100% of its assets in obligations issued by
banks. All Funds (except Nations Prime Fund) will limit their investments in
bank obligations so they do not exceed 25% of each Fund's total assets at the
time of purchase. Nations Prime Fund may invest in U.S. dollar-denominated
obligations issued by foreign branches of domestic banks ("Eurodollar"
obligations) and domestic branches of foreign banks ("Yankee dollar"
obligations).
Eurodollar, Yankee dollar, and other foreign obligations involve special
investment risks, including the possibility that liquidity could be impaired
because of future political and economic developments, the obligations may be
less marketable than comparable domestic obligations of domestic issuers, a
foreign jurisdiction might impose withholding taxes on interest income payable
on such obligations, deposits may be seized or nationalized, foreign
governmental restrictions such as exchange controls may be adopted which might
adversely affect the payment of principal of and interest on such obligations,
the selection of foreign obligations may be more difficult because there may be
less publicly available information concerning foreign issuers, there may be
difficulties in enforcing a judgment against a foreign issuer or the accounting,
auditing and financial reporting standards, practices and requirements
applicable to foreign issuers may differ from those applicable to domestic
issuers. In addition, foreign banks are not subject to examination by U.S.
Government agencies or instrumentalities.
BORROWINGS: When a Fund borrows money, the net asset value of a share may be
subject to greater fluctuation until the borrowing is paid off. The Funds may
borrow money from banks for temporary purposes in amounts of up to one-third of
their respective total assets, provided that borrowings in excess of 5% of the
value of the Funds' total assets must be repaid prior to the purchase of
portfolio securities. 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 and dollar roll transactions may be considered to
be borrowings. When a Fund invests in a reverse repurchase agreement, it sells a
portfolio security to another party, such as a bank or broker/dealer, in return
for cash, and agrees to buy the security back at a future date and price.
Reverse repurchase agreements may be used to provide cash to satisfy unusually
heavy redemption requests without having to sell portfolio securities, or for
other temporary or emergency purposes. In addition, certain of the Funds may use
reverse repurchase agreements for the purpose of investing the proceeds in
tri-party repurchase agreements. Generally, the effect of such a transaction is
that the Funds can recover all or most of the cash invested in the portfolio
securities involved during the term of the reverse repurchase agreement, while
they will be able to keep the interest income associated with those portfolio
securities. Such transactions are only advantageous if the interest cost to the
Funds of the reverse repurchase transaction is less than the cost of obtaining
the cash otherwise.
At the time a Fund enters into a reverse repurchase agreement, it may establish
a segregated account with its custodian bank in which it will maintain cash,
U.S. Government Securities or other liquid high grade debt obligations equal in
value to its obligations in respect of reverse repurchase agreements. Reverse
repurchase agreements involve the risk that the market value of the securities
the Funds are obligated to repurchase under
72
<PAGE>
the agreement may decline below the repurchase price. In the event the buyer of
securities under a reverse repurchase agreement files for bankruptcy or becomes
insolvent, the Funds' use of proceeds of the agreement may be restricted pending
a determination by the other party, or its trustee or receiver, whether to
enforce the Funds' obligation to repurchase the securities. In addition, there
is a risk of delay in receiving collateral or securities or in repurchasing the
securities covered by the reverse repurchase agreement or even of a loss of
rights in the collateral or securities in the event the buyer of the securities
under the reverse repurchase agreement files for bankruptcy or becomes
insolvent. The Fund only enters into reverse repurchase agreements (and
repurchase agreements) with counterparties that are deemed by the Adviser to be
credit worthy. Reverse repurchase agreements are speculative techniques
involving leverage, and are subject to asset coverage requirements if the Funds
do not establish and maintain a segregated account (as described above). Under
the requirements of the 1940 Act, the Funds are required to maintain an asset
coverage (including the proceeds of the borrowings) of at least 300% of all
borrowings. Depending on market conditions, the Funds' asset coverage and other
factors at the time of a reverse repurchase, the Funds may not establish a
segregated account when the Adviser believes it is not in the best interests of
the Funds to do so. In this case, such reverse repurchase agreements will be
considered borrowings subject to the asset coverage described above.
Dollar roll transactions consist of the sale by a Fund of mortgage-backed or
other asset-backed securities, together with a commitment to purchase similar,
but not identical, securities at a future date, at the same price. In addition,
a Fund is paid a fee as consideration for entering into the commitment to
purchase. If the broker/dealer to whom a Fund sells the security becomes
insolvent, the Fund's right to purchase or repurchase the security may be
restricted; the value of the security may change adversely over the term of the
dollar roll; the security that the Fund is required to repurchase may be worth
less than the security that the Fund originally held, and the return earned by
the Fund with the proceeds of a dollar roll may not exceed transaction costs.
Currently, Nations Treasury Fund has entered into an arrangement whereby it
reinvests the proceeds of a reverse repurchase agreement in a tri-party
repurchase agreement and receives the net interest rate differential.
COMMERCIAL INSTRUMENTS: Commercial instruments consist of short-term U.S.
dollar-denominated obligations issued by domestic corporations or foreign
corporations and domestic and foreign commercial banks. The Nations Prime Fund
will limit purchases of commercial instruments to instruments which: (a) if
rated by at least two NRSROs, are rated in the highest rating category for
short-term debt obligations given by such organizations, or if only rated by one
such organization, are rated in the highest rating category for short-term debt
obligations given by such organization; or (b) if not rated, are (i) comparable
in priority and security to a class of short-term instruments of the same issuer
that has such rating(s), or (ii) of comparable quality to such instruments as
determined by Nations Fund, Inc.'s Board of Directors on the advice of the
Adviser.
Investments by a Fund in commercial paper will consist of issues rated in a
manner consistent with such Fund's investment policies and objective. In
addition, a Fund may acquire unrated commercial paper and corporate bonds that
are determined by the Adviser at the time of purchase to be of comparable
quality to rated instruments that may be acquired by a Fund. Commercial
instruments include variable-rate master demand notes, which are unsecured
instruments that permit the indebtedness thereunder to vary and provide for
periodic adjustments in the interest rate, and variable- and floating-rate
instruments.
CONVERTIBLE SECURITIES, PREFERRED STOCK, AND WARRANTS: Certain of the Funds may
invest in debt securities convertible into or exchangeable for equity
securities, preferred stocks or warrants. Preferred stocks are securities that
represent an ownership interest in a corporation providing the owner with claims
on a company's earnings and assets before common stock owners, but after bond or
other debt security owners. Warrants are options to buy a stated number of
shares of common stock at a specified price any time during the life of the
warrants.
FIXED INCOME INVESTING: The performance of the fixed income debt component of a
Fund's portfolio depends primarily on interest rate changes, the average
weighted maturity of the portfolio and the quality of the securities held. The
debt component of a Fund's portfolio will tend to decrease in value when
interest rates rise and increase when interest rates fall. A Fund's share price
and yield depend, in part, on the maturity and quality of its debt instruments.
FOREIGN CURRENCY TRANSACTIONS: Certain of the Funds may enter into foreign
currency exchange transactions to convert foreign currencies to and from the
U.S. dollar. A Fund either enters into these transactions on a spot (I.E., cash)
basis at the spot rate prevailing in the foreign currency exchange market, or
uses forward contracts to purchase or sell foreign currencies. A forward foreign
currency exchange contract is an obligation by a Fund to purchase or sell a
specific currency at a future date, which may be any fixed number of days from
the date of the contract.
Foreign currency hedging transactions are an attempt to protect a Fund against
changes in foreign currency exchange rates between the trade and settlement
dates of specific securities transactions or changes in foreign
73
<PAGE>
currency exchange rates that would adversely affect a portfolio position or an
anticipated portfolio position. Although these transactions tend to minimize the
risk of loss due to a decline in the value of the hedged currency, at the same
time they tend to limit any potential gain that might be realized should the
value of the hedged currency increase. Neither spot transactions nor forward
foreign currency exchange contracts eliminate fluctuations in the prices of a
Fund's portfolio securities or in foreign exchange rates, or prevent loss if the
prices of these securities should decline.
A Fund will generally enter into forward currency exchange contracts only under
two circumstances: (i) when the Fund enters into a contract for the purchase or
sale of a security denominated in a foreign currency, to "lock" in the U.S.
dollar price of the security; and (ii) when the Adviser believes that the
currency of a particular foreign country may experience a substantial movement
against another currency. Under certain circumstances, the Fund may commit a
substantial portion of its portfolio to the execution of these contracts. The
Adviser will consider the effects such a commitment would have on the investment
program of the Fund and the flexibility of the Fund to purchase additional
securities. Although forward contracts will be used primarily to protect the
Fund from adverse currency movements, they also involve the risk that
anticipated currency movements will not be accurately predicted.
FOREIGN SECURITIES: Foreign securities include debt and equity obligations
(dollar- and non-dollar-denominated) of foreign corporations and banks as well
as obligations of foreign governments and their political subdivisions (which
will be limited to direct government obligations and government-guaranteed
securities). Such investments may subject a Fund to special investment risks,
including future political and economic developments, the possible imposition of
withholding taxes on interest income, possible seizure or nationalization of
foreign deposits, the possible establishment of exchange controls, or the
adoption of other foreign governmental restrictions which might adversely affect
the payment of principal and interest on such obligations. In addition, foreign
issuers in general may be subject to different accounting, auditing, reporting,
and record keeping standards than those applicable to domestic companies, and
securities of foreign issuers may be less liquid and their prices more volatile
than those of comparable domestic issuers.
Investments in foreign securities may present additional risks, whether made
directly or indirectly, including the political or economic instability of the
issuer or the country of issue and the difficulty of predicting international
trade patterns. In addition, there may be less publicly available information
about a foreign company than about a U.S. company. Further, foreign securities
markets are generally not as developed or efficient as those in the U.S., and in
most foreign markets volume and liquidity are less than in the United States.
Fixed commissions on foreign securities exchanges are generally higher than the
negotiated commissions on U.S. exchanges, and there is generally less government
supervision and regulation of foreign securities exchanges, brokers, and
companies than in the United States. With respect to certain foreign countries,
there is a possibility of expropriation or confiscatory taxation, limitations on
the removal of funds or other assets, or diplomatic developments that could
affect investments within those countries. Because of these and other factors,
securities of foreign companies acquired by a Fund may be subject to greater
fluctuation in price than securities of domestic companies.
FUTURES, OPTIONS AND OTHER DERIVATIVE INSTRUMENTS: Certain of the Funds may
attempt to reduce the overall level of investment risk of particular securities
and attempt to protect a Fund against adverse market movements by investing in
futures, options and other derivative instruments. These include the purchase
and writing of options on securities (including index options) and options on
foreign currencies, and investing in futures contracts for the purchase or sale
of instruments based on financial indices, including interest rate indices or
indices of U.S. or foreign government, equity or fixed income securities
("futures contracts"), options on futures contracts, forward contracts and swaps
and swap-related products such as interest rate swaps, currency swaps, caps,
collars and floors.
The use of futures, options, forward contracts and swaps exposes a Fund to
additional investment risks and transaction costs. If the Adviser incorrectly
analyzes market conditions or does not employ the appropriate strategy with
respect to these instruments, a Fund could be left in a less favorable position.
Additional risks inherent in the use of futures, options, forward contracts and
swaps include: imperfect correlation between the price of futures, options and
forward contracts and movements in the prices of the securities or currencies
being hedged; the possible absence of a liquid secondary market for any
particular instrument at any time; and the possible need to defer closing out
certain hedged positions to avoid adverse tax consequences. A Fund may not
purchase put and call options which are traded on a national stock exchange in
an amount exceeding 5% of its net assets. Further information on the use of
futures, options and other derivative instruments, and the associated risks, is
contained in the SAIs.
GUARANTEED INVESTMENT CONTRACTS: Guaranteed investment contracts, investment
contracts or funding agreements (each referred to as a "GIC") are investment
instruments issued by highly rated insurance companies. Pursuant to such
contracts, a Fund may make cash contributions to a deposit fund of the insurance
company's general or separate accounts. The insurance company
74
<PAGE>
then credits to a Fund guaranteed interest. The insurance company may assess
periodic charges against a GIC for expense and service costs allocable to it,
and the charges will be deducted from the value of the deposit fund. The
purchase price paid for a GIC generally becomes part of the general assets of
the issuer, and the contract is paid from the general assets of the issuer.
A Fund will only purchase GICs from issuers which, at the time of purchase, meet
quality and credit standards established by the Adviser. Generally, GICs are not
assignable or transferable without the permission of the issuing insurance
companies, and an active secondary market in GICs does not currently exist.
Also, a Fund may not receive the principal amount of a GIC from the insurance
company on seven days' notice or less, at which point the GIC may be considered
to be an illiquid investment.
ILLIQUID SECURITIES: Certain securities may be sold only pursuant to certain
legal restrictions, and may be difficult to sell. The Money Market Funds will
not hold more than 10% of the value of their respective net assets in securities
that are illiquid or such lower percentage as may be required by the states in
which the appropriate Fund sells its shares. The Non-Money Market Funds will not
hold more than 15% of the value of their respective net assets in securities
that are illiquid or such lower percentage as may be required by the states in
which the appropriate Fund sells its shares. Repurchase agreements, time
deposits and GICs that do not provide for payment to a Fund within seven days
after notice, and illiquid restricted securities are subject to the limitation
on illiquid securities. In addition, interests in privately arranged loans
acquired by the Nations Prime Fund, the State Intermediate Municipal Bond Funds
and the State Municipal Bond Funds may be subject to this limitation.
If otherwise consistent with their investments objective and policies, certain
Funds may purchase securities that are not registered under the Securities Act
of 1933, as amended (the "1933 Act") but which can be sold to "qualified
institutional buyers" in accordance with Rule 144A 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.
LOWER-RATED DEBT SECURITIES: Certain of the Funds may invest in lower-rated debt
securities. Lower rated, high-yielding securities are those rated "Ba" or "B" by
Moody's or "BB" or "B" by S&P which are commonly referred to as "junk bonds."
These bonds provide poor protection for payment of principal and interest.
Lower-quality bonds involve greater risk of default or price changes due to
changes in the issuer's creditworthiness than securities assigned a higher
quality rating. These securities are considered to have speculative
characteristics and indicate an aggressive approach to income investing.
The market for lower-rated securities may be thinner and less active than that
for higher quality securities, which can adversely affect the price at which
these securities can be sold. If market quotations are not available, these
lower-rated securities will be valued in accordance with procedures established
by the Funds' Boards, including the use of outside pricing services. Adverse
publicity and changing investor perceptions may affect the ability of outside
pricing services used by a Fund to value its portfolio securities, and a Fund's
ability to dispose of these lower-rated bonds.
MONEY MARKET INSTRUMENTS: With respect to Non-Money Market Funds, the term
"money market instruments" refers to instruments with remaining maturities of
one year or less. With respect to Money Market Funds, the term "money market
instruments" refers to instru-
75
<PAGE>
ments 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 the credit
standing of the corporate user of the facility involved.
Municipal securities may include "moral obligation" bonds, which are normally
issued by special purpose public authorities. If the issuer of moral obligation
bonds is unable to meet its debt service obligations from current revenues, it
may draw on a reserve fund, the restoration of which is a moral commitment but
not a legal obligation of the state or municipality which created the issuer.
Municipal securities may include variable- or floating-rate instruments issued
by industrial development authorities and other governmental entities. While
there may not be an active secondary market with respect to a particular
instrument purchased by a Fund, a Fund may demand payment of the principal and
accrued interest on the instrument or may resell it to a third party as
specified in the instruments. The absence of an active secondary market,
however, could make it difficult for a Fund to dispose of the instrument if the
issuer defaulted on its payment obligation or during periods the Fund is not
entitled to exercise its demand rights, and the Fund could, for these or other
reasons, suffer a loss.
Some of these instruments may be unrated, but unrated instruments purchased by a
Fund will be determined by the Adviser to be of comparable quality at the time
of purchase to instruments rated "high quality" by any major rating service.
Where necessary to ensure that an instrument is of comparable "high quality," a
Fund will require that an issuer's obligation to pay the principal of the note
may be backed by an unconditional bank letter or line of credit, guarantee, or
commitment to lend.
Municipal Securities also may include municipal lease obligations, including
certificates of participation in municipal leases, and units of participation in
trusts holding pools of tax-exempt leases. A Fund may acquire municipal lease
obligations that may be assigned by the lessee to another party provided the
obligation continues to provide tax-exempt interest. Each Fund will not purchase
municipal lease obligations to the extent it holds municipal lease obligations
and illiquid securities in an amount exceeding 10% of its total assets unless
the Adviser determines that the municipal lease obligations are liquid pursuant
to guidelines established by the Funds' Boards. Pursuant to these guidelines,
the Adviser, in making this liquidity determination, will consider, among other
factors, the strength and nature of the secondary market for such obligations,
the prospect for its future marketability and whether such obligations are
rated. The Funds expect that they will only purchase rated municipal lease
obligations.
Municipal participation interests may be purchased from financial institutions,
and give the purchaser an undivided interest in one or more underlying Municipal
Securities. To the extent that municipal participation interests are considered
to be "illiquid securities" such instruments are subject to each Fund's
limitation on the purchase of illiquid securities.
In addition, certain of the Funds may acquire "stand-by commitments" from banks
or broker/dealers with respect to municipal securities held in their portfolios.
Under a stand-by commitment, a dealer would agree to purchase at a Fund's option
specified Municipal Securities at a specified price. A Fund will acquire
stand-by commitments solely to facilitate portfolio liquidity and does not
intend 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
76
<PAGE>
be paid for put features. A premium paid will have the effect of reducing the
yield otherwise payable on the underlying security. The purpose of engaging in
transactions involving puts is to maintain flexibility and liquidity to permit
the Fund to meet redemptions and remain as fully invested as possible in
municipal securities. The Funds will limit their put transactions to
institutions which the Adviser believes present minimal credit risk, pursuant to
guidelines adopted by the Boards. Nations Tax Exempt Fund may invest more than
40% of its portfolio in 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 the Funds do not presently intend to do so on a regular basis, each may
invest more than 25% of its total assets in municipal securities the interest on
which is paid solely from revenues of similar projects if such investment is
deemed necessary or appropriate by the Adviser. To the extent that more than 25%
of a Fund's total assets are invested in Municipal Securities that are payable
from the revenues of similar projects, a Fund will be subject to the peculiar
risks presented by such projects to a greater extent than it would be if its
assets were not so concentrated.
Since each of the State Intermediate Municipal Bond Funds and the State
Municipal Bond Funds will invest primarily in securities issued by issuers
located in one state, each of these Funds is susceptible to changes in value due
to political and economic factors affecting that state's issuers. A comparable
municipal bond fund which is not concentrated in obligations issued by issuers
located in one state would be less susceptible to these risks. If any issuer of
securities held by one of these Funds is unable to meets its financial
obligations, that Fund's income, capital, and liquidity may be adversely
affected.
The fourth most populous state, Florida, rated "Aa" by Moody's and "AA" by both
S&P and Fitch, has been and continues to be a leading tourist and retiree
destination. Florida's growing population and manageable debt load are just two
of the factors that will help Florida remain a solid investment. Led by the
service, construction and trade sectors, job growth in Florida has rebounded
from the lows of 1991-1992 and is projected to be almost double the national
average for 1996. Tourism was back in 1995 after it had suffered in the prior
two years due to hurricane Andrew and a rash of violent crimes involving foreign
tourists.
The state of Georgia has one of the best debt structures in the country, hence
the "Aaa" by Moody's, and "AAA" rating by both S&P and Fitch. The population of
Georgia has been growing at twice the national rate for the past four years. Job
growth and economic expansion have been outstanding in recent years, as Georgia
prepares to host the 1996 Summer Olympic Games. Following the Olympics,
Georgia's economy should continue to expand, albeit at a slightly lower rate.
This is due in part to Georgia's competitive manufacturing base, and the diverse
service and transportation center of Atlanta.
Maryland is one of the wealthiest states in the U.S. and has been able to
maintain its "Aaa" rating by Moody's, and "AAA" rating by both Fitch and S&P,
despite the contraction of government and defense related industries. Maryland's
economic base is highly diversified with a lower than average dependence on
manufacturing. Slow growth in Maryland is expected to continue, as government
cutbacks and downsizing reduce the employment opportunities within the state.
Debt ratios are moderate and, with Maryland ranked fifth in per capita income,
it's no surprise that income taxes and highway use taxes provide the vast
majority of support for general obligation debt. As defense cutbacks continue,
Maryland's dependence on income taxes could depress growth within the state
below national levels.
North Carolina, rated "Aaa" by Moody's, and "AAA" by both S&P and Fitch, has
benefited from an inflow of people as well as businesses. This is due in part to
North Carolina's affordable housing, above-average growth in per capita income
and below-average cost of doing business. North Carolina's declining textile
industry has begun to give way to the high-tech and financial sectors, as
evidenced by the title of "Banking Center of the South." Consequently, high wage
job growth has been expanding at a pace greater than national averages and is
expected to continue to do so for the foreseeable future.
The dominance of the manufacturing sector has been both a positive and a
negative for South Carolina. On the positive side, the expansion of
manufacturing, specifically autos and related parts, has lessened the impact of
the naval base closure in Charleston and provided a much needed infusion of new
jobs. On the negative side, the cyclical nature of South Carolina's
manufacturing economy has kept per capita income below national levels and
considerably below regional levels. That said, South Carolina's low debt burden,
strong security arrangements and lack of credit extension have led to a "Aaa"
rating by Moody's, "AA+" rating by S&P and a "AAA" rating by Fitch, for the
state. Combine this with a conservative plan of finance, and South Carolina
looks to be in a very strong financial position, despite its reliance on the
manufacturing sector.
Tennessee's very low debt burden, nearly exclusive use of general obligation
debt and conservative financial policies all combine to give the state of
Tennessee a "Aaa" rating by Moody's, "AA+" rating by S&P, and a "AAA" rating by
Fitch. Tennessee's economy remains in a developing mode, as the state continues
to shift its growth in manufacturing output to autos (Tennessee ranks third in
the nation in automobile production) and related products from textiles.
Tennessee relies on sales tax rev-
77
<PAGE>
enues as a main source of funds. This could prove to be a limiting factor were
it not for Tennessee's strong pattern of job growth and growing population.
Texas has proven its ability to adapt and rebound to a changing economic
environment, both within the state and abroad. Texas has also historically taken
a conservative approach to financial management, as is reflected in the state's
"Aa" rating by Moody's, "AA" rating by S&P, and "AA-" rating by Fitch. Although
Texas has consistently led the U.S. in employment growth, unemployment in Texas
is above the national average. This is due, in part, to the heavy migration into
the state (in 1994 Texas replaced New York as the second most populous state).
Look for economic conditions in Texas to improve further as Mexico comes out of
its economic dilemma.
The state of Virginia has earned its "Aaa" rating by Moody's and "AAA" rating by
S&P and Fitch, by having a low relative tax rate, high per capita income and
strong growth in service sector jobs. A very high share of Virginia's population
is college educated, so it's no surprise that Virginia has the highest per
capita income of any of the southern states. Virginia has also maintained a low
unemployment rate despite strong growth in the labor force. Although it has a
large exposure to defense and related industries, Virginia's prudent financial
management and low debt burden should help to insulate it from any government
cutbacks in those areas.
There can be no assurance that the economic conditions on which the above
ratings for a specific state are based will continue or that particular bond
issues may not be adversely affected by changes in economic or political
conditions. More detailed information about matters relating to each of the
State Intermediate Municipal Bond Funds and State Municipal Bond Funds is
contained in Nations Fund Trust's SAI.
OTHER INVESTMENT COMPANIES: Each Fund may invest in securities issued by other
investment companies to the extent that such investments are consistent with the
Fund's investment objective and policies and permissible under the 1940 Act. As
a shareholder of another investment company, a Fund would bear, along with other
shareholders, its pro rata portion of the other investment company's expenses,
including advisory fees. These expenses would be in addition to the advisory and
other expenses that a Fund bears directly in connection with its own operations.
REAL ESTATE INVESTMENT TRUSTS: A real estate investment trust ("REIT") is a
managed portfolio of real estate investments which may include office buildings,
apartment complexes, hotels and shopping malls. An Equity REIT holds equity
positions in real estate, and it seeks to provide its shareholders with income
from the leasing of its properties, and with capital gains from any sales of
properties. A Mortgage REIT specializes in lending money to developers of
properties, and passes any interest income it may earn to its shareholders.
REITs may be affected by changes in the value of the underlying property owned
or financed by the REIT, while Mortgage REITs also may be affected by the
quality of credit extended. Both Equity and Mortgage REITs are dependent upon
management skill and may not be diversified. REITs also may be subject to heavy
cash flow dependency, defaults by borrowers, self-liquidation, and the
possibility of failing to qualify for tax-free pass-through of income under the
Code.
REPURCHASE AGREEMENTS: A repurchase agreement involves the purchase of a
security by a Fund and a simultaneous agreement (generally with a bank or
broker/dealer) to repurchase that security from the Fund at a specified price
and date or upon demand. This technique offers a method of earning income on
uninvested cash. A risk associated with repurchase agreements is the failure of
the seller to repurchase the securities as agreed, which may cause a Fund to
suffer a loss if the market value of such securities declines before they can be
liquidated on the open market. Repurchase agreements with a duration of more
than seven days are considered illiquid securities and are subject to the limit
stated above. A Fund may enter into joint repurchase agreements jointly with
other investment portfolios of Nations Fund.
SECURITIES LENDING: To increase return on portfolio securities, the Funds may
lend their portfolio securities to broker/dealers and other institutional
investors pursuant to agreements requiring that the loans be continuously
secured by collateral equal at all times in value to at least the market value
of the securities loaned. There is a risk of delay in receiving collateral or in
recovering the securities loaned or even a loss of rights in the collateral
should the borrower of the securities fail financially. However, loans are made
only to borrowers deemed by the Adviser to be credit worthy and when, in their
judgment, the income to be earned from the loan justifies the attendant risks.
The aggregate of all outstanding loans of a Fund may not exceed 30% of the value
of its total assets.
SHORT-TERM TRUST OBLIGATIONS: Nations Prime Fund may invest in short-term
obligations issued by special purpose trusts established to acquire specific
issues of government or corporate securities. Such obligations entitle the Fund
to a proportional fractional interest in payments received by the trust, either
from the underlying securities owned by the trust or pursuant to other
arrangements entered into by the trust. A trust may enter into a swap
arrangement with a highly rated investment firm, pursuant to which the trust
grants to the counterparty certain of its rights with respect to the securities
owned by the trust in exchange for the obligation of the counterparty to make
payments to the trust according to an established formula. The trust obligations
purchased by the Fund must satisfy the quality
78
<PAGE>
and maturity requirements generally applicable to the Fund pursuant to Rule 2a-7
under the 1940 Act.
STOCK INDEX, INTEREST RATE AND CURRENCY FUTURES CONTRACTS: Certain of the Funds
may purchase and sell futures contracts and related options with respect to
non-U.S. stock indices, non-U.S. interest rates and foreign currencies, that
have been approved by the CFTC for investment by U.S. investors, for the purpose
of hedging against changes in values of a Fund's securities or changes in the
prevailing levels of interest rates or currency exchange rates. The contracts
entail certain risks, including but not limited to the following: no assurance
that futures contracts transactions can be offset at favorable prices; possible
reduction of a Fund's total return due to the use of hedging; possible lack of
liquidity due to daily limits on price fluctuation; imperfect correlation
between the contracts and the securities or currencies being hedged; and
potential losses in excess of the amount invested in the futures contracts
themselves.
Trading on foreign commodity exchanges presents additional risks. Unlike trading
on domestic commodity exchanges, trading on foreign commodity exchanges is not
regulated by the CFTC and may be subject to greater risks than trading on
domestic exchanges. For example, some foreign exchanges are principal markets
for which no common clearing facility exists and a trader may look only to the
broker for performance of the contract. In addition, unless a Fund hedges
against fluctuations in the exchange rate between the U.S. dollar and the
currencies in which trading is done on foreign exchanges, any profits that such
Fund might realize could be eliminated by adverse changes in the exchange rate,
or the Fund could incur losses as a result of those changes.
U.S. GOVERNMENT OBLIGATIONS: U.S. Government Obligations consist of marketable
securities and instruments issued or guaranteed by the U.S. Government or any of
its agencies, authorities or instrumentalities. Direct obligations are issued by
the U.S. Treasury and include all U.S. Treasury instruments. 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 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 Association; 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. Certain Funds may
invest in securities with demand features where (a) the security or its issuer
has received a short-term rating from an NRSRO; and (b) the issuer of the demand
feature, or another institution, undertakes to notify promptly the holder of the
security in the event that the demand feature is substituted with a demand
feature provided by another issuer. (Note, however, that certain securities
first issued on or before June 3, 1996 are not subject to these rating and
notice requirements.) An instrument with a demand period exceeding seven days
may be considered illiquid if there is no secondary market for such security.
WHEN-ISSUED, DELAYED DELIVERY AND FORWARD COMMITMENT SECURITIES: The purchase of
new issues of securities on a "when-issued," "delayed delivery" or "forward
commitment" basis occurs when the payment for and delivery of securities 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.
79
<PAGE>
Appendix B -- Description Of Ratings
The following summarizes the highest six ratings used by S&P for corporate and
municipal bonds. The first four ratings denote investment grade securities.
AAA -- This is the highest rating assigned by S&P to a debt obligation and
indicates an extremely strong capacity to pay interest and repay principal.
AA -- Debt rated AA is considered to have a very strong capacity to pay
interest and repay principal and differs from AAA issues only in a small
degree.
A -- Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than debt in higher-rated
categories.
BBB -- Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than for those in
higher-rated categories.
BB, B -- Bonds rated BB and B are regarded, on balance, as predominantly
speculative with respect to capacity to pay interest and repay principal in
accordance with the terms of the obligation. BB represents the lowest
degree of speculation and B a higher degree of speculation. While such
bonds will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
To provide more detailed indications of credit quality, the AA, A and BBB
ratings may be modified by the addition of a plus or minus sign to show relative
standing within these major rating categories.
The following summarizes the highest six ratings used by Moody's for corporate
and municipal bonds. The first four ratings denote investment grade securities.
Aaa -- Bonds that are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to
as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such
issues.
Aa -- Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there may
be other elements present which make the long-term risks appear somewhat
larger than in Aaa securities.
A -- Bonds that are rated A possess many favorable investment attributes
and are to be considered upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
Baa -- Bonds that are rated Baa are considered medium grade obligations,
I.E., they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable
over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba -- Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may
be small.
Moody's applies numerical modifiers (1, 2 and 3) with respect to corporate bonds
rated Aa through B. The modifier 1 indicates that the bond being rated ranks in
the higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates that the bond ranks in the lower
end of its generic rating category. With regard to municipal bonds, those bonds
in the Aa, A and Baa groups which Moody's believes possess the strongest
investment attributes are designated by the symbols Aa1, A1 or Baa1,
respectively.
The following summarizes the highest four ratings used by D&P for bonds, each of
which denotes that the securities are investment grade:
AAA -- Bonds that are rated AAA are of the highest credit quality. The risk
factors are considered to be
80
<PAGE>
negligible, being only slightly more than for risk-free U.S. Treasury debt.
AA -- Bonds that are rated AA are of high credit quality. Protection
factors are strong. Risk is modest, but may vary slightly from time to time
because of economic conditions.
A -- Bonds that are rated A have protection factors which are average but
adequate. However, risk factors are more variable and greater in periods of
economic stress.
BBB -- Bonds that are rated BBB have below average protection factors but
still are considered sufficient for prudent investment. Considerable
variability in risk exists during economic cycles.
To provide more detailed indications of credit quality, the AA, A and BBB
ratings may be modified by the addition of a plus or minus sign to show relative
standing within these major categories.
The following summarizes the highest four ratings used by Fitch for bonds, each
of which denotes that the securities are investment grade:
AAA -- Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
AA -- Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated AAA. Because bonds
rated in the AAA and AA categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is
generally rated F-1+.
A -- Bonds considered to be investment grade and of high credit quality.
The obligor's ability to pay interest and repay principal is considered to
be strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.
BBB -- Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these
bonds, and therefore impair timely payment. The likelihood that the ratings
of these bonds will fall below investment grade is higher than for bonds
with higher ratings.
To provide more detailed indications of credit quality, the AA, A and BBB
ratings may be modified by the addition of a plus or minus sign to show relative
standing within these major rating categories.
The following summarizes the two highest ratings used by Moody's for short-term
municipal notes and variable-rate demand obligations:
MIG-1/VMIG-1 -- Obligations bearing these designations are of the best
quality, enjoying strong protection from established cash flows, superior
liquidity support or demonstrated broad-based access to the market for
refinancing.
MIG-2/VMIG-2 -- Obligations bearing these designations are of high quality,
with ample margins of protection although not so large as in the preceding
group.
The following summarizes the two highest ratings used by S&P for short-term
municipal notes:
SP-1 -- Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics are given
a "plus" (+) designation.
SP-2 -- Satisfactory capacity to pay principal and interest.
The three highest rating categories of D&P for short-term debt, each of which
denotes that the securities are investment grade, are D-1, D-2 and D-3. D&P
employs three designations, D-1+, D-1 and D-1-, within the highest rating
category. D-1+ indicates highest certainty of timely payment. Short-term
liquidity, including internal operating factors and/or access to alternative
sources of funds, is judged to be "outstanding, and safety is just below
risk-free U.S. Treasury short-term obligations." D-1 indicates very high
certainty of timely payment. Liquidity factors are excellent and supported by
good fundamental protection factors. Risk factors are considered to be minor.
D-1- indicates high certainty of timely payment. Liquidity factors are strong
and supported by good fundamental protection factors. Risk factors are very
small. D-2 indicates good certainty of timely payment. Liquidity factors and
company fundamentals are sound. Although ongoing funding needs may enlarge total
financing requirements, access to capital markets is good. Risk factors are
small. D-3 indicates satisfactory liquidity and other protection factors which
qualify the issue as investment grade. Risk factors are larger and subject to
more variation. Nevertheless, timely payment is expected.
The following summarizes the two highest rating categories used by Fitch for
short-term obligations, each of which denotes securities that are investment
grade:
F-1+ securities possess exceptionally strong credit quality. Issues
assigned this rating are regarded as having the strongest degree of
assurance for timely payment.
81
<PAGE>
F-1 securities possess very strong credit quality. Issues assigned this
rating reflect an assurance of timely payment only slightly less in degree
than issues rated F-1+.
F-2 securities possess good credit quality. Issues carrying this rating
have a satisfactory degree of assurance for timely payment, but the margin
of safety is not as great as for issues assigned the F-1+ and F-1 ratings.
Commercial paper rated A-1 by S&P indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted A-1+. Capacity for timely payment on
commercial paper rated A-2 is satisfactory, but the relative degree of safety is
not as high as for issues designated A-1.
The rating Prime-1 is the highest commercial paper rating assigned by Moody's.
Issuers rated Prime-1 (or related supporting institutions) are considered to
have a superior capacity for repayment of senior short-term obligations. Issuers
rated Prime-2 (or related supporting institutions) are considered to have a
strong capacity for repayment of senior short-term obligations. This will
normally be evidenced by many of the characteristics of issuers rated Prime-1,
but to a lesser degree. Earnings trends and coverage ratios, while sound, will
be more subject to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample alternate
liquidity is maintained.
For commercial paper, D&P uses the short-term debt ratings described above.
For commercial paper, Fitch uses the short-term debt ratings described above.
BankWatch ratings are based upon a qualitative and quantitative analysis of all
segments of the organization including, where applicable, holding company and
operating subsidiaries. BankWatch ratings do not constitute a recommendation to
buy or sell securities of any of these companies. Further, BankWatch does not
suggest specific investment criteria for individual clients.
BankWatch long-term ratings apply to specific issues of long-term debt and
preferred stock. The long-term ratings specifically assess the likelihood of
untimely payment of principal or interest over the term to maturity of the rated
instrument. The following are the four investment grade ratings used by
BankWatch for long-term debt:
AAA -- The highest category; indicates ability to repay principal and
interest on a timely basis is extremely high.
AA -- The second highest category; indicates a very strong ability to repay
principal and interest on a timely basis with limited incremental risk
versus issues rated in the highest category.
A -- The third highest category; indicates the ability to repay principal
and interest is strong. Issues rated "A" could be more vulnerable to
adverse developments (both internal and external) than obligations with
higher ratings.
BBB -- The lowest investment grade category; indicates an acceptable
capacity to repay principal and interest. Issues rated "BBB" are, however,
more vulnerable to adverse developments (both internal and external) than
obligations with higher ratings.
The BankWatch short-term ratings apply to commercial paper, other senior
short-term obligations and deposit obligations of the entities to which the
rating has been assigned. The BankWatch short-term ratings specifically assess
the likelihood of an untimely payment of principal or interest.
TBW-1 -- The highest category; indicates a very high likelihood that
principal and interest will be paid on a timely basis.
TBW-2 -- The second highest category; while the degree of safety regarding
timely repayment of principal and interest is strong, the relative degree
of safety is not as high as for issues rated "TBW-1".
TBW-3 -- The lowest investment grade category; indicates that while more
susceptible to adverse developments (both internal and external) than
obligations with higher ratings, capacity to service principal and interest
in a timely fashion is considered adequate.
TBW-4 -- The lowest rating category; this rating is regarded as
non-investment grade and therefore speculative.
The following summarizes the four highest long-term ratings used by IBCA:
AAA -- Obligations for which there is the lowest expectation of investment
risk. Capacity for timely repayment of principal and interest is
substantial such that adverse changes in business, economic or financial
conditions are unlikely to increase investment risk significantly.
AA -- Obligations for which there is a very low expectation of investment
risk. Capacity for timely repayment of principal and interest is
substantial. Adverse changes in business, economic or financial conditions
may increase investment risk albeit not very significantly.
A -- Obligations for which there is a low expectation of investment risk.
Capacity for timely repayment of principal and interest is strong, although
adverse
82
<PAGE>
changes in business, economic or financial conditions may lead to increased
investment risk.
BBB -- Obligations for which there is currently a low expectation of
investment risk. Capacity for timely repayment of principal and interest is
adequate, although adverse changes in business, economic or financial
conditions are more likely to lead to increased investment risk than for
obligations in other categories.
A plus or minus sign may be appended to a rating below AAA to denote relative
status within major rating categories.
The following summarizes the two highest short-term debt ratings used by IBCA:
A1+ -- When issues 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.
83
<PAGE>
Prospectus
PRIMARY A SHARES
JULY 31, 1996
MONEY MARKET FUNDS
Nations Prime Fund
Nations Treasury Fund
Nations Government Money Market
Fund
EQUITY FUNDS
Nations Value Fund
Nations Equity Income Fund
Nations International Equity Fund
Nations Emerging Markets Fund
Nations Pacific Growth Fund
Nations Capital Growth Fund
Nations Emerging Growth Fund
Nations Disciplined Equity Fund
Nations Equity Index Fund
BALANCED FUND
Nations Balanced Assets Fund
BOND FUNDS
Nations Short-Intermediate Government
Fund
Nations Government Securities Fund
Nations Short-Term Income Fund
Nations Diversified Income Fund
Nations Strategic Fixed Income Fund
Nations Global Government Income
Fund
(Nations Fund logo appears here)
INVESTMENT ADVISER: NationsBanc Advisors, Inc.
SUB-INVESTMENT ADVISER: TradeStreet Investment Associates, Inc.
SUB-INVESTMENT ADVISER: Gartmore Global Partners
DISTRIBUTOR: Stephens Inc.
<PAGE>
Prospectus MONEY MARKET FUNDS:
Nations Prime Fund
Nations Treasury Fund
PRIMARY A SHARES Nations Government Money
JULY 31, 1996 Market Fund
EQUITY FUNDS:
Nations Value Fund
This Prospectus describes the investment portfolios Nations Equity Income
listed in the column to the right (each a "Fund") of Fund
Nations Fund Trust, Nations Fund, Inc., and Nations Nations Emerging Markets
Fund Portfolios, Inc. ("Nations Portfolios"), each Fund
an open-end management investment company in the Nations Pacific Growth
Nations Fund Family ("Nations Fund" or "Nations Fund Fund
Family"). This Prospectus describes one class of Nations International
shares of each Fund -- Primary A Shares (formerly Equity Fund
called Trust A Shares). Nations Disciplined Equity Nations Capital Growth
Fund was formerly called "Nations Special Equity Fund
Fund." Nations Emerging Growth
Fund
Nations Disciplined
NATIONS PRIME FUND, NATIONS TREASURY FUND AND Equity Fund
NATIONS GOVERNMENT MONEY MARKET FUND (THE "MONEY Nations Equity Index Fund
MARKET FUNDS") SEEK TO MAINTAIN A NET ASSET VALUE OF
$1.00 PER SHARE. BALANCED FUND:
Nations Balanced Assets
Fund
INVESTMENTS IN THE MONEY MARKET FUNDS ARE NEITHER
INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT AND BOND FUNDS:
THERE CAN BE NO ASSURANCE THAT THESE FUNDS WILL BE Nations Short-
ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 Intermediate Government
PER SHARE. Fund
Nations Government
Securities Fund
Nations Short-Term Income
This Prospectus sets forth concisely the information Fund
about each Fund that a prospective purchaser of Nations Diversified Income
Primary A Shares should consider before investing. Fund
Investors should read this Prospectus and retain it Nations Strategic Fixed
for future reference. Additional information about Income Fund
Nations Fund Trust, Nations Fund, Inc. and Nations Nations Global Government
Portfolios is contained in separate Statements of Income Fund
Additional Information (the "SAIs"), that have been
filed with the Securities and Exchange Commission
(the "SEC") and are available upon request without
charge by writing or calling Nations Fund at its
address or telephone number shown below. The SAIs
for Nations Fund Trust, Nations Fund, Inc. and
Nations Portfolios, each dated July 31, 1996, are
incorporated by reference in their entirety into
this Prospectus. NationsBanc Advisors, Inc. ("NBAI")
is the investment adviser to the Funds. TradeStreet
Investment Associates, Inc. ("TradeStreet") is
sub-investment adviser to certain of the Funds and
Gartmore Global Partners ("Gartmore") is
sub-investment adviser to the other Funds. As used
herein the "Adviser" shall mean NBAI, TradeStreet
and/or Gartmore as the context may require.
SHARES OF NATIONS FUND ARE NOT DEPOSITS OR OTHER
OBLIGATIONS OF, OR ISSUED, ENDORSED OR GUARANTEED
BY, NATIONSBANK, N.A. ("NATIONSBANK") OR ANY OF ITS
AFFILIATES. SUCH SHARES ARE NOT INSURED BY THE U.S.
GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER
GOVERNMENT AGENCY. AN INVESTMENT IN THE FUNDS
INVOLVES CERTAIN RISKS, INCLUDING POSSIBLE LOSS OF
PRINCIPAL.
For Fund information call:
NATIONSBANK AND CERTAIN OF ITS AFFILIATES PROVIDE 1-800-626-2275
CERTAIN OTHER SERVICES TO NATIONS FUND, FOR WHICH
THEY ARE COMPENSATED. STEPHENS INC., WHICH IS NOT
AFFILIATED WITH NATIONSBANK, IS THE SPONSOR AND Nations Fund
ADMINISTRATOR AND SERVES AS THE DISTRIBUTOR FOR c/o Stephens Inc.
NATIONS FUND. One NationsBank Plaza
33rd Floor
THESE SECURITIES HAVE NOT BEEN APPROVED OR Charlotte, NC 28255
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 Fund Logo appears here)
TR-96128-796
<PAGE>
Table Of Contents
About The Prospectus Summary 3
Funds
Expenses Summary 5
Financial Highlights 7
Objectives 22
How Objectives Are Pursued 23
How Performance Is Shown 35
How The Funds Are Managed 36
Organization And History 42
About Your How To Buy Shares 44
Investment How To Redeem Shares 44
How To Exchange Shares 45
How The Funds Value Their Shares 46
How Dividends And Distributions Are Made;
Tax Information 46
Appendix A -- Portfolio Securities 48
Appendix B -- Description Of Ratings 56
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT
CONTAINED IN THIS PROSPECTUS, OR IN THE FUNDS' SAIS
INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH
THE OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY NATIONS FUND OR ITS DISTRIBUTOR. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFERING BY NATIONS FUND OR
BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH
OFFERING MAY NOT LAWFULLY BE MADE.
2
<PAGE>
About The Funds
Prospectus Summary
(Bullet) TYPE OF COMPANIES: Open-end management investment companies.
(Bullet) INVESTMENT OBJECTIVES AND POLICIES:
(Bullet) MONEY MARKET FUNDS:
(Bullet) Nations Prime Fund's investment objective is to seek the
maximization of current income to the extent consistent with the
preservation of capital and the maintenance of liquidity.
(Bullet) Nations Treasury Fund's investment objective is the maximization
of current income to the extent consistent with the preservation
of capital and the maintenance of liquidity.
(Bullet) Nations Government Money Market Fund's investment objective is to
seek as high a level of current income as is consistent with
liquidity and stability of principal.
(Bullet) EQUITY FUNDS:
(Bullet) Nations Value Fund's investment objective is to seek growth of
capital by investing in companies that are believed to be
undervalued.
(Bullet) Nations Equity Income Fund's investment objective is to seek
current income and growth of capital by investing primarily in
companies with above average dividend yields.
(Bullet) Nations International Equity Fund's investment objective is to
seek long-term capital growth by investing primarily in equity
securities of non-United States companies in Europe, Australia,
the Far East and other regions, including developing countries.
(Bullet) Nations Emerging Markets Fund's investment objective is to seek
long-term capital growth by investing primarily in equity
securities of companies in emerging market countries, such as those
in Latin America, Eastern Europe, the Pacific Basin, the Far East,
Africa and India.
(Bullet) Nations Pacific Growth Fund's investment objective is to seek
long-term capital growth by investing primarily in equity
securities of companies in the Pacific Basin and the Far East
(excluding Japan).
(Bullet) Nations Capital Growth Fund's investment objective is to seek
growth of capital by investing in companies that are believed to
have superior earnings growth potential.
(Bullet) Nations Emerging Growth Fund's investment objective is to seek
capital appreciation by investing in emerging growth companies that
are believed to have superior long-term earnings growth prospects.
(Bullet) Nations Disciplined Equity Fund's investment objective is to seek
growth of capital by investing in companies that are expected to
produce significant increases in earnings per share.
(Bullet) Nations Equity Index Fund's investment objective is to seek
investment results that correspond, before fees and expenses, to
the total return of the Standard & Poor's 500 Composite Stock Price
Index.
(Bullet) BALANCED FUND:
(Bullet) Nations Balanced Assets Fund's investment objective is to seek
total return by investing in equity and fixed income securities.
3
<PAGE>
(Bullet) BOND FUNDS:
(Bullet) Nations Short-Intermediate Government Fund's investment objective
is to seek high current income consistent with modest fluctuation
of principal. The Fund invests primarily in securities issued or
guaranteed by the U.S. Government, its agencies or
instrumentalities.
(Bullet) Nations Government Securities Fund's investment objective is to
seek high current income consistent with moderate fluctuation of
principal. The Fund invests primarily in intermediate-term
securities issued or guaranteed by the U.S. Government, its
agencies or instrumentalities.
(Bullet) Nations Short-Term Income Fund's investment objective is to seek
high current income consistent with minimal fluctuation of
principal. The Fund invests in investment grade debt securities.
(Bullet) Nations Diversified Income Fund's investment objective is to seek
total return with an emphasis on current income by investing in a
diversified portfolio of fixed income securities.
(Bullet) Nations Strategic Fixed Income Fund's investment objective is to
seek total return by investing in investment grade fixed income
securities.
(Bullet) Nations Global Government Income Fund's investment objective is to
seek total return by investing primarily in high quality debt
securities issued by governments, banks and supranational entities
located throughout the world.
(Bullet) INVESTMENT ADVISER: NationsBanc Advisors, Inc. serves as the investment
adviser to the Funds. NBAI provides investment advice to more than 43
investment company portfolios in the Nations Fund Family. TradeStreet
Investment Associates, Inc. provides sub-advisory services to certain
of the Funds and Gartmore Global Partners provides sub-advisory
services to the other Funds. See "How The Funds Are Managed."
(Bullet) DIVIDENDS AND DISTRIBUTIONS: The Equity Funds and the Balanced Fund
declare and pay dividends from net investment income each calendar
quarter. The Money Market Funds and the Bond Funds declare dividends
daily and pay them monthly. Each Fund's net realized capital gains,
including net short-term capital gains, are distributed at least
annually.
(Bullet) RISK FACTORS: Although the Adviser seeks to achieve the investment
objective of each Fund, there is no assurance that it will be able to
do so. Investments in a Fund are not insured against loss of principal.
Investments by a Fund in common stocks and other equity securities are
subject to stock market risk, which is the risk that the value of the
stocks the Fund holds may decline over short or even extended periods.
Investments by a Fund in debt securities are subject to interest rate
risk, which is the risk that increases in market interest rates will
adversely affect a Fund's investments in debt securities. The value of
a Fund's investments in debt securities, including U.S. Government
Obligations (as defined below), will tend to decrease when interest
rates rise and increase when interest rates fall. In general,
longer-term debt instruments tend to fluctuate in value more than
shorter-term debt instruments in response to interest rate movements.
In addition, debt securities which are not backed by the United States
Government are subject to credit risk, which is the risk that the
issuer may not be able to pay principal and/or interest when due.
Certain of the Funds' investments constitute derivative securities.
Certain types of derivative securities can, under certain
circumstances, significantly increase an investor's exposure to market
or other risks. For a discussion of these and other factors, see "How
Objectives Are Pursued -- Risk Considerations" and "Appendix
A -- Portfolio Securities."
Nations International Equity Fund, Nations Emerging Markets Fund,
Nations Pacific Growth Fund and Nations Global Government Income Fund
are designed for long-term investors seeking international
diversification and who are willing to bear the risks associated with
international investing, such as foreign currency fluctuations and
economic and political risks. For a discussion of these factors, see
"How Objectives Are Pursued -- Special Risk Considerations Relevant to
an Investment in Nations International Equity Fund, Nations Emerging
Markets Fund, Nations Pacific Growth Fund and Nations Global Government
Income Fund."
(Bullet) MINIMUM PURCHASE: $1,000 minimum initial investment per record holder.
See "How To Buy Shares."
4
<PAGE>
Expenses Summary
Expenses are one of several factors to consider when investing in the Funds. The
following tables summarize shareholder transaction and operating expenses for
Primary A Shares of the Funds. The Examples show the cumulative expenses
attributable to a hypothetical $1,000 investment in the Funds over specified
periods.
NATIONS FUND MONEY MARKET FUNDS PRIMARY A SHARES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
Nations
Nations Prime Nations Government
Fund Treasury Fund Money Market
Fund
<S> <C> <C> <C>
Sales Load Imposed on Purchases None None None
Deferred Sales Load None None None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
</TABLE>
<TABLE>
<S> <C> <C>
Management Fees (After Fee Waivers)(1) .20% .20%
All Other Expenses .10% .10%
Total Operating Expenses (After Fee Waivers and Expense Reimbursements)(1) .30% .30%
<CAPTION>
Management Fees (After Fee Waivers)(1) .20%
<S> <C>
All Other Expenses .10%
Total Operating Expenses (After Fee Waivers and Expense Reimbursements)(1) .30%
</TABLE>
(1) See page 7 for a discussion of the actual expenses absent such fee waivers
and expense reimbursements.
NATIONS FUND EQUITY/BALANCED FUNDS PRIMARY A SHARES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Nations Nations
Nations Equity Nations Emerging
Value Income International Markets
Fund Fund Equity Fund Fund
Sales Load Imposed on Purchases None None None None
Deferred Sales Load None None None None
<CAPTION>
Nations
Pacific
Growth
Fund
Sales Load Imposed on Purchases None
Deferred Sales Load None
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
<TABLE>
<S> <C> <C> <C> <C>
Management Fees .75% .70% .90% 1.10%
All Other Expenses (After Expense Reimbursements)(1) .21% .20% .27% 1.03%
Total Operating Expenses (After Expense Reimbursements)(1) .96% .90% 1.17% 2.13%
<CAPTION>
Management Fees .90%
<S> <C>
All Other Expenses (After Expense Reimbursements)(1) .86%
Total Operating Expenses (After Expense Reimbursements)(1) 1.76%
</TABLE>
(1) See page 7 for a discussion of the actual expenses absent such expense
reimbursements.
5
<PAGE>
NATIONS FUND EQUITY/BALANCED FUNDS PRIMARY A SHARES
SHAREHOLDER TRANSACTION EXPENSES (CONTINUED)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Nations Nations Nations Nations
Capital Emerging Disciplined Equity
Growth Growth Equity Index
Fund Fund Fund Fund
Sales Load Imposed on Purchases None None None None
Deferred Sales Load None None None None
<CAPTION>
Nations
Balanced
Assets
Fund
Sales Load Imposed on Purchases None
Deferred Sales Load None
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
<TABLE>
<S> <C> <C> <C> <C>
Management Fees (After Fee Waivers)(1) .75% .75% .75% .10%
All Other Expenses .21% .24% .27% .25%
Total Operating Expenses (After Fee Waivers)(1) .96% .99% 1.02% .35%
<CAPTION>
Management Fees (After Fee Waivers)(1) .75%
<S> <C>
All Other Expenses .25%
Total Operating Expenses (After Fee Waivers)(1) 1.00%
</TABLE>
(1) See page 7 for a discussion of the actual expenses absent such fee waivers.
NATIONS FUND BOND FUNDS PRIMARY A SHARES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Nations Short- Nations Nations Short-
Intermediate Government Term Nations Nations
Government Securities Income Diversified Strategic Fixed
Fund Fund Fund Income Fund Income Fund
Sales Load Imposed on Purchases None None None None None
Deferred Sales Load None None None None None
<CAPTION>
Nations
Global
Government
Income Fund
Sales Load Imposed on Purchases None
Deferred Sales Load None
</TABLE>
ANNUAL FUND
OPERATING EXPENSES
(as a percentage of average net assets)
<TABLE>
<S> <C> <C> <C> <C> <C>
Management Fees (After Fee Waivers)(1) .40% .50% .30% .50% .50%
All Other Expenses .23% .30% .25% .27% .22%
Total Operating Expenses (After Fee Waivers
and Expense Reimbursements)1 .63% .80% .55% .77% .72%
<CAPTION>
Management Fees (After Fee Waivers)(1) .70%
<S> <C>
All Other Expenses .62%
Total Operating Expenses (After Fee Waivers
and Expense Reimbursements)(1) 1.32%
</TABLE>
(1) See page 7 for a discussion of the actual expenses absent such fee waivers
and expense reimbursements.
EXAMPLES:
You would pay the following expenses on a $1,000 investment in Primary A Shares
of the indicated Fund, assuming (1) a 5% annual return and (2) redemption at the
end of each time period.
[CAPTION]
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Nations
Government Nations Nations Nations
Nations Nations Money Nations Equity International Nations Pacific
Prime Treasury Market Value Income Equity Emerging Growth
Fund Fund Fund Fund Fund Fund Markets Fund Fund
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 Year $ 3 $ 3 $ 3 $ 10 $ 9 $ 12 $ 22 $ 18
3 Years $10 $10 $10 $ 31 $ 29 $ 37 $ 67 $ 55
5 Years $17 $17 $17 $ 53 $ 50 $ 64 $114 $ 95
10 Years $38 $38 $38 $118 $111 $142 $246 $207
<CAPTION>
Nations Nations
Capital Emerging
Growth Growth
Fund Fund
<S> <C> <C>
1 Year $ 10 $ 10
3 Years $ 31 $ 32
5 Years $ 53 $ 55
10 Years $118 $121
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Nations
Nations Nations Nations Short- Nations Nations Nations
Disciplined Equity Balanced Intermediate Government Short-Term Diversified
Equity Index Assets Government Securities Income Income
Fund Fund Fund Fund Fund Fund Fund
1 Year $ 10 $ 4 $ 10 $ 6 $ 8 $ 6 $ 8
3 Years $ 32 $11 $ 32 $20 $26 $18 $25
5 Years $ 56 $20 $ 55 $35 $44 $31 $43
10 Years $125 $44 $122 $79 $99 $69 $95
<CAPTION>
Nations Nations
Strategic Global
Fixed Government
Income Income
Fund Fund
1 Year $ 7 $13
3 Years $23 $42
5 Years $40 $72
10 Years $89 $159
</TABLE>
The purpose of the foregoing tables is to assist an investor in understanding
the various shareholder transaction and operating expenses that an investor in
Primary A Shares will bear either directly or indirectly. Except for Nations
Emerging Markets Fund, Nations Global Government Income Fund and Nations Pacific
Growth Fund, which fees and expenses are based on estimates, certain figures
contained in the above tables are based on amounts incurred during each Fund's
most recent fiscal year and have been adjusted as necessary to reflect current
service provider fees. There is no assurance that any fee waivers and
reimbursements will continue beyond the current fiscal year. If fee waivers
and/or reimbursements are discontinued, the amounts contained in the "Examples"
above may increase. For more complete descriptions of the Funds' operating
expenses, see "How The Funds Are Managed."
Absent fee waivers and expense reimbursements, "Management Fees," "All Other
Expenses" and "Total Operating Expenses" for Nations Government Money Market
Fund would have been .40%, .19% and .59%, respectively. Absent fee waivers,
"Management Fees" and "Total Operating Expenses" for Primary A Shares of the
indicated Fund would have been as follows: Nations Equity Index Fund -- .50% and
.75%, respectively; Nations Short-Intermediate Government Fund -- .60% and .86%,
respectively; Nations Government Securities Fund -- .64% and .95%, respectively;
Nations Diversified Income Fund -- .60% and .87%, respectively; Nations
Strategic Fixed Income Fund -- .60% and .83%, respectively; and Nations
Short-Term Income Fund -- .60% and .88%, respectively. Absent expense
reimbursements, "All Other Expenses" and "Total Operating Expenses" for Primary
A Shares of the indicated Fund would have been as follows: Nations Prime
Fund -- .17% and .37%, respectively; Nations Treasury Fund -- .17% and .37%,
respectively; and Nations International Equity Fund -- .28% and 1.18%,
respectively.
THE FOREGOING SHOULD NOT BE CONSIDERED TO BE AN ACTUAL REPRESENTATION OF PAST OR
FUTURE PERFORMANCE. ACTUAL EXPENSES AND RATES OF RETURN MAY BE GREATER OR LESS
THAN THOSE SHOWN.
Financial Highlights
The audited financial information on the following pages has been derived from
the financial statements of Nations Fund Trust, Nations Fund Inc. and Nations
Portfolios. Price Waterhouse LLP is the independent accountant to Nations Fund
Trust, Nations Fund, Inc. and Nations Portfolios. The reports of Price
Waterhouse LLP for the most recent fiscal years of Nations Fund Trust and
Nations Fund, Inc. accompany the financial statements for such periods and are
incorporated by reference in the SAIs, which are available upon request. For
more information see "Organization And History." Shareholders of a Fund will
receive unaudited semi-annual reports describing the Fund's investment
operations and annual financial statements audited by the Funds' independent
accountant.
7
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS PRIME FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
PERIOD YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
PRIMARY A SHARES 03/31/96(a) 05/31/95 5/31/94 5/31/93
Operating performance:
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00
Net investment income 0.0468 0.0519 0.0318 0.0328
Dividends from net investment income (0.0468) (0.0519) (0.0318) (0.0328)
Total dividends and distributions (0.0468) (0.0519) (0.0318) (0.0328)
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00
Total return++ 4.79% 5.32% 3.22% 3.33%
Ratios to average net assets/supplemental
data:
Net assets, end of period (in 000's) $ 2,472,469 $ 2,873,096 $ 2,883,762 $ 1,156,266
Ratio of operating expenses to average net
assets 0.30%+ 0.30% 0.30% 0.30%
Ratio of net investment income to average
net assets 5.62%+ 5.23% 3.20% 3.25%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 0.37%+ 0.38% 0.37% 0.36%
Net investment income per share without
waivers and/or expense reimbursements $ 0.0463 $ 0.0511 $ 0.0311 $ 0.0322
<CAPTION>
<C> <C>
YEAR YEAR
PRIMARY A SHARES ENDED ENDED
Operating performance: 5/31/92 5/31/91
Net asset value, beginning of period
Net investment income $ 1.00 $ 1.00
Dividends from net investment income 0.0506 0.0749
Total dividends and distributions (0.0506) (0.0749)
Net asset value, end of period (0.0506) (0.0749)
Total return++ $ 1.00 $ 1.00
Ratios to average net assets/supplemental 5.19%+++ 7.75%+++
data:
Net assets, end of period (in 000's)
Ratio of operating expenses to average net $ 500,476 $ 574,993
assets
Ratio of net investment income to average 0.30% 0.30%
net assets
Ratio of operating expenses to average net 5.03% 7.47%
assets without waivers and/or expense
reimbursements
Net investment income per share without 0.42% 0.44%
waivers and/or expense reimbursements
$ 0.0494 $ 0.0735
</TABLE>
NATIONS PRIME FUND (CONT.)
<TABLE>
<CAPTION>
<S> <C> <C>
YEAR YEAR
ENDED ENDED
PRIMARY A SHARES 5/31/90 5/31/89
Operating performance:
Net asset value, beginning of period $ 1.00 $ 1.00
Net investment income 0.0855 0.0839
Dividends from net investment income (0.0855) (0.0839)
Total dividends and distributions (0.0855) (0.0839)
Net asset value, end of period $ 1.00 $ 1.00
Total return++ 8.88%+++ 8.71%+++ 6.94%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 433,298 $ 115,295
Ratio of operating expenses to average net assets 0.32% 0.35%
Ratio of net investment income to average net assets 8.43% 8.11%
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 0.50%+++ 0.55%+++
Net investment income per share without waivers
and/or expense reimbursements $ 0.0731+++ $ 0.0819+++
<CAPTION>
<C>
YEAR PERIOD
ENDED ENDED
PRIMARY A SHARES 5/31/88 5/31/87*
Operating performance:
Net asset value, beginning of period $ 1.00 $ 1.00
Net investment income 0.0675 0.0277
Dividends from net investment income (0.0675) (0.0277)
Total dividends and distributions (0.0675) (0.0277)
Net asset value, end of period $ 1.00 $ 1.00
Total return++ 2.79%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 264,063 $ 252,562
Ratio of operating expenses to average net assets 0.36% 0.35%+
Ratio of net investment income to average net assets 6.73% 5.99%+
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 0.56%+++ 0.65%+/+++
Net investment income per share without waivers
and/or expense reimbursements $ 0.0655+++ $ 0.0247+++
</TABLE>
* Nations Prime Fund Primary A Shares commenced operations on December 15,
1986.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
May 31.
8
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS TREASURY FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
PERIOD YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
PRIMARY A SHARES 03/31/96(a) 05/31/95 5/31/94 5/31/93 5/31/92
Operating performance:
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Net investment income 0.0458 0.0494 0.0297 0.0307 0.0483
Dividends from net investment income (0.0458) (0.0494) (0.0297) (0.0307) (0.0483)
Distribution from net realized capital
gains (0.0000)# (0.0000)# -- -- --
Total dividends and distributions (0.0458) (0.0494) (0.0297) (0.0307) (0.0483)
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Total return++ 4.67% 5.05% 2.99% 3.12% 4.95%+++
Ratios to average net assets/supplemental
data:
Net assets, end of period (in 000's) $ 821,030 $ 2,896,868 $ 2,679,992 $ 2,956,796 $1,094,741
Ratio of operating expenses to average net
assets 0.30%+ 0.30% 0.30% 0.30% 0.29%
Ratio of net investment income to average
net assets 5.52%+ 4.99% 2.97% 3.02% 4.82%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 0.37%+ 0.35% 0.36% 0.36% 0.42%
Net investment income per share without
waivers and/or expense reimbursements $ 0.0453 $ 0.0489 $ 0.0292 $ 0.0302 $ 0.0470
<CAPTION>
YEAR
ENDED
PRIMARY A SHARES 5/31/91
Operating performance:
Net asset value, beginning of period $ 1.00
Net investment income 0.0721
Dividends from net investment income (0.0721)
Distribution from net realized capital
gains --
Total dividends and distributions (0.0721)
Net asset value, end of period $ 1.00
Total return++ 7.46%+++
Ratios to average net assets/supplemental
data:
Net assets, end of period (in 000's) $ 955,186
Ratio of operating expenses to average net
assets 0.25%
Ratio of net investment income to average
net assets 7.04%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 0.43%
Net investment income per share without
waivers and/or expense reimbursements $ 0.0703
</TABLE>
NATIONS TREASURY FUND (CONT.)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
YEAR YEAR YEAR
ENDED ENDED ENDED
PRIMARY A SHARES 5/31/90 5/31/89 5/31/88
Operating performance:
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00
Net investment income 0.0829 0.0802 0.0630
Dividends from net investment income (0.0829) (0.0802) (0.0630)
Distributions from net realized capital gains -- -- --
Total dividends and distributions (0.0829) (0.0802) (0.0630)
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00
Total return++ 8.61%+++ 8.33%+++ 6.49%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 392,843 $ 90,946 $ 111,414
Ratio of operating expenses to average net assets 0.25% 0.39% 0.38%
Ratio of net investment income to average net assets 8.18% 7.93% 6.31%
Ratio of operating expenses to average net assets without waivers and/or
expense reimbursements 0.59%+++ 0.58%++++ 0.65%+++
Net investment income per share without waivers and/or expense
reimbursements $ 0.0693+++ $ 0.0783+++ $ 0.0603+++
<CAPTION>
PERIOD
ENDED
PRIMARY A SHARES 5/31/87*
Operating performance:
Net asset value, beginning of period $ 1.00
Net investment income 0.0262
Dividends from net investment income (0.0262)
Distributions from net realized capital gains --
Total dividends and distributions (0.0262)
Net asset value, end of period $ 1.00
Total return++ 2.64%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 66,221
Ratio of operating expenses to average net assets 0.35%+
Ratio of net investment income to average net assets 5.68%+
Ratio of operating expenses to average net assets without waivers and/or
expense reimbursements 0.75%+/+++
Net investment income per share without waivers and/or expense
reimbursements $ 0.0222+++
</TABLE>
* Nations Treasury Fund Primary A Shares commenced operations on December 15,
1986.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# Amount represents less than $0.0001.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
May 31.
9
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS GOVERNMENT MONEY MARKET FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
PERIOD YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
PRIMARY A SHARES 03/31/96(a) 11/30/95 11/30/94 11/30/93 11/30/92
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Net investment income 0.0173 0.0558 0.0375 0.0294 0.0358
Distributions:
Dividends from net investment income (0.0173) (0.0558) (0.0375) (0.0294) (0.0358)
Distributions from net realized capital
gains -- -- (0.0000)# -- --
Total dividends and distributions (0.0173) (0.0558) (0.0375) (0.0294) (0.0358)
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Total return++ 1.74% 5.72% 3.84% 2.96% 3.63%+++
Ratios to average net assets/supplemental
data:
Net assets, end of period (in 000's) $ 336,771 $ 332,895 $ 432,729 $ 475,180 $ 414,412
Ratio of operating expenses to average net
assets 0.30%+ 0.30% 0.30% 0.30% 0.42%
Ratio of net investment income to average
net assets 5.20%+ 5.58% 3.79% 2.91% 3.55%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 0.59%+ 0.57% 0.59% 0.56% 0.58%
Net investment income per share without
waivers and/or expense reimbursements $ 0.0163 $ 0.0531 $ 0.0347 $ 0.0269 $ 0.0341
<CAPTION>
PERIOD
ENDED
PRIMARY A SHARES 11/30/91*
Net asset value, beginning of period $ 1.00
Net investment income 0.0571
Distributions:
Dividends from net investment income (0.0571)
Distributions from net realized capital
gains --
Total dividends and distributions (0.0571)
Net asset value, end of period $ 1.00
Total return++ 5.87%+++
Ratios to average net assets/supplemental
data:
Net assets, end of period (in 000's) $ 333,979
Ratio of operating expenses to average net
assets 0.43%+
Ratio of net investment income to average
net assets 5.49%+
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 0.62%+
Net investment income per share without
waivers and/or expense reimbursements $ 0.0551
</TABLE>
* Nations Government Money Market Fund Primary A Shares commenced operations
on December 3, 1990.
+ Annualized.
++ Total return represents aggregate return for the periods indicated and does
not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# Amount represents less than $0.0001 per shares.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
10
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS VALUE FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C>
PERIOD YEAR YEAR
ENDED ENDED ENDED
PRIMARY A SHARES 03/31/96(a) 11/30/95 11/30/94
Operating performance:
Net asset value, beginning of period $ 16.21 $ 12.98 $ 13.74
Net investment income 0.07 0.27 0.24
Net realized and unrealized gain/(loss) on investments 1.06 3.91 (0.23)
Net increase/(decrease) in net asset value from operations 1.13 4.18 0.01
Distributions:
Dividends from net investment income (0.12) (0.28) (0.23)
Distributions from net realized capital gains (0.62) (0.67) (0.54)
Total dividends and distributions (0.74) (0.95) (0.77)
Net asset value, end of period $ 16.60 $ 16.21 $ 12.98
Total return++ 7.20% 34.53% (0.08)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 998,957 $ 956,669 $ 799,743
Ratio of operating expenses to average net assets 0.96% 0.94% 0.93%
Ratio of net investment income to average net assets 1.30%+ 1.90% 1.85%
Portfolio turnover rate 12% 63% 75%
Ratio of operating expenses to average net assets without waivers and/or
expense reimbursements 0.96% 0.94% 0.93%
Net investment income per share without waivers and/or expense
reimbursements $ 0.07 $ 0.27 $ 0.24
Average commission rate paid (b) $ 0.0698 N/A N/A
<CAPTION>
YEAR
ENDED
PRIMARY A SHARES 11/30/93
Operating performance:
Net asset value, beginning of period $ 12.45
Net investment income 0.24
Net realized and unrealized gain/(loss) on investments 1.38
Net increase/(decrease) in net asset value from operations 1.62
Distributions:
Dividends from net investment income (0.24)
Distributions from net realized capital gains (0.09)
Total dividends and distributions (0.33)
Net asset value, end of period $ 13.74
Total return++ 13.19%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 707,185
Ratio of operating expenses to average net assets 0.96
Ratio of net investment income to average net assets 1.98%
Portfolio turnover rate 64%
Ratio of operating expenses to average net assets without waivers and/or
expense reimbursements 0.97%
Net investment income per share without waivers and/or expense
reimbursements $ 0.24
Average commission rate paid (b) N/A
</TABLE>
NATIONS VALUE FUND (CONT.)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
YEAR YEAR YEAR
ENDED ENDED ENDED
PRIMARY A SHARES 11/30/92 11/30/91 11/30/90
Operating performance:
Net asset value, beginning of period $ 11.16 $ 9.71 $ 10.04
Net investment income 0.28 0.34 0.35
Net realized and unrealized gain/(loss) on investments 1.57 1.47 (0.36)
Net increase/(decrease) in net asset from value operations 1.85 1.81 (0.01)
Distributions:
Dividends from net investment income (0.27) (0.36) (0.32)
Distributions from net realized capital gains (0.29) -- --
Total dividends and distributions (0.56) (0.36) (0.32)
Net asset value, end of period $ 12.45 $ 11.16 $ 9.71
Total return++ 17.00%+++ 18.79%+++ (0.16)%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 282,138 $ 82,360 $ 19,769
Ratio of operating expenses to average net assets 0.90% 0.53% 0.21%
Ratio of net investment income to average net assets 2.31% 3.33% 4.19%
Portfolio turnover rate 60% 51% 24%
Ratio of operating expenses to average net assets without waivers and/or
expense reimbursements 0.97% 0.99% 1.11%
Net investment income per share without waivers and/or expense
reimbursements $ 0.27 $ 0.30 $ 0.26
Average commission rate paid (b) N/A N/A N/A
<CAPTION>
PERIOD
ENDED
PRIMARY A SHARES 11/30/89*#
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income 0.08
Net realized and unrealized gain/(loss) on investments (0.04)
Net increase/(decrease) in net asset from value operations 0.04
Distributions:
Dividends from net investment income --
Distributions from net realized capital gains --
Total dividends and distributions --
Net asset value, end of period $ 10.04
Total return++ 0.40%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 5,161
Ratio of operating expenses to average net assets 0.49%+
Ratio of net investment income to average net assets 4.41%+
Portfolio turnover rate --
Ratio of operating expenses to average net assets without waivers and/or
expense reimbursements 1.41%+
Net investment income per share without waivers and/or expense
reimbursements $ 0.06
Average commission rate paid (b) N/A
</TABLE>
* Nations Value Fund Primary A Shares commenced operations on September 19,
1989.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# Per share numbers have been calculated using the monthly average share
method, which more appropriately presents the per share data for the period
since the use of the undistributed income method did not accord with the
results of operations.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
(b) Average commission rate paid per share of securities purchased and sold by
the Fund.
11
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS EQUITY INCOME FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
PERIOD YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
PRIMARY A SHARES 03/31/96(a) 05/31/95 5/31/94 5/31/93 5/31/92
Operating performance:
Net asset value, beginning of period $ 11.81 $ 11.43 $ 12.06 $ 11.41 $ 10.19
Net investment income 0.30 0.42 0.38 0.37 0.34
Net realized and unrealized gain on
investments 1.77 1.11 0.22 1.08 1.25
Net increase in net asset value from
operations 2.07 1.53 0.60 1.45 1.59
Distributions:
Dividends from net investment income (0.37) (0.42) (0.42) (0.35) (0.30)
Distributions from net realized capital
gains (0.37) (0.73) (0.81) (0.45) (0.07)
Total dividends and distributions (0.74) (1.15) (1.23) (0.80) (0.37)
Net asset value, end of period $ 13.14 $ 11.81 $ 11.43 $ 12.06 $ 11.41
Total return++ 17.98% 14.79% 5.00% 13.30% 15.91%+++
Ratios to average net assets/supplemental
data:
Net assets, end of period (in 000's) $ 283,142 $ 283,082 $ 225,740 $ 175,949 $ 18,104
Ratio of operating expenses to average net
assets 0.90%+ 0.92% 0.94% 0.92% 1.10%
Ratio of net investment income to average
net assets 2.84%+ 3.75% 3.41% 3.37% 3.15%
Portfolio turnover rate 59% 158% 116% 55% 84%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 0.90%+ 0.93% 0.95% 1.04% 2.21%
Net investment income/loss per share
without waivers and/or expense
reimbursements $ 0.30 $ 0.42 $ 0.38 $ 0.36 $ 0.22
Average commission rate paid (b) $ 0.0287 N/A N/A N/A N/A
<CAPTION>
PERIOD
ENDED
PRIMARY A SHARES 5/31/91*
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income 0.05
Net realized and unrealized gain on
investments 0.14
Net increase in net asset value from
operations 0.19
Distributions:
Dividends from net investment income --
Distributions from net realized capital
gains --
Total dividends and distributions --
Net asset value, end of period $ 10.19
Total return++ 1.90%+++
Ratios to average net assets/supplemental
data:
Net assets, end of period (in 000's) $ 10,194
Ratio of operating expenses to average net
assets 1.12%+
Ratio of net investment income to average
net assets 3.66%+
Portfolio turnover rate 9%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 1.80%+
Net investment income/loss per share
without waivers and/or expense
reimbursements $ (0.06)
Average commission rate paid (b) N/A
</TABLE>
* Nations Equity Income Fund Primary A Shares commenced operations on April
11, 1991.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
May 31.
(b) Average commission rate paid per share of securities purchased and sold by
the Fund.
12
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS INTERNATIONAL EQUITY FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
PERIOD YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
PRIMARY A SHARES 03/31/96(a)# 05/31/95# 5/31/94# 5/31/93#
Operating performance:
Net asset value, beginning of period $ 11.75 $ 12.06 $ 10.60 $ 10.40
Net investment income/(loss) 0.07 0.14 0.09 0.09
Net realized and unrealized gain/(loss) on investments 1.80 (0.20) 1.44 0.21
Net increase/(decrease) in net asset value from
operations 1.87 (0.06) 1.53 0.30
Distributions:
Dividends from net investment income (0.06) (0.03) (0.05) (0.08)
Distributions in excess of net investment income (0.04) -- -- --
Distributions from net realized capital gains (0.02) (0.12) (0.02) (0.02)
Distributions in excess of net realized capital gains -- (0.10) -- --
Total dividends and distributions (0.12) (0.25) (0.07) (0.10)
Net asset value, end of period $ 13.50 $ 11.75 $ 12.06 $ 10.60
Total return++ 16.01% (0.46)% 14.37% 3.14%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 849,731 $ 572,940 $ 401,599 $ 118,873
Ratio of operating expenses to average net assets 1.17%+ 1.03% 1.17% 1.30%
Ratio of net investment income/(loss) to average net
assets 0.65%+ 1.17% 0.75% 1.03%
Portfolio turnover rate 26% 92% 39% 41%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 1.18%+ 1.04% 1.18% 1.32%
Net investment income/(loss) per share without waivers
and/or expense reimbursements $ 0.07 $ 0.14 $ 0.08 $ 0.10
Average commission rate paid (b) 0.0272 N/A N/A N/A
<CAPTION>
PERIOD
ENDED
PRIMARY A SHARES 5/31/92*
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income/(loss) 0.08
Net realized and unrealized gain/(loss) on investments 0.36
Net increase/(decrease) in net asset value from
operations 0.44
Distributions:
Dividends from net investment income (0.04)
Distributions in excess of net investment income --
Distributions from net realized capital gains --
Distributions in excess of net realized capital gains --
Total dividends and distributions (0.04)
Net asset value, end of period $ 10.40
Total return++ 4.43%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 83,970
Ratio of operating expenses to average net assets 1.33%+
Ratio of net investment income/(loss) to average net
assets 1.81%+
Portfolio turnover rate 11%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 1.43%+
Net investment income/(loss) per share without waivers
and/or expense reimbursements $ 0.03
Average commission rate paid (b) N/A
</TABLE>
* Nations International Equity Fund Primary A Shares commenced operations on
December 2, 1991.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# Per share numbers have been calculated using the monthly average shares
method, which more appropriately presents the per share data for the period
since the use of the undistributed income method did not accord with the
results of operations.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
May 31.
(b) Average commission rate paid per share of securities purchased and sold by
the Fund.
<TABLE>
NATIONS EMERGING MARKETS FUND
<CAPTION>
PERIOD
ENDED
<S> <C>
PRIMARY A SHARES 03/31/96*#
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income/(loss) (0.03)
Net realized and unrealized gain on investments 0.37
Net increase in net asset value from operations 0.34
Distributions:
Dividends from net investment income --
Distributions in excess of net investment income 0.00**
Distributions from net realized capital gains --
Total dividends and distributions 0.00**
Net asset value, end of period $ 10.34
Total return++ 3.42%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 47,560
Ratio of operating expenses to average net assets 2.13%+
Ratio of net investment income to average net assets (0.38)%+
Portfolio turnover rate 17%
Average commission rate paid (a) $ 0.0004
</TABLE>
* Nations Emerging Markets Fund Primary A Shares commenced operations on June
30, 1995.
** Amount represents less than $0.01 per share.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
# Per share numbers have been calculated using the average shares method, which
more appropriately presents the per share data for the period, since the use
of the undistributed income method did not accord with the results of
operations.
(a) Average commission rate paid per share of securities purchased and sold by
the Fund.
13
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS PACIFIC GROWTH FUND
<TABLE>
<CAPTION>
PERIOD
ENDED
<S> <C>
PRIMARY A SHARES 03/31/96*#
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income/(loss) (0.02)
Net realized and unrealized gain/(loss) on investments 0.29
Net increase/(decrease) in net asset value from operations 0.27
Distributions:
Dividends from net investment income --
Total dividends and distributions (0.03)
Net asset value, end of period $ 10.24
Total return++ 2.66%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 95,210
Ratio of operating expenses to average net assets 1.76%+
Ratio of net investment income/(loss) to average net assets (0.27)%+
Portfolio turnover rate 23%
Average commission rate paid (a) $ 0.0178
</TABLE>
* Nations Pacific Growth Fund Primary A Shares commenced operations on June 30,
1995.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
# Per share numbers have been calculated using the average shares method, which
more appropriately presents the per share data for the period, since the use
of the undistributed income method did not accord with the results of
operations.
(a) Average commission rate paid per share of securities purchased and sold by
the Fund.
<TABLE>
<CAPTION>
NATIONS CAPITAL GROWTH FUND
<S> <C> <C> <C> <C>
PERIOD YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
PRIMARY A SHARES 03/31/96(a) 11/30/95 11/30/94 11/30/93
Operating performance:
Net asset value, beginning of period $ 14.24 $ 11.23 $ 11.08 $ 10.68
Net investment income/(loss) 0.02 0.09 0.09 0.09
Net realized and unrealized gain on investments 0.38 3.28 0.14 0.42
Net increase in net asset value from operations 0.40 3.37 0.23 0.51
Distributions:
Dividends from net investment income (0.02) (0.10) (0.08) (0.10)
Distributions from net realized capital gains (1.19) (0.26) (0.00)(b) (0.01)
Total dividends and distributions (1.21) (0.36) (0.08) (0.11)
Net asset value, end of period $ 13.43 $ 14.24 $ 11.23 $ 11.08
Total return++ 3.14% 30.96% 2.14% 4.84%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 839,300 $ 867,361 $ 717,914 $ 646,661
Ratio of operating expenses to average net assets 0.96%+ 0.98% 0.90% 0.80%
Ratio of net investment income/(loss) to average net
assets 0.38%+ 0.71% 0.85% 0.84%
Portfolio turnover rate 25% 80% 56% 81%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 0.96%+ 0.98% 0.91% 0.89%
Net investment income/(loss) per share without waivers
and/or expense reimbursements $ 0.02 $ 0.09 $ 0.09 $ 0.08
Average commission rate paid (c) $ 0.0632 N/A N/A N/A
<CAPTION>
PERIOD
ENDED
PRIMARY A SHARES 11/30/92*
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income/(loss) 0.02
Net realized and unrealized gain on investments 0.66#
Net increase in net asset value from operations 0.68
Distributions:
Dividends from net investment income --
Distributions from net realized capital gains --
Total dividends and distributions --
Net asset value, end of period $ 10.68
Total return++ 6.80%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 728,629
Ratio of operating expenses to average net assets 0.30%+
Ratio of net investment income/(loss) to average net
assets 1.33%+
Portfolio turnover rate 7%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 1.05%+
Net investment income/(loss) per share without waivers
and/or expense reimbursements $ 0.01
Average commission rate paid (c) N/A
</TABLE>
* Nations Capital Growth Fund Primary A Shares commenced operations on
September 30, 1992.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# The amount shown at this caption for each share outstanding throughout the
period may not accord with the change in the aggregate gains and losses in
the portfolio securities for the period because of the timing of purchases
and withdrawals of shares in relation to the fluctuating market values of the
portfolio.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
(b) Value represents less than $0.01 per share.
(c) Average commission rate paid per share of securities purchased and sold by
the Fund.
14
<PAGE>
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS EMERGING GROWTH FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C>
PERIOD YEAR YEAR
ENDED ENDED ENDED
PRIMARY A SHARES 03/31/96#(a) 11/30/95 11/30/94#
Operating performance:
Net asset value, beginning of period $ 14.28 $ 11.41 $ 10.87
Net investment income/(loss) (0.00)(b) 0.01 (0.03)
Net realized and unrealized gain on investments 1.26 3.26 0.71
Net increase in net asset value from operations 1.26 3.27 0.68
Distributions:
Distributions from net realized capital gains (1.50) (0.40) (0.14)
Total dividends and distributions (1.50) (0.40) (0.14)
Net asset value, end of period $ 14.04 $ 14.28 $ 11.41
Total return++ 9.87% 29.95% 6.26%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 295,764 $ 269,484 $ 182,459
Ratio of operating expenses to average net assets 0.99%+ 0.98% 1.01%
Ratio of net investment income/(loss) to average net assets (0.06)%+ 0.08% (0.29)%
Portfolio turnover rate 39% 139% 129%
Ratio of operating expenses to average net assets without waivers and/or
expense reimbursements 0.99%+ 0.98% 1.01%
Net investment income/(loss) per share without waivers and/or expense
reimbursements $ (0.00)(b) $ 0.01 $ (0.03)
Average commission rate paid (c) $ 0.0599 N/A N/A
<CAPTION>
PERIOD
ENDED
PRIMARY A SHARES 11/30/93*
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income/(loss) (0.01)
Net realized and unrealized gain on investments 0.89
Net increase in net asset value from operations 0.88
Distributions:
Distributions from net realized capital gains (0.01)
Total dividends and distributions (0.01)
Net asset value, end of period $ 10.87
Total return++ 8.81%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 121,281
Ratio of operating expenses to average net assets 0.80%+
Ratio of net investment income/(loss) to average net assets (0.15)%+
Portfolio turnover rate 159%
Ratio of operating expenses to average net assets without waivers and/or
expense reimbursements 1.01%+
Net investment income/(loss) per share without waivers and/or expense
reimbursements $ (0.03)
Average commission rate paid (c) N/A
</TABLE>
* Nations Emerging Growth Fund Primary A Shares commenced operations on
December 4, 1992.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
# Per share numbers have been calculated using the monthly average share
method, which more appropriately presents the per share data for the period
since the use of the undistributed income method did not accord with the
results of operations.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
(b) Amount represents less than $0.01 per share.
(c) Average commission rate paid per share of securities purchased and sold by
the Fund.
15
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS DISCIPLINED EQUITY FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
PERIOD YEAR PERIOD PERIOD
ENDED ENDED ENDED ENDED
PRIMARY A SHARES 03/31/96(a) 11/30/95 11/30/94* 04/29/94*
Operating performance:
Net asset value, beginning of period $ 17.06 $ 13.08 $ 13.31 $ 13.65
Net investment income/(loss) 0.05 0.10 0.01 (0.05)
Net realized and unrealized gain/(loss) on investments 0.35 3.96 (0.23)# 2.66
Net increase/(decrease) in net asset value from
operations 0.40 4.06 (0.22) 2.61
Distributions:
Dividends from net investment income (0.04) (0.08) (0.01) --
Distributions from net realized capital gains (0.23) -- -- (2.95)
Return of capital -- -- (0.00)(b) --
Total dividends and distributions (0.27) (0.08) (0.01) (2.95)
Net asset value, end of period $ 17.19 $ 17.06 $ 13.08 $ 13.31
Total return++ 2.44% 31.13% (1.62)% 18.79%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 116,469 $ 109,939 $ 9,947 $ 8,079
Ratio of operating expenses to average net assets 1.02%+ 1.30% 1.13%+ 1.20%+
Ratio of net investment income/(loss) to average net
assets 0.82%+ 0.85% 0.12%+ (0.60)%+
Portfolio turnover rate 47% 124% 177% 475%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 1.02%+ 1.30% 1.56%+ 1.53%+
Net investment income/(loss) per share without waivers
and/or expense reimbursements $ 0.05 $ 0.10 $ (0.03) $ (0.08)
Average commission rate paid (c) $ 0.0627 N/A N/A N/A
<CAPTION>
PERIOD
ENDED
PRIMARY A SHARES 04/30/93*
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income/(loss) (0.03)
Net realized and unrealized gain/(loss) on investments 3.74
Net increase/(decrease) in net asset value from
operations 3.71
Distributions:
Dividends from net investment income --
Distributions from net realized capital gains (0.06)
Return of capital --
Total dividends and distributions (0.06)
Net asset value, end of period $ 13.65
Total return++ 37.13%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 4,638
Ratio of operating expenses to average net assets 1.20%+
Ratio of net investment income/(loss) to average net
assets (0.58)%+
Portfolio turnover rate 203%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 1.31%+
Net investment income/(loss) per share without waivers
and/or expense reimbursements $ (0.03)
Average commission rate paid (c) N/A
</TABLE>
* The period for Nations Disciplined Equity Fund Primary A Shares reflects
operations from April 30, 1994 through November 30, 1994. The financial
information for the fiscal periods through April 29, 1994 is based on the
financial information for The Capitol Mutual Funds Special Equity Portfolio
Class A Shares, which were reorganized into Primary A Shares of Nations
Disciplined Equity Fund (then named Nations Special Equity Fund) as of the
close of business on April 29, 1994. The Capitol Mutual Funds Special Equity
Portfolio Class A Shares commenced operations on October 1, 1992.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
# The amount shown at this caption for each share outstanding throughout the
period may not accord with the change in the aggregate gains and losses in
the portfolio securities for the period because of the timing of purchases
and withdrawals of shares in relation to the fluctuating market value of the
portfolio.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
(b) Amount represents less than $0.01 per share.
(c) Average commission rate paid per share of securities purchased and sold by
the Fund.
16
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS EQUITY INDEX FUND
<TABLE>
<CAPTION>
<S> <C> <C>
PERIOD YEAR
ENDED ENDED
PRIMARY A SHARES 03/31/96(a) 11/30/95
Operating performance:
Net asset value, beginning of period $ 12.91 $ 9.84
Net investment income 0.08 0.28
Net realized and unrealized gain/(loss) on investments 0.86 3.20
Net increase in net asset value from operations 0.94 3.48
Distributions:
Dividends from net investment income (0.13) (0.28)
Distributions from net realized capital gains (0.14) (0.13)
Total dividends and distributions (0.27) (0.41)
Net asset value, end of period $ 13.58 $ 12.91
Total return++ 7.33% 36.35%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 192,388 $ 145,021
Ratio of operating expenses to average net assets 0.35%+ 0.37%
Ratio of operating expenses to average net assets including interest expense 0.35%+ 0.38%
Ratio of net investment income to average net assets 1.99%+ 2.44%
Portfolio turnover rate 2% 18%
Ratio of operating expenses to average net assets without waivers and/or expense
reimbursements $ 0.73%+ 0.78%
Net investment income per share without waivers and/or expense reimbursements $ 0.07 $ 0.23
Average commission to be paid (b) $ 0.0291 N/A
<CAPTION>
PERIOD
ENDED
PRIMARY A SHARES 11/30/94*
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income 0.24
Net realized and unrealized gain/(loss) on investments (0.21)
Net increase in net asset value from operations 0.03
Distributions:
Dividends from net investment income (0.19)
Distributions from net realized capital gains --
Total dividends and distributions (0.19)
Net asset value, end of period $ 9.84
Total return++ 0.29%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 123,147
Ratio of operating expenses to average net assets 0.35%+
Ratio of operating expenses to average net assets including interest expense --
Ratio of net investment income to average net assets 2.64%+
Portfolio turnover rate 14%
Ratio of operating expenses to average net assets without waivers and/or expense
reimbursements 0.79%+
Net investment income per share without waivers and/or expense reimbursements $ 0.20
Average commission to be paid (b) N/A
</TABLE>
* Nations Equity Index Fund Primary A Shares commenced operations on December
15, 1993.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
(b) Average commission rate paid per share of securities purchased and sold by
the Fund.
NATIONS BALANCED ASSETS FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
PERIOD YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
PRIMARY A SHARES 03/31/96(a) 11/30/95 11/30/94 11/30/93
Operating performance:
Net asset value, beginning of period $ 12.68 $ 10.44 $ 10.87 $ 10.24
Net investment income 0.11 0.38 0.25 0.29
Net realized and unrealized gain/(loss) on investments 0.45 2.21 (0.43) 0.64
Net increase/(decrease) in net asset value from
operations 0.56 2.59 (0.18) 0.93
Distributions:
Dividends from net investment income (0.18) (1.33) (0.25) (0.03)
Distributions from net realized capital gains (1.41) (0.02) -- --
Total dividends and distributions (1.59) (0.35) (0.25) (0.30)
Net asset value, end of period $ 11.65 $ 12.68 $ 10.44 $ 10.87
Total return++ 4.90% 25.27% (1.73)% 9.22%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 164,215 $ 163,198 $ 162,215 $ 178,270
Ratio of operating expenses to average net assets 1.00 %+ 0.99 % 0.98 % 0.90%
Ratio of net investment income to average net assets 2.91 %+ 3.25 % 2.31 % 2.82%
Portfolio turnover rate 83 % 174 % 156 % 50%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 1.00 %+ 0.99 % 0.99 % 0.97%
Net investment income per share without waivers and/or
expense reimbursements $ 0.11 $ 0.38 $ 0.25 $ 0.29
Average commission rate paid (b) $ 0.0598 N/A N/A N/A
<CAPTION>
PERIOD
ENDED
PRIMARY A SHARES 11/30/92*
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income 0.06
Net realized and unrealized gain/(loss) on investments 0.18#
Net increase/(decrease) in net asset value from
operations 0.24
Distributions:
Dividends from net investment income --
Distributions from net realized capital gains --
Total dividends and distributions --
Net asset value, end of period $ 10.24
Total return++ 2.40%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 111,953
Ratio of operating expenses to average net assets 0.30%+
Ratio of net investment income to average net assets 3.85%+
Portfolio turnover rate 79%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 1.05%+
Net investment income per share without waivers and/or
expense reimbursements $ 0.05
Average commission rate paid (b) N/A
</TABLE>
* Nations Balanced Assets Fund Primary A Shares commenced operations on
September 30, 1992.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# The amount shown at this caption for each share outstanding throughout the
period may not accord with the change in the aggregate gains and losses in
the portfolio securities for the period because of the timing of purchases
and withdrawals of shares in relation to the fluctuating market value of the
portfolio.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
(b) Average commission rate paid per share of securities purchased and sold by
the Fund.
17
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS SHORT-INTERMEDIATE GOVERNMENT FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
PERIOD YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
PRIMARY A SHARES 03/31/96(a)# 11/30/95# 11/30/94 11/30/93 11/30/92
Operating performance:
Net asset value, beginning of period $ 4.14 $ 3.93 $ 4.28 $ 4.16 $ 4.17
Net investment income 0.07 0.24 0.23 0.23 0.28
Net realized and unrealized gain/(loss) on
investments (0.07) 0.21 (0.33) 0.14 (0.01)
Net increase/(decrease) in net asset value from
operations 0.00 0.45 (0.10) 0.37 0.27
Distributions:
Dividends from net investment income (0.07) (0.24) (0.23) (0.23) (0.28)
Distributions in excess of net investment income (0.00)(b) (0.00)(a) (0.00)(a) -- --
Distributions from net realized capital gains -- -- (0.02) (0.02) --
Total dividends and distributions (0.07) (0.24) (0.25) (0.25) (0.28)
Net asset value, end of period $ 4.07 $ 4.14 $ 3.93 $ 4.28 $ 4.16
Total return++ 0.07% 11.70% (2.23)% 9.03% 6.70%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 399,915 $ 425,200 $ 433,278 $ 443,426 $ 360,497
Ratio of operating expenses to average net assets 0.63%+ 0.60% 0.59% 0.55% 0.37%
Ratio of net investment income to average net
assets 5.32%+ 5.88% 5.76% 5.40% 6.48%
Portfolio turnover rate 189% 328% 133% 92% 25%
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 0.86%+ 0.80% 0.80% 0.79% 0.77%
Net investment income per share without waivers
and/or expense reimbursements $ 0.06 $ 0.23 $ 0.22 $ 0.22 $ 0.26
<CAPTION>
PERIOD
ENDED
PRIMARY A SHARES 11/30/91*
Operating performance:
Net asset value, beginning of period $ 4.00##
Net investment income 0.10
Net realized and unrealized gain/(loss) on
investments 0.17
Net increase/(decrease) in net asset value from
operations 0.27
Distributions:
Dividends from net investment income (0.10)
Distributions in excess of net investment income --
Distributions from net realized capital gains --
Total dividends and distributions (0.10)
Net asset value, end of period $ 4.17
Total return++ 6.81%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 158,435
Ratio of operating expenses to average net assets 0.08%+
Ratio of net investment income to average net
assets 7.21%+
Portfolio turnover rate 11%
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 0.82%+
Net investment income per share without waivers
and/or expense reimbursements $ 0.00 (a)
</TABLE>
* Nations Short-Intermediate Government Fund Primary A Shares commenced
operations on August 1, 1991.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# Per share numbers have been calculated using the monthly average share method
which more appropriately presents the per share data for the period since the
use of the undistributed income method did not accord with the results of
operations.
## The Nations Short-Intermediate Government Fund's net asset value upon
commencement of operations was $2.00 per share. Effective September 25, 1991,
the net asset value doubled as a result of the reclassification of each
outstanding share into half as many shares (reverse split).
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
(b) Amount represents less than $0.01.
18
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS GOVERNMENT SECURITIES FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
PERIOD YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
PRIMARY A SHARES 03/31/96(a)# 05/31/95# 05/31/94 05/31/93#
Operating performance:
Net asset value, beginning of period $ 9.86 $ 9.80 $ 10.46 $ 10.36
Net investment income 0.52 0.64 0.64 0.71
Net realized and unrealized gain/(loss) on
investments (0.19) 0.06 (0.61) 0.13
Net increase/(decrease) in net asset value from
operations 0.33 0.70 0.03 0.84
Distributions:
Dividends from net investment income (0.50) (0.60) (0.58) (0.70)
Dividends in excess of net investment income (0.02) -- (0.02) --
Distributions from net realized capital gains -- -- -- --
Distributions in excess of net realized capital
gains -- -- (0.05) (0.04)
Distributions from capital -- (0.04) (0.04) --
Total dividends and distributions (0.52) (0.64) (0.69) (0.74)
Net asset value, end of period $ 9.67 $ 9.86 $ 9.80 $ 10.46
Total return++ 3.41% 7.55% 0.06% 8.37%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 55,962 $ 39,909 $ 44,536 $ 40,472
Ratio of operating expenses to average net assets 0.80%+ 0.76% 0.73% 0.85%
Ratio of net investment income to average net
assets 6.36%+ 6.69% 6.08% 6.67%
Portfolio turnover rate 199% 413% 56% 103%
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 0.95%+ 0.94% 0.94% 1.00%
Net investment income per share without waivers
and/or expense reimbursements $ 0.51 $ 0.62 $ 0.61 $ 0.60
<CAPTION>
YEAR PERIOD
ENDED ENDED
PRIMARY A SHARES 05/31/92 05/31/91*
Operating performance:
Net asset value, beginning of period $ 10.05 $ 10.00
Net investment income 0.74 0.10
Net realized and unrealized gain/(loss) on
investments 0.37 0.02
Net increase/(decrease) in net asset value from
operations 1.11 0.12
Distributions:
Dividends from net investment income (0.77) (0.07)
Dividends in excess of net investment income -- --
Distributions from net realized capital gains -- --
Distributions in excess of net realized capital
gains (0.03) --
Distributions from capital -- --
Total dividends and distributions (0.80) (0.07)
Net asset value, end of period $ 10.36 $ 10.05
Total return++ 11.43%+++ 1.19%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 42,256 $ 10,047
Ratio of operating expenses to average net assets 1.06% 1.10%+
Ratio of net investment income to average net
assets 7.15% 7.18%+
Portfolio turnover rate 130% 5%
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 1.72% 1.69%+++
Net investment income per share without waivers
and/or expense reimbursements $ 0.07 $ 0.09+++
</TABLE>
* Nations Government Securities Fund Primary A Shares commenced operations on
April 11, 1991.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# Per share numbers have been calculated using the monthly average share
method, which more appropriately presents the per share data for the period
since the use of the undistributed income method did not accord with the
results of operations.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
May 31.
19
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
NATIONS SHORT-TERM INCOME FUND
<S> <C> <C> <C> <C>
PERIOD YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
PRIMARY A SHARES 03/31/96(a)# 11/30/95# 11/30/94# 11/30/93
Operating performance:
Net asset value, beginning of period $ 9.84 $ 9.48 $ 10.01 $ 9.75
Net investment income 0.20 0.61 0.50 0.53
Net realized and unrealized gain/(loss) on investments (0.08) 0.36 (0.51) 0.26
Net increase/(decrease) in net asset value from
operations 0.12 0.97 (0.01) 0.79
Distributions:
Dividends from net investment income (0.20) (0.61) (0.48) (0.53)
Distributions in excess of net investment income -- -- (0.02) --
Distributions from capital -- -- (0.02) --
Total dividends and distributions (0.20) (0.61) (0.52) (0.53)
Net asset value, end of period $ 9.76 $ 9.84 $ 9.48 $ 10.01
Total return++ 1.19% 10.48% (0.11)% 8.26%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 179,957 $ 169,291 $ 176,712 $ 201,738
Ratio of operating expenses to average net assets 0.55%+ 0.56%+ 0.50% 0.37%
Ratio of net investment income to average net assets 6.07%+ 6.32%+ 5.23% 5.27%
Portfolio turnover rate 73% 224% 293% 121%
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 0.88%+ 0.86%+ 0.82% 0.79%
Net investment income per share without waivers and/or
expense reimbursements $ 0.19 $ 0.58 $ 0.47 $ 0.48
<CAPTION>
PERIOD
ENDED
PRIMARY A SHARES 11/30/92*
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income 0.09
Net realized and unrealized gain/(loss) on investments (0.25)
Net increase/(decrease) in net asset value from
operations (0.16)
Distributions:
Dividends from net investment income (0.09)
Distributions in excess of net investment income --
Distributions from capital --
Total dividends and distributions (0.09)
Net asset value, end of period $ 9.75
Total return++ (1.58)%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 190,680
Ratio of operating expenses to average net assets 0.30 %+
Ratio of net investment income to average net assets 5.54 %+
Portfolio turnover rate 45 %
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 0.90 %+
Net investment income per share without waivers and/or
expense reimbursements $ 0.08
</TABLE>
* Nations Short-Term Income Fund Primary A Shares commenced operations on
September 30, 1992.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# Per share numbers have been calculated using the monthly average share
method, which more appropriately presents the per share data for the period
since the use of the undistributed income method did not accord with the
results of operations.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
NATIONS DIVERSIFIED INCOME FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
PERIOD YEAR YEAR
ENDED ENDED ENDED YEAR
PRIMARY A SHARES 03/31/96(a) 11/30/95 11/30/94# ENDED 11/30/93#
Operating performance:
Net asset value, beginning of period $ 10.82 $ 9.67 $ 10.88 $ 9.97
Net investment income 0.23 0.73 0.74 0.78
Net realized and unrealized gain/(loss) on investments (0.40) 1.15 (1.06) 0.91
Net increase/(decrease) in net asset value from
operations (0.17) 1.88 (0.32) 1.69
Distributions:
Dividends from net investment income (0.23) (0.73) (0.74) (0.78)
Distributions in excess of net investment income -- -- (0.00)(b) --
Distributions from net realized capital gains -- -- (0.15) --
Total dividends and distributions (0.23) (0.73) (0.89) (0.78)
Net asset value, end of period $ 10.42 $ 10.82 $ 9.67 $ 10.88
Total return++ (1.59)% 20.11% (3.05)% 17.40%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 65,081 $ 64,800 $ 22,298 $ 28,553
Ratio of operating expenses to average net assets 0.77%+ 0.80% 0.74% 0.55%
Ratio of net investment income to average net assets 6.49%+ 7.03% 7.31% 7.02%
Portfolio turnover rate 69% 96% 144% 86%
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 0.87%+ 0.93% 0.95% 0.95%
Net investment income per share without waivers and/or
expense reimbursements $ 0.23 $ 0.72 $ 0.72 $ 0.70
<CAPTION>
PERIOD
ENDED
PRIMARY A SHARES 11/30/92*
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income 0.06
Net realized and unrealized gain/(loss) on investments (0.03)
Net increase/(decrease) in net asset value from
operations 0.03
Distributions:
Dividends from net investment income (0.06)
Distributions in excess of net investment income --
Distributions from net realized capital gains --
Total dividends and distributions (0.06)
Net asset value, end of period $ 9.97
Total return++ 0.32%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 23,962
Ratio of operating expenses to average net assets 0.25%+
Ratio of net investment income to average net assets 7.76%+
Portfolio turnover rate 46%
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 0.85%+
Net investment income per share without waivers and/or
expense reimbursements $ 0.05
</TABLE>
* Nations Diversified Income Fund Primary A Shares commenced operations on
October 30, 1992.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect any applicable sales charges.
+++ Unaudited.
# Per share numbers have been calculated using the monthly average share
method, which more appropriately represents the per share data for the period
since the use of the undistributed income method did not accord with the
results of operations.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
(b) Amount represents less than $0.01.
20
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS STRATEGIC FIXED INCOME FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
PERIOD YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
PRIMARY A SHARES 03/31/96(a) 11/30/95 11/30/94 11/30/93
Operating performance:
Net asset value, beginning of period $ 10.22 $ 9.32 $ 10.55 $ 9.94
Net investment income 0.19 0.59 0.53 0.56
Net realized and unrealized gain/(loss) on investments (0.29) 0.90 (0.89) 0.62
Net increase/(decrease) in net asset value from
operations (0.10) 1.49 (0.36) 1.18
Distributions:
Dividends from net investment income (0.19) (0.59) (0.51) (0.56)
Distributions in excess of net investment income -- -- (0.02) --
Distributions from net realized capital gains -- -- (0.34) (0.01)
Total dividends and distributions (0.19) (0.59) (0.87) (0.57)
Net asset value, end of period $ 9.93 $ 10.22 $ 9.32 $ 10.55
Total return++ (1.04)% 16.45% (3.58)% 12.05%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 823,890 $ 823,098 $ 550,697 $ 545,538
Ratio of operating expenses to average net assets 0.72%+ 0.71%+ 0.68% 0.61%
Ratio of net investment income to average net assets 5.49%+ 6.05%+ 5.43% 5.40%
Portfolio turnover rate 133% 228% 307% 161%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 0.83%+ 0.81%+ 0.76% 0.77%
Net investment income per share without waivers and/or
expense reimbursements $ 0.19 $ 0.58 $ 0.52 $ 0.55
<CAPTION>
PERIOD
ENDED
PRIMARY A SHARES 11/30/92*
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income 0.05
Net realized and unrealized gain/(loss) on investments (0.06)
Net increase/(decrease) in net asset value from
operations (0.01)
Distributions:
Dividends from net investment income (0.05)
Distributions in excess of net investment income --
Distributions from net realized capital gains --
Total dividends and distributions (0.05)
Net asset value, end of period $ 9.94
Total return++ (0.11)%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 581,329
Ratio of operating expenses to average net assets 0.26%+
Ratio of net investment income to average net assets 6.15%+
Portfolio turnover rate 12%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 0.86%+
Net investment income per share without waivers and/or
expense reimbursements $ 0.04
</TABLE>
* Nations Strategic Fixed Income Fund Primary A Shares commenced operations on
October 30, 1992.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
NATIONS GLOBAL GOVERNMENT INCOME FUND
<TABLE>
<CAPTION>
PERIOD
ENDED
<S> <C>
PRIMARY A SHARES 03/31/96*#
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income/(loss) 0.39
Net realized and unrealized gain/(loss) on investments 0.11
Net increase in net asset value from operations 0.50
Distributions:
Dividends from net investment income (0.37)
Distributions in excess of net investment income (0.02)
Distributions from net realized capital gains (0.04)
Total dividends and distributions (0.43)
Net asset value, end of period $ 10.07
Total return++ 5.03%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 24,753
Ratio of operating expenses to average net assets 1.32%+
Ratio of net investment income/(loss) to average net assets 5.17%+
Portfolio turnover rate 213%
</TABLE>
* Nations Global Government Income Fund Primary A Shares commenced operations
on June 30, 1995.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
# Per share numbers have been calculated using the monthly average shares
method, which more appropriately represents the per share data for the period
since the use of the undistributed income method did not accord with the
results of operations.
21
<PAGE>
Objectives
MONEY MARKET FUNDS:
Each Money Market Fund endeavors to achieve its investment objective by
investing in a diversified portfolio of high quality money market instruments
with maturities of 397 days or less from the date of purchase. Securities
subject to repurchase agreements may bear longer maturities.
NATIONS PRIME FUND: Nations Prime Fund's investment objective is to seek the
maximization of current income to the extent consistent with the preservation of
capital and the maintenance of liquidity.
NATIONS TREASURY FUND: Nations Treasury Fund's investment objective is the
maximization of current income to the extent consistent with the preservation of
capital and the maintenance of liquidity.
NATIONS GOVERNMENT MONEY MARKET FUND: Nations Government Money Market Fund's
investment objective is to seek as high a level of current income as is
consistent with liquidity and stability of principal.
EQUITY FUNDS:
NATIONS VALUE FUND: Nations Value Fund's investment objective is to seek growth
of capital by investing in companies that are believed to be undervalued.
NATIONS EQUITY INCOME FUND: Nations Equity Income Fund's investment objective is
to seek current income and growth of capital by investing primarily in companies
with above average dividend yields.
NATIONS INTERNATIONAL EQUITY FUND: Nations International Equity Fund's
investment objective is to seek long-term capital growth by investing primarily
in equity securities of non-United States companies in Europe, Australia, the
Far East and other regions, including developing countries.
NATIONS EMERGING MARKETS FUND: Nations Emerging Markets Fund's investment
objective is to seek long-term capital growth by investing primarily in equity
securities of companies in emerging market countries, such as those in Latin
America, Eastern Europe, the Pacific Basin, the Far East, Africa and India.
NATIONS PACIFIC GROWTH FUND: Nations Pacific Growth Fund's investment objective
is to seek long-term capital growth by investing primarily in equity securities
of companies in the Pacific Basin and the Far East (excluding Japan).
NATIONS CAPITAL GROWTH FUND: Nations Capital Growth Fund's investment objective
is to seek growth of capital by investing in companies that are believed to have
superior earnings growth potential.
NATIONS EMERGING GROWTH FUND: Nations Emerging Growth Fund's investment
objective is to seek capital appreciation by investing in emerging growth
companies that are believed to have superior long-term earnings growth
prospects.
NATIONS DISCIPLINED EQUITY FUND: Nations Disciplined Equity Fund's investment
objective is to seek growth of capital by investing in companies that are
expected to produce significant increases in earnings per share.
NATIONS EQUITY INDEX FUND: Nations Equity Index Fund's investment objective is
to seek investment results that correspond, before fees and expenses, to the
total return of the Standard & Poor's 500 Composite Stock Price Index (the "S&P
500 Index" or the "Index").(1)
BALANCED FUND:
NATIONS BALANCED ASSETS FUND: Nations Balanced Assets Fund's investment
objective is to seek total return by investing in equity and fixed income
securities.
BOND FUNDS:
NATIONS SHORT-INTERMEDIATE GOVERNMENT FUND: Nations Short-Intermediate
Government Fund's investment objective is to seek high current income consistent
with modest fluctuation of principal. The Fund invests primarily in securities
issued or guaranteed by the U.S. Government, its agencies or instrumentalities.
NATIONS GOVERNMENT SECURITIES FUND: Nations Government Securities Fund's
investment objective is to seek high current income consistent with moderate
fluctuation of principal. The Fund invests primarily in intermediate-term
securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities.
NATIONS SHORT-TERM INCOME FUND: Nations Short-Term Income Fund's investment
objective is to seek high current income consistent with minimal fluctuation of
principal. The Fund invests in investment grade debt securities.
NATIONS DIVERSIFIED INCOME FUND: Nations Diversified Income Fund's investment
objective is to seek total return with an emphasis on current income by
investing in a diversified portfolio of fixed income securities.
(1) "Standard & Poor's 500" is a registered service mark of Standard & Poor's
Corporation("S&P").
22
<PAGE>
NATIONS STRATEGIC FIXED INCOME FUND: Nations Strategic Fixed Income Fund's
investment objective is to seek total return by investing in investment grade
fixed income securities.
NATIONS GLOBAL GOVERNMENT INCOME FUND: Nations Global Government Income Fund's
investment objective is to seek total return by investing primarily in high
quality debt securities issued by governments, banks and supranational entities
located throughout the world.
How Objectives Are Pursued
MONEY MARKET FUNDS:
NATIONS PRIME FUND: In pursuing its investment objective, the Fund may invest in
U.S. Treasury bills, notes and bonds and other instruments issued directly by
the U.S. Government ("U.S. Treasury Obligations") and other obligations issued
or guaranteed as to payment of principal and interest by the U.S. Government,
its agencies or instrumentalities ("U.S. Government Obligations"), 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 issued by other
investment companies, consistent with the Fund's investment objective and
policies, and may engage in reverse repurchase agreements. The Fund may lend its
portfolio securities to qualified institutional investors. For more information
concerning these instruments, see "Appendix A."
EQUITY FUNDS:
NATIONS VALUE FUND: The Fund invests in stocks drawn from a broad universe of
companies monitored by the Adviser. The Adviser closely monitors these
companies, rating them for quality and projecting their future earnings and
dividends as well as other factors. To qualify for purchase, an issuer would
normally have a market capitalization of $500 million or more and have an
average daily trading volume of at least $3 million. These requirements are
generally considered by the Adviser to be adequate to support normal purchase
and sale activity without materially affecting prevailing market prices of the
issuer's shares. The Adviser also analyzes key financial ratios that measure the
growth, profitability, and leverage of such issuers that it believes will help
maintain a portfolio of above-average quality.
Stocks are selected from this universe based on the Adviser's judgment of their
total return potential. The Adviser buys stocks that it believes are undervalued
relative to the overall stock market. The principal factor considered by the
Adviser in making these determinations is the ratio of a stock's price to
earnings relative to corresponding ratios of other stocks in the same industry
or economic sector. The Adviser believes that companies with lower
price/earnings ratios are more likely to provide better opportunities for
capital appreciation. This "value" approach generally produces a dividend yield
greater than the market average. The Adviser will attempt to temper risk by
broad diversification among economic sectors and industries. Through this
strategy, the Fund pursues above-average returns while seeking to avoid
above-average risks.
The Fund invests under normal market conditions at least 65% of its total assets
in common stocks. In
addi-
23
<PAGE>
tion to common stocks, the Fund also may invest in preferred stocks, securities
convertible into common stock and other types of securities having common stock
characteristics (such as rights and warrants to purchase equity securities).
Although the Fund invests primarily in publicly-traded common stocks of
companies incorporated in the United States, the Fund may invest up to 20% of
its assets in foreign securities. The Fund also may hold up to 20% of its total
assets in U.S. Government Obligations, and investment grade securities of
domestic companies. Obligations with the lowest investment grade rating (E.G.
rated "BBB" by Standard & Poor's Corporation ("S&P") or "Baa" by Moody's
Investors Service, Inc. ("Moody's")) have speculative characteristics and
changes in economic conditions or other circumstances are more likely to lead to
a weakened capacity to make principal and interest payments than is the case
with higher grade debt obligations. Subsequent to its purchase by the Fund, an
issue of securities may cease to be rated or its rating may be reduced below the
minimum rating required for purchase by the Fund. The Adviser will consider such
an event in determining whether the Fund should continue to hold the obligation.
Unrated obligations may be acquired by the Fund if they are determined by the
Adviser to be of comparable quality at the time of purchase to rated obligations
that may be acquired.
The Fund may invest in various money market instruments and repurchase
agreements. The Fund may invest without limitation in such instruments pending
investment, to meet anticipated redemption requests, or as a temporary defensive
measure if market conditions warrant.
NATIONS EQUITY INCOME FUND: The investment program of the Fund is based on
several premises. First, dividends are normally a more stable and predictable
source of return than capital appreciation. While the price of a company's stock
generally increases or decreases in response to short-term earnings and market
fluctuations, its dividends are generally less volatile. Second, diversifying
equity holdings in a manner that includes every major economic sector
contributes to reduced volatility, without a commensurate reduction in expected
investment return. Finally, investing in dividend paying stocks in all the
economic sectors can provide greater income than the S&P 500 Index with less
volatility. Collectively, these traits may be combined in such a fashion as to
produce returns in excess of the market (S&P 500 Index) on a comparable risk
basis.
New purchases for the Fund will generally be made in equity securities that:
(Bullet) are income producing;
(Bullet) appear undervalued relative to the S&P 500 Index on a risk adjusted
basis; and
(Bullet) have favorable trends in personal stock ownership by the underlying
company's officers and/or directors.
To achieve its objective, the Fund, under normal circumstances, will invest at
least 65% of its assets in income-producing common stocks, including securities
convertible into or ultimately exchangeable for common stock (I.E., convertible
bonds or convertible preferred stock), whose prospects for dividend growth and
capital appreciation are considered favorable by the Adviser. The securities
held by the Fund generally will be listed on a national exchange or, if not so
listed, will usually have an established over-the-counter market.
In order to further enhance its income, the Fund also may invest its assets in
fixed income securities (corporate and government bonds of various maturities),
preferred stocks and warrants. The Fund may invest in debt securities that are
considered investment grade (E.G. securities rated in one of the top four
investment categories by S&P or Moody's, or if not rated, are of equivalent
investment quality as determined by the Adviser). Obligations rated in the
lowest of the top four investment grade rating categories (E.G., rated "BBB" by
S&P) have speculative characteristics and changes in economic conditions or
other circumstances are more likely to lead to a weakened capacity to make
principal and interest payments than is the case with higher grade debt
obligations. The Fund also may invest up to 5% of its assets in debt securities
that are rated below investment grade (E.G. rated "BB" by S&P) or if not rated,
are of equivalent investment quality as determined by the Adviser.
Non-investment grade debt securities are sometimes referred to as "high yield
bonds" or "junk bonds," tend to have speculative characteristics, generally
involve more risk of principal and income than higher rated securities, and have
yields and market values that tend to fluctuate more than higher quality
securities. The Fund will invest in such high-yield debt securities only when
the Adviser believes that the issue presents minimal credit risk. For a
description of corporate debt ratings, see "Appendix B." Although the Fund
invests primarily in securities of U.S. issuers, the Fund may invest up to 20%
of its total assets in foreign securities. The Fund will treat foreign
securities as illiquid unless there is an active and substantial secondary
market for such securities.
The Fund also may invest in various money market instruments and repurchase
agreements. The Fund may invest without limitation in such instruments pending
investment, to meet anticipated redemption requests, or as a temporary defensive
measure if market conditions warrant.
NATIONS INTERNATIONAL EQUITY FUND: The Fund intends to diversify investments
broadly among countries and normally to invest in securities representing at
least three different countries. The Fund may invest in companies in the Far
East and Western Europe as well as Australia, Canada, and other areas (including
developing countries). Under unusual circumstances, however, the
24
<PAGE>
Fund may invest substantially all of its assets in companies in one or two
countries.
In seeking to achieve its objective, the Fund will invest at least 65% of its
assets in common stocks of established non-United States companies that the
Adviser believes have potential for growth of capital. The Fund may invest up to
35% of its assets in any other type of security including: convertible
securities; preferred stocks; bonds, notes and other debt securities (including
Eurodollar securities); and obligations of domestic or foreign governments and
their political subdivisions.
The Fund also may invest in American Depository Receipts ("ADRs"), Global
Depositary Receipts ("GDRs"), European Depository Receipts ("EDRs"), American
Depository Shares ("ADSs"), bonds, notes, other debt securities of foreign
issuers and securities of foreign investment funds or trusts and real estate
investment trust securities.
NATIONS EMERGING MARKETS FUND: In seeking to achieve its objective, the Fund
will invest under normal market conditions at least 65% of its total assets in
equity securities of companies in emerging markets.
The Fund considers countries with emerging markets to include the following: (i)
countries with an emerging stock market as defined by the International Finance
Corporation; (ii) countries with low- to middle-income economies according to
the International Bank For Reconstruction and Development (more commonly
referred to as the World Bank); and (iii) countries listed in World Bank
publications as developing. The Adviser seeks to identify and invest in those
emerging markets that have a relatively low gross national product per capita,
compared to the world's major economies, and which exhibit potential for rapid
economic growth. The Adviser believes that investment in equity securities of
emerging market issuers offers significant potential for long-term capital
appreciation.
Emerging market countries include, but are not limited to: Argentina, Brazil,
Chile, China, the Czech Republic, Colombia, Ecuador, Greece, Hong Kong,
Indonesia, India, Malaysia, Mexico, the Philippines, Poland, Portugal, Peru,
Russia, Singapore, South Africa, Thailand, Taiwan and Turkey.
A company will be considered in a country, market or region if it conducts its
principal business activities in the country, market or region. A company will
be considered to conduct its principal business activities in a country, market
or region if it derives a significant portion (at least 50%) of its revenues or
profits from goods produced or sold, investments made, or services performed in
such country, market or region or has at least 50% of its assets situated in
such country, market or region.
Equity securities of emerging market issuers may include common stocks,
preferred stocks (including convertible preferred stocks) and warrants; bonds,
notes and debentures convertible into common or preferred stock; equity
interests in foreign investment funds or trusts and real estate investment trust
securities. The Fund may invest in ADRs, GDRs, EDRs, and ADSs of such issuers.
The Fund also may invest in other types of instruments, including debt
obligations. Debt obligations acquired by the Fund will be rated investment
grade at the time of purchase by Moody's or S&P or, if unrated, determined by
the Adviser to be comparable in quality to instruments so rated. Obligations
with the lowest investment grade rating (E.G., rated "Baa" by Moody's or "BBB"
by S&P) have speculative characteristics, and changes in economic conditions or
other circumstances are more likely to lead to a weakened capacity to make
principal and interest payments than is the case with higher grade debt
obligations. See "Appendix B" for a description of these ratings designations.
The Fund is a diversified fund that intends, under normal market conditions, to
invest in at least three different countries, although it may, from time to
time, invest all of its assets in a single country. If the Fund invests all or a
significant portion of its assets at any time in a single country, events
occurring in such country are more likely to affect the Fund's investments. For
additional information concerning risk, see "Special Risk Considerations
Relevant to an Investment in Nations International Equity Fund, Nations Emerging
Markets Fund, Nations Pacific Growth Fund and Nations Global Government Income
Fund," below. When allocating investments among individual countries, the
Adviser will consider various criteria, such as the relative economic growth
potential of the various economies and securities markets, expected levels of
inflation, government policies influencing business conditions and the outlook
for currency relationships.
For defensive purposes, the Fund may temporarily invest substantially all of its
assets in U.S. financial markets or in U.S. dollar-denominated instruments.
NATIONS PACIFIC GROWTH FUND: The Fund seeks to achieve its objective by
investing primarily in securities of issuers in the regions known as the Pacific
Basin and the Far East. An issuer will be considered in a region if it conducts
its principal business activities in the region. An issuer will be considered to
conduct its principal business activities in a region if it derives a
significant portion (at least 50%) of its revenues or profits from goods
produced or sold, investments made, or services performed in such region or has
at least 50% of its assets situated in such region. The Pacific Basin and Far
East include Australia, Hong Kong, India, Indonesia, South Korea, Malaysia, New
Zealand, Pakistan, the People's Republic of China, the Philippines, Singapore,
Sri
25
<PAGE>
Lanka, Taiwan and Thailand and may include other markets that develop in the
region. The Fund will not invest in securities of issuers in Japan.
The Fund will focus on equity securities, but may also invest in debt
obligations. Such equity securities may include common stocks, preferred stocks
(including convertible preferred stocks) and warrants; bonds, notes and
debentures convertible into common or preferred stock; equity interests in
foreign investment funds or trusts and real estate investment trust securities.
Debt obligations acquired by the Fund will be rated investment grade at the time
of purchase by Moody's or S&P or, if unrated, determined by the Adviser to be
comparable in quality to instruments so rated. Obligations with the lowest
investment grade rating (E.G., rated "Baa" by Moody's or "BBB" by S&P) have
speculative characteristics, and changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity to make principal
and interest payments than is the case with higher grade debt obligations. See
"Appendix B" for a description of these ratings designations.
In seeking to achieve its objective, the Fund will invest under normal market
conditions at least 65% of its total assets in securities of issuers that
conduct their principal business activities in countries of the Pacific Basin
and Far East, except for Japan. Although the Fund may not invest in securities
issued by companies that conduct their principal business activities in Japan,
the Fund may invest in securities that are listed on a Japanese exchange.
The Fund is a diversified fund that intends, under normal market conditions, to
invest in at least three different countries, although it may, from time to
time, invest all of its assets in a single country. If the Fund invests all or a
significant portion of its assets at any time in a single country, events
occurring in such country are more likely to affect the Fund's investments. For
additional information concerning risk, see "Special Risk Considerations
Relevant to an Investment in Nations International Equity Fund, Nations Emerging
Markets Fund, Nations Pacific Growth Fund and Nations Global Government Income
Fund," below. When allocating investments among individual countries, The
Adviser will consider various criteria, such as the relative economic growth
potential of the various economies and securities markets, expected levels of
inflation, government policies influencing business conditions and the outlook
for currency relationships.
For defensive purposes, the Fund may temporarily invest substantially all of its
assets in U.S. financial markets or in U.S. dollar-denominated instruments.
NATIONS CAPITAL GROWTH FUND: The investment philosophy of the Fund is based on
the belief that companies with superior growth characteristics selling at
reasonable prices will, over time, outperform the market. Therefore, the Fund
will generally seek to invest in larger capitalization, high-quality companies
which possess above average earnings growth potential.
The Fund's equity investments will generally be made in companies which share
some of the following characteristics:
(Bullet) above-average earnings growth relative to the S&P 500 Index;
(Bullet) established operating histories, strong balance sheets and favorable
financial characteristics; and
(Bullet) above-average return on equity relative to the S&P 500 Index.
In addition, the Fund's investment program enables it to invest in the following
types of companies:
(Bullet) companies that generate or apply new technologies, new and improved
distribution techniques, or new services, such as those in the business
equipment, electronics, specialty merchandising and health service
industries;
(Bullet) companies that own or develop natural resources, such as energy
exploration companies;
(Bullet) companies that may benefit from changing consumer demands and
lifestyles, such as financial service organizations and
telecommunication companies;
(Bullet) foreign companies, including those in countries with more rapid
economic growth than the U.S.;
(Bullet) companies whose earnings growth is projected at a pace in excess of the
average company (I.E., growth companies); and
(Bullet) companies whose earnings are temporarily depressed and are currently
out of favor with most investors.
Through intensive research, visits to many companies each year and efficient
response to changing market conditions, the Adviser seeks to make the most of
the Fund's flexible charter.
Under normal market conditions, the Fund invests at least 65% of its total
assets in common stocks. In addition to common stocks, the Fund also may invest
in preferred stocks, securities convertible into common stocks and other types
of securities having common stock characteristics (such as rights and warrants
to purchase equity securities). Although the Fund invests primarily in publicly
traded common stocks of companies incorporated in the United States, the Fund
may invest up to 20% of its total assets in foreign securities.
The Fund also may invest in various money market instruments and repurchase
agreements. The Fund may invest without limitation in such instruments pending
investment, to meet anticipated redemption requests, or as a temporary defensive
measure if market conditions warrant.
NATIONS EMERGING GROWTH FUND: The Fund will invest in common stocks and
securities convertible into
26
<PAGE>
common stocks selected from a universe of emerging growth companies monitored by
the Adviser. Most of the companies will have revenues between $50 million and
$1.5 billion and a debt ratio of less than 50% of capitalization. The universe
focuses on companies with above-average earnings growth rates and profit
margins, yet the portfolio may include positions of special situation companies
whose growth is expected to accelerate. These companies are believed to offer
significant opportunities for capital appreciation and the Adviser will attempt
to identify these opportunities before their potential is recognized by
investors in general.
In selecting industries and companies for investment, the Adviser will consider
overall growth prospects, financial condition, competitive position, technology,
research and development, innovative products, marketing expertise,
productivity, labor costs, raw material costs and sources, profit margins,
return on investment, structural changes in local economies, capital resources,
the degree of governmental regulation or deregulation, management and other
factors.
Under normal market conditions, the Fund invests at least 65% of its total
assets in common stocks. The Fund also may invest in various money market
instruments and repurchase agreements. The Fund may invest without limitation in
such instruments pending investment, to meet anticipated redemption requests, or
as a temporary defensive measure if market conditions warrant.
The volatility of emerging growth stocks is higher than that of larger
companies. Many of these stocks trade over the counter and may not have
widespread interest among institutional investors. These securities may have
larger potential for gains but also carry more risk if unexpected company
developments adversely affect the stock prices. To help reduce risk, the Fund is
diversified and typically invests in 75 to 100 companies which represent a broad
range of industries and sectors, both in the United States and abroad. Although
the Fund invests primarily in securities of U.S. issuers, the Fund may invest up
to 20% of its total assets in foreign securities.
NATIONS DISCIPLINED EQUITY FUND: The investment philosophy of the Fund is based
on the premise that companies with positive earnings trends also should
experience positive trends in their share price. Based on this philosophy, the
Fund invests primarily in the common stocks of companies that the Adviser
believes are likely to experience significant increases in earnings. By pursuing
this investment philosophy, the Fund seeks to provide investors with long-term
capital appreciation which exceeds that of the S&P 500 Index.
In selecting stocks for purchase by the Fund, the Adviser utilizes quantitative
analysis supported by fundamental research. This approach seeks to identify
companies that have experienced positive historical earnings trends, as
evidenced by earnings forecasts issued by investment banks, broker/dealers and
other investment professionals. The Adviser believes that companies experiencing
such earnings trends have the potential to generate significant increases in per
share earnings. The Adviser also believes that companies with increasing
earnings should experience positive trends in their stock price. Although the
Fund seeks to invest in companies with increasing earnings, the Fund's
investment objective focuses on long-term capital appreciation; income is not an
objective of the Fund.
Under normal market conditions, the Fund invests at least 65% of its total
assets in common stocks of domestic issuers. With respect to the remainder of
the Fund's assets, the Fund may invest in a broad range of equity and debt
instruments, including preferred stocks, securities (debt and preferred stock)
convertible into common stock, warrants and rights to purchase common stocks,
options, U.S. government and corporate debt securities and various money market
instruments. The Fund will invest primarily in medium- and large-sized companies
(I.E. companies with market capitalizations of $500 million or greater) that are
determined to have favorable price/earnings ratios. The Fund also may invest in
securities issued by companies with market capitalizations of less than $500
million. The volatility of small-capitalization stocks is typically greater than
that of larger companies. To help reduce risk, the Fund will invest in the
securities of companies representing a broad range of industries and economic
sectors.
The Fund's investments in debt securities, including convertible securities,
will be limited to securities rated investment grade (E.G. securities rated in
one of the top four investment categories by an NRSRO or, if not rated, are of
equivalent quality as determined by the Adviser). Obligations rated in the
lowest of the top four investment grade rating categories have speculative
characteristics and changes in economic conditions or other circumstances are
more likely to lead to a weakened capacity to make principal and interest
payments than is the case with higher grade debt obligations.
The Fund may invest up to 20% of its total assets in foreign securities. For
temporary defensive purposes if market conditions warrant, the Fund may invest
without limitation in preferred stocks, investment grade debt instruments, money
market instruments and repurchase agreements.
NATIONS EQUITY INDEX FUND: Under normal conditions, the Fund will invest at
least 80% of its assets in equity securities of companies which compose the S&P
500 Index. The S&P 500 Index consists of 500 selected common stocks, most of
which are listed on the New York Stock Exchange. Different stocks have different
weightings in the Index, depending on the amount of stock outstanding and its
current price. In seeking to duplicate the performance of the S&P 500 Index, the
27
<PAGE>
Adviser will attempt to allocate the Fund's portfolio among common stocks in
approximately the same weightings as the S&P 500 Index, beginning with the
heaviest weighted stocks that make up a larger portion of the Index's value.
The Adviser generally will seek to match the composition of the S&P 500 Index as
closely as possible, but may not always invest the Fund's portfolio to mirror
the Index exactly. Because of the difficulty and expense of executing relatively
small stock transactions, the Fund may not always be invested in the less
heavily weighted S&P 500 Index stocks and may at times have its portfolio
weighted differently from the S&P 500 Index. The Fund may omit or remove an S&P
500 Index stock from its portfolio if, following objective criteria, the Adviser
judges the stock to be insufficiently liquid or believes the merit of the
investment has been substantially impaired by extraordinary events or financial
conditions. The Adviser may purchase stocks that are not included in the S&P 500
Index to compensate for these differences if it believes that their prices will
move together with the prices of S&P 500 Index stocks omitted from the
portfolio.
The Fund is not managed according to traditional methods of "active" investment
management, which involve the buying and selling of securities based upon
economic, financial, and market analyses and investment judgment. Instead, the
Fund, utilizing a "passive" or "indexing" investment approach, attempts to
duplicate the performance of the S&P 500 Index.
The correlation between the performance of Nations Equity Index Fund (before
fees and expenses) and the S&P 500 Index is expected to be over 0.95 on an
annual basis. A correlation of 1.00 would indicate perfect correlation, which
would be achieved when the net asset value of the Fund, including the value of
its dividend and capital gains distributions, increases or decreases in exact
proportion to changes in the S&P 500 Index. The Fund's ability to track the S&P
500 Index, however, may be affected by, among other things, transaction costs,
changes in either the composition of the S&P 500 Index or the number of shares
outstanding for the components of the S&P 500 Index, and the timing and amount
of shareholder purchase and redemptions. The Fund may utilize stock index
futures contracts to minimize tracking error. In connection with engaging in
futures transactions, the Fund may hold cash, cash equivalents, and/or U.S.
government securities.
Under normal conditions, the Adviser will attempt to invest as much of the
Fund's assets as is practical in common stocks. However, the Fund will maintain
a reasonable position in high-quality short-term debt securities and money
market instruments to meet redemption requests. If the Adviser believes that
market conditions warrant a temporary defensive posture, the Fund may invest
without limitation in high-quality short-term debt securities and money market
instruments. These securities and money market instruments may include domestic
and foreign commercial paper, certificates of deposit, bankers' acceptances and
time deposits, U.S. government securities and repurchase agreements.
The Fund may also invest a portion of its portfolio in instruments whose return
depends on stock market prices. These may include debt securities whose prices
or interest rates are indexed to the return of the S&P 500 Index, or swap
agreements linked to the S&P 500 Index, and options and futures contracts. The
Fund would invest in these types of instruments in order to seek to match the
total return of the Index in accordance with its investment objective. However,
instruments linked to stock market returns may not track the return of the Index
in all cases, and may involve additional credit risks. The Fund may also invest
in warrants.
ABOUT THE INDEX: The S&P 500 Index is composed of 500 common stocks, which are
chosen by S&P on a statistical basis. The inclusion of a stock in the S&P 500
Index in no way implies that S&P believes the stock to be an attractive
investment. The Index is determined, composed and calculated by S&P without
regard to the Fund. S&P is neither a sponsor of, nor in any way affiliated with,
the Fund and S&P makes no representation or warranty, expressed or implied, on
the advisability of investing in the Fund or as to the ability of the Index to
track general stock market performance. S&P disclaims all warranties of
merchantability or fitness for a particular purpose or use with respect to the
Index or any data included therein.
GENERAL: Each Equity Fund also may invest in certain specified derivative
securities including: exchange-traded options; over-the-counter options executed
with primary dealers, including long calls and puts and covered calls to enhance
return; and U.S. and foreign exchange-traded financial futures approved by the
Commodity Futures Trading Commission ("CFTC") and options thereon for market
exposure risk management. Each Equity Fund may lend its portfolio securities to
qualified institutional investors. Each Equity Fund also may invest in
restricted, private placement and other illiquid securities. Each Equity Fund
(except Nations Equity Index Fund) also may invest in real estate investment
trust securities. In addition, each Equity Fund may invest in securities issued
by other investment companies, consistent with the Fund's investment objective
and policies. Nations International Equity Fund, Nations Pacific Growth Fund and
Nations Emerging Markets Fund may invest in forward foreign exchange contracts
and repurchase agreements.
For more information concerning these and other investments in which the Funds
may invest and their invesment practices, see "Appendix A".
28
<PAGE>
BALANCED FUND:
NATIONS BALANCED ASSETS FUND: In pursuing the Fund's objective, the Adviser will
allocate the Fund's assets based upon its judgment of the relative valuation and
the expected returns of the three major asset classes in which the Fund invests:
common stocks, fixed income securities, and cash equivalents. In assessing
relative value and expected returns, the Adviser will evaluate current economic
and financial market conditions (both domestically and internationally), current
interest rate trends, earnings and dividend prospects for common stocks, and
overall financial market stability. These asset classes are actively managed in
an effort to maximize total return. In general, the Adviser believes that common
stocks offer the best opportunity for long-term capital appreciation.
The Fund invests in common and preferred stocks of U.S. corporations and of
foreign issuers, as well as securities convertible into common stocks, and other
types of securities having common stock characteristics (such as rights and
warrants to purchase equity securities) that meet the Adviser's stringent
criteria. Fundamental research and valuation analysis are emphasized in the
stock selection process. Stock holdings are typically those of seasoned,
financially strong companies with favorable industry positioning.
Under normal circumstances, at least 25% of the total value of the Fund's assets
will be invested in fixed income securities. The Fund may invest in government,
corporate and municipal debt securities, as well as mortgage-backed and
asset-backed securities. Most obligations acquired by the Fund will be issued by
companies or governmental entities located within the United States. Debt
obligations acquired by the Fund will be rated investment grade at the time of
purchase by S&P, Moody's, Duff & Phelps Credit Rating Co. ("D&P"), Fitch
Investors Service, Inc. ("Fitch"), IBCA Limited or its affiliate IBCA Inc.
(collectively "IBCA") or Thomson BankWatch, Inc. ("BankWatch"), or, if unrated,
determined by the Adviser to be comparable in quality to instruments so rated.
S&P, Moody's, D&P, Fitch, IBCA and BankWatch are the six nationally recognized
statistical rating organizations (collectively, "NRSROs"). Obligations with the
lowest investment grade rating (E.G. rated "BBB" by S&P or "Baa" by Moody's)
have speculative characteristics and changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity to make principal
and interest payments than is the case with higher grade debt obligations. See
"Appendix B" for a description of these ratings designations. Subsequent to its
purchase by the Fund, an issue of securities may cease to be rated or its rating
may be reduced below the minimum rating required for purchase by the Fund. The
Adviser will consider such an event in determining whether the Fund should
continue to hold the obligation. Unrated obligations may be acquired by the Fund
if they are determined by the Adviser to be of comparable quality, at the time
of purchase, to rated obligations that may be acquired.
Although the Fund invests primarily in securities of U.S. issuers, the Fund may
invest up to 25% of its total assets in foreign securities.
The Fund also may invest in various money market instruments and repurchase
agreements. The Fund may invest without limitation in such instruments pending
investment, to meet anticipated redemption requests, or as a temporary defense
measure if market conditions warrant.
The Fund also may invest in certain specified derivative securities, including:
interest rate swaps, caps and floors for hedging purposes; exchange-traded
options; over-the-counter options executed with primary dealers, including long
calls and puts and covered calls to enhance return; and CFTC-approved U.S. and
foreign exchange-traded financial futures and options thereon for market
exposure risk management. The Fund may lend its portfolio securities to
qualified institutional investors and engage in dollar roll transactions. The
Fund may invest in real estate investment trust securities. The Fund also may
invest in restricted, private placement and other illiquid securities, and also
may purchase securities issued by other investment companies, consistent with
the Fund's investment objective and policies. See "Appendix A" below for
additional information concerning the investment practices of this Fund.
BOND FUNDS:
NATIONS SHORT-INTERMEDIATE GOVERNMENT FUND: In pursuing its investment
objective, Nations Short-Intermediate Government Fund invests substantially all
of its assets in U.S. Government Obligations and repurchase agreements relating
to such obligations. Under normal market conditions, it is expected that the
average dollar-weighted maturity of the Fund's portfolio will be between three
and five years and the duration will not exceed five years. U.S. Government
Obligations have historically involved little risk of loss of principal if held
to maturity. However, due to fluctuations in interest rates, the market value of
such securities may vary during the period a shareholder owns shares of the
Fund. The value of the Fund's portfolio generally will vary inversely with
changes in prevailing interest rates.
The Fund also may invest in corporate convertible and non-convertible debt
obligations, including bonds, notes and debentures rated investment grade at the
time of purchase by one of the six NRSROs, or if not so rated, determined by the
Adviser to be of comparable quality to instruments so rated; dollar-denominated
debt obligations of foreign issuers, including foreign corporations and foreign
governments; mortgage-backed securities of governmental issuers or of private
issuers, including
29
<PAGE>
mortgage pass-through certificates, collateralized mortgage obligations
("CMOs"), real estate investment trust securities or mortgage-backed bonds;
other asset-backed and municipal securities rated by one of the six NRSROs, or
if not so rated, determined by the Adviser to be of comparable quality.
The Fund also may invest in "high quality" money market instruments (I.E., those
within the two highest rating categories or unrated instruments deemed by the
Adviser to be of comparable quality), repurchase agreements and cash. Such
obligations may include those issued by foreign banks and foreign branches of
U.S. banks. These investments may be in such proportion as, in the Adviser's
opinion, prevailing market and economic circumstances warrant.
NATIONS GOVERNMENT SECURITIES FUND: In pursuing its investment objective,
Nations Government Securities Fund invests at least 65% of its assets in U.S.
Government Obligations. Under normal market conditions, it is expected that the
average dollar-weighted maturity of the Fund's portfolio will be between three
and 10 years and the Fund's duration is expected to be in a range of 3.5 to six
years.
The Fund also may invest in corporate convertible and non-convertible debt
obligations, including bonds, notes and debentures rated investment grade at the
time of purchase by one of the six NRSROs, or if not so rated, determined by the
Adviser to be of comparable quality to instruments so rated; dollar-denominated
debt obligations of foreign issuers, including foreign corporations and foreign
governments; mortgage-backed securities of governmental issuers or of private
issuers, including mortgage pass-through certificates, CMOs, real estate
investment trust securities or mortgage-backed bonds; other asset-backed and
municipal securities rated by one of the six NRSROs, or if not so rated,
determined by the Adviser to be of comparable quality.
The Fund also may invest in "high quality" money market instruments (I.E., those
within the two highest rating categories or unrated instruments deemed by the
Adviser to be of comparable quality), repurchase agreements and cash. Such
obligations may include those issued by foreign banks and foreign branches of
U.S. banks. These investments may be in such proportion as, in the Adviser's
opinion, prevailing market and economic circumstances warrant.
NATIONS SHORT-TERM INCOME FUND: In pursuing its investment objective, the Fund
will, under normal market conditions, invest at least 65% of the total value of
its assets in investment grade debt obligations. It is expected that the average
dollar-weighted maturity and duration of the Fund's portfolio will not exceed
three years.
The Fund may invest in corporate convertible and non-convertible debt
obligations, including bonds, notes and debentures rated investment grade by one
of the six NRSROs, or, if not so rated, determined by the Adviser to be of
comparable quality to instruments so rated; dollar-denominated debt obligations
of foreign issuers, including foreign corporations and foreign governments;
mortgage-related securities of governmental issuers or of private issuers,
including mortgage pass-through certificates, CMOs, real estate investment trust
securities or mortgage-backed bonds; other asset-backed and municipal securities
rated by one of the six NRSROs, or, if not so rated, determined by the Adviser
to be of comparable quality to instruments so rated. The Fund may also invest in
U.S. Government obligations.
Most obligations acquired by the Fund will be issued by companies or
governmental entities located within the United States. The Fund may invest up
to 25% of its assets in foreign securities.
As noted above, the Fund will invest in investment grade debt obligations.
Obligations rated in the lowest of the top four investment grade rating
categories (E.G. rated "BBB" by S&P or "Baa" by Moody's) have speculative
characteristics and changes in economic conditions or other circumstances are
more likely to lead to a weakened capacity to make principal and interest
payments than is the case with higher grade debt obligations. Subsequent to its
purchase by the Fund, an issue of securities may cease to be rated or its rating
may be reduced below the minimum rating required for purchase by the Fund. The
Adviser will consider such an event in determining whether the Fund should
continue to hold the obligation. See "Appendix B" below for a description of
these rating designations.
The Fund also may invest in "high quality" money market instruments (I.E., those
within the two highest rating categories or unrated instruments determined by
the Adviser to be of comparable quality), repurchase agreements and cash. Such
obligations may include those issued by foreign banks and foreign branches of
U.S. banks. These investments may be in such proportions as, in the Adviser's
opinion, prevailing market or economic circumstances warrant.
NATIONS DIVERSIFIED INCOME FUND: In pursuing its investment objective, the Fund
will, under normal market conditions, invest at least 65% of the total value of
its assets in investment grade debt obligations. It is expected that the average
dollar-weighted maturity of the Fund's portfolio will be greater than five
years.
The Fund may invest in corporate convertible and non-convertible debt
obligations such as fixed- and variable-rate bonds; U.S. Government Obligations;
dollar-denominated and non-dollar-denominated debt obligations of foreign
issuers, including foreign corporations and foreign governments; mortgage-backed
securities of govern-
30
<PAGE>
mental issuers or of private issuers, including mortgage pass-through
certificates, CMOs, real estate investment trust securities or mortgage-backed
bonds; other asset-backed and municipal securities rated by one of the six
NRSROs, or if not so rated, determined by the Adviser to be of comparable
quality. The Fund also may invest in dividend-paying convertible and
non-convertible preferred and common stocks.
Most obligations acquired by the Fund will be issued by companies or
governmental entities located within the United States. The Fund may invest up
to 25% of its assets in foreign securities.
Obligations rated in the lowest of the top four investment grade rating
categories (E.G. rated "BBB" by S&P or "Baa" by Moody's) have speculative
characteristics and changes in economic conditions or other circumstances are
more likely to lead to a weakened capacity to make principal and interest
payments than is the case with higher grade debt obligations.
Up to 35% of the total value of the Fund's assets may be invested in
lower-quality fixed income securities rated "B" or better by Moody's or S&P, or
if not so rated, determined by the Adviser to be of comparable quality.
Securities which are rated "B" generally lack characteristics of the desirable
investment, and assurance of interest and principal payment over any long period
of time may be limited. Non-investment grade debt securities are sometimes
referred to as "high yield bonds" or "junk bonds," and tend to have speculative
characteristics, generally involve more risk of principal and income than higher
rated securities, and have yields and market values that tend to fluctuate more
than higher quality securities.
Subsequent to its purchase by the Fund, an issue of securities may cease to be
rated or its rating may be reduced below the minimum rating required for
purchase by the Fund. The Adviser will consider such an event in determining
whether the Fund should continue to hold the obligation. See "Appendix B" below
for a description of these rating designations.
The Fund may hold or invest in "high quality" money market instruments (I.E.,
those within the two highest rating categories or unrated instruments deemed by
the Adviser to be of comparable quality), repurchase agreements and cash. Such
obligations may include those issued by foreign banks and foreign branches of
U.S. banks. These investments may be in such proportions as, in the Adviser's
opinion, prevailing market or economic circumstances warrant.
NATIONS STRATEGIC FIXED INCOME FUND: In pursuing its investment objective, the
Fund will, under normal market conditions, invest at least 65% of the total
value of its assets in investment grade fixed income securities. It is expected
that the average dollar-weighted maturity of the Fund's portfolio will be ten
years or less and under no circumstances will it exceed 15 years.
The Fund may invest in corporate convertible and non-convertible debt
obligations, including bonds, notes and debentures rated investment grade at the
time of purchase by one of the six NRSROs, or if not so rated, determined by the
Adviser to be of comparable quality to instruments so rated; U.S. Government
Obligations; dollar-denominated debt obligations of foreign issuers, including
foreign corporations and foreign governments; mortgage-backed securities of
governmental issuers or of private issuers, including mortgage pass-through
certificates, CMOs, real estate investment trust securities or mortgage-backed
bonds; other asset-backed and municipal securities rated by one of the six
NRSROs, or if not so rated, determined by the Adviser to be of comparable
quality. The Fund also may invest in dividend paying preferred and common stock.
Most obligations acquired by the Fund will be issued by companies or
governmental entities located within the United States. The Fund may invest up
to 25% of its assets in foreign securities.
The Fund will invest in investment grade debt obligations. Obligations rated in
the lowest of the top four investment grade rating categories (E.G. rated "BBB"
by S&P or "Baa" by Moody's) have speculative characteristics and changes in
economic conditions or other circumstances are more likely to lead to a weakened
capacity to make principal and interest payments than is the case with higher
grade debt obligations. Subsequent to its purchase by the Fund, an issue of
securities may cease to be rated or its rating may be reduced below the minimum
rating required for purchase by the Fund. The Adviser will consider such an
event in determining whether the Fund should continue to hold the obligation.
See "Appendix B" below for a description of these rating designations.
The Fund also may invest in short-term U.S. Government Obligations, "high
quality" money market instruments (I.E., those within the two highest rating
categories or unrated instruments deemed by the Adviser to be of comparable
quality), repurchase agreements and cash. Such obligations may include those
issued by foreign banks and foreign branches of U.S. banks. These investments
may be in such proportions as, in the Adviser's opinion, prevailing market or
economic circumstances warrant.
NATIONS GLOBAL GOVERNMENT INCOME FUND: In seeking to achieve its investment
objective, the Fund will invest under normal market conditions at least 65% of
its total assets in debt securities issued or guaranteed by U.S. or foreign
governments (including states, provinces and municipalities) or their agencies,
instrumentalities or subdivisions ("Government Securities"). Except for
temporary defensive purposes, the Fund will concentrate
31
<PAGE>
its investments in foreign Government Securities. Concentration in this context
means the investment of more than 25% of the Fund's total assets in such
securities. The Fund may invest in the debt securities of any type of issuer,
including corporations, banks and supranational entities.
The Fund, under normal market conditions, will invest in at least three
different countries. These countries may include the U.S., the countries of
Western Europe, Japan, Australia, New Zealand and Canada. If the Fund invests a
significant portion of its assets at any time in a single country, events
occurring in such country are more likely to affect the Fund's investments. For
additional information concerning risk, see "Special Risk Considerations
Relevant to an Investment in Nations International Equity Fund, Nations Emerging
Markets Fund, Nations Pacific Growth Fund and Nations Global Government Income
Fund" below. Because the Fund intends to invest a large portion of its assets in
foreign Government Securities, the Fund is a "non-diversified" investment
company for purposes of the Investment Company Act of 1940 (the "1940 Act"). The
Fund may invest in securities of issuers located in any region or country and
that are denominated in any currency.
The Fund is managed in accordance with an overall global investment strategy
which means that Fund investments are allocated among securities denominated in
U.S. dollars and the currencies of a number of foreign countries. The Fund's
exposure to various count-
ries and currencies will vary in accordance with the Adviser's assessment of the
relative yield and appreciation of such securities. Fundamental economic
strength, credit quality and interest rate trends are the principal factors
considered by the Adviser in determining whether to increase or decrease the
emphasis placed upon a particular country or particular type of security within
the Fund's investment portfolio.
Under normal market conditions, the Fund intends to invest primarily in
securities rated "A" or better at the time of purchase by Moody's or S&P and
unrated securities that, at the time of purchase will be determined to be of
comparable quality by the Adviser. The Fund also may invest in securities rated
"Baa" by Moody's or "BBB" by S&P, but does not, as a general matter, intend to
invest more than 10% of its total assets in such securities. Subsequent to its
purchase by the Fund, an issue of securities may cease to be rated or its rating
may be reduced below the minimum rating required for purchase by the Fund. The
Adviser will consider such event in determining whether the Fund should continue
to hold the obligation. In no event will the Fund hold more than 5% of its total
net assets in securities rated below investment grade. See "Appendix B" below
for a description of these rating designations. The Adviser expects that the
Fund's dollar-weighted average maturity will not be greater than 15 years under
normal market conditions.
Supranational entities are international organizations jointly operated by
multiple sovereign governments including, for example, the World Bank, the
European Coal and Steel Community, the Asian Development Bank, the European
Investment Bank and the Inter-American Development Bank. Supranational entities
generally have no taxing authority and are dependent upon their members for the
funds necessary to pay principal and interest on their debt obligations.
The Fund also may invest in money market instruments and certain specified
derivative securities, including: exchange-traded options; over-the-counter
options executed with primary dealers, including long calls and puts and covered
calls to enhance return and forward foreign exchange contracts; and U.S. and
foreign exchange-traded financial futures approved by the CFTC and options
thereon for market exposure risk management. The Fund may lend its portfolio
securities to qualified institutional investors. The Fund may invest in
restricted, private placement and other illiquid securities, repurchase
agreements and securities issued by other investment companies, consistent with
the Fund's investment objective and policies.
For defensive purposes, the Fund may temporarily invest substantially all of its
assets in U.S. financial markets or in U.S. dollar-denominated instruments.
GENERAL: Each of the Funds may invest in certain specified derivative
securities, including: interest rate swaps, caps and floors for hedging
purposes; exchange-traded options; over-the-counter options executed with
primary dealers, including long calls and puts and covered calls to enhance
return; and CFTC-approved U.S. and foreign exchange-traded financial futures and
options thereon for market exposure risk-management. Each of the Funds may lend
its portfolio securities to qualified institutional investors and may invest in
restricted private placement and other illiquid securities. Nations Short-
Intermediate Government Fund, Nations Government Securities Fund, Nations
Short-Term Income Fund, Nations Diversified Income Fund and Nations Strategic
Fixed Income Fund may engage in reverse repurchase agreements and dollar roll
transactions. Additionally, each Fund may purchase securities issued by other
investment companies, consistent with the Fund's investment objective and
policies. The Funds also may invest in instruments issued by trusts or certain
partnerships including pass-through certificates representing participations in,
or debt instruments backed by, the securities and other assets owned by such
trusts and partnerships.
Certain government securities that have variable or floating interest rates or
demand or put features may be deemed to have remaining maturities shorter than
their
32
<PAGE>
nominal maturities for purposes of determining the average weighted maturity and
duration of the Funds. The Funds also may invest in instruments issued by trusts
or certain partnerships including pass-through certificates representing
participations in, or debt instruments backed by, the securities and other
assets owned by such trusts or partnerships.
For more information concerning these and other investments in which the Funds
may invest and their investment practices, see "Appendix A."
Although changes in the value of securities subsequent to their acquisition are
reflected in the net asset value of the Funds' shares, such changes will not
affect the income received by the Funds from such securities. However, since
available yields vary over time, no specific level of income can ever be
assured. The dividends paid by the Funds will increase or decrease in relation
to the income received by the Funds from their investments, which will in any
case be reduced by the Funds' expenses before being distributed to the Funds'
shareholders.
SPECIAL RISK CONSIDERATIONS RELEVANT TO AN INVESTMENT IN NATIONS INTERNATIONAL
EQUITY FUND, NATIONS EMERGING MARKETS FUND, NATIONS PACIFIC GROWTH FUND AND
NATIONS GLOBAL GOVERNMENT INCOME FUND: Investors should understand and consider
carefully the special risks involved in foreign investing. In addition, each of
those Funds presents unique risks of which investors should be aware.
Investors in Nations International Equity Fund should be aware that the Fund
may, from time to time, invest up to 5% of its total assets in securities of
companies located in Eastern Europe. Economic and political reforms in this
region are still in their infancy. As a result, investment in such countries
would be highly speculative and could result in losses to the Fund and, thus, to
its shareholders.
Investors in Nations Pacific Growth Fund should understand and consider
carefully the special risks involved in investing in the Pacific Basin and Far
East. Countries in the Pacific Basin and Far East are in various stages of
economic development, ranging from emerging markets to mature economies, but
each has unique risks. Most countries in this region are heavily dependent on
international trade, and some are especially vulnerable to recessions in other
countries. Many of these countries are also sensitive to world commodity prices.
Some countries that have experienced rapid growth may still have obsolete
financial systems, economic problems or archaic legal systems. In addition, many
of these nations are experiencing political and social uncertainties.
The same is true, but even more so, for the emerging market countries in which
Nations Emerging Markets Fund will invest. Although the Fund believes that its
investments present the possibility for significant growth over the long term,
they also entail significant risks. Many investments in emerging markets can be
considered speculative, and their prices can be much more volatile than in the
more developed nations of the world. This difference reflects the greater
uncertainties of investing in less established markets and economies. The
financial markets of emerging markets countries are generally less well
capitalized and thus securities of issuers based in such countries may be less
liquid.
Nations Global Government Income Fund's yield and share price will change based
on changes in domestic or foreign interest rates and in an issuer's
creditworthiness. In general, bond prices rise when interest rates fall, and
vice versa.
Moreover, for each of those Funds, investing in securities denominated in
foreign currencies and utilization of forward foreign currency exchange
contracts and other currency hedging techniques involve certain considerations
comprising both opportunities and risks not typically associated with investing
in U.S. dollar-denominated securities. Additionally, changes in the value of
foreign currencies can significantly affect a Fund's share price. General
economic and political factors in the various world markets also can impact a
Fund's share price.
The expenses to individual investors of investing directly in foreign securities
are very high relative to similar costs for investing in U.S. securities. While
the Funds offer a more efficient way for individual investors to participate in
foreign markets, their expenses, including custodial fees, are also higher than
the typical domestic equity mutual fund.
Risks unique to international investing include: (1) restrictions on foreign
investment and repatriation of capital; (2) fluctuations in currency exchange
rates; (3) costs of converting foreign currency into U.S. dollars and U.S.
dollars into foreign currencies; (4) greater price volatility and less
liquidity; (5) settlement practices, including delays, which may differ from
those customary in United States markets; (6) exposure to political and economic
risks, including the risk of nationalization, expropriation of assets and war;
(7) possible imposition of foreign taxes and exchange control and currency
restrictions; (8) lack of uniform accounting, auditing and financial reporting
standards; (9) less governmental supervision of securities markets, brokers and
issuers of securities; (10) less financial information available to investors;
and (11) difficulty in enforcing legal rights outside the United States. These
risks often are heightened for investments in emerging or developing countries.
See "Appendix A" for additional discussion of the risks associated with an
investment in the Nations International Equity Fund, Nations Emerging Markets
Fund, Nations Pacific Growth Fund and Nations Global Government Income Fund.
33
<PAGE>
PORTFOLIO TURNOVER (NON-MONEY MARKET FUNDS): Generally, the Equity Funds, the
Balanced Fund and the Bond Funds (the "Non-Money Market Funds") will purchase
portfolio securities for capital appreciation or investment income, or both, and
not for short-term trading profits. If a Fund's annual portfolio turnover rate
exceeds 100%, it may result in higher brokerage costs and possible tax
consequences for the Fund and its shareholders. For the Funds' portfolio
turnover rates, see "Financial Highlights."
RISK CONSIDERATIONS: Although the Adviser will seek to achieve the investment
objective of each Fund, there is no assurance that it will be able to do so. No
single Fund should be considered, by itself, to provide a complete investment
program for any investor. Investments in a Fund are not insured against loss of
principal.
Investments by a Fund in common stocks and other equity securities are subject
to stock market risks. The value of the stocks that the Fund holds, like the
broader stock market, may decline over short or even extended periods.
The value of a Fund's investments in debt securities, including U.S. Government
Obligations, will tend to decrease when interest rates rise and increase when
interest rates fall. In general, longer-term debt instruments tend to fluctuate
in value more than shorter-term debt instruments in response to interest rate
movements. In addition, debt securities that are not backed by the United States
Government are subject to credit risk, which is the risk that the issuer may not
be able to pay principal and/or interest when due.
Certain of the Funds' investments constitute derivative securities, which are
securities whose value is derived, at least in part, from an underlying index or
reference rate. There are certain types of derivative securities that can, under
certain circumstances, significantly increase a purchaser's exposure to market
or other risks. The Adviser, however, only purchases derivative securities in
circumstances where it believes such purchases are consistent with such Funds'
investment objectives and do not unduly increase the Fund's exposure to market
or other risks. For additional risk information regarding the Funds' investments
in particular instruments, see "Appendix A -- Portfolio Securities."
INVESTMENT LIMITATIONS: Each Fund is subject to a number of investment
limitations. The following investment limitations are matters of fundamental
policy and may not be changed without the affirmative vote of the holders of a
majority of the Fund's outstanding shares. Other investment limitations that
cannot be changed without such a vote of shareholders are described in the SAIs.
Each Fund may not:
1. Purchase any securities which would cause 25% or more of the value of the
Fund's total assets at the time of such purchase to be invested in the
securities of one or more issuers conducting their principal activities in the
same industry, provided that this limitation does not apply (a) with respect to
Nations Global Government Income Fund, to investments in foreign Government
Securities; and (b) to investments in obligations issued or guaranteed by the
U.S. Government or its agencies and instrumentalities. In addition, this
limitation does not apply to investments by "money market funds" as that term is
used under the 1940 Act, in obligations of domestic banks.
2. Make loans, except that a Fund may purchase and hold debt instruments
(whether such instruments are part of a public offering or privately placed),
may enter into repurchase agreements and may lend portfolio securities in
accordance with its investment policies.
3. Each Fund (other than the Nations Global Government Income Fund) may not:
Purchase securities of any one issuer (other than securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities) if,
immediately after such purchase, more than 5% of the value of such Fund's total
assets would be invested in the securities of such issuer, except that up to 25%
of the value of the Fund's total assets may be invested without regard to these
limitations and with respect to 75% of such Fund's assets, such Fund will not
hold more than 10% of the voting securities of any issuer.
Nations Global Government Income Fund may not:
Purchase securities of any one issuer (other than securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities) if,
immediately after such purchase, more than 25% of the value of such Fund's total
assets would be invested in the securities of one issuer, and with respect to
50% of such Fund's total assets, more than 5% of its assets would be invested in
the securities of one issuer.
The investment objective and policies of each Fund, unless otherwise specified,
may be changed without a vote of the Fund's shareholders. If the investment
objective or policies of a Fund change, shareholders should consider whether the
Fund remains an appropriate investment in light of their current position and
needs.
In order to register a Fund's shares for sale in certain states, a Fund may make
commitments more restrictive than the investment policies and limitations
described in this Prospectus and the SAIs. Should a Fund determine that any such
commitment is no longer in the best interest of the Fund, it may consider
terminating sales of its shares in the states involved.
34
<PAGE>
RESTRAINTS ON INVESTMENTS BY MONEY MARKET FUNDS: In order for the Money Market
Funds to value their investments on the basis of amortized cost, investments
must be in accordance with the requirements of Rule 2a-7 under the 1940 Act,
some of which are described below. A Money Market Fund is limited to acquiring
obligations with a remaining maturity of 397 days or less, or obligations with
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. Additionally,
no more than 5% of total assets may be invested, at the time of acquisition, in
second tier securities in the aggregate, and any investment in second tier
securities of one issuer is limited to the greater of 1% of total assets or one
million dollars. Securities issued by the U.S. Government, its agencies,
authorities or instrumentalities are exempt from the quality requirements, other
than minimal credit risk. In the event that a Money Market Fund's investment
restrictions or permissible investments are more restrictive than the
requirements of Rule 2a-7, the Money Market Fund's own restrictions will govern.
How Performance Is Shown
MONEY MARKET FUNDS: From time to time the Money Market Funds may advertise the
yield and effective yield on a class of shares. YIELD AND EFFECTIVE YIELD
FIGURES ARE BASED ON HISTORICAL DATA AND ARE NOT INTENDED TO INDICATE FUTURE
PERFORMANCE. The "yield" of a class of shares in a Fund refers to the income
generated by an investment in such class over a seven-day period identified in
the advertisement. This income is then "annualized." That is, the amount of
income generated by the investment during that week is assumed to be generated
each week over a 52-week period and is shown as a percentage of the investment.
The "effective yield" is calculated similarly, but, when annualized, the income
earned by an investment in a class of shares in the Fund is assumed to be
reinvested. The "effective yield" will be slightly higher than the "yield"
because of the compounding effect of this assumed reinvestment.
NON-MONEY MARKET FUNDS: From time to time the Non-Money Market Funds may
advertise the total return and yield on a class of shares. TOTAL RETURN AND
YIELD FIGURES ARE BASED ON HISTORICAL EARNINGS AND ARE NOT INTENDED TO INDICATE
FUTURE PERFORMANCE. The "total return" of a class of shares of Non-Money Market
Fund may be calculated on an average annual total return basis or an aggregate
total return basis. Average annual total return refers to the average annual
compounded rates of return over one-, five-, and ten-year periods or the life of
the Fund (as stated in the advertisement) that would equate an initial amount
invested at the beginning of a stated period to the ending redeemable value of
the investment, assuming the reinvestment of all dividend and capital gain
distributions. Aggregate total return reflects the total percentage change in
the value of the investment over the measuring period again assuming the
reinvestment of all dividends and capital gain distributions. Total return may
also be presented for other periods.
"Yield" is calculated by dividing the annualized net investment income per share
during a recent 30-day (or one month) period of a class of shares of a Fund by
the maximum public offering price per share on the last day of that period.
Investment performance, which will vary, is based on many factors, including
market conditions, the composition of a Fund's portfolio and such Fund's
operating expenses. Investment performance also often reflects the risks
associated with a Fund's investment objective and policies. These factors should
be considered when comparing a Fund's investment results to those of other
mutual funds and other investment vehicles. Since yields fluctuate, yield data
cannot necessarily be used to compare an investment in the Funds with bank
deposits, savings accounts, and similar investment alternatives which often
provide an agreed-upon or guaranteed fixed yield for a stated period of time.
In addition to Primary A Shares, the Money Market Funds offer Primary B,
Investor A, Investor B, Investor C and Investor D Shares. In addition to Primary
A Shares, the Non-Money Market Funds offer Primary B, Investor A, Investor C and
Investor N Shares. Each class of shares may bear different sales charges,
shareholder servicing fees, loads and other expenses, which may cause the
performance of a class to differ from the performance of the other classes.
Performance quotations
35
<PAGE>
will be computed separately for each class of a Fund's shares. Any fees charged
by an institution directly to its customers' accounts in connection with
investments in the Funds will not be included in calculations of total return or
yield. Each Fund's annual report contains additional performance information and
is available upon request without charge from the Funds' distributor or an
investor's Institution, as defined below.
How The Funds Are Managed
The business and affairs of each of Nations Fund Trust, Nations Fund, Inc. and
Nations Portfolios are managed under the direction of their Board of Trustees
and Boards of Directors, respectively. Nations Fund Trust's SAI contains the
names of and general background information concerning each Trustee of Nations
Fund Trust. Nations Fund, Inc.'s and Nations Portfolios' SAIs contain the names
of and general background information concerning each Director of Nations Fund,
Inc. and Nations Portfolios, respectively.
Nations Fund and the Adviser have adopted codes of ethics which contain policies
on personal securities transactions by "access persons," including portfolio
managers and investment analysts. These policies substantially comply in all
material respects with the recommendations set forth in the May 9, 1994 Report
of the Advisory Group on Personal Investing of the Investment Company Institute.
INVESTMENT ADVISER: NationsBanc Advisors, Inc. serves as investment adviser to
the Funds. NBAI is a wholly owned subsidiary of NationsBank, which in turn is a
wholly owned banking subsidiary of NationsBank Corporation, a bank holding
company organized as a North Carolina corporation. NBAI has its principal
offices at One NationsBank Plaza, Charlotte, North Carolina 28255.
TradeStreet Investment Associates, Inc., with principal offices at One
NationsBank Plaza, Charlotte, North Carolina 28255, serves as sub-investment
adviser to all of the Funds except for those Funds listed below, for which
Gartmore Global Partners serves as sub-investment adviser. TradeStreet is a
wholly owned subsidiary of NationsBank. TradeStreet provides investment
management services to individuals, corporations and institutions.
Gartmore, with principal offices at One NationsBank Plaza, Charlotte, North
Carolina 28255, serves as sub-investment adviser to Nations International Equity
Fund, Nations Emerging Markets Fund, Nations Pacific Growth Fund and Nations
Global Government Income Fund pursuant to sub-advisory agreements. Gartmore is a
joint venture structured as a general partnership between NB Partner Corp., a
wholly owned subsidiary of NationsBank, and Gartmore U.S. Limited, an indirect,
wholly owned subsidiary of Gartmore Investment Management plc ("Gartmore plc"),
a UK company which is the holding company for a leading UK-based international
fund management group of companies National Westminster Bank plc and affiliated
entities (collectively, "NatWest") own 100% of the equity of Gartmore Investment
Management plc.
Through April 10, 1996, sub-advisory services were provided to NBAI and the
Funds by Nations Gartmore Investment Management ("Nations Gartmore"), the
predecessor to Gartmore, pursuant to sub-advisory agreements among NBAI, Nations
Gartmore and Nations Fund, Inc. and Nations Portfolios, respectively, on behalf
of the Funds. Nations Gartmore was a joint venture structured as a general
partnership between NB Partner Corp. and Gartmore U.S. Limited. On April 10,
1996, NatWest acquired a controlling interest in Gartmore plc from Compagnie de
Suez and affiliated entities ("Compagnie de Suez") through a direct purchase
from Compagnie de Suez of its indirect subsidiary Indosuez UK Asset Management
Limited, which held 75% of Gartmore plc's outstanding voting securities (the
"Acquisition"). NatWest acquired the remaining portion of Gartmore plc's shares
held by public shareholders through a tender offer. Gartmore is the successor
entity resulting from the Acquisition and change of control of Nations Gartmore.
On July 17, 1996, the shareholders of the Funds approved the new sub-advisory
arrangement with Gartmore and Sub-Advisory Agreements dated April 10, 1996 among
NBAI, Gartmore and Nations Fund, Inc. and Nations Portfolios, respectively.
There were no material changes in the personnel who provide services under the
new Sub-Advisory Agreements, and the Funds receive the same sub-advisory
services, provided in the same manner and at the same fee levels, as they
received under the Previous Sub-Advisory Agreements.
Subject to the general supervision of Nations Fund Trust's Board of Trustees and
Nations Fund, Inc.'s and Nations Portfolios' Boards of Directors, and in
accordance with each Fund's investment policies, the Adviser formulates
guidelines and lists of approved investments for each Fund, makes decisions with
respect to and places orders for each Fund's purchases and sales of portfolio
securities and maintains records relating to such purchases and sales. With
respect to the Non-Money Market Funds, the Adviser is authorized to allocate
purchase and sale orders for portfolio securities to certain financial
institutions, including, in the case of agency transactions, financial
institutions which are affiliated with the Adviser or which have sold shares in
36
<PAGE>
such Funds, if the Adviser believes that the quality of the transaction and the
commission are comparable to what they would be with other qualified brokerage
firms. From time to time, to the extent consistent with its investment
objective, policies and restrictions, each Fund may invest in securities of
companies with which NationsBank has a lending relationship.
For the services provided and expenses assumed pursuant to various Investment
Advisory Agreements, NBAI is entitled to receive advisory fees, computed daily
and paid monthly, at the annual rates of: 0.25% of the first $250 million of the
combined average daily net assets of both Nations Prime Fund and Nations
Treasury Fund, plus 0.20% of the combined average daily net assets of such Funds
in excess of $250 million; 0.40% of the average daily net assets of Nations
Government Money Market Fund; 0.50% of the average daily net assets of Nations
Equity Index Fund; 0.60% of the average daily net assets of each of the Nations
Short-Intermediate Government Fund, Nations Short-Term Income Fund, Nations
Diversified Income Fund and Nations Strategic Fixed Income Fund; 0.75% of the
average daily net assets of each of Nations Value Fund, Nations Capital Growth
Fund, Nations Emerging Growth Fund, Nations Disciplined Equity Fund and Nations
Balanced Assets Fund; 0.65% of the first $100 million of the Nations Government
Securities Fund's average daily net assets, plus 0.55% of the Fund's average
daily net assets in excess of $100 million and up to $250 million, plus 0.50% of
the Fund's average daily net assets in excess of $250 million; 0.75% of the
first $100 million of the Nations Equity Income Fund's average daily net assets,
plus 0.70% of the Fund's average daily net assets in excess of $100 million and
up to $250 million, plus 0.60% of the Fund's average daily net assets in excess
of $250 million; 0.90% of the average daily net assets of Nations International
Equity Fund; 1.10% of the average daily net assets of Nations Emerging Markets
Fund; 0.90% of the average daily net assets of Nations Pacific Growth Fund; and
0.70% of the average daily net assets of Nations Global Government Income Fund.
For the services provided and expenses assumed pursuant to sub-advisory
agreements, NBAI will pay TradeStreet sub-advisory fees, computed daily and paid
monthly, at the annual rates of 0.055% of Nations Prime Fund's, Nations Treasury
Fund's and Nations Government Money Market Fund's average daily net assets;
0.20% of Nations Equity Income Fund's average daily net assets; 0.10% of Nations
Equity Index Fund's average daily net assets; 0.25% of Nations Value Fund's,
Nations Balanced Assets Fund's, Nations Capital Growth Fund's, Nations Emerging
Growth Fund's and Nations Disciplined Equity Fund's average daily net assets;
0.15% of Nations Short-Intermediate Government Fund's, Nation's Government
Securities Fund's, Nations Short-Term Income Fund's, Nations Diversified Income
Fund's, and Nations Strategic Fixed Income Fund's average daily net assets.
For services provided and expenses assumed pursuant to the sub-advisory
agreements, Gartmore is entitled to receive from NBAI sub-advisory fees,
computed daily and paid monthly at the annual rates of 0.70% of Nations
International Equity Fund's average daily net assets. 0.85% of Nations Emerging
Markets Fund's average daily net assets; 0.70% of Nations Pacific Growth Fund's
average daily net assets and 0.54% of Nations Global Government Income Fund's
average daily net assets.
From time to time, NBAI (and/or TradeStreet and/or Gartmore) may waive or
reimburse (either voluntarily or pursuant to applicable state limitations)
advisory fees or expenses payable by a Fund.
For the fiscal period from December 1, 1995 to December 31, 1995, after waivers,
Nations Fund Trust paid NationsBank under a prior Investment Advisory Agreement
advisory fees at the indicated rates of the following Funds' average daily net
assets: Nations Government Money Market Fund -- 0.12%; Nations Value Fund --
0.75%; Nations Capital Growth Fund -- 0.75%; Nations Emerging Growth
Fund -- 0.75%; Nations Disciplined Equity Fund -- 0.75%; Nations Equity Index
Fund -- 0.09%; Nations Balanced Assets Fund -- 0.75%; Nations Short-Intermediate
Government Fund -- 0.37%; Nations Short-Term Income Fund -- 0.27%; Nations
Diversified Income Fund -- 0.50%; and Nations Strategic Fixed Income
Fund -- 0.50%.
For the fiscal period from June 1, 1995 to December 31, 1995, after waivers,
Nations Fund, Inc. paid NationsBank under a prior Investment Advisory Agreement
advisory fees at the indicated rates of the following Funds' average daily net
assets: Nations Prime Fund -- 0.18%; Nations Treasury Fund -- 0.18%; Nations
Equity Income Fund -- 0.67%; Nations International Equity Fund -- 0.22%; and
Nations Government Securities Fund -- 0.48%.
For the fiscal period from June 30, 1995 to Decem-
ber 31, 1995, after waivers, Nations Portfolios paid NationsBank under a prior
to Investment Advisory Agreement advisory fees at the indicated rates of the
following Funds' average daily net assets: Nations Emerging Markets
Fund -- 0.25%; Nations Pacific Growth Fund -- 0.20%; and Nations Global
Government Income Fund -- 0.16%.
For the fiscal period from January 1, 1996 to March 31, 1996, after waivers,
Nations Fund Trust paid NBAI under the current Investment Advisory Agreement
advisory fees at the indicated rates of the following Funds' average daily net
assets; Nations Government Money Market Fund -- 0.12%; Nations Value
Fund -- 0.75%; Nations Capital Growth Fund -- 0.75%; Nations
Emerg-
37
<PAGE>
ing Growth Fund -- 0.75%; Nations Disciplined Equity Fund -- 0.75%; Nations
Equity Index Fund -- 0.09%; Nations Balanced Assets Fund -- 0.75%; Nations
Short-Intermediate Government Fund -- 0.37%; Nations Short-Term Income
Fund -- 0.27%; Nations Diversified Income Fund -- 0.50%; and Nations Strategic
Fixed Income Fund -- 0.50%.
For the fiscal period from January 1, 1996 to March 31, 1996, after waivers,
Nations Fund, Inc. paid NBAI under the current Investment Advisory Agreement
advisory fees at the indicated rates of the following Funds' average daily net
assets: Nations Prime Fund -- 0.18%; Nations Treasury Fund -- 0.18%; Nations
Equity Income Fund -- 0.67%; Nations International Equity Fund -- 0.22%; and
Nations Government Securities Fund -- 0.48%.
For the fiscal period from January 1, 1996 to March 31, 1996, after waivers,
Nations Portfolios paid NBAI under the current Investment Advisory Agreement
advisory fees at the indicated rates of the following Funds' average daily net
assets: Nations Emerging Markets Fund -- 0.25%; Nations Pacific Growth
Fund -- 0.20%; and Nations Global Government Income Fund -- 0.16%.
For the fiscal period from January 1, 1996 to March 31, 1996, after waivers,
NBAI paid TradeStreet under the current Sub-Advisory Agreement sub-advisory fees
at the indicated rates of the following Funds' average daily net assets: Nations
Government Money Market Fund -- 0.055%; Nations Value Fund -- 0.25%; Nations
Capital Growth Fund -- 0.25%; Nations Emerging Growth Fund -- 0.25%; Nations
Disciplined Equity Fund -- 0.25%; Nations Equity Index Fund -- 0.10%; Nations
Balanced Assets Fund -- 0.25%; Nations Short-Intermediate Government
Fund -- 0.15%; Nations Short-Term Income Fund -- 0.15%; Nations Diversified
Income Fund 0.15%; Nations Strategic Fixed Income Fund -- 0.15%; Nations Prime
Fund -- 0.055%; Nations Treasury Fund -- 0.055%; Nations Equity Income Fund --
.20%; and Nations Government Securities Fund -- 0.15%.
For the fiscal period from June 1, 1995 to March 31, 1996, after waivers, NBAI
paid Gartmore or its predecessors sub-advisory fees at the rate of 0.67% of the
average daily net assets of Nations International Equity Fund. For the fiscal
period from January 1, 1996 to March 31, 1996, after waivers, NBAI paid Gartmore
or its predecessors sub-advisory fees at the indicated rates of the following
Funds average daily net assets: Nations Emerging Markets Fund -- 0.85%; Nations
Pacific Growth Fund -- 0.70%; and Nations Global Government Income
Fund -- 0.54%.
Sandra L. Duck is a Product Manager, Money Market Management for TradeStreet and
is Portfolio Manager for Nations Treasury Fund and Nations Government Money
Market Fund. She has been Portfolio Manager for the Funds since 1993. Prior to
assuming her position with TradeStreet, she was Vice President and Portfolio
Manager for the Investment Management Group at NationsBank. Ms. Duck has worked
in the investment community since 1980. Her past experience includes product
management and trading for Interstate/Johnson Lane and First Charlotte
Corporation. Ms. Duck graduated from King's College.
Greg W. Golden is a Structured Products Manager, Equity Management for
TradeStreet and is Portfolio Manager for Nations Equity Index Fund. He has been
Portfolio Manager for Nations Equity Index Fund since 1993. Prior to assuming
his position with TradeStreet, he was Vice President and Structured Products
Manager for the Investment Management Group at NationsBank. He has worked in the
investment community since 1990. His past experience includes portfolio
management, derivatives management and quantitative analysis for the Investment
Management Group at NationsBank and Sovran Bank of Tennessee. Mr. Golden
received a B.B.A. in Finance from Belmont University. He is a Chartered
Financial Analyst candidate and a member of the Association for Investment
Management and Research as well as the North Carolina Society of Financial
Analysts, Inc.
Martha L. Sherman is a Senior Product Manager, Money Market Management for
TradeStreet and is Senior Portfolio Manager for Nations Prime Fund. She has been
Portfolio Manager for Nations Prime Fund since 1988. Prior to assuming her
position with TradeStreet, she was Vice President and Senior Portfolio Manager
for the Investment Management Group at NationsBank. Ms. Sherman has worked in
the investment community since 1981. Her past experience includes investment
research for William Lowry & Associates. Ms. Sherman received a B.S. in Business
Administration from the University of Texas at Dallas.
Sharon M. Herrmann, CFA, is a Director of Equity Management for TradeStreet and
Senior Portfolio Manager for Nations Value Fund. Ms. Herrmann has been the
Portfolio Manager for Nations Value Fund since 1989. Prior to assuming her
position with TradeStreet, she was Senior Vice President and Portfolio Manager
for the Investment Management Group at NationsBank. Ms. Herrmann has worked for
the Investment Management Group at NationsBank since 1981 where her
responsibilities included fund management and institutional portfolio
management. She attended Virginia Wesleyan College. Ms. Herrmann holds the
Chartered Financial Analyst designation and is a member of the Association for
Investment Management and Research as well as the North Carolina Society of
Financial Analysts, Inc.
Eric S. Williams, CFA, is a Senior Product Manager, Equity Management for
TradeStreet and Senior Portfolio Manager for Nations Equity Income Fund. Mr.
Williams has been the Portfolio Manager for Nations Equity
38
<PAGE>
Income Fund since 1991. Prior to assuming his position with TradeStreet, he was
Senior Vice President and Senior Portfolio Manager for the Investment Management
Group at NationsBank. He has worked in the investment community since 1980. His
past experience includes fund analysis and portfolio management for National
Bank of Detroit. Mr. Williams received a B.S. in Accounting from East Carolina
University, Summa Cum Laude and an M.B.A. from Indiana University. He holds the
Chartered Financial Analyst designation, is on the Advisory Board of Indiana
University's Investment Management Academy, and is a member of the Association
for Investment Management and Research as well as the North Carolina Society of
Financial Analysts, Inc.
Stephen Watson is Principal Portfolio Manager of Nations International Equity
Fund and has been the Portfolio Manager since February, 1995. He joined Gartmore
as a Global Fund Manager in 1993 and currently holds the position of Head of the
International and Global Portfolio Team. Previously, Mr. Watson was a director
and global fund manager with James Capel Fund Managers, London, as well as
Client Services Manger for international clients. From 1980 to 1987 he was
associated with Capel-Cure Myers in their Portfolio Management Division. He
began his career in 1976 when he joined the investment division at Samuel
Montagu. Mr. Watson is a member of the Securities Institute.
Philip Ehrmann is Principal Portfolio Manager of Nations Emerging Markets Fund
and is the Head of the Gartmore Emerging Markets Team. He has been the Portfolio
Manager for the Fund since 1995. Prior to joining Gartmore in 1995, Mr. Ehrmann
was the Director of Emerging Markets for Invesco in London. He began his career
in 1981 as an institutional stockbroker with Rowe & Pitman Inc. and also spent a
brief period with Prudential Bache Securities as an institutional salesman
before joining Invesco in 1984. Mr. Ehrmann graduated from the London School of
Economics with a degree in Economics, Industry and Trade.
Seok Teoh is Principal Portfolio Manager of Nations Pacific Growth Fund and has
been the Portfolio Manager since the Fund's inception. She has been associated
with Gartmore since 1990 as the London based manager on its Far East Team.
Previously, Ms. Teoh managed Far East equities for Rothschild Asset Management
in Tokyo and in Singapore. She was also responsible for Singaporean and
Malaysian equity sales at Overseas Union Bank Securities in Singapore. Ms. Teoh,
who is a native of Singapore, is fluent in Mandarin and Cantonese and received
an Economics degree from the University of Durham.
Philip J. Sanders, CFA, is a Senior Product Manager, Equity Management for
TradeStreet and Senior Portfolio Manager for Nations Capital Growth Fund. Mr.
Sanders has been Portfolio Manager for Nations Capital Growth Fund since 1995.
Prior to assuming his position with TradeStreet, he was Senior Vice President
and Senior Portfolio Manager for the Investment Management Group at NationsBank.
Mr. Sanders has worked in the financial investment community since 1981. His
past experience includes portfolio management, equity research and financial
analysis for the Investment Management Group at NationsBank and Duke Power
Company. Mr. Sanders received a B.A. in Economics from the University of
Michigan and an M.B.A. from University of North Carolina at Charlotte. He holds
the Chartered Financial Analyst designation and is a member of the Association
for Investment Management and Research as well as the North Carolina Society of
Financial Analysts, Inc.
Edward E. (Jack) Smiley, Jr., CFA, is a Senior Product Manager, Equity
Management for TradeStreet and Senior Portfolio Manager for Nations Emerging
Growth Fund. Mr. Smiley has been Portfolio Manager for Nations Emerging Growth
Fund since 1992. Prior to assuming his position with TradeStreet, he was Senior
Vice President and Senior Portfolio Manager for the Investment Management Group
at NationsBank. He has worked in the investment community since 1968. His past
experience includes management consulting and portfolio management for
Interfirst Investment Management, Merrill Lynch and Dean Witter. Mr. Smiley
received a B.B.A. in Management from Southern Methodist University. He holds the
Chartered Financial Analyst designation and is a member of the Association for
Investment Management and Research as well as the Dallas Association of
Investment Analysts.
Jeffery C. Moser, CFA, is a Senior Product Manager, Equity Management for
TradeStreet and Senior Portfolio Manager for Nations Disciplined Equity Fund.
Mr. Moser has been Portfolio Manager for Nations Disciplined Equity Fund since
1995. Prior to assuming his position with TradeStreet, he was Senior Vice
President and Senior Portfolio Manager for NationsBank. Mr. Moser has worked for
the Investment Management Group at NationsBank since 1983 where his
responsibilities included institutional portfolio management and equity
analysis. Mr. Moser graduated Phi Beta Kappa with a B.S. in Mathematics from
Wake Forest University. He holds the Chartered Financial Analyst designation and
is a member of the Association for Investment Management and Research as well as
the North Carolina Society of Financial Analysts, Inc.
Julie L. Hale, CFA, is a Senior Product Manager, Equity Management for
TradeStreet and Senior Portfolio Manager for Nations Balanced Assets Fund. Ms.
Hale has been Portfolio Manager for the Nations Balanced Assets Fund since 1995.
Prior to assuming her position with TradeStreet, she was Vice President and
Senior Portfolio Manager for the Investment Management Group at NationsBank. She
has worked in the investment community since 1981. Her past experience includes
39
<PAGE>
research analysis and portfolio management for Mercantile Safe Deposit and
Trust, and National City Bank. Ms. Hale received a B.S. in Business and Finance
from Mount St. Mary's College and an M.B.A. from Kent State University. She
holds the Chartered Financial Analyst designation and is a member of the
Association for Investment Management and Research as well as the North Carolina
Society of Security Analysts, Inc. She is also a member of the National
Association for Petroleum Investment Analysts and the World Affairs Council of
Washington, D.C.
Mark Rimmer is Principal Portfolio Manager of the Nations Global Government
Income Fund and has been the Portfolio Manager since the Fund's inception. He
has been associated with Gartmore since 1990 as an International Fixed Income
Fund Manager. Previously, Mr. Rimmer managed multi-currency funds for
institutional clients at Gulf International Bank in Bahrain, and prior to that
he was a senior trader for Sumitomo Finance International, London. He graduated
from Cambridge University with a degree in Economics.
Gregory H. Cobb is a Senior Product Manager, Fixed Income Management for
TradeStreet and Senior Portfolio Manager for Nations Strategic Fixed Income
Fund. Mr. Cobb has been Portfolio Manager for Nations Strategic Fixed Income
Fund since 1995. Prior to assuming his position with TradeStreet, he was Vice
President and Senior Portfolio Manager for the Investment Management Group at
NationsBank. Mr. Cobb has worked in the investment community since 1987. His
past experience includes portfolio management of intermediate duration and
insurance products for Trust Company Bank and Barnett Bank Trust Company Inc.
Mr. Cobb received a B.A. in Economics from the University of North Carolina at
Chapel Hill.
Mark S. Ahnrud, CFA, is a Director of Fixed Income Management for TradeStreet
and the Senior Portfolio Manager for Nations Diversified Income Fund. Mr. Ahnrud
has been the Portfolio Manager for the Nations Diversified Income Fund since
1992. Prior to assuming his position with TradeStreet, he was Senior Vice
President and Senior Portfolio Manager for the Investment Management Group at
NationsBank. Mr. Ahnrud has worked for the Investment Management Group at
NationsBank since 1985 where his responsibilities initially included
institutional investment management sales and later involved high yield credit
analysis. Mr. Ahnrud received a dual B.S. in Finance and Investments from Babson
College and an M.B.A. from Duke University, Fuqua School of Business. He holds
the Chartered Financial Analyst designation and is a member of the Association
for Investment Management and Research as well as the North Carolina Society of
Financial Analysts, Inc.
John S. Swaim is a Senior Product Manager, Fixed Income Management for
TradeStreet and Senior Portfolio Manager for Nations Short-Intermediate
Government Fund and Nations Government Securities Fund. Mr. Swaim has been
Portfolio Manager for the Funds since 1995. Prior to assuming his position with
TradeStreet, he was Vice President and Senior Portfolio Manager for the
Investment Management Group at NationsBank. Mr. Swaim has worked in the
investment community since 1986. His past experience includes derivative
products manager for the NationsBank Texas Corporate Investment Division
portfolio. Mr. Swaim received a B.S. from University of North Texas and an
M.B.A. from University of Texas at Arlington.
David M. Hetherington, CFA, is Managing Director of Fixed Income Management for
TradeStreet. Mr. Hetherington is responsible for overseeing all fixed income
product management and is Senior Portfolio Manager for Nations Short-Term Income
Fund. Mr. Hetherington has been Portfolio Manager for Nations Short-Term Income
Fund since 1995. Prior to assuming his position with TradeStreet, he was Senior
Vice President and Director of Fixed Income for the Investment Management Group
at NationsBank. Mr. Hetherington has worked in the investment community since
1975. His past experience includes working as a portfolio manager, a trust
investment officer and a securities analyst for First Citizens Bank and Deposit
Guarantee as well as working as an Economist for the U.S. Department of Labor in
the Bureau of Labor Statistics. Mr. Hetherington received a B.A. in Economics
from Duke University. He holds the Chartered Financial Analyst designation and
is a member of the Association for Investment Management and Research.
Morrison & Foerster LLP, counsel to Nations Fund and special counsel to
NationsBank has advised Nations Fund and NationsBank that NationsBank and its
affiliates may perform the services contemplated by the various Investment
Advisory Agreements and this Prospectus without violation of the Glass-Steagall
Act. Such counsel has pointed out, however, that there are no controlling
judicial or administrative interpretations or decisions and that future judicial
or administrative interpretations of, or decisions relating to, present federal
or state statutes, including the Glass-Steagall Act, and regulations relating to
the permissible activities of banks and their subsidiaries or affiliates, as
well as future changes in such federal or state statutes, regulations and
judicial or administrative decisions or interpretations, could prevent such
entities from continuing to perform, in whole or in part, such services. If any
such entity were prohibited from performing any of such services, it is expected
that new agreements would be proposed or entered into with another entity or
entities qualified to perform such services.
OTHER SERVICE PROVIDERS: Stephens Inc. ("Stephens"), with principal offices at
111 Center Street, Little Rock, Arkansas 72201, serves as the administrator of
Nations
40
<PAGE>
Fund pursuant to Administration Agreements. Pursuant to the terms of the
Administration Agreements, Stephens provides various administrative and
corporate secretarial services to the Funds, including providing general
oversight of other service providers, office space, utilities and various legal
and administrative services in connection with the satisfaction of various
regulatory requirements applicable to the Funds.
First Data Investor Services Group, Inc. ("First Data"), formerly The
Shareholder Services Group, Inc., a wholly owned subsidiary of First Data
Corporation, with principal offices at One Exchange Place, Boston, Massachusetts
02109, serves as the co-administrator of Nations Fund pursuant to
Co-Administration Agreements. Under the Co-Administration Agreements, First Data
provides various administrative and accounting services to the Funds including
performing the calculations necessary to determine net asset value per share and
dividends, preparing tax returns and financial statements and maintaining the
portfolio records and certain of the general accounting records for the Funds.
For the services rendered pursuant to the Administration and Co-Administration
Agreements, Stephens and First Data are entitled to receive a combined fee at
the annual rate of up to 0.10% of each Fund's average daily net assets.
For the fiscal period from December 1, 1995 to March 31, 1996, after waivers,
Nations Fund Trust paid its administrators combined fees at the indicated rates
of the following Funds' average daily net assets: Nations Government Money
Market Fund -- 0.09%; Nations Value Fund, Nations Capital Growth Fund, Nations
Emerging Growth Fund, Nations Disciplined Equity Fund, Nations Equity Index
Fund, Nations Balanced Assets Fund, Nations Short-Intermediate Government Fund,
Nations Short-Term Income Fund, Nations Diversified Income Fund, and Nations
Strategic Fixed Income Fund -- 0.10%.
For the fiscal period from June 1, 1995 to March 31, 1996, after waivers,
Nations Fund, Inc., paid its administrator combined fees at the indicated rates
of the following Funds' average daily net assets: Nations Prime Fund -- 0.06%;
Nations Treasury Fund -- 0.05%; Nations Equity Income Fund -- 0.10%; Nations
International Equity Fund -- 0.10%; and Nations Government Securities
Fund -- 0.10%.
For the fiscal period from June 30, 1995 to March 31, 1996, after waivers,
Nations Portfolios paid its administrator combined fees at the rate of 0.10% of
the average daily net assets of Nations Pacific Growth Fund, Nations Emerging
Markets Fund and Nations Global Government Fund.
NationsBank serves as sub-administrator for Nations Fund pursuant to a
Sub-Administration Agreement. Pursuant to the terms of the Sub-Administration
Agreement, NationsBank assists Stephens in supervising, coordinating and
monitoring various aspects of the Funds' administrative operations. For
providing such services, NationsBank shall be entitled to receive a monthly fee
from Stephens based on an annual rate of 0.01% of the Funds' average daily net
assets.
Shares of the Funds are sold on a continuous basis by Stephens, as the Funds'
sponsor and distributor. Stephens is a registered broker/dealer with principal
offices at 111 Center Street, Little Rock, Arkansas 72201. Nations Fund has
entered into distribution agreements with Stephens which provide that Stephens
has the exclusive right to distribute shares of the Funds. Stephens may pay
service fees or commissions to Institutions which assist customers in purchasing
Primary Shares of the Funds.
Bank of New York, Avenue des Arts, 35 1040 Brussels, Belgium, serves as
custodian for the assets of the Nations International Equity Fund, Nations
Emerging Markets Fund, Nations Pacific Growth Fund and Nations Global Government
Income Fund.
First Data serves as the Transfer Agent for each of the Fund's Primary A Shares.
NationsBank of Texas, N.A. ("NationsBank of Texas" and, together with Bank of
New York, called "Custodians") serves as custodian for the assets of each Fund
except Nations International Equity Fund, Nations Emerging Markets Fund, Nations
Pacific Growth Fund and Nations Global Government Income Fund. NationsBank of
Texas, which also serves as the sub-transfer agent for each Fund's Primary A
Shares, is located at 1401 Elm Street, Dallas, Texas 75202, and is a wholly
owned subsidiary of NationsBank Corporation. In return for providing custodial
services, NationsBank of Texas is entitled to receive, in addition to
out-of-pocket expenses, fees payable monthly (i) at the rate of 1.25% of 1% of
the average daily net assets of each Fund for which it acts as custodian, (ii)
$10.00 per repurchase collateral transaction by such Funds, and (iii) $15.00 per
purchase, sale and maturity transaction involving such Funds. In return for
providing sub-transfer agency services for the Primary A Shares of Nations Fund,
NationsBank of Texas is entitled to receive an annual fee from First Data of
$251,000.
Price Waterhouse LLP serves as independent accountant to Nations Funds. Its
address is 160 Federal Street, Boston, Massachusetts 02110.
EXPENSES: The accrued expenses of each Fund are deducted from the Fund's total
accrued income before dividends are declared. These expenses include, but are
not limited to: fees paid to the Adviser, NationsBank, Stephens and First Data;
taxes; interest; fees (including fees paid to Nations Fund's trustees, directors
and officers); federal and state securities registration and qualification fees;
brokerage fees and commissions; costs of preparing and printing prospectuses for
regulatory purposes and for distribution to existing shareholders;
41
<PAGE>
charges of the Custodians and Transfer Agent; certain insurance premiums;
outside auditing and legal expenses; costs of shareholder reports and
shareholder meetings; other expenses which are not expressly assumed by the
Adviser, NationsBank, Stephens or First Data under their respective agreements
with Nations Fund; and any extraordinary expenses. Any general expenses of
Nations Fund Trust, Nations Fund, Inc. and/or Nations Portfolios that are not
readily identifiable as belonging to a particular investment portfolio are
allocated among all portfolios in the proportion that the assets of a portfolio
bears to the assets of Nations Fund Trust, Nations Fund, Inc. and/or Nations
Portfolios or in such other manner as the Board of Trustees or the relevant
Board of Directors determines is fair and equitable.
Organization And History
The Funds are members of the Nations Fund Family, which consists of Nations Fund
Trust, Nations Fund, Inc., Nations Portfolios and Nations Institutional
Reserves. The Nations Fund Family currently has more than 43 distinct investment
portfolios and total assets in excess of $18 billion.
NATIONS FUND TRUST: Nations Fund Trust was organized as a Massachusetts business
trust on May 6, 1985. Nations Fund Trust's fiscal year end is March 31; prior to
1996, Nations Fund Trust's fiscal year end was November 30. The Money Market
Funds currently offer six classes of shares -- Primary A Shares, Primary B
Shares, Investor A Shares, Investor B Shares, Investor C Shares and Investor D
Shares. The Non-Money Market Funds currently offer five classes of
shares -- Primary A Shares, Primary B Shares, Investor A Shares, Investor C
Shares and Investor N Shares. Certain Funds, however, do not offer shares of
each class. This Prospectus relates only to the Primary A Shares of the
following funds of Nations Fund Trust: Nations Government Money Market Fund,
Nations Value Fund, Nations Capital Growth Fund, Nations Emerging Growth Fund,
Nations Disciplined Equity Fund, Nations Equity Index Fund, Nations Balanced
Assets Fund, Nations Short-Intermediate Government Fund, Nations Short-Term
Income Fund, Nations Diversified Income Fund and Nations Strategic Fixed Income
Fund. To obtain additional information regarding the Funds' other classes of
shares which may be available to you, contact your Institution (as defined
below) or Nations Fund at 1-800-626-2275.
Each share of Nations Fund Trust is without par value, represents an equal
proportionate interest in the related fund with other shares of the same class,
and is entitled to such dividends and distributions out of the income earned on
the assets belonging to such fund as are declared in the discretion of Nations
Fund Trust's Board of Trustees. Nations Fund Trust's Declaration of Trust
authorizes the Board of Trustees to classify or reclassify any class of shares
into one or more series of shares.
Shareholders are entitled to one vote for each full share held and a
proportionate fractional vote for each fractional share held. Shareholders of
each fund of Nations Fund Trust will vote in the aggregate and not by fund, and
shareholders of each fund will vote in the aggregate and not by class except as
otherwise expressly required by law or when the Board of Trustees determines
that the matter to be voted on affects only the interests of shareholders of a
particular fund or class. See the related SAI for examples of when the 1940 Act
requires voting by fund.
As of July 15, 1996, NationsBank and its affiliates possessed or shared power to
dispose or vote with respect to more than 25% of the outstanding shares of
Nations Fund Trust and therefore could be considered to be a controlling person
of Nations Fund Trust for purposes of the 1940 Act. For more detailed
information concerning the percentage of each class or series of shares over
which NationsBank and its affiliates possessed or shared power to dispose or
vote as of a certain date, see Nations Fund Trust's SAI.
Nations Fund Trust does not presently intend to hold annual meetings except as
required by the 1940 Act. Shareholders will have the right to remove Trustees.
Nations Fund Trust's Code of Regulations provides that special meetings of
shareholders shall be called at the written request of the shareholders entitled
to vote at least 10% of the outstanding shares of Nations Fund Trust entitled to
be voted at such meeting.
NATIONS FUND, INC.: Nations Fund, Inc. was incorporated in Maryland on December
13, 1983, but had no operations prior to December 15, 1986. Nations Fund, Inc.'s
fiscal year end is March 31; prior to 1996, Nations Fund, Inc.'s fiscal year end
was May 31. As of the date of this Prospectus, the authorized capital stock of
Nations Fund, Inc. consists of 270,000,000,000 shares of common stock, par value
of $.001 per share, which are divided into series or funds each of which
consists of separate classes of shares. This Prospectus relates only to the
Primary A Shares of the following funds of Nations Fund, Inc.: Nations Prime
Fund, Nations Treasury Fund, Nations Equity Income Fund, Nations International
Equity Fund and Nations Government Securities Fund. To obtain additional
information regarding the Funds' other classes of shares which may be available
to you, contact your Institution (as defined below) or Nations Fund at
1-800-626-2275.
Shares of each fund and class have equal rights with respect to voting, except
that the holders of shares of a particular fund or class will have the exclusive
right to
42
<PAGE>
vote on matters affecting only the rights of the holders of such fund or class.
In the event of dissolution or liquidation, holders of each class will receive
pro rata, subject to the rights of creditors, (a) the proceeds of the sale of
that portion of the assets allocated to that class held in the respective fund
of Nations Fund, Inc., less (b) the liabilities of Nations Fund, Inc.
attributable to the respective fund or class or allocated among the funds or
classes based on the respective liquidation value of each fund or class.
Shareholders of Nations Fund, Inc. do not have cumulative voting rights, and
therefore the holders of more than 50% of the outstanding shares of all funds
voting together for election of directors may elect all of the members of the
Board of Directors of Nations Fund, Inc. Meetings of shareholders may be called
upon the request of 10% or more of the outstanding shares of Nations Fund, Inc.
There are no preemptive rights applicable to any of Nations Fund, Inc.'s shares.
Nations Fund, Inc.'s shares, when issued, will be fully paid and non-assessable.
As of July 15, 1996, NationsBank and its affiliates possessed or shared power to
dispose of or vote with respect to more than 25% of the outstanding shares of
Nations Fund, Inc. and therefore could be considered to be a controlling person
of Nations Fund, Inc. for purposes of the 1940 Act. For more detailed
information concerning the percentage of each class or series over which
NationsBank and its affiliates possessed or shared power to dispose or vote as
of a certain date, see Nations Fund, Inc.'s SAI. It is anticipated that Nations
Fund, Inc. will not hold annual shareholder meetings on a regular basis unless
required by the 1940 Act or Maryland law.
NATIONS PORTFOLIOS: Nations Portfolios was incorporated in Maryland on January
23, 1995. Nations Portfolios' fiscal year end is March 31. As of the date of
this Prospectus, the authorized capital stock of Nations Portfolios consists of
150,000,000,000 shares of common stock, par value of $.001 per share, which are
divided into series or funds each of which consists of separate classes of
shares. This Prospectus relates only to the Primary A Shares of Nations Emerging
Markets Fund, Nations Pacific Growth Fund and Nations Global Government Income
Fund of Nations Portfolios. To obtain additional information regarding the
Funds' other classes of shares which may be available to you, contact your
Institution (as defined below) or Nations Fund at 1-800-626-2275.
Shares of a fund and class have equal rights with respect to voting, except that
the holders of shares of a fund or class will have the exclusive right to vote
on matters affecting only the rights of the holders of such fund or class. In
the event of dissolution or liquidation, holders of each class will receive pro
rata, subject to the rights of creditors, (a) the proceeds of the sale of that
portion of the assets allocated to that class held in the respective fund of
Nations Portfolios, less (b) the liabilities of Nations Portfolios attributable
to the respective fund or class or allocated among the funds or classes based on
the respective liquidation value of each fund or class.
Shareholders of Nations Portfolios do not have cumulative voting rights, and
therefore the holders of more than 50% of the outstanding shares of all funds
voting together for election of directors may elect all of the members of the
Board of Directors of Nations Portfolios. Meetings of shareholders may be called
upon the request of 10% or more of the outstanding shares of Nations Portfolios.
There are no preemptive rights applicable to any of Nations Portfolios' shares.
Nations Portfolios' shares, when issued, will be fully paid and non-assessable.
As of July 15, 1996, NationsBank and its affiliates possessed or shared power to
dispose of or vote with respect to more than 25% of the outstanding shares of
Nations Portfolios and, therefore, could be considered to be a controlling
person of Nations Portfolios for purposes of the 1940 Act. For more detailed
information concerning the percentage of each class or series over which
NationsBank and its affiliates possessed or shared power to dispose or vote as
of a certain date, see Nations Portfolios' SAI. It is anticipated that Nations
Portfolios will not hold annual shareholder meetings on a regular basis unless
required by the 1940 Act or Maryland law.
Because this Prospectus combines disclosures on three separate investment
companies, there is a possibility that one investment company could become
liable for a misstatement, inaccuracy or incomplete disclosure in this
Prospectus concerning the other investment company. Nations Fund Trust, Nations
Fund, Inc. and Nations Portfolios have entered into an indemnification agreement
that creates a right of indemnification from the investment company responsible
for any such misstatement, inaccuracy or incomplete disclosure that may appear
in this Prospectus.
PENDING LEGAL PROCEEDINGS: A purported class action lawsuit against, among
others, Nations Government Securities Fund and Nations Short-Intermediate
Government Fund was filed by Lawrence Bergelt on May 21, 1996. The complaint was
amended and consolidated on July 11, 1996 in the United States District Court
for the Middle District of Florida, Tampa Division by Mr. Bergelt and others in
an action against the two funds, NationsBank Corporation and certain of its
affiliates, Dean Witter Distributors and certain of its affiliates, and Stephens
Inc. (Case No. 94-995-Civ.-T-23E). As relevant to Nations Government Securities
Fund and Nations Short-Intermediate Government Fund, plaintiffs allege that,
among other things, defendants violated the Securities Exchange Act of 1934 and
various state securities fraud statutes by employing a scheme to defraud
plaintiffs into purchasing shares of the funds and making untrue statements of
material fact and omitting to state material facts in connection with sales of
shares of the funds. Plaintiffs further allege that, among other things,
defendants concealed the risks associated with such funds by blurring the
distinctions between banks and non-bank subsidiaries and by obscuring the
differences between traditional, federally insured bank products and uninsured,
non-depository products.
43
<PAGE>
About Your Investment
How To Buy Shares
Primary A Shares may be sold to financial institutions (including NationsBank
and its affiliated and correspondent banks) and fee-based planners acting on
behalf of their customers, employee benefit plans, charitable foundations and
endowments. Primary A Shares may, at times, be sold to other similar categories
of investors.
Primary A Shares are sold at net asset value without the imposition of a sales
charge. Financial institutions ("Institutions") acting on behalf of their
customers ("Customers") may establish certain procedures for processing
Customers' purchase orders and may charge their Customers for services provided
to them in connection with their investments.
Purchases of the Money Market Funds may be effected on days on which the Federal
Reserve Bank of New York is open for business (a "Bank Business Day"). Purchases
of the Non-Money Market Funds may be effected on days on which the New York
Stock Exchange (the "Exchange") is open for business (a "NYSE Business Day").
Unless otherwise specified, the term Business Day in this Prospectus refers to a
Bank Business Day with respect to a Money Market Fund, and a NYSE Business Day
with respect to a Non-Money Market Fund.
There is a minimum initial investment of $1,000 for each record holder; there is
no minimum subsequent investment.
Nations Fund and Stephens reserve the right to reject any purchase order. The
issuance of Primary A Shares is recorded on the books of the Funds, and share
certificates are not issued. It is the responsibility of Institutions, when
applicable, to record beneficial ownership of Primary A Shares and to reflect
such ownership in the account statements provided to their Customers.
EFFECTIVE TIME OF PURCHASES -- MONEY MARKET FUNDS: Purchases will be effected
only when federal funds are available for investment on the Business Day the
purchase order is received by Stephens or by the Transfer Agent. A purchase
order must be received by Stephens or by the Transfer Agent by 3:00 p.m.,
Eastern time (12 noon, Eastern time, with respect to Nations Government Money
Market Fund). A purchase order received by Stephens or the Transfer Agent after
such time will not be accepted; notice thereof will be given to the Institution
or investor placing the order, and any funds received will be returned promptly
to the sending Institution or investor. If federal funds are not available by
4:00 p.m., Eastern time, the order will be canceled. Primary A Shares are
purchased at the net asset value per share next determined after receipt of the
order by Stephens or by the Transfer Agent.
Institutions are responsible for transmitting orders for purchases by their
Customers, and delivering required funds, on a timely basis. It is Stephens'
responsibility to transmit orders it receives to Nations Fund.
EFFECTIVE TIME OF PURCHASES -- NON-MONEY MARKET FUNDS: Purchase orders for
Primary A Shares in the Non-Money Market Funds that are received by Stephens or
by the Transfer Agent before the close of regular trading hours on the Exchange
(currently 4:00 p.m., Eastern time) on any Business Day are priced according to
the net asset value determined on that day but are not executed until 4:00 p.m.,
Eastern time, on the Business Day on which immediately available funds in
payment of the purchase price are received by the Fund's Custodian. Such payment
must be received no later than 4:00 p.m., Eastern time, by the third Business
Day following receipt of the order. If funds are not received by such date, the
order will not be accepted and notice thereof will be given to the Institution
or investor placing the order. Payment for orders which are not received or
accepted will be returned after prompt inquiry to the sending Institution or
investor. Primary A Shares are purchased at the net asset value per share next
determined after receipt of the order by Stephens or by the Transfer Agent.
Institutions are responsible for transmitting orders for purchases of Primary A
Shares by their Customers, and for delivering required funds, on a timely basis.
It is Stephens' responsibility to transmit orders it receives to Nations Fund.
How To Redeem Shares
With respect to the Money Market Funds, redemption orders must be received on a
Business Day before 3:00 p.m., Eastern time (12 noon, Eastern time, with respect
to Nations Government Money Market Fund), and payment will normally be wired the
same day to the Institution or investor. Nations Fund reserves the right to wire
redemption proceeds within three Business Days after receiving the redemption
orders if, in the judgment of the Adviser, an earlier payment could adversely
impact a Fund. However, redemption proceeds for shares
pur-
44
<PAGE>
chased by check may not be remitted until at least 15 days after the date of
purchase to ensure that the check has cleared; a certified check, however, is
deemed to be cleared immediately. Redemption orders will not be accepted by
Stephens or by the Transfer Agent after 3:00 p.m., Eastern time (12 noon,
Eastern time, with respect to Nations Government Money Market Fund), for
execution on that Business Day.
With respect to the Non-Money Market Funds, redemption proceeds are normally
remitted in federal funds wired to the redeeming Institution or investor within
three Business Days following receipt of the order.
Nations Fund may redeem a shareholder's Primary A Shares if the balance in such
shareholder's account with the Fund drops below $500 as a result of redemptions,
and the shareholder does not increase the balance to at least $500 on 60 days'
written notice. If a Customer has agreed with a particular Institution to
maintain a minimum balance in his or her account at the Institution, and the
balance in such Institution account falls below that minimum, the Customer may
be obliged to redeem all or a part of his or her Primary A Shares in the Funds
to the extent necessary to maintain the required minimum balance in such
Institution account. Nations Fund also may redeem shares involuntarily or make
payment for redemption in readily marketable securities or other property under
certain circumstances in accordance with the 1940 Act.
Institutions are responsible for transmitting redemption orders to Stephens or
to the Transfer Agent and for crediting their Customers' accounts with the
redemption proceeds on a timely basis. It is the responsibility of Stephens to
transmit orders it receives to Nations Fund. No charge for wiring redemption
payments is imposed by Nations Fund, although Institutions may charge their
Customer accounts for these or other services provided in connection with the
redemption of Primary A Shares and may establish additional procedures.
Information concerning any charges or procedures is available from the
Institutions. Redemption orders are effected at the net asset value per share
next determined after acceptance of the order by Stephens or by the Transfer
Agent.
How To Exchange Shares
The exchange feature enables a shareholder of Primary A Shares of a Fund to
acquire Primary A Shares of another Fund when that shareholder believes that a
shift between Funds is an appropriate investment decision. An exchange of
Primary A Shares for Primary A Shares of another Fund is made on the basis of
the next calculated net asset value per share of each Fund after the exchange
order is received.
The Funds and each of the other funds of Nations Fund may limit the number of
times this exchange feature may be exercised by a shareholder within a specified
period of time. Also, the exchange feature may be terminated or revised at any
time by Nations Fund upon such notice as may be required by applicable
regulatory agencies (presently 60 days for termination or material revision),
provided that the exchange feature may be terminated or materially revised
without notice under certain unusual circumstances.
The current prospectus for each fund of Nations Fund describes its investment
objective and policies, and shareholders should obtain a copy and examine it
carefully before investing. Exchanges are subject to the minimum investment
requirement and any other conditions imposed by each fund. In the case of any
shareholder holding a share certificate or certificates, no exchanges may be
made until all applicable share certificates have been received by the Transfer
Agent and deposited in the shareholder's account. An exchange will be treated
for Federal income tax purposes the same as a redemption of shares, on which the
shareholder may realize a capital gain or loss. However, the ability to deduct
capital losses on an exchange may be limited in situations where there is an
exchange of shares within 90 days after the shares are purchased.
Nations Fund reserves the right to reject any exchange request. Only shares that
may legally be sold in the state of the investor's residence may be acquired in
an exchange. Only shares of a class that is accepting investments generally may
be acquired in an exchange.
If you have telephone exchange privileges, during periods of significant
economic or market change, such telephone exchanges may be difficult to
complete. In such event, shares may be exchanged by mailing your request
directly to the entity through which the original shares were purchased.
Investors should consult their Institution or Stephens for further information
regarding exchanges.
Primary A Shares may be exchanged by directing a request directly to the
Institution, if any, through which the original Primary A Shares were purchased
or in other cases Stephens or the Transfer Agent. Investors should consult their
Institution, Stephens or the Transfer Agent for further information regarding
exchanges. Your exchange feature may be governed by your account agreement with
your Institution.
45
<PAGE>
How The Funds Value Their Shares
The net asset value of a share of each class is calculated by dividing the total
value of its assets, less liabilities, by the number of shares in the class
outstanding. Shares of the Money Market Funds are valued as of 3:00 p.m.,
Eastern time (12 noon, Eastern time, with respect to Nations Government Money
Market Fund), each Bank Business Day. Shares of the Non-Money Market Funds are
valued as of the close of regular trading on the Exchange (currently 4:00 p.m.,
Eastern time) on each NYSE Business Day. Currently, the days on which the
Federal Reserve Bank of New York is closed (other than weekends) are: New Year's
Day, Martin Luther King, Jr. Day, Presidents' Day, Memorial Day (observed),
Independence Day, Labor Day, Columbus Day, Thanksgiving Day and Christmas Day.
Currently, the days on which the Exchange is closed (other than weekends) are:
New Year's Day, Presidents' Day, Good Friday, Memorial Day (observed),
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
The assets in the Money Market Funds are valued based upon the amortized cost
method. Although Nations Fund seeks to maintain the net asset value per share of
these Funds at $1.00, there can be no assurance that their net asset value per
share will not vary.
With respect to the Non-Money Market Funds, portfolio securities for which
market quotations are readily available are valued at market value. Short-term
investments that will mature in 60 days or less are valued at amortized cost,
which approximates market value. All other securities are valued at their fair
value following procedures approved by the Trustees or Directors.
How Dividends And Distributions Are Made;
Tax Information
DIVIDENDS AND DISTRIBUTIONS
MONEY MARKET FUNDS: Dividends from net investment income of each of the Money
Market Funds are declared daily to shareholders at 3:00 p.m., Eastern time (12
noon, Eastern time, with respect to Nations Government Money Market Fund), on
the day of declaration. Primary A Shares begin earning dividends on the day the
purchase order is executed and continue earning dividends through and including
the day before the redemption order is executed (E.G., the settlement date).
Dividends are paid within five Business Days after the end of each month.
Dividends are paid in the form of additional Primary A Shares of the same Fund
unless the Customer or investor has elected prior to the date of distribution to
receive payment in cash. Such election, or any revocation thereof, must be made
in writing to the Fund's Transfer Agent and will become effective with respect
to dividends paid after its receipt. Dividends are paid in cash within five
Business Days after a shareholder's complete redemption of his Primary A Shares
in a Fund. To the extent that there are any net short-term capital gains, they
will be paid at least annually.
NON-MONEY MARKET FUNDS: Dividends from net investment income are declared daily
and paid monthly by the Bond Funds. Dividends from net investment income are
declared and paid each calendar quarter by the Equity Funds and the Balanced
Fund. Each Fund's net realized capital gains (including net short-term capital
gains) are distributed at least annually.
Primary A Shares of the Bond Funds are eligible to begin earning dividends that
are declared on the day the purchase order is executed and continue to be
eligible for dividends through and including the day before the redemption order
is executed. Primary A Shares of the Equity Funds and the Balanced Fund are
eligible to receive dividends when declared, provided, however, that the
purchase order for such shares is received at least one day prior to the
dividend declaration and such shares continue to be eligible for dividends
through and including the day before the redemption order is executed.
The net asset value of Primary A Shares in the Non-Money Market Funds will be
reduced by the amount of any dividend or distribution. Dividends and
distributions are paid in cash within five Business Days of the end of the month
or quarter to which the dividend relates. Dividends are paid in the form of
additional Primary A Shares of the same Fund unless the Customer or investor has
elected prior to the date of distribution to receive payment in cash. Such
election, or any revocation thereof, must be made in writing to the Fund's
Transfer Agent and will become effective with respect to dividends paid after
its receipt. Dividends and distributions payable to a shareholder are paid in
cash within five Business Days after a shareholder's complete redemption of his
or her Primary A Shares in a Fund.
TAX INFORMATION
Each of the Funds intends to qualify as a separate "regulated investment
company" under the Internal Revenue
46
<PAGE>
Code of 1986, as amended (the "Code"). Such qualification relieves a Fund of
liability for Federal income tax to the extent its earnings are distributed in
accordance with the Code.
Each Fund intends to distribute substantially all of its investment company
taxable income and net tax-exempt income each taxable year. Such distributions
by a Fund of its net investment income (including net foreign currency gains)
and the excess, if any, of its net short-term capital gain over its net
long-term capital loss will be taxable as ordinary income to shareholders who
are not currently exempt from Federal income tax, whether such income is
received in cash or reinvested in additional shares. (Federal income tax for
distributions to an Individual Retirement Account are generally deferred under
the Code.)
Corporate shareholders in the Funds may be entitled to the dividends-received
deduction for distributions from those Funds investing in the stock of domestic
corporations to the extent of the total qualifying dividends received by the
distributing Fund. Corporate shareholders of the Nations International Equity,
Nations Emerging Markets and Nations Pacific Growth Funds may be eligible for
the dividends-received deduction on the dividends (excluding the net capital
gains dividends) paid by these Funds to the extent that each such Fund's income
is derived from dividends (which, if received directly, would qualify for such
deduction) received from domestic corporations. In order to qualify for the
dividends-received deduction, a corporate shareholder must hold the fund shares
paying the dividends upon which the deduction is based for at least 46 days.
Substantially all of the net realized long-term capital gains of the Non-Money
Market Funds, if any, will be distributed at least annually to such Funds'
shareholders. These Funds will generally have no tax liability with respect to
such gains, and the distributions will be taxable to such shareholders who are
not currently exempt from Federal income tax as long-term capital gains,
regardless of how long the shareholders have held such Funds' shares and whether
such gains are received in cash or reinvested in additional shares. The Money
Market Funds do not expect to realize long-term capital gains and, therefore, do
not expect to distribute any capital gain dividends.
Each year, shareholders will be notified as to the amount and Federal tax status
of all dividends and capital gains paid during the prior year. Such dividends
and capital gains may also be subject to state and local taxes.
Dividends declared in October, November or December of any year payable to
shareholders of record on a specified date in such months will be deemed to have
been received by shareholders and paid by a Fund on December 31 of such year in
the event such dividends are actually paid during January of the following year.
Federal law requires Nations Fund to withhold 31% from any dividends (other than
exempt-interest dividends) paid by Nations Fund and/or redemptions (including
exchange redemptions) that occur in certain shareholder accounts if the
shareholder has not properly furnished a certified correct Taxpayer
Identification Number and has not certified that withholding does not apply. If
the Internal Revenue Service has notified Nations Fund that the Taxpayer
Identification Number listed on a shareholder account is incorrect according to
its records, or that the shareholder is subject to backup withholding, the Fund
is required by the Internal Revenue Service to withhold 31% of any dividend
(other than exempt-interest dividends) and/or redemption (including exchange
redemptions). Amounts withheld are applied to the shareholder's Federal tax
liability, and a refund may be obtained from the Internal Revenue Service if
withholding results in overpayment of tax. Federal law also requires the Funds
to withhold 30% or the applicable tax treaty rate from dividends paid to certain
nonresident alien, non-U.S. partnership and non-U.S. corporation shareholder
accounts.
Portions of each Fund's investment income may be subject to foreign income taxes
withheld at their source. Tax conventions between certain countries and the
United States may reduce or eliminate such taxes. Generally, more than 50% of
the value of the total assets of each Fund will consist of securities of foreign
issuers, and therefore each Fund may elect to "pass through" to its shareholders
these foreign taxes, if any. In such event each shareholder will be required to
include his or her pro rata portion thereof in his or her gross income, but will
be able to deduct or (subject to various limitations) claim a foreign tax credit
against U.S. income taxes for such amount.
The foregoing discussion is based on tax laws and regulations that were in
effect as of the date of this Prospectus and summarizes only some of the
important tax considerations generally affecting the Funds and their
shareholders. It is not intended as a substitute for careful tax planning.
Accordingly, potential investors should consult their tax advisors with specific
reference to their own tax situations. Further tax information is contained in
the SAIs.
47
<PAGE>
Appendix A -- Portfolio Securities
The following are summary descriptions of certain types of instruments in which
a Fund may invest. The "How Objectives Are Pursued" section of this Prospectus
identifies each Fund's permissible investments, and the SAIs contain more
information concerning such investments.
ASSET-BACKED SECURITIES: Asset-backed securities arise through the grouping by
governmental, government-related, and private organizations of loans,
receivables, or other assets originated by various lenders. Asset-backed
securities consist of both mortgage- and non-mortgage-backed securities.
Interests in pools of these assets may differ from other forms of debt
securities, which normally provide for periodic payment of interest in fixed
amounts with principal paid at maturity or specified call dates. Conversely,
asset-backed securities provide periodic payments which may consist of both
interest and principal payments.
The life of an asset-backed security varies depending upon rate of the
prepayment of the underlying debt instruments. The rate of such prepayments will
be a function of current market interest rates and other economic and
demographic factors may be involved. For example, falling interest rates
generally result in an increase in the rate of prepayments of mortgage loans
while rising interest rates generally decrease the rate of prepayments. An
acceleration in prepayments in response to sharply falling interest rates will
shorten the security's average maturity and limit the potential appreciation in
the security's value relative to a conventional debt security. Consequently,
asset-backed securities may not be as effective in locking in high, long-term
yields. Conversely, in periods of sharply rising rates, prepayments are
generally slow, increasing the security's average life and its potential for
price depreciation.
MORTGAGE-BACKED SECURITIES: Mortgage-backed securities represent an ownership
interest in a pool of residential mortgage loans.
Mortgage pass-through securities may represent participation interests in pools
of residential mortgage loans originated by U.S. governmental or private lenders
and guaranteed, to the extent provided in such securities, by the U.S.
Government or one of its agencies, authorities or instrumentalities. Such
securities, which are ownership interests in the underlying mortgage loans,
differ from conventional debt securities, which provide for periodic payment of
interest in fixed amounts (usually semi-annually) and principal payments at
maturity or on specified call dates. Mortgage pass-through securities provide
for monthly payments that are a "pass-through" of the monthly interest and
principal payments (including any prepayments) made by the individual borrowers
on the pooled mortgage loans, net of any fees paid to the guarantor of such
securities and the servicer of the underlying mortgage loans.
The guaranteed mortgage pass-through securities in which a Fund may invest may
include those issued or guaranteed by GNMA, by FNMA and FHLMC. Such Certificates
are mortgage-backed securities which represent a partial ownership interest in a
pool of mortgage loans issued by lenders such as mortgage bankers, commercial
banks and savings and loan associations. Such mortgage loans may have fixed or
adjustable rates of interest.
The average life of a mortgage-backed security is likely to be substantially
less than the original maturity of the mortgage pools underlying the securities.
Prepayments of principal by mortgagors and mortgage foreclosures will usually
result in the return of the greater part of principal invested far in advance of
the maturity of the mortgages in the pool.
The yield which will be earned on mortgage-backed securities may vary from their
coupon rates for the following reasons: (i) Certificates may be issued at a
premium or discount, rather than at par; (ii) Certificates may trade in the
secondary market at a premium or discount after issuance; (iii) interest is
earned and compounded monthly which has the effect of raising the effective
yield earned on the Certificates; and (iv) the actual yield of each Certificate
is affected by the prepayment of mortgages included in the mortgage pool
underlying the Certificates and the rate at which principal so prepaid is
reinvested. In addition, prepayment of mortgages included in the mortgage pool
underlying a GNMA Certificate purchased at a premium may result in a loss to the
Fund.
Mortgage-backed securities issued by private issuers, whether or not such
obligations are subject to guarantees by the private issuer, may entail greater
risk than obligations directly or indirectly guaranteed by the U.S. Government.
Collateralized Mortgage Obligations or "CMOs" are debt obligations
collateralized by mortgage loans or mortgage pass-through securities (collateral
collectively hereinafter referred to as "Mortgage Assets"). Multi-class pass-
through securities are interests in a trust composed of Mortgage Assets and all
references herein to CMOs will include multi-class pass-through securities.
Payments of principal of and interest on the Mortgage Assets, and any
reinvestment income thereon, provide the funds to pay debt service on the CMOs
or make scheduled distribution on the multi-class pass-through securities.
Moreover, principal prepayments on the Mortgage Assets may cause the CMOs to be
retired substantially
48
<PAGE>
earlier than their stated maturities or final distribution dates, resulting in a
loss of all or part of the premium if any has been paid. Interest is paid or
accrues on all classes of the CMOs on a monthly, quarterly or semiannual basis.
The principal and interest payments on the Mortgage Assets may be allocated
among the various classes of CMOs in several ways. Typically, payments of
principal, including any prepayments, on the underlying mortgages are applied to
the classes in the order of their respective stated maturities or final
distribution dates, so that no payment of principal is made on CMOs of a class
until all CMOs of other classes having earlier stated maturities or final
distribution dates have been paid in full.
Stripped mortgage-backed securities ("SMBS") are derivative multi-class mortgage
securities. A Fund will only invest in SMBS that are obligations backed by the
full faith and credit of the U.S. Government. SMBS are usually structured with
two classes that receive different proportions of the interest and principal
distributions from a pool of Mortgage Assets. A Fund will only invest in SMBS
whose Mortgage Assets are U.S. Government Obligations.
A common type of SMBS will be structured so that one class receives some of the
interest and most of the principal from the Mortgage Assets, while the other
class receives most of the interest and the remainder of the principal. If the
underlying Mortgage Assets experience greater than anticipated prepayments of
principal, a Fund may fail to fully recoup its initial investment in these
securities. The market value of any class which consists primarily or entirely
of principal payments generally is unusually volatile in response to changes in
interest rates.
The average life of mortgage-backed securities varies with the maturities of the
underlying mortgage instruments, which have maximum maturities of 40 years. The
average life is likely to be substantially less than the original maturity of
the mortgage pools underlying the securities as the result of mortgage
prepayments, mortgage refinancings, or foreclosures. The rate of mortgage
prepayments, and hence the average life of the certificates, will be a function
of the level of interest rates, general economic conditions, the location and
age of the mortgage and other social and demographic conditions. Such
prepayments are passed through to the registered holder with the regular monthly
payments of principal and interest and have the effect of reducing future
payments. Estimated average life will be determined by the Adviser and used for
the purpose of determining the average weighted maturity and duration of the
Funds. For additional information concerning mortgage-backed securities, see the
related SAI.
NON-MORTGAGE ASSET-BACKED SECURITIES: Non-mortgage asset-backed securities
include interests in pools of receivables, such as motor vehicle installment
purchase obligations and credit card receivables. Such securities are generally
issued as pass-through certificates, which represent undivided fractional
ownership interests in the underlying pools of assets. Such securities also may
be debt instruments, which are also known as collateralized obligations and are
generally issued as the debt of a special purpose entity organized solely for
the purpose of owning such assets and issuing such debt. Such securities also
may include instruments issued by certain trusts, partnerships or other special
purpose issuers, including pass-through certificates representing participations
in, or debt instruments backed by, the securities and other assets owned by such
issuers.
Non-mortgage-backed securities are not issued or guaranteed by the U.S.
Government or its agencies or instrumentalities; however, the payment of
principal and interest on such obligations may be guaranteed up to certain
amounts and for a certain time period by a letter of credit issued by a
financial institution (such as a bank or insurance company) unaffiliated with
the issuers of such securities.
The purchase of non-mortgage-backed securities raises considerations peculiar to
the financing of the instruments underlying such securities. For example, most
organizations that issue asset-backed securities relating to motor vehicle
installment purchase obligations perfect their interests in their respective
obligations only by filing a financing statement and by having the servicer of
the obligations, which is usually the originator, take custody thereof. In such
circumstances, if the servicer were to sell the same obligations to another
party, in violation of its duty not to do so, there is a risk that such party
could acquire an interest in the obligations superior to that of the holders of
the asset-backed securities. Also, although most such obligations grant a
security interest in the motor vehicle being financed, in most states the
security interest in a motor vehicle must be noted on the certificate of title
to perfect such security interest against competing claims of other parties. Due
to the larger number of vehicles involved, however, the certificate of title to
each vehicle financed, pursuant to the obligations underlying the asset-backed
securities, usually is not amended to reflect the assignment of the seller's
security interest for the benefit of the holders of the asset-backed securities.
Therefore, there is the possibility that recoveries on repossessed collateral
may not, in some cases, be available to support payments on those securities. In
addition, various state and Federal laws give the motor vehicle owner the right
to assert against the holder of the owner's obligation certain defenses such
owner would have against the seller of the motor vehicle. The assertion of such
defenses could reduce payments on the related asset-backed securities. Insofar
as credit card receivables are concerned, credit card holders
49
<PAGE>
are entitled to the protection of a number of state and Federal consumer credit
laws, many of which give such holders the right to set off certain amounts
against balances owed on the credit card, thereby reducing the amounts paid on
such receivables. In addition, unlike most other asset-backed securities, credit
card receivables are unsecured obligations of the card holder.
BANK INSTRUMENTS: Bank instruments consist mainly of certificates of deposit,
time deposits and bankers' acceptances. Nations Prime Fund generally limits
investments in bank instruments to (a) U.S. dollar-denominated obligations of
U.S. banks which have total assets exceeding $1 billion and which are members of
the Federal Deposit Insurance Corporation (including obligations of foreign
branches of such banks) or of the 75 largest foreign commercial banks in terms
of total assets; or (b) U.S. dollar-denominated bank instruments issued by other
banks believed by the Adviser to present minimal credit risks. For purposes of
the foregoing, total assets may be determined on the basis of the bank's most
recent annual financial statements.
The Nations Prime Fund may invest up to 100% of its assets in obligations issued
by banks. All Funds (except Nations Prime Fund) will limit their investments in
bank obligations so they do not exceed 25% of each Fund's total assets at the
time of purchase. The Nations Prime Fund may invest in U.S. dollar-denominated
obligations issued by foreign branches of domestic banks ("Eurodollar"
obligations) and domestic branches of foreign banks ("Yankee dollar"
obligations).
Eurodollar obligations, Yankee dollar obligations, and other foreign obligations
involve special investment risks, including the possibility that liquidity could
be impaired because of future political and economic developments, the
obligations may be less marketable than comparable domestic obligations of
domestic issuers, a foreign jurisdiction might impose withholding taxes on
interest income payable on such obligations, deposits may be seized or
nationalized, foreign governmental restrictions such as exchange controls may be
adopted which might adversely affect the payment of principal of and interest on
such obligations, the selection of foreign obligations may be more difficult
because there may be less publicly available information concerning foreign
issuers, there may be difficulties in enforcing a judgment against a foreign
issuer or the accounting, auditing and financial reporting standards, practices
and requirements applicable to foreign issuers may differ from those applicable
to domestic issuers. In addition, foreign banks are not subject to examination
by U.S. Government agencies or instrumentalities.
BORROWINGS: When a Fund borrows money, the net asset value of a share may be
subject to greater fluctuation until the borrowing is paid off. The Funds may
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 and dollar roll transactions may be considered to
be borrowings. When a Fund invests in a reverse repurchase agreement, it sells a
portfolio security to another party, such as a bank or broker/dealer, in return
for cash, and agrees to buy the security back at a future date and price.
Reverse repurchase agreements may be used to provide cash to satisfy unusually
heavy redemption requests without having to sell portfolio securities, or for
other temporary or emergency purposes. In addition, certain of the Funds may use
reverse repurchase agreements for the purpose of investing the proceeds in
tri-party repurchase agreements. Generally, the effect of such a transaction is
that a Fund can recover all or most of the cash invested in the portfolio
securities involved during the term of the reverse repurchase agreement, while
it will be able to keep the interest income associated with those portfolio
securities. Such transactions are only advantageous if the interest cost to the
Funds of the reverse repurchase transaction is less than the cost of obtaining
the cash otherwise.
At the time a Fund enters into a reverse repurchase agreement, it may establish
a segregated account with its custodian bank in which it will maintain cash,
U.S. Government Securities or other liquid high grade debt obligations equal in
value to its obligations in respect of reverse repurchase agreements. Reverse
repurchase agreements involve the risk that the market value of the securities
the Funds are obligated to repurchase under the agreement may decline below the
repurchase price. In the event the buyer of securities under a reverse
repurchase agreement files for bankruptcy or becomes insolvent, the Funds' use
of proceeds of the agreement may be restricted pending a determination by the
other party, or its trustee or receiver, whether to enforce the Funds'
obligation to repurchase the securities. In addition, there is a risk of delay
in receiving collateral or securities or in repurchasing the securities covered
by the reverse repurchase agreement or even of a loss of rights in the
collateral or securities in the event the buyer of the securities under the
reverse repurchase agreement files for bankruptcy or becomes insolvent. A Fund
only enters into reverse repurchase agreements (and repurchase agreements) with
counterparties that are deemed by the Adviser to be credit worthy. Reverse
repurchase agreements are speculative techniques involving leverage, and are
subject to asset coverage requirements if the Fund does not establish and
maintain a segregated account (as described above). Under the requirements of
the 1940 Act, the Funds are
50
<PAGE>
required to maintain an asset coverage (including the proceeds of the
borrowings) of at least 300% of all borrowings. Depending on market conditions,
the Funds' asset coverage and other factors at the time of a reverse repurchase,
the Funds may not establish a segregated account when the Adviser believes it is
not in the best interests of the Funds to do so. In this case, such reverse
repurchase agreements will be considered borrowings subject to the asset
coverage described above.
Dollar roll transactions consist of the sale by a Fund of mortgage-backed or
other asset-backed securities, together with a commitment to purchase similar,
but not identical, securities at a future date, at the same price. In addition,
a Fund is paid a fee as consideration for entering into the commitment to
purchase. If the broker/dealer to whom a Fund sells the security becomes
insolvent, the Fund's right to purchase or repurchase the security may be
restricted; the value of the security may change adversely over the term of the
dollar roll; the security that the Fund is required to repurchase may be worth
less than the security that the Fund originally held, and the return earned by
the Fund with the proceeds of a dollar roll may not exceed transaction costs.
Currently, Nations Treasury Fund has entered into an arrangement whereby it
reinvests the proceeds of a reverse repurchase agreement in a tri-party
repurchase agreement and receives the net interest rate differential.
COMMERCIAL INSTRUMENTS: Commercial instruments consist of short-term U.S.
dollar-denominated obligations issued by domestic corporations or foreign
corporations and domestic and foreign commercial banks. The Nations Prime Fund
will limit purchases of commercial instruments to instruments which: (a) if
rated by at least two NRSROs, are rated in the highest rating category for
short-term debt obligations given by such organizations, or if only rated by one
such organization, are rated in the highest rating category for short-term debt
obligations given by such organization; or (b) if not rated, are (i) comparable
in priority and security to a class of short-term instruments of the same issuer
that has such rating(s), or (ii) of comparable quality to such instruments as
determined by Nations Fund, Inc.'s Board of Directors on the advice of the
Adviser.
Investments by a Fund in commercial paper will consist of issues rated in a
manner consistent with such Fund's investment policies and objective. In
addition, a Fund may acquire unrated commercial paper and corporate bonds that
are determined by the Adviser at the time of purchase to be of comparable
quality to rated instruments that may be acquired by a Fund. Commercial
instruments include variable rate master demand notes, which are unsecured
instruments that permit the indebtedness thereunder to vary and provide for
periodic adjustments in the interest rate, and variable and floating rate
instruments.
CONVERTIBLE SECURITIES, PREFERRED STOCK, AND WARRANTS: Certain of the Funds may
invest in debt securities convertible into or exchangeable for equity
securities, preferred stocks or warrants. Preferred stocks are securities that
represent an ownership interest in a corporation providing the owner with claims
on a company's earnings and assets before common stock owners, but after bond or
other debt security owners. Warrants are options to buy a stated number of
shares of common stock at a specified price any time during the life of the
warrants.
FIXED INCOME INVESTING: The performance of the fixed income debt component of a
Fund's portfolio depends primarily on interest rate changes, the average
weighted maturity of the portfolio and the quality of the securities held. The
debt component of a Fund's portfolio will tend to decrease in value when
interest rates rise and increase when interest rates fall. A Fund's share price
and yield depend, in part, on the maturity and quality of its debt instruments.
FOREIGN CURRENCY TRANSACTIONS: Certain of the Funds may enter into foreign
currency exchange transactions to convert foreign currencies to and from the
U.S. dollar. A Fund either enters into these transactions on a spot (I.E., cash)
basis at the spot rate prevailing in the foreign currency exchange market, or
uses forward contracts to purchase or sell foreign currencies. A forward foreign
currency exchange contract is an obligation by a Fund to purchase or sell a
specific currency at a future date, which may be any fixed number of days from
the date of the contract.
Foreign currency hedging transactions are an attempt to protect a Fund against
changes in foreign currency exchange rates between the trade and settlement
dates of specific securities transactions or changes in foreign currency
exchange rates that would adversely affect a portfolio position or an
anticipated portfolio position. Although these transactions tend to minimize the
risk of loss due to a decline in the value of the hedged currency, at the same
time they tend to limit any potential gain that might be realized should the
value of the hedged currency increase. Neither spot transactions nor forward
foreign currency exchange contracts eliminate fluctuations in the prices of a
Fund's portfolio securities or in foreign exchange rates, or prevent loss if the
prices of these securities should decline.
A Fund will generally enter into forward currency exchange contracts only under
two circumstances: (i) when the Fund enters into a contract for the purchase or
sale of a security denominated in a foreign currency, to "lock" in the U.S.
dollar price of the security; and (ii) when the Adviser believes that the
currency of a particular foreign country may experience a substantial movement
against another currency. Under certain circumstances, the Fund may commit a
substantial portion of its portfolio to the execution of these contracts. The
51
<PAGE>
Adviser will consider the effects such a commitment would have on the investment
program of the Fund and the flexibility of the Fund to purchase additional
securities. Although forward contracts will be used primarily to protect the
Fund from adverse currency movements, they also involve the risk that
anticipated currency movements will not be accurately predicted.
FOREIGN SECURITIES: Foreign securities include debt and equity obligations
(dollar- and non-dollar-denominated) of foreign corporations and banks as well
as obligations of foreign governments and their political subdivisions (which
will be limited to direct government obligations and government-guaranteed
securities). Such investments may subject a Fund to special investment risks,
including future political and economic developments, the possible imposition of
withholding taxes on interest income, possible seizure or nationalization of
foreign deposits, the possible establishment of exchange controls, or the
adoption of other foreign governmental restrictions which might adversely affect
the payment of principal and interest on such obligations. In addition, foreign
issuers in general may be subject to different accounting, auditing, reporting,
and record keeping standards than those applicable to domestic companies, and
securities of foreign issuers may be less liquid and their prices more volatile
than those of comparable domestic issuers.
Investments in foreign securities may present additional risks, whether made
directly or indirectly, including the political or economic instability of the
issuer or the country of issue and the difficulty of predicting international
trade patterns. In addition, there may be less publicly available information
about a foreign company than about a U.S. company. Further, foreign securities
markets are generally not as developed or efficient as those in the U.S., and in
most foreign markets volume and liquidity are less than in the United States.
Fixed commissions on foreign securities exchanges are generally higher than the
negotiated commissions on U.S. exchanges, and there is generally less government
supervision and regulation of foreign securities exchanges, brokers, and
companies than in the United States. With respect to certain foreign countries,
there is a possibility of expropriation or confiscatory taxation, limitations on
the removal of funds or other assets, or diplomatic developments that could
affect investments within those countries. Because of these and other factors,
securities of foreign companies acquired by a Fund may be subject to greater
fluctuation in price than securities of domestic companies.
FUTURES, OPTIONS AND OTHER DERIVATIVE INSTRUMENTS: Certain of the Funds may
attempt to reduce the overall level of investment risk of particular securities
and attempt to protect a Fund against adverse market movements by investing in
futures, options and other derivative instruments. These include the purchase
and writing of options on securities (including index options) and options on
foreign currencies, and investing in futures contracts for the purchase or sale
of instruments based on financial indices, including interest rate indices or
indices of U.S. or foreign government, equity or fixed income securities
("futures contracts"), options on futures contracts, forward contracts and swaps
and swap-related products such as interest rate swaps, currency swaps, caps,
collars and floors.
The use of futures, options, forward contracts and swaps exposes a Fund to
additional investment risks and transaction costs. If the Adviser incorrectly
analyzes market conditions or does not employ the appropriate strategy with
respect to these instruments, a Fund could be left in a less favorable position.
Additional risks inherent in the use of futures, options, forward contracts and
swaps include: imperfect correlation between the price of futures, options and
forward contracts and movements in the prices of the securities or currencies
being hedged; the possible absence of a liquid secondary market for any
particular instrument at any time; and the possible need to defer closing out
certain hedged positions to avoid adverse tax consequences. A Fund may not
purchase put and call options which are traded on a national stock exchange in
an amount exceeding 5% of its net assets. Further information on the use of
futures, options and other derivative instruments, and the associated risks, is
contained in the SAIs.
GUARANTEED INVESTMENT CONTRACTS: Guaranteed investment contracts, investment
contracts or funding agreements (each referred to as a "GIC") are investment
instruments issued by highly rated insurance companies. Pursuant to such
contracts, a Fund may make cash contributions to a deposit fund of the insurance
company's general or separate accounts. The insurance company then credits to a
Fund guaranteed interest. The insurance company may assess periodic charges
against a GIC for expense and service costs allocable to it, and the charges
will be deducted from the value of the deposit fund. The purchase price paid for
a GIC generally becomes part of the general assets of the issuer, and the
contract is paid from the general assets of the issuer.
A Fund will only purchase GICs from issuers which, at the time of purchase, meet
quality and credit standards established by the Adviser. Generally, GICs are not
assignable or transferable without the permission of the issuing insurance
companies, and an active secondary market in GICs does not currently exist.
Also, a Fund may not receive the principal amount of a GIC from the insurance
company on seven days' notice or less, at which point the GIC may be considered
to be an illiquid investment.
ILLIQUID SECURITIES: Certain securities may be sold only pursuant to certain
legal restrictions, and may be difficult to sell. The Money Market Funds will
not hold more than 10% of the value of their respective net assets in
52
<PAGE>
securities that are illiquid or such lower percentage as may be required by the
states in which the appropriate Fund sells its shares. The Non-Money Market
Funds will not hold more than 15% of the value of their respective net assets in
securities that are illiquid or such lower percentage as may be required by the
states in which the appropriate Fund sells its shares. Repurchase agreements,
time deposits and GICs that do not provide for payment to a Fund within seven
days after notice, and illiquid restricted securities are subject to the
limitation on illiquid securities. In addition, interests in privately arranged
loans acquired by the Nations Prime Fund may be subject to this limitation.
If otherwise consistent with their investment objectives and policies, certain
Funds may purchase securities that are not registered under the Securities Act
of 1933, as amended (the "1933 Act") but which can be sold to "qualified
institutional buyers" in accordance with Rule 144A 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.
LOWER-RATED DEBT SECURITIES: Certain of the Funds may invest in lower-rated debt
securities. Lower rated, high-yielding securities are those rated "Ba" or "B" by
Moody's or "BB" or "B" by S&P which are commonly referred to as "junk bonds."
These bonds provide poor protection for payment of principal and interest.
Lower-quality bonds involve greater risk of default or price changes due to
changes in the issuer's creditworthiness than securities assigned a higher
quality rating. These securities are considered to have speculative
characteristics and indicate an aggressive approach to income investing.
The market for lower-rated securities may be thinner and less active than that
for higher quality securities, which can adversely affect the price at which
these securities can be sold. If market quotations are not available, these
lower-rated securities will be valued in accordance with procedures established
by the Funds' Boards, including the use of outside pricing services. Adverse
publicity and changing investor perceptions may affect the ability of outside
pricing services used by a Fund to value its portfolio securities, and a Fund's
ability to dispose of these lower-rated bonds.
MONEY MARKET INSTRUMENTS: With respect to Non-Money Market Funds, the term
"money market instruments" refers to instruments with remaining maturities of
one year or less. With respect to Money Market Funds, the term "money market
instruments" refers to instruments with remaining maturities of 397 days or less
or 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
activ-
53
<PAGE>
ity bonds is usually directly related to the credit standing of the corporate
user of the facility involved.
Municipal securities may include "moral obligation" bonds, which are normally
issued by special purpose public authorities. If the issuer of moral obligation
bonds is unable to meet its debt service obligations from current revenues, it
may draw on a reserve fund, the restoration of which is a moral commitment but
not a legal obligation of the state or municipality which created the issuer.
Municipal securities may include variable- or floating-rate instruments issued
by industrial development authorities and other governmental entities. While
there may not be an active secondary market with respect to a particular
instrument purchased by a Fund, a Fund may demand payment of the principal and
accrued interest on the instrument or may resell it to a third party as
specified in the instruments. The absence of an active secondary market,
however, could make it difficult for a Fund to dispose of the instrument if the
issuer defaulted on its payment obligation or during periods the Fund is not
entitled to exercise its demand rights, and the Fund could, for these or other
reasons, suffer a loss.
Some of these instruments may be unrated, but unrated instruments purchased by a
Fund will be determined by the Adviser to be of comparable quality at the time
of purchase to instruments rated "high quality" by any major rating service.
Where necessary to ensure that an instrument is of comparable "high quality," a
Fund will require that an issuer's obligation to pay the principal of the note
may be backed by an unconditional bank letter or line of credit, guarantee, or
commitment to lend.
Municipal securities also may include municipal lease obligations, including
certificates of participation in municipal leases, and units of participation in
trusts holding pools of tax-exempt leases. A Fund may acquire municipal lease
obligations that may be assigned by the lessee to another party provided the
obligation continues to provide tax-exempt interest. Each Fund will not purchase
municipal lease obligations to the extent it holds municipal lease obligations
and illiquid securities in an amount exceeding 10% of its total assets unless
the Adviser determines that the municipal lease obligations are liquid pursuant
to guidelines established by the Funds' Boards. Pursuant to these guidelines,
the Adviser, in making this liquidity determination, will consider, among other
factors, the strength and nature of the secondary market for such obligations,
the prospect for its future marketability and whether such obligations are
rated. The Funds expect that they will only purchase rated municipal lease
obligations.
Municipal participation interests may be purchased from financial institutions,
and give the purchaser an undivided interest in one or more underlying municipal
securities. To the extent that municipal participation interests are considered
to be "illiquid securities," such instruments are subject to each Fund's
limitation on the purchase of illiquid securities.
In addition, certain of the Funds may acquire "stand-by commitments" from banks
or broker/dealers with respect to municipal securities held in their portfolios.
Under a stand-by commitment, a dealer would agree to purchase at a Fund's option
specified municipal securities at a specified price. A Fund will acquire
stand-by commitments solely to facilitate portfolio liquidity and does not
intend to exercise its rights thereunder for trading purposes.
A Fund may invest in short-term securities, in commitments to purchase such
securities on a "when-issued" basis, and reserves the right to engage in "put"
transactions on a daily, weekly or monthly basis. Securities purchased on a
"when-issued" basis are subject to settlement within 45 days of the purchase
date. The interest rate realized on these securities is fixed as of the purchase
date and no interest accrues to the Fund before settlement. These securities are
subject to market fluctuation due to changes in market interest rates. The Funds
will only commit to purchase a security on a when-issued basis with the
intention of actually acquiring the security and will segregate sufficient
liquid assets to meet its purchase obligation.
A "put" feature permits a Fund to sell a security at a fixed price prior to
maturity. The underlying municipal securities subject to a put may be sold at
any time at the market rates. However, unless the put was an integral part of
the security as originally issued, it may not be marketable or assignable.
Therefore, the put would only have value to the Fund. In certain cases a premium
may be paid for put features. A premium paid will have the effect of reducing
the yield otherwise payable on the underlying security. The purpose of engaging
in transactions involving puts is to maintain flexibility and liquidity to
permit the Fund to meet redemptions and remain as fully invested as possible in
municipal securities. The Funds will limit their put transactions to
institutions which the Adviser believes present minimal credit risk, pursuant to
guidelines adopted by the Boards. Nations Tax Exempt Fund may invest more than
40% of its portfolio in 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 the Funds do not presently intend to do so on a regular basis, each may
invest more than 25% of its total assets in municipal securities the interest on
which is paid solely from revenues of similar projects if such investment is
deemed necessary or appropriate by the Adviser. To the extent that more than 25%
of a Fund's total assets are invested in municipal securities that are payable
from the revenues of similar projects, a Fund will be subject to the peculiar
risks presented by such
54
<PAGE>
projects to a greater extent than it would be if its assets were not so
concentrated.
OTHER INVESTMENT COMPANIES: Each Fund may invest in securities issued by other
investment companies to the extent that such investments are consistent with the
Fund's investment objective and policies and permissible under the 1940 Act. As
a shareholder of another investment company, a Fund would bear, along with other
shareholders, its pro rata portion of the other investment company's expenses,
including advisory fees. These expenses would be in addition to the advisory and
other expenses that a Fund bears directly in connection with its own operations.
REAL ESTATE INVESTMENT TRUSTS: A real estate investment trust ("REIT") is a
managed portfolio of real estate investments which may include office buildings,
apartment complexes, hotels and shopping malls. An Equity REIT holds equity
positions in real estate, and it seeks to provide its shareholders with income
from the leasing of its properties, and with capital gains from any sales of
properties. A Mortgage REIT specializes in lending money to developers of
properties, and passes any interest income it may earn to its shareholders.
REITs may be affected by changes in the value of the underlying property owned
or financed by the REIT, while Mortgage REITs also may be affected by the
quality of credit extended. Both Equity and Mortgage REITs are dependent upon
management skill and may not be diversified. REITs also may be subject to heavy
cash flow dependency, defaults by borrowers, self-liquidation, and the
possibility of failing to qualify for tax-free pass-through of income under the
Code.
REPURCHASE AGREEMENTS: A repurchase agreement involves the purchase of a
security by a Fund and a simultaneous agreement (generally with a bank or
broker/dealer) to repurchase that security from the Fund at a specified price
and date or upon demand. This technique offers a method of earning income on
uninvested cash. A risk associated with repurchase agreements is the failure of
the seller to repurchase the securities as agreed, which may cause a Fund to
suffer a loss if the market value of such securities declines before they can be
liquidated on the open market. Repurchase agreements with a duration of more
than seven days are considered illiquid securities and are subject to the limit
stated above. A Fund may enter into joint repurchase agreements jointly with
other investment portfolios of Nations Fund.
SECURITIES LENDING: To increase return on portfolio securities, the Funds may
lend their portfolio securities to broker/dealers and other institutional
investors pursuant to agreements requiring that the loans be continuously
secured by collateral equal at all times in value to at least the market value
of the securities loaned. There is a risk of delay in receiving collateral or in
recovering the securities loaned or even a loss of rights in the collateral
should the borrower of the securities fail financially. However, loans are made
only to borrowers deemed by the Adviser to be credit worthy and when, in their
judgment, the income to be earned from the loan justifies the attendant risks.
The aggregate of all outstanding loans of a Fund may not exceed 30% of the value
of its total assets.
SHORT-TERM TRUST OBLIGATIONS: Nations Prime Fund may invest in short-term
obligations issued by special purpose trusts established to acquire specific
issues of government or corporate securities. Such obligations entitle the Fund
to a proportional fractional interest in payments received by such trusts,
either from the underlying securities owned by the trust or pursuant to other
arrangements entered into by the trusts. A trust may enter into a swap
arrangement with a highly rated investment firm, pursuant to which the trust
grants to the counterparty certain of its rights with respect to the securities
owned by the trust in exchange for the obligation of the counterparty to make
payments to the trust according to an established formula. The trust obligations
purchased by the Fund must satisfy the quality and maturity requirements
generally applicable to the Fund pursuant to Rule 2a-7 under the 1940 Act.
STOCK INDEX, INTEREST RATE AND CURRENCY FUTURES CONTRACTS: Certain of the Funds
may purchase and sell futures contracts and related options with respect to
non-U.S. stock indices, non-U.S. interest rates and foreign currencies, that
have been approved by the CFTC for investment by U.S. investors, for the purpose
of hedging against changes in values of a Fund's securities or changes in the
prevailing levels of interest rates or currency exchange rates. The contracts
entail certain risks, including but not limited to the following: no assurance
that futures contracts transactions can be offset at favorable prices; possible
reduction of a Fund's total return due to the use of hedging; possible lack of
liquidity due to daily limits on price fluctuation; imperfect correlation
between the contracts and the securities or currencies being hedged; and
potential losses in excess of the amount invested in the futures contracts
themselves.
Trading on foreign commodity exchanges presents additional risks. Unlike trading
on domestic commodity exchanges, trading on foreign commodity exchanges is not
regulated by the CFTC and may be subject to greater risks than trading on
domestic exchanges. For example, some foreign exchanges are principal markets
for which no common clearing facility exists and a trader may look only to the
broker for performance of the contract. In addition, unless a Fund hedges
against fluctuations in the exchange rate between the U.S. dollar and the
currencies in which trading is done on foreign exchanges, any profits that such
Fund might realize could be eliminated by adverse changes in the exchange rate,
or the Fund could incur losses as a result of those changes.
U.S. GOVERNMENT OBLIGATIONS: U.S. Government Obligations consist of marketable
securities and instru-
55
<PAGE>
ments 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 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 Association; 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. Certain Funds may
invest in securities with demand features where (a) the security or its issuer
has received a short-term rating from an NRSRO; and (b) the issuer of the demand
featuer, or another institution, undertakes to notify promptly the holder of the
security in the event that the demand feature is substituted with a demand
feature provided by another issuer. (Note, however, that certain securities
first issued on or before June 3, 1996 are not subject to these rating and
notice requirements.) An instrument with a demand period exceeding seven days
may be considered illiquid if there is no secondary market for such security.
WHEN-ISSUED, DELAYED DELIVERY AND FORWARD COMMITMENT SECURITIES: The purchase of
new issues of securities on a "when-issued," "delayed delivery" or "forward
commitment" basis occurs when the payment for and delivery of securities takes
place at a future date. Because actual payment for and delivery of such
securities generally take place 15 to 45 days after the purchase date,
purchasers of such securities bear the risk that interest rates on debt
securities at the time of delivery may be higher or lower than those contracted
for on the security purchased.
Appendix B -- Description Of Ratings
The following summarizes the highest six ratings used by S&P for corporate and
municipal bonds. The first four ratings denote investment grade securities.
AAA -- This is the highest rating assigned by S&P to a debt obligation and
indicates an extremely strong capacity to pay interest and repay principal.
AA -- Debt rated AA is considered to have a very strong capacity to pay
interest and repay principal and differs from AAA issues only in a small
degree.
A -- Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than debt in higher-rated
categories.
BBB -- Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than for those in
higher-rated categories.
BB, B -- Bonds rated BB and B are regarded, on balance, as predominantly
speculative with respect to capacity to pay interest and repay principal in
accordance with the terms of the obligation. BB represents the lowest
degree of speculation and B a higher degree of speculation. While such
bonds will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
To provide more detailed indications of credit quality, the AA, A and BBB
ratings may be modified by the addition of a plus or minus sign to show relative
standing within these major rating categories.
56
<PAGE>
The following summarizes the highest six ratings used by Moody's for corporate
and municipal bonds. The first four ratings denote investment grade securities.
Aaa -- Bonds that are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to
as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such
issues.
Aa -- Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there may
be other elements present which make the long-term risks appear somewhat
larger than in Aaa securities.
A -- Bonds that are rated A possess many favorable investment attributes
and are to be considered upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
Baa -- Bonds that are rated Baa are considered medium grade obligations,
I.E., they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable
over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba -- Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may
be small.
Moody's applies numerical modifiers (1, 2 and 3) with respect to corporate bonds
rated Aa through B. The modifier 1 indicates that the bond being rated ranks in
the higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates that the bond ranks in the lower
end of its generic rating category. With regard to municipal bonds, those bonds
in the Aa, A and Baa groups which Moody's believes possess the strongest
investment attributes are designated by the symbols Aa1, A1 or Baa1,
respectively.
The following summarizes the highest four ratings used by D&P for bonds, each of
which denotes that the securities are investment grade:
AAA -- Bonds that are rated AAA are of the highest credit quality. The risk
factors are considered to be negligible, being only slightly more than for
risk-free U.S. Treasury debt.
AA -- Bonds that are rated AA are of high credit quality. Protection
factors are strong. Risk is modest, but may vary slightly from time to time
because of economic conditions.
A -- Bonds that are rated A have protection factors which are average but
adequate. However, risk factors are more variable and greater in periods of
economic stress.
BBB -- Bonds that are rated BBB have below average protection factors but
still are considered sufficient for prudent investment. Considerable
variability in risk exists during economic cycles.
To provide more detailed indications of credit quality, the AA, A and BBB
ratings may be modified by the addition of a plus or minus sign to show relative
standing within these major categories.
The following summarizes the highest four ratings used by Fitch for bonds, each
of which denotes that the securities are investment grade:
AAA -- Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
AA -- Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated AAA. Because bonds
rated in the AAA and AA categories 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.
57
<PAGE>
BBB -- Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these
bonds, and therefore impair timely payment. The likelihood that the ratings
of these bonds will fall below investment grade is higher than for bonds
with higher ratings.
To provide more detailed indications of credit quality, the AA, A and BBB
ratings may be modified by the addition of a plus or minus sign to show relative
standing within these major rating categories.
The following summarizes the two highest ratings used by Moody's for short-term
municipal notes and variable rate demand obligations:
MIG-1/VMIG-1 -- Obligations bearing these designations are of the best
quality, enjoying strong protection from established cash flows, superior
liquidity support or demonstrated broad-based access to the market for
refinancing.
MIG-2/VMIG-2 -- Obligations bearing these designations are of high quality,
with ample margins of protection although not so large as in the preceding
group.
The following summarizes the two highest ratings used by S&P for short-term
municipal notes:
SP-1 -- Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics are given
a "plus" (+) designation.
SP-2 -- Satisfactory capacity to pay principal and interest.
The three highest rating categories of D&P for short-term debt, each of which
denotes that the securities are investment grade, are D-1, D-2 and D-3. D&P
employs three designations, D-1+, D-1 and D-1-, within the highest rating
category. D-1+ indicates highest certainty of timely payment. Short-term
liquidity, including internal operating factors and/or access to alternative
sources of funds, is judged to be "outstanding, and safety is just below
risk-free U.S. Treasury short-term obligations." D-1 indicates very high
certainty of timely payment. Liquidity factors are excellent and supported by
good fundamental protection factors. Risk factors are considered to be minor.
D-1- indicates high certainty of timely payment. Liquidity factors are strong
and supported by good fundamental protection factors. Risk factors are very
small. D-2 indicates good certainty of timely payment. Liquidity factors and
company fundamentals are sound. Although ongoing funding needs may enlarge total
financing requirements, access to capital markets is good. Risk factors are
small. D-3 indicates satisfactory liquidity and other protection factors which
qualify the issue as investment grade. Risk factors are larger and subject to
more variation. Nevertheless, timely payment is expected.
The following summarizes the two highest rating categories used by Fitch for
short-term obligations, each of which denotes securities that are investment
grade:
F-1+ securities possess exceptionally strong credit quality. Issues
assigned this rating are regarded as having the strongest degree of
assurance for timely payment.
F-1 securities possess very strong credit quality. Issues assigned this
rating reflect an assurance of timely payment only slightly less in degree
than issues rated F-1+.
F-2 securities possess good credit quality. Issues carrying this rating
have a satisfactory degree of assurance for timely payment, but the margin
of safety is not as great as for issues assigned the F-1+ and F-1 ratings.
Commercial paper rated A-1 by S&P indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted A-1+. Capacity for timely payment on
commercial paper rated A-2 is satisfactory, but the relative degree of safety is
not as high as for issues designated A-1.
The rating Prime-1 is the highest commercial paper rating assigned by Moody's.
Issuers rated Prime-1 (or related supporting institutions) are considered to
have a superior capacity for repayment of senior short-term promissory
obligations. Issuers rated Prime-2 (or related supporting institutions) are
considered to have a strong capacity for repayment of senior short-term
promissory obligations. This will normally be evidenced by many of the
characteristics of issuers rated Prime-1, but to a lesser degree. Earnings
trends and coverage ratios, while sound, will be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
For commercial paper, D&P uses the short-term debt ratings described above.
For commercial paper, Fitch uses the short-term debt ratings described above.
BankWatch ratings are based upon a qualitative and quantitative analysis of all
segments of the organization including, where applicable, holding company and
operating subsidiaries. BankWatch ratings do not constitute a recommendation to
buy or sell securities of any of these companies. Further, BankWatch does not
suggest specific investment criteria for individual clients.
58
<PAGE>
BankWatch long-term ratings apply to specific issues of long-term debt and
preferred stock. The long-term ratings specifically assess the likelihood of
untimely payment of principal or interest over the term to maturity of the rated
instrument. The following are the four investment grade ratings used by
BankWatch for long-term debt:
AAA -- The highest category; indicates ability to repay principal and
interest on a timely basis is extremely high.
AA -- The second highest category; indicates a very strong ability to repay
principal and interest on a timely basis with limited incremental risk
versus issues rated in the highest category.
A -- The third highest category; indicates the ability to repay principal
and interest is strong. Issues rated "A" could be more vulnerable to
adverse developments (both internal and external) than obligations with
higher ratings.
BBB -- The lowest investment grade category; indicates an acceptable
capacity to repay principal and interest. Issues rated "BBB" are, however,
more vulnerable to adverse developments (both internal and external) than
obligations with higher ratings.
The BankWatch short-term ratings apply to commercial paper, other senior
short-term obligations and deposit obligations of the entities to which the
rating has been assigned. The BankWatch short-term ratings specifically assess
the likelihood of an untimely payment of principal or interest.
TBW-1 -- The highest category; indicates a very high likelihood that
principal and interest will be paid on a timely basis.
TBW-2 -- The second highest category; while the degree of safety regarding
timely repayment of principal and interest is strong, the relative degree
of safety is not as high as for issues rated "TBW-1".
TBW-3 -- The lowest investment grade category; indicates that while more
susceptible to adverse developments (both internal and external) than
obligations with higher ratings, capacity to service principal and interest
in a timely fashion is considered adequate.
TBW-4 -- The lowest rating category; this rating is regarded as
non-investment grade and therefore speculative.
The following summarizes the four highest long-term ratings used by IBCA:
AAA -- Obligations for which there is the lowest expectation of investment
risk. Capacity for timely repayment of principal and interest is
substantial such that adverse changes in business, economic or financial
conditions are unlikely to increase investment risk significantly.
AA -- Obligations for which there is a very low expectation of investment
risk. Capacity for timely repayment of principal and interest is
substantial. Adverse changes in business, economic or financial conditions
may increase investment risk albeit not very significantly.
A -- Obligations for which there is a low expectation of investment risk.
Capacity for timely repayment of principal and interest is strong, although
adverse changes in business, economic or financial conditions may lead to
increased investment risk.
BBB -- Obligations for which there is currently a low expectation of
investment risk. Capacity for timely repayment of principal and interest is
adequate, although adverse changes in business, economic or financial
conditions are more likely to lead to increased investment risk than for
obligations in other categories.
A plus or minus sign may be appended to a rating below AAA to denote relative
status within major rating categories.
The following summarizes the 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.
59
<PAGE>
Prospectus
PRIMARY A SHARES
JULY 31, 1996
This Prospectus describes NATIONS MANAGED INDEX FUND Nations
(the "Fund") of Nations Fund Trust, an open-end Managed
management investment company in the Nations Fund Index Fund
Family ("Nations Fund" or "Nations Fund Family").
This Prospectus describes one class of shares of the
Fund -- Primary A Shares.
This Prospectus sets forth concisely the information
about the Fund that a prospective purchaser of
Primary A Shares should consider before investing.
Investors should read this Prospectus and retain it
for future reference. Additional information about
Nations Fund Trust is contained in a separate
Statement of Additional Information (the "SAI") that
has been filed with the Securities and Exchange
Commission (the "SEC") and is available upon request
without charge by writing or calling Nations Fund at
its address or telephone number shown below. The
SAI, dated July 31, 1996, is incorporated by
reference in its entirety into this Prospectus.
NationsBanc Advisors, Inc. ("NBAI") is the
investment adviser to the Fund. TradeStreet
Investment Associates, Inc. ("TradeStreet") is
sub-investment adviser to the Fund. As used herein
the "Adviser" shall mean NBAI and/or TradeStreet as
the context may require.
SHARES OF NATIONS FUND ARE NOT DEPOSITS OR OTHER
OBLIGATIONS OF, OR ISSUED, ENDORSED OR GUARANTEED
BY, NATIONSBANK, N.A. ("NATIONSBANK") OR ANY OF ITS
AFFILIATES. SUCH SHARES ARE NOT INSURED BY THE U.S.
GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER
GOVERNMENT AGENCY. AN INVESTMENT IN THE FUND
INVOLVES CERTAIN RISKS, INCLUDING POSSIBLE LOSS OF
PRINCIPAL.
NATIONSBANK AND CERTAIN OF ITS AFFILIATES PROVIDE For Fund information call:
CERTAIN OTHER SERVICES TO NATIONS FUND, FOR WHICH 1-800-626-2275
THEY ARE COMPENSATED. STEPHENS INC., WHICH IS NOT
AFFILIATED WITH NATIONSBANK, IS THE SPONSOR AND
ADMINISTRATOR AND SERVES AS THE DISTRIBUTOR FOR Nations Fund
NATIONS FUND. c/o Stephens Inc.
One NationsBank Plaza
33rd Floor
THESE SECURITIES HAVE NOT BEEN APPROVED OR Charlotte, NC 28255
DISAPPROVED BY THE SECURITIES AND EXCHANGE (Nations Fund Logo
COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR appears here)
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.
TR-96448-796
<PAGE>
Table Of Contents
About The
Fund Prospectus Summary 3
Expenses Summary 4
Objective 5
How The Objective Is Pursued 5
How Performance Is Shown 7
How The Fund Is Managed 7
Organization And History 9
About Your
Investment How To Buy Shares 9
How To Redeem Shares 10
How To Exchange Shares 10
How The Fund Values Its Shares 11
How Dividends And Distributions Are Made;
Tax Information 11
Appendix A -- Portfolio Securities 12
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT
CONTAINED IN THIS PROSPECTUS, OR IN THE FUND'S SAI
INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH
THE OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY
NATIONS FUND OR ITS DISTRIBUTOR. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFERING BY NATIONS FUND OR
BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH
OFFERING MAY NOT LAWFULLY BE MADE.
2
About The Fund
Prospectus Summary
(Bullet) TYPE OF COMPANY: Open-end management investment company.
(Bullet) INVESTMENT OBJECTIVE AND POLICIES: Nations Managed Index Fund's
investment objective is to seek, over the long-term, to provide a total
return which (gross of fees and expenses) exceeds the total return of
the Standard & Poor's 500 Composite Stock Price Index.
(Bullet) When consistent with the Fund's objective, the Fund will employ
various techniques to manage capital gain distributions.
(Bullet) INVESTMENT ADVISER: NationsBanc Advisors, Inc. serves as the investment
adviser to the Fund. NBAI provides investment advice to more than 43
investment company portfolios in the Nations Fund Family. TradeStreet
Investment Associates, Inc. provides sub-advisory services to the Fund.
See "How The Fund Is Managed."
(Bullet) DIVIDENDS AND DISTRIBUTIONS: Nations Managed Index Fund declares and
pays dividends from net investment income each calendar quarter. The
Fund's net realized capital gains, including net short-term capital
gains, are distributed at least annually.
(Bullet) RISK FACTORS: Although the Adviser seeks to achieve the investment
objective of the Fund, there is no assurance that it will be able to do
so. Investments in the Fund are not insured against loss of principal.
Investments by the Fund in common stocks and other equity securities
are subject to stock market risk, which is the risk that the value of
the stocks the Fund holds may decline over short or even extended
periods. Certain of the Fund's permissible investments may constitute
derivative securities. Certain types of derivative securities can,
under certain circumstances, significantly increase an investor's
exposure to market or other risks. For a discussion of these and other
factors, see "How Objective Is Pursued -- Risk Considerations" and
"Appendix A -- Portfolio Securities."
(Bullet) MINIMUM PURCHASE: $1,000 minimum initial investment per record holder.
See "How To Buy Shares."
3
<PAGE>
Expenses Summary
Expenses are one of several factors to consider when investing in the Fund. The
following table summarizes shareholder transaction and operating expenses for
Primary A Shares of the Fund. The Example shows the cumulative expenses
attributable to a hypothetical $1,000 investment in the Fund over specified
periods.
PRIMARY A SHARES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
Nations
Managed
Index Fund
<S> <C>
Sales Load Imposed on Purchases None
Deferred Sales Load None
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
<TABLE>
<S> <C>
Management Fees (After Fee Waivers) .30%
All Other Expenses .20%
Total Operating Expenses (After Fee Waivers) .50%
</TABLE>
EXAMPLE:
You would pay the following expenses on a $1,000 investment in Primary A Shares
of the Fund, assuming (1) a 5% annual return and (2) redemption at the end of
each time period.
<TABLE>
<CAPTION>
Nations
Managed
Index Fund
<S> <C>
1 Year $5
3 Years $16
</TABLE>
The purpose of the foregoing table is to assist an investor in understanding the
various shareholder transaction and operating expenses that an investor in
Primary A Shares will bear either directly or indirectly. The figures in the
above table are based on estimates for the fiscal year and have been restated as
necessary to reflect anticipated fee waivers. There is no assurance that any fee
waivers and reimbursements will continue beyond the current fiscal year. If fee
waivers and/or reimbursements are discontinued, the amounts contained in the
"Examples" above may increase. For a more complete description of the Fund's
operating expenses, see "How The Fund Is Managed."
Absent fee waivers, "Management Fees" and "Total Operating Expenses" would be
.50% and .70%, respectively.
THE FOREGOING SHOULD NOT BE CONSIDERED TO BE AN ACTUAL REPRESENTATION OF PAST OR
FUTURE PERFORMANCE. ACTUAL EXPENSES AND RATES OF RETURN MAY BE GREATER OR LESS
THAN THOSE SHOWN.
4
<PAGE>
Objective
Nations Managed Index Fund's investment objective is to seek, over the
long-term, to provide a total return which (gross of fees and expenses) exceeds
the total return of the Standard & Poor's 500 Composite Stock Price Index.
How The Objective Is Pursued
NATIONS MANAGED INDEX FUND: In seeking to achieve its investment objective, the
Fund will invest in selected equity securities that are included in the Standard
& Poor's 500 Composite Stock Price Index (the "S&P 500 Index" or the "Index")1.
The S&P 500 Index is a value weighted index consisting of 500 common stocks
chosen for market size, liquidity and industry group repres-
entation.
The Adviser believes that a managed equity index portfolio can provide investors
with positive incremental performance relative to the S&P 500 Index while
minimizing the downside risk of underperforming the index over time.
The initial stock universe considered by the Adviser is the S&P 500 Index. The
Adviser ranks the attractiveness of each security according to a multifactor
valuation model. Both value and momentum factors are considered in the ranking
process. Value factors such as book value, earnings yield and cash flow measure
a stock's intrinsic worth versus its market price, while momentum
characteristics such as price momentum, earnings growth and earnings
acceleration measure a stock relative to others in the same industry. Each stock
is assigned a ranking from 1 to 10 (best to worst). The Adviser then screens out
the lower rated stocks resulting in a portfolio of 350 to 400 holdings that
capture the investment characteristics of the Index.
In addition, when consistent with the Fund's investment objective, the Fund will
employ various techniques to manage capital gain distributions. These techniques
include utilizing a share identification methodology whereby the Fund will
specifically identify each lot of shares of portfolio securities that it holds,
which will allow the Fund to sell first those specific shares with the highest
tax basis in order to reduce the amount of recognized capital gains as compared
with a sale of identical portfolio securities, if any, with a lower tax basis.
The Fund will sell first those shares with the highest tax basis only when it is
in the best interest of the Fund to do so, and reserves the right to sell other
shares when appropriate. In addition, the Fund may, at times, sell portfolio
securities in order to realize capital losses. Such capital losses would be used
to offset realized capital gains thereby reducing capital gain distributions.
Additionally, the Adviser will, consistent with the multi-factor valuation model
discussed above, employ a low portfolio turnover strategy designed to defer the
realization of capital gains.
Under normal conditions, the Adviser will attempt to invest as much of the
Fund's assets as is practical and, in any event the Fund will invest at least
65% of its total assets, in common stocks which are included in the S&P 500
Index. The Fund is expected, however, to maintain a position in high-quality
short-term debt securities and money market instruments to meet redemption
requests. If the Adviser believes that market conditions warrant a temporary
defensive posture, the Fund may invest without limitation in high-quality
short-term debt securities and money market instruments. These securities and
money market instruments may include domestic and foreign commercial paper,
certificates of deposit, bankers' acceptances and time deposits, U.S. Government
securities and repurchase agreements.
The Fund also may invest in certain specified derivative securities including:
exchange-traded options; over-the-counter options executed with primary dealers,
including long calls and puts and covered calls to enhance return; and U.S.
exchange-traded financial futures approved by the Commodity Futures
Trading Commission ("CFTC") and options thereon for market exposure risk
management. The Fund may lend its portfolio securities to qualified
institutional investors. The Fund also may invest in restricted, private
placement and other illiquid securities. In addition, the Fund may invest in
securities issued by other investment companies, consistent with the Fund's
investment objective and policies.
ABOUT THE INDEX: The S&P 500 Index is composed of 500 common stocks, which are
chosen by S&P on a statistical basis to be included in the Index. The inclusion
of a stock in the S&P 500 Index in no way implies that S&P believes the stock to
be an attractive investment. The Index is determined, composed and calculated by
S&P without regard to the Fund. S&P is neither a sponsor of, nor in any way
affiliated with the Fund, and S&P makes no representation or warranty, expressed
or implied, on the advisability of investing in the Fund or as to the ability of
the Index to track general stock market performance. S&P disclaims all
warranties of merchantability or fitness for a particular purpose or use with
respect to the Index or any data included therein.
(1) "Standard & Poor's 500" is a registered service mark of Standard & Poor's
Corporation ("S&P").
5
<PAGE>
PORTFOLIO TURNOVER: Generally, the Fund will purchase portfolio securities for
capital appreciation or investment income, or both, and not for short-term
trading profits. While it is not possible to predict exactly annual portfolio
turnover rates, it is expected that under normal market conditions, the annual
portfolio turnover rate for the Fund will not exceed 25%.
RISK CONSIDERATIONS: Although the Adviser will seek to achieve the investment
objective of the Fund, there is no assurance that it will be able to do so. No
single fund should be considered, by itself, to provide a complete investment
program for any investor. Investments in the Fund are not insured against loss
of principal.
Investments by the Fund in common stocks and other equity securities are subject
to stock market risk. The value of the stocks that the Fund holds, like the
broader stock market, may decline over short or even extended periods.
Certain of the Fund's permissible investments may constitute derivative
securities, which are securities whose value is derived, at least in part, from
an underlying index or reference rate. There are certain types of derivative
securities that can, under certain circumstances, significantly increase a
purchaser's exposure to market or other risks. The Adviser, however, only
purchases derivative securities in circumstances where it believes such
purchases are consistent with the Fund's investment objective and do not unduly
increase the Fund's exposure to market or other risks. For additional risk
information regarding the Fund's investments in particular instruments, see
"Appendix A -- Portfolio Securities."
The techniques employed by the Adviser to seek to manage capital gain
distributions will generally only have the effect of deferring the realization
of capital gains. For example, to the extent that the capital gains recognized
on a sale of portfolio securities arise from the sale of specifically-identified
securities with higher tax bases, subsequent sales of the same portfolio
securities will be calculated by reference to the lower tax basis securities
that remain in the portfolio. Under this scenario, an investor who purchases
shares of the Fund after the first sale could receive capital gain distributions
that are higher than the distributions that would have been received if this
methodology had not been used. Therefore, certain investors actually could be
disadvantaged by the techniques employed by the Fund to seek to manage capital
gain distributions, depending on the timing of their purchase of Fund shares.
Even if there are no subsequent sales, upon a redemption or exchange of Fund
shares an investor will have to recognize gain to the extent that the net asset
value of Fund shares at such time exceeds such investor's tax basis in his or
her Fund shares.
The various techniques employed by the Fund to manage capital gain distributions
may result in the accumulation of substantial unrealized gains in the Fund's
portfolio. Moreover, the realization of capital gains is not entirely within the
Fund's control because it is at least partly dependent on shareholder purchase
and redemption activity. Capital gain distributions may vary considerably from
year-to-year.
INVESTMENT LIMITATIONS: The Fund is subject to a number of investment
limitations. The following investment limitations are matters of fundamental
policy and may not be changed without the affirmative vote of the holders of a
majority of the Fund's outstanding shares. Other investment limitations that
cannot be changed without such a vote of shareholders are described in the SAI.
The Fund may not:
1. Purchase any securities which would cause 25% or more of the value of the
Fund's total assets at the time of such purchase to be invested in the
securities of one or more issuers conducting their principal activities in the
same industry (for purposes of this limitation, U.S. Government securities are
not considered members of any industry.)
2. Make loans, except that the Fund may purchase and hold debt instruments
(whether such instruments are part of a public offering or privately placed),
may enter into repurchase agreements and may lend portfolio securities in
accordance with its investment policies.
3. Purchase securities of any one issuer (other than securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities) if,
immediately after such purchase, more than 5% of the value of the Fund's total
assets would be invested in the securities of such issuer, except that up to 25%
of the value of the Fund's total assets may be invested without regard to these
limitations and with respect to 75% of the Fund's assets, the Fund will not hold
more than 10% of the voting securities of any issuer.
The investment objective and policies of the Fund, unless otherwise specified,
may be changed without a vote of the Fund's shareholders. If the investment
objective or policies of the Fund change, shareholders should consider whether
the Fund remains an appropriate investment in light of their current position
and needs.
In order to register the Fund's shares for sale in certain states, the Fund may
make commitments more restrictive than the investment policies and limitations
described in this Prospectus and the SAI. Should the Fund determine that any
such commitment is no longer in the best interests of the Fund, it may consider
terminating sales of its shares in the states involved.
6
<PAGE>
How Performance Is Shown
From time to time the Fund may advertise the total return and yield on a class
of shares. TOTAL RETURN AND YIELD FIGURES ARE BASED ON HISTORICAL DATA AND ARE
NOT INTENDED TO INDICATE FUTURE PERFORMANCE. The "total return" of a class of
shares of the Fund may be calculated on an average annual total return basis or
an aggregate total return basis. Average annual total return refers to the
average annual compounded rates of return over one-, five-, and ten-year periods
or the life of the Fund (as stated in the advertisement) that would equate an
initial amount invested at the beginning of a stated period to the ending
redeemable value of the investment, assuming the reinvestment of all dividend
and capital gain distributions. Aggregate total return reflects the total
percentage change in the value of the investment over the measuring period again
assuming the reinvestment of all dividends and capital gain distributions. Total
return may also be presented for other periods.
"Yield" is calculated by dividing the annualized net investment income per share
during a recent 30-day (or one month) period of a class of shares of the Fund by
the maximum public offering price per share on the last day of that period.
Investment performance, which will vary, is based on many factors, including
market conditions, the composition of the Fund's portfolio and the Fund's
operating expenses. Investment performance also often reflects the risks
associated with the Fund's investment objective and policies. These factors
should be considered when comparing the Fund's investment results to those of
other mutual funds and other investment vehicles. Since yields fluctuate, yield
data cannot necessarily be used to compare an investment in the Fund with bank
deposits, savings accounts, and similar investment alternatives which often
provide an agreed-upon or guaranteed fixed yield for a stated period of time.
In addition to Primary A Shares, the Fund offers Primary B, Investor A and
Investor C Shares. Each class of shares may bear different sales charges,
shareholder servicing fees and other expenses, which may cause the performance
of a class to differ from the performance of the other classes. Performance
quotations will be computed separately for each class of the Fund's shares. Any
fees charged by an institution directly to its customers' accounts in connection
with investments in the Fund will not be included in calculations of total
return or yield. The Fund's annual report contains additional performance
information and is available upon request without charge from the Fund's
distributor or your Institution, as defined below.
How The Fund Is Managed
The business and affairs of Nations Fund Trust are managed under the direction
of its Board of Trustees. Nations Fund Trust's SAI contains the names of and
general background information concerning each Trustee of Nations Fund Trust.
Nations Fund and the Adviser have adopted codes of ethics which contain policies
on personal securities transactions by "access persons," including portfolio
managers and investment analysts. These policies substantially comply in all
material respects with the recommendations set forth in the May 9, 1994 Report
of the Advisory Group on Personal Investing of the Investment Company Institute.
INVESTMENT ADVISER: NationsBanc Advisors, Inc. serves as investment adviser to
the Fund. NBAI is a wholly owned subsidiary of NationsBank, which in turn is a
wholly owned banking subsidiary of NationsBank Corporation, a bank holding
company organized as a North Carolina corporation. NBAI has its principal
offices at One NationsBank Plaza, Charlotte, North Carolina 28255.
TradeStreet Investment Associates, Inc., with principal offices at One
NationsBank Plaza, Charlotte, North Carolina 28255, serves as sub-investment
adviser to the Fund. TradeStreet is a wholly owned subsidiary of NationsBank.
TradeStreet provides investment management services to individuals, corporations
and institutions.
Subject to the general supervision of Nations Fund Trust's Board of Trustees,
and in accordance with the Fund's investment policies, the Adviser formulates
guidelines and lists of approved investments for the Fund, makes decisions with
respect to and places orders for the Fund's purchases and sales of portfolio
securities and maintains records relating to such purchases and sales. The
Adviser is authorized to allocate purchase and sale orders for portfolio
securities to certain financial institutions, including, in the case of agency
transactions, financial institutions which are affiliated with the Adviser or
which have sold shares in the Fund, if the Adviser believes that the quality of
the transaction and the commission are comparable to what they would be with
other qualified brokerage firms. From time to time, to the extent consistent
with its investment objective, policies and restrictions, the Fund may invest in
securities of companies with which NationsBank has a lending relationship. For
the services provided and expenses assumed pursuant to an Investment Advisory
Agreement, NBAI is entitled to receive advisory fees, com-
7
<PAGE>
puted daily and paid monthly, at the annual rate of 0.50% of the average daily
net assets of the Fund.
From time to time, NBAI (and/or TradeStreet) may waive or reimburse (either
voluntarily or pursuant to applicable state limitations) advisory fees and/or
expenses payable by the Fund.
For the services provided and the expenses assumed pursuant to a Sub-Advisory
Agreement, NBAI will pay TradeStreet sub-advisory fees, computed daily and paid
monthly, at the annual rate of 0.10% of the average daily net assets of the
Fund.
Greg W. Golden is a Structured Products Manager, Equity Management for
TradeStreet and is Portfolio Manager for Nations Equity Index Fund and Nations
Managed Index Fund. He has been Portfolio Manager for Nations Managed Index Fund
since its inception. Prior to assuming his position with TradeStreet in 1996, he
was Vice President and Structured Products Manager for the Investment Management
Group at NationsBank. He has worked in the investment community since 1990. His
past experience includes portfolio management, derivatives management and
quantitative analysis for the Investment Management Group at NationsBank and
Sovran Bank of Tennessee. Mr. Golden received a B.B.A. in Finance from Belmont
University. He is a Chartered Financial Analyst candidate and a member of the
Association for Investment Management and Research as well as the North Carolina
Society of Financial Analysts, Inc.
Morrison & Foerster LLP, counsel to Nations Fund and special counsel to
NationsBank, has advised Nations Fund and NationsBank that NationsBank and its
affiliates may perform the services contemplated by the Investment Advisory
Agreement and this Prospectus without violation of the Glass-Steagall Act. Such
counsel has pointed out, however, that there are no controlling judicial or
administrative interpretations or decisions and that future judicial or
administrative interpretations of, or decisions relating to, present federal or
state statutes, including the Glass-Steagall Act, and regulations relating to
the permissible activities of banks and their subsidiaries or affiliates, as
well as future changes in such federal or state statutes, regulations and
judicial or administrative decisions or interpretations, could prevent such
entities from continuing to perform, in whole or in part, such services. If any
such entity were prohibited from performing any of such services, it is expected
that new agreements would be proposed or entered into with another entity or
entities qualified to perform such services.
OTHER SERVICE PROVIDERS: Stephens Inc. ("Stephens"), with principal offices at
111 Center Street, Little Rock, Arkansas 72201, serves as the administrator of
Nations Fund pursuant to an Administration Agreement. Pursuant to the terms of
the Administration Agreement, Stephens provides various administrative and
corporate secretarial services to the Fund, including providing general
oversight of other service providers, office space, utilities and various legal
and administrative services in connection with the satisfaction of various
regulatory requirements applicable to the Fund.
First Data Investor Services Group, Inc. ("First Data"), formerly The
Shareholder Services Group, Inc., a wholly owned subsidiary of First Data
Corporation, with principal offices at One Exchange Place, Boston, Massachusetts
02109, serves as the co-administrator of Nations Fund pursuant to a
Co-Administration Agreement. Under the Co-Administration Agreement, First Data
provides various administrative and accounting services to the Fund including
performing the calculations necessary to determine net asset value per share and
dividends, preparing tax returns and financial statements and maintaining the
portfolio records and certain of the general accounting records for the Fund.
For the services rendered pursuant to the Administration and Co-Administration
Agreements, Stephens and First Data are entitled to receive a combined fee at an
annual rate of up to 0.10% of the Fund's average daily net assets.
NationsBank serves as sub-administrator for Nations Fund pursuant to a
Sub-Administration Agreement. Pursuant to the terms of the Sub-Administration
Agreement, NationsBank assists Stephens in supervising, coordinating and
monitoring various aspects of the Fund's administrative operations. For
providing such services, NationsBank shall be entitled to receive a monthly fee
from Stephens based on an annual rate of 0.01% of the Fund's average daily net
assets.
Shares of the Fund are sold on a continuous basis by Stephens, as the Fund's
sponsor and distributor. Stephens is a registered broker/dealer with principal
offices at 111 Center Street, Little Rock, Arkansas 72201. Nations Fund has
entered into distribution agreements with Stephens which provide that Stephens
has the exclusive right to distribute shares of the Fund. Stephens may pay
service fees or commissions to Institutions which assist customers in purchasing
Primary A Shares of the Fund.
First Data serves as the Transfer Agent for the Fund's Primary A Shares.
NationsBank of Texas, N.A. ("NationsBank of Texas" or the "Custodian") serves as
custodian for the assets of the Fund. NationsBank of Texas, which also serves as
the sub-transfer agent for the Fund's Primary A Shares, is located at 1401 Elm
Street, Dallas, Texas 75202, and is a wholly owned subsidiary of NationsBank
Corporation. In return for providing custodial services, NationsBank of Texas is
entitled to receive, in addition to out-of-pocket expenses, fees payable monthly
(i) at the rate of 1.25% of 1% of the average daily net assets of the Fund, (ii)
$10.00 per repurchase collateral transaction by the Fund, and (iii) $15.00 per
purchase, sale and maturity transaction involving the Fund. In return for
providing sub-transfer agency services for the Shares of Nations Fund,
NationsBank of Texas is entitled to receive an annual fee from First Data of
$251,000.
8
<PAGE>
Price Waterhouse LLP serves as independent accountant to Nations Fund. Its
address is 160 Federal Street, Boston, Massachusetts 02110.
EXPENSES: The accrued expenses of the Fund are deducted from the Fund's total
accrued income before dividends are declared. These expenses include, but are
not limited to: fees paid to the Adviser, NationsBank, Stephens and First Data;
taxes; interest; Trustees' fees; federal and state securities registration and
qualification fees; brokerage fees and commissions; costs of preparing and
printing prospectuses for regulatory purposes and for distribution to existing
shareholders; charges of the Custodian and Transfer Agent; certain insurance
premiums; outside auditing and legal expenses; costs of shareholder reports and
shareholder meetings; other expenses which are not expressly assumed by the
Adviser, NationsBank, Stephens or First Data under their respective agreements
with Nations Fund; and any extraordinary expenses. Any general expenses of
Nations Fund Trust that are not readily identifiable as belonging to a
particular investment portfolio are allocated among all portfolios in the
proportion that the assets of a portfolio bears to the assets of Nations Fund
Trust or in such other manner as the Board of Trustees determines is fair and
equitable.
Organization And History
The Fund is a member of the Nations Fund Family, which consists of Nations Fund
Trust, Nations Fund, Inc., Nations Fund Portfolios, Inc. and Nations
Institutional Reserves. The Nations Fund Family currently consists of more than
43 distinct investment portfolios and total assets in excess of $18 billion.
NATIONS FUND TRUST: Nations Fund Trust was organized as a Massachusetts business
trust on May 6, 1985. Nations Fund Trust's fiscal year end is March 31; prior to
1996, Nations Fund Trust's fiscal year end was November 30. The Fund currently
offers four classes of shares -- Primary A Shares, Primary B Shares, Investor A
Shares and Investor C Shares. This Prospectus relates only to the Primary A
Shares of Nations Managed Index Fund of Nations Fund Trust. To obtain additional
information regarding the Fund's other classes of shares which may be available
to you, contact your Institution (as defined below) or Nations Fund at
1-800-626-2275.
Each share of Nations Fund Trust is without par value, represents an equal
proportionate interest in the related fund with other shares of the same class,
and is entitled to such dividends and distributions out of the income earned on
the assets belonging to such fund as are declared in the discretion of Nations
Fund Trust's Board of Trustees. Nations Fund Trust's Declaration of Trust
authorizes the Board of Trustees to classify or reclassify any class of shares
into one or more series of shares.
Shareholders are entitled to one vote for each full share held and a
proportionate fractional vote for each fractional share held. Shareholders of
each fund of Nations Fund Trust will vote in the aggregate and not by fund, and
shareholders of each fund will vote in the aggregate and not by class except as
otherwise expressly required by law or when the Board of Trustees determines
that the matter to be voted on affects only the interests of shareholders of a
particular fund or class. See the related SAI for examples of when the
Investment Company Act of 1940 (the "1940 Act") requires voting by fund.
As of July 15, 1996, NationsBank and its affiliates possessed or shared power to
dispose or vote with respect to more than 25% of the outstanding shares of
certain classes of shares of Nations Fund Trust and therefore could be
considered to be a controlling person of these classes and series of Nations
Fund Trust for purposes of the 1940 Act. For more detailed information
concerning the percentage of each class or series of shares over which
NationsBank and its affiliates possessed or shared power to dispose or vote as
of a certain date, see Nations Fund Trust's SAI.
Nations Fund Trust does not presently intend to hold annual meetings except as
required by the 1940 Act. Shareholders will have the right to remove Trustees.
Nations Fund Trust's Code of Regulations provides that special meetings of
shareholders shall be called at the written request of the shareholders entitled
to vote at least 10% of the outstanding shares of Nations Fund Trust entitled to
be voted at such meeting.
About Your Investment
How To Buy Shares
Primary A Shares may be sold to financial institutions (including NationsBank
and its affiliated and correspondent banks) and fee-based planners acting on
behalf of their customers, employee benefit plans, charitable foundations and
endowments. Primary A Shares may, at times, be sold to other similar categories
of investors.
Primary A Shares are sold at net asset value without the imposition of a sales
charge. Financial institutions
9
<PAGE>
"Institutions") acting on behalf of their customers ("Customers") may establish
certain procedures for processing Customers' purchase orders and may charge
their Customers for services provided to them in connection with their
investments.
Purchases may be effected on days on which the New York Stock Exchange (the
"Exchange") is open for business (a "NYSE Business Day"). Unless otherwise
specified, the term Business Day in this Prospectus refers to a NYSE Business
Day.
There is a minimum initial investment of $1,000 for each record holder; there is
no minimum subsequent investment.
Nations Fund reserves the right to reject any purchase order. The issuance of
Primary A Shares is recorded on the books of the Fund, and share certificates
are not issued. It is the responsibility of Institutions, when applicable, to
record beneficial ownership of Primary A Shares and to reflect such ownership in
the account statements provided to their Customers.
EFFECTIVE TIME OF PURCHASES: Purchase orders for Primary A Shares in the Fund
which are received by Stephens or by the Transfer Agent before the close of
regular trading hours on the Exchange (currently 4:00 p.m., Eastern time) on any
Business Day are priced according to the net asset value determined on that day
but are not executed until 4:00 p.m., Eastern time, on the Business Day on which
immediately available funds in payment of the purchase price are received by the
Fund's Custodian. Such payment must be received no later than 4:00 p.m., Eastern
time, by the third Business Day following receipt of the order. If funds are not
received by such date, the order will not be accepted and notice thereof will be
given to the Institution or investor placing the order. Payment for orders which
are not received or accepted will be returned after prompt inquiry to the
sending Institution or investor. Primary A Shares are purchased at the net asset
value per share next determined after receipt of the order by Stephens or by the
Transfer Agent.
Institutions are responsible for transmitting orders for purchases of Primary A
Shares by their Customers, and for delivering required funds, on a timely basis.
It is Stephens' responsibility to transmit orders it receives to Nations Fund.
How To Redeem Shares
Nations Fund may redeem a shareholder's Primary A Shares if the balance in such
shareholder's account with the Fund drops below $500 as a result of redemptions,
and the shareholder does not increase the balance to at least $500 on 60 days'
written notice. If a Customer has agreed with a particular Institution to
maintain a minimum balance in his or her account at the Institution, and the
balance in such Institution account falls below that minimum, the Customer may
be obliged to redeem all or a part of his or her Primary A Shares in the Fund to
the extent necessary to maintain the required minimum balance in such
Institution account. Nations Fund also may redeem shares involuntarily or make
payment for redemption in readily marketable securities or other property under
certain circumstances in accordance with the 1940 Act.
Institutions are responsible for transmitting redemption orders to Stephens or
to the Transfer Agent and for crediting their Customers' accounts with the
redemption proceeds on a timely basis. It is the responsibility of Stephens to
transmit orders it receives to Nations Fund. No charge for wiring redemption
payments is imposed by Nations Fund, although Institutions may charge their
Customer accounts for these or other services provided in connection with the
redemption of Primary A Shares and may establish additional procedures.
Information concerning any charges or procedures is available from the
Institutions. Redemption orders are effected at the net asset value per share
next determined after acceptance of the order by Stephens or by the Transfer
Agent. Redemption proceeds are normally remitted in federal funds wired to the
redeeming Institution or investor within three Business Days following receipt
of the order.
How To Exchange Shares
The exchange feature enables a shareholder of Primary A Shares of the Fund to
acquire Primary A Shares of another fund when that shareholder believes that a
shift between funds is an appropriate investment decision. An exchange of
Primary A Shares for Primary A Shares of another fund is made on the basis of
the next calculated net asset value per share of each fund after the exchange
order is received.
The Fund and each of the other funds of Nations Fund may limit the number of
times this exchange feature may be exercised by a shareholder within a specified
period of time. Also, the exchange feature may be termi-
10
<PAGE>
nated or revised at any time by Nations Fund upon such notice as may be required
by applicable regulatory agencies (presently 60 days for termination or material
revision), provided that the exchange feature may be terminated or materially
revised without notice under certain unusual circumstances.
The current prospectus for each fund of Nations Fund describes its investment
objective and policies, and shareholders should obtain a copy and examine it
carefully before investing. Exchanges are subject to the minimum investment
requirement and any other conditions imposed by each fund. In the case of any
shareholder holding a share certificate or certificates, no exchanges may be
made until all applicable share certificates have been received by the Transfer
Agent and deposited in the shareholder's account. An exchange will be treated
for Federal income tax purposes the same as a redemption of shares, on which the
shareholder may realize a capital gain or loss. However, the ability to deduct
capital losses on an exchange may be limited in situations where there is an
exchange of shares within 90 days after the shares are purchased.
Nations Fund reserves the right to reject any exchange request. Only shares that
may legally be sold in the state of the investor's residence may be acquired in
an exchange. Only shares of a class that is accepting investments generally may
be acquired in an exchange.
If you have telephone exchange privileges, during periods of significant
economic or market change, telephone exchanges may be difficult to complete. In
such event, shares may be exchanged by mailing your request directly to the
entity through which the original shares were purchased. Investors should
consult their Institution or Stephens for further information regarding
exchanges.
Primary A Shares may be exchanged by directing a request directly to the
Institution, if any, through which the original Primary A Shares were purchased
or in other cases Stephens or the Transfer Agent. Investors should consult their
Institution, Stephens or the Transfer Agent for further information regarding
exchanges. Your exchange feature may be governed by your account agreement with
your Institution.
How The Fund Values Its Shares
The net asset value of a share of each class is calculated by dividing the total
value of its assets, less liabilities, by the number of shares in the class
outstanding. Shares of the Fund are valued as of the close of regular trading on
the Exchange (currently 4:00 p.m., Eastern time) on each NYSE Business Day.
Currently, the days on which the Exchange is closed (other than weekends) are:
New Year's Day, Presidents' Day, Good Friday, Memorial Day (observed),
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
Portfolio securities for which market quotations are readily available are
valued at market value. Short-term investments that will mature in 60 days or
less are valued at amortized cost, which approximates market value. All other
securities are valued at their fair value following procedures approved by the
Trustees.
How Dividends And Distributions Are Made;
Tax Information
DIVIDENDS AND DISTRIBUTIONS: Even though the Fund seeks to manage taxable
distributions, the Fund may be expected to earn and distribute taxable income
and may also be expected to realize and distribute capital gains from time to
time. Dividends from net investment income are declared and paid each calendar
quarter by the Fund. The Fund's net realized capital gains (including net
short-term capital gains) are distributed at least annually.
Primary A Shares of the Fund are eligible to receive dividends when declared,
provided, however, that the purchase order for such shares is received at least
one day prior to the dividend declaration and such shares continue to be
eligible for dividends through and including the day before the redemption order
is executed.
The net asset value of Primary A Shares will be reduced by the amount of any
dividend or distribution. Dividends and distributions are paid in cash within
five Business Days of the end of the quarter to which the dividend relates.
Certain purchasing Institutions may provide for the reinvestment of dividends in
additional Primary A Shares of the same Fund. Dividends and distributions
payable to a shareholder are paid in cash within five Business Days after a
shareholder's complete redemption of his or her Primary A Shares in the Fund.
TAX INFORMATION: The Fund intends to qualify as a separate "regulated investment
company" under the Internal Revenue Code of 1986, as amended (the "Code"). Such
qualification relieves the Fund of liability for Federal income tax to the
extent its earnings are distributed in accordance with the Code.
11
<PAGE>
The Fund intends to distribute substantially all of its investment company
taxable income and net tax-exempt income each taxable year. Such distributions
by the Fund of its net investment income (including net foreign currency gains)
and the excess, if any, of its net short-term capital gain over its net
long-term capital loss will be taxable as ordinary income to shareholders who
are not currently exempt from Federal income tax, whether such income is
received in cash or reinvested in additional shares.
Corporate shareholders may be entitled to the dividends-received deduction for
distributions from the Fund's investment in the stock of domestic corporations
to the extent of the total qualifying dividends received by the Fund.
Substantially all of the net realized long-term capital gains of the Fund, if
any, will be distributed at least annually to the Fund's shareholders. The Fund
will generally have no tax liability with respect to such gains, and the
distributions will be taxable to such shareholders who are not currently exempt
from Federal income tax as long-term capital gains, regardless of how long the
shareholders have held the Fund's shares and whether such gains are received in
cash or reinvested in additional shares.
Each year, shareholders will be notified as to the amount and Federal tax status
of all dividends and capital gains paid during the prior year. Such dividends
and capital gains may also be subject to state and local taxes.
Dividends declared in October, November or December of any year payable to
shareholders of record on a specified date in such months will be deemed to have
been received by shareholders and paid by the Fund on December 31 of such year
in the event such dividends are actually paid during January of the following
year.
Federal law requires Nations Fund to withhold 31% from any dividends (other than
exempt-interest dividends) paid by Nations Fund and/or redemptions (including
exchange redemptions) that occur in certain shareholder accounts if the
shareholder has not properly furnished a certified correct Taxpayer
Identification Number or has not certified that withholding does not apply. If
the Internal Revenue Service has notified Nations Fund that the Taxpayer
Identification Number listed on a shareholder account is incorrect according to
its records, or that the shareholder is subject to backup withholding, the Fund
is required by the Internal Revenue Service to withhold 31% of any dividend
(other than exempt-interest dividends) and/or redemption (including exchange
redemptions). Amounts withheld are applied to the shareholder's Federal tax
liability, and a refund may be obtained from the Internal Revenue Service if
withholding results in overpayment of taxes. Federal law also requires the Fund
to withhold 30% or the applicable tax treaty rate from dividends paid to certain
nonresident alien, non-U.S. partnership and non-U.S. corporation shareholder
accounts.
The foregoing discussion is based on tax laws and regulations which were in
effect as of the date of this Prospectus and summarizes only some of the
important tax considerations generally affecting the Fund and its shareholders.
It is not intended as a substitute for careful tax planning. Accordingly,
potential investors should consult their tax advisors with specific reference to
their own tax situations. Further tax information is contained in the SAI.
Appendix A -- Portfolio Securities
The following are summary descriptions of certain types of instruments in which
the Fund may invest. The "How Objective Is Pursued" section of the Prospectus
identifies the Fund's permissible investments, and the SAI contains more
information concerning such investments.
BANK INSTRUMENTS: Bank instruments consist mainly of certificates of deposit,
time deposits and bankers' acceptances. The Fund will limit its investments in
bank obligations so they do not exceed 25% of the Fund's total assets at the
time of purchase.
BORROWINGS: When the Fund borrows money, the net asset value of a share may be
subject to greater fluctuation until the borrowing is paid off. The Fund may
borrow money from banks for temporary purposes in amounts of up to one-third of
its total assets, provided that borrowings in excess of 5% of the value of the
Fund's total assets must be repaid prior to the purchase of portfolio
securities. Under the requirements of the 1940 Act, the Fund is required to
maintain an asset coverage (including the proceeds of the borrowings) of at
least 300% of all borrowings.
COMMERCIAL INSTRUMENTS: Commercial instruments consist of short-term U.S.
dollar-denominated obligations issued by domestic corporations or foreign
corporations and foreign commercial banks. Investments by the Fund in commercial
paper will consist of issues rated in a manner consistent with the Fund's
investment policies and objective. In addition, the Fund may acquire unrated
commercial paper and corporate bonds that are determined by the Adviser at the
time of purchase to be of comparable quality to rated instruments that may be
acquired by the Fund. Commercial instruments include variable-rate master demand
notes, which are unsecured instruments that permit the indebtedness thereunder
to vary and provide for periodic adjustments in the interest rate, and variable-
and floating-rate instruments.
12
<PAGE>
CONVERTIBLE SECURITIES, PREFERRED STOCK, AND WARRANTS: The Fund may invest in
debt securities convertible into or exchangeable for equity securities,
preferred stocks or warrants. Preferred stocks are securities that represent an
ownership interest in a corporation providing the owner with claims on a
company's earnings and assets before common stock owners, but after bond or
other debt security owners. Warrants are options to buy a stated number of
shares of common stock at a specified price any time during the life of the
warrants.
FUTURES, OPTIONS AND OTHER DERIVATIVE INSTRUMENTS: The Fund may attempt to
reduce the overall level of investment risk of particular securities and attempt
to protect the Fund against adverse market movements by investing in futures,
options and other derivative instruments. These include the purchase and writing
of options on securities (including index options), and investing in futures
contracts for the purchase or sale of instruments based on financial indices,
including interest rate indices or indices of U.S. government, equity or fixed
income securities ("futures contracts"), options on futures contracts, forward
contracts and swaps and swap-related products such as interest rate swaps,
currency swaps, caps, collars and floors.
The use of futures, options, forward contracts and swaps exposes the Fund to
additional investment risks and transaction costs. If the Adviser incorrectly
analyzes market conditions or does not employ the appropriate strategy with
respect to these instruments, the Fund could be left in a less favorable
position. Additional risks inherent in the use of futures, options, forward
contracts and swaps include: imperfect correlation between the price of futures,
options and forward contracts and movements in the prices of the securities or
currencies being hedged; the possible absence of a liquid secondary market for
any particular instrument at any time; and the possible need to defer closing
out certain hedged positions to avoid adverse tax consequences. The Fund may not
purchase put and call options which are traded on a national stock exchange in
an amount exceeding 5% of its net assets. Further information on the use of
futures, options and other derivative instruments, and the associated risks, is
contained in the SAI.
ILLIQUID SECURITIES: Certain securities may be sold only pursuant to certain
legal restrictions, and may be difficult to sell. The Fund will not hold more
than 15% of the value of its net assets in securities that are illiquid or such
lower percentage as may be required by the states in which the Fund sells its
shares. Repurchase agreements, time deposits and guaranteed investment contracts
that do not provide for payment to the Fund within seven days after notice, and
illiquid restricted securities are subject to the limitation on illiquid
securities.
If otherwise consistent with its investment objective and policies, the Fund may
purchase securities that are not registered under the Securities Act of 1933, as
amended (the "1933 Act") but which can be sold to "qualified institutional
buyers" in accordance with Rule 144A 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 the Fund's Board of Trustees or the
Adviser, acting under guidelines approved and monitored by the Fund's Board,
after considering trading activity, availability of reliable price information
and other relevant information, that an adequate trading market exists for that
security. To the extent that, for a period of time, qualified institutional 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.
MONEY MARKET INSTRUMENTS: The term "money market instruments" refers to
instruments with remaining maturities of one year or less. Money market
instruments may include, among other instruments, certain U.S. Treasury
obligations, U.S. Government obligations, bank instruments, commercial
instruments, repurchase agreements and municipal securities. Such instruments
are described in this Appendix A.
OTHER INVESTMENT COMPANIES: The Fund may invest in securities issued by other
investment companies to the extent that such investments are consistent with the
Fund's investment objective and policies and permissible under the 1940 Act. As
a shareholder of another investment company, the Fund would bear, along with
other shareholders, its pro rata portion of the other investment company's
expenses, including advisory fees. These expenses would be in addition to the
advisory and
13
<PAGE>
other expenses that the Fund bears directly in connection with its own
operations.
REPURCHASE AGREEMENTS: A repurchase agreement involves the purchase of a
security by the Fund and a simultaneous agreement (generally with a bank or
broker/dealer) to repurchase that security from the Fund at a specified price
and date or upon demand. This technique offers a method of earning income on
idle cash. A risk associated with repurchase agreements is the failure of the
seller to repurchase the securities as agreed, which may cause the Fund to
suffer a loss if the market value of such securities declines before they can be
liquidated on the open market. Repurchase agreements with a duration of more
than seven days are considered illiquid securities and are subject to the limit
stated above. The Fund may enter into repurchase agreements jointly with other
investment portfolios of Nations Fund.
SECURITIES LENDING: To increase return on portfolio securities, the Fund may
lend its portfolio securities to broker/dealers and other institutional
investors pursuant to agreements requiring that the loans be continuously
secured by collateral equal at all times in value to at least the market value
of the securities loaned. There is a risk of delay in receiving collateral or in
recovering the securities loaned or even a loss of rights in the collateral
should the borrower of the securities fail financially. However, loans are made
only to borrowers deemed by the Adviser to be credit worthy and when, in its
judgment, the income to be earned from the loan justifies the attendant risks.
The aggregate of all outstanding loans of the Fund may not exceed 30% of the
value of its total assets.
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 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 Association; 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.
WHEN-ISSUED, DELAYED DELIVERY AND FORWARD COMMITMENT SECURITIES: The purchase of
new issues of securities on a "when-issued," "delayed delivery" or "forward
commitment" basis occurs when the payment for and delivery of securities takes
place at a future date. Because actual payment for and delivery of such
securities generally take place 15 to 45 days after the purchase date,
purchasers of such securities bear the risk that interest rates on debt
securities at the time of delivery may be higher or lower than those contracted
for on the security purchased.
14
<PAGE>
Prospectus
PRIMARY B SHARES
JULY 31, 1996
Money Market
Funds
(Nations Fund Logo appears here)
INVESTMENT ADVISER: NationsBanc Advisors, Inc.
SUB-INVESTMENT ADVISER: TradeStreet Investment Associates, Inc.
DISTRIBUTOR: Stephens Inc.
<PAGE>
Prospectus
PRIMARY B SHARES
JULY 31, 1996
This Prospectus describes the investment portfolios
listed in the column to the right (each a "Fund" and
collectively the "Money Market Funds"), of Nations
Fund Trust and Nations Fund, Inc., each an open-end
management investment company in the Nations Fund
Family ("Nations Fund" or "Nations Fund Family").
This Prospectus describes one class of shares of
each Fund -- Primary B Shares (formerly called Trust
B Shares).
EACH MONEY MARKET FUND SEEKS TO MAINTAIN A NET ASSET
VALUE OF $1.00 PER SHARE.
INVESTMENTS IN THE MONEY MARKET FUNDS ARE NEITHER
INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT AND
THERE CAN BE NO ASSURANCE THAT THE MONEY MARKET
FUNDS WILL BE ABLE TO MAINTAIN A STABLE NET ASSET
VALUE OF $1.00 PER SHARE.
This Prospectus sets forth concisely the information
about the Funds that a prospective purchaser of
Primary B Shares should consider before investing.
Investors should read this Prospectus and retain it
for future reference. Additional information about
Nations Fund Trust and Nations Fund, Inc. is
contained in separate Statements of Additional
Information (the "SAIs"), that have been filed with
the Securities and Exchange Commission (the "SEC")
and are available upon request without charge by
writing or calling Nations Fund at its address or
telephone number shown below. The SAIs bear the same
date as this Prospectus and are incorporated by
reference in their entirety into this Prospectus.
NationsBanc Advisors, Inc. ("NBAI") is the
investment adviser to the Funds. TradeStreet
Investment Associates, Inc. ("TradeStreet") is sub-
investment adviser to the Funds. As used herein the
"Adviser" shall mean NBAI and/or TradeStreet as the
context may require.
SHARES OF NATIONS FUND ARE NOT DEPOSITS OR OTHER
OBLIGATIONS OF, OR ISSUED, ENDORSED OR GUARANTEED
BY, NATIONSBANK, N.A. ("NATIONSBANK") OR ANY OF ITS
AFFILIATES. SUCH SHARES ARE NOT INSURED BY THE U.S.
GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER
GOVERNMENT AGENCY. AN INVESTMENT IN THE FUNDS
INVOLVES CERTAIN RISKS, INCLUDING POSSIBLE LOSS OF
PRINCIPAL.
NATIONBANK AND CERTAIN OF ITS AFFILIATES PROVIDE
CERTAIN OTHER SERVICES TO NATIONS FUND, FOR WHICH
THEY ARE COMPENSATED. STEPHENS INC., WHICH IS NOT
AFFILIATED WITH NATIONSBANK, IS THE SPONSOR AND
ADMINISTRATOR AND SERVES AS THE DISTRIBUTOR FOR
NATIONS FUND.
THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
Nations Prime Fund
Nations Treasury Fund
Nations Government
Money Market Fund
Nations Tax Exempt
Fund
For Fund information call:
1-800-626-2275
or write:
Nations Fund
c/o Stephens Inc.
One NationsBank Plaza
33rd Floor
Charlotte, NC 28255
(Nations Fund Logo appears here)
<PAGE>
Table Of Contents
About The Funds
Prospectus Summary 3
Expenses Summary 4
Financial Highlights 5
Objectives 7
How Objectives Are Pursued 7
How Performance Is Shown 10
How The Funds Are Managed 10
Organization And History 13
About Your Investment
How To Buy Shares 14
How To Redeem Shares 14
How To Exchange Shares 15
Shareholder Servicing Plan 16
How The Funds Value Their Shares 16
How Dividends And Distributions Are Made; Tax
Information 16
Appendix A -- Portfolio Securities 18
Appendix B -- Description Of Ratings 23
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT
CONTAINED IN THIS PROSPECTUS, OR IN THE FUNDS' SAIS
INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH
THE OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY NATIONS FUND OR ITS DISTRIBUTOR. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFERING BY NATIONS FUND OR
BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH
OFFERING MAY NOT LAWFULLY BE MADE.
2
<PAGE>
About The Funds
Prospectus Summary
(Bullet) TYPE OF COMPANIES: Open-end management investment companies.
(Bullet) INVESTMENT OBJECTIVES AND POLICIES:
(Bullet) Nations Prime Fund's investment objective is to seek the
maximization of current income to the extent consistent with
the preservation of capital and the maintenance of liquidity.
(Bullet) Nations Treasury Fund's investment objective is the
maximization of current income to the extent
consistent with the preservation of capital and the
maintenance of liquidity.
(Bullet) Nations Government Money Market Fund's
investment objective is to seek as high a
level of current income as is consistent
with liquidity and stability of principal.
(Bullet) Nations Tax Exempt Fund's
investment objective is to seek as
high a level of current interest
income exempt from Federal income
taxes as is consistent with
liquidity and stability of
principal.
(Bullet) INVESTMENT ADVISER: NationsBanc Advisors, Inc. serves as the investment
adviser to the Funds. NBAI provides investment advice to more than 43
investment company portfolios in the Nations Fund Family. TradeStreet
Investment Associates, Inc. provides sub-advisory services to the
Funds. See "How The Funds Are Managed."
(Bullet) DIVIDENDS AND DISTRIBUTIONS: Nations Prime Fund, Nations Treasury Fund,
Nations Government Money Market Fund and Nations Tax Exempt Fund
declare dividends daily and pay them monthly. Each Fund's net realized
capital gains, including net short-term capital gains are distributed
at least annually.
(Bullet) RISK FACTORS: Although the Adviser seeks to achieve the investment
objective of each Fund, there is no assurance that it will be able to
do so. Although each Fund seeks to maintain a stable net asset value of
$1.00 per share, there is no assurance that it will be able to do so.
Investments in a Fund are not insured against loss of principal. For a
discussion of these and other factors, see "How Objectives Are
Pursued -- Risk Considerations" and "Appendix A -- Portfolio
Securities."
(Bullet) MINIMUM PURCHASE: $1,000 minimum initial investment per record holder.
See "How To Buy Shares."
3
<PAGE>
Expenses Summary
Expenses are one of several factors to consider when investing in the Funds. The
following table summarizes shareholder transaction and operating expenses for
Primary B Shares of the Funds. The Examples show the cumulative expenses
attributable to a hypothetical $1,000 investment in the Funds over specified
periods.
PRIMARY B SHARES*
<TABLE>
Nations
Nations Prime Nations Treasury Government Money Nations Tax
SHAREHOLDER TRANSACTION EXPENSES Fund Fund Market Fund Exempt Fund
<S> <C> <C> <C> <C>
Sales Load Imposed on Purchases None None None None
Deferred Sales Load None None None None
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
<TABLE>
<S> <C> <C> <C> <C>
Management Fees (After Fee Waivers) .20% .20% .20% .20%
Shareholder Servicing Fees .25% .25% .25% .25%
Other Expenses (After Expense Reimbursements) .10% .10% .10% .10%
Total Operating Expenses (After Fee Waivers
and Expense Reimbursements) .55% .55% .55% .55%
</TABLE>
* Primary B Shares are purchased at net asset value per share without the
imposition of a sales charge according to procedures established by the
Institution (as defined below). Institutions, however, may charge the accounts
of their customers for services provided in connection with the purchase or
redemption of shares.
EXAMPLES:
You would pay the following expenses on a $1,000 investment in Primary B Shares
of the indicated Fund, assuming (1) a 5% annual return and (2) redemption at the
end of each time period.
<TABLE>
Nations
Nations Treasury Government Money Nations Tax
Nations Prime Fund Fund Market Fund Exempt Fund
<S> <C> <C> <C> <C>
1 Year $ 6 $ 6 $ 6 $ 6
3 Years $ 18 $ 18 $ 18 $ 18
5 Years $ 31 $ 31 $ 31 $ 31
10 Years $ 69 $ 69 $ 69 $ 69
</TABLE>
4
<PAGE>
The purpose of the foregoing table is to assist an investor in understanding the
various shareholder transaction and operating expenses that an investor in
Primary B Shares will bear either directly or indirectly. The "Other Expenses"
figures contained in the above table are based on estimated amounts for each
Fund's current fiscal year and reflect anticipated fee waivers and
reimbursements. There is no assurance that these fee waivers and reimbursements
will continue beyond the current fiscal year. If fee waivers and/or
reimbursements are discontinued, the amounts contained in the "Examples" above
may increase. For more complete descriptions of the Funds' operating expenses,
see "How The Funds Are Managed."
Absent expense reimbursements, "Other Expenses" and "Total Operating Expenses"
for Primary B Shares of the indicated Fund would have been as follows: Nations
Prime Fund -- .17% and .62%, respectively; Nations Treasury Fund -- .17% and
.62%, respectively. Absent fee waivers and expense reimbursements, "Management
Fees," "Other Expenses" and "Total Operating Expenses" would have been as
follows: Nations Government Money Market Fund -- .40%, .19% and .84%,
respectively; and Nations Tax Exempt Fund -- .40%, .18% and .83%, respectively.
THE FOREGOING SHOULD NOT BE CONSIDERED TO BE AN ACTUAL REPRESENTATION OF PAST OR
FUTURE PERFORMANCE. ACTUAL EXPENSES AND RATES OF RETURN MAY BE GREATER OR LESS
THAN THOSE SHOWN.
Financial Highlights
The audited financial information on the following pages has been derived from
the financial statements of Nations Fund Trust and Nations Fund, Inc. Price
Waterhouse LLP is the independent accountant to Nations Fund Trust and Nations
Fund, Inc. The reports of Price Waterhouse LLP for the most recent fiscal years
of Nations Fund Trust and Nations Fund, Inc. accompany the financial statements
for such periods and are incorporated by reference in the SAIs, which are
available upon request. Shareholders of a Fund will receive unaudited
semi-annual reports describing the Fund's investment operations and annual
financial statements audited by the Funds' independent accountant.
FOR A PRIMARY B SHARE OUTSTANDING THROUGHOUT THE PERIOD
NATIONS PRIME FUND
<TABLE>
PERIOD PERIOD
ENDED ENDED
PRIMARY B SHARES 03/31/96(a) 5/31/95*
<S> <C> <C>
Operating performance:
Net asset value, beginning of period $ 1.00 $ 1.00
Net investment income 0.0447 0.0474
Dividends from net investment income (0.0447) (0.0474)
Total dividends and distributions (0.0447) (0.0474)
Net asset value, end of period $ 1.00 $ 1.00
Total return++ 4.57% 4.84%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 96,305 $126,120
Ratio of operating expenses to average net assets 0.55%+ 0.55%+
Ratio of net investment income to average net assets 5.37%+ 4.98%+
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 0.62%+ 0.63%+
Net investment income per share without waivers
and/or expense reimbursements $ 0.0442 $ 0.0466
</TABLE>
* Nations Prime Fund Primary B Shares commenced operations on June 16, 1994.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
May 31.
5
<PAGE>
FOR A PRIMARY B SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS TREASURY FUND
<TABLE>
PERIOD
ENDED
PRIMARY B SHARES 03/31/96(a)
<S> <C>
Operating performance:
Net asset value, beginning of period $ 1.00
Net investment income 0.0437
Dividends from net investment income (0.0437)
Distributions from net realized capital gains (0.0000)#
Total dividends and distributions (0.0437)
Net asset value, end of period $ 1.00
Total return++ 4.46%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 47,488
Ratio of operating expenses to average net assets 0.55%+
Ratio of net investment income to average net assets 5.27%+
Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.62%+
Net investment income per share without waivers and/or expense reimbursements $ 0.0432
<CAPTION>
PERIOD
ENDED
PRIMARY B SHARES 05/31/95*
Operating performance:
Net asset value, beginning of period $ 1.00
Net investment income 0.0449
Dividends from net investment income (0.0449)
Distributions from net realized capital gains (0.0000)#
Total dividends and distributions (0.0449)
Net asset value, end of period $ 1.00
Total return++ 4.56%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 56,815
Ratio of operating expenses to average net assets 0.55%+
Ratio of net investment income to average net assets 4.74%+
Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.60%+
Net investment income per share without waivers and/or expense reimbursements $ 0.0444
</TABLE>
* Nations Treasury Fund Primary B Shares commenced operations on June 16, 1994.
# Amount represents less than $0.0001.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
May 31.
NATIONS GOVERNMENT MONEY MARKET FUND
<TABLE>
PERIOD YEAR
ENDED ENDED
PRIMARY B SHARES 03/31/96(a) 11/30/95
<S> <C> <C>
Operating performance:
Net asset value, beginning of period $ 1.00 $ 1.00
Net investment income 0.0165 0.0533
Distributions:
Dividends from net investment income (0.0165) (0.0533)
Distributions from net realized capital gains -- --
Total dividends and distributions (0.0165) (0.0533)
Net asset value, end of period $ 1.00 $ 1.00
Total return++ 1.66% 5.45%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 31,581 $ 27,122
Ratio of operating expenses to average net assets 0.55%+ 0.55%
Ratio of net investment income to average net assets 4.95%+ 5.33%
Ratio of operating expenses to average net assets without waivers and/or
expense reimbursements 0.84%+ 0.82%
Net investment income per share without waivers and/or expense
reimbursements $ 0.0155 $ 0.0506
<CAPTION>
PERIOD
ENDED
PRIMARY B SHARES 11/30/94*
Operating performance:
Net asset value, beginning of period $ 1.00
Net investment income 0.0200
Distributions:
Dividends from net investment income (0.0200)
Distributions from net realized capital gains (0.0000)#
Total dividends and distributions (0.0200)
Net asset value, end of period $ 1.00
Total return++ 2.02%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 72,747
Ratio of operating expenses to average net assets 0.55%+
Ratio of net investment income to average net assets 3.54%+
Ratio of operating expenses to average net assets without waivers and/or
expense reimbursements 0.84%+
Net investment income per share without waivers and/or expense
reimbursements $ 0.0186
</TABLE>
* Nations Government Money Market Fund Primary B Shares commenced operations on
June 16, 1994.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
# Value represents less than $0.0001 per share.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
6
<PAGE>
FOR A PRIMARY B SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS TAX EXEMPT FUND
<TABLE>
PERIOD YEAR
ENDED ENDED
PRIMARY B SHARES 03/31/96(a) 11/30/95
<S> <C> <C>
Operating performance:
Net asset value, beginning of period $ 1.00 $ 1.00
Net investment income 0.0104 0.0335
Dividends from net investment income (0.0104) (0.0335)
Total dividends and distributions (0.0104) (0.0335)
Net asset value, end of period $ 1.00 $ 1.00
Total return++ 1.04% 3.39%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 9,370 $ 11,666
Ratio of operating expenses to average net assets 0.55%+ 0.55%
Ratio of net investment income to average net assets 3.10%+ 3.37%
Ratio of operating expenses to average net assets without waivers and/or
expense reimbursements 0.83%+ 0.82%
Net investment income per share without waivers and/or expense
reimbursements $ 0.0095 $ 0.0309
<CAPTION>
PERIOD
ENDED
PRIMARY B SHARES 11/30/94*
Operating performance:
Net asset value, beginning of period $ 1.00
Net investment income 0.0116
Dividends from net investment income (0.0116)
Total dividends and distributions (0.0116)
Net asset value, end of period $ 1.00
Total return++ 1.17%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 18,207
Ratio of operating expenses to average net assets 0.52%+
Ratio of net investment income to average net assets 2.34%+
Ratio of operating expenses to average net assets without waivers and/or
expense reimbursements 0.84%+
Net investment income per share without waivers and/or expense
reimbursements $ 0.0102
</TABLE>
* Nations Tax Exempt Fund Shares commenced operations on June 16, 1994.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
Objectives
Each Money Market Fund endeavors to achieve its investment objective by
investing in a diversified portfolio of high quality money market instruments
with maturities of 397 days or less from the date of purchase. Securities
subject to repurchase agreements may bear longer maturities.
NATIONS PRIME FUND: Nations Prime Fund's investment objective is to seek the
maximization of current income to the extent consistent with the preservation of
capital and the maintenance of liquidity.
NATIONS TREASURY FUND: Nations Treasury Fund's investment objective is the
maximization of current income to the extent consistent with the preservation of
capital and the maintenance of liquidity.
NATIONS GOVERNMENT MONEY MARKET FUND: Nations Government Money Market Fund's
investment objective is to seek as high a level of current income as is
consistent with liquidity and stability of principal.
NATIONS TAX EXEMPT FUND: Nations Tax Exempt Fund's investment objective is to
seek as high a level of current interest income exempt from Federal income taxes
as is consistent with liquidity and stability of principal.
How Objectives Are Pursued
NATIONS PRIME FUND: In pursuing its investment objective, the Fund may invest in
U.S. Treasury bills, notes and bonds and other instruments issued directly by
the U.S. Government ("U.S. Treasury Obligations"), other obligations issued or
guaranteed as to payment of principal and interest by the U.S. Government, its
agencies or instrumentalities (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 participation 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."
7
<PAGE>
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 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 requiste number of nationally recognized statistical rating
organizations); rated "D-1" or higher by D&P, "F-1" or higher by Fitch, "SP-1"
by S&P, or "MIG-1" by Moody's in the case of notes; rated "D-1" or higher by
D&P, "F-1" or higher by Fitch, "SP-1" by S&P, or "VMIG-1" by Moody's in the case
of variable-rate demand notes; or rated "D-1" or higher by D&P, "F-1" or higher
by Fitch, "A-1" or higher by S&P or "Prime-1" by Moody's in the case of
tax-exempt commercial paper. D&P, Fitch, S&P, Moody's, IBCA and BankWatch are
the six nationally recognized statistical rating organizations (collectively,
"NRSROs"). Securities that are unrated at the time of purchase will be
determined to be of comparable quality by the Adviser pursuant to guidelines
approved by Nations Fund Trust's Board of Trustees. The applicable Municipal
Securities ratings are described in "Appendix B."
The payment of principal and interest on most securities purchased by the Fund
will depend upon the ability of the issuers to meet their obligations. The
District of Columbia, each state, each of their political subdivisions,
agencies, instrumentalities and authorities and each multi-state agency of which
a state is a member is a separate "issuer" as that term is used in this
Prospectus and the related SAI. The non-governmental user of facilities financed
by private activity bonds also is considered to be an "issuer."
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 considered, by itself, to provide a complete investment
program for any investor. Investments in a Fund are not insured against loss of
principal. For additional risk information regarding the Funds' investment in
particular instruments, see "Appendix A."
8
<PAGE>
INVESTMENT LIMITATIONS: Each Fund is subject to a number of investment
limitations. The following investment limitations are matters of fundamental
policy and may not be changed with respect to a particular Fund without the
affirmative vote of the holders of a majority of that Fund's outstanding shares.
Other investment limitations that cannot be changed without such a vote of
shareholders are described in the SAIs.
Each Fund may not:
1. Purchase any securities which would cause 25% or more of the value of the
Fund's total assets at the time of such purchase to be invested in the
securities of one or more issuers conducting their principal activities in the
same industry. (For purposes of this limitation, U.S. Government securities and
tax-exempt securities issued by state or municipal governments and their
political subdivisions are not considered members of any industry. In addition,
this limitation does not apply to investments in obligations of domestic banks.)
2. Make loans, except that a Fund may purchase and hold debt instruments
(whether such instruments are part of a public offering or privately placed),
may enter into repurchase agreements and may lend portfolio securities in
accordance with its investment policies.
3. Purchase securities of any one issuer (other than securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities) if,
immediately after such purchase, more than 5% of the value of such Fund's total
assets would be invested in the securities of such issuer, except that up to 25%
of the value of the Fund's total assets may be invested without regard to these
limitations and with respect to 75% of such Fund's assets, such Fund will not
hold more than 10% of the voting securities of any issuer.
In addition, as a matter of non-fundamental policy, the Nations Tax Exempt Fund
may not purchase any securities other than obligations the interest on which is
exempt from Federal income tax and stand-by commitments with respect to such
obligations. The investment objective and policies of the Funds, unless
otherwise specified, may be changed without a vote of shareholders. If the
investment objective or policies of a Fund change, shareholders should consider
whether the Fund remains an appropriate investment in light of their current
position and needs.
In order to register a Fund's shares for sale in certain states, a Fund may make
commitments more restrictive than the investment policies and limitations
described in this Prospectus and the SAIs. Should a Fund determine that any such
commitment is no longer in the best interest of the Fund, it may consider
terminating sales of its shares in the states involved.
RESTRAINTS ON INVESTMENTS BY MONEY MARKET FUNDS: In order for the Funds to value
their investments on the basis of amortized cost, investments must be in
accordance with the requirements of Rule 2a-7 under the Investment Company Act
of 1940, as amended ("1940 Act"), some of which are described below. A Money
Market Fund is limited to acquiring obligations with a remaining maturity of 397
days or less, or obligations with 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. Additionally, (except for Nations Tax Exempt Fund) no more than 5% of
total assets may be invested, at the time of acquisition, in second tier
securities in the aggregate, and any investment in second tier securities of one
issuer is limited to the greater of 1% of total assets or one million dollars.
Securities issued by the U.S. Government, its agencies, authorities or
instrumentalities are exempt from the quality requirements, other than minimal
credit risk. In the event that a Fund's investment restrictions or permissible
investments are more restrictive than the requirements of Rule 2a-7, the Fund's
own restrictions will govern.
9
<PAGE>
How Performance Is Shown
From time to time the Money Market Funds may advertise the yield and effective
yield on a class of shares and the Nations Tax Exempt Fund also may advertise
the tax-equivalent yield of a class of shares. YIELD, EFFECTIVE YIELD AND
TAX-EQUIVALENT YIELD FIGURES ARE BASED ON HISTORICAL DATA AND ARE NOT INTENDED
TO INDICATE FUTURE PERFORMANCE. The "yield" of a class of shares in a Fund
refers to the income generated by an investment in such class over a seven-day
period identified in the advertisement. This income is then "annualized." That
is, the amount of income generated by the investment during that week is assumed
to be generated each week over a 52-week period and is shown as a percentage of
the investment. The "effective yield" is calculated similarly, but, when
annualized, the income earned by an investment in a class of shares in the Fund
is assumed to be reinvested. The "effective yield" will be slightly higher than
the "yield" because of the compounding effect of this assumed reinvestment. The
"tax-equivalent yield" of each class of shares in Nations Tax Exempt Fund shows
the level of taxable yield needed to produce an after-tax equivalent to such
class's tax-free yield. This is done by increasing the class's yield (calculated
as above) by the amount necessary to reflect the payment of Federal income tax
at a stated tax rate.
Investment performance, which will vary, is based on many factors, including
market conditions, the composition of a Fund's portfolio and such Fund's
operating expenses. Investment performance also often reflects the risks
associated with a Fund's investment objective and policies. These factors should
be considered when comparing a Fund's investment results to those of other
mutual funds and other investment vehicles. Since yields fluctuate, yield data
cannot necessarily be used to compare an investment in the Funds with bank
deposits, savings accounts, and similar investment alternatives which often
provide an agreed-upon or guaranteed fixed yield for a stated period of time.
In addition to Primary B Shares, the Funds offer Primary A, Investor A, Investor
B, Investor C and Investor D Shares. Each class of shares may bear different
sales charges, shareholder servicing fees and other expenses, which may cause
the performance of a class to differ from the performance of the other classes.
Performance quotations will be computed separately for each class of a Fund's
shares. Any fees charged by an institution and/or servicing agent directly to
its customers' accounts in connection with investments in the Funds will not be
included in calculations of yield. Each Fund's annual report contains additional
performance information and is available upon request without charge from the
Funds' distributor or your Institution, as defined below.
How The Funds Are Managed
The business and affairs of each of Nations Fund Trust and Nations Fund, Inc.
are managed under the direction of its Trustees and Directors, respectively.
Nations Fund Trust's SAI contains the names of and general background
information concerning each Trustee of Nations Fund Trust. Nations Fund, Inc.'s
SAI contains the names of and general background information concerning each
Director of Nations Fund, Inc.
Nations Fund and the Adviser have adopted codes of ethics which contain policies
on personal securities transactions by "access persons," including portfolio
managers and investment analysts. These policies substantially comply in all
material respects with the recommendations set forth in the May 9, 1994 Report
of the Advisory Group on Personal Investing of the Investment Company Institute.
INVESTMENT ADVISER: NationsBanc Advisors, Inc. serves as investment adviser to
the Funds. NBAI is a wholly owned subsidiary of NationsBank, which in turn is a
wholly owned subsidiary of NationsBank Corporation, a bank holding company
organized as a North Carolina corporation. NBAI has its principal offices at One
NationsBank Plaza, Charlotte, North Carolina 28255.
TradeStreet Investment Associates, Inc., with principal offices at One
NationsBank Plaza, Charlotte, North Carolina 28255, serves as sub-investment
adviser to the Funds. TradeStreet is a wholly owned subsidiary of NationsBank.
TradeStreet provides investment management services to individuals, corporations
and institutions.
Subject to the general supervision of Nations Fund Trust's Board of Trustees and
Nations Fund, Inc.'s Board of Directors, and in accordance with each Fund's
investment policies, the Adviser formulates guidelines and lists of approved
investments for each Fund, makes decisions with respect to and places orders for
each Fund's purchases and sales of portfolio securities and maintains records
relating to such purchases and sales. With respect to the Nations Tax Exempt
Fund, the Adviser is authorized to allocate purchase and sale orders for
portfolio securities to certain financial institutions, including, in the case
of agency transactions, financial institutions which are affiliated with the
10
<PAGE>
Adviser or which have sold shares in such Fund, if the Adviser believes that the
quality of the transaction and the commission are comparable to what they would
be with other qualified brokerage firms. From time to time, to the extent
consistent with its investment objective, policies and restrictions, each Fund
may invest in securities of companies with which NationsBank has a lending
relationship. For the services provided and expenses assumed pursuant to various
Investment Advisory Agreements, NBAI is entitled to receive advisory fees,
computed daily and paid monthly, at the annual rates of: 0.25% of the first $250
million of the combined average daily net assets of both Nations Prime Fund and
Nations Treasury Fund, plus 0.20% of the combined average daily net assets of
such Funds in excess of $250 million; and 0.40% of the average daily net assets
of each of Nations Government Money Market Fund and Nations Tax Exempt Fund.
For the services provided and the expenses assumed pursuant to sub-advisory
agreements, NBAI will pay TradeStreet sub-advisory fees, computed daily and paid
monthly, at the annual rate of 0.055% of the average daily net assets of each
Fund.
From time to time, NBAI (and/or TradeStreet) may waive or reimburse (either
voluntarily or pursuant to applicable state limitations) advisory fees and/or
expenses payable by a Fund.
For the fiscal period from December 1, 1995 to December 31, 1995, after waivers,
Nations Fund Trust paid NationsBank under a prior Investment Advisory Agreement
advisory fees at the indicated rates of the following Funds' average daily net
asets: Nations Government Money Market Fund -- 0.12%; and Nations Tax Exempt
Fund -- 0.13%.
For the fiscal period from June 1, 1995 to December 31, 1995, after waivers,
Nations Fund, Inc. paid NationsBank under a prior Investment Advisory Agreement
advisory fees at the 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 average daily net assets: Nations
Government Money Market Fund -- 0.12%; and Nations Tax Exempt Fund -- 0.13%.
For the fiscal period from January 1, 1996 to March 31, 1996, after waivers,
Nations Fund, Inc. paid NBAI under the current Investment Advisory Agreement
advisory fees at the rate of 0.18% of the average daily net assets of Nations
Prime Fund and Nations Treasury Fund.
For the fiscal period from January 1, 1996 to March 31, 1996, after waivers,
NBAI paid TradeStreet under the current Sub-Advisory Agreement sub-advisory fees
at the rate of 0.055% of the average daily net assets of Nations Government
Money Market Fund, Nations Tax Exempt Fund, Nations Prime Fund and Nations
Treasury Fund.
Melinda Allen Crosby is a Product Manager, Municipal Fixed Income Management for
TradeStreet and is Portfolio Manager for Nations Tax Exempt Fund. She has been
Portfolio Manager for Nations Tax Exempt Fund since 1991. 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 Product Manager, Money Market Management for TradeStreet and
is Portfolio Manager for Nations Treasury Fund and Nations Government Money
Market Fund. She has been Portfolio Manager for the Funds since 1993. Prior to
assuming her position with TradeStreet, she was Vice President and Portfolio
Manager for the Investment Management Group at NationsBank. Ms. Duck has worked
in the investment community since 1980. Her past experience includes product
management and trading for Interstate/Johnson Lane and First Charlotte
Corporation. Ms. Duck graduated from King's College.
Martha L. Sherman is a Senior Product Manager, Money Market Management for
TradeStreet and is Senior Portfolio Manager for Nations Prime Fund. She has been
Portfolio Manager for Nations Prime Fund since 1988. Prior to assuming her
position with TradeStreet, she was Vice President and Senior Portfolio Manager
for the Investment Management Group at NationsBank. Ms. Sherman has worked in
the investment community since 1981. Her past experience includes investment
research for William Lowry & Associates. Ms. Sherman received a B.S. in Business
Administration from the University of Texas at Dallas.
Morrison & Foerster LLP, counsel to Nations Fund and special counsel to
NationsBank has advised Nations Fund and NationsBank that NationsBank and its
affiliates may perform the services contemplated by the Investment Advisory
Agreements and this Prospectus without violation of the Glass-Steagall Act. Such
counsel has pointed out, however, that there are no controlling judicial or
administrative interpretations or decisions and that future judicial or
administrative interpretations of, or decisions relating to, present federal or
state stat-
11
<PAGE>
utes, including the Glass-Steagall Act, and regulations relating to the
permissible activities of banks and their subsidiaries or affiliates, as well as
future changes in such statutes, regulations and judicial or administrative
decisions or interpretations, could prevent such entities from continuing to
perform, in whole or in part, such services. If any such entity were prohibited
from performing any of such services, it is expected that new agreements would
be proposed or entered into with another entity or entities qualified to perform
such services.
OTHER SERVICE PROVIDERS: Stephens Inc. ("Stephens"), with principal offices at
111 Center Street, Little Rock, Arkansas 72201, serves as the administrator of
Nations Fund pursuant to Administration Agreements. Pursuant to the terms of the
Administration Agreements, Stephens provides various administrative and
corporate secretarial services to the Funds, including providing general
oversight of other service providers, office space, utilities and various legal
and administrative services in connection with the satisfaction of various
regulatory requirements applicable to the Funds.
First Data Investor Services Group, Inc. ("First Data"), formerly The
Shareholder Services Group, Inc., a wholly owned subsidiary of First Data
Corporation, with principal offices at One Exchange Place, Boston, Massachusetts
02109, serves as the co-administrator of Nations Fund pursuant to
Co-Administration Agreements. Under the Co-Administration Agreements, First Data
provides various administrative and accounting services to the Funds including
performing the calculations necessary to determine net asset value per share and
dividends, preparing tax returns and financial statements and maintaining the
portfolio records and certain of the general accounting records for the Funds.
For the services rendered pursuant to the Administration and Co-Administration
Agreements, Stephens and First Data are entitled to receive a combined fee at
the annual rate of up to 0.10% of each Fund's average daily net assets.
For the fiscal period from December 1, 1995 to March 31, 1996, after waivers,
Nations Fund Trust paid its administrators combined fees at the 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 Institutions which assist customers in purchasing
Primary B Shares of the Funds.
First Data serves as the Transfer Agent for each Fund's Primary Shares.
NationsBank of Texas, N.A. (the "Custodian") serves as custodian for the assets
of each Fund. The Custodian, which also serves as the sub-transfer agent for
each Fund's Primary B Shares, is located at 1401 Elm Street, Dallas, Texas
75202, and is a wholly owned subsidiary of NationsBank Corporation. In return
for providing custodial services, the Custodian is entitled to receive, in
addition to out-of-pocket expenses, fees payable monthly (i) at the rate of
1.25% of 1% of the average daily net assets of each Fund, (ii) $10.00 per
repurchase collateral transaction by the Funds, and (iii) $15.00 per purchase,
sale and maturity transaction involving the Funds. In return for providing
sub-transfer agency services for the Primary B Shares of Nations Fund, the
Transfer Agent is entitled to receive an annual fee from First Data of $251,000.
Price Waterhouse LLP serves as independent accountant to Nations Funds. Its
address is 160 Federal Street, Boston, Massachusetts 02110.
EXPENSES: The accrued expenses of each Fund are deducted from the Fund's total
accrued income before dividends are declared. These expenses include, but are
not limited to: fees paid to the Adviser, NationsBank, Stephens and First Data;
taxes; interest; fees (including fees paid to Nations Fund's trustees, directors
and officers); federal and state securities registration and qualification fees;
brokerage fees and commissions; costs of preparing and printing prospectuses for
regulatory purposes and for distribution to existing shareholders; charges of
the Custodian and Transfer Agent; certain insurance premiums; outside auditing
and legal expenses; costs of shareholder reports and shareholder meetings; other
expenses which are not expressly assumed by the Adviser, NationsBank, Stephens
or First Data under their respective agreements with Nations Fund; and any
extraordinary expenses. Primary B Shares also bear certain shareholder servicing
costs. Any general expenses of Nations Fund Trust and/or Nations Fund, Inc. that
are not readily identifiable as belonging to a particular investment portfolio
are allocated among all portfolios in the proportion that the assets of a
portfolio bears to the assets of Nations Fund Trust and/or Nations Fund, Inc. or
in such other manner as the Board of Trustees or Board of Directors determines
is fair and equitable.
12
<PAGE>
Organization And History
The Funds are members of the Nations Fund Family, which consists of Nations Fund
Trust, Nations Fund, Inc., Nations Fund Portfolios, Inc. and Nations
Institutional Reserves. The Nations Fund Family currently has more than 43
distinct investment portfolios and total assets in excess of $18 billion.
NATIONS FUND TRUST: Nations Fund Trust was organized as a Massachusetts business
trust on May 6, 1985. Nations Fund Trust's fiscal year end is March 31; prior to
1996, Nations Fund Trust's fiscal year end was November 30. The Funds currently
offer six classes of shares -- Primary A Shares, Primary B Shares, Investor A
Shares, Investor B Shares, Investor C Shares and Investor D Shares. This
Prospectus relates only to the Primary B Shares of Nations Government Money
Market Fund and Nations Tax Exempt Fund of Nations Fund Trust. To obtain
additional information regarding the Funds' other classes of shares which may be
available to you, contact your Institution (as defined below) or Nations Fund at
1-800-626-2275.
Each share of Nations Fund Trust is without par value, represents an equal
proportionate interest in the related fund with other shares of the same class,
and is entitled to such dividends and distributions out of the income earned on
the assets belonging to such fund as are declared in the discretion of Nations
Fund Trust's Board of Trustees. Nations Fund Trust's Declaration of Trust
authorizes the Board of Trustees to classify or reclassify any class of shares
into one or more series of shares.
Shareholders are entitled to one vote for each full share held and a
proportionate fractional vote for each fractional share held. Shareholders of
each fund of Nations Fund Trust will vote in the aggregate and not by fund, and
shareholders of each fund will vote in the aggregate and not by class except as
otherwise expressly required by law or when the Board of Trustees determines
that the matter to be voted on affects only the interests of shareholders of a
particular fund or class. See Nations Fund Trust's SAI for examples of when the
1940 Act requires voting by fund.
As of July 15, 1996, NationsBank and its affiliates possessed or shared power to
dispose or vote with respect to more than 25% of the outstanding shares of
Nations Fund Trust and therefore could be considered to be a controlling person
of Nations Fund Trust for purposes of the 1940 Act. For more detailed
information concerning the percentage of each class or series of shares over
which NationsBank and its affiliates possessed or shared power to dispose or
vote as of a certain date, see Nations Fund Trust's SAI.
Nations Fund Trust does not presently intend to hold annual meetings except as
required by the 1940 Act. Shareholders will have the right to remove Trustees.
Nations Fund Trust's Code of Regulations provides that special meetings of
shareholders shall be called at the written request of the shareholders entitled
to vote at least 10% of the outstanding shares of Nations Fund Trust entitled to
be voted at such meeting.
NATIONS FUND, INC.: Nations Fund, Inc. was incorporated in Maryland on December
13, 1983, but had no operations prior to December 15, 1986. Nations Fund, Inc.'s
fiscal year end is March 31; prior to 1996, Nations Fund, Inc.'s fiscal year end
was May 31. As of the date of this Prospectus, the authorized capital stock of
Nations Fund, Inc. consists of 270,000,000,000 shares of common stock, par value
of $.001 per share, which are divided into series or funds each of which
consists of separate classes of shares. This Prospectus relates only to the
Primary B Shares of Nations Prime Fund and Nations Treasury Fund of Nations
Fund, Inc. To obtain additional information regarding the Funds' other classes
of shares which may be available to you, contact your Institution (as defined
below) or Nations Fund at 1-800-626-2275.
Shares of each fund and class have equal rights with respect to voting, except
that the holders of shares of a particular fund or class will have the exclusive
right to vote on matters affecting only the rights of the holders of such fund
or class. In the event of dissolution or liquidation, holders of each class will
receive pro rata, subject to the rights of creditors, (a) the proceeds of the
sale of that portion of the assets allocated to that class held in the
respective fund of Nations Fund, Inc., less (b) the liabilities of Nations Fund,
Inc. attributable to the respective fund or class or allocated among the funds
or classes based on the respective liquidation value of each fund or class.
Shareholders of Nations Fund, Inc. do not have cumulative voting rights, and
therefore the holders of more than 50% of the outstanding shares of all funds
voting together for election of directors may elect all of the members of the
Board of Directors of Nations Fund, Inc. Meetings of shareholders may be called
upon the request of 10% or more of the outstanding shares of Nations Fund, Inc.
There are no preemptive rights applicable to any of Nations Fund, Inc.'s shares.
Nations Fund, Inc.'s shares, when issued, will be fully paid and non-assessable.
As of July 15, 1996, NationsBank and its affiliates possessed or shared power to
dispose of or vote with respect to more than 25% of the outstanding shares of
Nations Fund, Inc. and therefore may be considered to be a controlling person of
Nations Fund, Inc. for purposes of the 1940 Act. For more detailed information
concerning the
13
<PAGE>
percentage of each class or series over which NationsBank and its affiliates
possessed or shared power to dispose or vote as of a certain date, see Nations
Fund, Inc.'s SAI. It is anticipated that Nations Fund, Inc. will not hold annual
shareholder meetings on a regular basis unless required by the 1940 Act or
Maryland law.
Because this Prospectus combines disclosure on two separate investment
companies, there is a possibility that one investment company could become
liable for a misstatement, inaccuracy or incomplete disclosure in this
Prospectus concerning the other investment company. Nations Fund Trust and
Nations Fund, Inc. have entered into an indemnification agreement that creates a
right of indemnification from the investment company responsible for any such
misstatement, inaccuracy or incomplete disclosure that may appear in this
Prospectus.
About Your Investment
How To Buy Shares
The Funds have established various procedures for purchasing Primary B Shares in
order to accomodate different investors. Purchase orders may be placed through
banks, broker/dealers or other financial institutions (including certain
affiliates of NationsBank) ("Institutions") that have entered into selling
agreements with Stephens.
Primary B Shares are purchased at net asset value per share without the
imposition of a sales charge according to procedures established by the
Institution. Institutions, however, may charge the accounts of their customers'
("Customers") accounts for services provided in connection with the purchase of
shares. Purchases may be effected on days on which the Federal Reserve Bank of
New York is open for business (a "Business Day").
There is a minimum initial investment of $1,000 for each record holder; there is
no minimum subsequent investment.
The Institutions have entered into Servicing Agreements whereby they will
provide various shareholder services for their Customers that own Primary B
Shares. From time to time, Nations Fund may voluntarily reduce the maximum fees
payable for shareholder services.
Nations Fund and Stephens reserve the right to reject any purchase order. The
issuance of Primary B Shares is recorded on the books of the Funds, and share
certificates are not issued. It is the responsibility of Institutions to record
beneficial ownership of Primary B Shares and to reflect such ownership in the
account statements provided to their Customers.
EFFECTIVE TIME OF PURCHASES: Purchases will be effected only when federal funds
are available for investment on the Business Day the purchase order is received
by Stephens or by the Transfer Agent. A purchase order must be received by
Stephens or by the Transfer Agent by 3:00 p.m., Eastern time (12:00 noon,
Eastern time, with respect to Nations Tax Exempt Fund and Nations Government
Money Market Fund). A purchase order received by Stephens or the Transfer Agent
after such time will not be accepted; notice thereof will be given to the
Institution placing the order, and any funds received will be returned promptly
to the sending Institution. If federal funds are not available by 4:00 p.m.,
Eastern time, the order will be canceled. Primary B Shares are purchased at the
net asset value per share next determined after receipt of the order by Stephens
or by the Transfer Agent.
Institutions are responsible for transmitting orders for purchases by their
Customers, and delivering required funds, on a timely basis. It is Stephens'
responsibility to transmit orders it receives to Nations Fund.
How To Redeem Shares
Customers may redeem all or part of their Primary B Shares in accordance with
instructions and limitations pertaining to their account at an Institution. It
is the responsibility of the Institutions to transmit redemption orders to
Stephens or to the Transfer Agent and to credit their Customers' accounts with
the redemption proceeds on a timely basis. It is Stephens' responsibility to
transmit orders it receives to Nations Fund. No charge for wiring redemption
payments is imposed by Nations Fund, although the Institutions may charge their
Customer accounts for these or other services provided in connection with the
redemption of Primary B Shares. Information concerning these services and any
charges are available from the Institutions. Redemption orders
14
<PAGE>
are effected at the net asset value per share next determined after acceptance
of the order by Stephens or by the Transfer Agent.
Redemption orders must be received on a Business Day before 3:00 p.m., Eastern
time (12:00 noon, Eastern time, with respect to Nations Tax Exempt Fund and
Nations Government Money Market Fund), and payment will normally be wired the
same day to the Institutions. Nations Fund reserves the right to wire redemption
proceeds within three Business Days after receiving a redemption order if, in
the judgment of NationsBank, an earlier payment could adversely impact a Fund.
However, redemption proceeds for shares purchased by check may not be remitted
until at least 15 days after the date of purchase to ensure that the check has
cleared; a certified check, however, is deemed to be cleared immediately.
Redemption orders will not be accepted by Stephens or by the Transfer Agent
after 3:00 p.m., Eastern time (12:00 noon, Eastern time, with respect to Nations
Tax Exempt Fund and Nations Government Money Market Fund), for execution on that
Business Day.
Nations Fund may redeem a shareholder's Primary B Shares if the balance in such
shareholder's account with the Fund drops below $500 as a result of redemptions,
and the shareholder does not increase the balance to at least $500 on 60 days'
written notice. If a shareholder has agreed with a particular Institution to
maintain a minimum balance in his or her account at the Institution, and the
balance in such Institution account falls below that minimum, the shareholder
may be obliged to redeem all or a part of his or her Primary B Shares in a Fund
to the extent necessary to maintain the required minimum balance in such
Institution account. Nations Fund also may redeem shares involuntarily or make
payment for redemption in readily marketable securities or other property under
certain circumstances in accordance with the 1940 Act.
How To Exchange Shares
The exchange feature enables a shareholder of Primary B Shares of a Fund to
acquire Primary B Shares of another Fund when that shareholder believes that a
shift between Funds is an appropriate investment decision. An exchange of
Primary B Shares for Primary B Shares of another Fund is made on the basis of
the next calculated net asset value per share of each Fund after the exchange
order is received.
The Funds and each of the other funds of Nations Fund may limit the number of
times this exchange feature may be exercised by a shareholder within a specified
period of time. Also, the exchange feature may be terminated or revised at any
time by Nations Fund upon such notice as may be required by applicable
regulatory agencies (presently 60 days for termination or material revision),
provided that the exchange feature may be terminated or materially revised
without notice under certain unusual circumstances.
The current prospectus for each fund of Nations Fund describes its investment
objective and policies, and shareholders should obtain a copy and examine it
carefully before investing. Exchanges are subject to the minimum investment
requirement and any other conditions imposed by each fund. In the case of any
shareholder holding a share certificate or certificates, no exchanges may be
made until all applicable share certificates have been received by the Transfer
Agent and deposited in the shareholder's account. An exchange will be treated
for Federal income tax purposes the same as a redemption of shares, on which the
shareholder may realize a capital gain or loss. However, the ability to deduct
capital losses on an exchange may be limited in situations where there is an
exchange of shares within 90 days after the shares are purchased.
Nations Fund reserves the right to reject any exchange request. Only shares that
may legally be sold in the state of the investor's residence may be acquired in
an exchange. Only shares of a class that is accepting investments generally may
be acquired in an exchange.
Provided your Institution allows telephone exchanges, during periods of
significant economic or market change, such telephone exchanges may be difficult
to complete. In such event, shares may be exchanged by mailing your request
directly to the Institution through which the original shares were purchased.
Investors should consult their Institution or Stephens for further information
regarding exchanges.
Primary B Shares may be exchanged by directing a request directly to the
Institution through which the original Primary B Shares were purchased or in
some cases Stephens or the Transfer Agent. Investors should consult their
Institution or Stephens for further information regarding exchanges. Your
exchange feature may be governed by your account agreement with your
Institution.
15
<PAGE>
Shareholder Servicing Plan
The Funds have adopted a Shareholder Servicing Plan (the "Servicing Plan")
pursuant to which Primary B Shares are sold through Institutions which enter
into Servicing Agreements with Nations Fund. The Servicing Agreements require
Institutions to provide shareholder services to their Customers who from time to
time beneficially own Primary B Shares in return for payment by the Fund at a
rate not exceeding 0.25% (on an annualized basis) of the average daily net asset
value of the Primary B Shares beneficially owned by Customers with whom the
Institutions have a servicing relationship. Holders of Primary B Shares will
bear all fees paid to Institutions under the Servicing Plan. The Servicing Plan
does not cover, and the fees thereunder are not payable, to Institutions with
respect to Primary A Shares.
Such shareholder services supplement the services provided by Stephens, TSSG and
the Transfer Agent to shareholders of record. The shareholder services provided
by Institutions may include general shareholder liaison services; processing
purchase, exchange, and redemption requests from Customers and placing orders
with Stephens or the Transfer Agent; processing dividend and distribution
payments from the Funds on behalf of Customers; providing information
periodically to Customers showing their positions in Primary B Shares; providing
sub-accounting with respect to Primary B Shares beneficially owned by Customers
or the information necessary for sub-accounting; responding to inquiries from
Customers concerning their investment in Primary B Shares; arranging for bank
wires; and providing such other similar services as may be reasonably requested.
Nations Fund may suspend or reduce payments under the Servicing Plan at any
time, and payments are subject to the continuation of the Servicing Plan
described above and the terms of the Servicing Agreement between Institutions
and Nations Fund. See the SAIs for more details on the Servicing Plan.
Nations Fund understands that Institutions may charge fees to their Customers
who are the owners of Primary B Shares in connection with their Customers'
accounts. These fees would be in addition to any amounts which may be received
by an Institution under its Servicing Agreement with Nations Fund. The Servicing
Agreements require an Institution to disclose to its Customers any compensation
payable to the Institution by Nations Fund and any other compensation payable by
Customers in connection with the investment of their assets in Primary B Shares.
Customers of Institutions should read this Prospectus in light of the terms
governing their accounts with their Institutions.
Conflict of interest restrictions may apply to the receipt by Institutions of
compensation from Nations Fund in connection with the investment of fiduciary
assets in Primary B Shares. Institutions, including banks regulated by the
Comptroller of the Currency, the Federal Reserve Board, or the Federal Deposit
Insurance Corporation, and investment advisers and other money managers subject
to the jurisdiction of the SEC, the Department of Labor, or state securities
commissions, are urged to consult their legal advisers before investing such
assets in Primary B Shares.
How The Funds Value Their Shares
The net asset value of a share of each class is calculated by dividing the total
value of its assets, less liabilities, by the number of shares in the class
outstanding. Shares are valued as of 3:00 p.m., Eastern time (1:00 p.m., Eastern
time, with respect to Nations Tax Exempt Fund and Nations Government Money
Market Fund), on each Business Day. Currently, the days on which the Federal
Reserve Bank of New York is closed (other than weekends) are: New Year's Day,
Martin Luther King, Jr. Day, Presidents' Day, Memorial Day (observed),
Independence Day, Labor Day, Columbus Day, Thanksgiving Day and Christmas Day.
The assets in the Money Market Funds are valued based upon the amortized cost
method. Although Nations Fund seeks to maintain the net asset value per share of
these Funds at $1.00, there can be no assurance that their net asset value per
share will not vary.
How Dividends And Distributions Are Made;
Tax Information
DIVIDENDS AND DISTRIBUTIONS: Dividends from net investment income of each of the
Money Market Funds are declared daily to shareholders at 3:00 p.m., Eastern time
(1:00 p.m., Eastern time, with respect to Nations Tax Exempt Fund and Nations
Government Money Market Fund), on the day of declaration. Primary B Shares begin
earning dividends on the day the purchase order is executed and continue earning
dividends through and
16
<PAGE>
including the day before the redemption order is executed (E.G., the settlement
date). Dividends are paid within five Business Days after the end of each month.
Dividends are paid in the form of additional Primary B Shares of the same Fund
unless the Customer has elected prior to the date of distribution to receive
payment in cash. Such election, or any revocation thereof, must be made in
writing to the Transfer Agent and will become effective with respect to
dividends paid after its receipt. Dividends are paid in cash within five
Business Days after a shareholder's complete redemption of his or her Primary B
Shares in a Fund. To the extent that there are any net short-term capital gains,
they will be paid at least annually.
TAX INFORMATION: Each Fund intends to qualify as a separate "regulated
investment company" under the Internal Revenue Code of 1986, as amended (the
"Code"). Such qualification relieves a Fund of liability for Federal income tax
to the extent its earnings are distributed in accordance with the Code.
Each Fund intends to distribute substantially all of its investment company
taxable income and net tax-exempt income each taxable year. Distributions by
Nations Prime Fund, Nations Treasury Fund and Nations Government Money Market
Fund will be taxable as ordinary income to shareholders who are not currently
exempt from Federal income tax, whether such income is received in cash or
reinvested in additional shares. (Federal income tax for distributions to an
Individual Retirement Account are generally deferred under the Code.) These
distributions will not qualify for the dividends received deduction for
corporate shareholders.
Dividends received from Nations Treasury Fund and Nations Government Money
Market Fund may qualify as tax-exempt dividends for state income tax purposes in
some states. The Funds do not expect to realize any long-term capital gains, and
therefore, do not expect to distribute any capital gains dividends.
Each year, shareholders will be notified as to the amount and Federal tax status
of all dividends and capital gains paid during the prior year. Such dividends
and capital gains also may be subject to state and local taxes.
Dividends declared in October, November, or December of any year payable to
shareholders of record on a specified date in such months will be deemed to have
been received by shareholders and paid by a Fund on December 31 of such year in
the event such dividends are actually paid during January of the following year.
Federal law requires Nations Fund to withhold 31% from any dividends (other than
exempt-interest dividends) paid by Nations Fund and/or redemptions (including
exchange redemptions) that occur in certain shareholder accounts if the
shareholder has not properly furnished a certified correct Taxpayer
Identification Number and has not certified that withholding does not apply. If
the Internal Revenue Service has notified Nations Fund that the Taxpayer
Identification Number listed on a shareholder account is incorrect according to
its records, or that the shareholder is subject to backup withholding, the Fund
is required by the Internal Revenue Service to withhold 31% of any dividend
(other than exempt-interest dividends) and/or redemption (including exchange
redemptions). Amounts withheld are applied to the shareholder's Federal tax
liability, and a refund may be obtained from the Internal Revenue Service if
withholding results in overpayment of taxes. Federal law also requires the Funds
to withhold 30% or the applicable tax treaty rate from dividends paid to certain
nonresident alien, non-U.S. partnership and non-U.S. corporation shareholder
accounts.
NATIONS TAX EXEMPT FUND: As a regulated investment company, the Nations Tax
Exempt Fund is permitted to pass through to its shareholders tax-exempt income
("exempt-interest dividends") subject to certain requirements which the Fund
intends to satisfy. The Fund does not intend to earn investment company taxable
income or long-term capital gains; to the extent that it does earn taxable
income or realize long-term capital gains, distributions to shareholders from
such sources will be subject to Federal income tax. Exempt-interest dividends
may be treated by shareholders as items of interest excludable from their
Federal gross income under Section 103(a) of the Code unless, under the
circumstances applicable to the particular shareholder, the exclusion would be
disallowed. (See Nations Fund Trust's SAI under "Additional Information
Concerning Taxes.") Distributions of net investment income by Nations Tax Exempt
Fund may be taxable to investors under state or local law even though a
substantial portion of such distributions may be derived from interest on
tax-exempt obligations which, if realized directly, would be exempt from such
income tax.
If the Nations Tax Exempt Fund should hold certain private activity bonds issued
after August 7, 1986, shareholders must include, as an item of tax preference,
the portion of dividends paid by the Fund that is attributable to interest on
such bonds in their Federal alternative minimum taxable income for purposes of
determining liability (if any) for the 28% alternative minimum tax applicable to
individuals and the 20% alternative minimum tax and the environmental tax
applicable to corporations. Corporate shareholders must also take all
exempt-interest dividends into account in determining certain adjustments for
Federal alternative minimum and environmental tax purposes. The environmental
tax applicable to corporations is imposed at the rate of 0.12% on the excess of
the corporation's modified Federal alternative minimum taxable income over
$2,000,000. Shareholders receiving Social Security benefits should note that all
exempt-interest dividends will be taken into account in determining the
taxability of such benefits.
17
<PAGE>
The foregoing discussion is based on tax laws and regulations that were in
effect as of the date of this Prospectus and summarizes only some of the
important Federal tax considerations generally affecting the Funds and their
shareholders. It is not intended as a substitute for careful tax planning;
investors should consult their tax advisors with respect to their specific tax
situations as well as with respect to state and local taxes. Further tax
information is contained in the SAIs.
Appendix A -- Portfolio Securities
The following are summary descriptions of certain types of instruments in which
a Fund may invest. The "How Objectives Are Pursued" section of this Prospectus
identifies each Fund's permissible investments, and the SAIs contain more
information concerning such investments.
ASSET-BACKED SECURITIES: Asset-backed securities arise through the grouping by
governmental, government-related, and private organizations of loans,
receivables, or other assets originated by various lenders. Asset-backed
securities consist of both mortgage- and non-mortgage-backed securities.
Interests in pools of these assets 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 SAIs.
Non-mortgage asset-backed securities include interests in pools of receivables,
such as motor vehicle installment purchase obligations and credit card
receivables. Such securities are generally issued as pass-through certificates,
which represent undivided fractional ownership interests in the underlying pools
of assets. Such securities also may be debt instruments, which are also known as
collateralized obligations and are generally issued as the debt of a special
purpose entity organized solely for the purpose of owning such assets and
issuing such debt.
BANK INSTRUMENTS: Bank instruments consist mainly of certificates of deposit,
time deposits and bankers' acceptances. The Nations Prime Fund generally limits
investments in bank instruments to (a) U.S. dollar-denominated obligations of
U.S. banks which have total assets exceeding $1 billion and which are members of
the Federal Deposit Insurance Corporation (including obligations of foreign
branches of such banks) or of the 75 largest foreign commercial banks in terms
of total assets; or (b) U.S. dollar-denominated bank instruments issued by other
banks believed by the Adviser to present minimal credit risks. For purposes of
the foregoing, total assets may be determined on the basis of the bank's most
recent annual financial statements.
The Nations Prime Fund may invest up to 100% of its assets in obligations issued
by banks. All Funds (except Nations Prime Fund) will limit their investments in
bank obligations so they do not exceed 25% of each Fund's total assets at the
time of purchase. The Nations Prime Fund may invest in U.S. dollar-denominated
obligations issued by foreign branches of domestic banks ("Eurodollar"
obligations) and domestic branches of foreign banks ("Yankee dollar"
obligations).
Eurodollar obligations, Yankee dollar obligations and other foreign obligations
involve special investment risks, including the possibility that liquidity could
be impaired because of future political and economic developments, the
obligations may be less marketable than comparable domestic obligations of
domestic issuers, a foreign jurisdiction might impose withholding taxes on
interest income payable on such obligations, deposits may be seized or
nationalized, foreign governmental restrictions such as exchange controls may be
adopted which might adversely affect the payment of principal of and interest on
such obligations, the selection of foreign obligations may be more difficult
because there may be less publicly available information concerning foreign
issuers, there may be difficulties in enforcing a judgment against a foreign
issuer or the accounting, auditing and financial reporting standards, practices
and requirements applicable to foreign issuers may differ from those applicable
to domestic issuers. In addition, foreign banks are not subject to examination
by U.S. Government agencies or instrumentalities.
BORROWINGS: When a Fund borrows money, the net asset value of a share may be
subject to greater fluctuation until the borrowing is paid off. The Funds may
borrow money from banks for temporary purposes in amounts of up to one-third of
their respective total assets, provided that borrowings in excess of 5% of the
value of the Funds' total assets must be repaid prior to the purchase of
portfolio securities. Pursuant to line of credit arrangements, certain of the
Funds may borrow
18
<PAGE>
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, the Fund's use of proceeds of the agreement may be restricted pending
a determination by the other party, or its trustee or receiver, whether to
enforce the Fund's obligation to repurchase the securities. In addition, there
is a risk of delay in receiving collateral or securities or in repurchasing the
securities covered by the reverse repurchase agreement or even of a loss of
rights in the collateral or securities in the event the buyer of the securities
under the reverse repurchase agreement files for bankruptcy or becomes
insolvent. A Fund only enters into reverse repurchase agreements (and repurchase
agreements) with counterparties that are deemed by the Adviser to be credit
worthy. Reverse repurchase agreements are speculative techniques involving
leverage, and are subject to asset coverage requirements if a Fund does not
establish and maintain a segregated account (as described above). Under the
requirements of the 1940 Act, a Fund is required to maintain an asset coverage
(including the proceeds of the borrowings) of at least 300% of all borrowings.
Depending on market conditions, a Fund's asset coverage and other factors at the
time of a reverse repurchase, a Fund may not establish a segregated account when
the Adviser believes it is not in the best interest of the Fund to do so. In
this case, such reverse repurchase agreements will be considered borrowings
subject to the asset coverage described above.
Currently, Nations Treasury Fund has entered into an arrangement whereby it
reinvests the proceeds of a reverse repurchase agreement in a tri-party
repurchase agreement and receives the net interest rate differential.
COMMERCIAL INSTRUMENTS: Commercial instruments consist of short-term U.S.
dollar-denominated obligations issued by domestic corporations or foreign
corporations and domestic and foreign commercial banks. The Nations Prime Fund
will limit purchases of commercial instruments to instruments that: (a) if rated
by at least two NRSROs, are rated in the highest rating category for short-term
debt obligations given by such organizations, or if only rated by one such
organization, are rated in the highest rating category for short-term debt
obligations given by such organization; or (b) if not rated, are (i) comparable
in priority and security to a class of short-term instruments of the same issuer
that has such rating(s), or (ii) of comparable quality to such instruments as
determined by Nations Fund, Inc.'s Board of Directors on the advice of the
Adviser.
Investments by a Fund in commercial paper will consist of issues rated in a
manner consistent with such Fund's investment policies and objective. In
addition, a Fund may acquire unrated commercial paper and corporate bonds that
are determined by the Adviser at the time of purchase to be of comparable
quality to rated instruments that may be acquired by a Fund. Commercial
instruments include variable-rate master demand notes, which are unsecured
instruments that permit the indebtedness thereunder to vary and provide for
periodic adjustments in the interest rate, and variable- and floating-rate
instruments.
FOREIGN SECURITIES: Foreign securities include debt 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.
19
<PAGE>
Investments in foreign securities may present additional risks, whether made
directly or indirectly, including the political or economic instability of the
issuer or the country of issue and the difficulty of predicting international
trade patterns. In addition, there may be less publicly available information
about a foreign company than about a U.S. company. Further, foreign securities
markets are generally not as developed or efficient as those in the U.S., and in
most foreign markets volume and liquidity are less than in the United States.
Fixed commissions on foreign securities exchanges are generally higher than the
negotiated commissions on U.S. exchanges, and there is generally less government
supervision and regulation of foreign securities exchanges, brokers, and
companies than in the United States. With respect to certain foreign countries,
there is a possibility of expropriation or confiscatory taxation, limitations on
the removal of funds or other assets, or diplomatic developments that could
affect investments within those countries. Because of these and other factors,
securities of foreign companies acquired by a Fund may be subject to greater
fluctuation in price than securities of domestic companies.
GUARANTEED INVESTMENT CONTRACTS: Guaranteed investment contracts, investment
contracts or funding agreements (each referred to as a "GIC") are investment
instruments issued by highly-rated insurance companies. Pursuant to such
contracts, a Fund may make cash contributions to a deposit fund of the insurance
company's general or separate accounts. The insurance company then credits to a
Fund guaranteed interest. The insurance company may assess periodic charges
against a GIC for expense and service costs allocable to it, and the charges
will be deducted from the value of the deposit fund. The purchase price paid for
a GIC generally becomes part of the general assets of the issuer, and the
contract is paid from the general assets of the issuer.
A Fund will only purchase GICs from issuers that, at the time of purchase, meet
quality and credit standards established by the Adviser. Generally, GICs are not
assignable or transferable without the permission of the issuing insurance
companies, and an active secondary market in GICs does not currently exist.
Also, a Fund may not receive the principal amount of a GIC from the insurance
company on seven days' notice or less, at which point the GIC may be considered
to be an illiquid investment.
ILLIQUID SECURITIES: Certain securities may be sold only pursuant to certain
legal restrictions, and may be difficult to sell. The Money Market Funds will
not hold more than 10% of the value of their respective net assets in securities
that are illiquid or such lesser percentages as may be required by the states in
which the appropriate Fund sells its shares. Repurchase agreements, time
deposits and GICs that do not provide for payment to a Fund within seven days
after notice and illiquid restricted securities are subject to the limitation on
illiquid securities. In addition, interests in privately arranged loans acquired
by the Nations Prime Fund may be subject to this limitation.
If otherwise consistent with their investment objectives and policies, certain
Funds may purchase securities which are not registered under the Securities Act
of 1933, as amended (the "1933 Act") but that can be sold to "qualified
institutional buyers" in accordance with Rule 144A 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: With respect to the Money Market Funds, the term
"money market instruments" refers to instruments with remaining maturities
20
<PAGE>
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 include, among other instruments, U.S. Treasury
Obligations, U.S. Government Obligations, bank instruments, commercial
instruments, repurchase agreements and municipal securities. Such instruments
are described in this Appendix A.
MUNICIPAL SECURITIES: The two principal classifications of Municipal Securities
are "general obligation" securities and "revenue" securities. General obligation
securities are secured by the issuer's pledge of its full faith, credit, and
taxing power for the payment of principal and interest. Revenue securities are
payable only from the revenues derived from a particular facility or class of
facilities or, in some cases, from the proceeds of a special excise tax or other
specific revenue source such as the user of the facility being financed. Private
activity bonds held by a Fund are in most cases revenue securities and are not
payable from the unrestricted revenues of the issuer. Consequently, the credit
quality of private activity bonds is usually directly related to the credit
standing of the corporate user of the facility involved.
Municipal Securities may include "moral obligation" bonds, which are normally
issued by special purpose public authorities. If the issuer of moral obligation
bonds is unable to meet its debt service obligations from current revenues, it
may draw on a reserve fund, the restoration of which is a moral commitment but
not a legal obligation of the state or municipality which created the issuer.
Municipal Securities may include variable- or floating-rate instruments issued
by industrial development authorities and other governmental entities. While
there may not be an active secondary market with respect to a particular
instrument purchased by a Fund, a Fund may demand payment of the principal and
accrued interest on the instrument or may resell it to a third party as
specified in the instruments. The absence of an active secondary market,
however, could make it difficult for a Fund to dispose of the instrument if the
issuer defaulted on its payment obligation or during periods the Fund is not
entitled to exercise its demand rights, and the Fund could, for these or other
reasons, suffer a loss.
Some of these instruments may be unrated, but unrated instruments purchased by a
Fund will be determined by the Adviser to be of comparable quality at the time
of purchase to instruments rated "high quality" by any major rating service.
Where necessary to ensure that an instrument is of comparable "high quality," a
Fund will require that an issuer's obligation to pay the principal of the note
may be backed by an unconditional bank letter or line of credit, guarantee, or
commitment to lend.
Municipal Securities may include municipal lease obligations, including
certificates of participation in municipal leases, and units of participation in
trusts holding pools of tax-exempt leases. A Fund may acquire municipal lease
obligations that may be assigned by the lessee to another party provided the
obligation continues to provide tax-exempt interest. Each Fund will not purchase
municipal lease obligations to the extent it holds municipal lease obligations
and illiquid securities in an amount exceeding 10% of its total assets unless
the Adviser determines that the municipal lease obligations are liquid pursuant
to guidelines established by the Funds' Boards. Pursuant to these quidelines,
the Adviser, in making this liquidity determination, will consider, among other
factors, the strength and nature of the secondary market for such obligations,
the prospect for its future marketability and whether such obligations are
rated. The Funds expect that they will only purchase rated municipal lease
obligations.
Municipal participation interests may be purchased from financial institutions,
and give the purchaser an undivided interest in one or more underlying municipal
securities. To the extent that municipal participation interests are considered
to be "illiquid securities," such instruments are subject to each Fund's
limitation on the purchase of illiquid securities.
In addition, certain of the Funds may acquire "stand-by commitments" from banks
or broker/dealers with respect to municipal securities held in their portfolios.
Under a stand-by commitment, a dealer would agree to purchase at a Fund's option
specified Municipal Securities at a specified price. A Fund will acquire
stand-by commitments solely to facilitate portfolio liquidity and do not intend
to exercise their rights thereunder for trading purposes.
A Fund may invest in short-term securities, in commitments to purchase such
securities on a "when-issued" basis, and reserves the right to engage in "put"
transactions on a daily, weekly or monthly basis. Securities purchased on a
"when-issued" basis are subject to settlement within 45 days of the purchase
date. The interest rate realized on these securities is fixed as of the purchase
date and no interest accrues to the Fund before settlement. These securities are
subject to market fluctuation due to changes in market interest rates. The Funds
will only commit to purchase a security on a when-issued basis with the
intention of actually acquiring the security and will segregate sufficient
liquid assets to meet its purchase obligation.
A "put" feature permits a Fund to sell a security at a fixed price prior to
maturity. The underlying Municipal Securities subject to a put may be sold at
any time at the market rates. However, unless the put was an integral part of
the security as originally issued, it may not be marketable or assignable.
Therefore, the put would only have value to the Fund. In certain cases a premium
may be paid for put features. A premium paid will have the effect of reducing
the yield otherwise payable on the
21
<PAGE>
underlying security. The purpose of engaging in transactions involving puts is
to maintain flexibility and liquidity to permit the Fund to meet redemptions and
remain as fully invested as possible in municipal securities. The Funds will
limit their put transactions to institutions which the Adviser believes present
minimal credit risk, pursuant to guidelines adopted by the Boards. Nations Tax
Exempt Fund may invest more than 40% of its portfolio in 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 the
interest on which is paid solely from revenues of similar projects if such
investment is deemed necessary or appropriate by the Adviser. To the extent that
more than 25% of a Fund's total assets are invested in Municipal Securities that
are payable from the revenues of similar projects, a Fund will be subject to the
peculiar risks presented by such projects to a greater extent than it would be
if its assets were not so concentrated.
OTHER INVESTMENT COMPANIES: Each Fund may invest in securities issued by other
investment companies to the extent that such investments are consistent with the
Fund's investment objective and policies and permissible under the 1940 Act. As
a shareholder of another investment company, a Fund would bear, along with other
shareholders, its pro rata portion of the other investment company's expenses,
including advisory fees. These expenses would be in addition to the advisory and
other expenses that a Fund bears directly in connection with its own operations.
REPURCHASE AGREEMENTS: A repurchase agreement involves the purchase of a
security by a Fund and a simultaneous agreement (generally with a bank or
broker/dealer) to repurchase that security from the Fund at a specified price
and date or upon demand. This technique offers a method of earning income on
uninvested cash. A risk associated with repurchase agreements is the failure of
the seller to repurchase the securities as agreed, which may cause a Fund to
suffer a loss if the market value of such securities declines before they can be
liquidated on the open market. Repurchase agreements with a duration of more
than seven days are considered illiquid securities and are subject to the limit
stated above. A Fund may enter into joint repurchase agreements jointly with
other investment portfolios of Nations Fund.
SECURITIES LENDING: To increase return on portfolio securities, the Funds may
lend their portfolio securities to broker/dealers and other institutional
investors pursuant to agreements requiring that the loans be continuously
secured by collateral equal at all times in value to at least the market value
of the securities loaned. There is a risk of delay in receiving collateral or in
recovering the securities loaned or even a loss of rights in the collateral
should the borrower of the securities fail financially. However, loans are made
only to borrowers deemed by the Adviser to be credit worthy and when, in its
judgment, the income to be earned from the loan justifies the attendant risks.
The aggregate of all outstanding loans of a Fund may not exceed 30% of the value
of its total assets.
SHORT-TERM TRUST OBLIGATIONS: Nations Prime Fund may invest in short-term
obligations issued by special purpose trusts established to acquire specific
issues of government or corporate securities. Such obligations entitle the Fund
to a proportional fractional interest in payments received by a trust, either
from the underlying securities owned by the trust or pursuant to other
arrangements entered into by the trust. A trust may enter into a swap
arrangement with a highly rated investment firm, pursuant to which the trust
grants to the counterparty certain of its rights with respect to the securities
owned by the trust in exchange for the obligation of the counterparty to make
payments to the trust according to an established formula. The trust obligations
purchased by the Fund must satisfy the quality and maturity requirements
generally applicable to the Fund pursuant to Rule 2a-7 under the 1940 Act.
U.S. GOVERNMENT OBLIGATIONS: U.S. Government Obligations consist of marketable
securities and instruments issued or guaranteed by the U.S. Government or any of
its agencies, authorities or instrumentalities. Direct obligations are issued by
the U.S. Treasury and include all U.S. Treasury instruments. 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 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 Association; 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 Obli-
22
<PAGE>
gations 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 a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than debt in higher-rated
categories.
To provide more detailed indications of credit quality, the AA and A ratings may
be modified by the addition of a plus or minus sign to show relative standing
within this major rating category.
The following summarizes the highest three ratings used by Moody's for corporate
and municipal bonds:
Aaa -- Bonds that are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to
as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such
issues.
Aa -- Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there may
be other elements present which make the long-term risks appear somewhat
larger than in Aaa securities.
A -- Bonds that are rated A possess many favorable investment attributes
and are to be considered upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
Moody's applies numerical modifiers (1, 2 and 3) with respect to corporate bonds
rated Aa and A. The modifier 1 indicates that the bond being rated ranks in the
higher end of its generic rating category; the modifier 2 indicates a mid-range
ranking; and the modifier 3 indicates that the bond ranks in the lower end of
its generic rating category. With regard to municipal bonds, those bonds in the
Aa and A groups which Moody's believes possess the strongest investment
attributes are designated by the symbols Aa1 and A1, respectively.
The following summarizes the highest three ratings used by D&P for bonds:
AAA -- Bonds that are rated AAA are of the highest credit quality. The risk
factors are considered to be negligible, being only slightly more than for
risk free U.S. Treasury debt.
23
<PAGE>
AA -- Bonds that are rated AA are of high credit quality. Protection
factors are strong. Risk is modest, but may vary slightly from time to time
because of economic conditions.
A -- Bonds that are rated A have protection factors which are average but
adequate. However, risk factors are more variable and greater in periods of
economic stress.
To provide more detailed indications of credit quality, the AA and A ratings may
be modified by the addition of a plus or minus sign to show relative standing
within this major category.
The following summarizes the highest three ratings used by Fitch for bonds:
AAA -- Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
AA -- Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated AAA. Because bonds
rated in the AAA and AA categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is
generally rated F-1+.
A -- Bonds considered to be investment grade and of high credit quality.
The obligor's ability to pay interest and repay principal is considered to
be strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.
To provide more detailed indications of credit quality, the AA and A ratings may
be modified by the addition of a plus or minus sign to show relative standing
within this major rating category.
The following summarizes the two highest ratings used by Moody's for short-term
municipal notes and variable-rate demand obligations:
MIG-1/VMIG-1 -- Obligations bearing these designations are of the best
quality, enjoying strong protection from established cash flows, superior
liquidity support or demonstrated broad-based access to the market for
refinancing.
MIG-2/VMIG-2 -- Obligations bearing these designations are of high quality,
with ample margins of protection although not so large as in the preceding
group.
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
24
<PAGE>
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 debt ratings described above.
BankWatch ratings are based upon a qualitative and quantitative analysis of all
segments of the organization including, where applicable, holding company and
operating subsidiaries. BankWatch ratings do not constitute a recommendation to
buy or sell securities of any of these companies. Further, BankWatch does not
suggest specific investment criteria for individual clients.
BankWatch long-term ratings apply to specific issues of long-term debt and
preferred stock. The long-term ratings specifically assess the likelihood of
untimely payment of principal or interest over the term to maturity of the rated
instrument. The following are the three highest investment grade ratings used by
BankWatch for long-term debt:
AAA -- The highest category; indicates ability to repay principal and interest
on a timely basis is very high.
AA -- The second highest category; indicates a superior ability to repay
principal and interest on a timely basis with limited incremental risk versus
issues rated in the highest category.
A -- The third highest category; indicates the ability to repay principal and
interest is strong. Issues rated "A" could be more vulnerable to adverse
developments (both internal and external) than obligations with higher ratings.
The BankWatch short-term ratings apply to commercial paper, other senior
short-term obligations and deposit obligations of the entities to which the
rating has been assigned. The BankWatch short-term ratings specifically assess
the likelihood of an untimely payment of principal or interest.
TBW-1 -- The highest category; indicates a very high likelihood that
principal and interest will be paid on a timely basis.
TBW-2 -- The second highest category; while the degree of safety regarding
timely repayment of principal and interest is strong, the relative degree
of safety is not as high as for issues rated "TBW-1".
The following summarizes the three highest long-term ratings used by IBCA:
AAA -- Obligations for which there is the lowest expectation of investment
risk. Capacity for timely repayment of principal and interest is
substantial such that adverse changes in business, economic or financial
conditions are unlikely to increase investment risk significantly.
AA -- Obligations for which there is a very low expectation of investment
risk. Capacity for timely repayment of principal and interest is
substantial. Adverse changes in business, economic or financial conditions
may increase investment risk albeit not very significantly.
A -- Obligations for which there is a low expectation of investment risk.
Capacity for timely repayment of principal and interest is strong, although
adverse changes in business, economic or financial conditions may lead to
increased investment risk.
A plus or minus sign may be appended to a rating below AAA to denote relative
status within major rating categories.
The following summarizes the 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.
25
<PAGE>
Prospectus
PRIMARY B SHARES
JULY 31, 1996
This Prospectus describes the investment portfolios
listed in the column to the right (each a "Fund") of
Nations Fund Trust, Nations Fund, Inc. and Nations
Fund Portfolios, Inc. ("Nations Portfolios"), each
an open-end management investment company in the
Nations Fund Family ("Nations Fund" or "Nations Fund
Family"). This Prospectus describes one class of
shares of each Fund -- Primary B Shares (formerly
called Trust B Shares).
This Prospectus sets forth concisely the information
about Nations Fund that a prospective purchaser of
Primary B Shares should consider before investing.
Investors should read this Prospectus and retain it
for future reference. Additional information about
Nations Fund Trust, Nations Fund, Inc. and Nations
Portfolios is contained in separate Statements of
Additional Information ("SAIs"), that have been
filed with the Securities and Exchange Commission
(the "SEC") and are available upon request without
charge by writing or calling Nations Fund at its
address or telephone number shown below. The SAIs
for Nations Fund Trust, Nations Fund, Inc. and
Nations Portfolios each dated July 31, 1996, are
incorporated by reference in their entirety into
this Prospectus. NationsBanc Advisors, Inc. ("NBAI")
is the investment adviser to the Funds. TradeStreet
Investment Associates, Inc. ("TradeStreet") is
sub-investment adviser to certain of the Funds and
Gartmore Global Partners ("Gartmore") is
sub-investment adviser to the other Funds. As used
herein the "Adviser" shall mean NBAI, TradeStreet
and/or Gartmore as the context may require.
SHARES OF NATIONS FUND ARE NOT DEPOSITS OR OTHER
OBLIGATIONS OF, OR ISSUED, ENDORSED OR GUARANTEED
BY, NATIONSBANK, N.A. ("NATIONSBANK") OR ANY OF ITS
AFFILIATES. SUCH SHARES ARE NOT INSURED BY THE U.S.
GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER
GOVERNMENT AGENCY. AN INVESTMENT IN THE FUNDS
INVOLVES CERTAIN RISKS, INCLUDING POSSIBLE LOSS OF
PRINCIPAL.
NATIONSBANK AND CERTAIN OF ITS AFFILIATES PROVIDE
CERTAIN OTHER SERVICES TO NATIONS FUND, FOR WHICH
THEY ARE COMPENSATED. STEPHENS INC., WHICH IS NOT
AFFILIATED WITH NATIONSBANK, IS THE SPONSOR AND
ADMINISTRATOR AND SERVES AS THE DISTRIBUTOR FOR
NATIONS FUND.
THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
EQUITY FUNDS:
Nations Value Fund
Nations Equity Income Fund
Nations International Equity Fund
Nations Emerging Markets Fund
Nations Pacific Growth Fund
Nations Capital Growth Fund
Nations Emerging Growth Fund
Nations Disciplined Equity Fund
Nations Equity Index Fund
BALANCED FUND:
Nations Balanced Assets Fund
BOND FUNDS:
Nations Short-Intermediate Government Fund
Nations Government Securities Fund
Nations Short-Term Income Fund
Nations Diversified Income Fund
Nations Strategic Fixed Income Fund
Nations Global Government Income Fund
For Fund information call:
1-800-621-2192
Nations Fund
c/o Stephens Inc.
One NationsBank Plaza
33rd Floor
Charlotte, NC 28255
(Nations Fund logo appears here)
<PAGE>
TR-96131-796
Table Of Contents
About The Funds
Prospectus Summary 3
Expenses Summary 5
Objectives 7
How Objectives Are Pursued 8
How Performance Is Shown 19
How The Funds Are Managed 20
Organization And History 25
About Your
Investment
How To Buy Shares 27
How To Redeem Shares 28
How To Exchange Shares 28
Shareholder Administration Arrangements 29
How The Funds Value Their Shares 30
How Dividends And Distributions Are Made; Tax
Information 30
Appendix A -- Portfolio Securities 31
Appendix B -- Description Of Ratings 39
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT
CONTAINED IN THIS PROSPECTUS, OR IN THE FUNDS' SAIS
INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH
THE OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY
NATIONS FUND OR ITS DISTRIBUTOR. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFERING BY NATIONS FUND OR
BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH
OFFERING MAY NOT LAWFULLY BE MADE.
2
<PAGE>
About The Funds
Prospectus Summary
(Bullet) TYPE OF COMPANIES: Open-end management investment companies.
(Bullet) INVESTMENT OBJECTIVES AND POLICIES:
(Bullet) EQUITY FUNDS:
(Bullet) Nations Value Fund's investment objective is to seek growth of
capital by investing in companies that are believed to be
undervalued.
(Bullet) Nations Equity Income Fund's investment objective is
to seek current income and growth of capital by
investing primarily in companies with above average
dividend yields.
(Bullet) Nations International Equity Fund's investment
objective is to seek long-term capital growth by
investing primarily in equity securities of
non-United States companies in Europe, Australia, the
Far East and other regions, including developing
countries.
(Bullet) Nations Emerging Markets Fund's investment objective
is to seek long-term capital growth by investing
primarily in equity securities of companies in
emerging market countries, such as those in Latin
America, Eastern Europe, the Pacific Basin, the Far
East, Africa and India.
(Bullet) Nations Pacific Growth Fund's investment objective is
to seek long-term capital growth by investing
primarily in equity securities of companies in the
Pacific Basin and the Far East (excluding Japan).
(Bullet) Nations Capital Growth Fund's investment objective is
to seek growth of capital by investing in companies
that are believed to have superior earnings growth
potential.
(Bullet) Nations Emerging Growth Fund's investment objective
is to seek capital appreciation by investing in
emerging growth companies that are believed to have
superior long-term earnings growth prospects.
(Bullet) Nations Disciplined Equity Fund's investment
objective is to seek growth of capital by investing
in companies that are expected to produce
significant increases in earnings per share.
(Bullet) Nations Equity Index Fund's investment objective is
to seek investment results that correspond, before
fees and expenses, to the total return of the
Standard & Poor's 500 Composite Stock Price Index.
(Bullet) BALANCED FUND:
(BULLET) Nations Balanced Assets Fund's investment objective is to seek
total return by investing in equity and fixed income
securities.
(Bullet) BOND FUNDS:
(BULLET) Nations Short-Intermediate Government Fund's investment
objective is to seek high current income consistent with
modest fluctuation of principal. The Fund invests primarily in
securities issued or guaranteed by the U.S. Government, its
agencies or instrumentalities.
(Bullet) Nations Government Securities Fund's investment
objective is to seek high current income consistent
with moderate fluctuation of principal. The Fund
invests primarily in intermediate-term securities
issued or guaranteed by the U.S. Government, its
agencies or instrumentalities.
(Bullet) Nations Short-Term Income Fund's investment objective
is to seek high current income consistent with minimal
fluctuation of principal. The Fund invests in
investment grade debt securities.
(Bullet) Nations Diversified Income Fund's investment
objective is to seek total return with an emphasis on
current income by investing in a diversified
portfolio of fixed income securities.
3
<PAGE>
(Bullet) Nations Strategic Fixed Income Fund's investment
objective is to seek total return by investing in
investment grade fixed income securities.
(Bullet) Nations Global Government Income Fund's investment
objective is to seek total return by investing
primarily in high quality debt securities issued by
governments, banks and supranational entities
located throughout the world.
(Bullet) INVESTMENT ADVISER: NationsBanc Advisors, Inc. serves as the investment
adviser to the Funds. NBAI provides investment advice to more than 43
investment company portfolios in the Nations Fund Family. TradeStreet
Investment Associates, Inc. provides sub-advisory services to certain
of the Funds and Gartmore Global Partners provides sub-advisory
services to the other Funds. See "How The Funds Are Managed."
(Bullet) DIVIDENDS AND DISTRIBUTIONS: The Equity Funds and the Balanced Fund
declare and pay dividends from net investment income each calendar
quarter. The Bond Funds declare dividends daily and pay them monthly.
Each Fund's net realized capital gains, including net short-term
capital gains are distributed at least annually.
(Bullet) RISK FACTORS: Although the Adviser seeks to achieve the investment
objective of each Fund, there is no assurance that it will be able to
do so. Investments in a Fund are not insured against loss of principal.
Investments by a Fund in common stocks and other equity securities are
subject to stock market risk, which is the risk that the value of the
stocks the Fund holds may decline over short or even extended periods.
Investments by a Fund in debt securities are subject to interest rate
risk, which is the risk that increases in market interest rates will
adversely affect a Fund's investments in debt securities. The value of
a Fund's investments in debt securities, including U.S. Government
Obligations (as defined below), will tend to decrease when interest
rates rise and increase when interest rates fall. In general,
longer-term debt instruments tend to fluctuate in value more than
shorter-term debt instruments in response to interest rate movements.
In addition, debt securities which are not backed by the United States
Government are subject to credit risk, which is the risk that the
issuer may not not be able to pay principal and/or interest when due.
Certain of the Funds' investments constitute derivative securities.
Certain types of derivative securities can, under certain
circumstances, significantly increase an investor's exposure to market
or other risks. For a discussion of these and other factors, see "How
Objectives Are Pursued -- Risk Considerations" and "Appendix
A -- Portfolio Securities."
Nations International Equity Fund, Nations Emerging Markets Fund,
Nations Pacific Growth Fund and Nations Global Government Income Fund
are designed for long-term investors seeking international
diversification and who are willing to bear the risks associated with
international investing, such as foreign currency fluctuations and
economic and political risks. For a discussion of these factors, see
"How Objectives Are Pursued -- Special Risk Considerations Relevant to
an Investment in Nations International Equity Fund, Nations Emerging
Markets Fund, Nations Pacific Growth Fund and Nations Global Government
Income Fund."
(Bullet) MINIMUM PURCHASE: $1,000 minimum initial investment per record holder.
See "How To Buy Shares."
4
<PAGE>
Expenses Summary
Expenses are one of several factors to consider when investing in the Funds. The
following tables summarize shareholder transaction and operating expenses for
Primary B Shares of the Funds. The Examples show the cumulative expenses
attributable to a hypothetical $1,000 investment in the Funds over specified
periods.
NATIONS FUND EQUITY/BALANCED FUNDS PRIMARY B SHARES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Nations Nations Nations
Nations Nations Inter- Nations Pacific Nations Emerging
Value Equity national Emerging Growth Capital Growth
Fund Income Fund Equity Fund Markets Fund Fund Growth Fund Fund
Sales Load Imposed on
Purchases1 None None None None None None None
Deferred Sales Load None None None None None None None
<CAPTION>
Nations Nations
Disciplined Equity Nations
Equity Index Balanced
Fund Fund Assets Fund
Sales Load Imposed on
Purchases1 None None None
Deferred Sales Load None None None
</TABLE>
ANNUAL FUND
OPERATING
EXPENSES
(as a percentage of
average net assets)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Management Fees
(After Fee Waivers) .75% .70% .90% 1.10% .90% .75% .75%
Other Expenses
(After Expense
Reimbursements) .71% .70% .77% 1.53% 1.36% .71% .74%
Total Operating Expenses
(After Fee Waivers
and Expense
Reimbursements) 1.46% 1.40% 1.67% 2.63% 2.26% 1.46% 1.49%
<CAPTION>
Management Fees
(After Fee Waivers) .75% .10% .75%
Other Expenses
(After Expense
Reimbursements) .77% .75% .75%
Total Operating Expenses
(After Fee Waivers
and Expense
Reimbursements) 1.52% .85% 1.50%
</TABLE>
1 Primary B Shares are purchased at net asset value per share without the
imposition of a sales charge according to procedures established by the
Institution (as defined below). Institutions, however, may charge the accounts
of their customers for services provided in connection with the purchase or
redemption of shares.
NATIONS FUND BOND FUNDS PRIMARY B SHARES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Nations
Short-
Inter- Nations Nations Nations
mediate Government Short-Term Diversified
Government Securities Income Income
Fund Fund Fund Fund
Sales Load Imposed on Purchases1 None None None None
Deferred Sales Load None None None None
<CAPTION>
Nations
Strategic Nations
Fixed Global
Income Government
Fund Income Fund
Sales Load Imposed on Purchases1 None None
Deferred Sales Load None None
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Management Fees (After Fee Waivers) .40% .50% .30% .50%
Other Expenses (After Expense Reimbursements) .58% .80% .60% .77%
Total Operating Expenses (After Fee Waivers and Expense
Reimbursements) .98% 1.30% .90% 1.27%
<CAPTION>
Management Fees (After Fee Waivers) .50% 0.70%
Other Expenses (After Expense Reimbursements) .72% 1.12%
Total Operating Expenses (After Fee Waivers and Expense
Reimbursements) 1.22% 1.82%
</TABLE>
1 Primary B Shares are purchased at net asset value per share without the
imposition of a sales charge according to procedures established by the
Institution. Institutions, however, may charge the accounts of their customers
for services provided in connection with the purchase or redemption of shares.
5
<PAGE>
EXAMPLES:
You would pay the following expenses on a $1,000 investment in Primary B Shares
of the indicated Fund, assuming (1) a 5% annual return and (2) redemption at the
end of each time period.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Nations Nations Nations Nations
Equity International Emerging Pacific
Nations Value Fund Income Fund Equity Fund Markets Fund Growth Fund
1 Year $ 15 $ 14 $ 17 $ 27 $ 23
3 Years $ 46 $ 44 $ 53 $ 82 $ 71
<CAPTION>
Nations Nations Nations Government
Nations Disciplined Equity Index Nations Balanced Short- Intermediate Securities
Equity Fund Fund Assets Fund Government Fund Fund
<S> <C> <C> <C> <C> <C>
1 Year $ 15 $ 9 $ 15 $ 10 $ 13
3 Years $ 48 $ 27 $ 47 $ 31 $ 41
<CAPTION>
Nations Strategic Nations Global
Fixed Income Government Income
Fund Fund
<S> <C> <C> <C> <C> <C>
1 Year $ 12 $ 18
3 Years $ 39 $ 57
<CAPTION>
Nations
Capital Nations Emerging
Growth Fund Growth Fund
1 Year $ 15 $ 15
3 Years $ 46 $ 47
Nations
Short-Term Income Nations Diversified
Fund Income Fund
<S> <C> <C>
1 Year $ 9 $ 13
3 Years $ 29 $ 40
</TABLE>
The purpose of the foregoing tables is to assist an investor in understanding
the various shareholder transaction and operating expenses that an investor in
Primary B Shares will bear either directly or indirectly. The "Other Expenses"
figures in the above tables are based on estimated amounts for each Fund's
current fiscal year and reflect anticipated fee waivers and reimbursements.
There is no assurance that any fee waivers and reimbursements will continue
beyond the current fiscal year. If fee waivers and/or reimbursements are
discontinued, the amounts contained in the "Examples" above may increase.
Long-term shareholders of the Funds could pay more in sales charges than the
economic equivalent of the maximum front-end sales charges applicable to mutual
funds sold by members of the National Association of Securities Dealers, Inc.
("NASD"). For more complete descriptions of the Funds' operating expenses, see
"How The Funds Are Managed."
Absent fee waivers and expense reimbursements, "Management Fees," "Other
Expenses" and "Total Operating Expenses" for Primary B Shares of the indicated
Fund would have been as follows: Nations Value Fund -- .75%, .81% and 1.56%,
respectively; Nations Equity Income Fund -- .70%, .80% and 1.50%, respectively;
Nations International Equity Fund -- .90%, .87% and 1.77%, respectively; Nations
Emerging Markets Fund -- 1.10%, 1.63% and 2.73%, respectively; Nations Pacific
Growth Fund -- 0.90%, 1.46% and 2.36%, respectively; Nations Capital Growth
Fund -- .75%, .81% and 1.56%, respectively; Nations Emerging Growth
Fund -- .75%, .84% and 1.59%, respectively; Nations Disciplined Equity
Fund -- .75%, .87% and 1.62%, respectively; Nations Equity Index Fund -- .50%,
.85% and 1.35%, respectively; Nations Balanced Assets Fund -- .75%, .85% and
1.60%, respectively; Nations Short-Intermediate Government Fund -- .60%, .83%
and 1.43%, respectively; Nations Government Securities Fund -- .64%, .90% and
1.54%, respectively; Nations Short-Term Income Fund -- .60%, .85% and 1.45%,
respectively; Nations Diversified Income Fund -- .60%, .87% and 1.47%,
respectively; Nations Strategic Fixed Income Fund -- .60%, .82% and 1.42%,
respectively; and Nations Global Government Income Fund -- 0.70%, 1.22% and
1.92%, respectively.
THE FOREGOING SHOULD NOT BE CONSIDERED TO BE AN ACTUAL REPRESENTATION OF PAST OR
FUTURE PERFORMANCE. ACTUAL EXPENSES AND RATES OF RETURN MAY BE GREATER OR LESS
THAN THOSE SHOWN.
6
<PAGE>
Objectives
EQUITY FUNDS:
NATIONS VALUE FUND: Nations Value Fund's investment objective is to seek growth
of capital by investing in companies that are believed to be undervalued.
NATIONS EQUITY INCOME FUND: Nations Equity Income Fund's investment objective is
to seek current income and growth of capital by investing primarily in companies
with above average dividend yields.
NATIONS INTERNATIONAL EQUITY FUND: Nations International Equity Fund's
investment objective is to seek long-term capital growth by investing primarily
in equity securities of non-United States companies in Europe, Australia, the
Far East and other regions, including developing countries.
NATIONS EMERGING MARKETS FUND: Nations Emerging Markets Fund's investment
objective is to seek long-term capital growth by investing primarily in equity
securities of companies in emerging market countries, such as those in Latin
America, Eastern Europe, the Pacific Basin, the Far East, Africa and India.
NATIONS PACIFIC GROWTH FUND: Nations Pacific Growth Fund's investment objective
is to seek long-term capital growth by investing primarily in equity securities
of companies in the Pacific Basin and the Far East (excluding Japan).
NATIONS CAPITAL GROWTH FUND: Nations Capital Growth Fund's investment objective
is to seek growth of capital by investing in companies that are believed to have
superior earnings growth potential.
NATIONS EMERGING GROWTH FUND: Nations Emerging Growth Fund's investment
objective is to seek capital appreciation by investing in emerging growth
companies that are believed to have superior long-term earnings growth
prospects.
NATIONS DISCIPLINED EQUITY FUND: Nations Disciplined Equity Fund's investment
objective is to seek growth of capital by investing in companies that are
expected to produce significant increases in earnings per share.
NATIONS EQUITY INDEX FUND: Nations Equity Index Fund's investment objective is
to seek investment results that correspond, before fees and expenses, to the
total return of the Standard & Poor's 500 Composite Stock Price Index (the "S&P
500 Index" or the "Index").1
1 "Standard & Poor's 500" is a registered service mark of Standard & Poor's
Corporation ("S&P").
BALANCED FUND:
NATIONS BALANCED ASSETS FUND: Nations Balanced Assets Fund's investment
objective is to seek total return by investing in equity and fixed income
securities.
BOND FUNDS:
NATIONS SHORT-INTERMEDIATE GOVERNMENT FUND: Nations Short-Intermediate
Government Fund's investment objective is to seek high current income consistent
with modest fluctuation of principal. The Fund invests primarily in securities
issued or guaranteed by the U.S. Government, its agencies or instrumentalities.
NATIONS GOVERNMENT SECURITIES FUND: Nations Government Securities Fund's
investment objective is to seek high current income consistent with moderate
fluctuation of principal. The Fund invests primarily in intermediate-term
securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities.
NATIONS SHORT-TERM INCOME FUND: Nations Short-Term Income Fund's investment
objective is to seek high current income consistent with minimal fluctuation of
principal. The Fund invests in investment grade debt securities.
NATIONS DIVERSIFIED INCOME FUND: Nations Diversified Income Fund's investment
objective is to seek total return with an emphasis on current income by
investing in a diversified portfolio of fixed income securities.
NATIONS STRATEGIC FIXED INCOME FUND: Nations Strategic Fixed Income Fund's
investment objective is to seek total return by investing in investment grade
fixed income securities.
NATIONS GLOBAL GOVERNMENT INCOME FUND: Nations Global Government Income Fund's
investment objective is to seek total return by investing primarily in high
quality debt securities issued by governments, banks and supranational entities
located throughout the world.
Although the Adviser will seek to achieve the investment objective of each Fund,
there is no assurance that it will be able to do so. No single Fund should be
considered, by itself, to provide a complete investment program for any
investor. The net asset value of the shares of the Funds will fluctuate based on
market conditions. Therefore, investors should not rely upon the Funds for
short-term financial needs, nor are the Funds meant to provide a vehicle for
participating in short-term swings in the stock market.
7
<PAGE>
How Objectives Are Pursued
EQUITY FUNDS:
NATIONS VALUE FUND: The Fund invests in stocks drawn from a broad universe of
companies monitored by the Adviser. The Adviser closely monitors these
companies, rating them for quality and projecting their future earnings and
dividends as well as other factors. To qualify for purchase, an issuer would
normally have a market capitalization of $500 million or more and have an
average daily trading volume of at least $3 million. These requirements are
generally considered by the Adviser to be adequate to support normal purchase
and sale activity without materially affecting prevailing market prices of the
issuer's shares. The Adviser also analyzes key financial ratios that measure the
growth, profitability, and leverage of such issuers that it believes will help
maintain a portfolio of above-average quality.
Stocks are selected from this universe based on the Adviser's judgment of their
total return potential. The Adviser buys stocks that it believes are undervalued
relative to the overall stock market. The principal factor considered by the
Adviser in making these determinations is the ratio of a stock's
price-to-earnings relative to corresponding ratios of other stocks in the same
industry or economic sector. The Adviser believes that companies with lower
price-to-earnings ratios are more likely to provide better opportunities for
capital appreciation. This "value" approach generally produces a dividend yield
greater than the market average. The Adviser will attempt to temper risk by
broad diversification among economic sectors and industries. Through this
strategy, the Fund pursues above-average returns while seeking to avoid
above-average risks.
The Fund invests under normal market conditions at least 65% of its total assets
in common stocks. In addition to common stocks, the Fund also may invest in
preferred stocks, securities convertible into common stock, and other types of
securities having common stock characteristics (such as rights and warrants to
purchase equity securities). Although the Fund invests primarily in
publicly-traded common stocks of companies incorporated in the United States,
the Fund may invest up to 20% of its assets in foreign securities. The Fund also
may hold up to 20% of its total assets in obligations issued or guaranteed by
the U.S. Government, its agencies or instrumentalities ("U.S. Government
Obligations"), and investment grade securities of domestic companies.
Obligations with the lowest investment grade rating (E.G. rated "BBB" by
Standard & Poor's Corporation ("S&P") or "Baa" by Moody's Investors Service,
Inc. ("Moody's"), have speculative characteristics, and changes in economic
conditions or other circumstances are more likely to lead to a weakened capacity
to make principal and interest payments than is the case with higher grade debt
obligations. Subsequent to its purchase by the Fund, an issue of securities may
cease to be rated or its rating may be reduced below the minimum rating required
for purchase by the Fund. The Adviser will consider such an event in determining
whether the Fund should continue to hold the obligation. Unrated obligations may
be acquired by the Fund if they are determined by the Adviser to be of
comparable quality at the time of purchase to rated obligations that may be
acquired.
The Fund also may invest in various money market instruments and repurchase
agreements. The Fund may invest without limitation in such instruments pending
investment, to meet anticipated redemption requests, or as a temporary defensive
measure if market conditions warrant.
NATIONS EQUITY INCOME FUND: The investment program of the Fund is based on
several premises. First, dividends are normally a more stable and predictable
source of return than capital appreciation. While the price of a company's stock
generally increases or decreases in response to short-term earnings and market
fluctuations, its dividends are generally less volatile. Second, diversifying
equity holdings in a manner that includes every major economic sector
contributes to reduced volatility, without a commensurate reduction in expected
investment return. Finally, investing in dividend paying stocks in all the
economic sectors can provide greater income than the Standard & Poor's 500
Composite Stock Price Index ("S&P 500 Index") with less volatility.
Collectively, these traits may be combined in such a fashion as to produce
returns in excess of the market (S&P 500 Index) on a comparable risk basis.
New purchases for the Fund will generally be made in equity securities that:
(Bullet) are income producing;
(Bullet) appear undervalued relative to the S&P 500 Index on a risk adjusted
basis; and
(Bullet) have favorable trends in personal stock ownership by the underlying
company's officers and/or directors.
To achieve its objective, the Fund, under normal circumstances, will invest at
least 65% of its assets in income-producing common stocks, including securities
convertible into or ultimately exchangeable for common stock (I.E., convertible
bonds or convertible preferred stock), whose prospects for dividend growth and
capital appreciation are considered favorable by the Adviser. The securities
held by the Fund generally will be listed on a national exchange or, if not so
listed, will usually have an established over-the-counter market.
8
<PAGE>
In order to further enhance its income, the Fund also may invest its assets in
fixed income securities (corporate and government bonds of various maturities),
preferred stocks and warrants. The Fund may invest in debt securities that are
considered investment grade (E.G. securities rated in one of the top four
investment categories by S&P or Moody's, or if not rated, are of equivalent
investment quality as determined by the Adviser). Obligations rated in the
lowest of the top four investment grade rating categories (E.G., rated "BBB" by
S&P) have speculative characteristics and changes in economic conditions or
other circumstances are more likely to lead to a weakened capacity to make
principal and interest payments than is the case with higher grade debt
obligations. The Fund also may invest up to 5% of its assets in debt securities
that are rated below investment grade (E.G. rated "BB" by S&P), or if not rated,
are of equivalent investment quality as determined by the Adviser.
Non-investment-grade debt securities are sometimes referred to as "high yield
bonds" or "junk bonds." They tend to have speculative characteristics, generally
involve more risk of principal and income than higher rated securities, and have
yields and market values that tend to fluctuate more than higher quality
securities. The Fund will invest in such high-yield debt securities only when
the Adviser believes that the issue presents minimal credit risk. For a
description of corporate debt ratings, see "Appendix B." Although the Fund
invests primarily in securities of U.S. issuers, the Fund may invest up to 20%
of its total assets in foreign securities. The Fund will treat foreign
securities as illiquid unless there is an active and substantial secondary
market for such securities.
The Fund may invest in various money market instruments and repurchase
agreements. The Fund may invest without limitation in such instruments pending
investment, to meet anticipated redemption requests, or as a temporary defensive
measure if market conditions warrant.
NATIONS INTERNATIONAL EQUITY FUND: The Fund intends to diversify investments
broadly among countries and normally to invest in securities representing at
least three different countries. The Fund may invest in companies in the Far
East and Western Europe as well as Australia, Canada, and other areas (including
developing countries). Under unusual circumstances, however, the Fund may invest
substantially all of its assets in companies in one or two countries.
In seeking to achieve its objective, the Fund will invest at least 65% of its
assets in common stocks of established non-United States companies that the
Adviser believes have potential for growth of capital. The Fund also may invest
up to 35% of its assets in any other type of security including: convertible
securities; preferred stocks; bonds, notes and other debt securities (including
Eurodollar securities); and obligations of domestic or foreign governments and
their political subdivisions.
The Fund also may invest in American Depository Receipts ("ADRs"), Global
Depositary Receipts ("GDRs"), European Depository Receipts ("EDRs"), American
Depository Shares ("ADSs"), bonds, notes, other debt securities of foreign
issuers, securities of foreign investment funds or trusts and real estate
investment trust securities.
NATIONS EMERGING MARKETS FUND: In seeking to achieve its objective, the Fund
will invest under normal market conditions at least 65% of its total assets in
equity securities of companies in emerging markets.
The Fund considers countries with emerging markets to include the following: (i)
countries with an emerging stock market as defined by the International Finance
Corporation; (ii) countries with low- to middle-income economies according to
the International Bank For Reconstruction and Development (more commonly
referred to as the World Bank); and (iii) countries listed in World Bank
publications as developing. The Adviser seeks to identify and invest in those
emerging markets that have a relatively low gross national product per capita,
compared to the world's major economies, and which exhibit potential for rapid
economic growth. The Adviser believes that investment in equity securities of
emerging market issuers offers significant potential for long-term capital
appreciation.
Emerging market countries include, but are not limited to: Argentina, Brazil,
Chile, China, the Czech Republic, Colombia, Ecuador, Greece, Hong Kong,
Indonesia, India, Malaysia, Mexico, the Philippines, Poland, Portugal, Peru,
Russia, Singapore, South Africa, Thailand, Taiwan and Turkey.
A company will be considered in a country, market or region if it conducts its
principal business activities in the country, market or region. A company will
be considered to conduct its principal business activities in a country, market
or region if it derives a significant portion (at least 50%) of its revenues or
profits from goods produced or sold, investments made, or services performed in
such country, market or region or has at least 50% of its assets situated in
such country, market or region.
Equity securities of emerging market issuers may include common stocks,
preferred stocks (including convertible preferred stocks) and warrants; bonds,
notes and debentures convertible into common or preferred stock; equity
interests in foreign investment funds or trusts and real estate investment trust
securities. The Fund may invest in ADRs, GDRs, EDRs, and ADSs of such issuers.
9
<PAGE>
The Fund also may invest in other types of instruments, including debt
obligations. Debt obligations acquired by the Fund will be rated investment
grade at the time of purchase by Moody's or S&P or, if unrated, determined by
the Adviser to be comparable in quality to instruments so rated. Obligations
with the lowest investment grade rating (E.G., rated "Baa" by Moody's or "BBB"
by S&P) have speculative characteristics, and changes in economic conditions or
other circumstances are more likely to lead to a weakened capacity to make
principal and interest payments than is the case with higher grade debt
obligations. See "Appendix B" for a description of these ratings designations.
The Fund is a diversified fund that intends, under normal market conditions, to
invest in at least three different countries, although it may, from time to
time, invest all of its assets in a single country. If the Fund invests all or a
significant portion of its assets at any time in a single country, events
occurring in such country are more likely to affect the Fund's investments. For
additional information concerning risk, see "Special Risk Considerations
Relevant to an Investment in Nations International Equity Fund, Nations Emerging
Markets Fund, Nations Pacific Growth Fund and Nations Global Government Income
Fund," below. When allocating investments among individual countries, the
Adviser will consider various criteria, such as the relative economic growth
potential of the various economies and securities markets, expected levels of
inflation, government policies influencing business conditions and the outlook
for currency relationships.
For defensive purposes, the Fund may temporarily invest substantially all of its
assets in U.S. financial markets or in U.S. dollar-denominated instruments.
NATIONS PACIFIC GROWTH FUND: The Fund seeks to achieve its objective by
investing primarily in securities of issuers in the regions known as the Pacific
Basin and the Far East. An issuer will be considered in a region if it conducts
its principal business activities in the region. An issuer will be considered to
conduct its principal business activities in a region if it derives a
significant portion (at least 50%) of its revenues or profits from goods
produced or sold, investments made, or services performed in such region or has
at least 50% of its assets situated in such region. The Pacific Basin and Far
East include Australia, Hong Kong, India, Indonesia, South Korea, Malaysia, New
Zealand, Pakistan, the People's Republic of China, the Philippines, Singapore,
Sri Lanka, Taiwan and Thailand and may include other markets that develop in the
region. The Fund will not invest in securities of issuers in Japan.
The Fund will focus on equity securities, but may also invest in debt
obligations. Such equity securities may include common stocks, preferred stocks
(including convertible preferred stocks) and warrants; bonds, notes and
debentures convertible into common or preferred stock; equity interests in
foreign investment funds or trusts and real estate investment trust securities.
Debt obligations acquired by the Fund will be rated investment grade at the time
of purchase by Moody's or S&P or, if unrated, determined by the Adviser to be
comparable in quality to instruments so rated. Obligations with the lowest
investment grade rating (E.G., rated "Baa" by Moody's or "BBB" by S&P) have
speculative characteristics, and changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity to make principal
and interest payments than is the case with higher grade debt obligations. See
"Appendix B" for a description of these ratings designations.
In seeking to achieve its objective, the Fund will invest under normal market
conditions at least 65% of its total assets in securities of issuers that
conduct their principal business activities in countries of the Pacific Basin
and Far East, except for Japan. Although the Fund may not invest in securities
issued by companies that conduct their principal business activities in Japan,
the Fund may invest in securities that are listed on a Japanese exchange.
The Fund is a diversified fund that intends, under normal market conditions, to
invest in at least three different countries, although it may, from time to
time, invest all of its assets in a single country. If the Fund invests all or a
significant portion of its assets at any time in a single country, events
occurring in such country are more likely to affect the Fund's investments. For
additional information concerning risk, see "Special Risk Considerations
Relevant to an Investment in Nations International Equity Fund, Nations Emerging
Markets Fund, Nations Pacific Growth Fund and Nations Global Government Income
Fund," below. When allocating investments among individual countries, the
Adviser will consider various criteria, such as the relative economic growth
potential of the various economies and securities markets, expected levels of
inflation, government policies influencing business conditions and the outlook
for currency relationships. The Fund may invest in ADRs, GDRs, EDRs, and ADSs.
For defensive purposes, the Fund may temporarily invest substantially all of its
assets in U.S. financial markets or in U.S. dollar-denominated instruments.
NATIONS CAPITAL GROWTH FUND: The investment philosophy of the Fund is based on
the belief that companies with superior growth characteristics selling at
reasonable prices will, over time, outperform the market. Therefore, the Fund
will generally seek to invest in larger capitalization, high-quality companies
which possess above average earnings growth potential.
The Fund's equity investments will generally be made in companies which share
some of the following characteristics:
10
<PAGE>
(Bullet) above average earnings growth relative to the S&P 500 Index;
(Bullet) established operating histories, strong balance sheets and favorable
financial characteristics; and
(Bullet) above average return on equity relative to the S&P 500 Index.
In addition, the Fund's investment program enables it to invest in the following
types of companies:
(Bullet) companies that generate or apply new technologies, new and improved
distribution techniques, or new services, such as those in the business
equipment, electronics, specialty merchandising and health service
industries;
(Bullet) companies that own or develop natural resources, such as energy
exploration companies;
(Bullet) companies that may benefit from changing consumer demands and
lifestyles, such as financial service organizations and
telecommunication companies;
(Bullet) foreign companies, including those in countries with more rapid
economic growth than the U.S.;
(Bullet) companies whose earnings growth is projected at a pace in excess of the
average company (I.E., growth companies); and
(Bullet) companies whose earnings are temporarily depressed and are currently
out of favor with most investors.
Through intensive research, visits to many companies each year, and efficient
response to changing market conditions, the Adviser seeks to make the most of
the Fund's flexible charter.
Under normal market conditions, the Fund invests at least 65% of its total
assets in common stocks. In addition to common stocks, the Fund also may invest
in preferred stocks, securities convertible into common stocks and other types
of securities having common stock characteristics (such as rights and warrants
to purchase equity securities). Although the Fund invests primarily in publicly
traded common stocks of companies incorporated in the United States, the Fund
may invest up to 20% of its total assets in foreign securities.
The Fund also may invest in various money market instruments and repurchase
agreements. The Fund may invest without limitation in such instruments pending
investment, to meet anticipated redemption requests, or as a temporary defensive
measure if market conditions warrant.
NATIONS EMERGING GROWTH FUND: The Fund will invest in common stocks and
securities convertible into common stocks selected from a universe of emerging
growth companies monitored by the Adviser. Most of the companies will have
revenues between $50 million and $1.5 billion and a debt ratio of less than 50%
of capitalization. The universe focuses on companies with above average earnings
growth rates and profit margins, yet the portfolio may include positions of
special situation companies whose growth is expected to accelerate. These
companies are believed to offer significant opportunities for capital
appreciation and the Adviser will attempt to identify these opportunities before
their potential is recognized by investors in general.
In selecting industries and companies for investment, the Adviser will consider
overall growth prospects, financial condition, competitive position, technology,
research and development, innovative products, marketing expertise,
productivity, labor costs, raw material costs and sources, profit margins,
return on investment, structural changes in local economies, capital resources,
the degree of governmental regulation or deregulation, management and other
factors.
Under normal market conditions, the Fund invests at least 65% of its total
assets in common stocks. The Fund also may invest in various money market
instruments and repurchase agreements. The Fund may invest without limitation in
such instruments pending investment, to meet anticipated redemption requests, or
as a temporary defensive measure if market conditions warrant.
The volatility of emerging growth stocks is higher than that of larger
companies. Many of these stocks trade over the counter and may not have
widespread interest among institutional investors. These securities may have
larger potential for gains but also carry more risk if unexpected company
developments adversely affect the stock prices. To help reduce risk, the Fund is
diversified and typically invests in 75 to 100 companies which represent a broad
range of industries and sectors, both in the United States and abroad. Although
the Fund invests primarily in securities of U.S. issuers, the Fund may invest up
to 20% of its assets in foreign securities.
NATIONS DISCIPLINED EQUITY FUND: The investment philosophy of the Fund is based
on the premise that companies with positive earnings trends also should
experience positive trends in their share price. Based on this philosophy, the
Fund invests primarily in the common stocks of companies that the Adviser
believes are likely to experience significant increases in earnings. By pursuing
this investment philosophy, the Fund seeks to provide investors with long-term
capital appreciation which exceeds that of the S&P 500 Index.
In selecting stocks for purchase by the Fund, the Adviser utilizes quantitative
analysis supported by fundamental research. This approach seeks to identify
companies that have experienced positive historical earnings trends, as
evidenced by earnings forecasts issued by investment banks, broker/dealers and
other investment professionals. The Adviser believes that companies experiencing
such earnings trends have the potential to generate significant increases in per
share earnings. The Adviser also believes that companies with increasing
earnings should experience positive trends in their stock price. Although the
Fund seeks to invest in companies with
11
<PAGE>
increasing earnings, the Fund's investment objective focuses on long-term
capital appreciation; income is not an objective of the Fund.
Under normal market conditions, the Fund invests at least 65% of its total
assets in common stocks of domestic issuers. With respect to the remainder of
the Fund's assets, the Fund may invest in a broad range of equity and debt
instruments, including preferred stocks, securities (debt and preferred stock)
convertible into common stock, warrants and rights to purchase common stocks,
options, U.S. government and corporate debt securities and various money market
instruments. The Fund will invest primarily in medium- and large-sized companies
(I.E. companies with market capitalizations of $500 million or greater) that are
determined to have favorable price-to-earnings ratios. The Fund also may invest
in securities issued by companies with market capitalizations of less than $500
million. The volatility of small-capitalization stocks is typically greater than
that of larger companies. To help reduce risk, the Fund will invest in the
securities of companies representing a broad range of industries and economic
sectors.
The Fund's investments in debt securities, including convertible securities,
will be limited to securities rated investment grade (E.G. securities rated in
one of the top four investment categories by S&P, Moody's, Duff & Phelps Credit
Rating Co. ("D&P"), Fitch Investors Service, Inc. ("Fitch"), IBCA Limited or its
affiliate IBCA Inc. (collectively "IBCA") or Thomson BankWatch, Inc.
("BankWatch"), or, if unrated, determined by the Adviser to be comparable in
quality to instruments so rated. S&P, Moody's, D&P, Fitch, IBCA and BankWatch
are the six nationally recognized statistical rating organizations
(collectively, "NRSROs"). Obligations rated in the lowest of the top four
investment grade rating categories have speculative characteristics and changes
in economic conditions or other circumstances are more likely to lead to a
weakened capacity to make principal and interest payments than is the case with
higher grade debt obligations.
The Fund may invest up to 20% of its total assets in foreign securities. For
temporary defensive purposes, if market conditions warrant, the Fund may invest
without limitation in preferred stocks, investment grade debt instruments, money
market instruments and repurchase agreements.
NATIONS EQUITY INDEX FUND: Under normal conditions, the Fund will invest at
least 80% of its assets in equity securities of companies which compose the S&P
500 Index. The S&P 500 Index consists of 500 selected common stocks, most of
which are listed on the New York Stock Exchange. Different stocks have different
weightings in the Index, depending on the amount of stock outstanding and its
current price. In seeking to duplicate the performance of the S&P 500 Index, the
Adviser will attempt to allocate the Fund's portfolio among common stock in
approximately the same weightings as the S&P 500 Index, beginning with the
heaviest weighted stocks that make up a larger portion of the Index's value.
The Adviser generally will seek to match the composition of the S&P 500 Index as
closely as possible, but may not always invest the Fund's portfolio to mirror
the Index exactly. Because of the difficulty and expense of executing relatively
small stock transactions, the Fund may not always be invested in the less
heavily weighted S&P 500 Index stocks and may at times have its portfolio
weighted differently from the S&P 500 Index. The Fund may omit or remove an S&P
500 Index stock from its portfolio if, following objective criteria, the Adviser
judges the stock to be insufficiently liquid or believes the merit of the
investment has been substantially impaired by extraordinary events or financial
conditions. The Adviser may purchase stocks that are not included in the S&P 500
Index to compensate for these differences if it believes that their prices will
move together with the prices of S&P 500 Index stocks omitted from the
portfolio.
The Fund is not managed according to traditional methods of "active" investment
management, which involve the buying and selling of securities based upon
economic, financial, and market analyses and investment judgment. Instead, the
Fund, utilizing a "passive" or "indexing" investment approach, attempts to
duplicate the performance of the S&P 500 Index.
The correlation between the performance of Nations Equity Index Fund (before
fees and expenses) and the S&P 500 Index is expected to be over 0.95 on an
annual basis. A correlation of 1.00 would indicate perfect correlation, which
would be achieved when the net asset value of the Fund, including the value of
its dividend and capital gain distributions, increases or decreases in exact
proportion to changes in the S&P 500 Index. The Fund's ability to track the S&P
500 Index, however, may be affected by, among other things, transaction costs,
changes in either the composition of the S&P 500 Index or the number of shares
outstanding for the components of the S&P 500 Index, and the timing and amount
of shareholder purchase and redemptions. The Fund may utilize stock index
futures contracts to minimize tracking error. In connection with engaging in
futures transactions, the Fund may hold cash, cash equivalents, and/or U.S.
government securities.
Under normal conditions, the Adviser will attempt to invest as much of the
Fund's assets as is practical in common stocks. However, the Fund will maintain
a reasonable position in high-quality short-term debt securities and money
market instruments to meet redemption requests. If the Adviser believes that
market conditions warrant a temporary defensive posture, the Fund may invest
without limitation in high-quality short-term debt securities and money market
instruments. These
securi-
12
<PAGE>
ties and money market instruments may include domestic and foreign commercial
paper, certificates of deposit, bankers' acceptances and time deposits, U.S.
government securities and repurchase agreements.
The Fund may also invest a portion of its portfolio in instruments whose return
depends on stock market prices. These may include debt securities whose prices
or interest rates are indexed to the return of the S&P 500 Index, or swap
agreements linked to the S&P 500 Index, and options and futures contracts. The
Fund would invest in these types of instruments in order to seek to match the
total return of the Index in accordance with its investment objective. However,
instruments linked to stock market returns may not track the return of the Index
in all cases, and may involve additional credit risks.
ABOUT THE INDEX: The S&P 500 Index is composed of 500 common stocks, which are
chosen by S&P on a statistical basis. The inclusion of a stock in the S&P 500
Index in no way implies that S&P believes the stock to be an attractive
investment. The Index is determined, composed and calculated by S&P without
regard to the Fund. S&P is neither a sponsor of, nor in any way affiliated with,
the Fund and S&P makes no representation or warranty, expressed or implied, on
the advisability of investing in the Fund or as to the ability of the Index to
track general stock market performance. S&P disclaims all warranties of
merchantability or fitness for a particular purpose or use with respect to the
Index or any data included therein.
GENERAL: Each Equity Fund may invest in certain specified derivative securities,
including: exchange-traded options; over-the-counter options executed with
primary dealers, including long calls and puts and covered calls to enhance
return; and U.S. and foreign exchange-traded financial futures approved by the
Commodity Futures Trading Commission ("CFTC") and options thereon for market
exposure risk management. Each Equity Fund may lend its portfolio securities to
qualified institutional investors. Each Equity Fund also may invest in
restricted, private placement and other illiquid securities. Each Equity Fund
(except Nations Equity Index Fund) also may invest in real estate investment
trust securities. In addition, each Equity Fund may invest in securities issued
by other investment companies, consistent with the Fund's investment objective
and policies. Nations International Equity Fund, Nations Emerging Markets Fund
and Nations Pacific Growth Fund may invest in forward foreign exchange contracts
and repurchase agreements.
For more information concerning these and other instruments in which the Funds
may invest and their investment practices, see "Appendix A."
BALANCED FUND:
NATIONS BALANCED ASSETS FUND: In pursuing the Fund's objective, the Adviser will
allocate the Fund's assets based upon its judgment of the relative valuation and
the expected returns of the three major asset classes in which the Fund
principally invests: common stocks, fixed income securities and cash
equivalents. In assessing relative value and expected returns, the Adviser will
evaluate current economic and financial market conditions (both domestically and
internationally), current interest rate trends, earnings and dividend prospects
for common stocks, and overall financial market stability. These asset classes
are actively managed in an effort to maximize total return. In general, the
Adviser believes that common stocks offer the best opportunity for long-term
capital appreciation.
The Fund invests in common and preferred stocks of U.S. corporations and of
foreign issuers, as well as securities convertible into common stocks, and other
types of securities having common stock characteristics (such as rights and
warrants to purchase equity securities) that meet the Adviser's stringent
criteria. Fundamental research and valuation analysis are emphasized in the
stock selection process. Stock holdings are typically those of seasoned,
financially strong companies with favorable industry positioning.
Under the normal circumstances, at least 25% of the total value of the Fund's
assets will be invested in fixed income securities. The Fund may invest in
government, corporate and municipal securities, as well as mortgage-backed and
asset-backed securities. Most obligations acquired by the Fund will be issued by
companies or governmental entities located within the United States. Debt
obligations acquired by the Fund will be rated investment grade at the time of
purchase by an NRSRO, or, if unrated, determined by the Adviser to be comparable
in quality to instruments so rated. Obligations with the lowest investment grade
rating (E.G. rated "BBB" by S&P or "Baa" by Moody's) have speculative
characteristics, and changes in economic conditions or other circumstances are
more likely to lead to a weakened capacity to make principal and interest
payments than is the case with higher grade debt obligations. See "Appendix B"
for a description of these ratings designations. Subsequent to its purchase by
the Fund, an issue of securities may cease to be rated or its rating may be
reduced below the minimum rating required for purchase by the Fund. The Adviser
will consider such an event in determining whether the Fund should continue to
hold the obligation. Unrated obligations may be acquired by the Fund if they are
determined by the Adviser to be of comparable quality at the time of purchase to
rated obligations that may be acquired.
Although the Fund invests primarily in securities of U.S. issuers, the Fund may
invest up to 25% of its total assets in foreign securities.
13
<PAGE>
The Fund also may invest in various money market instruments and repurchase
agreements. The Fund may invest without limitation in such instruments pending
investment, to meet anticipated redemption requests, or as a temporary defensive
measure if market conditions warrant.
The Fund also may invest in certain specified derivative securities, including:
interest rate swaps, caps and floors for hedging purposes; exchange-traded
options; over-the-counter options executed with primary dealers, including long
calls and puts and covered calls to enhance return; and CFTC-approved U.S. and
foreign exchange-traded financial futures and options thereon for market
exposure risk management. The Fund may lend its portfolio securities to
qualified institutional investors and engage in dollar roll transactions. The
Fund may invest in real estate investment trust securities. The Fund also may
invest in restricted, private placement and other illiquid securities, and may
purchase securities issued by other investment companies, consistent with the
Fund's investment objective and policies. See "Appendix A" for additional
information concerning the investment practices of the Fund.
BOND FUNDS:
NATIONS SHORT-INTERMEDIATE GOVERNMENT FUND: In pursuing its investment
objective, Nations Short-Intermediate Government Fund invests substantially all
of its assets in U.S. Government Obligations and repurchase agreements relating
to such obligations. Under normal market conditions, it is expected that the
average dollar-weighted maturity of the Fund's portfolio will be between three
and five years and the duration will not exceed five years. U.S. Government
Obligations have historically involved little risk of loss of principal if held
to maturity. However, due to fluctuations in interest rates, the market value of
such securities may vary during the period a shareholder owns shares of the
Fund. The value of the Fund's portfolio generally will vary inversely with
changes in prevailing interest rates.
The Fund also may invest in corporate convertible and non-convertible debt
obligations, including bonds, notes and debentures rated investment grade at the
time of purchase by one of the six NRSROs, or if not so rated, determined by the
Adviser to be of comparable quality to instruments so rated; dollar-denominated
debt obligations of foreign issuers, including foreign corporations and foreign
governments; mortgage-backed securities of governmental issuers or of private
issuers, including mortgage pass-through certificates, collateralized mortgage
obligations or "CMOs," real estate investment trust securities or
mortgage-backed bonds; other asset-backed and municipal securities rated by one
of the six NRSROs, or if not so rated, determined by the Adviser to be of
comparable quality.
The Fund also may invest in "high quality" money market instruments (I.E., those
within the two highest rating categories or unrated instruments determined by
the Adviser to be of comparable quality), repurchase agreements and cash. Such
obligations may include those issued by foreign banks and foreign branches of
U.S. banks. These investments may be in such proportion as, in the Adviser's
opinion, prevailing market or economic circumstances warrant.
NATIONS GOVERNMENT SECURITIES FUND: In pursuing its investment objective,
Nations Government Securities Fund invests at least 65% of its assets in U.S.
Government Obligations. Under normal market conditions, it is expected that the
average dollar-weighted maturity of the Fund's portfolio will be between three
and 10 years and the Fund's duration is expected to be in a range of 3.5 to 6
years.
The Fund also may invest in corporate convertible and non-convertible debt
obligations, including bonds, notes and debentures rated investment grade at the
time of purchase by one of the six NRSROs, or if not so rated, determined by the
Adviser to be of comparable quality to instruments so rated; dollar-denominated
debt obligations of foreign issuers, including foreign corporations and foreign
governments; mortgage-backed securities of governmental issuers or of private
issuers, including mortgage pass-through certificates, CMOs, real estate
investment trust securities or mortgage-backed bonds; other asset-backed and
municipal securities rated by one of the six NRSROs, or if not so rated,
determined by the Adviser to be of comparable quality.
The Fund also may invest in "high quality" money market instruments (I.E., those
within the two highest rating categories or unrated instruments deemed by the
Adviser to be of comparable quality), repurchase agreements and cash. Such
obligations may include those issued by foreign banks and foreign branches of
U.S. banks. These investments may be in such proportion as, in the Adviser's
opinion, prevailing market or economic circumstances warrant.
NATIONS SHORT-TERM INCOME FUND: In pursuing its investment objective, the Fund
will, under normal market conditions, invest at least 65% of the total value of
its assets in investment grade debt obligations. It is expected that the average
dollar-weighted maturity and duration of the Fund's portfolio will not exceed
three years.
The Fund may invest in corporate convertible and non-convertible debt
obligations, including bonds, notes and debentures rated investment grade by one
of the six NRSROs, or, if not so rated, determined by the Adviser to be of
comparable quality to instruments so rated; dollar-denominated debt obligations
of foreign issuers, including foreign corporations and foreign governments; and
mortgage-related securities of governmental issuers
14
<PAGE>
or of private issuers, including mortgage pass-through certificates, CMOs, real
estate investment trust securities or mortgage-backed bonds; other asset-backed
and municipal securities rated by one of the six NRSROs, or, if not so rated,
determined by the Adviser to be of comparable quality to instruments so rated.
The Fund also may invest in U.S. Government Obligations.
Most obligations acquired by the Fund will be issued by companies or
governmental entities located within the United States. The Fund may invest up
to 25% of its assets in foreign securities.
As noted above, the Fund will invest in investment grade debt obligations.
Obligations rated in the lowest of the top four investment grade rating
categories (E.G. rated "BBB" by S&P or "Baa" by Moody's) have speculative
characteristics and changes in economic conditions or other circumstances are
more likely to lead to a weakened capacity to make principal and interest
payments than is the case with higher grade debt obligations. Subsequent to its
purchase by the Fund, an issue of securities may cease to be rated or its rating
may be reduced below the minimum rating required for purchase by the Fund. The
Adviser will consider such an event in determining whether the Fund should
continue to hold the obligation. See "Appendix B" below for a description of
these rating designations.
The Fund also may invest in "high quality" money market instruments (I.E., those
within the two highest rating categories or unrated instruments determined by
the Adviser to be of comparable quality), repurchase agreements and cash. Such
obligations may include those issued by foreign banks and foreign branches of
U.S. banks. These investments may be in such proportions as, in the Adviser's
opinion, prevailing market or economic circumstances warrant.
NATIONS DIVERSIFIED INCOME FUND: In pursuing its investment objective, the Fund
will, under normal market conditions, invest at least 65% of the total value of
its assets in investment grade debt obligations. It is expected that the average
dollar-weighted maturity of the Fund's portfolio will be greater than five
years.
The Fund may invest in corporate convertible and non-convertible debt
obligations such as fixed- and variable-rate bonds; obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities; dollar-
denominated and non-dollar-denominated debt obligations of foreign issuers,
including foreign corporations and foreign governments; mortgage-backed
securities of governmental issuers or of private issuers, including mortgage
pass-through certificates, CMOs, real estate investment trust securities or
mortgage-backed bonds; other asset-backed and municipal securities rated by one
of the six NRSRO's, or if not so rated, determined by the Adviser to be of
comparable quality. The Fund also may invest in dividend-paying convertible and
non-convertible preferred and common stocks.
Most obligations acquired by the Fund will be issued by companies or
governmental entities located within the United States. The Fund may invest up
to 25% of its assets in foreign securities.
Obligations rated in the lowest of the top four investment grade rating
categories (E.G. rated "BBB" by S&P or "Baa" by Moody's) have speculative
characteristics and changes in economic conditions or other circumstances are
more likely to lead to a weakened capacity to make principal and interest
payments than is the case with higher grade debt obligations.
Up to 35% of the total value of the Fund's assets may be invested in
lower-quality fixed income securities rated "B" or better by Moody's or S&P, or
if not so rated, determined by the Adviser to be of comparable quality.
Securities which are rated "B" generally lack characteristics of the desirable
investment, and assurance of interest and principal payment over any long period
of time may be limited. Non-investment grade debt securities are sometimes
referred to as "high yield bonds" or "junk bonds." They tend to have speculative
characteristics, generally involve more risk of principal and income than higher
rated securities, and have yields and market values that tend to fluctuate more
than higher quality securities.
Subsequent to its purchase by the Fund, an issue of securities may cease to be
rated or its rating may be reduced below the minimum rating required for
purchase by the Fund. The Adviser will consider such an event in determining
whether the Fund should continue to hold the obligation. See "Appendix B" below
for a description of these rating designations.
The Fund may hold or invest in "high quality" money market instruments (I.E.,
those within the two highest rating categories or unrated instruments deemed by
the Adviser to be of comparable quality), repurchase agreements and cash. Such
obligations may include those issued by foreign banks and foreign branches of
U.S. banks. These investments may be in such proportions as, in the Adviser's
opinion, prevailing market or economic circumstances warrant.
NATIONS STRATEGIC FIXED INCOME FUND: In pursuing its investment objective, the
Fund will, under normal market conditions, invest at least 65% of the total
value of its assets in investment grade fixed income securities. It is expected
that the average dollar-weighted maturity of the Fund's portfolio will be ten
years or less and under no circumstances will it exceed 15 years.
The Fund may invest in corporate convertible and non-convertible debt
obligations, including bonds, notes and debentures rated investment grade at the
time of pur-
15
<PAGE>
chase by one of the six NRSROs, or if not so rated, determined by the Adviser to
be of comparable quality to instruments so rated; U.S. Government Obligations;
dollar-denominated debt obligations of foreign issuers, including foreign
corporations and foreign governments; mortgage-backed securities of governmental
issuers or of private issuers, including mortgage pass-through certificates,
CMOs, real estate investment trust securities or mortgage-backed bonds; other
asset-backed and municipal securities rated by one of the six NRSROs, or if not
so rated, determined by the Adviser to be of comparable quality. The Fund also
may invest in dividend paying preferred and common stock.
Most obligations acquired by the Fund will be issued by companies or
governmental entities located within the United States. The Fund may invest up
to 25% of its assets in foreign securities.
The Fund will invest in investment grade debt obligations. Obligations rated in
the lowest of the top four investment grade rating categories (E.G. rated "BBB"
by S&P or "Baa" by Moody's) have speculative characteristics and changes in
economic conditions or other circumstances are more likely to lead to a weakened
capacity to make principal and interest payments than is the case with higher
grade debt obligations. Subsequent to its purchase by the Fund, an issue of
securities may cease to be rated or its rating may be reduced below the minimum
rating required for purchase by the Fund. The Adviser will consider such an
event in determining whether the Fund should continue to hold the obligation.
See "Appendix B" below for a description of these rating designations.
The Fund also may invest in "high quality" money market instruments (I.E., those
within the two highest rating categories or unrated instruments determined by
the Adviser to be of comparable quality), repurchase agreements and cash. Such
obligations may include those issued by foreign banks and foreign branches of
U.S. banks. These investments may be in such proportions as, in the Adviser's
opinion, prevailing market or economic circumstances warrant.
NATIONS GLOBAL GOVERNMENT INCOME FUND: In seeking to achieve its investment
objective, the Fund will invest under normal market conditions at least 65% of
its total assets in debt securities issued or guaranteed by U.S. or foreign
governments (including states, provinces and municipalities) or their agencies,
instrumentalities or subdivisions ("Government Securities"). Except for
temporary defensive purposes, the Fund will concentrate its investments in
foreign Government Securities. Concentration in this context means the
investment of more than 25% of the Fund's total assets in such securities. The
Fund may invest in the debt securities of any type of issuer, including
corporations, banks and supranational entities.
The Fund, under normal market conditions, will invest in at least three
different countries. These countries may include the U.S., the countries of
Western Europe, Japan, Australia, New Zealand and Canada. If the Fund invests a
significant portion of its assets at any time in a single country, events
occurring in such country are more likely to affect the Fund's investments. For
additional information concerning risk, see "Special Risk Considerations
Relevant to an Investment in Nations International Equity Fund, Nations Emerging
Markets Fund, Nations Pacific Growth Fund and Nations Global Government Income
Fund," below. Because the Fund intends to invest a large portion of its assets
in foreign Government Securities, the Fund is a "non-diversified" investment
company for purposes of the Investment Company Act of 1940 (the "1940 Act"). The
Fund may invest in securities of issuers located in any region or country and
that are denominated in any currency.
The Fund is managed in accordance with an overall global investment strategy
which means that Fund investments are allocated among securities denominated in
U.S. dollars and the currencies of a number of foreign countries. The Fund's
exposure to various count-
ries and currencies will vary in accordance with the Adviser's assessment of the
relative yield and appreciation of such securities. Fundamental economic
strength, credit quality and interest rate trends are the principal factors
considered by the Adviser in determining whether to increase or decrease the
emphasis placed upon a particular country or particular type of security within
the Fund's investment portfolio.
Under normal market conditions, the Fund intends to invest primarily in
securities rated "A" or better at the time of purchase by Moody's or S&P and
unrated securities that, at the time of purchase will be determined to be of
comparable quality by the Adviser. The Fund also may invest in securities rated
"Baa" by Moody's or "BBB" by S&P, but does not, as a general matter, intend to
invest more than 10% of its total assets in such securities. Subsequent to its
purchase by the Fund, an issue of securities may cease to be rated or its rating
may be reduced below the minimum rating required for purchase by the Fund. The
Adviser will consider such event in determining whether the Fund should continue
to hold the obligation. In no event will the Fund hold more than 5% of its total
net assets in securities rated below investment grade. See "Appendix B" below
for a description of these rating designations. The Adviser expects that the
Fund's dollar-weighted average maturity will not be greater than 15 years under
normal market conditions.
Supranational entities are international organizations jointly operated by
multiple sovereign governments including, for example, the World Bank, the
European Coal and Steel Community, the Asian Development Bank, the European
Investment Bank and the Inter-
16
<PAGE>
American Development Bank. Supranational entities generally have no taxing
authority and are dependent upon their members for the funds necessary to pay
principal and interest on their debt obligations. The Fund also may invest in
money market instruments.
For defensive purposes, the Fund may temporarily invest substantially all of its
assets in U.S. financial markets or in U.S. dollar-denominated instruments. The
Fund also may invest in money market instruments.
GENERAL: Each of the Funds may invest in certain specified derivative
securities, including: interest rate swaps, caps and floors for hedging
purposes; exchange-traded options; over-the-counter options executed with
primary dealers, including long calls and puts and covered calls to enhance
return; and CFTC-approved U.S. and foreign exchange-traded financial futures and
options thereon for market exposure risk-management. Each of the Funds also may
lend its portfolio securities to qualified institutional investors and may
invest in restricted, private placement and other illiquid securities. Nations
Short-Intermediate Government Fund, Nations Government Securities Fund, Nations
Short-Term Income Fund, Nations Diversified Income Fund and Nations Strategic
Fixed Income Fund may engage in reverse repurchase agreements and dollar roll
transactions. Nations Global Government Income Fund may invest in forward
foreign exchange contracts and repurchase agreements. Additionally, each Fund
may purchase securities issued by other investment companies, consistent with
the Fund's investment objective and policies.
Certain securities that have variable or floating interest rates or demand, put
or prepayment features may be deemed to have remaining maturities shorter than
their nominal maturities for purposes of determining the average weighted
maturity and duration of the Funds.
For more information concerning these and other instruments in which the Funds
may invest and their investment practices, see "Appendix A."
Although changes in the value of securities subsequent to their acquisition are
reflected in the net asset value of the Funds' shares, such changes will not
affect the income received by the Funds from such securities. However, since
available yields vary over time, no specific level of income can ever be
assured. The dividends paid by the Funds will increase or decrease in relation
to the income received by the Funds from their investments, which will in any
case be reduced by the Funds' expenses before being distributed to the Funds'
shareholders.
SPECIAL RISK CONSIDERATIONS RELEVANT TO AN INVESTMENT IN NATIONS INTERNATIONAL
EQUITY FUND, NATIONS EMERGING MARKETS FUND, NATIONS PACIFIC GROWTH FUND AND
NATIONS GLOBAL GOVERNMENT INCOME FUND: Investors should understand and consider
carefully the special risks involved in foreign investing. In addition, each of
these Funds presents unique risks of which investors should be aware.
Investors in Nations International Equity Fund should be aware that the Fund
may, from time to time, invest up to 5% of it's total assets in securities of
companies located in Eastern Europe. Economic and political reforms in this
region are still in their infancy. As a result, investment in such countries
would be highly speculative and could result in losses to the Fund and, thus, to
its shareholders.
Investors in Nations Pacific Growth Fund should understand and consider
carefully the special risks involved in investing in the Pacific Basin and Far
East. Countries in the Pacific Basin and Far East are in various stages of
economic development, ranging from emerging markets to mature economies, but
each has unique risks. Most countries in this region are heavily dependent on
international trade, and some are especially vulnerable to recessions in other
countries. Many of these countries are also sensitive to world commodity prices.
Some countries that have experienced rapid growth may still have obsolete
financial systems, economic problems or archaic legal systems. In addition, many
of these nations are experiencing political and social uncertainties.
The same is true, but even more so, for the emerging market countries in which
the Nations Emerging Markets Fund will invest. Although the Fund believes that
its investments present the possibility for significant growth over the long
term, they also entail significant risks. Many investments in emerging markets
can be considered speculative, and their prices can be much more volatile than
in the more developed nations of the world. This difference reflects the greater
uncertainties of investing in less established markets and economies. The
financial markets of emerging markets countries are generally less well
capitalized and thus securities of issuers based in such countries may be less
liquid.
Nations Global Government Income Fund's yield and share price will change based
on changes in domestic or foreign interest rates and in an issuer's
creditworthiness. In general, bond prices rise when interest rates fall, and
vice versa.
Moreover, for each of the Funds, investing in securities denominated in foreign
currencies and utilization of forward foreign currency exchange contracts and
other currency hedging techniques involve certain considerations comprising both
opportunities and risks not typically associated with investing in U.S.
dollar-denominated securities. Additionally, changes in the value of foreign
currencies can significantly affect a Fund's share price. General economic and
political factors in the various world markets also can impact a Fund's share
price.
The expenses to individual investors of investing directly in foreign securities
are very high relative to similar
17
<PAGE>
costs for investing in U.S. securities. While the Funds offer a more efficient
way for individual investors to participate in foreign markets, their expenses,
including custodial fees, are also higher than the typical domestic equity
mutual fund.
Risks unique to international investing include: (1) restrictions on foreign
investment and repatriation of capital; (2) fluctuations in currency exchange
rates; (3) costs of converting foreign currency into U.S. dollars and U.S.
dollars into foreign currencies; (4) greater price volatility and less
liquidity; (5) settlement practices, including delays, which may differ from
those customary in United States markets; (6) exposure to political and economic
risks, including the risk of nationalization, expropriation of assets and war;
(7) possible imposition of foreign taxes and exchange control and currency
restrictions; (8) lack of uniform accounting, auditing and financial reporting
standards; (9) less governmental supervision of securities markets, brokers and
issuers of securities; (10) less financial information available to investors;
and (11) difficulty in enforcing legal rights outside the United States. These
risks often are heightened for investments in emerging or developing countries.
See "Appendix A" for an additional discussion of the risks associated with an
investment in the Nations International Equity Fund, Nations Emerging Markets
Fund, Nations Pacific Growth Fund and Nations Global Government Income Fund.
PORTFOLIO TURNOVER: Generally, the Equity Funds, the Balanced Fund and the Bond
Funds will purchase portfolio securities for capital appreciation or investment
income, or both, and not for short-term trading profits. While it is not
possible to predict exactly annual portfolio turnover rates, it is expected that
under normal market conditions, annual portfolio turnover rates will not exceed
75% for Nations Emerging Markets Fund and Nations Pacific Growth Fund and 175%
for Nations Global Government Income Fund. The portfolio turnover rates of the
indicated Funds for the period ended March 31, 1996 and the fiscal years ended
November 30, 1995 and 1994 were as follows: Nations Value Fund -- 12%, 63% and
75%, respectively; Nations Capital Growth Fund -- 25%, 80% and 56%,
respectively; Nations Balanced Assets Fund -- 83%, 174% and 156%, respectively;
Nations Short-Intermediate Government Fund -- 189%, 328% and 133%, respectively;
Nations Short-Term Income Fund -- 73%, 224%, and 293% respectively; Nations
Diversified Income Fund -- 69%, 96% and 144%, respectively; and Nations
Strategic Fixed Income Fund -- 133%, 228% and 307%, respectively. The portfolio
turnover rates for Nations Disciplined Equity Fund for the period ended March
31, 1996, the fiscal year ended November 30, 1995 and the period ended November
30, 1994 were 47%, 124% and 177%, respectively. The portfolio turnover rates for
Nations Emerging Growth Fund for the period ended March 31, 1996 and the fiscal
years ended November 30, 1995 and 1994 were 39%, 139%, and 129% respectively.
The portfolio turnover rates for Nations Equity Index Fund for the period ended
March 31, 1996 and the fiscal year ended November 30, 1995 and the period from
commencement of operations to November 30, 1994 were 2%, 18% and 14%,
respectively. The portfolio turnover rates for the indicated Funds for the
period ended March 31, 1996 and the fiscal years ended May 31, 1995 and 1994
were as follows: Nations Equity Income Fund -- 59%, 158% and 116%, respectively;
Nations International Equity Fund -- 26%, 92% and 39%, respectively; and Nations
Government Securities Fund -- 199%, 413% and 56%, respectively. If a Fund's
portfolio turnover exceeds 100%, it may result in higher brokerage costs and
possible tax consequences for the Fund and its shareholders.
RISK CONSIDERATIONS: Although the Adviser of Nations International Equity Fund,
Nations Emerging Markets Fund, Nations Pacific Growth Fund and Nations Global
Government Income Fund will seek to achieve the investment objective of each
Fund, there is no assurance that it will be able to do so. No single Fund should
be considered, by itself, to provide a complete investment program for any
investor. Investments in a Fund are not insured against loss of principal.
Investments by a Fund in common stocks and other equity securities are subject
to stock market risks. The value of the stocks that the Fund holds, like the
broader stock market, may decline over short or even extended periods.
The value of a Fund's investments in debt securities, including U.S. Government
Obligations, will tend to decrease when interest rates rise and increase when
interest rates fall. In general, longer-term debt instruments tend to fluctuate
in value more than shorter-term debt instruments in response to interest rate
movements. In addition, debt securities that are not backed by the United States
Government are subject to credit risk, I.E., that the issuer may not be able to
pay principal and/or interest when due.
Certain of the Funds' investments constitute derivative securities, which are
securities whose value is derived, at least in part, from an underlying index or
reference rate. There are certain types of derivative securities that can, under
certain circumstances, significantly increase a purchaser's exposure to market
or other risks. The Adviser, however, only purchases derivative securities in
circumstances where it believes such purchases are consistent with the Fund's
investment objective and do not unduly increase the Fund's exposure to market or
other risks. For additional risk information regarding the Funds' investments in
particular instruments, see "Appendix A -- Portfolio Securities."
INVESTMENT LIMITATIONS: Each Fund is subject to a number of investment
limitations. The following investment limitations are matters of fundamental
policy and
18
<PAGE>
may not be changed without the affirmative vote of the holders of a majority of
the Fund's outstanding shares. Other investment limitations that cannot be
changed without such a vote of shareholders are described in the SAIs.
Each Fund may not:
1. Purchase any securities which would cause 25% or more of the value of the
Fund's total assets at the time of such purchase to be invested in the
securities of one or more issuers conducting their principal activities in the
same industry, provided that this limitation does not apply (a) with respect to
the Nations Global Government Income Fund, to investments in foreign Government
Securities; and (b) to investments in obligations issued or guaranteed by the
U.S. Government or its agencies and instrumentalities. In addition, this
limitation does not apply to investments by "money market funds" as that term is
used under the Investment Company Act of 1940, as amended (the "1940 Act") in
obligations of domestic banks.)
2. Make loans, except that a Fund may purchase and hold debt instruments
(whether such instruments are part of a public offering or privately placed),
may enter into repurchase agreements and may lend portfolio securities in
accordance with its investment policies.
3. Each Fund (other than Nations Global Government Income Fund) may not:
Purchase securities of any one issuer (other than securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities) if,
immediately after such purchase, more than 5% of the value of such Fund's total
assets would be invested in the securities of such issuer, except that up to 25%
of the value of the Fund's total assets may be invested without regard to these
limitations and with respect to 75% of such Fund's assets, such Fund will not
hold more than 10% of the voting securities of any issuer.
Nations Global Government Income Fund may not:
Purchase securities of any one issuer (other than securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities) if,
immediately after such purchase, more than 25% of the value of such Fund's total
assets would be invested in the securities of one issuer, and with respect to
50% of such Fund's total assets, more than 5% of its assets would be invested in
the securities of one issuer.
The investment objective and policies of each Fund, unless otherwise specified,
may be changed without a vote of the Fund's shareholders. If the investment
objective or policies of a Fund change, shareholders should consider whether the
Fund remains an appropriate investment in light of their then current position
and needs.
In order to register a Fund's shares for sale in certain states, a Fund may make
commitments more restrictive than the investment policies and limitations
described in this Prospectus and the SAIs. Should a Fund determine that any such
commitment is no longer in the best interest of the Fund, it may consider
terminating sales of its shares in the states involved.
How Performance Is Shown
From time to time the Funds may advertise the total return and yield on a class
of shares. TOTAL RETURN AND YIELD FIGURES ARE BASED ON HISTORICAL DATA AND ARE
NOT INTENDED TO INDICATE FUTURE PERFORMANCE. The "total return" of a class of
shares of a Fund may be calculated on an average annual total return basis or an
aggregate total return basis. Average annual total return refers to the average
annual compounded rates of return over one-, five-, and ten-year periods or the
life of the Fund (as stated in the advertisement) that would equate an initial
amount invested at the beginning of a stated period to the ending redeemable
value of the investment, assuming the reinvestment of all dividend and capital
gain distributions. Aggregate total return reflects the total percentage change
in the value of the investment over the measuring period again assuming the
reinvestment of all dividends and capital gain distributions. Total return may
also be presented for other periods.
"Yield" is calculated by dividing the annualized net investment income per share
during a recent 30-day (or one month) period of a class of shares of a Fund by
the maximum public offering price per share on the last day of that period.
Investment performance, which will vary, is based on many factors, including
market conditions, the composition of a Fund's portfolio and such Fund's
operating expenses. Investment performance also often reflects the risks
associated with a Fund's investment objective and policies. These factors should
be considered when comparing a Fund's investment results to those of other
mutual funds and other investment vehicles. Since yields fluctuate, yield data
cannot necessarily be used to compare an investment in the Funds with bank
deposits, savings accounts, and similar investment alternatives which often
provide an agreed-upon or guaranteed fixed yield for a stated period of time.
In addition to Primary B Shares, the Funds offer Primary A, Investor A, Investor
C and Investor N Shares. Each class of shares may bear different sales charges,
19
<PAGE>
shareholder servicing fees, loads and other expenses, which may cause the
performance of a class to differ from the performance of the other classes.
Performance quotations will be computed separately for each class of a Fund's
shares. Any fees charged by an institution and/or servicing agent directly to
its customers' accounts in connection with investments in the Funds will not be
included in calculations of total return or yield. Each Fund's annual report
contains additional performance information and is available upon request
without charge from the Funds' distributor or an Investor's Institution, as
defined below.
How The Funds Are Managed
The business and affairs of each of Nations Fund Trust, Nations Fund, Inc. and
Nations Portfolios are managed under the direction of its Board of Trustees and
Board of Directors, respectively. Nations Fund Trust's SAI contains the names of
and general background information concerning each Trustee of Nations Fund
Trust. Nations Fund, Inc. and Nations Portfolio's SAIs contain the names of and
general background information concerning each Director of Nations Fund, Inc.
and Nations Portfolios, respectively.
Nations Fund and the Adviser have adopted codes of ethics which contain policies
on personal securities transactions by "access persons," including portfolio
managers and investment analysts. These policies substantially comply in all
material respects with the recommendations set forth in the May 9, 1994 Report
of the Advisory Group on Personal Investing of the Investment Company Institute.
INVESTMENT ADVISER: NationsBanc Advisors, Inc. serves as investment adviser to
the Funds. NBAI is a wholly owned subsidiary of NationsBank, which in turn is a
wholly owned banking subsidiary of NationsBank Corporation, a bank holding
company organized as a North Carolina corporation. NationsBank has its principal
offices at One NationsBank Plaza, Charlotte, North Carolina 28255.
TradeStreet Investment Associates, Inc., with principal offices at One
NationsBank Plaza, Charlotte, North Carolina 28255, serves as sub-investment
adviser to all of the Funds except for those Funds listed below, for which
Gartmore Global Partners serves as sub-investment adviser. TradeStreet is a
wholly owned subsidiary of NationsBank. TradeStreet provides investment
management services to individuals, corporations and institutions.
Gartmore, with principal offices at One NationsBank Plaza, Charlotte, North
Carolina 28255, serves as sub-investment adviser to Nations International Equity
Fund, Nations Emerging Markets Fund, Nations Pacific Growth Fund and Nations
Global Government Income Fund pursuant to sub-advisory agreements. Gartmore is a
joint venture structured as a general partnership between NB Partner Corp., a
wholly owned subsidiary of NationsBank, and Gartmore U.S. Limited, an indirect,
wholly owned subsidiary of Gartmore Investment Management plc ("Gartmore plc"),
a UK company, which is the holding company for a leading UK-based international
fund management group of companies. National Westminster Bank plc and affiliated
entities (collectively, "NatWest") own 100% of the equity of Gartmore Investment
Management plc.
Through April 10, 1996, sub-advisory services were provided to NBAI and the
Funds by Nations Gartmore Investment Management ("Nations Gartmore", the
predecessor to Gartmore), pursuant to sub-advisory agreements among NBAI,
Nations Gartmore and Nations Fund, Inc. and Nations Portfolios, respectively, on
behalf of the Funds. Nations Gartmore was a joint venture structured as a
general partnership between NB Partner Corp., and Gartmore U.S. Limited. On
April 10, 1996, NatWest acquired a controlling interest in Gartmore plc from
Compagnie de Suez and affiliated entities ("Compagnie de Suez") through a direct
purchase from Compagnie de Suez of its indirect subsidiary Indosuez UK Asset
Management Limited, which held 75% of Gartmore plc's outstanding voting
securities (the "Acquisition"). NatWest acquired the remaining portion of
Gartmore plc's shares held by public shareholders through a tender offer.
Gartmore is the successor entity resulting from the Acquisition and change of
control of Nations Gartmore.
On July 17, 1996, the shareholders of the Funds approved the new sub-advisory
arrangement with Gartmore and Sub-Advisory Agreements dated April 10, 1996 among
NBAI, Gartmore and Nations Fund, Inc. and Nations Portfolios, respectively.
There were no material changes in the personnel who provide services under the
new Sub-Advisory Agreements, and the Funds receive the same sub-advisory
services, provided in the same manner and at the same fee levels, as they
received under the Previous Sub-Advisory Agreements.
Subject to the general supervision of Nations Fund Trust's Board of Trustees and
Nations Fund, Inc. and Nations Portfolios' Boards of Directors, and in
accordance with each Fund's investment policies, the Adviser formulates
guidelines and lists of approved investments for each Fund, makes decisions with
respect to and places orders for each Fund's purchases and sales of portfolio
securities and maintains records relating to such purchases and sales. The
Adviser is authorized to allocate purchase and sale orders for portfolio
securities
20
<PAGE>
to certain financial institutions, including, in the case of agency
transactions, financial institutions which are affiliated with the Adviser or
which have sold shares in such Funds, if the Adviser believes that the quality
of the transaction and the commission are comparable to what they would be with
other qualified brokerage firms. From time to time, to the extent consistent
with its investment objective, policies and restrictions, each Fund may invest
in securities of companies with which NationsBank has a lending relationship.
For the services provided and expenses assumed pursuant to various Investment
Advisory Agreements, NBAI is entitled to receive advisory fees, computed daily
and paid monthly, at the annual rates of: 0.50% of the average daily net assets
of Nations Equity Index Fund; 0.60% of the average daily net assets of each of
Nations Short-Intermediate Government Fund, Nations Short-Term Income Fund,
Nations Diversified Income Fund and Nations Strategic Fixed Income Fund; 0.75%
of the average daily net assets of each of Nations Value Fund, Nations Capital
Growth Fund, Nations Emerging Growth Fund, Nations Disciplined Equity Fund and
Nations Balanced Assets Fund; 0.65% of the first $100 million of Nations
Government Securities Fund's average daily net assets, plus 0.55% of the Fund's
average daily net assets in excess of $100 million and up to $250 million, plus
0.50% of the Fund's average daily net assets in excess of $250 million; 0.75% of
the first $100 million of Nations Equity Income Fund's average daily net assets,
plus 0.70% of the Fund's average daily net assets in excess of $100 million and
up to $250 million, plus 0.60% of the Fund's average daily net assets in excess
of $250 million; 0.90% of the average daily net assets of Nations International
Equity Fund; 1.10% of the average daily net assets of Nations Emerging Markets
Fund; 0.90% of the average daily net assets of Nations Pacific Growth Fund; and
0.70% of the average daily net assets of Nations Global Government Income Fund.
For the services provided and the expenses assumed pursuant to sub-advisory
agreements, NBAI will pay to TradeStreet sub-advisory fees, computed daily and
paid monthly, at the annual rates of: 0.10% of the average daily net asset of
Nations Equity Index Fund; 0.15% of the average daily net assets of each of
Nations Short-Intermediate Government Fund, Nations Government Securities Fund,
Nations Short-Term Income Fund, Nations Diversified Income Fund and Nations
Strategic Fixed Income Fund; 0.20% of the average daily net assets of each of
Nations Equity Income Fund; and 0.25% of the average daily net assets of each of
Nations Value Fund, Nations Capital Growth Fund, Nations Emerging Growth Fund,
Nations Disciplined Equity Fund and Nations Balanced Assets Fund.
For services provided and expenses assumed pursuant to sub-advisory agreements,
NBAI will pay Gartmore sub-advisory fees, computed daily and paid monthly, at
the annual rates of: 0.70% of Nations International Equity Fund's average daily
net assets; 0.85% of Nations Emerging Markets Fund's average daily net assets;
0.70% of Nations Pacific Growth Fund's average daily net assets; and 0.54% of
Nations Global Government Income Fund's average daily net assets. For the fiscal
year ended May 31, 1994, Nations International Equity Fund paid its prior
sub-adviser fees at the rate of 0.41% of the Fund's average daily net assets.
From time to time, NBAI (and/or TradeStreet and/or Nations Gartmore) may waive
or reimburse (either voluntarily or pursuant to applicable state limitations)
advisory or sub-advisory fees and/or expenses payable by a Fund.
For the fiscal period from December 1, 1995 to December 31, 1995, after waivers,
Nations Fund Trust paid NationsBank under a prior Investment Advisory Agreement
advisory fees at the indicated rates of the following Funds' average daily net
assets: Nations Value Fund -- 0.75%; Nations Capital Growth Fund -- 0.75%;
Nations Emerging Growth Fund -- 0.75%; Nations Disciplined Equity Fund -- 0.75%;
Nations Equity Index Fund -- 0.09%; Nations Balanced Assets Fund -- 0.75%;
Nations Short-Intermediate Government Fund -- 0.37%; Nations Short-Term Income
Fund -- 0.27%; Nations Diversified Income Fund -- 0.50%; and Nations Strategic
Fixed Income Fund -- 0.50%.
For the fiscal period from June 1, 1995 to December 31, 1995, after waivers,
Nations Fund, Inc. paid NationsBank under a prior Investment Advisory Agreement
advisory fees at the indicated rates of the following Funds' average daily net
assets: Nations Equity Income Fund -- 0.67%; Nations International Equity
Fund -- 0.22%; and Nations Government Securities Fund -- 0.48%.
For the fiscal period from June 30, 1995 to December 31, 1995, after waivers,
Nations Portfolios paid NationsBank under a prior Investment Advisory Agreement
advisory fees at the indicated rates of the following Funds' average daily net
assets: Nations Emerging Markets Fund -- 0.25%; Nations Pacific Growth Fund --
0.20%; and Nations Global Government Income Fund -- 0.16%.
For the fiscal period from January 1, 1996 to March 31, 1996, after waivers,
Nations Fund Trust paid NBAI under the current Investment Advisory Agreement
advisory fees at the indicated rates of the following Fund's average daily net
assets: Nations Value Fund -- 0.75%; Nations Capital Growth Fund -- 0.75%;
Nations Emerging Growth Fund -- 0.75%; Nations Disciplined Equity Fund -- 0.75%;
Nations Equity Index Fund -- 0.09%; Nations Balanced Assets Fund -- 0.75%;
Nations Short-Intermediate Government Fund -- 0.37%; Nations Short-Term Income
Fund -- 0.27%; Nations Diversified
21
<PAGE>
Income Fund -- 0.50%; and Nations Strategic Fixed Income Fund -- 0.50%.
For the fiscal period from January 1, 1996 to March 31, 1996, after waivers,
Nations Fund, Inc. paid NBAI under the current Investment Advisory Agreement
advisory fees at the indicated rates of the following Funds' average daily net
assets: Nations Equity Income Fund -- 0.67%; Nations International Equity
Fund -- 0.22%; and Nations Government Securities Fund -- 0.48%.
For the fiscal period from January 1, 1996 to March 31, 1996, after waivers,
Nations Portfolios paid NBAI under the current Investment Advisory Agreement
advisory fees at the indicated rates of the following Funds' average daily net
assets: Nations Emerging Markets Fund -- 0.25%; Nations Pacific Growth
Fund -- 0.20%; and Nations Global Government Income Fund -- 0.16%.
For the fiscal period from January 1, 1996 to March 31, 1996, after waivers,
NBAI paid TradeStreet under the current Sub-Advisory Agreement sub-advisory fees
at the indicated rates of the following Funds' average daily net assets: Nations
Value Fund -- 0.25%; Nations Capital Growth Fund -- 0.25%; Nations Emerging
Growth Fund -- 0.25%; Nations Disciplined Equity Fund -- 0.25%; Nations Equity
Index Fund -- 0.10%; Nations Balanced Assets Fund -- 0.25%; Nations
Short-Intermediate Government Fund -- 0.15%; Nations Short-Term Income
Fund -- 0.15%; Nations Diversified Income Fund -- 0.15%; Nations Strategic Fixed
Income Fund -- 0.15%; Nations Equity Income Fund -- 0.20%; and Nations
Government Securities Fund -- 0.15%.
For the fiscal period from June 1, 1995 to March 31, 1996, after waivers, NBAI
paid Gartmore or its predecessors sub-advisory fees at the rate of 0.67% of the
average daily net assets of Nations International Equity Fund. For the fiscal
period from January 1, 1996 to March 31, 1996, after waivers, NBAI paid Gartmore
or its predecessors sub-advisory fees at the indicated rates of the following
Funds' average daily net assets; Nations Emerging Markets Fund -- 0.85%; Nations
Pacific Growth Fund -- 0.70%; and Nations Global Government Income
Fund -- 0.54%.
Sharon M. Herrmann, CFA, is a Director of Equity Management for TradeStreet and
Senior Portfolio Manager for Nations Value Fund. Ms. Herrmann has been the
Portfolio Manager for Nations Value Fund since 1989. Prior to assuming her
position with TradeStreet, she was Senior Vice President and Portfolio Manager
for the Investment Management Group at NationsBank. Ms. Herrmann has worked for
the Investment Management Group at NationsBank since 1981 where her
responsibilities included fund management and institutional portfolio
management. She attended Virginia Wesleyan College. Ms. Herrmann holds the
Chartered Financial Analyst designation and is a member of the Association for
Investment Management and Research as well as the North Carolina Society of
Financial Analysts, Inc.
Eric S. Williams, CFA, is a Senior Product Manager, Equity Management for
TradeStreet and Senior Portfolio Manager for Nations Equity Income Fund. Mr.
Williams has been Portfolio Manager for Nations Equity Income Fund since 1991.
Prior to assuming his position with TradeStreet, he was Senior Vice President
and Senior Portfolio Manager for the investment Management Group at NationsBank.
He has worked in the investment community since 1980. His past experience
includes fund analysis and portfolio management for National Bank of Detroit.
Mr. Williams received a B.S. in Accounting from East Carolina University, Summa
Cum Laude and an M.B.A. from Indiana University. He holds the Chartered
Financial Analyst designation, is on the Advisory Board of Indiana University's
Investment Management Academy, and is a member of the Association for Investment
Management and Research as well as the North Carolina Society of Financial
Analysts, Inc.
Stephen Watson is Principal Portfolio Manager of Nations International Equity
Fund and has been the Portfolio Manager since February, 1995. He joined Gartmore
as a Global Fund Manager in 1993 and currently holds the position of Head of the
International and Global Portfolio Team. Previously, Mr. Watson was a director
and global fund manager with James Capel Fund Managers, London, as well as
Client Services Manager for international clients. From 1980 to 1987 he was
associated with Capel-Cure Myers in their Portfolio Management Division. He
began his career in 1976 when he joined the investment division at Samuel
Montagu. Mr. Watson is a member of the Securities Institute.
Philip J. Sanders, CFA, is a Senior Product Manager, Equity Management for
TradeStreet and Senior Portfolio Manager for Nations Capital Growth Fund. Mr.
Sanders has been Portfolio Manager for Nations Capital Growth Fund since 1995.
Prior to assuming his position with TradeStreet, he was Senior Vice President
and Senior Portfolio Manager for the Investment Management Group at NationsBank.
Mr. Sanders has worked in the financial investment community since 1981. His
past experience includes portfolio management, equity research and financial
analysis for the Investment Management Group at NationsBank and Duke Power
Company. Mr. Sanders received a B.A. in Economics from the University of
Michigan and an M.B.A. from University of North Carolina at Charlotte. He holds
the Chartered Financial Analyst designation and is a member of the Association
for Investment Management and Research as well as the North Carolina Society of
Financial Analysts, Inc.
Edward E. (Jack) Smiley, Jr., CFA, is a Senior Product Manager, Equity
Management for TradeStreet and Senior Portfolio Manager for Nations Emerging
Growth Fund. Mr. Smiley has been the Portfolio Manager for
22
<PAGE>
Nations Emerging Growth Fund since 1992. Prior to assuming his position with
TradeStreet, he was Senior Vice President and Senior Portfolio Manager for the
Investment Management Group at NationsBank. He has worked in the investment
community since 1968. His past experience includes management consulting and
portfolio management for Interfirst Investment Management, Merrill Lynch and
Dean Witter. Mr. Smiley received a B.B.A. in Management from Southern Methodist
University. He holds the Chartered Financial Analyst designation and is a member
of the Association for Investment Management and Research as well as the Dallas
Association of Investment Analysts.
Jeffery C. Moser, CFA, is a Senior Product Manager, Equity Management for
TradeStreet and Senior Portfolio Manager for Nations Disciplined Equity Fund.
Mr. Moser has been Portfolio Manager of the Nations Disciplined Equity Fund
since 1995. Prior to assuming his position with TradeStreet, he was Senior Vice
President and Senior Portfolio Manager for the Investment Management Group at
NationsBank. Mr. Moser has worked for the Investment Management Group at
NationsBank since 1983 where his responsibilities included institutional
portfolio management and equity analysis. Mr. Moser graduated Phi Beta Kappa
with a B.S. in Mathematics from Wake Forest University. He holds the Chartered
Financial Analyst designation and is a member of the Association for Investment
Management and Research as well as the North Carolina Society of Financial
Analysts, Inc.
Julie L. Hale, CFA, is a Senior Product Manager, Equity Management for
TradeStreet and Senior Portfolio Manager for Nations Balanced Assets Fund. Ms.
Hale has been Portfolio Manager for the Nations Balanced Assets Fund since 1995.
Prior to assuming her position with TradeStreet, she was Vice President and
Senior Portfolio Manager for the Investment Management Group at NationsBank. She
has worked in the investment community since 1981. Her past experience includes
research analysis and portfolio management for Mercantile Safe Deposit and
Trust, and National City Bank. Ms. Hale received a B.S. in Business and Finance
from Mount St. Mary's College and an M.B.A. from Kent State University. She
holds the Chartered Financial Analyst designation and is a member of the
Association for Investment Management and Research as well as the North Carolina
Society of Security Analysts, Inc. She is also a member of the National
Association for Petroleum Investment Analysts and the World Affairs Council of
Washington, D.C.
Gregory H. Cobb is a Senior Product Manager, Fixed Income Management for
TradeStreet and Senior Portfolio Manager for Nations Strategic Fixed Income
Fund. Mr. Cobb has been Portfolio Manager for Nations Strategic Fixed Income
Fund since 1995. Prior to assuming his position with TradeStreet, he was Vice
President and Senior Portfolio Manager for the Investment Management Group at
NationsBank. Mr. Cobb has worked in the investment community since 1987. His
past experience includes portfolio management of intermediate duration and
insurance products for Trust Company Bank and Barnett Bank Trust Company Inc.
Mr. Cobb received a B.A. in Economics from the University of North Carolina at
Chapel Hill.
David M. Hetherington, CFA, is Managing Director of Fixed Income Management. Mr.
Hetherington is responsible for overseeing all fixed income product management
and is Senior Portfolio Manager for Nations Short-Term Income Fund. Mr.
Hetherington has been Portfolio Manager for Nations Short-Term Income Fund since
1995. Prior to assuming his position with TradeStreet, he was Senior Vice
President and Director of Fixed Income for the Investment Management Group at
NationsBank. Mr. Hetherington has worked in the investment community since 1975.
His past experience includes working as a portfolio manager, a trust investment
officer and a securities analyst for First Citizens Bank and Deposit Guarantee
as well as working as an Economist for the U.S. Department of Labor in the
Bureau of Labor Statistics. Mr. Hetherington received a B.A. in Economics from
Duke University. He holds the Chartered Financial Analyst designation and is a
member of the Association for Investment Management and Research.
Mark S. Ahnrud, CFA, is a Director of Fixed Income Management for TradeStreet
and the Senior Portfolio Manager for Nations Diversified Income Fund. Mr. Ahnrud
has been Portfolio Manager for Nations Diversified Income Fund since 1992. Prior
to assuming his position with TradeStreet, he was Senior Vice President and
Senior Portfolio Manager for the Investment Management Group at NationsBank. Mr.
Ahnrud has worked for the Investment Management Group at NationsBank since 1985
where his responsibilities initially included institutional investment
management sales and later involved high yield credit analysis. Mr. Ahnrud
received a dual B.S. in Finance and Investments from Babson College and an
M.B.A. from Duke University, Fuqua School of Business. He holds the Chartered
Financial Analyst designation and is a member of the Association for Investment
Management and Research as well as the North Carolina Society of Financial
Analysts, Inc.
John S. Swaim is a Senior Product Manager, Fixed Income Management for
TradeStreet and Senior Portfolio Manager for Nations Short-Intermediate
Government Fund and Nations Government Securities Fund. Mr. Swaim has been
Portfolio Manager for the Funds since 1995. Prior to assuming his position with
TradeStreet, he was Vice President and Senior Portfolio Manager for the
Investment Management Group at NationsBank. Mr. Swaim has worked in the
investment community since 1986. His past experience includes
23
<PAGE>
derivative products manager for the NationsBank Texas Corporate Investment
Division portfolio. Mr. Swaim received a B.S. from University of North Texas and
an M.B.A. from University of Texas at Arlington.
Mark Rimmer is Principal Portfolio Manager of Nations Global Government Income
Fund and has been the Portfolio Manager since the Fund's inception. He has been
associated with Gartmore since 1990 as an International Fixed Income Fund
Manager. Previously, Mr. Rimmer managed multi-currency funds for institutional
clients at Gulf International Bank in Bahrain, and prior to that he was a senior
trader for Sumitomo Finance International, London. He graduated from Cambridge
University with a degree in Economics.
Philip Ehrmann is Principal Portfolio Manager of Nations Emerging Markets Fund
and is the Head of the Gartmore Emerging Markets Team. He has been the Portfolio
Manager for the Fund since 1995. Prior to joining Gartmore in 1995, Mr. Ehrmann
was the Director of Emerging Markets for Invesco in London. He began his career
in 1981 as an institutional stockbroker with Rowe & Pitman Inc. and also spent a
brief period with Prudential Bache Securities as an institutional salesman
before joining Invesco in 1984. Mr. Ehrmann graduated from the London School of
Economics with a degree in Economics, Industry and Trade.
Seok Teoh is Principal Portfolio Manager of Nations Pacific Growth Fund and has
been the Portfolio Manager since the Fund's inception. She has been associated
with Gartmore since 1990 as the London based manager on its Far East Team.
Previously, Ms. Teoh managed Far East equities for Rothschild Asset Management
in Tokyo and in Singapore. She was also responsible for Singaporean and
Malaysian equity sales at Overseas Union Bank Securities in Singapore. Ms. Teoh,
who is a native of Singapore, is fluent in Mandarin and Cantonese and received
an Economics degree from the University of Durham.
Greg W. Golden is a Structured Products Manager, Equity Management for
TradeStreet and is the Portfolio Manager for Nations Equity Index Fund. He has
been the Portfolio Manager for Nations Equity Index Fund since 1993. Prior to
assuming his position with TradeStreet, he was Vice President and Structured
Products Manager for the Investment Management Group at NationsBank. He has
worked in the investment community since 1990. His past experience includes
portfolio management, derivatives management and quantitative analysis for the
Investment Management Group at NationsBank and Sovran Bank of Tennessee. Mr.
Golden received a B.B.A. in Finance from Belmont University. He is a Chartered
Financial Analyst candidate and a member of the Association for Investment
Management and Research as well as the North Carolina Society of Financial
Analysts, Inc.
Morrison & Foerster LLP, counsel to Nations Fund and special counsel to
NationsBank, has advised Nations Fund and NationsBank that NationsBank and its
affiliates may perform the services contemplated by the various Investment
Advisory Agreements, and this Prospectus without violation of the Glass-Steagall
Act. Such counsel has pointed out, however, that there are no controlling
judicial or administrative interpretations or decisions and that future judicial
or administrative interpretations of, or decisions relating to, present federal
or state statutes, including the Glass-Steagall Act, and regulations relating to
the permissible activities of banks and their subsidiaries or affiliates, as
well as future changes in federal or state statutes, including the
Glass-Steagall Act, and regulations and judicial or administrative decisions or
interpretations thereof, could prevent such entities from continuing to perform,
in whole or in part, such services. If any such entity were prohibited from
performing any such services, it is expected that new agreements would be
proposed or entered into with another entity or entities qualified to perform
such services.
OTHER SERVICE PROVIDERS: Stephens Inc. ("Stephens"), with principal offices at
111 Center Street, Little Rock, Arkansas 72201, serves as the administrator of
Nations Fund pursuant to Administration Agreements. Pursuant to the terms of the
Administration Agreements, Stephens provides various administrative and
corporate secretarial services to the Funds, including providing general
oversight of other service providers, office space, utilities and various legal
and administrative services in connection with the satisfaction of various
regulatory requirements applicable to the Funds.
First Data Investor Services Group, Inc. ("First Data"), formerly The
Shareholder Services Group, Inc., a wholly owned subsidiary of First Data
Corporation, with principal offices at One Exchange Place, Boston, Massachusetts
02109, serves as the co-administrator of Nations Fund pursuant to
Co-Administration Agreements. Under the Co-Administration Agreements, First Data
provides various administrative and accounting services to the Funds including
performing the calculations necessary to determine the net asset value per share
and dividends of each class of the Funds, preparing tax returns and financial
statements and maintaining the portfolio records and certain of the general
accounting records for the Funds.
For the services rendered pursuant to the Administration and Co-Administration
Agreements, Stephens and First Data are entitled to receive a combined fee at
the annual rate of up to 0.10% of each Fund's average daily net assets. For the
fiscal period from December 1, 1995 to March 31, 1996, after waivers, Nations
Fund Trust paid its administrators combined fees at the rate of 0.10% of the
average daily net assets of Nations Value Fund, Nations Capital Growth Fund,
Nations Emerging
24
<PAGE>
Growth Fund, Nations Disciplined Equity Fund, Nations Equity Index Fund, Nations
Balanced Assets Fund, Nations Short-Intermediate Government Fund, Nations
Short-Term Income Fund, Nations Diversified Income Fund and Nations Strategic
Fixed Income Fund.
For the fiscal period from June 1, 1995 to March 31, 1996, after waivers,
Nations Fund, Inc. paid its administrator combined fees at the rate of 0.10% of
the average daily net assets of Nations Equity Income Fund, Nations
International Equity Fund and Nations Government Securities Fund.
For the fiscal period from June 30, 1995 to March 31, 1996, after waivers,
Nations Portfolios paid its administrator combined fees at the rate of 0.10% of
the average daily net assets of Nations Pacific Growth Fund, Nations Emerging
Markets Fund and Nations Global Government Income Fund.
NationsBank serves as sub-administrator for Nations Fund pursuant to a
Sub-Administration Agreement. Pursuant to the terms of the Sub-Administration
Agreement, NationsBank assists Stephens in supervising, coordinating and
monitoring various aspects of the Funds' administrative operations. For
providing such services, NationsBank shall be entitled to receive a monthly fee
from Stephens based on an annual rate of 0.01% of the Funds' average daily net
assets.
Shares of the Funds are sold on a continuous basis by Stephens, as the Funds'
sponsor and distributor. Stephens is a registered broker/dealer with principal
offices at 111 Center Street, Little Rock, Arkansas 72201. Nations Fund has
entered into distribution agreements with Stephens which provide that Stephens
has the exclusive right to distribute shares of the Funds. Stephens may pay
service fees or commissions to Institutions which assist customers in purchasing
Primary B Shares of the Funds.
Bank of New York, Avenue des Arts, 35 1040 Brussels, Belgium, serves as
custodian for the assets of the Nations International Equity Fund, Nations
Emerging Markets Fund, Nations Pacific Growth Fund and Nations Global Government
Income Fund.
First Data serves as the Transfer Agent for each of the Fund's Primary B Shares.
NationsBank of Texas, N.A. ("NationsBank of Texas", together with Bank of New
York, called "Custodians") serves as custodian for the assets of each Fund
except Nations International Equity Fund, Nations Emerging Markets Fund, Nations
Pacific Growth Fund and Nations Global Government Income Fund. NationsBank of
Texas also serves as the sub-transfer agent for each Fund's Primary B Shares and
is located at 1401 Elm Street, Dallas, Texas 75202, and is a wholly owned
subsidiary of NationsBank Corporation. In return for providing custodial
services, NationsBank of Texas is entitled to receive, in addition to
out-of-pocket expenses, fees payable monthly (i) at the rate of 1.25% of 1% of
the average daily net assets of each Fund for which it serves as custodian, (ii)
$10.00 per repurchase collateral transaction by such Funds, and (iii) $15.00 per
purchase, sale and maturity transaction involving such Funds. In return for
providing sub-transfer agency services for the Primary B Shares of Nations Fund,
NationsBank of Texas is entitled to receive an annual fee from First Data of
$251,000.
Price Waterhouse LLP serves as independent accountants to Nations Fund. Its
address is 160 Federal Street, Boston, Massachusetts 02110.
EXPENSES: The accrued expenses of each Fund, as well as certain expenses
attributable to Primary B Shares, are deducted from the Fund's total accrued
income before dividends are declared. These expenses include, but are not
limited to: fees paid to the Adviser, NationsBank, Stephens and First Data;
taxes; interest; fees (including fees paid to Nations Fund's trustees, directors
and officers); federal and state securities registration and qualification fees;
brokerage fees and commissions; costs of preparing and printing prospectuses for
regulatory purposes and for distribution to existing shareholders; charges of
the Custodians and Transfer Agent; certain insurance premiums; outside auditing
and legal expenses; costs of shareholder reports and shareholder meetings; other
expenses which are not expressly assumed by the Adviser, NationsBank, Stephens
or First Data under their respective agreements with Nations Fund; and any
extraordinary expenses. Primary B Shares also bear certain shareholder servicing
costs. Any general expenses of Nations Fund Trust, Nations Fund, Inc. and/or
Nations Portfolios that are not readily identifiable as belonging to a
particular investment portfolio are allocated among all portfolios in the
proportion that the assets of a portfolio bears to the assets of Nations Fund
Trust, Nations Fund, Inc. and/or Nations Portfolios or in such other manner as
the Board of Trustees or the relevant Board of Directors determines is fair and
equitable.
Organization And History
The Funds are members of the Nations Fund Family, which consists of Nations Fund
Trust, Nations Fund, Inc., Nations Portfolios and Nations Institutional
Reserves. The Nations Fund Family currently has more than 43 distinct investment
portfolios and total assets in excess of $18 billion.
NATIONS FUND TRUST: Nations Fund Trust was organized as a Massachusetts business
trust on May 6, 1985.
25
<PAGE>
Nations Fund Trust's fiscal year end is March 31; prior to 1996, Nations Fund
Trust's fiscal year end was November 30. The Funds currently offer five classes
of shares -- Primary A Shares, Primary B Shares, Investor A Shares, Investor C
Shares and Investor N Shares. Certain funds, however, do not offer shares of
each class. This Prospectus relates only to the Primary B Shares of the
following funds of Nations Fund Trust: Nations Value Fund, Nations Capital
Growth Fund, Nations Emerging Growth Fund, Nations Disciplined Equity Fund,
Nations Equity Index Fund, Nations Balanced Assets Fund, Nations
Short-Intermediate Government Fund, Nations Short-Term Income Fund, Nations
Diversified Income Fund and Nations Strategic Fixed Income Fund. To obtain
additional information regarding the Funds' other classes of shares which may be
available to you, contact your Institution (as defined below) or Nations Fund at
1-800-621-2192.
Each share of Nations Fund Trust is without par value, represents an equal
proportionate interest in the related fund with other shares of the same class,
and is entitled to such dividends and distributions out of the income earned on
the assets belonging to such fund as are declared in the discretion of Nations
Fund Trust's Board of Trustees. Nations Fund Trust's Declaration of Trust
authorizes the Board of Trustees to classify or reclassify any class of shares
into one or more series of shares.
Shareholders are entitled to one vote for each full share held and a
proportionate fractional vote for each fractional share held. Shareholders of
each fund of Nations Fund Trust will vote in the aggregate and not by fund, and
shareholders of each fund will vote in the aggregate and not by class except as
otherwise expressly required by law or when the Board of Trustees determines
that the matter to be voted on affects only the interests of shareholders of a
particular fund or class. See Nations Fund Trust's SAI for examples of when the
1940 Act requires voting by fund.
As of July 15, 1996, NationsBank and its affiliates possessed or shared power to
dispose or vote with respect to more than 25% of the outstanding shares of
Nations Fund Trust and therefore could be considered to be a controlling person
of Nations Fund Trust for purposes of the 1940 Act. For more detailed
information concerning the percentage of each class or series of shares over
which NationsBank and its affiliates possessed or shared power to dispose or
vote as of a certain date, see Nations Fund Trust's SAI.
Nations Fund Trust does not presently intend to hold annual meetings except as
required by the 1940 Act. Shareholders will have the right to remove Trustees.
Nations Fund Trust's Code of Regulations provides that special meetings of
shareholders shall be called at the written request of the shareholders entitled
to vote at least 10% of the outstanding shares of Nations Fund Trust entitled to
be voted at such meeting.
NATIONS FUND, INC.: Nations Fund, Inc. was incorporated in Maryland on December
13, 1983, but had no operations prior to December 15, 1986. Nations Fund, Inc.'s
fiscal year end is March 31; prior to 1996, Nations Fund, Inc.'s fiscal year end
was May 31. As of the date of this Prospectus, the authorized capital stock of
Nations Fund, Inc. consists of 270,000,000,000 shares of common stock, par value
of $.001 per share, which are divided into series or funds each of which
consists of separate classes of shares. This Prospectus relates only to the
Primary B Shares of the following funds of Nations Fund, Inc.: Nations Equity
Income Fund, Nations International Equity Fund and Nations Government Securities
Fund. To obtain additional information regarding the Funds' other classes of
shares which may be available to you, contact your Institution (as defined
below) or Nations Fund at 1-800-621-2192.
Shares of each fund and class have equal rights with respect to voting, except
that the holders of shares of a particular fund or class will have the exclusive
right to vote on matters affecting only the rights of the holders of such fund
or class. In the event of dissolution or liquidation, holders of each class will
receive pro rata, subject to the rights of creditors, (a) the proceeds of the
sale of that portion of the assets allocated to that class held in the
respective fund of Nations Fund, Inc., less (b) the liabilities of Nations Fund,
Inc. attributable to the respective fund or class or allocated among the funds
or classes based on the respective liquidation value of each fund or class.
Shareholders of Nations Fund, Inc. do not have cumulative voting rights, and
therefore the holders of more than 50% of the outstanding shares of all funds
voting together for election of directors may elect all of the members of the
Board of Directors of Nations Fund, Inc. Meetings of shareholders may be called
upon the request of 10% or more of the outstanding shares of Nations Fund, Inc.
There are no preemptive rights applicable to any of Nations Fund, Inc.'s shares.
Nations Fund, Inc.'s shares, when issued, will be fully paid and non-assessable.
As of July 15, 1996, NationsBank and its affiliates possessed or shared power to
dispose of or vote with respect to more than 25% of the outstanding shares of
Nations Fund, Inc. and therefore could be considered to be a controlling person
of Nations Fund, Inc. for purposes of the 1940 Act. For more detailed
information concerning the percentage of each class or series over which
NationsBank and its affiliates possessed or shared power to dispose or vote as
of a certain date, see Nations Fund, Inc.'s SAI. It is anticipated that Nations
Fund, Inc. will not hold annual shareholder meetings on a regular basis unless
required by the 1940 Act or Maryland law.
NATIONS PORTFOLIOS: Nations Portfolios was incorporated in Maryland on January
23, 1995. Nations Portfolios' fiscal year end is March 31. As of the date of
this Prospectus, the authorized capital stock of Nations Portfolios consists of
150,000,000,000 shares of common stock, par value of $.001 per share, which are
divided into series or funds each of which consists of separate classes of
shares. This Prospectus relates only to the Primary B Shares of Nations Emerging
Markets Fund, Nations Pacific Growth Fund and Nations Global Gov-
26
<PAGE>
ernment Income Fund. To obtain additional information regarding the Funds' other
classes of shares which may be available to you, contact your Institution (as
defined below) or Nations Fund at 1-800-621-2192.
Shares of a fund and class have equal rights with respect to voting, except that
the holders of shares of a fund or class will have the exclusive right to vote
on matters affecting only the rights of the holders of such fund or class. In
the event of dissolution or liquidation, holders of each class will receive pro
rata, subject to the rights of creditors, (a) the proceeds of the sale of that
portion of the assets allocated to that class held in the respective fund of
Nations Portfolios, less (b) the liabilities of Nations Portfolios attributable
to the respective fund or class or allocated among the funds or classes based on
the respective liquidation value of each fund or class.
Shareholders of Nations Portfolios do not have cumulative voting rights, and
therefore the holders of more than 50% of the outstanding shares of all funds
voting together for election of directors may elect all of the members of the
Board of Directors of Nations Portfolios. Meetings of shareholders may be called
upon the request of 10% or more of the outstanding shares of Nations Portfolios.
There are no preemptive rights applicable to any of Nations Portfolios' shares.
Nations Portfolios' shares, when issued, will be fully paid and non-assessable.
As of July 15, 1996, NationsBank and its affiliates possessed or shared power to
dispose of or vote with respect to more than 25% of the outstanding shares of
Nations Portfolios and, therefore, could be considered to be a controlling
person of Nations Portfolios for purposes of the 1940 Act. For more detailed
information concerning the percentage of each class or series over which
NationsBank and its affiliates possessed or shared power to dispose or vote as
of a certain date, see Nations Portfolios' SAI. It is anticipated that Nations
Portfolios will not hold annual shareholder meetings on a regular basis unless
required by the 1940 Act or Maryland law.
Because this Prospectus combines disclosure on three separate investment
companies, there is a possibility that one investment company could become
liable for a misstatement, inaccuracy or incomplete disclosure in
this Prospectus concerning the other investment company. Nations Fund Trust,
Nations Fund, Inc. and Nations Portfolios have entered into an indemnification
agreement that creates a right of indemnification from the investment company
responsible for any such misstatement, inaccuracy or incomplete disclosure that
may appear in this Prospectus.
PENDING LEGAL PROCEEDINGS: A purported class action lawsuit against, among
others, Nations Government Securities Fund and Nations Short-Intermediate
Government Fund was filed by Lawrence Bergelt on May 21, 1996. The complaint was
amended and consolidated on July 11, 1996 in the United States District Court
for the Middle District of Florida, Tampa Division by Mr. Bergelt and others in
an action against the two funds, NationsBank Corporation and certain of its
affiliates, Dean Witter Distributors and certain of its affiliates, and
Stephens, Inc. (Case No. 94-995-Civ.-T-23E). As relevant to Nations Government
Securities Fund and Nations Short-Intermediate Government Fund, plaintiffs
allege that, among other things, defendants violated the Securities Exchange Act
of 1934 and various state securities fraud statutes by employing a scheme to
defraud plaintiffs into purchasing shares of the funds and making untrue
statements of material fact and omitting to state material facts in connection
with sales of shares of the funds. Plaintiffs further allege that, among other
things, defendants concealed the risks associated with such funds by blurring
the distinctions between banks and non-bank subsidiaries and by obscuring the
differences between traditional, federally insured bank products and uninsured,
non-depository products.
About Your Investment
How To Buy Shares
Primary B Shares may be purchased through banks, broker/dealers or other
financial institutions (including certain affiliates of NationsBank)
("Institutions") that have entered into a shareholder administration agreement
(an "Administration Agreement") with Nations Fund and/or a selling agreement
with Stephens.
Primary B Shares are purchased at net asset value per share without the
imposition of a sales charge according to procedures established by the
Institution. Institutions, however, may charge the accounts of their customers
("Customers") for services provided in connection with the purchase of shares.
Purchases of the Funds may be effected on days on which the New York Stock
Exchange (the "Exchange") is open for business ("Business Day").
There is a minimum initial investment of $1,000 for each record holder; there is
no minimum subsequent investment.
Pursuant to the Administration Agreements, Institutions will provide various
shareholder services for their Customers that own Primary B Shares. From time to
27
<PAGE>
time, Nations Fund may voluntarily reduce the maximum fees payable for
shareholder services.
Nations Fund and Stephens reserve the right to reject any purchase order. The
issuance of Primary B Shares is recorded on the books of the Funds, and share
certificates are not issued.
Purchase orders for Primary B Shares in the Funds which are received by Stephens
or by the Transfer Agent before the close of regular trading hours on the
Exchange (currently 4:00 p.m., Eastern time) on any Business Day are priced
according to the net asset value determined on that day but are not executed
until 4:00 p.m., Eastern time, on the Business Day on which immediately
available funds in payment of the purchase price are received by the Fund's
Custodian. Such payment must be received no later than 4:00 p.m., Eastern time,
by the third Business Day following receipt of the order. If funds are not
received by such date, the order will not be accepted and notice thereof will be
given to the Institution placing the order. Payment for orders which are not
received or accepted will be returned after prompt inquiry to the sending
Institution.
Institutions are responsible for transmitting orders for purchases of Primary B
Shares by their Customers, and for delivering required funds, on a timely basis.
It is the responsibility of Stephens to transmit orders it receives to Nations
Fund.
How To Redeem Shares
Customers may redeem all or part of their Primary B Shares in accordance with
instructions and limitations pertaining to their account at an Institution. It
is the responsibility of the Institutions to transmit redemption orders to
Stephens or to the Transfer Agent and to credit their Customers' accounts with
the redemption proceeds on a timely basis. It is the responsibility of Stephens
to transmit orders that it receives to Nations Fund. No charge for wiring
redemption payments is imposed by Nations Fund, although the Institutions may
charge their Customer accounts for these or other services provided in
connection with the redemption of Primary B Shares. Information concerning these
services and any charges are available from the Institutions. Redemption orders
are effected at the net asset value per share next determined after acceptance
of the order by Stephens or by the Transfer Agent.
With respect to the Funds, redemption proceeds are normally remitted in federal
funds wired to the redeeming Institution within three Business Days following
receipt of the order.
Nations Fund may redeem a shareholder's Primary B Shares if the balance in such
shareholder's account drops below $500 as a result of redemptions, and the
shareholder does not increase his or her balance to at least $500 on 60 days'
written notice. If a shareholder has agreed with a particular Institution to
maintain a minimum balance in his or her account at the Institution, and the
balance in such Institution account falls below that minimum, the shareholder
may be obliged to redeem all or a part of his or her Primary B Shares in the
Funds to the extent necessary to maintain the required minimum balance in such
Institution account. Nations Fund also may redeem shares involuntarily or make
payment for redemption in readily marketable securities or other property under
certain circumstances in accordance with the 1940 Act.
How To Exchange Shares
The exchange feature enables a shareholder of Primary B Shares of a Fund to
acquire Primary B Shares of another Fund when that shareholder believes that a
shift between Funds is an appropriate investment decision. An exchange of
Primary B Shares for Primary B Shares of another Fund is made on the basis of
the next calculated net asset value per share of each Fund after the exchange
order is received.
The Funds and each of the other funds of Nations Fund may limit the number of
times this exchange feature may be exercised by a shareholder within a specified
period of time. Also, the exchange feature may be terminated or revised at any
time by Nations Fund upon such notice as may be required by applicable
regulatory agencies (presently 60 days for termination or material revision),
provided that the exchange feature may be terminated or materially revised
without notice under certain unusual circumstances.
The current prospectus for each fund of Nations Fund describes its investment
objective and policies, and shareholders should obtain a copy and examine it
carefully before investing. Exchanges are subject to the minimum investment
requirement and any other conditions imposed by each fund. In the case of any
shareholder holding a share certificate or certificates, no exchanges may be
made until all applicable share certificates have been received by the Transfer
Agent and deposited in the shareholder's account. An exchange will be treated
for Federal income tax purposes the same as a redemption of shares, on which the
shareholder may realize a capital gain or loss. However, the ability to deduct
capital losses on an exchange may be limited in situations where there
28
<PAGE>
is an exchange of shares within 90 days after the shares are purchased.
Nations Fund reserves the right to reject any exchange request. Only shares that
may legally be sold in the state of the investor's residence may be acquired in
an exchange. Only shares of a class that is accepting investments generally may
be acquired in an exchange.
Provided your Institution allows telephone exchanges, during periods of
significant economic or market change, such telephone exchanges may be difficult
to complete. In such event, shares may be exchanged by mailing your request
directly to the Institution through which the original shares were purchased.
Investors should consult their Institution or Stephens for further information
regarding exchanges.
Primary B Shares may be exchanged by directing a request directly to the
Institution through which the original Primary B Shares were purchased or in
some cases Stephens or the Transfer Agent. Investors should consult their
Institution or Stephens for further information regarding exchanges. Your
exchange feature may be governed by your account agreement with your
Institution.
Shareholder Administration Arrangements
The Funds have adopted a Shareholder Administration Plan (the "Administration
Plan") pursuant to which Institutions provide shareholder administration
services to their Customers who from time to time beneficially own Primary B
Shares. Payments under the Administration Plan are calculated daily and paid
monthly at a rate or rates set from time to time by the Funds, provided that the
annual rate may not exceed 0.60% of the average daily net asset value of the
Primary B Shares beneficially owned by Customers with whom the Institutions have
a servicing relationship. Additionally, in no event may the portion of the
shareholder administration fee that constitutes a "service fee," as that term is
defined in Article III, Section 26(b)(9) of the Rules of Fair Practice of the
NASD, exceed 0.25% of the average daily net asset value of such Primary B Shares
of a Fund. Holders of Primary B Shares will bear all fees paid to Institutions
under the Administration Plan.
Such shareholder administration services supplement the services provided by
Stephens, First Data and the Transfer Agent to shareholders of record. The
shareholder administration services provided by Institutions may include: (i)
aggregating and processing purchase and redemption requests for Primary B Shares
from Customers and transmitting promptly net purchase and redemption orders to
Stephens or the Transfer Agent; (ii) providing Customers with a service that
invests the assets of their accounts in Primary B Shares pursuant to specific or
pre-authorized instructions; (iii) processing dividend and distribution payments
from the Funds on behalf of Customers; (iv) providing information periodically
to Customers showing their positions in Primary B Shares; (v) arranging for bank
wires; (vi) responding to Customers' inquiries concerning their investment in
Primary B Shares; (vii) providing sub-accounting with respect to Primary B
Shares beneficially owned by Customers or the information necessary for
sub-accounting; (viii) if required by law, forwarding shareholder communications
(such as proxies, shareholder reports, annual and semi-annual financial
statements and dividend, distribution and tax notices) to Customers; (ix)
forwarding to Customers proxy statements and proxies containing any proposals
regarding the Administration Agreement; (x) employee benefit plan recordkeeping,
administration, custody and trustee services; (xi) general shareholder liaison
services; and (xii) providing such other similar services as may be reasonably
requested.
Nations Fund may suspend or reduce payments under the Administration Plan at any
time, and payments are subject to the continuation of the Administration Plan
described above and the terms of the Administration Agreement between
Institutions and Nations Fund. See the SAIs for more details on the
Administration Plan.
The Administration Plan also provides that, to the extent any portion of the
fees payable under the Administration Plan is deemed to be for services
primarily intended to result in the sale of Fund shares, such fees are deemed
approved and may be paid under the Administration Plan. Accordingly, the
Administration Plan has been approved and will be operated pursuant to Rule
12b-1 under the 1940 Act.
Nations Fund understands that Institutions may charge fees to their Customers
who are the owners of Primary B Shares in connection with their Customers'
accounts. These fees would be in addition to any amounts which may be received
by an Institution under its Administration Agreement with Nations Fund. The
Administration Agreement requires an Institution to disclose to its Customers
any compensation payable to the Institution by Nations Fund and any other
compensation payable by the Customers in connection with the investment of their
assets in Primary B Shares. Customers of Institutions should read this
Prospectus in light of the terms governing their accounts with their
Institutions.
Conflict of interest restrictions may apply to the receipt by Institutions of
compensation from Nations Fund in connection with the investment of fiduciary
assets in Primary B Shares. Institutions, including banks regulated by the
Comptroller of the Currency, the Federal Reserve Board, or the Federal Deposit
Insurance Corporation, and investment advisers and other money managers subject
to the jurisdiction of the SEC, the Department of Labor, or state securities
commissions, are urged to consult their legal advisers before investing such
assets in Primary B Shares.
29
<PAGE>
How The Funds Value Their Shares
The net asset value of a share of each class is calculated by dividing the total
value of its assets, less liabilities, by the number of shares in the class
outstanding. Shares of the Funds are valued as of the close of regular trading
on the Exchange (currently 4:00 p.m., Eastern time) on each Business Day.
Currently, the days on which the Exchange is closed (other than weekends) are:
New Year's Day, President's Day, Good Friday, Memorial Day (observed),
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
The Funds' portfolio securities for which market quotations are readily
available are valued at market value. Short-term investments that will mature in
60 days or less are valued at amortized cost, which approximates market value.
All other securities are valued at their fair value following procedures
approved by the Trustees or Directors.
How Dividends And Distributions Are Made;
Tax Information
DIVIDENDS AND DISTRIBUTIONS: Dividends from net investment income are declared
daily and paid monthly by the Bond Funds. Dividends from net investment income
are declared and paid each calendar quarter by the Equity Funds and the Balanced
Fund. Each Fund's net realized capital gains (including net short-term capital
gains) are distributed at least annually.
Primary B Shares of the Bond Funds are eligible to begin earning dividends that
are declared on the day the purchase order is executed and continue to be
eligible for dividends through and including the day before the redemption order
is executed. Primary B Shares of the Equity Funds and the Balanced Fund are
eligible to receive dividends when declared, provided however, that the purchase
order for such shares is received at least one day prior to the dividend
declaration and such shares continue to be eligible for dividends through and
including the day before the redemption order is executed.
The net asset value of Primary B Shares in the Funds will be reduced by the
amount of any dividend or distribution. Dividends and distributions are paid in
cash within five Business Days of the end of the month or quarter to which the
dividend relates. Certain purchasing Institutions may provide for the
reinvestment of dividends in additional Primary B Shares of the same Fund.
Dividends and distributions payable to a shareholder are paid in cash within
five Business Days after a shareholder's complete redemption of his or her
Primary B Shares in a Fund. Each Fund's net investment income available for
distribution to the holders of Primary B Shares will be reduced by the amount of
administration fees payable to Institutions under the Administration Agreements.
TAX INFORMATION: Each Fund intends to qualify as a separate "regulated
investment company" under the Internal Revenue Code of 1986, as amended (the
"Code"). Such qualification relieves a Fund of liability for Federal income tax
to the extent its earnings are distributed in accordance with the Code.
Each Fund intends to distribute substantially all of its investment company
taxable income and net tax-exempt income each taxable year. Such distributions
by a Fund of its net investment income (including net foreign currency gains)
and the excess, if any, of its net short-term capital gain over its net
long-term capital loss will be taxable as ordinary income to shareholders who
are not currently exempt from Federal income tax, whether such income is
received in cash or reinvested in additional shares. (Federal income tax for
distributions to an Individual Retirement Account are generally deferred under
the Code.)
Corporate shareholders in the Funds may be entitled to the dividends-received
deduction for distributions from those Funds investing in the stock of domestic
corporations to the extent of the total qualifying dividends received by the
distributing Fund. Corporate shareholders of the Nations International Equity
Fund, Nations Emerging Markets Fund and Nations Pacific Growth Fund may be
eligible for the dividends-received deduction on the dividends (excluding the
net capital gains dividends) paid by these Funds to the extent that each such
Fund's income is derived from dividends (which, if received directly, would
qualify for such deduction) received from domestic corporations. In order to
qualify for the dividends-received deduction, a corporate shareholder must hold
the fund shares paying the dividends upon which the deduction is based for at
least 46 days.
Substantially all of the net realized long-term capital gains of the Funds, if
any, will be distributed at least annually to such Funds' shareholders. The
Funds will generally have no tax liability with respect to such gains, and the
distributions will be taxable to such shareholders who are not currently exempt
from Federal income
30
<PAGE>
tax as long-term capital gains, regardless of how long the shareholders have
held such Funds' shares and whether such gains are received in cash or
reinvested in additional shares.
Portions of the Nations International Equity Fund, Nations Emerging Markets
Fund, Nations Pacific Growth Fund and Nations Global Government Income Fund's
investment income may be subject to foreign income taxes withheld at their
source. Tax conventions between certain countries and the United States may
reduce or eliminate such taxes. Generally, more than 50% of the value of the
total assets of each Fund will consist of securities of foreign issuers, and
therefore each Fund may elect to "pass through" to its shareholders these
foreign taxes, if any. In such event each shareholder will be required to
include his or her pro rata portion thereof in his or her gross income, but will
be able to deduct or (subject to various limitations) claim a foreign tax credit
against U.S. income tax for such amount.
Each year, shareholders will be notified as to the amount and Federal tax status
of all dividends and capital gains paid during the prior year. Such dividends
and capital gains may also be subject to state and local taxes.
Dividends declared in October, November or December of any year payable to
shareholders of record on a specified date in such months will be deemed to have
been received by shareholders and paid by a Fund on December 31 of such year in
the event such dividends are actually paid during January of the following year.
Federal law requires Nations Fund to withhold 31% from any dividends (other than
exempt-interest dividends) paid by Nations Fund and/or redemptions (including
exchange redemptions) that occur in certain shareholder accounts if the
shareholder has not properly furnished a certified correct Taxpayer
Identification Number and has not certified that withholding does not apply. If
the Internal Revenue Service has notified Nations Fund that the Taxpayer
Identification Number listed on a shareholder account is incorrect according to
its records, or that the shareholder is subject to backup withholding, the Fund
is required by the Internal Revenue Service to withhold 31% of any dividend
(other than exempt-interest dividends) and/or redemption (including exchange
redemptions). Amounts withheld are applied to the shareholder's Federal tax
liability, and a refund may be obtained from the Internal Revenue Service if
withholding results in overpayment of taxes. Federal law also requires the Funds
to withhold 30% or the applicable tax treaty rate from dividends paid to certain
nonresident alien, non-U.S. partnership and non-U.S. corporation shareholder
accounts.
The foregoing discussion is based on tax laws and regulations that were in
effect as of the date of this Prospectus and summarizes only some of the
important tax considerations generally affecting the Funds and their
shareholders. It is not intended as a substitute for careful tax planning.
Accordingly, potential investors should consult their tax advisors with specific
reference to their own tax situations. Further tax information is contained in
the SAIs.
Appendix A -- Portfolio Securities
The following are summary descriptions of certain types of instruments in which
a Fund may invest. The "How Objectives Are Pursued" section of this Prospectus
identifies each Fund's permissible investments, and the SAIs contain more
information concerning such investments.
ASSET-BACKED SECURITIES: Asset-backed securities arise through the grouping by
governmental, government-related, and private organizations of loans,
receivables, or other assets originated by various lenders. Asset-backed
securities consist of both mortgage- and non-mortgage-backed securities.
Interests in pools of these assets may differ from other forms of debt
securities, which normally provide for periodic payment of interest in fixed
amounts with principal paid at maturity or specified call dates. Conversely,
asset-backed securities provide periodic payments which may consist of both
interest and principal payments.
The life of an asset-backed security varies depending upon the rate of the
prepayment of the underlying debt instruments. The rate of such prepayments will
be a function of current market interest rates and other economic and
demographic factors. For example, falling interest rates generally result in an
increase in the rate of prepayments of mortgage loans while rising interest
rates generally decrease the rate of prepayments. An acceleration in prepayments
in response to sharply falling interest rates will shorten the security's
average maturity and limit the potential appreciation in the security's value
relative to a conventional debt security. Consequently, asset-backed securities
may not be as effective in locking in high, long-term yields. Conversely, in
periods of sharply rising rates, prepayments are generally slow, increasing the
security's average life and its potential for price depreciation.
MORTGAGE-BACKED SECURITIES: Mortgage-backed securities represent an ownership
interest in a pool of mortgage loans.
Mortgage pass-through securities may represent participation interests in pools
of residential mortgage loans originated by U.S. governmental or private lenders
and guaranteed, to the extent provided in such securities, by the U.S.
Government or one of its agencies, authorities
31
<PAGE>
or instrumentalities. Such securities, which are ownership interests in the
underlying mortgage loans, differ from conventional debt securities, which
provide for periodic payment of interest in fixed amounts (usually
semi-annually) and principal payments at maturity or on specified call dates.
Mortgage pass-through securities provide for monthly payments that are a
"pass-through" of the monthly interest and principal payments (including any
prepayments) made by the individual borrowers on the pooled mortgage loans, net
of any fees paid to the guarantor of such securities and the servicer of the
underlying mortgage loans.
The guaranteed mortgage pass-through securities in which a Fund may invest may
include those issued or guaranteed by GNMA, by FNMA and FHLMC. Such Certificates
are mortgage-backed securities which represent a partial ownership interest in a
pool of mortgage loans issued by lenders such as mortgage bankers, commercial
banks and savings and loan associations. Such mortgage loans may have fixed or
adjustable rates of interest.
The average life of a mortgage-backed security is likely to be substantially
less than the original maturity of the mortgage pools underlying the securities.
Prepayments of principal by mortgagors and mortgage foreclosures will usually
result in the return of the greater part of principal invested far in advance of
the maturity of the mortgages in the pool.
The yield which will be earned on mortgage-backed securities may vary from their
coupon rates for the following reasons: (i) Certificates may be issued at a
premium or discount, rather than at par; (ii) Certificates may trade in the
secondary market at a premium or discount after issuance; (iii) interest is
earned and compounded monthly which has the effect of raising the effective
yield earned on the Certificates; and (iv) the actual yield of each Certificate
is affected by the prepayment of mortgages included in the mortgage pool
underlying the Certificates and the rate at which principal so prepaid is
reinvested. In addition, prepayment of mortgages included in the mortgage pool
underlying a GNMA Certificate purchased at a premium may result in a loss to the
Fund.
Mortgage-backed securities issued by private issuers, whether or not such
obligations are subject to guarantees by the private issuer, may entail greater
risk than obligations directly or indirectly guaranteed by the U.S. Government.
Collateralized mortgage obligations or "CMOs" are debt obligations
collateralized by mortgage loans or mortgage pass-through securities (collateral
collectively hereinafter referred to as "Mortgage Assets"). Multi-class pass-
through securities are interests in a trust composed of Mortgage Assets and all
references herein to CMOs will include multi-class pass-through securities.
Payments of principal of and interest on the Mortgage Assets, and any
reinvestment income thereon, provide the funds to pay debt service on the CMOs
or make scheduled distribution on the multi-class pass-through securities.
Moreover, principal prepayments on the Mortgage Assets may cause the CMOs to be
retired substantially earlier than their stated maturities or final distribution
dates, resulting in a loss of all or part of the premium if any has been paid.
Interest is paid or accrues on all classes of the CMOs on a monthly, quarterly
or semiannual basis.
The principal and interest payments on the Mortgage Assets may be allocated
among the various classes of CMOs in several ways. Typically, payments of
principal, including any prepayments, on the underlying mortgages are applied to
the classes in the order of their respective stated maturities or final
distribution dates, so that no payment of principal is made on CMOs of a class
until all CMOs of other classes having earlier stated maturities or final
distribution dates have been paid in full.
Stripped mortgage-backed securities ("SMBS") are derivative multi-class mortgage
securities. A Fund will only invest in SMBS that are obligations backed by the
full faith and credit of the U.S. Government. SMBS are usually structured with
two classes that receive different proportions of the interest and principal
distributions from a pool of Mortgage Assets. A Fund will only invest in SMBS
whose Mortgage Assets are U.S. Government obligations.
A common type of SMBS will be structured so that one class receives some of the
interest and most of the principal from the Mortgage Assets, while the other
class receives most of the interest and the remainder of the principal. If the
underlying Mortgage Assets experience greater than anticipated prepayments of
principal, a Fund may fail to fully recoup its initial investment in these
securities. The market value of any class which consists primarily or entirely
of principal payments generally is unusually volatile in response to changes in
interest rates.
The average life of mortgage-backed securities varies with the maturities of the
underlying mortgage instruments, which have maximum maturities of 40 years. The
average life is likely to be substantially less than the original maturity of
the mortgage pools underlying the securities as the result of mortgage
prepayments, mortgage refinancings, or foreclosures. The rate of mortgage
prepayments, and hence the average life of the certificates, will be a function
of the level of interest rates, general economic conditions, the location and
age of the mortgage and other social and demographic conditions. Such
prepayments are passed through to the registered holder with the regular monthly
payments of principal and interest and have the effect of reducing future
pay-
32
<PAGE>
ments. Estimated average life will be determined by the Adviser and used for the
purpose of determining the average weighted maturity and duration of the Funds.
For additional information concerning mortgage-backed securities, see the
related SAI.
NON-MORTGAGE ASSET-BACKED SECURITIES: Non-mortgage asset-backed securities
include interests in pools of receivables, such as motor vehicle installment
purchase obligations and credit card receivables. Such securities are generally
issued as pass-through certificates, which represent undivided fractional
ownership interests in the underlying pools of assets. Such securities also may
be debt instruments, which are also known as collateralized obligations and are
generally issued as the debt of a special purpose entity organized solely for
the purpose of owning such assets and issuing such debt. Such securities also
may include instruments issued by certain trusts, partnerships or other special
purpose issuers, including pass-through certificates representing participations
in, or debt instruments backed by, the securities and other assets owned by such
issuers.
Non-mortgage-backed securities are not issued or guaranteed by the U.S.
Government or its agencies or instrumentalities; however, the payment of
principal and interest on such obligations may be guaranteed up to certain
amounts and for a certain time period by a letter of credit issued by a
financial institution (such as a bank or insurance company) unaffiliated with
the issuers of such securities.
The purchase of non-mortgage-backed securities raises considerations peculiar to
the financing of the instruments underlying such securities. For example, most
organizations that issue asset-backed securities relating to motor vehicle
installment purchase obligations perfect their interests in their respective
obligations only by filing a financing statement and by having the servicer of
the obligations, which is usually the originator, take custody thereof. In such
circumstances, if the servicer were to sell the same obligations to another
party, in violation of its duty not to do so, there is a risk that such party
could acquire an interest in the obligations superior to that of the holders of
the asset-backed securities. Also, although most such obligations grant a
security interest in the motor vehicle being financed, in most states the
security interest in a motor vehicle must be noted on the certificate of title
to perfect such security interest against competing claims of other parties. Due
to the larger number of vehicles involved, however, the certificate of title to
each vehicle financed, pursuant to the obligations underlying the asset-backed
securities, usually is not amended to reflect the assignment of the seller's
security interest for the benefit of the holders of the asset-backed securities.
Therefore, there is the possibility that recoveries on repossessed collateral
may not, in some cases, be available to support payments on those securities. In
addition, various state and Federal laws give the motor vehicle owner the right
to assert against the holder of the owner's obligation certain defenses such
owner would have against the seller of the motor vehicle. The assertion of such
defenses could reduce payments on the related asset-backed securities. Insofar
as credit card receivables are concerned, credit card holders are entitled to
the protection of a number of state and Federal consumer credit laws, many of
which give such holders the right to set off certain amounts against balances
owed on the credit card, thereby reducing the amounts paid on such receivables.
In addition, unlike most other asset-backed securities, credit card receivables
are unsecured obligations of the card holder.
BANK INSTRUMENTS: Bank instruments consist mainly of certificates of deposit,
time deposits and bankers' acceptances. The Funds will limit their investments
in bank obligations so they do not exceed 25% of each Fund's total assets at the
time of purchase.
U.S. dollar-denominated obligations issued by foreign branches of domestic banks
("Eurodollar" obligations) and domestic branches of foreign banks ("Yankee
dollar" obligations) and other foreign obligations involve special investment
risks, including the possibility that liquidity could be impaired because of
future political and economic developments, the obligations may be less
marketable than comparable domestic obligations of domestic issuers, a foreign
jurisdiction might impose withholding taxes on interest income payable on such
obligations, deposits may be seized or nationalized, foreign governmental
restrictions such as exchange controls may be adopted which might adversely
affect the payment of principal of and interest on such obligations, the
selection of foreign obligations may be more difficult because there may be less
publicly available information concerning foreign issuers, there may be
difficulties in enforcing a judgment against a foreign issuer or the accounting,
auditing and financial reporting standards, practices and requirements
applicable to foreign issuers may differ from those applicable to domestic
issuers. In addition, foreign banks are not subject to examination by U.S.
Government agencies or instrumentalities.
BORROWINGS: When a Fund borrows money, the net asset value of a share may be
subject to greater fluctuation until the borrowing is paid off. The Funds may
borrow money from banks for temporary purposes in amounts of up to one-third of
their respective total assets, provided that borrowings in excess of 5% of the
value of the Funds' total assets must be repaid prior to the purchase of
portfolio securities. 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 and dollar roll transactions may be considered to
be borrowings. When a Fund invests in a reverse repurchase agreement, it sells a
port-
33
<PAGE>
folio 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, certain of the Funds may use
reverse repurchase agreements for the purpose of investing the proceeds in
tri-party repurchase agreements as discussed below. Generally, the effect of
such a transaction is that the Funds can recover all or most of the cash
invested in the portfolio securities involved during the term of the reverse
repurchase agreement, while they will be able to keep the interest income
associated with those portfolio securities. Such transactions are only
advantageous if the interest cost to the Funds of the reverse repurchase
transaction is less than the cost of obtaining the cash otherwise.
At the time a Fund enters into a reverse repurchase agreement, it may establish
a segregated account with its custodian bank in which it will maintain cash,
U.S. Government Securities or other liquid high grade debt obligations equal in
value to its obligations in respect of reverse repurchase agreements. Reverse
repurchase agreements involve the risk that the market value of the securities
the Funds are obligated to repurchase under the agreement may decline below the
repurchase price. In the event the buyer of securities under a reverse
repurchase agreement files for bankruptcy or becomes insolvent, the Funds' use
of proceeds of the agreement may be restricted pending a determination by the
other party, or its trustee or receiver, whether to enforce the Funds'
obligation to repurchase the securities. In addition, there is a risk of delay
in receiving collateral or securities or in repurchasing the securities covered
by the reverse repurchase agreement or even of a loss of rights in the
collateral or securities in the event the buyer of the securities under the
reverse repurchase agreement files for bankruptcy or becomes insolvent. The Fund
only enters into reverse repurchase agreements (and repurchase agreements) with
counterparties that are deemed by the Adviser to be credit worthy. Reverse
repurchase agreements are speculative techniques involving leverage, and are
subject to asset coverage requirements if the Funds do not establish and
maintain a segregated account (as described above). Under the requirements of
the 1940 Act, the Funds are required to maintain an asset coverage (including
the proceeds of the borrowings) of at least 300% of all borrowings. Depending on
market conditions, the Fund's asset coverage and other factors at the time of a
reverse repurchase, the Funds may not establish a segregated account when the
Adviser believes it is not in the best interests of the Funds to do so. In this
case, such reverse repurchase agreements will be considered borrowings subject
to the asset coverage described above.
Dollar roll transactions consist of the sale by a Fund of mortgage-backed or
other asset-backed securities, together with a commitment to purchase similar,
but not identical, securities at a future date, at the same price. In addition,
a Fund is paid a fee as consideration for entering into the commitment to
purchase. If the broker/dealer to whom a Fund sells the security becomes
insolvent, the Fund's right to purchase or repurchase the security may be
restricted; the value of the security may change adversely over the term of the
dollar roll; the security that the Fund is required to repurchase may be worth
less than the security that the Fund originally held, and the return earned by
the Fund with the proceeds of a dollar roll may not exceed transaction costs.
COMMERCIAL INSTRUMENTS: Commercial instruments consist of short-term U.S.
dollar-denominated obligations issued by domestic corporations or foreign
corporations and domestic and foreign commercial banks. Investments by a Fund in
commercial paper will consist of issues rated in a manner consistent with such
Fund's investment policies and objective. In addition, a Fund may acquire
unrated commercial paper and corporate bonds that are determined by the Adviser
at the time of purchase to be of comparable quality to rated instruments that
may be acquired by a Fund. Commercial instruments include variable-rate master
demand notes, which are unsecured instruments that permit the indebtedness
thereunder to vary and provide for periodic adjustments in the interest rate,
and variable- and floating-rate instruments.
Investments by a Fund in commercial paper will consist of issues rated in a
manner consistent with such Fund's investment policies and objective. In
addition, a Fund may acquire unrated commercial paper and corporate bonds that
are determined by the Adviser at the time of purchase to be of comparable
quality to rated instruments that may be acquired by a Fund. Commercial
instruments include variable-rate master demand notes, which are unsecured
instruments that permit the indebtedness thereunder to vary and provide for
periodic adjustments in the interest rate, and variable- and floating-rate
instruments.
CONVERTIBLE SECURITIES, PREFERRED STOCK, AND WARRANTS: Certain of the Funds may
invest in debt securities convertible into or exchangeable for equity
securities, preferred stocks or warrants. Preferred stocks are securities that
represent an ownership interest in a corporation providing the owner with claims
on a company's earnings and assets before common stock owners, but after bond or
other debt security owners. Warrants are options to buy a stated number of
shares of common stock at a specified price any time during the life of the
warrants.
FIXED INCOME INVESTING: The performance of the fixed income debt component of a
Fund's portfolio depends primarily on interest rate changes, the average
34
<PAGE>
weighted maturity of the portfolio and the quality of the securities held. The
debt component of a Fund's portfolio will tend to decrease in value when
interest rates rise and increase when interest rates fall. A Fund's share price
and yield depend, in part, on the maturity and quality of its debt instruments.
FOREIGN CURRENCY TRANSACTIONS: Certain of the Funds may enter into foreign
currency exchange transactions to convert foreign currencies to and from the
U.S. Dollar. A Fund either enters into these transactions on a spot (I.E., cash)
basis at the spot rate prevailing in the foreign currency exchange market, or
uses forward contracts to purchase or sell foreign currencies. A forward foreign
currency exchange contract is an obligation by a Fund to purchase or sell a
specific currency at a future date, which may be any fixed number of days from
the date of the contract.
Foreign currency hedging transactions are an attempt to protect a Fund against
changes in foreign currency exchange rates between the trade and settlement
dates of specific securities transactions or changes in foreign currency
exchange rates that would adversely affect a portfolio position or an
anticipated portfolio position. Although these transactions tend to minimize the
risk of loss due to a decline in the value of the hedged currency, at the same
time they tend to limit any potential gain that might be realized should the
value of the hedged currency increase. Neither spot transactions nor forward
foreign currency exchange contracts eliminate fluctuations in the prices of a
Fund's portfolio securities or in foreign exchange rates, or prevent loss if the
prices of these securities should decline.
A Fund will generally enter into forward currency exchange contracts only under
two circumstances: (i) when the Fund enters into a contract for the purchase or
sale of a security denominated in a foreign currency, to "lock" in the U.S.
dollar price of the security; and (ii) when the Adviser believes that the
currency of a particular foreign country may experience a substantial movement
against another currency. Under certain circumstances, the Fund may commit a
substantial portion of its portfolio to the execution of these contracts. The
Adviser will consider the effects such a commitment would have on the investment
program of the Fund and the flexibility of the Fund to purchase additional
securities. Although forward contracts will be used primarily to protect the
Fund from adverse currency movements, they also involve the risk that
anticipated currency movements will not be accurately predicted.
FOREIGN SECURITIES: Foreign securities include debt and equity obligations
(dollar- and non-dollar-denominated) of foreign corporations and banks as well
as obligations of foreign governments and their political subdivisions (which
will be limited to direct government obligations and government-guaranteed
securities). Such investments may subject a Fund to special investment risks,
including future political and economic developments, the possible imposition of
withholding taxes on interest income, possible seizure or nationalization of
foreign deposits, the possible establishment of exchange controls, or the
adoption of other foreign governmental restrictions which might adversely affect
the payment of principal and interest on such obligations. In addition, foreign
issuers in general may be subject to different accounting, auditing, reporting,
and record keeping standards than those applicable to domestic companies, and
securities of foreign issuers may be less liquid and their prices more volatile
than those of comparable domestic issuers.
Investments in foreign securities may present additional risks, whether made
directly or indirectly, including the political or economic instability of the
issuer or the country of issue and the difficulty of predicting international
trade patterns. In addition, there may be less publicly available information
about a foreign company than about a U.S. company. Further, foreign securities
markets are generally not as developed or efficient as those in the U.S., and in
most foreign markets volume and liquidity are less than in the United States.
Fixed commissions on foreign securities exchanges are generally higher than the
negotiated commissions on U.S. exchanges, and there is generally less government
supervision and regulation of foreign securities exchanges, brokers, and
companies than in the United States. With respect to certain foreign countries,
there is a possibility of expropriation or confiscatory taxation, limitations on
the removal of funds or other assets, or diplomatic developments that could
affect investments within those countries. Because of these and other factors,
securities of foreign companies acquired by a Fund may be subject to greater
fluctuation in price than securities of domestic companies.
FUTURES, OPTIONS AND OTHER DERIVATIVE INSTRUMENTS: Certain of the Funds may
attempt to reduce the overall level of investment risk of particular securities
and attempt to protect a Fund against adverse market movements by investing in
futures, options and other derivative instruments. These include the purchase
and writing of options on securities (including index options) and options on
foreign currencies, and investing in futures contracts for the purchase or sale
of instruments based on financial indices, including interest rate indices or
indices of U.S. or foreign government, equity or fixed income securities
("futures contracts"), options on futures contracts, forward contracts and swaps
and swap-related products such as equity swap contracts, interest rate swaps,
currency swaps, caps, collars and floors.
The use of futures, options, forward contracts and swaps exposes a Fund to
additional investment risks and transaction costs. If the Adviser incorrectly
analyzes market conditions or does not employ the appropriate strategy
35
<PAGE>
with respect to these instruments, a Fund could be left in a less favorable
position. Additional risks inherent in the use of futures, options, forward
contracts and swaps include: imperfect correlation between the price of futures,
options and forward contracts and movements in the prices of the securities or
currencies being hedged; the possible absence of a liquid secondary market for
any particular instrument at any time; and the possible need to defer closing
out certain hedged positions to avoid adverse tax consequences. A Fund may not
purchase put and call options which are traded on a national stock exchange in
an amount exceeding 5% of its net assets. Further information on the use of
futures, options and other derivative instruments, and the associated risks, is
contained in the SAIs.
GUARANTEED INVESTMENT CONTRACTS: Guaranteed investment contracts, investment
contracts or funding agreements (each referred to as a "GIC") are investment
instruments issued by highly rated insurance companies. Pursuant to such
contracts, a Fund may make cash contributions to a deposit fund of the insurance
company's general as separate accounts. The insurance company then credits to a
Fund guaranteed interest. The insurance company may assess periodic charges
against a GIC for expense and service costs allocable to it, and the charges
will be deducted from the value of the deposit fund. The purchase price paid for
a GIC generally becomes part of the general assets of the issuer, and the
contract is paid from the general assets of the issuer.
A Fund will only purchase GICs from issuers which, at the time of purchase, meet
quality and credit standards established by the Adviser. Generally, GICs are not
assignable or transferable without the permission of the issuing insurance
companies, and an active secondary market in GICs does not currently exist.
Also, a Fund may not receive the principal amount of a GIC from the insurance
company on seven days' notice or less, at which point the GIC may be considered
to be an illiquid investment.
ILLIQUID SECURITIES: Certain securities may be sold only pursuant to certain
legal restrictions, and may be difficult to sell. The Money Market Funds will
not hold more than 10% of the value of their respective net assets in securities
that are illiquid or such lower percentage as may be required by the states in
which the appropriate Fund sells its shares. The Non-Money Market Funds will not
hold more than 15% of the value of their respective net assets in securities
that are illiquid or such lower percentage as may be required by the states in
which the appropriate Fund sells its shares. Repurchase agreements, time
deposits and GICs that do not provide for payment to a Fund within seven days
after notice, and illiquid restricted securities are subject to the limitation
on illiquid securities.
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 its
portfolio from interest rate fluctuations, certain of the Funds may enter into
various hedging transactions, such as interest rate swaps and the purchase or
sale of interest rate caps and floors. Interest rate swaps involve the exchange
by a Fund with another party of their respective commitments to pay or receive
interest, E.G., an exchange of floating-rate payments for fixed-rate payments. A
Fund will enter into a swap transaction on a net basis, I.E. the payment
obligations of the Fund and the counterparty will be netted out with the Fund
receiving or paying, as the case may be, only the net amount of the two payment
obligations. A Fund will segregate, on a daily basis, cash or liquid high
quality debt securities with a value at least equal to the Fund's net
obligations, if any, under a swap agreement.
The purchase of an interest rate cap entitles the purchaser, to the extent that
a specified index exceeds a predetermined interest rate, to receive payments of
interest on a notional principal amount from the party selling such interest
rate cap. The purchase of an interest rate floor entitles the purchaser to
receive payments of interest on a notional principal amount from the party
selling such interest rate floor. The Adviser expects to enter into these
transactions on behalf of a Fund primarily to preserve a return or spread on a
particular investment or portion of its portfolio or to protect against any
increase in the price of securities the Fund anticipated purchasing at a later
date rather than for speculative purposes. A Fund will not sell interest rate
caps or floors that it does not own.
LOWER-RATED DEBT SECURITIES: Certain of the Funds may invest in lower-rated debt
securities. Lower-rated, high-yielding securities are those rated "Ba" or "B" by
Moody's or "BB" or "B" by S&P which are commonly referred to as "junk bonds."
These bonds provide poor protection for payment of principal and interest.
Lower-quality bonds involve greater risk of default or price changes due to
changes in the issuer's creditworthiness than securities assigned a higher
quality rating. These
36
<PAGE>
securities are considered to have speculative characteristics and indicate an
aggressive approach to income investing.
The market for lower-rated securities may be thinner and less active than that
for higher quality securities, which can adversely affect the price at which
these securities can be sold. If market quotations are not available, these
lower-rated securities will be valued in accordance with procedures established
by the Funds' Board, including the use of outside pricing services. Adverse
publicity and changing investor perceptions may affect the ability of outside
pricing services used by a Fund to value its portfolio securities, and a Fund's
ability to dispose of these lower-rated bonds.
MONEY MARKET INSTRUMENTS: Money market instruments may include, among other
instruments, certain U.S. Treasury Obligations, U.S. Government Obligations,
bank instruments, commercial instruments, repurchase agreements and municipal
securities. Such instruments are described in this Appendix A.
MUNICIPAL SECURITIES: The two principal classifications of municipal securities
are "general obligation" securities and "revenue" securities. General obligation
securities are secured by the issuer's pledge of its full faith, credit, and
taxing power for the payment of principal and interest. Revenue securities are
payable only from the revenues derived from a particular facility or class of
facilities or, in some cases, from the proceeds of a special excise tax or other
specific revenue source such as the user of the facility being financed. Private
activity bonds held by a Fund are in most cases revenue securities and are not
payable from the unrestricted revenues of the issuer. Consequently, the credit
quality of private activity bonds is usually directly related to the credit
standing of the corporate user of the facility involved.
Municipal securities may include "moral obligation" bonds, which are normally
issued by special purpose public authorities. If the issuer of moral obligation
bonds is unable to meet its debt service obligations from current revenues, it
may draw on a reserve fund, the restoration of which is a moral commitment but
not a legal obligation of the state or municipality which created the issuer.
Municipal securities may include variable- or floating-rate instruments issued
by industrial development authorities and other governmental entities. While
there may not be an active secondary market with respect to a particular
instrument purchased by a Fund, a Fund may demand payment of the principal and
accrued interest on the instrument or may resell it to a third party as
specified in the instruments. The absence of an active secondary market,
however, could make it difficult for a Fund to dispose of the instrument if the
issuer defaulted on its payment obligation or during periods the Fund is not
entitled to exercise its demand rights, and the Fund could, for these or other
reasons, suffer a loss.
Some of these instruments may be unrated, but unrated instruments purchased by a
Fund will be determined by
the Adviser to be of comparable quality at the time of purchase to instruments
rated "high quality" by any major rating service. Where necessary to ensure that
an instrument is of comparable "high quality," a Fund will require that an
issuer's obligation to pay the principal of the note may be backed by an
unconditional bank letter or line of credit, guarantee, or commitment to lend.
Municipal securities also may include municipal lease obligations, including
certificates of participation in municipal leases, and units of participation in
trusts holding pools of tax-exempt leases. A Fund may acquire municipal lease
obligations that may be assigned by the lessee to another party provided the
obligation continues to provide tax-exempt interest. Each Fund will not purchase
municipal lease obligations to the extent it holds municipal lease obligations
and illiquid securities in an amount exceeding 10% of its total assets unless
the Adviser determines that the municipal lease obligations are liquid pursuant
to guidelines established by the Funds' Boards. Pursuant to these guidelines,
the Adviser, in making this liquidity determination, will consider, among other
factors, the strength and nature of the secondary market for such obligations,
the prospect for its future marketability and whether such obligations are
rated. The Funds expect that they will only purchase rated municipal lease
obligations.
Municipal participation interests may be purchased from financial institutions,
and give the purchaser an undivided interest in one or more underlying municipal
securities. To the extent that municipal participation interests are considered
to be "illiquid securities," such instruments are subject to each Fund's
limitation on the purchase of illiquid securities.
In addition, certain of the Funds may acquire "stand-by commitments" from banks
or broker/dealers with respect to municipal securities held in their portfolios.
Under a stand-by commitment, a dealer would agree to purchase at a Fund's option
specified Municipal Securities at a specified price. A Fund will acquire
stand-by commitments solely to facilitate portfolio liquidity and does not
intend 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 fluc-
37
<PAGE>
tuation due to changes in market interest rates. The Funds will only commit to
purchase a security on a when-issued basis with the intention of actually
acquiring the security and will segregate sufficient liquid assets to meet its
purchase obligation.
A "put" feature permits a Fund to sell a security at a fixed price prior to
maturity. The underlying municipal securities subject to a put may be sold at
any time at the market rates. However, unless the put was an integral part of
the security as originally issued, it may not be marketable or assignable.
Therefore, the put would only have value to the Fund. In certain cases a premium
may be paid for put features. A premium paid will have the effect of reducing
the yield otherwise payable on the underlying security. The purpose of engaging
in transactions involving puts is to maintain flexibility and liquidity to
permit the Fund to meet redemptions and remain as fully invested as possible in
municipal securities. The Funds will limit their put transactions to
institutions which the Adviser believes present minimal credit risk, pursuant to
guidelines adopted by the Boards. Nations Tax Exempt Fund may invest more than
40% of its portfolio in 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 the Funds do not presently intend to do so on a regular basis, each may
invest more than 25% of its total assets in municipal securities the interest on
which is paid solely from revenues of similar projects if such investment is
deemed necessary or appropriate by the Adviser. To the extent that more than 25%
of a Fund's total assets are invested in Municipal Securities that are payable
from the revenues of similar projects, a Fund will be subject to the peculiar
risks presented by such projects to a greater extent than it would be if its
assets were not so concentrated.
OTHER INVESTMENT COMPANIES: Each Fund may invest in securities issued by other
investment companies to the extent that such investments are consistent with the
Fund's investment objective and policies and permissible under the 1940 Act. As
a shareholder of another investment company, a Fund would bear, along with other
shareholders, its pro rata portion of the other investment company's expenses,
including advisory fees. These expenses would be in addition to the advisory and
other expenses that a Fund bears directly in connection with its own operations.
REAL ESTATE INVESTMENT TRUSTS: A real estate investment trust ("REIT") is a
managed portfolio of real estate investments which may include office buildings,
apartment complexes, hotels and shopping malls. An Equity REIT holds equity
positions in real estate, and it seeks to provide its shareholders with income
from the leasing of its properties, and with capital gains from any sales of
properties. A Mortgage REIT specializes in lending money to developers of
properties, and passes any interest income it may earn to its shareholders.
REITs may be affected by changes in the value of the underlying property owned
or financed by the REIT, while Mortgage REITs also may be affected by the
quality of credit extended. Both Equity and Mortgage REITs are dependent upon
management skill and may not be diversified. REITs also may be subject to heavy
cash flow dependency, defaults by borrowers, self-liquidation, and the
possibility of failing to qualify for tax-free pass-through of income under the
Code.
REPURCHASE AGREEMENTS: A repurchase agreement involves the purchase of a
security by a Fund and a simultaneous agreement (generally with a bank or
broker/dealer) to repurchase that security from the Fund at a specified price
and date or upon demand. This technique offers a method of earning income on
idle cash. A risk associated with repurchase agreements is the failure of the
seller to repurchase the securities as agreed, which may cause a Fund to suffer
a loss if the market value of such securities declines before they can be
liquidated on the open market. Repurchase agreements with a duration of more
than seven days are considered illiquid securities and are subject to the limit
stated above. A Fund may enter into joint repurchase agreements jointly with
other investment portfolios of Nations Fund.
SECURITIES LENDING: To increase return on portfolio securities, the Funds may
lend their portfolio securities to broker/dealers and other institutional
investors pursuant to agreements requiring that the loans be continuously
secured by collateral equal at all times in value to at least the market value
of the securities loaned. There is a risk of delay in receiving collateral or in
recovering the securities loaned or even a loss of rights in the collateral
should the borrower of the securities fail financially. However, loans are made
only to borrowers deemed by the Adviser to be of credit worthy and when, in
their judgment, the income to be earned from the loan justifies the attendant
risks. The aggregate of all outstanding loans of a Fund may not exceed 30% of
the value of its total assets.
STOCK INDEX, INTEREST RATE AND CURRENCY FUTURES CONTRACTS: Certain of the Funds
may purchase and sell futures contracts and related options with respect to
non-U.S. stock indices, non-U.S. interest rates and foreign currencies, that
have been approved by the CFTC for investment by U.S. investors, for the purpose
of hedging against changes in values of a Fund's securities or changes in the
prevailing levels of interest rates or currency exchange rates. The contracts
entail certain risks, including but not limited to the following: no assurance
that futures contracts transactions can be offset at favorable prices; possible
reduction of a Fund's total return due to the use of hedging; possible lack of
liquidity due to daily limits on price fluctuation; imperfect correlation
between the contracts and the securities
38
<PAGE>
or currencies being hedged; and potential losses in excess of the amount
invested in the futures contracts themselves.
Trading on foreign commodity exchanges presents additional risks. Unlike trading
on domestic commodity exchanges, trading on foreign commodity exchanges is not
regulated by the CFTC and may be subject to greater risks than trading on
domestic exchanges. For example, some foreign exchanges are principal markets
for which no common clearing facility exists and a trader may look only to the
broker for performance of the contract. In addition, unless a Fund hedges
against fluctuations in the exchange rate between the U.S. dollar and the
currencies in which trading is done on foreign exchanges, any profits that such
Fund might realize could be eliminated by adverse changes in the exchange rate,
or the Fund could incur losses as a result of those changes.
U.S. GOVERNMENT OBLIGATIONS: U.S. Government Obligations consist of marketable
securities and instruments issued or guaranteed by the U.S. Government or any of
its agencies, authorities or instrumentalities. Direct obligations are issued by
the U.S. Treasury and include all U.S. Treasury instruments. 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 agencies and enterprises
acting under authority of Congress. Although obligations of federal agencies,
authorities and instrumentalities are not debts 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 Association; 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. An instrument with a
demand period exceeding seven days may be considered illiquid if there is no
secondary market for such security.
WHEN-ISSUED, DELAYED DELIVERY AND FORWARD COMMITMENT SECURITIES: The purchase of
new issues of securities on a "when-issued," "delayed delivery" or "forward
commitment" basis occurs when the payment for and delivery of securities takes
place at a future date. Because actual payment for and delivery of such
securities generally take place 15 to 45 days after the purchase date,
purchasers of such securities bear the risk that interest rates on debt
securities at the time of delivery may be higher or lower than those contracted
for on the security purchased.
Appendix B -- Description Of Ratings
The following summarizes the highest six ratings used by S&P for corporate and
municipal bonds. The first four ratings denote investment grade securities.
AAA -- This is the highest rating assigned by S&P to a debt obligation and
indicates an extremely strong capacity to pay interest and repay principal.
AA -- Debt rated AA is considered to have a very strong capacity to pay
interest and repay principal and differs from AAA issues only in a small
degree.
A -- Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than debt in higher-rated
categories.
BBB -- Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than for those in
higher-rated categories.
BB, B -- Bonds rated BB and B are regarded, on balance, as predominantly
speculative with respect to capacity to pay interest and repay principal in
accor-
39
<PAGE>
dance with the terms of the obligation. BB represents the lowest degree of
speculation and B a higher degree of speculation. While such bonds will
likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major risk exposures to adverse
conditions.
To provide more detailed indications of credit quality, the AA, A and BBB
ratings may be modified by the addition of a plus or minus sign to show relative
standing within these major rating categories.
The following summarizes the highest six ratings used by Moody's for corporate
and municipal bonds. The first four ratings denote investment grade securities.
Aaa -- Bonds that are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to
as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such
issues.
Aa -- Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there may
be other elements present which make the long-term risks appear somewhat
larger than in Aaa securities.
A -- Bonds that are rated A possess many favorable investment attributes
and are to be considered upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
Baa -- Bonds that are rated Baa are considered medium grade obligations,
I.E., they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable
over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba -- Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may
be small.
Moody's applies numerical modifiers (1, 2 and 3) with respect to corporate bonds
rated Aa through B. The modifier 1 indicates that the bond being rated ranks in
the higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates that the bond ranks in the lower
end of its generic rating category. With regard to municipal bonds, those bonds
in the Aa, A and Baa groups which Moody's believes possess the strongest
investment attributes are designated by the symbols Aa1, A1 or Baa1,
respectively.
The following summarizes the highest four ratings used by D&P for bonds, each of
which denotes that the securities are investment grade:
AAA -- Bonds that are rated AAA are of the highest credit quality. The risk
factors are considered to be negligible, being only slightly more than for
risk-free U.S. Treasury debt.
AA -- Bonds that are rated AA are of high credit quality. Protection
factors are strong. Risk is modest, but may vary slightly from time to time
because of economic conditions.
A -- Bonds that are rated A have protection factors which are average but
adequate. However, risk factors are more variable and greater in periods of
economic stress.
BBB -- Bonds that are rated BBB have below average protection factors but
still are considered sufficient for prudent investment. Considerable
variability in risk exists during economic cycles.
To provide more detailed indications of credit quality, the AA, A and BBB
ratings may be modified by the addition of a plus or minus sign to show relative
standing within these major categories.
The following summarizes the highest four ratings used by Fitch for bonds, each
of which denotes that the securities are investment grade:
AAA -- Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
AA -- Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated AAA. Because bonds
rated in the AAA and AA categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is
generally rated F-1+.
A -- Bonds considered to be investment grade and of high credit quality.
The obligor's ability to pay interest and repay principal is considered to
be strong,
40
<PAGE>
but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB -- Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these
bonds, and therefore impair timely payment. The likelihood that the ratings
of these bonds will fall below investment grade is higher than for bonds
with higher ratings.
To provide more detailed indications of credit quality, the AA, A and BBB
ratings may be modified by the addition of a plus or minus sign to show relative
standing within these major rating categories.
The following summarizes the two highest ratings used by Moody's for short-term
municipal notes and variable rate demand obligations:
MIG-1/VMIG-1 -- Obligations bearing these designations are of the best
quality, enjoying strong protection from established cash flows, superior
liquidity support or demonstrated broad-based access to the market for
refinancing.
MIG-2/VMIG-2 -- Obligations bearing these designations are of high quality,
with ample margins of protection although not so large as in the preceding
group.
The following summarizes the two highest ratings used by S&P for short-term
municipal notes:
SP-1 -- Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics are given
a "plus" (+) designation.
SP-2 -- Satisfactory capacity to pay principal and interest.
The three highest rating categories of D&P for short-term debt, each of which
denotes that the securities are investment grade, are D-1, D-2 and D-3. D&P
employs three designations, D-1+, D-1 and D-1-, within the highest rating
category. D-1+ indicates highest certainty of timely payment. Short-term
liquidity, including internal operating factors and/or access to alternative
sources of funds, is judged to be "outstanding, and safety is just below
risk-free U.S. Treasury short-term obligations." D-1 indicates very high
certainty of timely payment. Liquidity factors are excellent and supported by
good fundamental protection factors. Risk factors are considered to be minor.
D-1- indicates high certainty of timely payment. Liquidity factors are strong
and supported by good fundamental protection factors. Risk factors are very
small. D-2 indicates good certainty of timely payment. Liquidity factors and
company fundamentals are sound. Although ongoing funding needs may enlarge total
financing requirements, access to capital markets is good. Risk factors are
small. D-3 indicates satisfactory liquidity and other protection factors which
qualify the issue as investment grade. Risk factors are larger and subject to
more variation. Nevertheless, timely payment is expected.
The following summarizes the two highest rating categories used by Fitch for
short-term obligations, each of which denotes securities that are investment
grade:
F-1+ securities possess exceptionally strong credit quality. Issues
assigned this rating are regarded as having the strongest degree of
assurance for timely payment.
F-1 securities possess very strong credit quality. Issues assigned this
rating reflect an assurance of timely payment only slightly less in degree
than issues rated F-1+.
F-2 securities possess good credit quality. Issues carrying this rating
have a satisfactory degree of assurance for timely payment, but the margin
of safety is not as great as for issues assigned the F-1+ and F-1 ratings.
Commercial paper rated A-1 by S&P indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted A-1+. Capacity for timely payment on
commercial paper rated A-2 is satisfactory, but the relative degree of safety is
not as high as for issues designated A-1.
The rating Prime-1 is the highest commercial paper rating assigned by Moody's.
Issuers rated Prime-1 (or related supporting institutions) are considered to
have a superior capacity for repayment of senior short-term promissory
obligations. Issuers rated Prime-2 (or related supporting institutions) are
considered to have a strong capacity for repayment of senior short-term
promissory obligations. This will normally be evidenced by many of the
characteristics of issuers rated Prime-1, but to a lesser degree. Earnings
trends and coverage ratios, while sound, will be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
For commercial paper, D&P uses the short-term debt ratings described above.
For commercial paper, Fitch uses the short-term debt ratings described above.
BankWatch ratings are based upon a qualitative and quantitative analysis of all
segments of the organization including, where applicable, holding company and
operating subsidiaries. BankWatch ratings do not constitute a recommendation to
buy or sell securities of any of these companies. Further, BankWatch does not
suggest specific investment criteria for individual clients.
BankWatch long-term ratings apply to specific issues of long-term debt and
preferred stock. The long-term
rat-
41
<PAGE>
ings specifically assess the likelihood of untimely payment of principal or
interest over the term to maturity of the rated instrument. The following are
the four investment grade ratings used by BankWatch for long-term debt:
AAA -- The highest category; indicates ability to repay principal and
interest on a timely basis is extremely high.
AA -- The second highest category; indicates a very strong ability to repay
principal and interest on a timely basis with limited incremental risk
versus issues rated in the highest category.
A -- The third highest category; indicates the ability to repay principal
and interest is strong. Issues rated "A" could be more vulnerable to
adverse developments (both internal and external) than obligations with
higher ratings.
BBB -- The lowest investment grade category; indicates an acceptable
capacity to repay principal and interest. Issues rated "BBB" are, however,
more vulnerable to adverse developments (both internal and external) than
obligations with higher ratings.
The BankWatch short-term ratings apply to commercial paper, other senior
short-term obligations and deposit obligations of the entities to which the
rating has been assigned. The BankWatch short-term ratings specifically assess
the likelihood of an untimely payment of principal or interest.
TBW-1 -- The highest category; indicates a very high likelihood that
principal and interest will be paid on a timely basis.
TBW-2 -- The second highest category; while the degree of safety regarding
timely repayment of principal and interest is strong, the relative degree
of safety is not as high as for issues rated "TBW-1".
TBW-3 -- The lowest investment grade category; indicates that while more
susceptible to adverse developments (both internal and external) than
obligations with higher ratings, capacity to service principal and interest
in a timely fashion is considered adequate.
TBW-4 -- The lowest rating category; this rating is regarded as
non-investment grade and therefore speculative.
The following summarizes the four highest long-term ratings used by IBCA:
AAA -- Obligations for which there is the lowest expectation of investment
risk. Capacity for timely repayment of principal and interest is
substantial such that adverse changes in business, economic or financial
conditions are unlikely to increase investment risk significantly.
AA -- Obligations for which there is a very low expectation of investment
risk. Capacity for timely repayment of principal and interest is
substantial. Adverse changes in business, economic or financial conditions
may increase investment risk albeit not very significantly.
A -- Obligations for which there is a low expectation of investment risk.
Capacity for timely repayment of principal and interest is strong, although
adverse changes in business, economic or financial conditions may lead to
increased investment risk.
BBB -- Obligations for which there is currently a low expectation of
investment risk. Capacity for timely repayment of principal and interest is
adequate, although adverse changes in business, economic or financial
conditions are more likely to lead to increased investment risk than for
obligations in other categories.
A plus or minus sign may be appended to a rating below AAA to denote relative
status within major rating categories.
The following summarizes the 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.
42
Prospectus
PRIMARY B SHARES
JULY 31, 1996
This Prospectus describes NATIONS MANAGED INDEX FUND Nations
(the "Fund") of Nations Fund Trust, an open-end Managed
management investment company in the Nations Fund Index Fund
Family ("Nations Fund" or "Nations Fund Family").
This Prospectus describes one class of shares of the
Fund -- Primary B Shares.
This Prospectus sets forth concisely the information
about the Fund that a prospective purchaser of
Primary B Shares should consider before investing.
Investors should read this Prospectus and retain it
for future reference. Additional information about
Nations Fund Trust is contained in a separate
Statement of Additional Information (the "SAI") that
has been filed with the Securities and Exchange
Commission (the "SEC") and is available upon request
without charge by writing or calling Nations Fund at
its address or telephone number shown below. The
SAI, dated July 31, 1996, is incorporated by
reference in its entirety into this Prospectus.
NationsBanc Advisors, Inc. ("NBAI") is the
investment adviser to the Fund. TradeStreet
Investment Associates, Inc. ("TradeStreet") is
sub-investment adviser to the Fund. As used herein
the "Adviser" shall mean NBAI and/or TradeStreet as
the context may require.
SHARES OF NATIONS FUND ARE NOT DEPOSITS OR OTHER
OBLIGATIONS OF, OR ISSUED, ENDORSED OR GUARANTEED
BY, NATIONSBANK, N.A. ("NATIONSBANK") OR ANY OF ITS
AFFILIATES. SUCH SHARES ARE NOT INSURED BY THE U.S.
GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER
GOVERNMENT AGENCY. AN INVESTMENT IN THE FUND
INVOLVES CERTAIN RISKS, INCLUDING POSSIBLE LOSS OF
PRINCIPAL.
NATIONSBANK AND CERTAIN OF ITS AFFILIATES PROVIDE
CERTAIN OTHER SERVICES TO NATIONS FUND, FOR WHICH
THEY ARE COMPENSATED. STEPHENS INC., WHICH IS NOT
AFFILIATED WITH NATIONSBANK, IS THE SPONSOR AND
ADMINISTRATOR AND SERVES AS THE DISTRIBUTOR FOR For Fund information call:
NATIONS FUND. 1-800-626-2275
THESE SECURITIES HAVE NOT BEEN APPROVED OR Nations Fund
DISAPPROVED BY THE SECURITIES AND EXCHANGE c/o Stephens Inc.
COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR One NationsBank Plaza
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY 33rd Floor
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY Charlotte, NC 28255
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
(Nations Fund Logo appears here)
<PAGE>
Table Of Contents
About The
Fund
Prospectus Summary 3
Expenses Summary 4
Objective 5
How Objective Is Pursued 5
How Performance Is Shown 7
How The Fund Is Managed 7
Organization And History 9
About Your
Investment
How To Buy Shares 10
How To Redeem Shares 10
Shareholder Administration Arrangements 11
How To Exchange Shares 11
How the Fund Values Its Shares 12
How Dividends And Distributions Are Made; Tax
Information 12
Appendix A -- Portfolio Securities 13
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT
CONTAINED IN THIS PROSPECTUS, OR IN THE FUND'S SAI
INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH
THE OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY
NATIONS FUND OR ITS DISTRIBUTOR. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFERING BY NATIONS FUND OR
BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH
OFFERING MAY NOT LAWFULLY BE MADE.
2
<PAGE>
About The Fund
Prospectus Summary
(Bullet) TYPE OF COMPANY: Open-end management investment company.
(Bullet) INVESTMENT OBJECTIVE AND POLICIES: Nations Managed Index Fund's
investment objective is to seek, over the long-term, to provide a total
return which (gross of fees and expenses) exceeds the total return of
the Standard & Poor's 500 Composite Stock Price Index.
(Bullet) When consistent with the Fund's objective, the Fund will
employ various techniques to manage capital gain
distributions.
(Bullet) INVESTMENT ADVISER: NationsBanc Advisors, Inc. serves as the investment
adviser to the Fund. NBAI provides investment advice to more than 43
investment company portfolios in the Nations Fund Family. TradeStreet
Investment Associates, Inc. provides sub-advisory services to the Fund.
See "How The Fund Is Managed."
(Bullet) DIVIDENDS AND DISTRIBUTIONS: Nations Managed Index Fund declares and
pays dividends from net investment income each calendar quarter. The
Fund's net realized capital gains, including net short-term capital
gains, are distributed at least annually.
(Bullet) RISK FACTORS: Although the Adviser seeks to achieve the investment
objective of the Fund, there is no assurance that it will be able to do
so. Investments in the Fund are not insured against loss of principal.
Investments by the Fund in common stocks and other equity securities
are subject to stock market risk, which is the risk that the value of
the stocks the Fund holds may decline over short or even extended
periods. Certain of the Fund's permissible investments may constitute
derivative securities. Certain types of derivative securities can,
under certain circumstances, significantly increase an investor's
exposure to market or other risks. For a discussion of these and other
factors, see "How Objective Is Pursued -- Risk Considerations" and
"Appendix A -- Portfolio Securities."
(Bullet) MINIMUM PURCHASE: $1,000 minimum initial investment per record holder.
See "How To Buy Shares."
3
<PAGE>
Expenses Summary
Expenses are one of several factors to consider when investing in the Fund. The
following table summarizes shareholder transaction and operating expenses for
Primary B Shares of the Fund. The Example shows the cumulative expenses
attributable to a hypothetical $1,000 investment in the Fund over specified
periods.
PRIMARY B SHARES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
<S> <C>
Nations
Managed
Index
Fund
Sales Load Imposed on Purchases None
Deferred Sales Load None
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
<TABLE>
<S> <C>
Management Fees (After Fee Waivers) 0.30%
Other Expenses 0.70%
Total Operating Expenses (After Fee Waivers) 1.00%
</TABLE>
EXAMPLE:
You would pay the following expenses on a $1,000 investment in Primary B Shares
of the Fund, assuming (1) a 5% annual return and (2) redemption at the end of
each time period.
<TABLE>
<CAPTION>
<S> <C>
Nations
Managed
Index
Fund
1 Year $12
3 Years $32
</TABLE>
The purpose of the foregoing table is to assist an investor in understanding the
various shareholder transaction and operating expenses that an investor in
Primary B Shares will bear either directly or indirectly. The "Other Expenses"
figures in the above table are based on estimates for the fiscal year and have
been restated as necessary to reflect anticipated fee waivers. There is no
assurance that any fee waivers and reimbursements will continue beyond the
current fiscal year. If fee waivers and/or reimbursements are discontinued, the
amounts contained in the "Examples" above may increase. For a more complete
description of the Fund's operating expenses, see "How The Fund Is Managed." For
a more complete description of the Shareholder Servicing Fees payable by the
Fund, see "Shareholder Administration Arrangements."
Absent fee waivers, "Management Fees" and "Total Operating Expenses" would be
.50% and 1.20%, respectively.
THE FOREGOING SHOULD NOT BE CONSIDERED TO BE AN ACTUAL REPRESENTATION OF PAST OR
FUTURE PERFORMANCE. ACTUAL EXPENSES AND RATES OF RETURN MAY BE GREATER OR LESS
THAN THOSE SHOWN.
4
<PAGE>
Objective
Nations Managed Index Fund's investment objective is to seek, over the long
term, to provide a total return which (gross of fees and expenses) exceeds the
total return of the Standard & Poor's 500 Composite Stock Price Index.
How Objective Is Pursued
NATIONS MANAGED INDEX FUND: In seeking to achieve its investment objective, the
Fund will invest in selected equity securities that are included in the Standard
& Poor's 500 Composite Stock Price Index (the "S&P 500 Index" or the "Index")1.
The S&P 500 Index is a value weighted index consisting of 500 common stocks
chosen for market size, liquidity and industry group representation.
The Adviser believes that a managed equity index portfolio can provide investors
with positive incremental performance relative to the S&P 500 Index while
minimizing the downside risk of underperforming the index over time.
The initial stock universe considered by the Adviser is the S&P 500 Index. The
Adviser ranks the attractiveness of each security according to a multifactor
valuation model. Both value and momentum factors are considered in the ranking
process. Value factors such as book value, earnings yield and cash flow measure
a stock's intrinsic worth versus its market price, while momentum
characteristics such as price momentum, earnings growth and earnings
acceleration measure a stock relative to others in the same industry. Each stock
is assigned a ranking from 1 to 10 (best to worst). The Adviser then screens out
the lower rated stocks resulting in a portfolio of 300 to 350 holdings that
capture the investment characteristics of the Index.
In addition, when consistent with the Fund's investment objective, the Fund will
employ various techniques to manage capital gain distributions. These techniques
include utilizing a share identification methodology whereby the Fund will
specifically identify each lot of shares of portfolio securities that it holds,
which will allow the Fund to sell first those specific shares with the highest
tax basis in order to reduce the amount of recognized capital gains as compared
with a sale of identical portfolio securities, if any, with a lower tax basis.
The Fund will sell first those shares with the highest tax basis only when it is
in the best interest of the Fund to do so, and reserves the right to sell other
shares when appropriate. In addition, the Fund may, at times, sell portfolio
securities in order to realize capital losses. Such capital losses would be used
to offset realized capital gains thereby reducing capital gain distributions.
Additionally, the Adviser will, consistent with the multi-factor valuation model
discussed above, employ a low portfolio turnover strategy designed to defer the
realization of capital gains.
Under normal conditions, the Adviser will attempt to invest as much of the
Fund's assets as is practical and, in any event the Fund will invest at least
65% of its total assets, in common stocks which are included in the S&P 500
Index. The Fund is expected, however, to maintain a position in high-quality
short-term debt securities and money market instruments to meet redemption
requests. If the Adviser believes that market conditions warrant a temporary
defensive posture, the Fund may invest without limitation in high-quality
short-term debt securities and money market instruments. These securities and
money market instruments may include domestic and foreign commercial paper,
certificates of deposit, bankers' acceptances and time deposits, U.S. Government
securities and repurchase agreements.
The Fund also may invest in certain specified derivative securities including:
exchange-traded options; over-the-counter options executed with primary dealers,
including long calls and puts and covered calls to enhance return; and U.S. and
foreign exchange-traded financial futures approved by the Commodity Futures
Trading Commission ("CFTC") and options thereon for market exposure risk
management. The Fund may lend its portfolio securities to qualified
institutional investors. The Fund also may invest in restricted, private
placement and other illiquid securities. In addition, the Fund may invest in
securities issued by other investment companies, consistent with the Fund's
investment objective and policies.
ABOUT THE INDEX: The S&P 500 Index is composed of 500 common stocks, which are
chosen by S&P on a statistical basis to be included in the Index. The inclusion
of a stock in the S&P 500 Index in no way implies that S&P believes the stock to
be an attractive investment. The Index is determined, composed and calculated by
S&P without regard to the Fund. S&P is neither a sponsor of, nor in any way
affiliated with the Fund, and S&P makes no representation or warranty, expressed
or implied, on the advisability of investing in the Fund or as to the ability of
the Index to track general stock market perfor-
(1) "Standard & Poor's 500" is a registered service mark of Standard & Poor's
Corporation ("S&P").
5
<PAGE>
mance. S&P disclaims all warranties of merchantability or fitness for a
particular purpose or use with respect to the Index or any data included
therein.
PORTFOLIO TURNOVER: Generally, the Fund will purchase portfolio securities for
capital appreciation or investment income, or both, and not for short-term
trading profits. While it is not possible to predict exactly annual portfolio
turnover rates, it is expected that under normal market conditions, the annual
portfolio turnover rate for the Fund will not exceed 25%.
RISK CONSIDERATIONS: Although the Adviser will seek to achieve the investment
objective of the Fund, there is no assurance that it will be able to do so. No
single fund should be considered, by itself, to provide a complete investment
program for any investor. Investments in the Fund are not insured against loss
of principal.
Investments by the Fund in common stocks and other equity securities are subject
to stock market risk. The value of the stocks that the Fund holds, like the
broader stock market, may decline over short or even extended periods.
Certain of the Fund's permissible investments may constitute derivative
securities, which are securities whose value is derived, at least in part, from
an underlying index or reference rate. There are certain types of derivative
securities that can, under certain circumstances, significantly increase a
purchaser's exposure to market or other risks. The Adviser, however, only
purchases derivative securities in circumstances where it believes such
purchases are consistent with the Fund's investment objective and do not unduly
increase the Fund's exposure to market or other risks. For additional risk
information regarding the Fund's investments in particular instruments, see
"Appendix A -- Portfolio Securities."
The techniques employed by the Adviser to seek to manage capital gain
distributions will generally only have the effect of deferring the realization
of capital gains. For example, to the extent that the capital gains recognized
on a sale of portfolio securities arise from the sale of specifically-identified
securities with higher tax bases, subsequent sales of the same portfolio
securities will be calculated by reference to the lower tax basis securities
that remain in the portfolio. Under this scenario, an investor who purchases
shares of the Fund after the first sale could receive capital gain distributions
that are higher than the distributions that would have been received if this
methodology had not been used. Therefore, certain investors actually could be
disadvantaged by the techniques employed by the Fund to seek to manage capital
gain distributions, depending on the timing of their purchase of Fund shares.
Even if there are no subsequent sales, upon a redemption or exchange of Fund
shares an investor will have to recognize gain to the extent that the net asset
value of Fund shares at such time exceeds such investor's tax basis in his or
her Fund shares. As a result, the taxable gain realized by an investor upon a
redemption or exchange may be greater (or the loss realized at such time may be
less) than otherwise would have been realized. The Fund's low portfolio turnover
strategy will have the same effect.
The various techniques employed by the Fund to manage capital gain distributions
may result in the accumulation of substantial unrealized gains in the Fund's
portfolio. Moreover, the realization of capital gains is not entirely within the
Fund's control because it is at least partly dependent on shareholder purchase
and redemption activity. Capital gain distributions may vary considerably from
year-to-year.
INVESTMENT LIMITATIONS: The Fund is subject to a number of investment
limitations. The following investment limitations are matters of fundamental
policy and may not be changed without the affirmative vote of the holders of a
majority of the Fund's outstanding shares. Other investment limitations that
cannot be changed without such a vote of shareholders are described in the SAI.
The Fund may not:
1. Purchase any securities which would cause 25% or more of the value of the
Fund's total assets at the time of such purchase to be invested in the
securities of one or more issuers conducting their principal activities in the
same industry (for purposes of this limitation, U.S. Government securities are
not considered members of any industry.)
2. Make loans, except that the Fund may purchase and hold debt instruments
(whether such instruments are part of a public offering or privately placed),
may enter into repurchase agreements and may lend portfolio securities in
accordance with its investment policies.
3. Purchase securities of any one issuer (other than securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities) if,
immediately after such purchase, more than 5% of the value of the Fund's total
assets would be invested in the securities of such issuer, except that up to 25%
of the value of the Fund's total assets may be invested without regard to these
limitations and with respect to 75% of the Fund's assets, the Fund will not hold
more than 10% of the voting securities of any issuer.
The investment objective and policies of the Fund, unless otherwise specified,
may be changed without a vote of the Fund's shareholders. If the investment
objective or policies of the Fund change, shareholders should consider whether
the Fund remains an appropriate investment in light of their then current
position and needs.
6
<PAGE>
In order to register the Fund's shares for sale in certain states, the Fund may
make commitments more restrictive than the investment policies and limitations
described in this Prospectus and the SAI. Should the Fund determine that any
such commitment is no longer in the best interests of the Fund, it may consider
terminating sales of its shares in the states involved.
How Performance Is Shown
From time to time the Fund may advertise the total return and yield on a class
of shares. TOTAL RETURN AND YIELD FIGURES ARE BASED ON HISTORICAL DATA AND ARE
NOT INTENDED TO INDICATE FUTURE PERFORMANCE. The "total return" of a class of
shares of the Fund may be calculated on an average annual total return basis or
an aggregate total return basis. Average annual total return refers to the
average annual compounded rates of return over one-, five-, and ten-year periods
or the life of the Fund (as stated in the advertisement) that would equate an
initial amount invested at the beginning of a stated period to the ending
redeemable value of the investment, assuming the reinvestment of all dividend
and capital gain distributions. Aggregate total return reflects the total
percentage change in the value of the investment over the measuring period again
assuming the reinvestment of all dividends and capital gain distributions. Total
return may also be presented for other periods.
"Yield" is calculated by dividing the annualized net investment income per share
during a recent 30-day (or one month) period of a class of shares of the Fund by
the maximum public offering price per share on the last day of that period.
Investment performance, which will vary, is based on many factors, including
market conditions, the composition of the Fund's portfolio and the Fund's
operating expenses. Investment performance also often reflects the risks
associated with the Fund's investment objective and policies. These factors
should be considered when comparing the Fund's investment results to those of
other mutual funds and other investment vehicles. Since yields fluctuate, yield
data cannot necessarily be used to compare an investment in the Fund with bank
deposits, savings accounts, and similar investment alternatives which often
provide an agreed-upon or guaranteed fixed yield for a stated period of time.
In addition to Primary B Shares, the Fund offers Primary A, Investor A and
Investor C Shares. Each class of shares may bear different sales charges,
shareholder servicing fees and other expenses, which may cause the performance
of a class to differ from the performance of the other classes. Performance
quotations will be computed separately for each class of the Fund's shares. Any
fees charged by an institution and/or servicing agent directly to its customers'
accounts in connection with investments in the Fund will not be included in
calculations of total return or yield. The Fund's annual report contains
additional performance information and is available upon request without charge
from the Fund's distributor or your Institution, as defined below.
How The Fund Is Managed
The business and affairs of Nations Fund Trust are managed under the direction
of its Board of Trustees. Nations Fund Trust's SAI contains the names of and
general background information concerning each Trustee of Nations Fund Trust.
Nations Fund and the Adviser have adopted codes of ethics which contain policies
on personal securities transactions by "access persons," including portfolio
managers and investment analysts. These policies substantially comply in all
material respects with the recommendations set forth in the May 9, 1994 Report
of the Advisory Group on Personal Investing of the Investment Company Institute.
INVESTMENT ADVISER: NationsBanc Advisors, Inc. serves as investment adviser to
the Fund. NBAI is a wholly owned subsidiary of NationsBank, which in turn is a
wholly owned banking subsidiary of NationsBank Corporation, a bank holding
company organized as a North Carolina corporation. NBAI has its principal
offices at One NationsBank Plaza, Charlotte, North Carolina 28255.
TradeStreet Investment Associates, Inc., with principal offices at One
NationsBank Plaza, Charlotte, North Carolina 28255, serves as sub-investment
adviser to the Fund. TradeStreet is a wholly owned subsidiary of NationsBank.
TradeStreet provides investment management services to individuals, corporations
and institutions.
Subject to the general supervision of Nations Fund Trust's Board of Trustees and
in accordance with the Fund's investment policies, the Adviser formulates
guidelines and lists of approved investments for the Fund, makes decisions with
respect to and places orders for the Fund's purchases and sales of portfolio
securities and maintains records relating to such purchases and sales. The
Adviser is authorized to allocate purchase and
7
<PAGE>
sale orders for portfolio securities to certain financial institutions,
including, in the case of agency transactions, financial institutions which are
affiliated with the Adviser or which have sold shares in the Fund, if the
Adviser believes that the quality of the transaction and the commission are
comparable to what they would be with other qualified brokerage firms. From time
to time, to the extent consistent with its investment objective, policies and
restrictions, the Fund may invest in securities of companies with which
NationsBank has a lending relationship. For the services provided and expenses
assumed pursuant to an Investment Advisory Agreement, NBAI is entitled to
receive advisory fees, computed daily and paid monthly, at the annual rate of
0.50% of the average daily net assets of the Fund.
From time to time, NBAI and/or TradeStreet may waive or reimburse (either
voluntarily or pursuant to applicable state limitations) advisory fees and/or
expenses payable by the Fund.
For the services provided and the expenses assumed pursuant to a Sub-Advisory
Agreement, NBAI will pay TradeStreet sub-advisory fees, computed daily and paid
monthly, at the annual rate of 0.10% of the average daily net assets of the
Fund.
Greg W. Golden is a Structured Products Manager, Equity Management for
TradeStreet and is Portfolio Manager for Nations Equity Index Fund and Nations
Managed Index Fund. He has been Portfolio Manager for Nations Managed Index Fund
since its inception. Prior to assuming his position with TradeStreet, he was
Vice President and Structured Products Manager for the Investment Management
Group at NationsBank. He has worked in the investment community since 1990. His
past experience includes portfolio management, derivatives management and
quantitative analysis for the Investment Management Group at NationsBank and
Sovran Bank of Tennessee. Mr. Golden received a B.B.A. in Finance from Belmont
University. He is a Chartered Financial Analyst candidate and a member of the
Association for Investment Management and Research as well as the North Carolina
Society of Financial Analysts, Inc.
Morrison & Foerster LLP, counsel to Nations Fund and special counsel to
NationsBank, has advised NationsBank and Nations Fund that NationsBank and its
affiliates may perform the services contemplated by the Investment Advisory
Agreement and this Prospectus, without violation of the Glass-Steagall Act. Such
counsel has pointed out, however, that there are no controlling judicial or
administrative interpretations or decisions and that future judicial or
administrative interpretations of, or decisions relating to, present federal or
state statutes, including the Glass-Steagall Act, and regulations relating to
the permissible activities of banks and their subsidiaries or affiliates, as
well as future changes in federal or state statutes, including the
Glass-Steagall Act, and regulations and judicial or administrative decisions or
interpretations thereof, could prevent such entities from continuing to perform,
in whole or in part, such services. If any such entity were prohibited from
performing any of such services, it is expected that new agreements would be
proposed or entered into with another entity or entities qualified to perform
such services.
OTHER SERVICE PROVIDERS: Stephens Inc. ("Stephens"), with principal offices at
111 Center Street, Little Rock, Arkansas 72201, serves as the administrator of
Nations Fund pursuant to an Administration Agreement. Pursuant to the terms of
the Administration Agreement, Stephens provides various administrative and
corporate secretarial services to the Fund, including providing general
oversight of other service providers, office space, utilities and various legal
and administrative services in connection with the satisfaction of various
regulatory requirements applicable to the Fund.
First Data Investor Services Group, Inc. ("First Data"), formerly The
Shareholder Services Group, Inc., a wholly owned subsidiary of First Data
Corporation, with principal offices at One Exchange Place, Boston, Massachusetts
02109, serves as the co-administrator of Nations Fund pursuant to a
Co-Administration Agreement. Under the Co-Administration Agreement, First Data
provides various administrative and accounting services to the Fund including
performing the calculations necessary to determine the net asset value per share
and dividends of each class of the Fund, preparing tax returns and financial
statements and maintaining the portfolio records and certain of the general
accounting records for the Fund.
For the services rendered pursuant to the Administration and Co-Administration
Agreements, Stephens and First Data are entitled to receive a combined fee at an
annual rate of up to 0.10% of the Fund's average daily net assets.
NationsBank serves as sub-administrator for Nations Fund pursuant to a
Sub-Administration Agreement. Pursuant to the terms of the Sub-Administration
Agreement, NationsBank assists Stephens in supervising, coordinating and
monitoring various aspects of the Fund's administrative operations. For
providing such services, NationsBank shall be entitled to receive a monthly fee
from Stephens based on an annual rate of 0.01% of the Funds' average daily net
assets.
Shares of the Fund are sold on a continuous basis by Stephens, as the Fund's
sponsor and distributor. Stephens is a registered broker/dealer with principal
offices at 111 Center Street, Little Rock, Arkansas 72201. Nations Fund has
entered into distribution agreements with Stephens which provide that Stephens
has the exclusive right to distribute shares of the Fund. Stephens may pay
service fees or commissions to Institu-
8
<PAGE>
tions which assist customers in purchasing Primary B Shares of the Fund.
First Data serves as the Transfer Agent for the Fund's Primary B Shares.
NationsBank of Texas, N.A. ("NationsBank of Texas" or the "Custodian") serves as
custodian for the assets of the Fund. NationsBank of Texas, which also serves as
the sub-transfer agent for the Fund's Primary B Shares, is located at 1401 Elm
Street, Dallas, Texas 75202, and is a wholly owned subsidiary of NationsBank
Corporation. In return for providing custodial services, the Custodian is
entitled to receive, in addition to out-of-pocket expenses, fees payable monthly
(i) at the rate of 1.25% of 1% of the average daily net assets of the Fund, (ii)
$10.00 per repurchase collateral transaction by the Fund, and (iii) $15.00 per
purchase, sale and maturity transaction involving the Fund. In return for
providing sub-transfer agency services for the Shares of Nations Fund,
NationsBank of Texas is entitled to receive an annual fee from First Data of
$251,000.
Price Waterhouse LLP serves as independent accountant to Nations Fund. Its
address is 160 Federal Street, Boston, Massachusetts 02110.
EXPENSES: The accrued expenses of the Fund, as well as certain expenses
attributable to Primary B Shares, are deducted from the Fund's total accrued
income before dividends are declared. These expenses include, but are not
limited to: fees paid to the Adviser, NationsBank, Stephens and First Data;
taxes; interest; Trustees' fees; federal and state securities registration and
qualification fees; brokerage fees and commissions; costs of preparing and
printing prospectuses for regulatory purposes and for distribution to existing
shareholders; charges of the Custodian and Transfer Agent; certain insurance
premiums; outside auditing and legal expenses; costs of shareholder reports and
shareholder meetings; other expenses which are not expressly assumed by the
Adviser, NationsBank, Stephens or First Data under their respective agreements
with Nations Fund; and any extraordinary expenses. Primary B Shares also bear
certain shareholder servicing costs. Any general expenses of Nations Fund Trust
that are not readily identifiable as belonging to a particular investment
portfolio are allocated among all portfolios in the proportion that the assets
of a portfolio bears to the assets of Nations Fund Trust or in such other manner
as the Board of Trustees determines is fair and equitable.
Organization And History
The Fund is a member of the Nations Fund Family, which consists of Nations Fund
Trust, Nations Fund, Inc., Nations Fund Portfolios, Inc. and Nations
Institutional Reserves. The Nations Fund Family currently consists of more than
43 distinct investment portfolios and total assets in excess of $18 billion.
NATIONS FUND TRUST: Nations Fund Trust was organized as a Massachusetts business
trust on May 6, 1985. Nations Fund Trust's fiscal year end is March 31; prior to
1996, Nations Fund Trust's fiscal year end was November 30. The Fund currently
offers four classes of shares -- Primary A Shares, Primary B Shares, Investor C
Shares and Investor A Shares. This Prospectus relates only to the Primary B
Shares of Nations Managed Index Fund of Nations Fund Trust. To obtain additional
information regarding the Fund's other classes of shares which may be available
to you, contact your Institution (as defined below) or Nations Fund at
1-800-626-2275.
Each share of Nations Fund Trust is without par value, represents an equal
proportionate interest in the related fund with other shares of the same class,
and is entitled to such dividends and distributions out of the income earned on
the assets belonging to such fund as are declared in the discretion of Nations
Fund Trust's Board of Trustees. Nations Fund Trust's Declaration of Trust
authorizes the Board of Trustees to classify or reclassify any class of shares
into one or more series of shares.
Shareholders are entitled to one vote for each full share held and a
proportionate fractional vote for each fractional share held. Shareholders of
each fund of Nations Fund Trust will vote in the aggregate and not by fund, and
shareholders of each fund will vote in the aggregate and not by class except as
otherwise expressly required by law or when the Board of Trustees determines
that the matter to be voted on affects only the interests of shareholders of a
particular fund or class. See Nations Fund Trust's SAI for examples of when the
Investment Company Act of 1940 (the "1940 Act") requires voting by fund.
As of July 15, 1996, NationsBank and its affiliates possessed or shared power to
dispose or vote with respect to more than 25% of the outstanding shares of
certain classes of shares of Nations Fund Trust and therefore could be
considered to be a controlling person of these classes and series of Nations
Fund Trust for purposes of the 1940 Act. For more detailed information
concerning the percentage of each class or series of shares over which
NationsBank and its affiliates possessed or shared power to dispose or vote as
of a certain date, see Nations Fund Trust's SAI.
Nations Fund Trust does not presently intend to hold annual meetings except as
required by the 1940 Act. Shareholders will have the right to remove Trustees.
Nations Fund Trust's Code of Regulations provides that special meetings of
shareholders shall be called at the written request of the shareholders entitled
to vote at least 10% of the outstanding shares of Nations Fund Trust entitled to
be voted at such meeting.
9
<PAGE>
About Your Investment
How To Buy Shares
Primary B Shares may be purchased through banks, broker/dealers or other
financial institutions (including certain affiliates of NationsBank)
("Institutions") that have entered into a shareholder administration agreement
(an "Administration Agreement") with Nations Fund and/or a selling agreement
with Stephens.
Primary B Shares are purchased at net asset value per share without the
imposition of a sales charge according to procedures established by the
Institution. Institutions, however, may charge the accounts of their customers
("Customers") for services provided in connection with the purchase of shares.
Purchases of shares may be effected on days on which the New York Stock Exchange
(the "Exchange") is open for business ("NYSE Business Day"). Unless otherwise
specified, the term Business Day in this Prospectus refers to a NYSE Business
Day.
There is a minimum initial investment of $1,000 for each record holder; there is
no minimum subsequent investment.
Pursuant to the Administration Agreements, Institutions will provide various
shareholder services for their Customers that own Primary B Shares. From time to
time, Nations Fund may voluntarily reduce the maximum fees payable for
shareholder services.
Nations Fund reserves the right to reject any purchase order. The issuance of
Primary B Shares is recorded on the books of the Fund, and share certificates
are not issued. It is the responsibility of Institutions to record beneficial
ownership of Primary B Shares and to reflect such ownership in the account
statements provided to their Customers.
EFFECTIVE TIME OF PURCHASES: Purchase orders for Primary B Shares which are
received by Stephens or by the Transfer Agent before the close of regular
trading hours on the Exchange (currently 4:00 p.m., Eastern time) on any
Business Day are priced according to the net asset value determined on that day
but are not executed until 4:00 p.m., Eastern time, on the Business Day on which
immediately available funds in payment of the purchase price are received by the
Fund's Custodian. Such payment must be received no later than 4:00 p.m., Eastern
time, by the third Business Day following receipt of the order. If funds are not
received by such date, the order will not be accepted and notice thereof will be
given to the Institution placing the order. Payment for orders which are not
received or accepted will be returned after prompt inquiry to the sending
Institution.
Institutions are responsible for transmitting orders for purchases of Primary B
Shares by their Customers, and for delivering required funds, on a timely basis.
It is the responsibility of Stephens to transmit orders it receives to Nations
Fund.
How To Redeem Shares
Customers may redeem all or part of their Primary B Shares in accordance with
instructions and limitations pertaining to their accounts at an Institution. It
is the responsibility of the Institutions to transmit redemption orders to
Stephens or to the Transfer Agent and to credit their Customers' accounts with
the redemption proceeds on a timely basis. It is the responsibility of Stephens
to transmit orders it receives to Nations Fund. No charge for wiring redemption
payments is imposed by Nations Fund, although the Institutions may charge their
Customer accounts for these or other services provided in connection with the
redemption of Primary B Shares. Information concerning these services and any
charges are available from the Institutions. Redemption orders are effected at
the net asset value per share next determined after acceptance of the order by
Stephens or by the Transfer Agent. Redemption proceeds are normally remitted in
federal funds wired to the redeeming Institution within three Business Days
following receipt of the order.
Nations Fund may redeem a shareholder's Primary B Shares if the balance in such
shareholder's account drops below $500 as a result of redemptions, and the
shareholder does not increase his or her balance to at least $500 on 60 days'
written notice. If a shareholder has agreed with a particular Institution to
maintain a minimum balance in his or her account at the Institution, and the
balance in such Institution account falls below that minimum, the shareholder
may be obliged to redeem all or a part of his or her Primary B Shares in the
Fund to the extent necessary to maintain the required minimum balance in such
Institution account. Nations Fund also may redeem shares involuntarily or make
payment for redemption in readily marketable securities or other property under
certain circumstances in accordance with the 1940 Act.
10
<PAGE>
How To Exchange Shares
The exchange feature enables a shareholder of Primary B Shares of the Fund to
acquire Primary B Shares of another fund when that shareholder believes that a
shift between Funds is an appropriate investment decision. An exchange of
Primary B Shares for Primary B Shares of another fund is made on the basis of
the next calculated net asset value per share of each fund after the exchange
order is received.
The Fund and each of the other funds of Nations Fund may limit the number of
times this exchange feature may be exercised by a shareholder within a specified
period of time. Also, the exchange feature may be terminated or revised at any
time by Nations Fund upon such notice as may be required by applicable
regulatory agencies (presently 60 days for termination or material revision),
provided that the exchange feature may be terminated or materially revised
without notice under certain unusual circumstances.
The current prospectus for each fund of Nations Fund describes its investment
objective and policies, and shareholders should obtain a copy and examine it
carefully before investing. Exchanges are subject to the minimum investment
requirement and any other conditions imposed by each fund. In the case of any
shareholder holding a share certificate or certificates, no exchanges may be
made until all applicable share certificates have been received by the Transfer
Agent and deposited in the shareholder's account. An exchange will be treated
for Federal income tax purposes the same as a redemption of shares, on which the
shareholder may realize a capital gain or loss. However, the ability to deduct
capital losses on an exchange may be limited in situations where there is an
exchange of shares within 90 days after the shares are purchased.
Nations Fund reserves the right to reject any exchange request. Only shares that
may legally be sold in the state of the investor's residence may be acquired in
an exchange. Only shares of a class that is accepting investments generally may
be acquired in an exchange.
Provided your institution allows telephone exchanges, during periods of
significant economic or market change, telephone exchanges may be difficult to
complete. In such event, shares may be exchanged by mailing your request
directly to the Institution through which the original shares were purchased.
Investors should consult their Institution or Stephens for further information
regarding exchanges.
Primary B Shares may be exchanged by directing a request directly to the
Institution through which the original Primary B Shares were purchased or in
some cases Stephens or the Transfer Agent. Investors should consult their
Institution or Stephens for further information regarding exchanges. Your
exchange feature may be governed by your account agreement with your
Institution.
Shareholder Administration Arrangements
The Fund has adopted a Shareholder Administration Plan (the "Administration
Plan") pursuant to which Institutions provide shareholder administrative
services to their Customers who from time to time beneficially own Primary B
Shares. Payments under the Administration Plan are calculated daily and paid
monthly at a rate or rates set from time to time by the Fund, provided that the
annual rate may not exceed 0.60% of the average daily net asset value of the
Primary B Shares beneficially owned by Customers with whom the Institutions have
a servicing relationship. Additionally, in no event may the portion of the
shareholder administration fee that constitutes a "service fee," as that term is
defined in Article III, Section 26(b)(9) of the Rules of Fair Practice of the
NASD, exceed 0.25% of the average daily net asset value of the Primary B Shares
of the Fund. Holders of Primary B Shares will bear all fees paid to Institutions
under the Administration Plan.
Such shareholder administration services supplement the services provided by
Stephens, First Data and the Transfer Agent to shareholders of record. The
shareholder administration services provided by Institutions may include: (i)
aggregating and processing purchase and redemption requests for Primary B Shares
from Customers and transmitting promptly net purchase and redemption orders to
Stephens or the Transfer Agent; (ii) providing Customers with a service that
invests the assets of their accounts in Primary B Shares pursuant to specific or
pre-authorized instructions; (iii) processing dividend and distribution payments
from the Fund on behalf of Customers; (iv) providing information periodically to
Customers showing their positions in Primary B Shares; (v) arranging for bank
wires; (vi) responding to Customers' inquiries concerning their investment in
Primary B Shares; (vii) providing sub-accounting with respect to Primary B
Shares beneficially owned by Customers or the information necessary for
sub-accounting; (viii) if required by law, forwarding shareholder communications
(such as proxies, shareholder reports, annual and semi-annual financial
statements and dividend, distribution and tax notices) to Customers; (ix)
forwarding to Customers proxy statements and proxies containing any proposals
regarding the Administration Agreement;
11
<PAGE>
(x) employee benefit plan recordkeeping, administration, custody and trustee
services; (xi) general shareholder liaison services; and (xii) providing such
other similar services as may be reasonably requested.
Nations Fund may suspend or reduce payments under the Administration Plan at any
time, and payments are subject to the continuation of the Administration Plan
described above and the terms of the Administration Agreements between
Institutions and Nations Fund. See the SAIfor more details on the Administration
Plan.
The Administration Plan also provides that, to the extent any portion of the
fees payable under the Administration Plan is deemed to be for services
primarily intended to result in the sale of Fund shares, such fees are deemed
approved and may be paid under the Administration Plan. Accordingly, the
Administration Plan has been approved and will be operated pursuant to Rule
12b-1 under the 1940 Act.
Nations Fund understands that Institutions may charge fees to their Customers
who are the owners of Primary B Shares in connection with their Customers'
accounts. These fees would be in addition to any amounts which may be received
by an Institution under its Administration Agreement with Nations Fund. The
Administration Agreement requires an Institution to disclose to its Customers
any compensation payable to the Institution by Nations Fund and any other
compensation payable by the Customers in connection with the investment of their
assets in Primary B Shares. Customers of Institutions should read this
Prospectus in light of the terms governing their accounts with their
Institutions.
Conflict of interest restrictions may apply to the receipt by Institutions of
compensation from Nations Fund in connection with the investment of fiduciary
assets in Primary B Shares. Institutions, including banks regulated by the
Comptroller of the Currency, the Federal Reserve Board, or the Federal Deposit
Insurance Corporation, and investment advisers and other money managers subject
to the jurisdiction of the SEC, the Department of Labor, or state securities
commissions, are urged to consult their legal advisers before investing such
assets in Primary B Shares.
How The Fund Values Its Shares
The net asset value of a share of each class is calculated by dividing the total
value of its assets, less liabilities, by the number of shares in the class
outstanding. Shares of the Fund are valued as of the close of regular trading on
the Exchange (currently 4:00 p.m., Eastern time) on each NYSE Business Day.
Currently, the days on which the Exchange is closed (other than weekends) are:
New Year's Day, President's Day, Good Friday, Memorial Day (observed),
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
Portfolio securities for which market quotations are readily available are
valued at market value. Short-term investments that will mature in 60 days or
less are valued at amortized cost, which approximates market value. All other
securities are valued at their fair value following procedures approved by the
Trustees.
How Dividends And Distributions Are Made;
Tax Information
DIVIDENDS AND DISTRIBUTIONS: Even though the Fund seeks to manage taxable
distributions, the Fund may be expected to earn and distribute taxable income
and may also be expected to realize and distribute capital gains from time to
time. Dividends from net investment income are declared and paid each calendar
quarter by the Fund. The Fund's net realized capital gains (including net
short-term capital gains) are distributed at least annually.
Primary B Shares of the Fund are eligible to receive dividends when declared,
provided however, that the purchase order for such shares is received at least
one day prior to the dividend declaration and such shares continue to be
eligible for dividends through and including the day before the redemption order
is executed.
The net asset value of Primary B Shares will be reduced by the amount of any
dividend or distribution. Dividends and distributions are paid in cash within
five Business Days of the end of the quarter to which the dividend relates.
Certain purchasing Institutions may provide for the reinvestment of dividends in
the form of additional Primary B Shares of the Fund. Dividends and distributions
payable to a shareholder are paid in cash within five Business Days after a
shareholder's complete redemption of his or her Primary B Shares in the Fund.
The Fund's net investment income available for distribution to the holders of
Primary B Shares will be reduced by the amount of shareholder servicing fees
payable to Institutions under the Servicing Agreements.
TAX INFORMATION: The Fund intends to qualify as a separate "regulated investment
company" under the Inter-
12
<PAGE>
nal Revenue Code of 1986, as amended (the "Code"). Such qualification relieves
the Fund of liability for Federal income tax to the extent its earnings are
distributed in accordance with the Code.
The Fund intends to distribute substantially all of its investment company
taxable income and net tax-exempt income each taxable year. Such distributions
by the Fund of its net investment income (including net foreign currency gains)
and the excess, if any, of its net short-term capital gain over its net
long-term capital loss will be taxable as ordinary income to shareholders who
are not currently exempt from Federal income tax, whether such income is
received in cash or reinvested in additional shares.
Corporate shareholders may be entitled to the dividends received deduction for
distributions from the Fund's investment in the stock of domestic corporations
to the extent of the total qualifying dividends received by the Fund.
Substantially all of the net realized long-term capital gains of the Fund, if
any, will be distributed at least annually to the Fund's shareholders. The Fund
will generally have no tax liability with respect to such gains, and the
distributions will be taxable to such shareholders who are not currently exempt
from Federal income tax as long-term capital gains, regardless of how long the
shareholders have held the Fund's shares and whether such gains are received in
cash or reinvested in additional shares.
Each year, shareholders will be notified as to the amount and Federal tax status
of all dividends and capital gains paid during the prior year. Such dividends
and capital gains may also be subject to state and local taxes.
Dividends declared in October, November or December of any year payable to
shareholders of record on a specified date in such months will be deemed to have
been received by shareholders and paid by the Fund on December 31 of such year
in the event such dividends are actually paid during January of the following
year.
Federal law requires Nations Fund to withhold 31% from any dividends (other than
exempt-interest dividends) paid by Nations Fund and/or redemptions (including
exchange redemptions) that occur in certain shareholder accounts if the
shareholder has not properly furnished a certified correct Taxpayer
Identification Number and has not certified that withholding does not apply. If
the Internal Revenue Service has notified Nations Fund that the Taxpayer
Identification Number listed on a shareholder account is incorrect according to
its records, or that the shareholder is subject to backup withholding, the Fund
is required by the Internal Revenue Service to withhold 31% of any dividend
(other than exempt-interest dividends) and/or redemption (including exchange
redemptions). Amounts withheld are applied to the shareholder's Federal tax
liability, and a refund may be obtained from the Internal Revenue Service if
withholding results in overpayment of taxes. Federal law also requires the Fund
to withhold 30% or the applicable tax treaty rate from dividends paid to certain
nonresident alien, non-U.S. partnership and non-U.S. corporation shareholder
accounts.
The foregoing discussion is based on tax laws and regulations which were in
effect as of the date of this Prospectus and summarizes only some of the
important tax considerations generally affecting the Fund and its shareholders.
It is not intended as a substitute for careful tax planning. Accordingly,
potential investors should consult their tax advisors with specific reference to
their own tax situations. Further tax information is contained in the SAI.
Appendix A -- Portfolio Securities
The following are summary descriptions of certain types of instruments in which
the Fund may invest. The "How Objective Is Pursued" section of the Prospectus
identifies the Fund's permissible investments, and the SAI contains more
information concerning such investments.
BANK INSTRUMENTS: Bank instruments consist mainly of certificates of deposit,
time deposits and bankers' acceptances. The Fund will limit its investments in
bank obligations so they do not exceed 25% of the Fund's total assets at the
time of purchase.
BORROWINGS: When the Fund borrows money, the net asset value of a share may be
subject to greater fluctuation until the borrowing is paid off. The Fund may
borrow money from banks for temporary purposes in amounts of up to one-third of
its total assets, provided that borrowings in excess of 5% of the value of the
Fund's total assets must be repaid prior to the purchase of portfolio
securities. Under the requirements of the 1940 Act, the Fund is required to
maintain an asset coverage (including the proceeds of the borrowings) of at
least 300% of all borrowings.
COMMERCIAL INSTRUMENTS: Commercial instruments consist of short-term U.S.
dollar-denominated obligations issued by domestic corporations or foreign
corporations and foreign commercial banks. Investments by the Fund in commercial
paper will consist of issues rated in a manner consistent with the Fund's
investment policies and objective. In addition, the Fund may acquire unrated
commercial paper and corporate bonds that are
13
<PAGE>
determined by the Adviser at the time of purchase to be of comparable quality to
rated instruments that may be acquired by the Fund. Commercial instruments
include variable-rate master demand notes, which are unsecured instruments that
permit the indebtedness thereunder to vary and provide for periodic adjustments
in the interest rate, and variable- and floating-rate instruments.
CONVERTIBLE SECURITIES, PREFERRED STOCK, AND WARRANTS: The Fund may invest in
debt securities convertible into or exchangeable for equity securities,
preferred stocks or warrants. Preferred stocks are securities that represent an
ownership interest in a corporation providing the owner with claims on a
company's earnings and assets before common stock owners, but after bond or
other debt security owners. Warrants are options to buy a stated number of
shares of common stock at a specified price any time during the life of the
warrants.
FOREIGN CURRENCY TRANSACTIONS: The Fund may enter into foreign currency exchange
transactions to convert foreign currencies to and from the U.S. dollar. The Fund
either enters into these transactions on a spot (I.E., cash) basis at the spot
rate prevailing in the foreign currency exchange market, or uses forward
contracts to purchase or sell foreign currencies. A forward foreign currency
exchange contract is an obligation by the Fund to purchase or sell a specific
currency at a future date, which may be any fixed number of days from the date
of the contract.
Foreign currency hedging transactions are an attempt to protect the Fund against
changes in foreign currency exchange rates between the trade and settlement
dates of specific securities transactions or changes in foreign currency
exchange rates that would adversely affect a portfolio position or an
anticipated portfolio position. Although these transactions tend to minimize the
risk of loss due to a decline in the value of the hedged currency, at the same
time they tend to limit any potential gain that might be realized should the
value of the hedged currency increase. Neither spot transactions nor forward
foreign currency exchange contracts eliminate fluctuations in the prices of the
Fund's portfolio securities or in foreign exchange rates, or prevent loss if the
prices of these securities should decline.
FUTURES, OPTIONS AND OTHER DERIVATIVE INSTRUMENTS: The Fund may attempt to
reduce the overall level of investment risk of particular securities and attempt
to protect the Fund against adverse market movements by investing in futures,
options and other derivative instruments. These include the purchase and writing
of options on securities (including index options) and options on foreign
currencies, and investing in futures contracts for the purchase or sale of
instruments based on financial indices, including interest rate indices or
indices of U.S. or foreign government, equity or fixed income securities
("futures contracts"), options on futures contracts, forward contracts and swaps
and swap-related products such as interest rate swaps, currency swaps, caps,
collars and floors.
The use of futures, options, forward contracts and swaps exposes the Fund to
additional investment risks and transaction costs. If the Adviser incorrectly
analyzes market conditions or does not employ the appropriate strategy with
respect to these instruments, the Fund could be left in a less favorable
position. Additional risks inherent in the use of futures, options, forward
contracts and swaps include: imperfect correlation between the price of futures,
options and forward contracts and movements in the prices of the securities or
currencies being hedged; the possible absence of a liquid secondary market for
any particular instrument at any time; and the possible need to defer closing
out certain hedged positions to avoid adverse tax consequences. The Fund may not
purchase put and call options which are traded on a national stock exchange in
an amount exceeding 5% of its net assets. Further information on the use of
futures, options and other derivative instruments, and the associated risks, is
contained in the SAI.
ILLIQUID SECURITIES: Certain securities may be sold only pursuant to certain
legal restrictions, and may be difficult to sell. The Fund will not knowingly
invest more than 15% of the value of its net assets in securities that are
illiquid or such lower percentage as may be required by the states in which the
Fund sells its shares. Repurchase agreements, time deposits and guaranteed
investment contracts that do not provide for payment to the Fund within seven
days after notice, and illiquid restricted securities are subject to the
limitation on illiquid securities.
If otherwise consistent with its investment objective and policies, the Fund may
purchase securities which are not registered under the Securities Act of 1933,
as amended (the "1933 Act") but which can be sold to "qualified institutional
buyers" in accordance with Rule 144A or otherwise, 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 the Fund's Board of Trustees
or the Adviser, acting under guidelines approved and monitored by the Fund's
Board, after considering trading activity, availability of reliable price
information and other relevant information, that an adequate trading market
exists for that security. To the extent that, for a period of time, qualified
institutional 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.
MONEY MARKET INSTRUMENTS: The term "money market instruments" refers to
instruments with remaining maturities of one year or less. Money market
instruments may include, among other instruments, certain U.S. Treasury
obligations, U.S. Government obligations,
14
<PAGE>
bank instruments, commercial instruments, repurchase agreements and municipal
securities. Such instruments are described in this Appendix A.
OTHER INVESTMENT COMPANIES: The Fund may invest in securities issued by other
investment companies to the extent that such investments are consistent with the
Fund's investment objective and policies and permissible under the 1940 Act. As
a shareholder of another investment company, the Fund would bear, along with
other shareholders, its pro rata portion of the other investment company's
expenses, including advisory fees. These expenses would be in addition to the
advisory and other expenses that the Fund bears directly in connection with its
own operations.
REPURCHASE AGREEMENTS: A repurchase agreement involves the purchase of a
security by the Fund and a simultaneous agreement (generally with a bank or
broker/dealer) to repurchase that security from the Fund at a specified price
and date or upon demand. This technique offers a method of earning income on
idle cash. A risk associated with repurchase agreements is the failure of the
seller to repurchase the securities as agreed, which may cause the Fund to
suffer a loss if the market value of such securities declines before they can be
liquidated on the open market. Repurchase agreements with a duration of more
than seven days are considered illiquid securities and are subject to the limit
stated above. The Fund may enter into repurchase agreements jointly with other
investment portfolios of Nations Fund.
SECURITIES LENDING: To increase return on portfolio securities, the Fund may
lend its portfolio securities to broker/dealers and other institutional
investors pursuant to agreements requiring that the loans be continuously
secured by collateral equal at all times in value to at least the market value
of the securities loaned. There is a risk of delay in receiving collateral or in
recovering the securities loaned or even a loss of rights in the collateral
should the borrower of the securities fail financially. However, loans are made
only to borrowers deemed by the Adviser to be credit worthy and when, in its
judgment, the income to be earned from the loan justifies the attendant risks.
The aggregate of all outstanding loans of the Fund may not exceed 30% of the
value of its total assets.
STOCK INDEX, INTEREST RATE AND CURRENCY FUTURES CONTRACTS: The Fund may purchase
and sell futures contracts and related options with respect to non-U.S. stock
indices, non-U.S. interest rates and foreign currencies, that have been approved
by the CFTC for investment by U.S. investors, for the purpose of hedging against
changes in values of the Fund's securities or changes in the prevailing levels
of interest rates or currency exchange rates. The contracts entail certain
risks, including but not limited to the following: no assurance that futures
contracts transactions can be offset at favorable prices; possible reduction of
the Fund's total return due to the use of hedging; possible lack of liquidity
due to daily limits on price fluctuation; imperfect correlation between the
contracts and the securities or currencies being hedged; and potential losses in
excess of the amount invested in the futures contracts themselves.
Trading on foreign commodity exchanges presents additional risks. Unlike trading
on domestic commodity exchanges, trading on foreign commodity exchanges is not
regulated by the CFTC and may be subject to greater risks than trading on
domestic exchanges. For example, some foreign exchanges are principal markets
for which no common clearing facility exists and a trader may look only to the
broker for performance of the contract. In addition, unless the Fund hedges
against fluctuations in the exchange rate between the U.S. dollar and the
currencies in which trading is done on foreign exchanges, any profits that the
Fund might realize could be eliminated by adverse changes in the exchange rate,
or the Fund could incur losses as a result of those changes.
U.S. GOVERNMENT OBLIGATIONS: U.S. Government obligations consist of marketable
securities and instruments issued or guaranteed by the U.S. Government or any of
its agencies, authorities or instrumentalities. Direct obligations are issued by
the U.S. Treasury and include all U.S. Treasury instruments. 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 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 Association; 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.
WHEN-ISSUED, DELAYED DELIVERY AND FORWARD COMMITMENT SECURITIES: The purchase of
new issues of securities on a "when-issued," "delayed delivery" or "forward
commitment" basis occurs when the payment for and delivery of securities takes
place at a future date. Because actual payment for and delivery of such
securities generally take place 15 to 45 days after the purchase date,
purchasers of such securities bear the risk that interest rates on debt
securities at the time of delivery may be higher or lower than those contracted
for on the security purchased.
15
<PAGE>
Prospectus
INVESTOR A SHARES
JULY 31, 1996
This Prospectus describes the investment portfolios
listed in the column to the right (each a "Fund"
and collectively the "Money Market Funds") of
Nations Fund Trust and Nations Fund, Inc., each an
open-end management investment company in the
Nations Fund Family ("Nations Fund" or "Nations
Fund Family"). This Prospectus describes one class
of shares of each Money Market Fund -- Investor A
Shares.
EACH MONEY MARKET FUND SEEKS TO MAINTAIN A NET
ASSET VALUE OF $1.00 PER SHARE.
INVESTMENTS IN THE MONEY MARKET FUNDS ARE NEITHER
INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT AND
THERE CAN BE NO ASSURANCE THAT THE MONEY MARKET
FUNDS WILL BE ABLE TO MAINTAIN A STABLE NET ASSET
VALUE OF $1.00 PER SHARE.
This Prospectus sets forth concisely the
information about the Funds that a prospective
purchaser of Investor A Shares should consider
before investing. Investors should read this
Prospectus and retain it for future reference.
Additional information about Nations Fund Trust and
Nations Fund, Inc. is contained in separate
Statements of Additional Information (the "SAIs"),
that have been filed with the Securities and
Exchange Commission (the "SEC") and are available
upon request without charge by writing or calling
Nations Fund at its address or telephone number
shown below. The SAIs bear the same date as this
Prospectus and are incorporated by reference in
their entirety into this Prospectus. NationsBanc
Advisors, Inc. ("NBAI") is the investment adviser
to the Funds. TradeStreet Investment Associates,
Inc. ("TradeStreet") is sub-investment adviser to
the Funds. As used herein the "Adviser" shall mean
NBAI and/or TradeStreet as the context may require.
SHARES OF NATIONS FUND ARE NOT DEPOSITS OR OTHER
OBLIGATIONS OF, OR ISSUED, ENDORSED OR GUARANTEED
BY, NATIONSBANK, N.A. ("NATIONSBANK") OR ANY OF ITS
AFFILIATES. SUCH SHARES ARE NOT INSURED BY THE U.S.
GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER
GOVERNMENT AGENCY. AN INVESTMENT IN THE FUNDS
INVOLVES CERTAIN RISKS, INCLUDING POSSIBLE LOSS OF
PRINCIPAL.
NATIONSBANK AND CERTAIN OF ITS AFFILIATES PROVIDE
CERTAIN OTHER SERVICES TO NATIONS FUND, FOR WHICH
THEY ARE COMPENSATED. STEPHENS INC., WHICH IS NOT
AFFILIATED WITH NATIONSBANK, IS THE SPONSOR AND
ADMINISTRATOR AND SERVES AS THE DISTRIBUTOR FOR
NATIONS FUND.
THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
Nations Prime Fund
Nations Treasury Fund
Nations Government Money
Market Fund
Nations Tax Exempt Fund
For Fund information call:
1-800-321-7854
Nations Fund
c/o Stephens Inc.
One NationsBank Plaza
33rd Floor
Charlotte, NC 28255
(Nations Fund Logo appears here)
NF-96132-796
<PAGE>
Table Of Contents
About The Funds
Prospectus Summary 3
Expenses Summary 4
Financial Highlights 5
Objectives 8
How Objectives Are Pursued 9
How Performance Is Shown 12
How the Funds Are Managed 13
Organization And History 16
About Your Investment
How To Buy Shares 18
How To Redeem Shares 20
How To Exchange Shares 22
Shareholder Servicing And Distribution Plans 23
How The Funds Value Their Shares 24
How Dividends And Distributions Are Made; Tax
Information 25
Appendix A -- Portfolio Securities 27
Appendix B -- Description Of Ratings 34
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT
CONTAINED IN THIS PROSPECTUS, OR IN THE FUNDS' SAIS
INCORPORATED HEREIN BY REFERENCE, IN CONNECTION
WITH THE OFFERING MADE BY THIS PROSPECTUS AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY NATIONS FUND OR ITS DISTRIBUTOR. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFERING BY NATIONS FUND OR
BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE.
2
<PAGE>
About The Funds
Prospectus Summary
(Bullet) TYPE OF COMPANIES: Open-end management investment companies.
(Bullet) INVESTMENT OBJECTIVES AND POLICIES:
(Bullet) Nations Prime Fund's investment objective is to seek the
maximization of current income to the extent consistent with
the preservation of capital and the maintenance of liquidity.
(Bullet) Nations Treasury Fund's investment objective is the
maximization of current income to the extent
consistent with the preservation of capital and the
maintenance of liquidity.
(Bullet) Nations Government Money Market Fund's
investment objective is to seek as high a
level of current income as is consistent
with liquidity and stability of principal.
(Bullet) Nations Tax Exempt Fund's investment objective is
to seek as high a level of current interest
income exempt from Federal income taxes as is
consistent with liquidity and stability of
principal.
(Bullet) INVESTMENT ADVISER: NationsBanc Advisors, Inc. serves as the investment
adviser to the Funds. NBAI provides investment advice to more than 43
investment company portfolios in the Nations Fund Family. TradeStreet
Investment Associates, Inc. provides sub-advisory services to the
Funds. See "How The Funds Are Managed."
(Bullet) DIVIDENDS AND DISTRIBUTIONS: Nations Prime Fund, Nations Treasury Fund,
Nations Government Money Market Fund and Nations Tax Exempt Fund
declare dividends daily and pay them monthly. Each Fund's net realized
capital gains, including net short-term capital gains are distributed
at least annually.
(Bullet) RISK FACTORS: Although the Adviser seeks to achieve the investment
objective of each Fund, there is no assurance that it will be able to
do so. Although each Fund seeks to maintain a stable net asset value of
$1.00 per share, there is no assurance that it will be able to do so.
Investments in a Fund are not insured against loss of principal. For a
discussion of these and other factors, see "How Objectives Are
Pursued -- Risk Considerations" and "Appendix A -- Portfolio
Securities."
(Bullet) MINIMUM PURCHASE: $1,000 minimum initial investment per record holder
except that the minimum initial investment is: $500 for Individual
Retirement Account ("IRA") investors; $250 for non-working spousal
IRAs; and $100 for investors participating on a monthly basis in the
Systematic Investment Plan. There is no minimum investment amount for
investments by certain 401(k) and employee pension plans or salary
reduction -- Individual Retirement Accounts. The minimum subsequent
investment is $100, except for investments pursuant to the Systematic
Investment Plan. See "How To Buy Shares."
3
<PAGE>
Expenses Summary
Expenses are one of several factors to consider when investing in the Funds. The
following table summarizes shareholder transaction and operating expenses for
Investor A Shares of the Funds. The Examples show the cumulative expenses
attributable to a hypothetical $1,000 investment in the Funds over specified
periods.
<TABLE>
<CAPTION>
INVESTOR A SHARES
Nations
Nations Prime Nations Treasury Government Money
SHAREHOLDER TRANSACTION EXPENSES Fund Fund Market Fund
<S> <C> <C> <C>
Sales Load Imposed on Purchases None None None
Deferred Sales Charge None None None
Nations Tax
SHAREHOLDER TRANSACTION EXPENSES Exempt Fund
Sales Load Imposed on Purchases None
Deferred Sales Charge None
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
<TABLE>
<S> <C> <C> <C>
Management Fees (After Fee Waivers) .20% .20% .20%
Rule 12b-1 Fees (After Fee Waivers) .10% .10% .10%
Shareholder Servicing Fees .25% .25% .25%
Other Expenses (After Expense Reimbursements) .10% .10% .10%
Total Operating Expenses (After Fee Waivers and Expense
Reimbursements) .65% .65% .65%
Management Fees (After Fee Waivers) .20%
Rule 12b-1 Fees (After Fee Waivers) .0%
Shareholder Servicing Fees .25%
Other Expenses (After Expense Reimbursements) .10%
Total Operating Expenses (After Fee Waivers and Expense
Reimbursements) .55%
</TABLE>
EXAMPLES:
You would pay the following expenses on a $1,000 investment in Investor A Shares
of the indicated Fund, assuming (1) a 5% annual return and (2) redemption at the
end of each time period.
<TABLE>
<CAPTION>
Nations Treasury Nations Government
Nations Prime Fund Fund Money Market Fund
<S> <C> <C> <C>
1 Year $ 7 $ 7 $ 7
3 Years $ 21 $ 21 $ 21
5 Years $ 36 $ 36 $ 36
10 Years $ 81 $ 81 $ 81
Nations Tax Exempt
Fund
1 Year $ 6
3 Years $ 18
5 Years $ 31
10 Years $ 69
</TABLE>
The purpose of the foregoing table is to assist an investor in understanding the
various shareholder transaction and operating expenses that an investor in each
Fund will bear either directly or indirectly. Certain figures in the above table
are based on amounts incurred during each Fund's most recent fiscal year and
have been restated as necessary to reflect current service provider fees. There
is no assurance that any fee waivers and reimbursements will continue beyond the
current fiscal year. If fee waivers and/or reimbursements are discontinued, the
amounts contained in the "Examples" above may increase. For more complete
descriptions of the Funds' operating expenses, see "How The Funds Are Managed."
For a more complete description of the Rule 12b-1 and shareholder servicing fees
payable by the Funds, see "Shareholder Servicing And Distribution Plans."
Absent expense reimbursements, "Other Expenses" and "Total Operating Expenses"
for Investor A Shares of the indicated Fund would be as follows: Nations Prime
Fund -- .17% and .72%, respectively; and Nations Treasury Fund -- .17% and .72%,
respectively. Absent fee waivers and expense reimbursements, "Management Fees,"
"Other Expenses" and "Total Operating Expenses" for Nations Government Money
Market Fund would have been .40%, .19% and .94%, respectively. Absent fee
waivers and
4
<PAGE>
expense reimbursements, "Management Fees," "12b-1 Fees," "Other Expenses" and
"Total Operating Expenses" for Nations Tax Exempt Fund would have been .40%,
.10%, .18% and .93%, respectively.
THE FOREGOING SHOULD NOT BE CONSIDERED TO BE AN ACTUAL REPRESENTATION OF PAST OR
FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES AND RATES OF RETURN MAY BE
GREATER OR LESS THAN THOSE SHOWN.
Financial Highlights
The audited financial information on the following pages has been derived from
the financial statements of Nations Fund Trust and Nations Fund, Inc. Price
Waterhouse LLP is the independent accountant to Nations Fund Trust and Nations
Fund, Inc. The reports of Price Waterhouse LLP for the most recent fiscal years
of Nations Fund Trust and Nations Fund, Inc. accompany the financial statements
for such periods and are incorporated by reference in the SAIs, which are
available upon request. Shareholders of the Funds will receive unaudited
semi-annual reports describing the Funds' investment operations and annual
financial statements audited by the Funds' independent accountant.
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS PRIME FUND
<TABLE>
<CAPTION>
PERIOD YEAR YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED ENDED
INVESTOR A SHARES 03/31/96(a) 05/31/95 5/31/94 5/31/93 5/31/92 5/31/91*
<S> <C> <C> <C> <C> <C> <C>
Operating performance:
Net asset value,
beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Net investment income 0.0438 0.0475 0.0283 0.0293 0.0470 0.0617
Dividends from net
investment income (0.0438) (0.0475) (0.0283) (0.0293) (0.0470) (0.0617)
Total dividends and
distributions (0.0438) (0.0475) (0.0283) (0.0293) (0.0470) (0.0617)
Net asset value, end of
period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Total return++ 4.48% 4.85% 2.86% 2.97% 4.81%+++ 7.31%+++
Ratios to average net
assets/supplemental
data:
Net assets, end of
period (in 000's) $ 1,099,490 $ 698,358 $ 511,833 $ 306,376 $ 281,101 $ 144,202
Ratio of operating
expenses to average
net assets 0.65%+ 0.75% 0.65% 0.65% 0.65% 0.65%+
Ratio of net investment
income to average net
assets 5.27%+ 4.78% 2.85% 2.90% 4.67% 6.69%+
Ratio of operating
expenses to average
net assets without
waivers and/or expense
reimbursements 0.72%+ 0.83% 0.72% 0.71% 0.77% 0.79%+
Net investment income
per share without
waivers and/or expense
reimbursements $ 0.0433 $ 0.0467 $ 0.0276 $ 0.0287 $ 0.0458 $ 0.0603
</TABLE>
* Nations Prime Fund Investor A Shares commenced operations on July 16, 1990.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
May 31.
5
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS TREASURY FUND
<TABLE>
<CAPTION>
PERIOD YEAR YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED ENDED
INVESTOR A SHARES 03/31/96(a) 05/31/95 5/31/94 5/31/93 5/31/92 5/31/91*
<S> <C> <C> <C> <C> <C> <C>
Operating performance:
Net asset value,
beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Net investment income 0.0429 0.0457 0.0262 0.0272 0.0448 0.0592
Dividends from net
investment income (0.0429) (0.0457) (0.0262) (0.0272) (0.0448) (0.0592)
Distributions from net
realized capital gains (0.0000)# (0.0000)# -- -- -- --
Total dividends and
distributions (0.0429) (0.0457) (0.0262) (0.0272) (0.0448) (0.0592)
Net asset value, end of
period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Total return++ 4.36% 4.65% 2.67% 2.77% 4.57+++ 6.98%+++
Ratios to average net
assets/supplemental
data:
Net assets, end of
period (in 000's) $ 89,584 $ 107,475 $ 74,195 $ 105,828 $ 90,917 $ 37,265
Ratio of operating
expenses to average
net assets 0.65%+ 0.67% 0.65% 0.65% 0.64% 0.61%+
Ratio of net investment
income to average net
assets 5.17%+ 4.62% 2.62% 2.67% 4.47% 6.53%+
Ratio of operating
expenses to average
net assets without
waivers and/or expense
reimbursements 0.72%+ 0.72% 0.71% 0.71% 0.76% 0.83%+
Net investment income
per share without
waivers and/or expense
reimbursements $ 0.0424 $ 0.0452 $ 0.0257 $ 0.0266 $ 0.0435 $ 0.0570
</TABLE>
* Nations Treasury Fund Investor A Shares commenced operations on July 16,
1990.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# Amount represents less than $0.0001.
6
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS GOVERNMENT MONEY MARKET FUND
<TABLE>
<CAPTION>
PERIOD YEAR YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED ENDED
INVESTOR A SHARES 03/31/96(a) 11/30/95 11/30/94 11/30/93 11/30/92 11/30/91*
<S> <C> <C> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of
period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Net investment income 0.0162 0.0522 0.0340 0.0256 0.0358 0.0571
Distributions:
Dividends from net investment income (0.0162) (0.0522) (0.0340) (0.0256) (0.0358) (0.0571)
Dividends from net realized capital
gains -- -- (0.0000)# -- -- --
Total dividends and distributions (0.0162) (0.0522) (0.0340) (0.0256) (0.0358) (0.0571)
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Total return++ 1.62% 5.34% 3.45% 2.60% 3.63%+++ 5.86%+++
Ratios to average net
assets/supplemental data:
Net assets, end of period (in 000's) $ 48,742 $ 26,175 $ 20,173 $ 10,499 $ 13,851 $ 8,949
Ratio of operating expenses to
average net assets 0.65%+ 0.65% 0.65% 0.61% 0.42% 0.43%+
Ratio of net investment income to
average net assets 4.85%+ 5.23% 3.44% 2.60% 3.55% 5.49%+
Ratio of operating expenses to
average net assets without waivers 0.94%+ 0.92% 0.94% 0.87% 0.58% 0.62% +
Net investment income per share
without waivers and/or expense
reimbursements $ 0.0152 $ 0.0495 $ 0.0311 $ 0.0231 $ 0.0341 $ 0.0551
</TABLE>
* Nations Government Money Market Fund Investor A Shares commenced operations
on February 11, 1991.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# Amount represents less than $0.0001 per share.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
7
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS TAX EXEMPT FUND
<TABLE>
<CAPTION>
PERIOD YEAR YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED ENDED
INVESTOR A SHARES 03/31/96(a) 11/30/95 11/30/94 11/30/93 11/30/92 11/30/91*
<S> <C> <C> <C> <C> <C> <C>
Operating performance:
Net asset value,
beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Net investment income 0.0104 0.0335 0.0231 0.0198 0.0266 0.0422
Dividends from net
investment income (0.0104) (0.0335) (0.0231) (0.0198) (0.0266) (0.0422)
Total dividends and
distributions (0.0104) (0.0335) (0.0231) (0.0198) (0.0266) (0.0422)
Net asset value, end of
period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Total return++ 1.04% 3.40% 2.36% 2.00% 2.68%+++ 4.30%+++
Ratios to average net
assets/supplemental
data:
Net assets, end of
period (in 000's) $ 128,414 $ 126,207 $ 151,714 $ 119,552 $ 80,158 $ 1,690
Ratio of operating
expenses to average
net assets 0.55%+ 0.55% 0.52% 0.48% 0.55% 0.42%+
Ratio of net investment
income to average net
assets 3.10%+ 3.37% 2.34% 1.98% 2.50% 4.23%+
Ratio of operating
expenses to average
net assets without
waivers and/or expense
reimbursements 0.83%+ 0.82% 0.84% 0.84% 0.72% 0.60%+
Net investment income
per share without
waivers and/or expense
reimbursements $ 0.0095 $ 0.0309 $ 0.0199 $ 0.0162 $ 0.0248 $ 0.0404
</TABLE>
* Nations Tax Exempt Fund Investor A Shares commenced operations on April 5,
1991.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
Objectives
Each Money Market Fund endeavors to achieve its investment objective by
investing in a diversified portfolio of high quality money market instruments
with maturities of 397 days or less from the date of purchase. Securities
subject to repurchase agreements may bear longer maturities.
NATIONS PRIME FUND: Nations Prime Fund's investment objective is to seek the
maximization of current income to the extent consistent with the preservation of
capital and the maintenance of liquidity.
NATIONS TREASURY FUND: Nations Treasury Fund's investment objective is the
maximization
8
<PAGE>
of current income to the extent consistent with the preservation of capital and
the maintenance of liquidity.
NATIONS GOVERNMENT MONEY MARKET FUND: Nations Government Money Market Fund's
investment objective is to seek as high a level of
current income as is consistent with liquidity and stability of principal.
NATIONS TAX EXEMPT FUND: Nations Tax Exempt Fund's investment objective is to
seek as high a level of current interest income exempt from Federal income taxes
as is consistent with liquidity and stability of principal.
How Objectives Are Pursued
NATIONS PRIME FUND: In pursuing its investment objective, the Fund may invest in
U.S. Treasury bills, notes and bonds and other instruments issued directly by
the U.S. Government ("U.S. Treasury Obligations"), other obligations issued or
guaranteed as to payment of principal and interest by the U.S. Government, its
agencies or instrumentalities (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 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
9
<PAGE>
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."
10
<PAGE>
RISK CONSIDERATIONS: Although the Adviser seeks to achieve the investment
objective of each Fund, there is no assurance that it will be able to do so. No
single Fund should be considered, by itself, to provide a complete investment
program for any investor. Investments in a Fund are not insured against loss of
principal. For additional risk information regarding the Funds' investment in
particular instruments, see "Appendix A."
INVESTMENT LIMITATIONS: The Funds are subject to a number of investment
limitations. The following investment limitations are matters of fundamental
policy and may not be changed with respect to a particular Fund without the
affirmative vote of the holders of a majority of that Fund's outstanding shares.
Other investment limitations that cannot be changed without such a vote of
shareholders are described in the Funds' SAIs.
Each Fund may not:
1. Purchase any securities which would cause 25% or more of the value of the
Fund's total assets at the time of such purchase to be invested in the
securities of one or more issuers conducting their principal activities in the
same industry. (For purposes of this limitation, U.S. Government securities and
tax-exempt securities issued by state or municipal governments and their
political subdivisions are not considered members of any industry. In addition,
this limitation does not apply to investments in obligations of domestic banks.)
2. Make loans, except that a Fund may purchase and hold debt instruments
(whether such instruments are part of a public offering or are privately
placed), may enter into repurchase agreements and may lend portfolio securities
in accordance with its investment policies.
3. Purchase securities of any one issuer (other than securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities) if,
immediately after such purchase, more than 5% of the value of such Fund's total
assets would be invested in the securities of such issuer, except that up to 25%
of the value of such Fund's total assets may be invested without regard to these
limitations and with respect to 75% of such Fund's assets, such Fund will not
hold more than 10% of the voting securities of any issuer.
In addition, as a matter of non-fundamental policy, the Nations Tax Exempt Fund
may not purchase any securities other than obligations the interest on which is
exempt from Federal income tax and stand-by commitments with respect to such
obligations. The investment objectives and policies of the Funds, unless
otherwise specified, may be changed without shareholder approval. If the
investment objective or policies of a Fund change, shareholders should consider
whether the Fund remains an appropriate investment in light of their then
current position and needs.
In order to register a Fund's shares for sale in certain states, a Fund may make
commitments more restrictive than the investment policies and limitations
described in this Prospectus and the SAIs. Should a Fund determine that any such
commitment is no longer in its best interests, it may consider terminating sales
of its shares in the states involved.
RESTRAINTS ON INVESTMENTS BY MONEY MARKET FUNDS: In order for the Funds to value
their investments on the basis of amortized cost (see "How The Funds Value Their
Shares"), investments must be in accordance with the requirements of Rule 2a-7
under the Investment Company Act of 1940, as amended (the "1940 Act"), some of
which are described below. A Money Market Fund is limited to acquiring
obligations with a remaining maturity of 397 days or less, or obligations with
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
11
<PAGE>
denominated instruments determined to present minimal credit risks and that, at
the time of acquisition, are rated in the first or second rating categories
(known as "first tier" and "second tier" securities, respectively) by the
required number of NRSROs (at least two or, if only one NRSRO has rated the
security, that one NRSRO) or, if unrated by any NRSRO, are (i) comparable in
priority and security to a class of short-term securities of the same issuer
that has the required rating, or (ii) determined to be comparable in quality to
securities having the required rating. The diversification requirements provide
generally that a Money Market Fund may not at the time of acquisition invest
more than 5% of its assets in securities of any one issuer except that up to 25%
of total assets may be invested in the first tier securities of a single issuer
for three business days. Additionally, (except for Nations Tax Exempt Fund) no
more than 5% of total assets may be invested, at the time of acquisition, in
second tier securities in the aggregate, and any investment in second tier
securities of one issuer is limited to the greater of 1% of total assets or one
million dollars. Securities issued by the U.S. Government, its agencies,
authorities or instrumentalities are exempt from the quality requirements, other
than minimal credit risk. In the event that a Fund's investment restrictions or
permissible investments are more restrictive than the requirements of Rule 2a-7,
the Fund's own restrictions will govern.
How Performance Is Shown
From time to time, a Fund may advertise the "yield" and "effective yield" of a
class of shares, and Nations Tax Exempt Fund may advertise the "tax equivalent
yield" of a class of shares. YIELD, EFFECTIVE YIELD AND TAX-EQUIVALENT YIELD
FIGURES ARE BASED ON HISTORICAL DATA AND ARE NOT INTENDED TO INDICATE FUTURE
PERFORMANCE.
The "yield" of a class of shares in a Fund refers to the income generated by an
investment in such class over a seven-day period identified in the
advertisement. This income is then "annualized." That is, the amount of income
generated by the investment during that week is assumed to be generated each
week over a 52-week period and is shown as a percentage of the investment. The
"effective yield" is calculated similarly, but, when annualized, the income
earned by an investment in a class of shares in a Fund is assumed to be
reinvested. The "effective yield" will be slightly higher than the "yield"
because of the compounding effect of this assumed reinvestment. The
"tax-equivalent yield" of each class of shares in Nations Tax Exempt Fund shows
the level of taxable yield needed to produce an after-tax equivalent to such
class's tax-free yield. This is done by increasing the class's yield (calculated
as above) by the amount necessary to reflect the payment of Federal income tax
at a stated tax rate. The tax-equivalent yield will always be higher than the
"yield" of a class of shares in Nations Tax Exempt Fund.
Since yields fluctuate, yield data cannot necessarily be used to compare an
investment in the Funds with bank deposits, savings accounts and similar
investment alternatives which often provide an agreed-upon or guaranteed fixed
yield for a stated period of time. Any fees charged by selling agents and/or
servicing agents to their customers' accounts for automatic investment or other
cash management services will not be included in calculations of yield.
In addition to Investor A Shares, the Funds offer Primary A, Primary B, Investor
B, Investor C and Investor D Shares. Each class of shares may bear different
sales charges, shareholder servicing fees and other expenses, which may cause
the performance of a class to differ from the performance of the other classes.
Performance quotations will be computed separately for each class of the Funds'
shares. The Funds' annual report contains additional performance information and
is available upon request without charge from the Funds' distributor or an
investor's Agent (as defined below).
12
<PAGE>
How The Funds Are Managed
The business and affairs of each of Nations Fund Trust and Nations Fund, Inc.
are managed under the direction of its Board of Trustees and Board of Directors,
respectively. Nations Fund Trust's SAI contains the names of and general
background information concerning each Trustee of Nations Fund Trust. Nations
Fund, Inc.'s SAI contains the names of and general background information
concerning each Director of Nations Fund, Inc.
Nations Fund and the Adviser have adopted codes of ethics which contain policies
on personal securities transactions by "access persons," including portfolio
managers and investment analysts. These policies substantially comply in all
material respects with the recommendations set forth in the May 9, 1994 Report
of the Advisory Group on Personal Investing of the Investment Company Institute.
INVESTMENT ADVISER: NationsBanc Advisors, Inc. serves as investment adviser to
the Funds. NBAI is a wholly owned subsidiary of NationsBank, which in turn is a
wholly owned subsidiary of NationsBank Corporation, a bank holding company
organized as a North Carolina corporation. NBAI has its principal offices at One
NationsBank Plaza, Charlotte, North Carolina 28255.
TradeStreet Investment Associates, Inc., with principal offices at One
NationsBank Plaza, Charlotte, North Carolina 28255, serves as sub-investment
adviser to the Funds. TradeStreet is a wholly owned subsidiary of NationsBank.
TradeStreet provides investment management services to individuals, corporations
and institutions.
Subject to the general supervision of Nations Fund Trust's Board of Trustees and
Nations Fund, Inc.'s Board of Directors, and in accordance with each Fund's
investment policies, the Adviser formulates guidelines and lists of approved
investments for each Fund, makes decisions with respect to and places orders for
each Fund's purchases and sales of portfolio securities and maintains records
relating to such purchases and sales. With respect to Nations Tax Exempt Fund,
the Adviser is authorized to allocate purchase and sale orders for portfolio
securities to certain financial institutions, including, in the case of agency
transactions, financial institutions which are affiliated with the Adviser or
which have sold shares in such Fund, if the Adviser believes that the quality of
the transaction and the commission are comparable to what they would be with
other qualified brokerage firms. From time to time, to the extent consistent
with its investment objective, policies and restrictions, each Fund may invest
in securities of companies with which NationsBank has a lending relationship.
For the services provided and expenses assumed pursuant to various Investment
Advisory Agreements, NBAI is entitled to receive advisory fees, computed daily
and paid monthly, at the annual rates of: 0.25% of the first $250 million of the
combined average daily net assets of both Nations Prime Fund and Nations
Treasury Fund, plus 0.20% of the combined average daily net assets of such Funds
in excess of $250 million; and 0.40% of the average daily net assets of each of
Nations Government Money Market Fund and Nations Tax Exempt Fund.
For the services provided and expenses assumed pursuant to sub-advisory
agreements, NBAI will pay TradeStreet sub-advisory fees, computed daily and paid
monthly, at the annual rate of 0.055% of the average daily net assets of each
Fund.
From time to time, NBAI (and/or TradeStreet) may waive or reimburse (either
voluntarily or pursuant to applicable state limitations) advi-
13
<PAGE>
sory fees and/or expenses payable by a Fund. In addition, the Adviser may from
time to time compensate Agents, as defined below, for providing certain services
to customers.
For the fiscal period from December 1, 1995 to December 31, 1995, after waivers,
Nations Fund Trust paid NationsBank under a prior Investment Advisory Agreement
advisory fees at the indicated rates of the following Funds' average daily net
assets: Nations Government Money Market Fund -- 0.12%; and Nations Tax Exempt
Fund -- 0.13%.
For the fiscal period from June 1, 1995 to December 31, 1995, after waivers,
Nations Fund, Inc. paid NationsBank under a prior Investment Advisory Agreement
advisory fees at the rate of 0.18% of the average daily net assets of Nations
Prime Fund and Nations Treasury Fund.
For the fiscal period from January 1, 1996 to March 31, 1996, after waivers,
Nations Fund Trust paid NBAI under the current Investment Advisory Agreement
advisory fees at the indicated rates of the following Funds' average daily net
assets: Nations Government Money Market Fund -- 0.12%; and Nations Tax Exempt
Fund -- 0.13%.
For the fiscal period from January 1, 1996 to March 31, 1996, after waivers,
Nations Fund, Inc. paid NBAI under the current Investment Advisory Agreement
advisory fees at the rate of 0.18% of the average daily net assets of Nations
Prime Fund and Nations Treasury Fund.
For the fiscal period from January 1, 1996 to March 31, 1996, after waivers,
NBAI paid TradeStreet under the current Sub-Advisory Agreement sub-advisory fees
at the rate of 0.055% of the average daily net assets of Nations Government
Money Market Fund, Nations Tax Exempt Fund, Nations Prime Fund and Nations
Treasury Fund.
Melinda Allen Crosby is a Product Manager, Municipal Fixed Income Management for
TradeStreet and is Portfolio Manager for Nations Tax Exempt Fund. She has been
Portfolio Manager for Nations Tax Exempt Fund since 1991. 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
Analysis.
Sandra L. Duck is a Product Manager, Money Market Management for TradeStreet and
is Portfolio Manager for Nations Treasury Fund and Nations Government Money
Market Fund. She has been Portfolio Manager for the Funds since 1993. Prior to
assuming her position with TradeStreet, she was Vice President and Portfolio
Manager for the Investment Management Group at NationsBank. Ms. Duck has worked
in the investment community since 1980. Her past experience includes product
management and trading for Interstate/Johnson Lane and First Charlotte
Corporation. Ms. Duck graduated from King's College.
Martha L. Sherman is a Senior Product Manager, Money Market Management for
TradeStreet and is Senior Portfolio Manager for Nations Prime Fund. She has been
Portfolio Manager for Nations Prime Fund since 1988. Prior to assuming her
position with TradeStreet, she was Vice President and Senior Portfolio Manager
for the Investment Management Group at NationsBank. Ms. Sherman has worked in
the investment community since 1981. Her past
14
<PAGE>
experience includes investment research for William Lowry & Associates. Ms.
Sherman received a B.S. in Business Administration from the University of Texas
at Dallas.
Morrison & Foerster LLP, counsel to Nations Fund and special counsel to
NationsBank, has advised Nations Fund and NationsBank that NationsBank and its
affiliates may perform the services contemplated by the Investment Advisory
Agreements and this Prospectus without violation of the Glass-Steagall Act. Such
counsel has pointed out, however, that there are no controlling judicial or
administrative interpretations or decisions and that future judicial or
administrative interpretations of, or decisions relating to, present federal or
state statutes, including the Glass-Steagall Act, and regulations relating to
the permissible activities of banks and their subsidiaries or affiliates, as
well as future changes in such statutes, regulations and judicial or
administrative decisions or interpretations, could prevent such entities from
continuing to perform, in whole or in part, such services. If any such entity
were prohibited from performing any such services, it is expected that new
agreements would be proposed or entered into with another entity or entities
qualified to perform such services.
OTHER SERVICE PROVIDERS: Stephens Inc. ("Stephens"), with principal offices at
111 Center Street, Little Rock, Arkansas 72201, serves as the administrator of
Nations Fund pursuant to Administration Agreements. Pursuant to the terms of the
Administration Agreements, Stephens provides various administrative and
corporate secretarial services to the Funds, including providing general
oversight of other service providers, office space, utilities and various legal
and administrative services in connection with the satisfaction of various
regulatory requirements applicable to the Funds.
First Data Investor Services Group, Inc. ("First Data"), formerly The
Shareholder Services Group, Inc., a wholly owned subsidiary of First Data
Corporation, with principal offices at One Exchange Place, Boston, Massachusetts
02109, serves as the co-administrator of the Funds pursuant to Co-Administration
Agreements. Under the Co-Administration Agreements, First Data provides various
administrative and accounting services to the Funds, including performing
calculations necessary to determine net asset values and dividends, preparing
tax returns and financial statements and maintaining the portfolio records and
certain general accounting records for the Funds. For the services rendered
pursuant to the Administration and Co-Administration Agreements, Stephens and
First Data are entitled to receive a combined fee at the annual rate of up to
0.10% of each Fund's average daily net assets.
For the fiscal period from December 1, 1995 to March 31, 1996, after waivers,
Nations Fund Trust paid its administrators combined fees at the rate of 0.09% of
the average daily net assets of Nations Government Money Market Fund and Nations
Tax Exempt Fund.
For the fiscal period from June 1, 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 is entitled to receive a monthly fee from
Stephens based on an annual rate of 0.01% of the Funds' average daily net
assets.
Shares of the Funds are sold on a continuous basis by Stephens, as the Funds'
sponsor and distributor. Stephens is a registered broker/dealer with principal
offices at 111 Center Street, Little Rock, Arkansas 72201. Nations
15
<PAGE>
Fund has entered into a distribution agreement with Stephens that provides that
Stephens has the exclusive right to distribute shares of the Funds. Stephens may
pay service fees or commissions to selling agents that assist customers in
purchasing Investor A Shares of the Funds. See "Shareholder Servicing And
Distribution Plans."
NationsBank of Texas, N.A., serves as each Fund's custodian (the "Custodian").
The Custodian is located at 1401 Elm Street, Dallas, Texas 75202 and is a wholly
owned subsidiary of NationsBank Corporation. In return for providing custodial
services, the Custodian is entitled to receive, in addition to out-of-pocket
expenses, fees payable monthly (i) at the rate of 1.25% of 1% of the average
daily net assets of each Fund, (ii) $10.00 per repurchase collateral transaction
by the Funds, and (iii) $15.00 per purchase, sale and maturity transaction
involving the Funds.
First Data serves as transfer agent (the "Transfer Agent") for each Fund's
Investor A Shares. The Transfer Agent is located at One Exchange Place, Boston,
Massachusetts 02109.
Price Waterhouse LLP serves as independent accountant to Nations Fund. Its
address is 160 Federal Street, Boston, Massachusetts 02110.
EXPENSES: The accrued expenses of each Fund, as well as certain expenses
attributable to Investor A Shares, are deducted from accrued income before
dividends are declared. The Funds' expenses include, but are not limited to:
fees paid to the Adviser, NationsBank, Stephens and First Data; interest;
Directors' or Trustees' fees; federal and state securities registration and
qualification fees; brokerage fees and commissions; costs of preparing and
printing prospectuses for regulatory purposes and for distribution to existing
shareholders; charges of the Custodian and Transfer Agent; certain insurance
premiums; outside auditing and legal expenses; costs of shareholder reports and
shareholder meetings; other expenses which are not expressly assumed by the
Adviser, NationsBank, Stephens or First Data under their respective agreements
with Nations Fund; and any extraordinary expenses. Investor A Shares may bear
certain class specific retail transfer agency expenses and also bear certain
additional shareholder service and distribution costs. Any general expenses of
Nations Fund Trust and/or of Nations Fund, Inc. that are not readily
identifiable as belonging to a particular investment portfolio are allocated
among all portfolios in the proportion that the assets of a portfolio bears to
the assets of Nations Fund Trust or of Nations Fund, Inc. or in such other
manner as the Board of Trustees or Board of Directors deems appropriate.
Organization And History
The Funds are members of the Nations Fund Family, which consists of Nations Fund
Trust, Nations Fund, Inc., Nations Fund Portfolios, Inc. and Nations
Institutional Reserves. The Nations Fund Family currently has more than 43
distinct investment portfolios and total assets in excess of $18 billion.
NATIONS FUND TRUST: Nations Fund Trust was organized as a Massachusetts business
trust on May 6, 1985. Nations Fund Trust's fiscal year end is March 31; prior to
1996, Nations Fund Trust's fiscal year end was November 30. The Funds currently
offer six classes of shares -- Primary A Shares, Primary B Shares, Investor A
Shares, Investor B Shares, Investor C Shares and Investor D Shares. This
Prospectus relates only to the Investor A Shares of Nations Government Money
Market Fund and Nations Tax Exempt Fund of Nations Fund Trust. To obtain
additional information regarding the Funds' other classes of shares which may be
available to
16
<PAGE>
you, contact your Agent (as defined below) or Nations Fund at 1-800-321-7854.
Each share of Nations Fund Trust is without par value, represents an equal
proportionate interest in the related fund with other shares of the same class,
and is entitled to such dividends and distributions out of the income earned on
the assets belonging to such fund as are declared in the discretion of Nations
Fund Trust's Board of Trustees. Nations Fund Trust's Declaration of Trust
authorizes the Board of Trustees to classify or reclassify any class of shares
into one or more series of shares.
Shareholders are entitled to one vote for each full share held and a
proportionate fractional vote for each fractional share held. Shareholders of
each fund of Nations Fund Trust will vote in the aggregate and not by fund, and
shareholders of a fund will vote in the aggregate and not by class except as
otherwise expressly required by law or when the Board of Trustees determines
that the matter to be voted on affects only the interests of shareholders of a
particular fund or class. See Nations Fund Trust's SAI for examples of instances
where the 1940 Act requires voting by fund.
As of July 15, 1996, NationsBank and its affiliates possessed or shared power to
dispose or vote with respect to more than 25% of the outstanding shares of
Nations Fund Trust and therefore could be considered to be a controlling person
of Nations Fund Trust for purposes of the 1940 Act. For more detailed
information concerning the percentage of each class or series of shares over
which NationsBank and its affiliates possessed or shared power to dispose or
vote as of a certain date, see Nations Fund Trust's SAI.
Nations Fund Trust does not presently intend to hold annual meetings except as
required by the 1940 Act. Shareholders will have the right to remove Trustees.
Nations Fund Trust's Code of Regulations provides that special meetings of
shareholders shall be called at the written request of the shareholders entitled
to vote at least 10% of the outstanding shares of Nations Fund Trust entitled to
be voted at such meeting.
NATIONS FUND, INC. Nations Fund, Inc. was incorporated in Maryland on December
13, 1983, but had no operations prior to December 15, 1986. Nations Fund, Inc.'s
fiscal year end is March 31; prior to 1996, Nations Fund, Inc.'s fiscal year end
was May 31. As of the date of this Prospectus, the authorized capital stock of
Nations Fund, Inc. consists of 270,000,000,000 shares of common stock, par value
of $.001 per share, which are divided into series or portfolios, each of which
consists of separate classes of shares. This Prospectus relates only to the
Investor A Shares of Nations Prime Fund and Nations Treasury Fund of Nations
Fund, Inc. To obtain additional information regarding the Funds' other classes
of shares which may be available to you, contact your Agent (as defined below)
or Nations Fund at 1-800-321-7854.
Shares of each fund and class have equal rights with respect to voting, except
that the holders of shares of a particular fund or class will have the exclusive
right to vote on matters affecting only the rights of the holders of such fund
or class. In the event of dissolution or liquidation, holders of each class will
receive pro rata, subject to the rights of creditors, (a) the proceeds of the
sale of that portion of the assets allocated to that class held in the
respective fund of Nations Fund, Inc., less (b) the liabilities of Nations Fund,
Inc. attributable to the respective fund or class or allocated among the funds
or classes based on the respective liquidation value of each fund or class.
Shareholders of Nations Fund, Inc. do not have cumulative voting rights, and
therefore the holders of more than 50% of the outstanding shares of all funds
voting together for election of Directors may elect all of the members of the
Board of Directors of Nations Fund, Inc. Meetings of shareholders may be called
upon the request of 10% or more of Nations Fund, Inc.'s outstanding
17
<PAGE>
shares. There are no preemptive rights applicable to any of Nations Fund, Inc.'s
shares. Nations Fund, Inc.'s shares, when issued, will be fully paid and
non-assessable.
As of July 15, 1996, NationsBank and its affiliates possessed or shared power to
dispose of or vote with respect to more than 25% of the outstanding shares of
Nations Fund, Inc. and therefore could be considered to be a controlling person
of Nations Fund, Inc. for purposes of the 1940 Act. For more detailed
information concerning the percentage of each class or series over which
NationsBank and its affiliates possessed or shared power to dispose or vote as
of a certain date, see Nations Fund, Inc.'s SAI. It is anticipated that Nations
Fund, Inc. will not hold annual shareholder meetings, except when required by
the 1940 Act or Maryland law.
Because this Prospectus combines disclosure on two separate investment
companies, there is a possibility that one investment company could become
liable for a misstatement, inaccuracy or incomplete disclosure in this
Prospectus concerning the other investment company. Nations Fund Trust and
Nations Fund, Inc. have entered into an indemnification agreement that creates a
right of indemnification from the investment company responsible for any such
misstatement, inaccuracy or incomplete disclosure that may appear in this
Prospectus.
About Your Investment
How To Buy Shares
The Funds have established various procedures for purchasing Investor A Shares
in order to accommodate different investors. Purchase orders for Investor A
Shares may be placed directly with a Fund or through banks, broker/dealers or
other financial institutions (including certain affiliates of NationsBank) that
have entered into a shareholder servicing agreement ("Servicing Agreement") with
Nations Fund ("Servicing Agents") and/or a sales support agreement ("Sales
Support Agreement") with Stephens ("Selling Agents"). Servicing Agents and
Selling Agents are sometimes referred to hereafter as "Agents."
In addition, Investor A Shares may be purchased through a Nations Fund Personal
Investment Planner account, which is a managed agency/asset allocation account
established with NBAI (an "Account"). Investments through an Account are
governed by the terms and conditions of the Account, which are set forth in the
Client Agreement and Disclosure Statement provided by NBAI to each investor who
establishes an Account. Because of the nature of the Account, certain of the
features described in this Prospectus are not available to investors purchasing
Investor A Shares through an Account. Potential investors through an Account
should refer to the Client Agreement and Disclosure Statement for more
information regarding the Account, including information regarding the fees and
expenses charged in connection with an Account.
There is a minimum initial investment of $1,000 in the Funds, except that the
minimum initial investment is:
(Bullet) $500 for IRA investors;
(Bullet) $250 for non-working spousal IRAs; and
18
<PAGE>
(Bullet) $100 for investors participating on a monthly basis in the Systematic
Investment Plan described below.
There is no minimum investment amount for investments by 401(k) plans,
simplified employee pension plans ("SEPs"), salary reduction-simplified employee
pension plans ("SAR-SEPs") or salary reduction-Individual Retirement Accounts
("SAR-IRAs"). However, the assets of such plans must reach an asset value of
$1,000 ($500 for SEPs, SAR-SEPs and SAR-IRAs) within one year of the account
open date. If the assets of such plans do not reach the minimum asset size
within one year, Nations Fund reserves the right to redeem the shares held by
such plans on 60 days' written notice. The minimum subsequent investment is
$100, except for investments pursuant to the Systematic Investment Plan
described below.
Investor A Shares of the Money Market Funds are purchased at net asset value per
share without the imposition of a sales charge. Purchases may be effected only
on days on which the Federal Reserve Bank of New York is open for business (a
"Business Day").
Nations Fund and Stephens reserve the right to reject any purchase order. The
issuance of Investor A Shares is recorded on the books of the Funds, and share
certificates are not issued unless expressly requested in writing. Certificates
are not issued for fractional shares.
OPENING AN ACCOUNT DIRECTLY WITH A FUND: Investors may open a regular
(non-retirement) account directly with a Fund, either by mail or by wire.
BY MAIL: Investors should complete a New Account Application and forward it,
along with a check made payable to the Fund, to:
Nations Fund
P.O. Box 34602
Charlotte, NC 28254-4602
BY WIRE: Investors should call Investor Services at 1-800-982-2271 for an
account number and use the following wire instructions:
Nations Fund
c/o Boston Safe Deposit & Trust
ABA #011001234
DDA #154202
Account Name
Account Number
Fund Name
Investors should complete a New Account Application and mail it to the address
above.
RETIREMENT ACCOUNTS: For IRAs and other retirement accounts, investors should
call Investor Services at 1-800-982-2271.
ADDITIONAL PURCHASES: Additional purchases may be made by mail or wire. To
purchase additional shares by mail, send a check made payable to the Fund which
identifies the name of the Fund and class of shares and include a reinvestment
slip to the address set forth above. To purchase additional shares by wire,
follow the wiring instructions set forth above.
EFFECTIVE TIME OF PURCHASES: 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
19
<PAGE>
on the following Business Day. If federal funds are not available by 4:00 p.m.,
Eastern time, the order will be canceled. Investor A Shares are purchased at the
net asset value per share next determined after receipt of the order by Stephens
or by the Transfer Agent.
The Agents are responsible for transmitting orders for purchases by their
customers ("Customers") and delivering required funds on a timely basis.
Stephens is responsible for transmitting orders it receives to Nations Fund.
SYSTEMATIC INVESTMENT PLAN: Under the Funds' Systematic Investment Plan ("SIP")
a shareholder may automatically purchase Investor A Shares. On a bi-monthly,
monthly or quarterly basis, a shareholder may direct cash to be transferred
automatically from his/her checking or savings account at any bank which is a
member of the Automated Clearing House to his/her Fund account. Transfers will
occur on or about the 15th and/or 30th day of the applicable month. The
systematic investment amount may be in any amount from $25 to $100,000. For more
information concerning the SIP, contact your Agent or Investor Services.
TELEPHONE TRANSACTIONS: Investors may effect purchases, redemptions (up to
$50,000) and exchanges by telephone. See "How To Redeem Shares" and "How To
Exchange Shares" below. Shareholders should be aware that by using the telephone
transaction feature such shareholders may be giving up a measure of security
that they may have if they were to authorize written requests only. A
shareholder may bear the risk of any resulting losses from a telephone
transaction. Nations Fund will employ reasonable procedures to confirm that
instructions communicated by telephone are genuine, and if Nations Fund and its
service providers fail to employ such measures, they may be liable for any
losses due to unauthorized or fraudulent instructions. Nations Fund requires a
form of personal identification prior to acting upon instructions received by
telephone and provides written confirmation to shareholders of each telephone
share transaction. In addition, Nations Fund reserves the right to record all
telephone conversations.
How To Redeem Shares
For shareholders who open and maintain an account directly with a Fund,
redemption orders should be communicated to such Fund by calling Investor
Services at 1-800-982-2271 or in writing. (Shareholders must have established
telephone features on their account in order to effect telephone transactions.)
For shareholders who purchased their shares through an Agent, redemption orders
should be transmitted by telephone or in writing through the same Agent.
Redemption orders are effected at the net asset value per share next determined
after receipt of the order by the Fund, Stephens, or the Transfer Agent, as the
case may be.
Redemption orders must be received on a Business Day before 3:00 p.m., Eastern
time (12 noon, Eastern time, with respect to Nations Tax Exempt Fund and Nations
Government Money Market Fund), and payment will normally be wired the same day.
Nations Fund reserves the right to wire redemption proceeds within three
Business Days after receiving the redemption order if, in the judgment of NBAI,
an earlier payment could adversely impact a Fund. However, redemption proceeds
for shares purchased by check may not be remitted until at least 15 days after
the date of purchase to ensure that the check has cleared; a certified check,
however, is deemed to be cleared immediately. Redemption
20
<PAGE>
orders received by Stephens, the Fund or by the Transfer Agent after 3:00 p.m.,
Eastern time (12 noon, Eastern time, with respect to Nations Tax Exempt Fund and
Nations Government Money Market Fund), will be processed on the next Business
Day.
Nations Fund may redeem a shareholder's Investor A Shares upon 60 days' written
notice if the balance in the shareholder's account drops below $500 as a result
of redemptions. Share balances also may be redeemed at the direction of an Agent
pursuant to arrangements between the Agent and its Customers. Nations Fund also
may redeem shares of the Funds involuntarily or make payment for redemption in
readily marketable securities or other property under certain circumstances in
accordance with the 1940 Act.
Prior to effecting a redemption of Investor A Shares represented by
certificates, the Transfer Agent must have received such certificates at its
principal office. All such certificates must be endorsed by the redeeming
shareholder or accompanied by a signed stock power, in each instance with the
signature guaranteed by a commercial bank or a member of a major stock exchange,
unless other arrangements satisfactory to Nations Fund have previously been
made. Nations Fund may require any additional information reasonably necessary
to evidence that a redemption has been duly authorized.
Free checkwriting is available with respect to Investor A Shares of the Funds.
With this service, a shareholder may write checks in the amount of $250 or more.
To obtain checks, a shareholder must complete the signature section included
within the Account Application Form. To establish this checkwriting service
after opening an account in one of the Funds, the shareholder must contact
his/her Selling Agent by telephone or mail to obtain an Application Form. A
shareholder will receive the dividends and distributions declared on the shares
to be redeemed up to the day that a check is presented to the Custodian for
payment. Upon 30 days' prior written notice to shareholders, the checkwriting
privilege may be modified or terminated. An investor cannot close an account in
the Funds by writing a check.
AUTOMATIC WITHDRAWAL PLAN: An Automatic Withdrawal Plan ("AWP") may be
established by a new or existing shareholder of the Funds if the value of the
Investor A Shares in his/her accounts within the Nations Fund Family (valued at
the net asset value at the time of the establishment of the AWP) equals $10,000
or more. Shareholders who elect to establish an AWP may receive a monthly,
quarterly or annual check or automatic transfer to a checking or savings account
in a stated amount of not less than $25 on or about the 10th or 25th day of the
applicable month of withdrawal. Investor A Shares will be redeemed as necessary
to meet withdrawal payments. Withdrawals will reduce principal and may
eventually deplete the shareholder's account. If a shareholder desires to
establish an AWP after opening an account, a signature guarantee will be
required. An AWP may be terminated by a shareholder on 30 days' written notice
to his/her Agent or by Nations Fund at any time.
21
<PAGE>
How To Exchange Shares
SHARES PURCHASED DIRECTLY THROUGH THE FUNDS, AN AGENT, STEPHENS OR THE TRANSFER
AGENT: The exchange feature enables a shareholder of Investor A Shares of a
Money Market Fund to acquire Investor A Shares of another Fund when that
shareholder believes that a shift between Funds is an appropriate investment
decision.
For shareholders who maintain an account directly with a Fund, exchange requests
should be communicated to the Fund by calling Investor Services at
1-800-982-2271 or in writing. For shareholders who purchased their shares
through an Agent, exchange requests should be communicated to the Agent, who is
responsible for transmitting the request to Stephens or to the Transfer Agent.
An investor who owns his or her shares through a Nations Fund IRA that initially
invests in Investor A Shares of a Money Market Fund may exchange those shares
for Investor N Shares of a non-money market fund offered by Nations Fund.
Additionally, Investor N Shares of a non-money market fund acquired through such
an exchange prior to January 1, 1996, will, upon redemption, be subject to the
contingent deferred sales charge ("CDSC") schedule applicable to the acquired
shares. For purposes of determining the applicable rate of the CDSC, the date of
the exchange will be deemed to be the date of purchase of the Investor A or
Investor N Shares.
SHARES ACQUIRED THROUGH THE NATIONS FUND AUTOMATIC EXCHANGE FEATURE: An investor
who is participating in the Nations Fund Automatic Exchange Feature ("AEF") may
acquire Investor A or Investor C Shares of a non-money market fund offered by
Nations Fund. In addition, Investor C Shares of a non-money market fund acquired
through such exchange will, upon redemption, be subject to the CDSC schedule
applicable to the acquired shares. For purposes of determining the applicable
rate of the CDSC, the date of the exchange will be deemed to be the date of the
purchase of the Investor C Shares. The AEF requires a minimum exchange amount of
$25 on a monthly or quarterly basis. Exchanges will occur on or about the 15th
or 30th day of the applicable month. The AEF may be established by directing a
request to the Transfer Agent by telephone or in writing. For more information
concerning the AEF, an investor should contact his/her Agent.
GENERAL: An exchange of Investor A Shares for shares of another fund is made on
the basis of the next calculated net asset value per share of each fund after
the exchange order is received. The Funds and each of the other funds of Nations
Fund may limit the number of times this exchange feature may be exercised by a
shareholder within a specified period of time. Also, the exchange feature may be
terminated or revised at any time by Nations Fund upon such notice as may be
required by applicable regulatory agencies (presently 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(s) and policies, and shareholders should obtain a copy and examine it
carefully before investing. Exchanges are subject to the minimum investment
requirement and any other conditions imposed by each fund. In the case of any
shareholder holding a share certificate or certificates, no exchanges may be
made until all applicable share certificates have been received by the Transfer
Agent and deposited in the shareholder's account. An exchange will be treated
for
22
<PAGE>
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.
During periods of significant economic or market change, telephone exchanges may
be difficult to complete. In such event, shareholders should consider
communicating their exchange requests by mail.
Shareholder Servicing And Distribution
Plans
Pursuant to Rule 12b-1 under the 1940 Act, the Trustees and Directors have
approved a Shareholder Servicing and Distribution Plan (the "Investor A Plan")
with respect to Investor A Shares of the Funds. Pursuant to the Investor A Plan,
the Funds may pay Stephens (or any other person) for distribution-related
expenses and Selling Agents for sales support expenses incurred in connection
with Investor A Shares. Aggregate payments under the Investor A Plan will be
calculated daily and paid monthly at a rate or rates set from time to time by
the Trustees or Directors provided that the annual rate may not exceed 0.10% of
the average daily net asset value of Investor A Shares of the Funds. Payments to
Stephens under the Investor A Plan may be used to reimburse Stephens for
distribution-related expenses actually incurred by Stephens, including expenses
of organizing and conducting sales seminars, printing prospectuses, statements
of additional information (and supplements thereto) and reports for other than
existing shareholders, preparation and distribution of advertising material and
sales literature and the costs of administering the Investor A Plan. The fees
payable to Selling Agents are used primarily to compensate Selling Agents for
providing sales support assistance in connection with the sale of Investor A
Shares to Customers, which may include forwarding sales literature and
advertising provided by Nations Fund to Customers. The Funds may not pay for
shareholder servicing activities under the Investor A Plan.
Stephens may, from time to time, at its expense or as an expense for which it
may be reimbursed under the Investor A Plan, pay a bonus or other consideration
or incentive to Agents who sell a minimum dollar amount of shares of the Funds
during a specified period of time. Stephens also may, from time to time, pay
additional consideration to Agents not to exceed 1.00% of the offering price per
share on all sales of Investor A Shares as an expense of Stephens or for which
Stephens may be reimbursed under the Investor A Plan. Any such additional
consideration or incentive program may be terminated at any time by Stephens.
In addition, Stephens has established a non-cash compensation program pursuant
to which broker/dealers or financial institutions that sell shares of the Funds
may earn additional compensation in the form of trips to sales seminars or
vacation destinations, tickets to sporting events, theater or other
entertainment, opportunities to participate in golf or other outings and gift
certificates for meals or merchandise. This non-cash compensation program may be
amended or terminated at any time by Stephens.
23
<PAGE>
Nations Fund and Stephens may suspend or reduce payments under the Investor A
Plan at any time, and payments are subject to the continuation of the Investor A
Plan described above and the terms of the Sales Support Agreements between
Selling Agents and Stephens. See the SAIs for more information on the Investor A
Plan.
In addition, the Trustees and Directors have approved a shareholder servicing
plan (the "Servicing Plan") with respect to Investor A Shares of the Funds.
Pursuant to the Servicing Plan, the Funds may pay Servicing Agents that have
entered into a Servicing Agreement with Nations Fund for certain shareholder
support services that are provided by the Servicing Agents. Payments under the
Funds' Servicing Plan are calculated daily and paid monthly at a rate or rates
set from time to time by the Funds, provided that the annual rate may not exceed
0.25% of the average daily net asset value of each Fund's Investor A Shares. The
shareholder services provided by Servicing Agents may include general
shareholder liaison services; processing purchase, exchange, and redemption
requests from Customers and placing orders with Stephens or the Transfer Agent;
processing dividend and distribution payments from a Fund on behalf of
Customers; providing information periodically to Customers, including
information showing their position in Investor A Shares; providing
sub-accounting with respect to Investor A Shares beneficially owned by Customers
or the information necessary for sub-accounting; responding to inquiries from
Customers concerning their investment in Investor A Shares; arranging for bank
wires; and providing such other similar services as may be reasonably requested.
Nations Fund may suspend or reduce payments under the Servicing Plan at any
time, and payments are subject to the continuation of the Servicing Plan
described above and the terms of the Servicing Agreements. See the SAIs for more
details on the Servicing Plan.
Nations Fund understands that Agents may charge fees to their Customers who are
the owners of Investor A Shares for various services provided in connection with
a Customer's account. These fees would be in addition to any amounts received by
a Selling Agent under its Sales Support Agreement with Stephens or by a
Servicing Agent under its Servicing Agreement with Nations Fund. The Sales
Support Agreements and Servicing Agreements require Agents to disclose to their
Customers any compensation payable to the Agent by Stephens or Nations Fund and
any other compensation payable by the Customers for various services provided in
connection with their accounts. Customers should read this Prospectus in light
of the terms governing their accounts with their Agents.
How The Funds Value Their Shares
The net asset value of a share of each class of shares in the Funds is
calculated by dividing the total value of its assets, less liabilities, by the
number of shares in the class outstanding. Shares are valued as of 3:00 p.m.,
Eastern time (1:00 p.m., Eastern time, with respect to Nations Tax Exempt Fund
and Nations Government Money Market Fund), on each Business Day. Currently, the
days on which the Federal Reserve Bank of New York is closed (other than
weekends) are: New Year's Day, Martin Luther King, Jr. Day, Presidents' Day,
Memorial Day (observed), Independence Day, Labor Day, Columbus Day, Thanksgiving
Day and Christmas Day.
The assets of each Fund are valued based upon the amortized cost method.
Although Nations Fund seeks to maintain the net asset value per share of these
Funds at $1.00, there can be no assurance that their net asset value per share
will not vary.
24
<PAGE>
How Dividends And Distributions Are
Made; Tax Information
DIVIDENDS AND DISTRIBUTIONS: Dividends from net investment income of the Funds
are declared daily to shareholders at 3:00 p.m., Eastern time (1:00 p.m.,
Eastern time, with respect to Nations Tax Exempt Fund and Nations Government
Money Market Fund), on the day of declaration. Investor A Shares begin earning
dividends on the day the purchase order is executed and continue earning
dividends through and including the day before the redemption order is executed
(E.G., the settlement date). Dividends are paid within five Business Days after
the end of each month. Dividends are paid in the form of additional Investor A
Shares of the same Fund unless the Customer has elected prior to the date of
distribution to receive payment in cash. Such election, or any revocation
thereof, must be made in writing to the Transfer Agent and will become effective
with respect to dividends paid after its receipt. Your dividend election may be
governed by your account agreement with your Agent. Dividends are paid in cash
within five Business Days after a shareholder's complete redemption of his/her
Investor A Shares in a Fund. To the extent that there are any net short-term
capital gains, they will be paid at least annually.
Each Fund's net investment income available for distribution to the holders of
Investor A Shares will be reduced by the amount of sales support and shareholder
servicing fees paid to Selling Agents and Servicing Agents, respectively. Each
Fund's net investment income available for distribution to the holders of
Investor A Shares will be reduced by the amount of retail transfer agency fees
payable to the Transfer Agent applicable to the Investor A Shares.
TAX INFORMATION: Each Fund intends to qualify as a "regulated investment
company" under the Internal Revenue Code of 1986, as amended (the "Code"). Such
qualification relieves a Fund of liability for Federal income tax on amounts
distributed in accordance with the Code.
Each Fund intends to distribute substantially all of its investment company
taxable income and net tax-exempt income each taxable year. Distributions by the
Nations Prime Fund, Nations Treasury Fund and Nations Government Money Market
Fund will be taxable as ordinary income to shareholders who are not currently
exempt from Federal income tax, whether such income is received in cash or
reinvested in additional shares. (Federal income tax for distributions to an IRA
are generally deferred under the Code.) These distributions will not qualify for
the dividends received deduction for corporate shareholders.
Dividends received from Nations Treasury Fund and Nations Government Money
Market Fund may qualify as tax-exempt dividends for state income tax purposes in
some states. The Funds do not expect to realize any long-term capital gains, and
therefore, do not expect to distribute any capital gains dividends.
Each year, shareholders will be notified as to the amount and Federal tax status
of all dividends (and capital gains, if applicable) paid during the prior year.
Such dividends (and capital gains) also may be subject to state and local taxes.
Dividends declared in October, November, or December of any year payable to
shareholders of record on a specified date in such months will be deemed to have
been received by shareholders and paid by the Fund on December 31 of such year
in the event such dividends are actually paid during January of the following
year.
25
<PAGE>
Federal law requires Nations Fund to withhold 31% from any dividends (other than
exempt-interest dividends) paid by Nations Fund and/or redemptions (including
exchange redemptions) that occur in certain shareholder accounts if the
shareholder has not properly furnished a certified correct Taxpayer
Identification Number and has not certified that withholding does not apply, or
if the Internal Revenue Service has notified Nations Fund that the Taxpayer
Identification Number listed on a shareholder account is incorrect according to
its records, or that the shareholder is subject to backup withholding. Amounts
withheld are applied to the shareholder's Federal tax liability, and a refund
may be obtained from the Internal Revenue Service if withholding results in
overpayment of taxes. Federal law also requires the Funds to withhold 30% or the
applicable tax treaty rate from dividends paid to certain nonresident alien,
non-U.S. partnership and non-U.S. corporation shareholder accounts.
NATIONS TAX EXEMPT FUND: As a regulated investment company, Nations Tax Exempt
Fund is permitted to pass through to its shareholders tax-exempt income
("exempt-interest dividends") subject to certain requirements which the Fund
intends to satisfy. The Fund does not intend to earn investment company taxable
income or long-term capital gains; to the extent that it does earn taxable
income or realize long-term capital gains, distributions to shareholders from
such sources will be subject to Federal income tax. Exempt-interest dividends
may be treated by shareholders as items of interest excludable from their
federal gross income under Section 103(a) of the Code unless, under the
circumstances applicable to the particular shareholder, the exclusion would be
disallowed. (See Nations Fund Trust's SAI under "Additional Information
Concerning Taxes.") Distributions of net investment income by Nations Tax Exempt
Fund may be taxable to investors under state or local law even though a
substantial portion of such distribution may be derived from interest on
tax-exempt obligations which, if realized directly, would be exempt from such
income tax.
If Nations Tax Exempt Fund should hold certain private activity bonds issued
after August 7, 1986, shareholders must include, as an item of tax preference,
the portion of dividends paid by the Fund that is attributable to interest on
such bonds in their Federal alternative minimum taxable income for purposes of
determining liability (if any) for the 28% alternative minimum tax applicable to
individuals and the 20% alternative minimum tax and the environmental tax
applicable to corporations. Corporate shareholders must also take all
exempt-interest dividends into account in determining certain adjustments for
Federal alternative minimum and environmental tax purposes. The environmental
tax applicable to corporations is imposed at the rate of 0.12% on the excess of
the corporation's modified Federal alternative minimum taxable income over
$2,000,000. Shareholders receiving Social Security benefits should note that all
exempt-interest dividends will be taken into account in determining the
taxability of such benefits. To the extent, if any, dividends paid to
shareholders are derived from taxable income or from long-term or short-term
capital gains, such dividends will not be exempt from Federal income tax and
also may be subject to state and local tax.
The foregoing discussion is based on tax laws and regulations that were in
effect as of the date of this Prospectus and summarizes only some of the
important Federal tax considerations generally affecting the Funds and their
shareholders. It is not intended as a substitute for careful tax planning;
investors should consult their tax advisors with respect to their specific tax
situations as well as with respect to state and local taxes. Further tax
information is contained in the SAIs.
26
<PAGE>
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. Nations Prime Fund generally limits
investments in bank instruments to (a) U.S. dollar-denominated obligations of
U.S. banks which have total assets exceeding $1 billion and which are members of
the Federal Deposit Insurance Corporation (including obligations of foreign
branches of such banks) or of the 75 largest foreign commercial banks in terms
of total assets; or (b) U.S. dollar-denominated bank instruments issued by other
banks believed by the Adviser to present minimal credit risks. For purposes of
the foregoing, total assets may be determined on the basis of the bank's most
recent annual financial statements.
Nations Prime Fund may invest up to 100% of its assets in obligations issued by
banks. All Funds (except Nations Prime Fund) will limit their investments in
bank obligations so they do not exceed 25% of each Fund's total assets at the
time of purchase. Nations Prime Fund may invest in U.S. dollar-denominated
obligations issued by foreign branches of domestic banks ("Eurodollar"
obligations) and domestic branches of foreign banks ("Yankee dollar"
obligations).
Eurodollar, Yankee dollar and other foreign obligations involve special
investment risks, including the possibility that liquidity could be impaired
because of future political and economic developments, the obligations may be
less
27
<PAGE>
marketable than comparable domestic obligations of domestic issuers, a foreign
jurisdiction might impose withholding taxes on interest income payable on such
obligations, deposits may be seized or nationalized, foreign governmental
restrictions such as exchange controls may be adopted which might adversely
affect the payment of principal of and interest on such obligations, the
selection of foreign obligations may be more difficult because there may be less
publicly available information concerning foreign issuers, there may be
difficulties in enforcing a judgment against a foreign issuer or the accounting,
auditing and financial reporting standards, practices and requirements
applicable to foreign issuers may differ from those applicable to domestic
issuers. In addition, foreign banks are not subject to examination by U.S.
Government agencies or instrumentalities.
BORROWINGS: When a Fund borrows money, the net asset value of a share may be
subject to greater fluctuation until the borrowing is paid off. Reverse
repurchase agreements may be considered to be borrowings. The Funds may borrow
money from banks for temporary purposes in amounts of up to one-third of their
respective total assets, provided that borrowings in excess of 5% of the value
of the Funds' total assets must be repaid prior to the purchase of portfolio
securities. 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 Fund of the reverse repurchase transaction is less than the
cost of obtaining the cash otherwise.
At the time a Fund enters into a reverse repurchase agreement, it may establish
a segregated account with its custodian bank in which it will maintain cash,
U.S. Government securities or other liquid high grade debt obligations equal in
value to its obligations in respect of reverse repurchase agreements. Reverse
repurchase agreements involve the risk that the market value of the securities
the Fund is obligated to repurchase under the agreement may decline below the
repurchase price. In the event the buyer of securities under a reverse
repurchase agreement files for bankruptcy or becomes insolvent, the Fund's use
of the proceeds of the agreement may be restricted pending a determination by
the other party, or its trustee or receiver, whether to enforce the Fund's
obligation to repurchase the securities. In addition, there is a risk of delay
in receiving collateral or securities or in repurchasing the securities covered
by the reverse repurchase agreement or even of a loss of rights in the
collateral or securities in the event the buyer of the securities under the
reverse repurchase agreement files for bankruptcy or becomes insolvent. The
Funds only enter into reverse repurchase agreements (and repurchase agreements)
with counterparties that are deemed by the Adviser to be credit worthy. Reverse
repurchase agreements are speculative techniques involving leverage, and are
subject to
28
<PAGE>
asset coverage requirements if a Fund does not establish and maintain a
segregated account (as described above). Under the requirements of the 1940 Act,
a Fund is required to maintain an asset coverage (including the proceeds of the
borrowings) of at least 300% of all borrowings. Depending on market conditions,
a Fund's asset coverage and other factors at the time of a reverse repurchase, a
Fund may not establish a segregated account when the Adviser believes it is not
in the best interest of the Fund to do so. In this case, such reverse repurchase
agreements will be considered borrowings subject to the asset coverage described
above.
Currently, Nations Treasury Fund has entered into an arrangement whereby it
reinvests the proceeds of a reverse repurchase agreement in a tri-party
repurchase agreement and receives the net interest rate differential.
COMMERCIAL INSTRUMENTS: Commercial instru-
ments consist of short-term U.S. dollar-denominated obligations issued by
domestic corporations or foreign corporations and domestic and foreign
commercial banks. Nations Prime Fund will limit purchases of commercial
instruments to instruments which: (a) if rated by at least two NRSROs are rated
in the highest rating category for short-term debt obligations given by such
organizations, or if only rated by one such organization, are rated in the
highest rating category for short-term debt obligations given by such
organization; or (b) if not rated, are (i) comparable in priority and security
to a class of short-term instruments of the same issuer that has such rating(s),
or (ii) of comparable quality to such instruments as determined by Nations Fund,
Inc.'s Board of Directors on the advice of the Adviser.
Investments by a Fund in commercial paper will consist of issues rated in a
manner consistent with such Fund's investment policies and objective. In
addition, a Fund may acquire unrated commercial paper and corporate bonds that
are determined by the Adviser at the time of purchase to be of comparable
quality to rated instruments that may be acquired by a Fund. Commercial
instruments include variable-rate master demand notes, which are unsecured
instruments that permit the indebtedness thereunder to vary and provide for
periodic adjustments in the interest rate, and variable- and floating-rate
instruments.
FOREIGN SECURITIES: Foreign securities include debt 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.
29
<PAGE>
exchanges, and there is generally less government supervision and regulation of
foreign securities exchanges, brokers, and companies than in the United States.
With respect to certain foreign countries, there is a possibility of
expropriation or confiscatory taxation, limitations on the removal of funds or
other assets, or diplomatic developments that could affect investments within
those countries. Because of these and other factors, securities of foreign
companies acquired by a Fund may be subject to greater fluctuation in price than
securities of domestic companies.
GUARANTEED INVESTMENT CONTRACTS: Guaranteed investment contracts, investment
contracts or funding agreements (each referred to as a "GIC") are investment
instruments issued by highly rated insurance companies. Pursuant to such
contracts, a Fund may make cash contributions to a deposit fund of the insurance
company's general or separate accounts. The insurance company then credits to a
Fund guaranteed interest. The insurance company may assess periodic charges
against a GIC for expense and service costs allocable to it, and the charges
will be deducted from the value of the deposit fund. The purchase price paid for
a GIC generally becomes part of the general assets of the issuer, and the
contract is paid from the general assets of the issuer.
A Fund will only purchase GICs from issuers which, at the time of purchase, meet
quality and credit standards established by the Adviser. Generally, GICs are not
assignable or transferable without the permission of the issuing insurance
companies, and an active secondary market in GICs does not currently exist.
Also, a Fund may not receive the principal amount of a GIC from the insurance
company on seven days' notice or less, at which point the GIC may be considered
to be an illiquid investment.
ILLIQUID SECURITIES: Certain securities may be sold only pursuant to certain
legal restrictions, and may be difficult to sell. The Money Market Funds will
not hold more than 10% of the value of their respective net assets in securities
that are illiquid or such lower percentage as may be required by the states in
which the appropriate Fund sells its shares. Repurchase agreements, time
deposits and GICs that do not provide for payment to a Fund within seven days
after notice, and illiquid restricted securities are subject to the limitation
on illiquid securities. In addition, interests in privately arranged loans
acquired by Nations Prime Fund may be subject to this limitation.
If otherwise consistent with their investment objectives and policies, certain
Funds may purchase securities that are not registered under the Securities Act
of 1933, as amended (the "1933 Act") but that can be sold to "qualified
institutional buyers" in accordance with Rule 144A 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
30
<PAGE>
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 the credit
standing of the corporate user of the facility involved.
Municipal Securities may include "moral obligation" bonds, which are normally
issued by special purpose public authorities. If the issuer of moral obligation
bonds is unable to meet its debt service obligations from current revenues, it
may draw on a reserve fund, the restoration of which is a moral commitment but
not a legal obligation of the state or municipality which created the issuer.
Municipal Securities may include variable- or floating-rate instruments issued
by industrial development authorities and other governmental entities. While
there may not be an active secondary market with respect to a particular
instrument purchased by a Fund, a Fund may demand payment of the principal and
accrued interest on the instrument or may resell it to a third party as
specified in the instruments. The absence of an active secondary market,
however, could make it difficult for a Fund to dispose of the instrument if the
issuer defaulted on its payment obligation or during periods the Fund is not
entitled to exercise its demand rights, and the Fund could, for these or other
reasons, suffer a loss.
Some of these instruments may be unrated, but unrated instruments purchased by a
Fund will be determined by the Adviser to be of comparable quality at the time
of purchase to instruments rated "high quality" by any major rating service. An
issuer's obligation to pay the
princi-
31
<PAGE>
pal of the note may be backed by an unconditional bank letter or line of credit,
guarantee, or commitment to lend.
Municipal Securities also may include municipal lease obligations, including
certificates of participation in municipal leases, and units of participation in
trusts holding pools of tax-exempt leases. A Fund may acquire municipal lease
obligations that may be assigned by the lessee to another party provided the
obligation continues to provide tax-exempt interest. Each Fund will not purchase
municipal lease obligations to the extent it holds municipal lease obligations
and illiquid securities in an amount exceeding 10% of its total assets unless
the Adviser determines that the municipal lease obligations are liquid pursuant
to guidelines established by the Funds' Boards. Pursuant to these guidelines,
the Adviser, in making this liquidity determination, will consider, among other
factors, the strength and nature of the secondary market for such obligations,
the prospect for its future marketability and whether such obligations are
rated. The Funds expect that they will only purchase rated municipal lease
obligations.
Municipal participation interests may be purchased from financial institutions,
and give the purchaser an undivided interest in one or more underlying Municipal
Securities. To the extent that municipal participation interests are considered
to be "illiquid securities" such instruments are subject to each Fund's
limitation on the purchase of illiquid securities.
In addition, certain of the Funds may acquire "stand-by commitments" from banks
or broker/dealers with respect to Municipal Securities held in their portfolios.
Under a stand-by commitment, a dealer would agree to purchase at a Fund's option
specified Municipal Securities at a specified price. A Fund will acquire
stand-by commitments solely to facilitate portfolio liquidity and without
intending to exercise its rights thereunder for trading purposes.
A Fund may invest in short-term securities, in commitments to purchase such
securities on a "when-issued" basis, and reserves the right to engage in "put"
transactions on a daily, weekly or monthly basis. Securities purchased on a
"when-issued" basis are subject to settlement within 45 days of the purchase
date. The interest rate realized on these securities is fixed as of the purchase
date and no interest accrues to the Fund before settlement. These securities are
subject to market fluctuation due to changes in market interest rates. The Funds
will only commit to purchase a security on a when-issued basis with the
intention of actually acquiring the security and will segregate sufficient
liquid assets to meet its purchase obligation.
A "put" feature permits a Fund to sell a security at a fixed price prior to
maturity. The underlying Municipal Securities subject to a put may be sold at
any time at the market rates. However, unless the put was an integral part of
the security as originally issued, it may not be marketable or assignable.
Therefore, the put would only have value to the Fund. In certain cases a premium
may be paid for put features. A premium paid will have the effect of reducing
the yield otherwise payable on the underlying security. The purpose of engaging
in transactions involving puts is to maintain flexibility and liquidity to
permit the Fund to meet redemptions and remain as fully invested as possible in
Municipal Securities. The Funds will limit their put transactions to
institutions which the Adviser believes present minimal credit risk, pursuant to
guidelines adopted by the Boards. Nations Tax Exempt Fund may invest more than
40% of its portfolio in 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
Securi-
32
<PAGE>
ties 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
33
<PAGE>
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 Association, 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 takes
place at a future date. Because actual payment for and delivery of such
securities generally take place 15 to 45 days after the purchase date,
purchasers of such securities bear the risk that interest rates on debt
securities at the time of delivery may be higher or lower than those contracted
for on the security purchased.
Appendix B -- Description Of Ratings
The following summarizes the highest three ratings used by S&P for corporate and
municipal bonds:
AAA -- This is the highest rating assigned by S&P to a debt obligation and
indicates an extremely strong capacity to pay interest and repay principal.
AA -- Debt rated AA is considered to have a very strong capacity to pay
interest and repay principal and differs from AAA issues only in a small
degree.
34
<PAGE>
A -- Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than debt in higher-rated
categories.
To provide more detailed indications of credit quality, the AA and A ratings may
be modified by the addition of a plus or minus sign to show relative standing
within this major rating category.
The following summarizes the highest three ratings used by Moody's for corporate
and municipal bonds:
Aaa -- Bonds that are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to
as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such
issues.
Aa -- Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there may
be other elements present which make the long-term risks appear somewhat
larger than in Aaa securities.
A -- Bonds that are rated A possess many favorable investment attributes
and are to be considered upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
Moody's applies numerical modifiers (1, 2 and 3) with respect to corporate bonds
rated Aa and A. The modifier 1 indicates that the bond being rated ranks in the
higher end of its generic rating category; the modifier 2 indicates a mid-range
ranking; and the modifier 3 indicates that the bond ranks in the lower end of
its generic rating category. With regard to municipal bonds, those bonds in the
Aa and A groups which Moody's believes possess the strongest investment
attributes are designated by the symbols Aa1 and A1, respectively.
The following summarizes the highest three ratings used by D&P for bonds:
AAA -- Bonds that are rated AAA are of the highest credit quality. The risk
factors are considered to be negligible, being only slightly more than for
risk free U.S. Treasury debt.
AA -- Bonds that are rated AA are of high credit quality. Protection
factors are strong. Risk is modest, but may vary slightly from time to time
because of economic conditions.
A -- Bonds that are rated A have protection factors which are average but
adequate. However, risk factors are more variable and greater in periods of
economic stress.
To provide more detailed indications of credit quality, the AA and A ratings may
be modified by the addition of a plus or minus sign to show relative standing
within this major category.
The following summarizes the highest three ratings used by Fitch for bonds:
AAA -- Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is
35
<PAGE>
unlikely to be affected by reasonably foreseeable events.
AA -- Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated AAA. Because bonds
rated in the AAA and AA categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is
generally rated F-1+.
A -- Bonds considered to be investment grade and of high credit quality.
The obligor's ability to pay interest and repay principal is considered to
be strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.
To provide more detailed indications of credit quality, the AA and A ratings may
be modified by the addition of a plus or minus sign to show relative standing
within this major rating category.
The following summarizes the two highest ratings used by Moody's for short-term
municipal notes and variable-rate demand obligations:
MIG-1/VMIG-1 -- Obligations bearing these designations are of the best
quality, enjoying strong protection from established cash flows, superior
liquidity support or demonstrated broad-based access to the market for
refinancing.
MIG-2/VMIG-2 -- Obligations bearing these designations are of high quality,
with ample margins of protection although not so large as in the preceding
group.
The following summarizes the two highest ratings used by S&P for short-term
municipal notes:
SP-1 -- Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics are given
a "plus" (+) designation.
SP-2 -- Satisfactory capacity to pay principal and interest.
The two highest rating categories of D&P for short-term debt are D-1 and D-2.
D&P employs three designations, D-1+, D-1 and D-1-, within the highest rating
category. D-1+ indicates highest certainty of timely payment. Short-term
liquidity, including internal operating factors and/or access to alternative
sources of funds, is judged to be "outstanding, and safety is just below
risk-free U.S. Treasury short-term obligations." D-1 indicates very high
certainty of timely payment. Liquidity factors are excellent and supported by
good fundamental protection factors. Risk factors are considered to be minor.
D-1- indicates high certainty of timely payment. Liquidity factors are strong
and supported by good fundamental protection factors. Risk factors are very
small. D-2 indicates good certainty of timely payment. Liquidity factors and
company fundamentals are sound. Although ongoing funding needs may enlarge total
financing requirements, access to capital markets is good. Risk factors are
small.
The following summarizes the two highest rating categories used by Fitch for
short-term obligations:
F-1+ securities possess exceptionally strong credit quality. Issues
assigned this rating are regarded as having the strongest degree of
assurance for timely payment.
F-1 securities possess very strong credit quality. Issues assigned this
rating reflect an assurance of timely payment only slightly less in degree
than issues rated F-1+.
36
<PAGE>
Commercial paper rated A-1 by S&P indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted A-1+. Capacity for timely payment on
commercial paper rated A-2 is satisfactory, but the relative degree of safety is
not as high as for issues designated A-1.
The rating Prime-1 is the highest commercial paper rating assigned by Moody's.
Issuers rated Prime-1 (or related supporting institutions) are considered to
have a superior capacity for repayment of senior short-term promissory
obligations. Issuers rated Prime-2 (or related supporting institutions) are
considered to have a strong capacity for repayment of senior short-term
promissory obligations. This will normally be evidenced by many of the
characteristics of issuers rated Prime-1, but to a lesser degree. Earnings
trends and coverage ratios, while sound, will be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
For commercial paper, D&P uses the short-term debt ratings described above.
For commercial paper, Fitch uses the short-term debt ratings described above.
BankWatch ratings are based upon a qualitative and quantitative analysis of all
segments of the organization including, where applicable, holding company and
operating subsidiaries. BankWatch ratings do not constitute a recommendation to
buy or sell securities of any of these companies. Further, BankWatch does not
suggest specific investment criteria for individual clients.
BankWatch long-term ratings apply to specific issues of long-term debt and
preferred stock. The long-term ratings specifically assess the likelihood of
untimely payment of principal or interest over the term to maturity of the rated
instrument. The following are the three highest investment grade ratings used by
BankWatch for long-term debt:
AAA -- The highest category; indicates ability to repay principal and
interest on a timely basis is extremely high.
AA -- The second highest category; indicates a very strong ability to repay
principal and interest on a timely basis with limited incremental risk
versus issues rated in the highest category.
A -- The third highest category; indicates the ability to repay principal
and interest is strong. Issues rated "A" could be more vulnerable to
adverse developments (both internal and external) than obligations with
higher ratings.
The BankWatch short-term ratings apply to commercial paper, other senior
short-term obligations and deposit obligations of the entities to which the
rating has been assigned. The BankWatch short-term ratings specifically assess
the likelihood of an untimely payment of principal or interest.
TBW-1 -- The highest category; indicates a very high likelihood that
principal and interest will be paid on a timely basis.
TBW-2 -- The second highest category; while the degree of safety regarding
timely repayment of principal and interest is strong, the relative degree
of safety is not as high as for issues rated "TBW-1".
The following summarizes the three highest long-term ratings used by IBCA:
AAA -- Obligations for which there is the lowest expectation of investment
risk. Capacity for timely repayment of principal and interest is
substantial such that adverse changes in business, economic or financial
37
<PAGE>
conditions are unlikely to increase investment risk significantly.
AA -- Obligations for which there is a very low expectation of investment
risk. Capacity for timely repayment of principal and interest is
substantial. Adverse changes in business, economic or financial conditions
may increase investment risk albeit not very significantly.
A -- Obligations for which there is a low expectation of investment risk.
Capacity for timely repayment of principal and interest is strong, although
adverse changes in business, economic or financial conditions may lead to
increased investment risk.
A plus or minus sign may be appended to a rating below AAA to denote relative
status within major rating categories.
The following summarizes the two highest short-term debt ratings used by IBCA:
A1+ -- Where issues possess a particularly strong credit feature.
A1 -- Obligations supported by the highest capacity for timely repayment.
A2 -- Obligations supported by a good capacity for timely repayment.
38
<PAGE>
Prospectus
INVESTOR A SHARES
JULY 31, 1996
This Prospectus describes NATIONS MANAGED INDEX
FUND (the "Fund") of Nations Fund Trust, an
open-end management investment company in the
Nations Fund Family ("Nations Fund" or "Nations
Fund Family"). This Prospectus describes one class
of shares of the Fund -- Investor A Shares.
This Prospectus sets forth concisely the
information about the Fund that a prospective
purchaser of Investor A Shares should consider
before investing. Investors should read this
Prospectus and retain it for future reference.
Additional information about Nations Fund Trust is
contained in a separate Statement of Additional
Information (the "SAI") that has been filed with
the Securities and Exchange Commission (the "SEC")
and is available upon request without charge by
writing or calling Nations Fund at its address or
telephone number shown below. The SAI, dated July
31, 1996, is incorporated by reference in its
entirety into this Prospectus. NationsBanc
Advisors, Inc. ("NBAI") is the investment adviser
to the Fund. TradeStreet Investment Associates,
Inc. ("TradeStreet") is sub-investment adviser to
the Fund. As used herein the "Adviser" shall mean
NBAI and/or TradeStreet as the context may require.
SHARES OF NATIONS FUND ARE NOT DEPOSITS OR OTHER
OBLIGATIONS OF, OR ISSUED, ENDORSED OR GUARANTEED
BY, NATIONSBANK, N.A. ("NATIONSBANK") OR ANY OF ITS
AFFILIATES. SUCH SHARES ARE NOT INSURED BY THE U.S.
GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER
GOVERNMENT AGENCY. AN INVESTMENT IN THE FUND
INVOLVES CERTAIN RISKS, INCLUDING POSSIBLE LOSS OF
PRINCIPAL.
NATIONSBANK AND CERTAIN OF ITS AFFILIATES PROVIDE
CERTAIN OTHER SERVICES TO NATIONS FUND, FOR WHICH
THEY ARE COMPENSATED. STEPHENS INC., WHICH IS NOT
AFFILIATED WITH NATIONSBANK, IS THE SPONSOR AND
ADMINISTRATOR AND SERVES AS THE DISTRIBUTOR FOR
NATIONS FUND.
THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
Nations
Managed
Index Fund
For Fund information call:
1-800-321-7854
Nations Fund
c/o Stephens Inc.
One NationsBank Plaza
33rd Floor
Charlotte, NC 28255
(Nations Fund logo
appears here)
<PAGE>
Table Of Contents
About The Fund
Prospectus Summary 3
Expenses Summary 4
Objective 5
How The Objective Is Pursued 5
How Performance Is Shown 7
How The Fund Is Managed 8
Organization And History 10
About Your Investment
How To Buy Shares 11
How To Redeem Shares 13
How To Exchange Shares 14
Shareholder Servicing And Distribution Plan 15
How The Fund Values Its Shares 16
How Dividends And Distributions are Made; Tax
Information 17
Appendix A -- Portfolio Securities 18
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT
CONTAINED IN THIS PROSPECTUS, OR IN THE FUND'S SAI
INCORPORATED HEREIN BY REFERENCE, IN CONNECTION
WITH THE OFFERING MADE BY THIS PROSPECTUS AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY NATIONS FUND OR ITS DISTRIBUTOR. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFERING BY NATIONS FUND OR
BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE.
2
<PAGE>
About The Fund
Prospectus Summary
(Bullet) TYPE OF COMPANY: Open-end management investment company.
(Bullet) INVESTMENT OBJECTIVE AND POLICIES: Nations Managed Index Fund's
investment objective is to seek, over the long-term, to provide a total
return which (gross of fees and expenses) exceeds the total return of
the Standard & Poor's 500 Composite Stock Price Index.
(Bullet) When consistent with the Fund's objective, the Fund will
employ various techniques to manage capital gain
distributions.
(Bullet) INVESTMENT ADVISER: NationsBanc Advisors, Inc. serves as the investment
adviser to the Fund. NBAI provides investment advice to more than 43
investment company portfolios in the Nations Fund Family. TradeStreet
Investment Associates, Inc. provides sub-advisory services to the Fund.
See "How The Fund Is Managed."
(Bullet) DIVIDENDS AND DISTRIBUTIONS: Nations Managed Index Fund declares and
pays dividends from net investment income each calendar quarter. The
Fund's net realized capital gains, including net short-term capital
gains, are distributed at least annually.
(Bullet) RISK FACTORS: Although the Adviser seeks to achieve the investment
objective of the Fund, there is no assurance that it will be able to do
so. Investments in the Fund are not insured against loss of principal.
Investments by the Fund in common stocks and other equity securities
are subject to stock market risk, which is the risk that the value of
the stocks the Fund holds may decline over short or even extended
periods. Certain of the Fund's permissible investments may constitute
derivative securities. Certain types of derivative securities can,
under certain circumstances, significantly increase an investor's
exposure to market or other risks. For a discussion of these and other
factors, see "How Objective Is Pursued -- Risk Considerations" and
"Appendix A -- Portfolio Securities."
(Bullet) MINIMUM PURCHASE: $1,000 minimum initial investment per record holder
except that the minimum initial investment is: $500 for Individual
Retirement Account ("IRA") investors; $250 for non-working spousal
IRAs; and $100 for investors participating on a monthly basis in the
Systematic Investment Plan. There is no minimum investment amount for
investments by certain 401(k) and employee pension plans or salary
reduction -- Individual Retirement Accounts. The minimum subsequent
investment is $100, except for investments pursuant to the Systematic
Investment Plan. See "How To Buy Shares."
3
<PAGE>
Expenses Summary
Expenses are one of several factors to consider when investing in the Fund. The
following table summarizes shareholder transaction and operating expenses for
Investor A Shares of the Fund. The Example shows the cumulative expenses
attributable to a hypothetical $1,000 investment in the Fund over specified
periods.
INVESTOR A SHARES
<TABLE>
<CAPTION>
<S> <C>
Nations
Managed
SHAREHOLDER TRANSACTION EXPENSES Index Fund
Maximum Sales Load Imposed on Purchases (as a percentage of offering price) None
Maximum Deferred Sales Charge (as a percentage of the lower of the original purchase price
or redemption proceeds) None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees (After Fee Waivers) 0.30%
Rule 12b-1 Fees (including shareholder servicing fees) 0.25%
Other Expenses 0.20%
Total Operating Expenses (After Fee Waivers) 0.75%
</TABLE>
EXAMPLE:
You would pay the following expenses on a $1,000 investment in Investor A Shares
of the Fund, assuming (1) a 5% annual return and (2) redemption at the end of
each time period.
<TABLE>
<CAPTION>
<S> <C>
Nations
Managed
Index Fund
1 Year $ 8
3 Years $ 24
</TABLE>
The purpose of the foregoing table is to assist an investor in understanding the
various shareholder transaction and operating expenses that an investor in
Investor A Shares will bear either directly or indirectly. The figures in the
above table are based on estimates for the fiscal year and have been restated as
necessary to reflect anticipated fee waivers. There is no assurance that any fee
waivers and reimbursements will continue beyond the current fiscal year. If fee
waivers and/or reimbursements are discontinued, the amounts contained in the
"Examples" above may increase. For a more complete description of the Fund's
operating expenses, see "How The Fund Is Managed." For a more complete
description of the Rule 12b-1 and shareholder servicing fees payable by the
Fund, see "Shareholder Servicing And Distribution Plan."
Absent fee waivers, "Management Fees" and "Total Operating Expenses" would be
.50% and .95%, 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.
4
<PAGE>
Objective
Nations Managed Index Fund's investment objective is to seek, over the
long-term, to provide a total return which (gross of fees and expenses) exceeds
the total return of the Standard & Poor's 500 Composite Stock Price Index.
How The Objective Is Pursued
NATIONS MANAGED INDEX FUND: In seeking to achieve its investment objective, the
Fund will invest in selected equity securities that are included in the Standard
& Poor's 500 Composite Stock Price Index (the "S&P 500 Index" or the "Index")1.
The S&P 500 Index is a value weighted index consisting of 500 common stocks
chosen for market size, liquidity and industry group representation.
The Adviser believes that a managed equity index portfolio can provide investors
with positive incremental performance relative to the S&P 500 Index while
minimizing the downside risk of underperforming the index over time.
The initial stock universe considered by the Adviser is the S&P 500 Index. The
Adviser ranks the attractiveness of each security according to a multifactor
valuation model. Both value and momentum factors are considered in the ranking
process. Value factors such as book value, earnings yield and cash flow measure
a stock's intrinsic worth versus its market price, while momentum
characteristics such as price momentum, earnings growth and earnings
acceleration view a stock relative to others in the same industry. Each stock is
assigned a ranking from 1 to 10 (best to worst). The Adviser then screens out
the lower rated stocks resulting in a portfolio of 350 to 400 holdings that
capture the investment characteristics of the Index.
In addition, when consistent with the Fund's investment objective, the Fund will
employ various techniques to manage capital gain distributions. These techniques
include utilizing a share identification methodology whereby the Fund will
specifically identify each lot of shares of portfolio securities that it holds,
which will allow the Fund to sell first those specific shares with the highest
tax basis in order to reduce the amount of recognized capital gains as compared
with a sale of identical portfolio securities, if any, with a lower tax basis.
The Fund will sell first those shares with the highest tax basis only when it is
in the best interest of the Fund to do so, and reserves the right to sell other
shares when appropriate. In addition, the Fund may, at times, sell portfolio
securities in order to realize capital losses. Such capital losses would be used
to offset realized capital gains thereby reducing capital gain distributions.
Additionally, the Adviser will, consistent with the multi-factor valuation model
discussed above, employ a low portfolio turnover strategy designed to defer the
realization of capital gains.
Under normal conditions, the Adviser will attempt to invest as much of the
Fund's assets as is practical and, in any event at least 65% of its total
assets, in common stocks which are included in the S&P 500 Index. The Fund is
expected, however, to maintain a position in high-quality short-term debt
securities and money market instruments to meet redemption requests. If the
Adviser believes that market conditions warrant a temporary defensive posture,
the Fund may invest without limitation in high-quality short-term debt
securities and money market instruments. These securities and money market
instruments may include domestic and foreign commercial paper, certificates of
deposit, bankers' acceptances and time deposits, U.S. Government securities and
repurchase agreements.
(1) "Standard & Poor's 500" is a registered service mark of Standard & Poor's
Corporation ("S&P").
5
<PAGE>
The Fund also may invest in certain specified derivative securities including:
exchange-traded options; over-the-counter options executed with primary dealers,
including long calls and puts and covered calls to enhance return; and U.S.
exchange-traded financial futures approved by the Commodity Futures Trading
Commission ("CFTC") and options thereon for market exposure risk management. The
Fund may lend its portfolio securities to qualified institutional investors. The
Fund also may invest in restricted, private placement and other illiquid
securities. In addition, the Fund may invest in securities issued by other
investment companies, consistent with the Fund's investment objective and
policies.
ABOUT THE INDEX: The S&P 500 Index is composed of 500 common stocks, which are
chosen by S&P on a statistical basis to be included in the Index. The inclusion
of a stock in the S&P 500 Index in no way implies that S&P believes the stock to
be an attractive investment. The Index is determined, composed and calculated by
S&P without regard to the Fund. S&P is neither a sponsor of, nor in any way
affiliated with the Fund, and S&P makes no representation or warranty, expressed
or implied, on the advisability of investing in the Fund or as to the ability of
the Index to track general stock market performance. S&P disclaims all
warranties of merchantability or fitness for a particular purpose or use with
respect to the Index or any data included therein.
PORTFOLIO TURNOVER: Generally, the Fund will purchase portfolio securities for
capital appreciation or investment income, or both, and not for short-term
trading profits. While it is not possible to predict exactly annual portfolio
turnover rates, it is expected that under normal market conditions, the annual
portfolio turnover rate for the Fund will not exceed 25%.
RISK CONSIDERATIONS: Although the Adviser will seek to achieve the investment
objective of the Fund, there is no assurance that it will be able to do so. No
single fund should be considered, by itself, to provide a complete investment
program for any investor. Investments in the Fund are not insured against loss
of principal.
Investments by the Fund in common stocks and other equity securities are subject
to stock market risk. The value of the stocks that the Fund holds, like the
broader stock market, may decline over short or even extended periods.
Certain of the Fund's permissible investments may constitute derivative
securities, which are securities whose value is derived, at least in part, from
an underlying index or reference rate. There are certain types of derivative
securities that can, under certain circumstances, significantly increase a
purchaser's exposure to market or other risks. The Adviser, however, only
purchases derivative securities in circumstances where it believes such
purchases are consistent with the Fund's investment objective and do not unduly
increase the Fund's exposure to market or other risks. For additional risk
information regarding the Fund's investments in particular instruments, see
"Appendix A -- Portfolio Securities."
The techniques employed by the Adviser to seek to manage capital gain
distributions will generally only have the effect of deferring the realization
of capital gains. For example, to the extent that the capital gains recognized
on a sale of portfolio securities arise from the sale of specifically-identified
securities with higher tax bases, subsequent sales of the same portfolio
securities will be calculated by reference to the lower tax basis securities
that remain in the portfolio. Under this scenario, an investor who purchases
shares of the Fund after the first sale could receive capital gain distributions
that are higher than the distributions that would have been received if this
methodology had not been used. Therefore, certain investors actually could be
disadvantaged by the techniques employed by the Fund to seek to manage capital
gain distributions, depending on the timing of their purchase of Fund shares.
Even if there are no subsequent sales, upon a redemption or exchange of Fund
shares an investor will have to recognize gain to the extent that the net asset
value of Fund shares at such time exceeds such investor's tax basis in his or
her Fund shares.
The various techniques employed by the Fund to manage capital gain distributions
may result in the accumulation of substantial unrealized gains
6
<PAGE>
in the Fund's portfolio. Moreover, the realization of capital gains is not
entirely within the Fund's control because it is at least partly dependent on
shareholder purchase and redemption activity. Capital gain distributions may
vary considerably from year-to-year.
INVESTMENT LIMITATIONS: The Fund is subject to a number of investment
limitations. The following investment limitations are matters of fundamental
policy and may not be changed without the affirmative vote of the holders of a
majority of the Fund's outstanding shares. Other investment limitations that
cannot be changed without such a vote of shareholders are described in the SAI.
The Fund may not:
1. Purchase any securities which would cause 25% or more of the value of the
Fund's total assets at the time of such purchase to be invested in the
securities of one or more issuers conducting their principal activities in the
same industry. (For purposes of this limitation, U.S. Government securities are
not considered members of any industry.)
2. Make loans, except that the Fund may purchase and hold debt instruments
(whether such instruments are part of a public offering or privately placed),
may enter into repurchase agreements and may lend portfolio securities in
accordance with its investment policies.
3. Purchase securities of any one issuer (other than securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities) if,
immediately after such purchase, more than 5% of the value of the Fund's total
assets would be invested in the securities of such issuer, except that up to 25%
of the value of the Fund's total assets may be invested without regard to these
limitations and with respect to 75% of the Fund's assets, the Fund will not hold
more than 10% of the voting securities of any issuer.
The investment objective and policies of the Fund, unless otherwise specified,
may be changed without a vote of the Fund's shareholders. If the investment
objective or policies of the Fund change, shareholders should consider whether
the Fund remains an appropriate investment in light of their then current
position and needs.
In order to register the Fund's shares for sale in certain states, the Fund may
make commitments more restrictive than the investment policies and limitations
described in this Prospectus and the SAI. Should the Fund determine that any
such commitment is no longer in the best interest of the Fund, it may consider
terminating sales of its shares in the states involved.
How Performance Is Shown
From time to time the Fund may advertise the total return and yield on a class
of shares. BOTH TOTAL RETURN AND YIELD FIGURES ARE BASED ON HISTORICAL DATA AND
ARE NOT INTENDED TO INDICATE FUTURE PERFORMANCE. The "total return" of a class
of shares of the Fund may be calculated on an average annual total return basis
or an aggregate total return basis. Average annual total return refers to the
average annual compounded rates of return on a class of shares over one-, five-,
and ten-year periods or the life of the Fund (as stated in the advertisement)
that would equate an initial amount invested at the beginning of a stated period
to the ending redeemable value of the investment, assuming the reinvestment of
all dividend and capital gain distributions. Aggregate total return reflects the
total percentage change in the value of the investment over the measuring
period, again assuming the reinvestment of all dividends and capital gain
distributions. Total return may also be presented for other periods.
"Yield" is calculated by dividing the annualized net investment income per share
during a recent 30-day (or one month) period of a class of shares of the Fund by
the maximum public offering price per share on the last day of that period.
7
<PAGE>
Investment performance, which will vary, is based on many factors, including
market conditions, the composition of the Fund's portfolio and the Fund's
operating expenses. Investment performance also often reflects the risks
associated with the Fund's investment objective and policies. These factors
should be considered when comparing the Fund's investment results to those of
other mutual funds and other investment vehicles. Since yields fluctuate, yield
data cannot necessarily be used to compare an investment in the Fund with bank
deposits, savings accounts, and similar investment alternatives which often
provide an agreed-upon or guaranteed fixed yield for a stated period of time.
In addition to Investor A Shares, the Fund offers Primary A, Primary B and
Investor C Shares. Each class of shares may bear different sales charges,
shareholder servicing fees and other expenses, which may cause the performance
of a class to differ from the performance of the other classes. Total return and
yield quotations will be computed separately for each class of the Fund's
shares. Any fees charged by a selling agent and/or servicing agent directly to
its customers' accounts in connection with investments in the Fund will not be
included in calculations of total return or yield. The Fund's annual report
contains additional performance information and is available upon request
without charge from the Fund's distributor or your Agent (as defined below).
How The Fund Is Managed
The business and affairs of Nations Fund Trust are managed under the direction
of its Board of Trustees. Nations Fund Trust's SAI contains the names of and
general background information concerning each Trustee of Nations Fund Trust.
Nations Fund and the Adviser have adopted codes of ethics which contain policies
on personal securities transactions by "access persons," including portfolio
managers and investment analysts. These policies substantially comply in all
material respects with the recommendations set forth in the May 9, 1994 Report
of the Advisory Group on Personal Investing of the Investment Company Institute.
INVESTMENT ADVISER: NationsBanc Advisors, Inc. serves as investment adviser to
the Fund. NBAI is a wholly owned subsidiary of NationsBank, which in turn is a
wholly owned banking subsidiary of NationsBank Corporation, a bank holding
company organized as a North Carolina corporation. NBAI has its principal
offices at One NationsBank Plaza, Charlotte, North Carolina 28255.
TradeStreet Investment Associates, Inc., with principal offices at One
NationsBank Plaza, Charlotte, North Carolina 28255, serves as sub-investment
adviser to the Fund. TradeStreet is a wholly owned subsidiary of NationsBank.
TradeStreet provides investment management services to individuals, corporations
and institutions.
Subject to the general supervision of Nations Fund Trust's Board of Trustees,
and in accordance with the Fund's investment policies, the Adviser formulates
guidelines and lists of approved investments for the Fund, makes decisions with
respect to and places orders for the Fund's purchases and sales of portfolio
securities and maintains records relating to such purchases and sales. The
Adviser is authorized to allocate purchase and sale orders for portfolio
securities to certain financial institutions, including, in the case of agency
transactions, financial institutions which are affiliated with the Adviser or
which have sold shares in the Fund, if the Adviser believes that the quality of
the transaction and the commission are comparable to what they would be with
other qualified brokerage firms. From time to time, to the extent consistent
with its investment objective, policies and restrictions, the Fund may invest in
securities of companies with which NationsBank has a lending relationship. For
the services provided and expenses assumed pursuant to an Investment Advisory
Agreement, NBAI is enti-
<PAGE>
tled to receive an advisory fee, computed daily and paid monthly, at the annual
rate of 0.50% of the average daily net assets of the Fund.
From time to time, NBAI (and/or TradeStreet) may waive or reimburse (either
voluntarily or pursuant to applicable state limitations) advisory fees and/or
expenses payable by the Fund.
For the services provided and the expenses assumed pursuant to a Sub-Advisory
Agreement, NBAI will pay TradeStreet sub-advisory fees, computed daily and paid
monthly, at the annual rate of 0.10% of the average daily net assets of the
Fund.
Greg W. Golden is a Structured Products Manager, Equity Management for
TradeStreet and is Portfolio Manager for Nations Equity Index Fund and Nations
Managed Index Fund. He has been Portfolio Manager for Nations Managed Index Fund
since its inception. Prior to assuming his position with TradeStreet in 1996, he
was Vice President and Structured Products Manager for the Investment Management
Group at NationsBank. He has worked in the investment community since 1990. His
past experience includes portfolio management, derivatives management and
quantitative analysis for the Investment Management Group at NationsBank and
Sovran Bank of Tennessee. Mr. Golden received a B.B.A. in Finance from Belmont
University. He is a Chartered Financial Analyst candidate and a member of the
Association for Investment Management and Research as well as the North Carolina
Society of Financial Analysts, Inc.
Morrison & Foerster LLP, counsel to Nations Fund and special counsel to
NationsBank, has advised Nations Fund and NationsBank that NationsBank and its
affiliates may perform the services contemplated by the Investment Advisory
Agreement and this Prospectus without violation of the Glass-Steagall Act. Such
counsel has pointed out, however, that there are no controlling judicial or
administrative interpretations or decisions and that future judicial or
administrative interpretations of, or decisions relating to, present federal or
state statutes, including the Glass-Steagall Act, and regulations relating to
the permissible activities of banks and their subsidiaries or affiliates, as
well as future changes in federal or state statutes, including the
Glass-Steagall Act, and regulations and judicial or administrative decisions or
interpretations thereof, could prevent such entities from continuing to perform,
in whole or in part, such services. If any such entity were prohibited from
performing any of such services, it is expected that new agreements would be
proposed or entered into with another entity or entities qualified to perform
such services.
OTHER SERVICE PROVIDERS: Stephens Inc. ("Stephens"), with principal offices at
111 Center Street, Little Rock, Arkansas 72201, serves as the administrator of
Nations Fund pursuant to an Administration Agreement. Pursuant to the terms of
the Administration Agreement, Stephens provides various administrative and
corporate secretarial services to the Fund, including providing general
oversight of other service providers, office space, utilities and various legal
and administrative services in connection with the satisfaction of various
regulatory requirements applicable to the Fund.
First Data Investor Services Group, Inc. ("First Data"), formerly The
Shareholder Services Group, Inc., a wholly owned subsidiary of First Data
Corporation, with principal offices at One Exchange Place, Boston, Massachusetts
02109, serves as the co-administrator of Nations Fund pursuant to a
Co-Administration Agreement. Under the Co-Administration Agreement, First Data
provides various administrative and accounting services to the Fund including
performing the calculations necessary to determine the net asset value per share
and dividends of each class of shares of the Fund, preparing tax returns and
financial statements and maintaining the portfolio records and certain of the
general accounting records for the Fund.
For the services rendered pursuant to the Administration and Co-Administration
Agreements, Stephens and First Data are entitled to receive a combined fee at an
annual rate of up to 0.10% of the Fund's average daily net assets.
NationsBank serves as sub-administrator for Nations Fund pursuant to a
Sub-Administration Agreement. Pursuant to the terms of the Sub-
9
<PAGE>
Administration Agreement, NationsBank assists Stephens in supervising,
coordinating and monitoring various aspects of the Fund's administrative
operations. For providing such services NationsBank shall be entitled to receive
a monthly fee from Stephens based on an annual rate of 0.01% of the Fund's
average daily net assets.
Shares of the Fund are sold on a continuous basis by Stephens, as the Fund's
sponsor and distributor. Stephens is a registered broker/dealer with principal
offices at 111 Center Street, Little Rock, Arkansas 72201. Nations Fund has
entered into a distribution agreement with Stephens which provides that Stephens
has the exclusive right to distribute shares of the Fund. Stephens may pay
service fees or commissions to selling agents that assist customers in
purchasing Investor A Shares of the Fund. See "Shareholder Servicing And
Distribution Plan."
NationsBank of Texas, N.A. (the "Custodian") serves as custodian for the Fund.
The Custodian is located at 1401 Elm Street, Dallas, Texas 75202 and is a wholly
owned subsidiary of NationsBank Corporation. In return for providing custodial
services, the Custodian is entitled to receive, in addition to out-of-pocket
expenses, fees payable monthly (i) at the rate of 1.25% of 1% of the average
daily net assets of the Fund, (ii) $10.00 per repurchase collateral transaction
by the Fund, and (iii) $15.00 per purchase, sale and maturity transaction
involving the Fund.
First Data serves as transfer agent (the "Transfer Agent") for the Fund's
Investor A Shares. The Transfer Agent is located at One Exchange Place, Boston,
Massachusetts 02109.
Price Waterhouse LLP serves as independent accountant to Nations Fund. Its
address is 160 Federal Street, Boston, Massachusetts 02110.
EXPENSES: The accrued expenses of the Fund, as well as certain expenses
attributable to Investor A Shares, are deducted from accrued income before
dividends are declared. The Fund's expenses include, but are not limited to:
fees paid to the Adviser, NationsBank, Stephens and First Data; interest;
trustees' fees; federal and state securities registration and qualification
fees; brokerage fees and commissions; costs of preparing and printing
prospectuses for regulatory purposes and for distribution to existing
shareholders; charges of the Custodian and Transfer Agent; certain insurance
premiums; outside auditing and legal expenses; costs of shareholder reports and
shareholder meetings; other expenses which are not expressly assumed by the
Adviser, NationsBank, Stephens or First Data under their respective agreements
with Nations Fund; and any extraordinary expenses. Investor A Shares bear
certain class specific retail transfer agency expenses and also bear certain
additional shareholder service and/or sales support costs. Any general expenses
of Nations Fund Trust that are not readily identifiable as belonging to a
particular investment portfolio are allocated among all portfolios in the
proportion that the assets of a portfolio bears to the assets of Nations Fund
Trust or in such other manner as the Board of Trustees deems appropriate.
Organization And History
The Fund is a member of the Nations Fund Family, which consists of Nations Fund
Trust, Nations Fund, Inc., Nations Fund Portfolios, Inc. and Nations
Institutional Reserves. The Nations Fund Family currently consists of more than
43 distinct investment portfolios and total assets in excess of $18 billion.
NATIONS FUND TRUST: Nations Fund Trust was organized as a Massachusetts business
trust on May 6, 1985. Nations Fund Trust's fiscal year end is March 31; prior to
1996, Nations Fund Trust's fiscal year end was November 30. The Fund currently
offers four classes of shares -- Primary A Shares, Primary B Shares, Investor A
Shares and Investor C Shares. This Prospectus
10
<PAGE>
relates only to the Investor A Shares of Nations Managed Index Fund. To obtain
additional information regarding the Fund's other classes of shares which may be
available to you, contact your Agent (as defined below) or Nations Fund at
1-800-321-7854.
Each share of Nations Fund Trust is without par value, represents an equal
proportionate interest in the related fund with other shares of the same class,
and is entitled to such dividends and distributions out of the income earned on
the assets belonging to such fund as are declared in the discretion of Nations
Fund Trust's Board of Trustees. Nations Fund Trust's Declaration of Trust
authorizes the Board of Trustees to classify or reclassify any class of shares
into one or more series of shares.
Shareholders are entitled to one vote for each full share held and a
proportionate fractional vote for each fractional share held. Shareholders of
each fund of Nations Fund Trust will vote in the aggregate and not by fund, and
shareholders of each fund will vote in the aggregate and not by class except as
otherwise expressly required by law or when the Board of Trustees determines
that the matter to be voted on affects only the interests of shareholders of a
particular fund or class. See Nations Fund Trust's SAI for examples of when the
Investment Company Act of 1940 (the "1940 Act") requires voting by fund.
As of July 15, 1996, NationsBank and its affiliates possessed or shared power to
dispose or vote with respect to more than 25% of the outstanding shares of
certain classes of shares of Nations Fund Trust and therefore could be
considered to be a controlling person of these classes and series of Nations
Fund Trust for purposes of the 1940 Act. For more detailed information
concerning the percentage of each class or series of shares over which
NationsBank and its affiliates possessed or shared power to dispose or vote as
of a certain date, see Nations Fund Trust's SAI.
Nations Fund Trust does not presently intend to hold annual meetings except as
required by the 1940 Act. Shareholders will have the right to remove Trustees.
Nations Fund Trust's Code of Regulations provides that special meetings of
shareholders shall be called at the written request of the shareholders entitled
to vote at least 10% of the outstanding shares of Nations Fund Trust entitled to
be voted at such meeting.
About Your Investment
How To Buy Shares
The Fund has established various procedures for purchasing Investor A Shares in
order to accommodate different investors. Purchase orders for Investor A Shares
may be placed directly with the Fund or through banks, broker/dealers or other
financial institutions (including certain affiliates of NationsBank) that have
entered into a shareholder servicing agreement ("Servicing Agreement") with
Nations Fund ("Servicing Agents") and/or a sales support agreement ("Sales
Support Agreement") with Stephens ("Selling Agents"). Servicing Agents and
Selling Agents are sometimes referred to hereafter as "Agents."
In addition, Investor A Shares may be purchased through a Nations Fund Personal
Investment Planner account, which is a managed agency/asset allocation account
established with NBAI (an "Account"). Investments through an Account are
governed by the terms and conditions of the Account, which are set forth in the
Client Agreement and Disclosure Statement provided by NBAI to each investor who
establishes an Account. Because of the nature of the Account, certain of the
features described in this Prospectus are not available to investors purchasing
Investor A Shares through an Account. Potential investors through an Account
should refer to the Client Agreement and Disclo-
11
<PAGE>
sure Statement for more information regarding the Account, including information
regarding the fees and expenses charged in connection with an Account.
There is a minimum initial investment of $1,000 in the Fund, except that the
minimum initial investment is:
(Bullet) $500 for IRA investors;
(Bullet) $250 for non-working spousal IRAs; and
(Bullet) $100 for investors participating on a monthly basis in the Systematic
Investment Plan described below.
There is no minimum investment amount for investments by 401(k) plans,
simplified employee pension plans ("SEPs"), salary reduction-simplified employee
pension plans ("SAR-SEPs") or salary reduction-Individual Retirement Accounts
("SAR-IRAs"). However, the assets of such plans must reach an asset value of
$1,000 ($500 for SEPs, SAR-SEPs and SAR-IRAs) within one year of the account
open date. If the assets of such plans do not reach the minimum asset size
within one year, Nations Fund reserves the right to redeem the shares held by
such plans on 60 days' written notice. The minimum subsequent investment is
$100, except for investments pursuant to the Systematic Investment Plan
described below.
Investor A Shares are purchased at net asset value per share. Purchases may be
effected on days on which the New York Stock Exchange (the "Exchange") is open
for business (a "Business Day").
Nations Fund and Stephens reserve the right to reject any purchase order. The
issuance of Investor A Shares is recorded on the books of the Fund, and share
certificates are not issued unless expressly requested in writing. Certificates
are not issued for fractional shares.
OPENING AN ACCOUNT DIRECTLY WITH THE FUND: Investors may open a regular
(non-retirement) account directly with the Fund, either by mail or by wire.
BY MAIL: Investors should complete a New Account Application and forward it,
along with a check made payable to the Fund, to:
Nations Fund
P.O. Box 34602
Charlotte, NC 28254-4602
BY WIRE: Investors should call Investor Services at 1-800-982-2271 for an
account number and use the following wire instructions:
Nations Fund
c/o Boston Safe Deposit & Trust
ABA #011001234
DDA #154202
Account Name
Account Number
Fund Name
Investors should complete a New Account Application and mail it to the address
above.
RETIREMENT ACCOUNTS: For IRAs and other retirement accounts, investors should
call Investor Services at 1-800-982-2271.
ADDITIONAL PURCHASES: Additional purchases may be made by mail or wire. To
purchase additional shares by mail, send a check made payable to the Fund with a
reinvestment slip to the address set forth above. To purchase additional shares
by wire, follow the wiring instructions set forth above.
EFFECTIVE TIME OF PURCHASES: Purchase orders for Investor A Shares in the Fund
which are received by Stephens or by the Transfer Agent before the close of
regular trading hours on the Exchange (currently 4:00 p.m., Eastern time) on any
Business Day are priced according to the net asset value determined on that day
but are not executed until 4:00 p.m., Eastern time, on the Business Day on which
immediately available funds in payment of the purchase price are received by the
Fund's Custodian. Such payment must be received no later than 4:00 p.m., Eastern
time, by the third Business Day following receipt of the order. If funds are not
received by such date, the order will not be accepted and notice thereof will be
given to the Agent placing the order. Payment for orders which are not
12
<PAGE>
received or accepted will be returned after prompt inquiry to the sending Agent.
The Agents are responsible for transmitting orders for purchases of Investor A
Shares by their customers ("Customers"), and delivering required funds, on a
timely basis. Stephens is responsible for transmitting orders it receives to
Nations Fund.
SYSTEMATIC INVESTMENT PLAN: Under the Fund's Systematic Investment Plan ("SIP")
a shareholder may automatically purchase Investor A Shares. On a bi-monthly,
monthly or quarterly basis, a shareholder may direct cash to be transferred
automatically from his/her checking or savings account at any bank which is a
member of the Automated Clearing House to his/her Fund account. Transfers will
occur on or about the 15th and/or 30th day of the applicable month. The
systematic investment amount may be in any amount from $25 to $100,000. For more
information concerning the SIP, contact your Agent or Investor Services.
TELEPHONE TRANSACTIONS: Investors may effect purchases, redemptions (up to
$50,000) and exchanges by telephone. See "How To Redeem Shares" and "How To
Exchange Shares" below. Shareholders should be aware that by using the telephone
transaction feature, such shareholders may be giving up a measure of security
that they may have if they were to authorize written requests only. A
shareholder may bear the risk of any resulting losses from a telephone
transaction. Nations Fund will employ reasonable procedures to confirm that
instructions communicated by telephone are genuine, and if Nations Fund and its
service providers fail to employ such measures, they may be liable for any
losses due to unauthorized or fraudulent instructions. Nations Fund requires a
form of personal identification prior to acting upon instructions received by
telephone and provides written confirmation to shareholders of each telephone
share transaction. In addition, Nations Fund reserves the right to record all
telephone conversations.
How To Redeem Shares
For shareholders who open and maintain an account directly with the Fund,
redemption orders should be communicated to the Fund by calling Investor
Services at 1-800-982-2271 or in writing. (Shareholders must have established
telephone features on their account in order to effect telephone transactions.)
Redemption proceeds are normally sent by mail or wired within three Business
Days after receipt of the order by the Fund. For shareholders who purchased
their shares through an Agent, redemption orders should be transmitted by
telephone or in writing through the same Agent. Redemption proceeds are normally
wired to the redeeming Agent within three Business Days after receipt of the
order by Stephens or by the Transfer Agent. Redemption orders are effected at
the net asset value per share next determined after receipt of the order by the
Fund, Stephens, or the Transfer Agent, as the case may be. The Agents are
responsible for transmitting redemption orders to Stephens or to the Transfer
Agent and for crediting their Customer's account with the redemption proceeds on
a timely basis. Redemption proceeds for shares purchased by check may not be
remitted until at least 15 days after the date of purchase to ensure that the
check has cleared; a certified check, however, is deemed to be cleared
immediately. No charge for wiring redemption payments is imposed by Nations
Fund. There is no redemption charge.
Nations Fund may redeem a shareholder's Investor A Shares upon 60 days' written
notice if the balance in the shareholder's account drops below $500 as a result
of redemptions. Share balances also may be redeemed at the direction of an Agent
pursuant to arrangements between the Agent and its Customers. Nations Fund also
may redeem shares of the Fund involuntarily or make payment for redemption in
readily marketable securities or other property under certain circumstances in
accordance with the 1940 Act.
13
<PAGE>
Prior to effecting a redemption of Investor A Shares represented by
certificates, the Transfer Agent must have received such certificates at its
principal office. All such certificates must be endorsed by the redeeming
shareholder or accompanied by a signed stock power, in each instance with the
signature guaranteed by a commercial bank or a member of a major stock exchange,
unless other arrangements satisfactory to Nations Fund have previously been
made. Nations Fund may require any additional information reasonably necessary
to evidence that a redemption has been duly authorized.
AUTOMATIC WITHDRAWAL PLAN: An Automatic Withdrawal Plan ("AWP") may be
established by a new or existing shareholder of the Fund if the value of the
Investor A Shares in his/her accounts within the Nations Fund Family (valued at
the net asset value at the time of the establishment of the AWP) equals $10,000
or more. Shareholders who elect to establish an AWP may receive a monthly,
quarterly or annual check or automatic transfer to a checking or savings account
in a stated amount of not less than $25 on or about the 10th or 25th day of the
applicable month of withdrawal. Investor A Shares will be redeemed as necessary
to meet withdrawal payments. Withdrawals will reduce principal and may
eventually deplete the shareholder's account. If a shareholder desires to
establish an AWP after opening an account, a signature guarantee will be
required. An AWP may be terminated by a shareholder on 30 days' written notice
to his/her Agent or by Nations Fund at any time.
How To Exchange Shares
GENERAL: The exchange feature enables a shareholder of a fund of Nations Fund to
acquire shares of the same class that are offered by any other fund of Nations
Fund when the shareholder believes that a shift between funds is an appropriate
investment decision. A qualifying exchange is based on the next calculated net
asset value per share of each fund after the exchange order is received.
For shareholders who maintain an account directly with the Fund, exchange
requests should be communicated to the Fund by calling Investor Services at
1-800-982-2271 or in writing. For shareholders who purchased their shares
through an Agent, exchange requests should be communicated to the Agent, who is
responsible for transmitting the request to Stephens or to the Transfer Agent.
The Fund and each of the other funds of Nations Fund may limit the number of
times this exchange feature may be exercised by a shareholder within a specified
period of time. Also, the exchange feature may be terminated or revised at any
time by Nations Fund upon such notice as may be required by applicable
regulatory agencies (presently 60 days for termination or material revision),
absent unusual circumstances.
The current prospectus for each fund of Nations Fund describes its investment
objective and policies, and shareholders should obtain a copy and examine it
carefully before investing. Exchanges are subject to the minimum investment
requirement and any other conditions imposed by each fund. In the case of any
shareholder holding a share certificate or certificates, no exchanges may be
made until all applicable share certificates have been received by the Transfer
Agent and deposited in the shareholder's account. An exchange will be treated
for Federal income tax purposes the same as a redemption of shares, on which the
shareholder may realize a capital gain or loss. And, the ability to deduct
capital losses on an exchange may be limited in situations where there is an
exchange of shares within 90 days after the shares are purchased.
The Investor A Shares exchanged must have a current value of at least $1,000
(except for exchanges through the Automatic Exchange Feature, which is described
below). Nations Fund reserves the right to reject any exchange request. Only
shares that may legally be sold in
14
<PAGE>
the state of the shareholder's residence may be acquired in an exchange. Only
shares of a class that is accepting investments generally may be acquired in an
exchange. During periods of significant economic or market change, telephone
exchanges may be difficult to complete. In such event, shareholders should
consider communicating their exchange requests by mail.
Investor A Shares of the Fund are offered without any Contingent Deferred Sales
Charge ("CDSC"). However, Investor A Shares of other funds within the Nations
Fund Family may have been sold subject to a CDSC. If a shareholder exchanges any
such shares (the "Exchanged Shares") for Investor A Shares of the Fund, the
shares of the Fund will be subject to the CDSC. The holding period of such
Investor A Shares (for purposes of determining whether a CDSC is applicable upon
redemption) will be computed from the time of the original purchase of the
Exchanged Shares (or, if the Exchanged Shares were acquired in an exchange, from
the time of the original purchase of Investor A Shares).
AUTOMATIC EXCHANGE FEATURE: Under the Fund's Automatic Exchange Feature ("AEF")
a shareholder may automatically exchange at least $25 on a monthly or quarterly
basis. A shareholder may direct proceeds to be exchanged from one fund of
Nations Fund to another as allowed by the applicable exchange rules within the
Prospectus. Exchanges will occur on or about the 15th or 30th day of the
applicable month. The shareholder must have an existing position in both Funds
in order to establish the AEF. This feature may be established by directing a
request to the Transfer Agent by telephone or in writing. For additional
information, a shareholder should contact his/her Selling Agent or Investor
Services.
Shareholder Servicing And Distribution
Plan
The Fund's Shareholder Servicing and Distribution Plan (the "Investor A Plan"),
adopted pursuant to Rule 12b-1 under the 1940 Act, permits the Fund to
compensate (i) Servicing Agents and Selling Agents for services provided to
their Customers that own Investor A Shares and (ii) Stephens for
distribution-related expenses incurred in connection with Investor A Shares.
Aggregate payments under the Investor A Plan are calculated daily and paid
monthly at a rate or rates set from time to time by the Fund, provided that the
annual rate may not exceed 0.25% of the average daily net asset value of the
Investor A Shares of the Fund.
The fees payable to Servicing Agents under the Investor A Plan are used
primarily to compensate or reimburse Servicing Agents for shareholder services
provided, and related expenses incurred, by such Servicing Agents. The
shareholder services provided by Servicing Agents may include: (i) aggregating
and processing purchase and redemption requests for Investor A Shares from
Customers and transmitting net purchase and redemption orders to Stephens or the
Transfer Agent; (ii) providing Customers with a service that invests the assets
of their accounts in Investor A Shares pursuant to specific or preauthorized
instructions; (iii) processing dividend and distribution payments from the Fund
on behalf of Customers; (iv) providing information periodically to Customers
showing their positions in Investor A Shares; (v) arranging for bank wires; and
(vi) providing general shareholder liaison services. The fees payable to Selling
Agents are used primarily to compensate or reimburse Selling Agents for
providing sales support assistance in connection with the sale of Investor A
Shares to Customers, which may include forwarding sales literature and
advertising provided by Nations Fund to Customers.
The fees under the Investor A Plan also may be used to reimburse Stephens for
distribution-related expenses actually incurred by Stephens, including, but not
limited to, expenses of
15
<PAGE>
organizing and conducting sales seminars, printing prospectuses and statements
of additional information (and supplements thereto) and reports for other than
existing shareholders, preparation and distribution of advertising and sales
literature and the costs of administering the Investor A Plan.
Stephens may, from time to time, at its expense or as an expense for which it
may be reimbursed under the Investor A Plan, pay a bonus or other consideration
or incentive to Agents who sell a minimum dollar amount of shares of the Fund
during a specified period of time. Stephens also may, from time to time, pay
additional consideration to Agents not to exceed 1.00% of the offering price per
share on all sales of Investor A Shares as an expense of Stephens or for which
Stephens may be reimbursed under the Investor A Plan. Any such additional
consideration or incentive program may be terminated at any time by Stephens.
In addition, Stephens has established a non-cash compensation program, pursuant
to which broker/dealers or financial institutions that sell shares of the Fund
may earn additional compensation in the form of trips to sales seminars or
vacation destinations, tickets to sporting events, theater or other
entertainment, opportunities to participate in golf or other outings and gift
certificates for meals or merchandise. This non-cash compensation program may be
amended or terminated at any time by Stephens.
Nations Fund and Stephens may suspend or reduce payments under the Investor A
Plan at any time, and payments are subject to the continuation of the Investor A
Plan described above and the terms of the Servicing Agreement and Sales Support
Agreement. See the SAI for more details on the Investor A Plan.
Nations Fund understands that Agents may charge fees to their Customers who are
the owners of Investor A Shares for various services provided in connection with
a Customer's account. These fees would be in addition to any amounts received by
a Selling Agent under its Sales Support Agreement with Stephens or by a
Servicing Agent under its Servicing Agreement with Nations Fund. The Sales
Support Agreement and Servicing Agreement require Agents to disclose to their
Customers any compensation payable to the Agent by Stephens or Nations Fund and
any other compensation payable by the Customers for various services provided in
connection with their accounts. Customers should read this Prospectus in light
of the terms governing their accounts with their Agents.
How The Fund Values Its Shares
The Fund calculates the net asset value of a share of each class by dividing the
total value of its assets, less liabilities, by the number of shares in the
class outstanding. Shares are valued as of the close of regular trading on the
Exchange (currently 4:00 p.m., Eastern time) on each Business Day. Currently,
the days on which the Exchange is closed (other than weekends) are: New Year's
Day, Presidents' Day, Good Friday, Memorial Day (observed), Independence Day,
Labor Day, Thanksgiving Day and Christmas Day.
Portfolio securities for which market quotations are readily available are
valued at market value. Short-term investments that will mature in 60 days or
less are valued at amortized cost, which approximates market value. All other
securities and assets are valued at their fair value following procedures
approved by the Trustees.
16
<PAGE>
How Dividends And Distributions Are
Made; Tax Information
DIVIDENDS AND DISTRIBUTIONS: Even though the Fund seeks to manage taxable
distributions, the Fund may be expected to earn and distribute taxable income
and may also be expected to realize and distribute capital gains from time to
time. Dividends from net investment income are declared and paid each calendar
quarter by the Fund. The Fund's net realized capital gains (including net
short-term capital gains) are distributed at least annually.
Investor A Shares of the Fund are eligible to receive dividends when declared,
provided however, that the purchase order for such shares is received at least
one day prior to the dividend declaration and such shares continue to be
eligible for dividends through and including the day before the redemption order
is executed.
The net asset value of Investor A Shares will be reduced by the amount of any
dividend or distribution. Certain Agents may provide for the reinvestment of
dividends in the form of additional Investor A Shares of the same class in the
same Fund. Dividends and distributions are paid in cash within five Business
Days of the end of the quarter to which the dividend relates. Dividends and
distributions payable to a shareholder are paid in cash within five Business
Days after a shareholder's complete redemption of his/her Investor A Shares.
TAX INFORMATION: The Fund intends to qualify as a "regulated investment company"
under the Internal Revenue Code of 1986, as amended (the "Code"). Such
qualification relieves the Fund of liability for Federal income tax on amounts
distributed in accordance with the Code.
The Fund intends to distribute substantially all of its investment company
taxable income and net tax-exempt income each taxable year. Distributions by the
Fund of its net investment income and the excess, if any, of its net short-term
capital gain over its net long-term capital loss are taxable as ordinary income
to shareholders who are not currently exempt from Federal income tax, whether
such income is received in cash or reinvested in additional shares.
Corporate investors in the Fund may be entitled to the dividends received
deduction on all or a portion of the Fund's dividends.
Substantially all of the Fund's net realized long-term capital gains will be
distributed at least annually. The Fund will generally have no tax liability
with respect to such gains, and the distributions will be taxable to
shareholders who are not exempt from Federal income tax as long-term capital
gains, regardless of how long the shareholders have held the Fund's shares and
whether such gains are received in cash or reinvested in additional shares.
Each year, shareholders will be notified as to the amount and Federal tax status
of all dividends and capital gains paid during the prior year. Such dividends
and capital gains may be subject to state and local taxes.
Dividends declared in October, November, or December of any year payable to
shareholders of record on a specified date in such months will be deemed to have
been received by shareholders and paid by the Fund on December 31 of such year
in the event such dividends are actually paid during January of the following
year.
Federal law requires Nations Fund to withhold 31% from any dividends (other than
exempt-interest dividends) paid by Nations Fund and/or redemptions (including
exchange redemptions) that occur in certain shareholder accounts if the
shareholder has not properly furnished a certified correct Taxpayer
Identification Number or has not certified that withholding does not apply, or
if the Internal Revenue Service has notified Nations Fund that the Taxpayer
Identification Number listed on a shareholder account is incorrect according to
its records, or that the shareholder is subject to backup withholding. Amounts
withheld are applied to the share-
17
<PAGE>
holder's Federal tax liability, and a refund may be obtained from the Internal
Revenue Service if withholding results in overpayment of taxes. Federal law also
requires the Fund to withhold 30% or the applicable tax treaty rate from
dividends paid to certain nonresident alien, non-U.S. partnership and non-U.S.
corporation shareholder accounts.
The foregoing discussion is based on tax laws and regulations which were in
effect as of the date of this Prospectus and summarizes only some of the
important Federal tax considerations generally affecting the Fund and its
shareholders. It is not intended as a substitute for careful tax planning;
investors should consult their tax advisors with respect to their specific tax
situations as well as with respect to state and local taxes. Further tax
information is contained in the SAI.
Appendix A -- Portfolio Securities
The following are summary descriptions of certain types of instruments in which
the Fund may invest. The "How Objective Is Pursued" section of the Prospectus
identifies the Fund's permissible investments, and the SAI contains more
information concerning such investments.
BANK INSTRUMENTS: Bank instruments consist mainly of certificates of deposit,
time deposits and bankers' acceptances. The Fund will limit its investments in
bank obligations so they do not exceed 25% of the Fund's total assets at the
time of purchase.
BORROWINGS: When the Fund borrows money, the net asset value of a share may be
subject to greater fluctuation until the borrowing is paid off. The Fund may
borrow money from banks for temporary purposes in amounts of up to one-third of
its total assets, provided that borrowings in excess of 5% of the value of the
Fund's total assets must be repaid prior to the purchase of portfolio
securities. Under the requirements of the 1940 Act, the Fund is required to
maintain an asset coverage (including the proceeds of the borrowings) of at
least 300% of all borrowings.
COMMERCIAL INSTRUMENTS: Commercial instruments consist of short-term U.S.
dollar-denominated obligations issued by domestic corporations or foreign
corporations and foreign commercial banks. Investments by the Fund in commercial
paper will consist of issues rated in a manner consistent with the Fund's
investment policies and objective. In addition, the Fund may acquire unrated
commercial paper and corporate bonds that are determined by the Adviser at the
time of purchase to be of comparable quality to rated instruments that may be
acquired by the Fund. Commercial instruments include variable-rate master demand
notes, which are unsecured instruments that permit the indebtedness thereunder
to vary and provide for periodic adjustments in the interest rate, and variable-
and floating-rate instruments.
CONVERTIBLE SECURITIES, PREFERRED STOCK, AND WARRANTS: The Fund may invest in
debt securities convertible into or exchangeable for equity securities,
preferred stocks or warrants. Preferred stocks are securities that represent an
ownership interest in a corporation providing the owner with claims on a
company's earnings and assets before common stock owners, but after bond or
other debt security owners. Warrants are options to buy a stated number of
shares of common stock at a specified price any time during the life of the
warrants.
FUTURES, OPTIONS AND OTHER DERIVATIVE INSTRUMENTS: The Fund may attempt to
reduce the overall level of investment risk of particular securities and attempt
to protect the Fund against adverse market movements by investing in futures,
options and other derivative instruments. These include the purchase and writing
of options on securities (including index options), and investing in futures
contracts for the purchase or sale of instruments based on financial indices,
including interest rate indices or indices of U.S. government, equity or fixed
income securities ("futures contracts"), options
18
<PAGE>
on futures contracts, forward contracts and swaps and swap-related products such
as interest rate swaps, currency swaps, caps, collars and floors.
The use of futures, options, forward contracts and swaps exposes the Fund to
additional investment risks and transaction costs. If the Adviser incorrectly
analyzes market conditions or does not employ the appropriate strategy with
respect to these instruments, the Fund could be left in a less favorable
position. Additional risks inherent in the use of futures, options, forward
contracts and swaps include: imperfect correlation between the price of futures,
options and forward contracts and movements in the prices of the securities or
currencies being hedged; the possible absence of a liquid secondary market for
any particular instrument at any time; and the possible need to defer closing
out certain hedged positions to avoid adverse tax consequences. The Fund may not
purchase put and call options which are traded on a national stock exchange in
an amount exceeding 5% of its net assets. Further information on the use of
futures, options and other derivative instruments, and the associated risks, is
contained in the SAI.
ILLIQUID SECURITIES: Certain securities may be sold only pursuant to certain
legal restrictions, and may be difficult to sell. The Fund will not hold more
than 15% of the value of its net assets in securities that are illiquid or such
lower percentage as may be required by the states in which the Fund sells its
shares. Repurchase agreements, time deposits and guaranteed investment contracts
that do not provide for payment to the Fund within seven days after notice, and
illiquid restricted securities are subject to the limitation on illiquid
securities.
If otherwise consistent with its investment objective and policies, the Fund may
purchase securities that are not registered under the Securities Act of 1933, as
amended (the "1933 Act") but which can be sold to "qualified institutional
buyers" in accordance with Rule 144A 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 the Fund's Board of Trustees or the
Adviser, acting under guidelines approved and monitored by the Fund's Board,
after considering trading activity, availability of reliable price information
and other relevant information, that an adequate trading market exists for that
security. To the extent that, for a period of time, qualified institutional 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.
MONEY MARKET INSTRUMENTS: The term "money market instruments" refers to
instruments with remaining maturities of one year or less. Money market
instruments may include, among other instruments, certain U.S. Treasury
obligations, U.S. Government obligations, bank instruments, commercial
instruments, repurchase agreements and municipal securities. Such instruments
are described in this Appendix A.
OTHER INVESTMENT COMPANIES: The Fund may invest in securities issued by other
investment companies to the extent that such investments are consistent with the
Fund's investment objective and policies and permissible under the 1940 Act. As
a shareholder of another investment company, the Fund would bear, along with
other shareholders, its pro rata portion of the other investment company's
expenses, including advisory fees. These expenses would be in addition to the
advisory and other expenses that the Fund bears directly in connection with its
own operations.
REPURCHASE AGREEMENTS: A repurchase agreement involves the purchase of a
security by the Fund and a simultaneous agreement (generally with a bank or
broker/dealer) to repurchase that security from the Fund at a specified price
and date or upon demand. This technique offers a method of earning income on
idle cash. A risk associated with repurchase agreements is the failure of the
seller to repurchase the securities as agreed, which may cause the Fund to
suffer a loss if the market value of such securities declines before they can be
liquidated on the open market. Repurchase agreements with a duration of more
than seven days are considered illiquid securities and are subject to the limit
stated above. The Fund may enter into repur-
19
<PAGE>
chase agreements jointly with other investment portfolios of Nations Fund.
SECURITIES LENDING: To increase return on portfolio securities, the Fund may
lend its portfolio securities to broker/dealers and other institutional
investors pursuant to agreements requiring that the loans be continuously
secured by collateral equal at all times in value to at least the market value
of the securities loaned. There is a risk of delay in receiving collateral or in
recovering the securities loaned or even a loss of rights in the collateral
should the borrower of the securities fail financially. However, loans are made
only to borrowers deemed by the Adviser to be credit worthy and when, in its
judgment, the income to be earned from the loan justifies the attendant risks.
The aggregate of all outstanding loans of the Fund may not exceed 30% of the
value of its total assets.
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 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 Association; 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.
WHEN-ISSUED, DELAYED DELIVERY AND FORWARD COMMITMENT SECURITIES: The purchase of
new issues of securities on a "when-issued," "delayed delivery" or "forward
commitment" basis occurs when the payment for and delivery of securities takes
place at a future date. Because actual payment for and delivery of such
securities generally take place 15 to 45 days after the purchase date,
purchasers of such securities bear the risk that interest rates on debt
securities at the time of delivery may be higher or lower than those contracted
for on the security purchased.
20
<PAGE>
Prospectus
INVESTOR A SHARES
JULY 31, 1996
This Prospectus describes NATIONS VALUE FUND,
NATIONS EQUITY INCOME FUND, NATIONS BALANCED ASSETS
FUND, NATIONS CAPITAL GROWTH FUND, NATIONS EMERGING
GROWTH FUND AND NATIONS DISCIPLINED EQUITY FUND
(the "Funds") of Nations Fund Trust and Nations
Fund, Inc., each an open-end management investment
company in the Nations Fund Family ("Nations Fund"
or "Nations Fund Family"). This Prospectus
describes one class of shares of the
Funds -- Investor A Shares.
This Prospectus sets forth concisely the
information about the Funds that prospective
purchasers of Investor A Shares should consider
before investing. Investors should read this
Prospectus and retain it for future reference.
Additional information about Nations Fund Trust and
Nations Fund, Inc. is contained in separate
Statements of Additional Information (the "SAIs"),
that have been filed with the Securities and
Exchange Commission (the "SEC") and are available
upon request without charge by writing or calling
Nations Fund at its address or telephone number
shown below. The SAIs for Nations Fund Trust and
Nations Fund, Inc., each dated July 31, 1996, are
incorporated by reference in their entirety into
this Prospectus. NationsBanc Advisors, Inc.
("NBAI") is the investment adviser to the Funds.
TradeStreet Investment Associates, Inc.
("TradeStreet") is sub-investment adviser to the
Funds. As used herein the "Adviser" shall mean NBAI
and/or TradeStreet as the context may require.
SHARES OF NATIONS FUND ARE NOT DEPOSITS OR OTHER
OBLIGATIONS OF, OR ISSUED, ENDORSED OR GUARANTEED
BY, NATIONSBANK, N.A. ("NATIONSBANK") OR ANY OF ITS
AFFILIATES. SUCH SHARES ARE NOT INSURED BY THE U.S.
GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER
GOVERNMENT AGENCY. AN INVESTMENT IN THE FUNDS
INVOLVES CERTAIN RISKS, INCLUDING POSSIBLE LOSS OF
PRINCIPAL.
NATIONSBANK AND CERTAIN OF ITS AFFILIATES PROVIDE
CERTAIN OTHER SERVICES TO NATIONS FUND, FOR WHICH
THEY ARE COMPENSATED. STEPHENS INC., WHICH IS NOT
AFFILIATED WITH NATIONSBANK, IS THE SPONSOR AND
ADMINISTRATOR AND SERVES AS THE DISTRIBUTOR FOR
NATIONS FUND.
THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
GROWTH AND INCOME FUNDS:
Nations Value Fund
Nations Equity Income Fund
Nations Balanced Assets
Fund
GROWTH FUNDS:
Nations Capital Growth Fund
Nations Emerging Growth
Fund
Nations Disciplined Equity
Fund
For Fund information call:
1-800-321-7854
Nations Fund
c/o Stephens Inc.
One NationsBank Plaza
33rd Floor
Charlotte, NC 28255
(Nations Fund Logo
appears here)
NF-96134-796
<PAGE>
Table Of Contents
About The Funds
Prospectus Summary 3
Expenses Summary 5
Financial Highlights 7
Objectives 12
How Objectives Are Pursued 13
How Performance Is Shown 19
How The Funds Are Managed 20
Organization And History 24
About Your Investment
How To Buy Shares 26
How To Redeem Shares 27
How To Exchange Shares 29
Shareholder Servicing And Distribution Plans 30
How The Funds Value Their Shares 31
How Dividends And Distributions Are Made;
Tax Information 32
Appendix A -- Portfolio Securities 33
Appendix B -- Description Of Ratings 40
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT
CONTAINED IN THIS PROSPECTUS,
OR IN THE FUNDS' SAIS INCORPORATED HEREIN BY
REFERENCE, IN CONNECTION WITH THE OFFERING MADE BY
THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY NATIONS FUND OR
ITS DISTRIBUTOR. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFERING BY NATIONS FUND OR BY THE
DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH
OFFERING MAY NOT LAWFULLY BE MADE.
2
<PAGE>
About The Funds
Prospectus Summary
(Bullet) TYPE OF COMPANIES: Open-end management investment companies.
(Bullet) INVESTMENT OBJECTIVES AND POLICIES:
(Bullet) Nations Value Fund's investment objective is to seek growth of
capital by investing in companies that are believed to be
undervalued.
(Bullet) Nations Equity Income Fund's investment objective is
to seek current income and growth of capital by
investing primarily in companies with above average
dividend yields.
(Bullet) Nations Balanced Assets Fund's investment objective is
to seek total return by investing in equity and fixed
income securities.
(Bullet) Nations Capital Growth Fund's investment objective is
to seek growth of capital by investing in companies
that are believed to have superior earnings growth
potential.
(Bullet) Nations Emerging Growth Fund's investment objective is
to seek capital appreciation by investing in emerging
growth companies that are believed to have superior
long-term earnings growth prospects.
(Bullet) Nations Disciplined Equity Fund's investment obective
is to seek growth of capital by investing in companies
that are expected to produce significant increases in
earnings per share.
(Bullet) INVESTMENT ADVISER: NationsBanc Advisers, Inc. serves as the investment
adviser to the Funds. NBAI provides investment advice to more than 43
investment company portfolios in the Nations Fund Family. TradeStreet
Investment Associates, Inc. provides sub-advisory services to the
Funds. See "How The Funds Are Managed."
(Bullet) DIVIDENDS AND DISTRIBUTIONS: The Funds declare and pay dividends from
net investment income each calendar quarter. Each Fund's net realized
capital gains, including net short-term capital gains, are distributed
at least annually.
(Bullet) RISK FACTORS: Although the Adviser seeks to achieve the investment
objective of each Fund, there is no assurance that it will be able to
do so. Investments in a Fund are not insured against loss of principal.
Investments by a Fund in common stocks and other equity securities are
subject to stock market risk, which is the risk that the value of the
stocks the Fund holds may decline over short or even extended periods.
Investments by a Fund in debt securities are subject to interest rate
risk, which is the risk that increases in market interest rates will
adversely affect a Fund's investments in debt securities. The value of
a Fund's investments in debt securities, including U.S. Government
Obligations (as defined below), will tend to decrease when interest
rates rise and increase when interest rates fall. In general,
longer-term debt instruments tend to fluctuate in value more than
shorter-term debt instruments in response to interest rate movements.
In addition, debt securities which are not backed by the United States
Government are subject to credit risk, which is the risk that the
issuer may not be able to pay principal and/or interest when due.
Certain of the Funds' investments constitute derivative securities.
Certain types of derivative securities can, under certain
circumstances, significantly increase an investor's exposure to market
or other risks. For a discussion of these and other factors, see "How
Objectives Are Pursued-Risk Considerations" and "Appendix
A -- Portfolio Securities."
3
<PAGE>
(Bullet) MINIMUM PURCHASE: $1,000 minimum initial investment per record holder
except that the minimum initial investment is: $500 for Individual
Retirement Account ("IRA") investors; $250 for non-working spousal
IRAs; and $100 for investors participating on a monthly basis in the
Systematic Investment Plan. There is no minimum investment amount for
investments by certain 401(k) and employee pension plans or salary
reduction-Individual Retirement Accounts. The minimum subsequent
investment is $100, except for investments pursuant to the Systematic
Investment Plan. See "How To Buy Shares."
4
<PAGE>
Expenses Summary
Expenses are one of several factors to consider when investing in the Funds. The
following tables summarize shareholder transaction and operating expenses for
Investor A Shares of the Funds. The Examples show the cumulative expenses
attributable to a hypothetical $1,000 investment in the Funds over specified
periods.
INVESTOR A SHARES
<TABLE>
<CAPTION>
Nations Nations Nations Nations
Nations Value Equity Balanced Capital Emerging
Fund Income Fund Assets Fund Growth Fund Growth Fund
<S> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on
Purchases (as a percentage of
offering price) None None None None None
Maximum Deferred Sales Charge (as
a percentage of the lower of
the original purchase price or
redemption proceeds)1 None None None None None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net
assets)
Management Fees .75% .70% .75% .75% .75%
Rule 12b-1 Fees (including
shareholder servicing fees) .25% .25% .25% .25% .25%
Other Expenses .21% .20% .25% .21% .24%
Total Operating Expenses 1.21% 1.15% 1.25% 1.21% 1.24%
Nations
Disciplined
Equity Fund
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on
Purchases (as a percentage of
offering price) None
Maximum Deferred Sales Charge (as
a percentage of the lower of
the original purchase price or
redemption proceeds)1 None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net
assets)
Management Fees .75%
Rule 12b-1 Fees (including
shareholder servicing fees) .25%
Other Expenses .27%
Total Operating Expenses 1.27%
</TABLE>
1 Investor A Shares that were purchased prior to January 1, 1996 remain subject
to the Deferred Sales Charge, if any, applicable at the time of purchase. See
"How To Redeem Shares -- Contingent Deferred Sales Charge."
5
<PAGE>
EXAMPLES:
You would pay the following expenses on a $1,000 investment in Investor A Shares
of the Funds assuming (1) a 5% annual return and (2) redemption at the end of
each time period.
<TABLE>
<CAPTION>
Nations Nations Nations Nations
Nations Equity Balanced Capital Growth Emerging Growth
Value Fund Income Fund Assets Fund Fund Fund
<S> <C> <C> <C> <C> <C>
1 Year $ 12 $ 12 $ 13 $ 12 $ 13
3 Years $ 38 $ 37 $ 40 $ 38 $ 39
5 Years $ 66 $ 63 $ 69 $ 66 $ 68
10 Years $ 147 $ 140 $ 151 $ 147 $ 150
Nations
Disciplined
Equity Fund
1 Year $ 13
3 Years $ 40
5 Years $ 70
10 Years $ 153
</TABLE>
The purpose of the foregoing tables is to assist an investor in understanding
the various shareholder transaction and operating expenses that an investor in
Investor A Shares of the Funds will bear either directly or indirectly. The
figures in the above tables are based on amounts incurred during each Fund's
most recent fiscal year and have been adjusted as necessary to reflect current
service provider fees. For more complete descriptions of the Funds' operating
expenses, see "How The Funds Are Managed." For a more complete description of
the Rule 12b-1 and shareholder servicing fees payable by the Funds, see
"Shareholder Servicing And Distribution Plans."
THE FOREGOING SHOULD NOT BE CONSIDERED TO BE AN ACTUAL REPRESENTATION OF PAST OR
FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES AND RATES OF RETURN MAY BE
GREATER OR LESS THAN THOSE SHOWN.
6
<PAGE>
Financial Highlights
The audited financial information on the following pages has been derived from
the financial statements of Nations Fund Trust and Nations Fund, Inc. Price
Waterhouse LLP is the independent accountant to Nations Fund Trust and Nations
Fund, Inc. The reports of Price Waterhouse LLP for the most recent fiscal years
of Nations Fund Trust and Nations Fund, Inc. accompany the financial statements
for such periods and are incorporated by reference in the SAIs, which are
available upon request. For more information see "Organization And History."
Shareholders of the Funds will receive unaudited semi-annual reports describing
the Funds' investment operations and annual financial statements audited by the
Funds' independent accountant.
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS VALUE FUND
<TABLE>
<CAPTION>
PERIOD YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED ENDED
INVESTOR A SHARES 03/31/96(a) 11/30/95 11/30/94 11/30/93 11/30/92 11/30/91
<S> <C> <C> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of
period $ 16.21 $ 12.98 $ 13.72 $ 12.45 $ 11.16 $ 9.71
Net investment income 0.05 0.23 0.20 0.22 0.26 0.34
Net realized and unrealized
gain/(loss) on investments 1.06 3.92 (0.20) 1.35 1.59 1.47
Net increase/(decrease) in net
asset value from operations 1.11 4.15 0.00 1.57 1.85 1.81
Distributions:
Dividends from net investment
income (0.10) (0.25) (0.20) (0.21) (0.27) (0.36)
Distributions from net realized
capital gains (0.62) (0.67) (0.54) (0.09) (0.29) --
Total dividends and
distributions (0.72) (0.92) (0.74) (0.30) (0.56) (0.36)
Net asset value, end of period $ 16.60 $ 16.21 $ 12.98 $ 13.72 $ 12.45 $ 11.16
Total return++ 7.07% 34.22% (0.17)% 12.80% 16.96%+++ 18.79%+++
Ratios to average net
assets/supplemental data:
Net assets, end of period (in
000's) $ 54,341 $ 48,440 $ 35,445 $ 32,607 $ 24,536 $ 13,514
Ratio of operating expenses to
average net assets 1.21%+ 1.19% 1.18% 1.21% 1.06% 0.53%
Ratio of net investment income
to average net assets 1.05%+ 1.65% 1.60% 1.73% 2.15% 3.33%
Portfolio turnover rate 12% 63% 75% 64% 60% 51%
Ratio of operating expenses to
average net assets without
waivers and/or expense
reimbursements 1.21%+ 1.19% 1.18% 1.22% 1.15% 0.99%
Net investment income per share
without waivers and/or expense
reimbursements $ 0.05 $ 0.23 $ 0.21 $ 0.22 $ 0.25 $ 0.30
Average commission rate paid (b) $ 0.0648 N/A N/A N/A N/A N/A
PERIOD
ENDED
INVESTOR A SHARES 11/30/90*
Operating performance:
Net asset value, beginning of
period $ 10.04
Net investment income 0.35
Net realized and unrealized
gain/(loss) on investments (0.36)
Net increase/(decrease) in net
asset value from operations (0.01)
Distributions:
Dividends from net investment
income (0.32)
Distributions from net realized
capital gains --
Total dividends and
distributions (0.32)
Net asset value, end of period $ 9.71
Total return++ (0.16)%+++
Ratios to average net
assets/supplemental data:
Net assets, end of period (in
000's) $ 7,020
Ratio of operating expenses to
average net assets 0.21%+
Ratio of net investment income
to average net assets 4.19%+
Portfolio turnover rate 24%
Ratio of operating expenses to
average net assets without
waivers and/or expense
reimbursements 1.11%+
Net investment income per share
without waivers and/or expense
reimbursements $ 0.26
Average commission rate paid (b) N/A
</TABLE>
* Nations Value Fund Investor A Shares commenced operations on
December 6, 1989.
+ Annualized.
++ Total return represents aggregate total return for the period
indicated and does not reflect the deduction of any applicable
sales charges.
+++ Unaudited.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year
end was November 30.
(b) Average commission rate paid per share of securities purchased and
sold by the Fund.
7
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS EQUITY INCOME FUND
<TABLE>
<CAPTION>
PERIOD YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
INVESTOR A SHARES 03/31/96 (a) 05/31/95 05/31/94 05/31/93 05/31/92
<S> <C> <C> <C> <C> <C>
Operating performance:
Net asset value,
beginning of period $ 11.78 $ 11.41 $ 12.02 $ 11.40 $ 10.19
Net investment income 0.27 0.40 0.37 0.34 0.29
Net realized and
unrealized gain on
investments 1.77 1.10 0.21 1.05 1.27
Net increase in net
asset value from
operations 2.04 1.50 0.58 1.39 1.56
Distributions:
Dividends from net
investment income (0.34) (0.40) (0.38) (0.32) (0.28)
Distributions from net
realized capital gains (0.37) (0.73) (0.81) (0.45) (0.07)
Total dividends and
distributions (0.71) (1.13) (1.19) (0.77) (0.35)
Net asset value, end of
period $ 13.11 $ 11.78 $ 11.41 $ 12.02 $ 11.40
Total return++ 17.75% 14.53% 4.74% 12.78% 15.59%+++
Ratios to average net
assets/supplemental
data:
Net assets, end of
period (in 000's) $ 42,606 $ 35,538 $ 33,691 $ 32,760 $ 3,418
Ratio of operating
expenses to average
net assets 1.15%+ 1.17% 1.19% 1.17% 1.35%
Ratio of net investment
income to average net
assets 2.59%+ 3.50% 3.16% 3.12% 2.90%
Portfolio turnover rate 59% 158% 116% 55% 84%
Ratio of operating
expenses to average
net assets without
waivers and/or expense
reimbursements 1.15%+ 1.18% 1.20% 1.29% 2.46%
Net investment
income/(loss) per
share without waivers
and/or expense
reimbursements $ 0.27 $ 0.40 $ 0.37 $ 0.33 $ 0.18
Average commission rate
paid (b) $ 0.0287 N/A N/A N/A N/A
PERIOD
ENDED
INVESTOR A SHARES 05/31/91*
Operating performance:
Net asset value,
beginning of period $ 10.04
Net investment income 0.05
Net realized and
unrealized gain on
investments 0.10
Net increase in net
asset value from
operations 0.15
Distributions:
Dividends from net
investment income --
Distributions from net
realized capital gains --
Total dividends and
distributions --
Net asset value, end of
period $ 10.19
Total return++ 1.49%+++
Ratios to average net
assets/supplemental
data:
Net assets, end of
period (in 000's) $ 497
Ratio of operating
expenses to average
net assets 1.37%+
Ratio of net investment
income to average net
assets 3.40%+
Portfolio turnover rate 9%
Ratio of operating
expenses to average
net assets without
waivers and/or expense
reimbursements 15.09%+
Net investment
income/(loss) per
share without waivers
and/or expense
reimbursements $ (1.30)
Average commission rate
paid (b) N/A
</TABLE>
* Nations Equity Income Fund Investor A Shares commenced operations
on April 16, 1991.
+ Annualized.
++ Total return represents aggregate total return for the periods
indicated and does not reflect the deduction of any applicable
sales charges.
+++ Unaudited.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year
end was May 31.
(b) Average commission rate paid per share of securities purchased and
sold by the Fund.
8
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS BALANCED ASSETS FUND
<TABLE>
<CAPTION>
PERIOD YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
INVESTOR A SHARES 03/31/96(a) 11/30/95 11/30/94 11/30/93
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 12.66 $ 10.42 $ 10.86 $ 10.24
Net investment income 0.11 0.34 0.22 0.29
Net realized and unrealized gain/(loss) on
investments 0.45 2.23 (0.44) 0.62
Net increase/(decrease) in net asset value from
operations 0.56 2.57 (0.22) 0.91
Distributions:
Dividends from net investment income (0.17) (0.31) (0.22) (0.29)
Distributions from net realized capital gains (1.41) (0.02) -- --
Total dividends and distributions (1.58) (0.33) (0.22) (0.29)
Net asset value, end of period $ 11.64 $ 12.66 $ 10.42 $ 10.86
Total return++ 4.86% 25.01% (2.02)% 8.93%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 6,261 $ 5,276 $ 4,881 $ 5,191
Ratio of operating expenses to average net
assets 1.25%+ 1.24% 1.23% 1.15%
Ratio of net investment income to average net
assets 2.66%+ 3.00% 2.06% 2.57%
Portfolio turnover rate 83% 174% 156% 50%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 1.25%+ 1.24% 1.24% 1.22%
Net investment income per share without waivers
and/or expense reimbursements $ 0.11 $ 0.34 $ 0.22 $ 0.28
Average commission rate paid (b) $ 0.0598 N/A N/A N/A
PERIOD
ENDED
INVESTOR A SHARES 11/30/92*
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income 0.01
Net realized and unrealized gain/(loss) on
investments 0.23#
Net increase/(decrease) in net asset value from
operations 0.24
Distributions:
Dividends from net investment income --
Distributions from net realized capital gains --
Total dividends and distributions --
Net asset value, end of period $ 10.24
Total return++ 2.40%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 547
Ratio of operating expenses to average net
assets 0.55%+
Ratio of net investment income to average net
assets 3.60%+
Portfolio turnover rate 79%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 1.30%+
Net investment income per share without waivers
and/or expense reimbursements $ 0.01
Average commission rate paid (b) N/A
</TABLE>
* Nations Balanced Assets Fund Investor A Shares commenced operations
on October 2, 1992.
+ Annualized.
++ Total return represents aggregate total return for the period
indicated and does not reflect the deduction of any applicable
sales charges.
+++ Unaudited.
# The amount shown at this caption for each share outstanding
throughout the period may not accord with the change in the
aggregate gains and losses in the portfolio securities for the
period because of the timing of purchases and withdrawals of shares
in relation to the fluctuating market value of the portfolio.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal
year end was November 30.
(b) Average commission rate paid
per share of securities purchased and sold by the Fund.
9
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS CAPITAL GROWTH FUND
<TABLE>
<CAPTION>
PERIOD YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
INVESTOR A SHARES 03/31/96(a) 11/30/95 11/30/94 11/30/93
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 14.22 $ 11.21 $ 11.06 $ 10.67
Net investment income/(loss) 0.01 0.06 0.07 0.07
Net realized and unrealized gain on investments 0.38 3.28 0.14 0.41
Net increase in net asset value from operations 0.39 3.34 0.21 0.48
Distributions:
Dividends from net investment income (0.01) (0.07) (0.06) (0.08)
Distributions from net realized capital gains (1.19) (0.26) (0.00)(b) (0.01)
Total dividends and distributions (1.20) (0.33) (0.06) (0.09)
Net asset value, end of period $ 13.41 $ 14.22 $ 11.21 $ 11.06
Total return++ 3.02% 30.70% 1.93% 4.56%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 18,311 $ 16,770 $ 11,038 $ 11,182
Ratio of operating expenses to average net
assets 1.21%+ 1.23% 1.15% 1.05%
Ratio of net investment income/(loss) to
average net assets 0.13%+ 0.46% 0.60% 0.59%
Portfolio turnover rate 25% 80% 56% 81%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 1.21%+ 1.23% 1.16% 1.14%
Net investment income/(loss) per share without
waivers and/or expense reimbursements $ 0.01 $ 0.06 $ 0.07 $ 0.06
Average commission rate paid (c) $ 0.0632 N/A N/A N/A
PERIOD
ENDED
INVESTOR A SHARES 11/30/92*
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income/(loss) 0.01
Net realized and unrealized gain on investments 0.66#
Net increase in net asset value from operations 0.67
Distributions:
Dividends from net investment income --
Distributions from net realized capital gains --
Total dividends and distributions --
Net asset value, end of period $ 10.67
Total return++ 6.70%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 1,225
Ratio of operating expenses to average net
assets 0.55%+
Ratio of net investment income/(loss) to
average net assets 1.08%+
Portfolio turnover rate 7%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 1.30%+
Net investment income/(loss) per share without
waivers and/or expense reimbursements $ 0.00(b)
Average commission rate paid (c) N/A
</TABLE>
* Nations Capital Growth Fund Investor A Shares commenced operations
on October 2, 1992.
+ Annualized.
++ Total return represents aggregate total return for the period
indicated and does not reflect the deduction of any applicable
sales charges.
+++ Unaudited.
# The amount shown at this caption for each share outstanding
throughout the period may not accord with the change in the
aggregate gains and losses in the portfolio securities for the
period because of the timing of purchases and withdrawals of shares
in relation to the fluctuating market value of the portfolio.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year
end was November 30.
(b) Amount represents less than $0.01 per share.
(c) Average commission rate paid per share of securities purchased and sold by
the Fund.
10
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS EMERGING GROWTH FUND
<TABLE>
<CAPTION>
PERIOD YEAR YEAR
ENDED ENDED ENDED
INVESTOR A SHARES 03/31/96#(a) 11/30/95 11/30/94#
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 14.17 $ 11.35 $ 10.85
Net investment income/(loss) (0.01) (0.01) (0.06)
Net realized and unrealized gain on investments 1.25 3.23 0.70
Net increase in net asset value from operations 1.24 3.22 0.64
Distributions:
Distributions from net realized capital gains (1.50) (0.40) (0.14)
Total dividends and distributions (1.50) (0.40) (0.14)
Net asset value, end of period $ 13.91 $ 14.17 $ 11.35
Total return++ 9.80% 29.65% 5.90%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 7,802 $ 5,765 $ 3,234
Ratio of operating expenses to average net assets 1.24%+ 1.23% 1.26%
Ratio of net investment income/(loss) to average net assets (0.31)%+ (0.17)% (0.54)%
Portfolio turnover rate 39% 139% 129%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursement 1.24%+ 1.23% 1.26%
Net investment income/(loss) per share without waivers
and/or expense reimbursement $ (0.01) $ (0.01) $ (0.05)
Average commission rate paid (b) $ 0.0599 N/A N/A
PERIOD
ENDED
INVESTOR A SHARES 11/30/93*
Operating performance:
Net asset value, beginning of period $ 9.87
Net investment income/(loss) (0.03)
Net realized and unrealized gain on investments 1.02
Net increase in net asset value from operations 0.99
Distributions:
Distributions from net realized capital gains (0.01)
Total dividends and distributions (0.01)
Net asset value, end of period $ 10.85
Total return++ 9.99%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 2,095
Ratio of operating expenses to average net assets 1.05%+
Ratio of net investment income/(loss) to average net assets (0.40)%+
Portfolio turnover rate 159%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursement 1.26%+
Net investment income/(loss) per share without waivers
and/or expense reimbursement $ (0.04)
Average commission rate paid (b) N/A
</TABLE>
* Nations Emerging Growth Fund Investor A Shares commenced operations on
December 10, 1992.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
# Per share numbers have been calculated using the monthly average share
method, which more appropriately presents the per share data for the period
since the use of the undistributed income method did not accord with the
results of operations.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
(b) Average commission rate paid per share of securities purchased and sold by
the Fund.
11
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS DISCIPLINED EQUITY FUND
<TABLE>
<CAPTION>
PERIOD YEAR PERIOD
ENDED ENDED ENDED
INVESTOR A SHARES 03/31/96(a) 11/30/95 11/30/94*
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 17.04 $ 13.06 $ 13.30
Net investment income/(loss) 0.04 0.09 0.00(b)
Net realized and unrealized gain/(loss) on investments 0.35 3.96 (0.23)#
Net increase/(decrease) in net asset value from operations 0.39 4.05 (0.23)
Distributions:
Dividends from net investment income (0.04) (0.07) (0.01)
Distributions from net realized capital gains (0.23) -- --
Return of capital -- -- (0.00)(b)
Total dividends and distributions: (0.27) (0.07) (0.01)
Net asset value, end of period $ 17.16 $ 17.04 $ 13.06
Total return++ 2.35% 31.05% (1.71)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 4,722 $ 3,234 $ 252
Ratio of operating expenses to average net assets 1.12%+ 1.40% 1.23%+
Ratio of net investment income/(loss) to average net assets 0.72%+ 0.75% 0.02%+
Portfolio turnover rate 47% 124% 177%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 1.12%+ 1.40% 1.66%+
Net investment income/(loss) per share without waivers
and/or expense reimbursements $ 0.04 $ 0.09 $ (0.07)
Average commission rate paid (c) $ 0.0627 N/A N/A
PERIOD
ENDED
INVESTOR A SHARES 04/29/94*
Operating performance:
Net asset value, beginning of period $ 14.94
Net investment income/(loss) (0.04)
Net realized and unrealized gain/(loss) on investments 1.35
Net increase/(decrease) in net asset value from operations 1.31
Distributions:
Dividends from net investment income --
Distributions from net realized capital gains (2.95)
Return of capital --
Total dividends and distributions: (2.95)
Net asset value, end of period $ 13.30
Total return++ 8.31%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 165
Ratio of operating expenses to average net assets 1.30%+
Ratio of net investment income/(loss) to average net assets (0.62)%+
Portfolio turnover rate 475%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 1.74%+
Net investment income/(loss) per share without waivers
and/or expense reimbursements $ (0.07)
Average commission rate paid (c) N/A
</TABLE>
* The period for Nations Disciplined Equity Investor A Shares
reflects operations from April 30, 1994 through November 30, 1994.
The financial information for the fiscal periods through April 29,
1994 is based on the financial information for The Capitol Mutual
Funds Special Equity Portfolio Class B Shares, which were
reorganized into Investor A Shares of Nations Disciplined Equity
Fund (then named Nations Special Equity Fund) as of the close of
business on April 29, 1994. The Capitol Mutual Funds Special Equity
Portfolio Class B Shares commenced operations on July 26, 1993.
+ Annualized.
++ Total return represents aggregate total return for the period
indicated and does not reflect the deduction of any applicable
sales charges.
# The amount shown at this caption for each share outstanding
throughout the period may not accord with the change in the
aggregate gains and losses in the portfolio securities for the
period because of the timing of purchases and withdrawals of shares
in relation to the fluctuating market value of the portfolio.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year
end was November 30.
(b) Amount represents less than $0.01 per share.
(c) Average commission rate paid per share of securities purchased and sold by
the Fund.
Objectives
GROWTH AND INCOME FUNDS:
NATIONS VALUE FUND: Nations Value Fund's investment objective is to seek growth
of capital by investing in companies that are believed to be undervalued.
NATIONS EQUITY INCOME FUND: Nations Equity Income Fund's investment objective is
to seek current income and growth of capital by investing primarily in companies
with above average dividend yields.
NATIONS BALANCED ASSETS FUND: Nations Balanced Assets Fund's investment
objective is to seek total return by investing in equity and fixed income
securities.
12
<PAGE>
GROWTH FUNDS:
NATIONS CAPITAL GROWTH FUND: Nations Capital Growth Fund's investment objective
is to seek growth of capital by investing in companies that are believed to have
superior earnings growth potential.
NATIONS EMERGING GROWTH FUND: Nations Emerging Growth Fund's investment
objective is to seek capital appreciation by investing in emerging growth
companies that are believed to have superior long-term earnings growth
prospects.
NATIONS DISCIPLINED EQUITY FUND: Nations Disciplined Equity Fund's investment
objective is to seek growth of capital by investing in companies that are
expected to produce significant increases in earnings per share.
How Objectives Are Pursued
GROWTH AND INCOME FUNDS:
NATIONS VALUE FUND: The Fund invests in stocks drawn from a broad universe of
companies monitored by the Adviser. The Adviser closely monitors these
companies, rating them for quality and projecting their future earnings and
dividends as well as other factors. To qualify for purchase, an issuer would
normally have a market capitalization of $500 million or more and have an
average daily trading volume of at least $3 million. These requirements are
generally considered by the Adviser to be adequate to support normal purchase
and sale activity without materially affecting prevailing market prices of the
issuer's shares. The Adviser also analyzes key financial ratios that measure the
growth, profitability and leverage of such issuers that it believes will help
maintain a portfolio of above-average quality.
Stocks are selected from this universe based on the Adviser's judgment of their
total return potential. The Adviser buys stocks that it believes are undervalued
relative to the overall stock market. The principal factor considered by the
Adviser in making these determinations is the ratio of a stock's price to
earnings relative to corresponding ratios of other stocks in the same industry
or economic sector. The Adviser believes that companies with lower price-to-
earnings ratios are more likely to provide better opportunities for capital
appreciation. This "value" approach generally produces a dividend yield greater
than the market average. The Adviser will attempt to temper risk by broad
diversification among economic sectors and industries. Through this strategy,
the Fund pursues above-average returns while seeking to avoid above-average
risks.
The Fund invests under normal market conditions at least 65% of its total assets
in common stocks. In addition to common stocks, the Fund also may invest in
preferred stocks, securities convertible into common stock, and other types of
securities having common stock characteristics (such as rights and warrants to
purchase equity securities). Although the Fund invests primarily in
publicly-traded common stocks of companies incorporated in the United States,
the Fund may invest up to 20% of its assets in foreign securities. The Fund also
may hold up to 20% of its total assets in obligations issued or guaranteed as to
payment of principal and interest by the U.S. Government, its agencies or
instrumentalities ("U.S. Government Obligations"), and investment grade
securities of domestic companies. Obligations with the lowest investment grade
rating (E.G. rated "BBB" by Standard & Poor's Corporation ("S&P") or "Baa" by
Moody's Investors Service, Inc. ("Moody's")) have speculative characteristics,
and changes in economic conditions or other circumstances are more likely to
lead to a weakened capacity to make principal and interest payments than is the
case with higher grade debt obligations. Subsequent to its purchase by the Fund,
an issue of securities may cease to be rated or its rating may be reduced below
the minimum rating required for purchase by the Fund. The Adviser will consider
such an event in
13
<PAGE>
determining whether the Fund should continue to hold the obligation. Unrated
obligations may be acquired by the Fund if they are determined by the Adviser to
be of comparable quality at the time of purchase to rated obligations that may
be acquired.
The Fund also may invest in various money market instruments and repurchase
agreements. The Fund may invest without limitation in such instruments pending
investment, to meet anticipated redemption requests, or as a temporary defensive
measure if market conditions warrant.
NATIONS EQUITY INCOME FUND: The investment program of the Fund is based on
several premises. First, dividends are normally a more stable and predictable
source of return than capital appreciation. While the price of a company's stock
generally increases or decreases in response to short-term earnings and market
fluctuations, its dividends are generally less volatile. Second, diversifying
equity holdings in a manner that includes every major economic sector
contributes to reduced volatility, without a commensurate reduction in expected
investment return. Finally, investing in dividend paying stocks in all the
economic sectors can provide greater income than the Standard & Poor's 500
Composite Stock Price Index ("S&P 500 Index") with less volatility.
Collectively, these traits may be combined in such a fashion as to produce
returns in excess of the market (S&P 500 Index) on a comparable risk basis.
New purchases for the Fund will generally be made in equity securities that:
(Bullet) are income producing;
(Bullet) appear undervalued relative to the S&P 500 Index on a risk adjusted
basis; and
(Bullet) have favorable trends in personal stock ownership by the underlying
company's officers and/or directors.
To achieve its objective, the Fund, under normal circumstances, will invest at
least 65% of its assets in income-producing common stocks, including securities
convertible into or ultimately exchangeable for common stock (I.E., convertible
bonds or convertible preferred stock), whose prospects for dividend growth and
capital appreciation are considered favorable by the Adviser. The securities
held by the Fund generally will be listed on a national exchange or, if not so
listed, will usually have an established over-the-counter market.
In order to further enhance its income, the Fund also may invest its assets in
fixed income securities (corporate and government bonds of various maturities),
preferred stocks and warrants. The Fund may invest in debt securities that are
considered investment grade (E.G. securities rated in one of the top four
investment categories by S&P or Moody's, or if not rated, are of equivalent
investment quality as determined by the Adviser). Obligations rated in the
lowest of the top four investment grade rating categories (E.G., rated "BBB" by
S&P) have speculative characteristics and changes in economic conditions or
other circumstances are more likely to lead to a weakened capacity to make
principal and interest payments than is the case with higher grade debt
obligations. The Fund also may invest up to 5% of its assets in debt securities
that are rated below investment grade (E.G. rated "BB" by S&P), or if not rated,
are of equivalent investment quality as determined by the Adviser. Non-
investment grade debt securities are sometimes referred to as "high yield bonds"
or "junk bonds." They tend to have speculative characteristics, generally
involve more risk of principal and income than higher rated securities, and have
yields and market values that tend to fluctuate more than higher quality
securities. The Fund will invest in such high-yield debt securities only when
the Adviser believes that the issue presents minimal credit risk. For a
description of corporate debt ratings, see "Appendix B." Although the Fund
invests primarily in securities of U.S. issuers, the Fund may invest up to 20%
of its total assets in foreign securities. The Fund will treat foreign
securities as illiquid unless there is an active and substantial secondary
market for such securities.
The Fund may invest in various money market instruments and repurchase
agreements. The Fund may invest without limitation in such instruments pending
investment, to meet anticipated redemption requests, or as a temporary defensive
measure if market conditions warrant.
14
<PAGE>
NATIONS BALANCED ASSETS FUND: In pursuing the Fund's objective, the Adviser will
allocate the Fund's assets based upon its judgment of the relative valuation and
the expected returns of the three major asset classes in which the Fund
principally invests: common stocks, fixed income securities and cash
equivalents. In assessing relative value and expected returns, the Adviser will
evaluate current economic and financial market conditions (both domestically and
internationally), current interest rate trends, earnings and dividend prospects
for common stocks, and overall financial market stability. These asset classes
are actively managed in an effort to maximize total return. In general, the
Adviser believes that common stocks offer the best opportunity for long-term
capital appreciation.
The Fund invests in common and preferred stocks of U.S. corporations and of
foreign issuers, as well as securities convertible into common stocks, and other
types of securities having common stock characteristics (such as rights and
warrants to purchase equity securities) that meet the Adviser's stringent
criteria. Fundamental research and valuation analysis are emphasized in the
stock selection process. Stock holdings are typically those of seasoned,
financially strong companies with favorable industry positioning.
Under normal circumstances at least 25% of the total value of the Fund's assets
will be invested in fixed income securities. The Fund may invest in government,
corporate and municipal debt securities, as well as mortgage-backed and asset-
backed securities. Most obligations acquired by the Fund will be issued by
companies or governmental entities located within the United States. Debt
obligations acquired by the Fund will be rated investment grade at the time of
purchase by S&P, Moody's, Duff & Phelps Credit Rating Co. ("D&P"), Fitch
Investors Service, Inc. ("Fitch"), IBCA Limited or its affiliate IBCA Inc.
(collectively "IBCA"), or Thomson BankWatch, Inc. ("BankWatch") or, if unrated,
determined by the Adviser to be comparable in quality to instruments so rated.
Obligations with the lowest investment grade rating (E.G. rated "BBB" by S&P or
"Baa" by Moody's) have speculative characteristics, and changes in economic
conditions or other circumstances are more likely to lead to a weakened capacity
to make principal and interest payments than is the case with higher grade debt
obligations. See "Appendix B" for a description of these ratings designations.
Subsequent to its purchase by the Fund, an issue of securities may cease to be
rated or its rating may be reduced below the minimum rating required for
purchase by the Fund. The Adviser will consider such an event in determining
whether the Fund should continue to hold the obligation. Unrated obligations may
be acquired by the Fund if they are determined by the Adviser to be of
comparable quality at the time of purchase to rated obligations that may be
acquired.
Although the Fund invests primarily in securities of U.S. issuers, the Fund may
invest up to 25% of its total assets in foreign securities.
The Fund also may invest in various money market instruments and repurchase
agreements. The Fund may invest without limitation in such instruments pending
investment, to meet anticipated redemption requests, or as a temporary defensive
measure if market conditions warrant.
GROWTH FUNDS:
NATIONS CAPITAL GROWTH FUND: The investment philosophy of the Fund is based on
the belief that companies with superior growth characteristics selling at
reasonable prices will, over time, outperform the market. Therefore, the Fund
will generally seek to invest in larger capitalization, high-quality companies
which possess above-average earnings growth potential.
The Fund's equity investments will generally be made in companies which share
some of the following characteristics:
(Bullet) above-average earnings growth relative to the S&P 500 Index;
(Bullet) established operating histories, strong balance sheets and favorable
financial characteristics; and
(Bullet) above-average return on equity relative to the S&P 500 Index.
15
<PAGE>
In addition, the Fund's investment program enables it to invest in the following
types of companies:
(Bullet) companies that generate or apply new technologies, new and improved
distribution techniques, or new services, such as those in the business
equipment, electronics, specialty merchandising and health service
industries;
(Bullet) companies that own or develop natural resources, such as energy
exploration companies;
(Bullet) companies that may benefit from changing consumer demands and
lifestyles, such as financial service organizations and
telecommunication companies;
(Bullet) foreign companies, including those in countries with more rapid
economic growth than the U.S.;
(Bullet) companies whose earnings growth is projected at a pace in excess of the
average company (I.E., growth companies); and
(Bullet) companies whose earnings are temporarily depressed and are currently
out of favor with most investors.
Through intensive research, visits to many companies each year, and efficient
response to changing market conditions, the Adviser seeks to make the most of
the Fund's flexible charter.
Under normal market conditions, the Fund invests at least 65% of its total
assets in common stocks. In addition to common stocks, the Fund also may invest
in preferred stocks, securities convertible into common stocks and other types
of securities having common stock characteristics (such as rights and warrants
to purchase equity securities). Although the Fund invests primarily in publicly
traded common stocks of companies incorporated in the United States, the Fund
may invest up to 20% of its total assets in foreign securities.
The Fund also may invest in various money market instruments and repurchase
agreements. The Fund may invest without limitation in such instruments pending
investment, to meet anticipated redemption requests, or as a temporary defensive
measure if market conditions warrant.
NATIONS EMERGING GROWTH FUND: The Fund will invest in common stocks and
securities convertible into common stocks selected from a universe of emerging
growth companies monitored by the Adviser. Most of the companies will have
revenues between $50 million and $1.5 billion and a debt ratio of less than 50%
of capitalization. The universe focuses on companies with above-average earnings
growth rates and profit margins, yet the portfolio may include positions of
special situation companies whose growth is expected to accelerate. These
companies are believed to offer significant opportunities for capital
appreciation and the Adviser will attempt to identify these opportunities before
their potential is recognized by investors in general.
In selecting industries and companies for investment, the Adviser will consider
overall growth prospects, financial condition, competitive position, technology,
research and development, innovative products, marketing expertise,
productivity, labor costs, raw material costs and sources, profit margins,
return on investment, structural changes in local economies, capital resources,
the degree of governmental regulation or deregulation, management and other
factors.
Under normal market conditions, the Fund invests at least 65% of its total
assets in common stocks. The Fund also may invest in various money market
instruments and repurchase agreements. The Fund may invest without limitation in
such instruments pending investment, to meet anticipated redemption requests, or
as a temporary defensive measure if market conditions warrant.
The volatility of emerging growth stocks is higher than that of larger
companies. Many of these stocks trade over the counter and may not have
widespread interest among institutional investors. These securities may have
larger potential for gains but also carry more risk if unexpected company
developments adversely affect the stock prices. To help reduce risk, the Fund is
diversified and typically invests in 75 to 100 companies which represent a broad
range of industries and sectors, both in the United States and abroad. Although
the Fund invests primarily in securities of U.S. issuers, the Fund may invest up
to 20% of its total assets in foreign securities.
16
<PAGE>
NATIONS DISCIPLINED EQUITY FUND: The investment philosophy of the Fund is based
on the premise that companies with positive earnings trends also should
experience positive trends in their share price. Based on this philosophy, the
Fund invests primarily in the common stocks of companies that the Adviser
believes are likely to experience significant increases in earnings. By pursuing
this investment philosophy, the Fund seeks to provide investors with long-term
capital appreciation which exceeds that of the S&P 500 Index.
In selecting stocks for purchase by the Fund, the Adviser utilizes quantitative
analysis supported by fundamental research. This approach seeks to identify
companies that have experienced positive historical earnings trends, as
evidenced by earnings forecasts issued by investment banks, broker/dealers and
other investment professionals. The Adviser believes that companies experiencing
such earnings trends have the potential to generate significant increases in per
share earnings. The Adviser also believes that companies with increasing
earnings should experience positive trends in their stock price. Although the
Fund seeks to invest in companies with increasing earnings, the Fund's
investment objective focuses on long-term capital appreciation; income is not an
objective of the Fund.
Under normal market conditions, the Fund invests at least 65% of its total
assets in common stocks of domestic issuers. With respect to the remainder of
the Fund's assets, the Fund may invest in a broad range of equity and debt
instruments, including preferred stocks, securities (debt and preferred stock)
convertible into common stock, warrants and rights to purchase common stocks,
options, U.S. government and corporate debt securities and various money market
instruments. The Fund will invest primarily in medium- and large-sized companies
(I.E. companies with market capitalizations of $500 million or greater) that are
determined to have favorable price/earnings ratios. The Fund also may invest in
securities issued by companies with market capitalizations of less than $500
million. The volatility of small-capitalization stocks is typically greater than
that of larger companies. To help reduce risk, the Fund will invest in the
securities of companies representing a broad range of industries and economic
sectors.
The Fund's investments in debt securities, including convertible securities,
will be limited to securities rated investment grade (E.G. securities rated in
one of the top four investment categories by a nationally recognized statistical
rating organization or, if not rated, are of equivalent quality as determined by
the Adviser). Obligations rated in the lowest of the top four investment grade
rating categories have speculative characteristics and changes in economic
conditions or other circumstances are more likely to lead to a weakened capacity
to make principal and interest payments than is the case with higher grade debt
obligations.
The Fund may invest up to 20% of its total assets in foreign securities. For
temporary defensive purposes if market conditions warrant, the Fund may invest
without limitation in preferred stocks, investment grade debt instruments, money
market instruments and repurchase agreements.
GENERAL: Each Fund may invest in certain specified derivative securities,
including: exchange-traded options; over-the-counter options executed with
primary dealers, including long calls and puts and covered calls to enhance
return; and U.S. and foreign exchange-traded financial futures approved by the
Commodity Futures Trading Commission ( the "CFTC") and options thereon for
market exposure risk management. Nations Balanced Assets Fund also may engage in
dollar roll transactions. Each Fund may lend its portfolio securities to
qualified institutional investors. Each Fund also may invest in restricted,
private placement and other illiquid securities and securities issued by other
investment companies, consistent with the Fund's investment objective and
policies. Each Fund may invest in real estate investment trust securities.
For more information concerning these and other instruments in which the Funds
may invest and their investment practices, see "Appendix A."
PORTFOLIO TURNOVER: Generally, the Funds will purchase portfolio securities for
capital appreciation or investment income, or both, and not for
17
<PAGE>
short-term trading profits. For the Funds' portfolio turnover rates, see
"Financial Highlights." If a Fund's annual portfolio turnover rate exceeds 100%,
it may result in higher costs to the Fund, including brokerage commissions or
dealer markups and other transaction costs on the sale of securities and the
reinvestment in other securities. Portfolio turnover also can generate
short-term capital gains tax consequences.
RISK CONSIDERATIONS: Although the Adviser will seek to achieve the investment
objective of each Fund, there is no assurance that it will be able to do so. No
single Fund should be considered, by itself, to provide a complete investment
program for any investor. The net asset value of the shares of the Funds will
fluctuate based on market conditions. Therefore, investors should not rely upon
the Funds for short-term financial needs, nor are the Funds meant to provide a
vehicle for participating in short-term swings in the stock market. Investments
in a Fund are not insured against loss of principal.
Investments by a Fund in common stocks and other equity securities are subject
to stock market risks. The value of the stocks that the Fund holds, like the
broader stock market, may decline over short or even extended periods. The value
of a Fund's investments in debt securities, including U.S. Government
Obligations, will tend to decrease when interest rates rise and increase when
interest rates fall. In general, longer-term debt instruments tend to fluctuate
in value more than shorter-term debt instruments in response to interest rate
movements. In addition, debt securities that are not backed by the United States
Government are subject to credit risk, which is the risk that the issuer may not
be able to pay principal and/or interest when due.
Certain of the Funds' investments constitute derivative securities, which are
securities whose value is derived, at least in part, from an underlying index or
reference rate. There are certain types of derivative securities that can, under
certain circumstances, significantly increase a purchaser's exposure to market
or other risks. The Adviser, however, only purchases derivative securities in
circumstances where it believes such purchases are consistent with a Fund's
investment objective and do not unduly increase the Fund's exposure to market or
other risks. For additional risk information regarding the Funds' investments in
particular instruments, see "Appendix A -- Portfolio Securities."
INVESTMENT LIMITATIONS: Each Fund is subject to a number of investment
limitations. The following investment limitations are matters of fundamental
policy and may not be changed without the affirmative vote of the holders of a
majority of the Fund's outstanding shares. Other investment limitations that
cannot be changed without such a vote of shareholders are described in the SAIs.
Each Fund may not:
1. Purchase any securities which would cause 25% or more of the value of the
Fund's total assets at the time of such purchase to be invested in the
securities of one or more issuers conducting their principal activities in the
same industry. (For purposes of this limitation, U.S. Government securities and
tax-exempt securities issued by state or municipal governments and their
political subdivisions are not considered members of any industry.)
2. Make loans, except that a Fund may purchase and hold debt instruments
(whether such instruments are part of a public offering or privately placed),
may enter into repurchase agreements and may lend portfolio securities in
accordance with its investment policies.
3. Purchase securities of any one issuer (other than securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities) if,
immediately after such purchase, more than 5% of the value of such Fund's total
assets would be invested in the securities of such issuer, except that up to 25%
of the value of the Fund's total assets may be invested without regard to these
limitations and with respect to 75% of such Fund's assets, such Fund will not
hold more than 10% of the voting securities of any issuer.
The investment objective and policies of each Fund, unless otherwise specified,
may be changed without a vote of the Fund's shareholders. If the investment
objective or policies of a Fund change, shareholders should consider
18
<PAGE>
whether the Fund remains an appropriate investment in light of their then
current position and needs.
In order to register a Fund's shares for sale in certain states, a Fund may make
commitments more restrictive than the investment policies and limitations
described in this Prospectus and the SAIs. Should a Fund determine that any such
commitment is no longer in the best interest of the Fund, it may consider
terminating sales of its shares in the states involved.
How Performance Is Shown
From time to time the Funds may advertise the total return and yield on a class
of shares. BOTH TOTAL RETURN AND YIELD FIGURES ARE BASED ON HISTORICAL DATA AND
ARE NOT INTENDED TO INDICATE FUTURE PERFORMANCE. The "total return" of a class
of shares of the Funds may be calculated on an average annual total return basis
or an aggregate total return basis. Average annual total return refers to the
average annual compounded rates of return on a class of shares over one-, five-,
and ten-year periods or the life of a Fund (as stated in the advertisement) that
would equate an initial amount invested at the beginning of a stated period to
the ending redeemable value of the investment (reflecting the deduction of any
applicable contingent deferred sales charge ("CDSC")), assuming the reinvestment
of all dividend and capital gain distributions. Aggregate total return reflects
the total percentage change in the value of the investment over the measuring
period, again assuming the reinvestment of all dividends and capital gain
distributions. Total return may also be presented for other periods or may not
reflect a deduction of any applicable CDSC.
"Yield" is calculated by dividing the annualized net investment income per share
during a recent 30-day (or one month) period of a class of shares of a Fund by
the maximum public offering price per share on the last day of that period. The
yield on a class of shares does not reflect deduction of any applicable CDSC.
Investment performance, which will vary, is based on many factors, including
market conditions, the composition of the Funds' portfolios and the Funds'
operating expenses. Investment performance also often reflects the risks
associated with a Fund's investment objective and policies. These factors should
be considered when comparing the Funds' investment results to those of other
mutual funds and other investment vehicles. Since yields fluctuate, yield data
cannot necessarily be used to compare an investment in the Funds with bank
deposits, savings accounts, and similar investment alternatives which often
provide an agreed-upon or guaranteed fixed yield for a stated period of time.
In addition to Investor A Shares, the Funds offer Primary A, Primary B, Investor
C and Investor N Shares. Each class of shares may bear different sales charges,
shareholder servicing fees, loads and other expenses, which may cause the
performance of a class to differ from the performance of the other classes.
Total return and yield quotations will be computed separately for each class of
the Funds' shares. Any quotation of total return or yield not reflecting CDSCs
would be reduced if such sales charges were reflected.
Any fees charged by a selling agent and/or servicing agent directly to its
customers' accounts in connection with investments in the Funds will not be
included in calculations of total return or yield. Each Fund's annual report
contains additional performance information and is available upon request
without charge from the Funds' distributor or an investor's Agent (as defined
below).
19
<PAGE>
How The Funds Are Managed
The business and affairs of Nations Fund Trust and Nations Fund, Inc. are
managed under the direction of their Board of Trustees and Board of Directors,
respectively. Nations Fund Trust's SAI contains the names of and general
background information concerning each Trustee of Nations Fund Trust. Nations
Fund, Inc.'s SAI contains the names of and general background information
concerning each Director of Nations Fund, Inc.
Nations Fund and the Adviser have adopted codes of ethics which contain policies
on personal securities transactions by "access persons," including portfolio
managers and investment analysts. These policies substantially comply in all
material respects with the recommendations set forth in the May 9, 1994 Report
of the Advisory Group on Personal Investing of the Investment Company Institute.
INVESTMENT ADVISER: NationsBanc Advisors, Inc. serves as investment adviser to
the Funds. NBAI is a wholly owned subsidiary of NationsBank, which in turn is a
wholly owned banking subsidiary of NationsBank Corporation, a bank holding
company organized as a North Carolina corporation. NBAI has its principal
offices at One NationsBank Plaza, Charlotte, North Carolina 28255.
TradeStreet Investment Associates, Inc., with principal offices at One
NationsBank Plaza, Charlotte, North Carolina 28255, serves as sub-investment
adviser to the Funds. TradeStreet is a wholly owned subsidiary of NationsBank.
TradeStreet provides investment management services to individuals, corporations
and institutions.
Subject to the general supervision of Nations Fund Trust's Board of Trustees and
Nations Fund, Inc.'s Board of Directors, and in accordance with each Fund's
investment policies, the Adviser formulates guidelines and lists of approved
investments for each Fund, makes decisions with respect to and places orders for
each Fund's purchases and sales of portfolio securities and maintains records
relating to such purchases and sales. The Adviser is authorized to allocate
purchase and sale orders for portfolio securities to certain financial
institutions, including, in the case of agency transactions, financial
institutions which are affiliated with the Adviser or which have sold shares in
the Funds, if the Adviser believes that the quality of the transaction and the
commission are comparable to what they would be with other qualified brokerage
firms. From time to time, to the extent consistent with its investment
objective, policies and restrictions, each Fund may invest in securities of
companies with which NationsBank has a lending relationship. For the services
provided and expenses assumed pursuant to various Investment Advisory
Agreements, NBAI is entitled to receive advisory fees, computed daily and paid
monthly, at the annual rates of: 0.75% of the average daily net assets of each
of Nations Capital Growth Fund, Nations Emerging Growth Fund, Nations
Disciplined Equity Fund, Nations Value Fund and Nations Balanced Assets Fund;
and 0.75% of the first $100 million of Nations Equity Income Fund's average
daily net assets, plus 0.70% of the Fund's average daily net assets in excess of
$100 million and up to $250 million, plus 0.60% of the Fund's average daily net
assets in excess of $250 million.
For the services provided and the expenses assumed pursuant to sub-advisory
agreements, NBAI will pay TradeStreet sub-advisory fees, computed daily and paid
monthly, at the annual rates of: 0.25% of Nations Value Fund's, Nations Balanced
Assets Fund's, Nations Capital Growth Fund's, Nations Emerging Growth Fund's and
Nations Disciplined Equity Fund's average daily net assets; and 0.20% of Nations
Equity Income Fund's average daily net assets.
From time to time, NBAI (and/or TradeStreet) may waive or reimburse (either
voluntarily or pursuant to applicable state limitations) advisory fees and/or
expenses payable by a Fund. In addition, the Adviser may from time to time
20
<PAGE>
compensate Agents, as defined below, for providing certain services to
Customers.
For the fiscal period from December 1, 1995 to December 31, 1995, after waivers,
Nations Fund Trust paid NationsBank under a prior Investment Advisory Agreement
advisory fees at the rate of 0.75% of the following Funds' average daily net
assets: Nations Value Fund, Nations Capital Growth Fund, Nations Emerging Growth
Fund, Nations Disciplined Equity Fund, and Nations Balanced Assets Fund.
For the fiscal period from June 1, 1995 to December 31, 1995, after waivers,
Nations Fund, Inc. paid NationsBank under a prior Investment Advisory Agreement
advisory fees at the rate of 0.67% of the average daily net assets of Nations
Equity Income Fund.
For the fiscal period from January 1, 1996 to March 31, 1996, after waivers,
Nations Fund Trust paid NBAI under the current Investment Advisory Agreement
advisory fees at the rate of 0.75% of the following Funds' average daily net
assets: Nations Value Fund, Nations Capital Growth Fund, Nations Emerging Growth
Fund, Nations Disciplined Equity Fund, and Nations Balanced Assets Fund.
For the fiscal period from January 1, 1996 to March 31, 1996, after waivers,
Nations Fund, Inc. paid NBAI under the current Investment Advisory Agreement
advisory fees at the rate of 0.67% of the average daily net assets of Nations
Equity Income Fund.
For the fiscal period from January 1, 1996 to March 31, 1996, after waivers,
NBAI paid TradeStreet under the current Sub-Advisory Agreement sub-advisory fees
at the indicated rates of the following Funds' average daily net assets: Nations
Value Fund -- 0.25%; Nations Capital Growth Fund -- 0.25%; Nations Emerging
Growth Fund -- 0.25%; Nations Disciplined Equity Fund -- 0.25%; Nations Balanced
Assets Fund -- 0.25%; and Nations Equity Income Fund -- 0.20%.
Sharon M. Herrmann, CFA, is a Director of Equity Management for TradeStreet and
Senior Portfolio Manager for Nations Value Fund. Ms. Herrmann has been Portfolio
Manager for Nations Value Fund since 1989. Prior to assuming her position with
TradeStreet, she was Senior Vice President and Portfolio Manager for the
Investment Management Group at NationsBank. Ms. Herrmann has worked for the
Investment Management Group at NationsBank since 1981 where her responsibilities
included fund management and institutional portfolio management. She attended
Virginia Wesleyan College. Ms. Herrmann holds the Chartered Financial Analyst
designation and is a member of the Association for Investment Management and
Research as well as the North Carolina Society of Financial Analysts, Inc.
Philip J. Sanders, CFA, is a Senior Product Manager, Equity Management for
TradeStreet and Senior Portfolio Manager for Nations Capital Growth Fund. Mr.
Sanders has been Portfolio Manager for Nations Capital Growth Fund since 1995.
Prior to assuming his position with TradeStreet, he was Senior Vice President
and Senior Portfolio Manager for the Investment Management Group at NationsBank.
Mr. Sanders has worked in the investment community since 1981. His past
experience includes portfolio management, equity research and financial analysis
for the Investment Management Group at NationsBank and Duke Power Company. Mr.
Sanders received a B.A. in Economics from the University of Michigan and an
M.B.A. from University of North Carolina at Charlotte. He holds the Chartered
Financial Analyst designation and is a member of the Association for Investment
Management and Research as well as the North Carolina Society of Financial
Analysts, Inc.
Julie L. Hale, CFA, is a Senior Product Manager, Equity Management for
TradeStreet and Senior Portfolio Manager for Nations Balanced Assets Fund. Ms.
Hale has been Portfolio Manager for Nations Balanced Assets Fund since 1995.
Prior to assuming her position with TradeStreet, she was Vice President and
Senior Portfolio Manager for the Investment Management Group at NationsBank. She
has worked in the investment community since 1981. Her past experience includes
research analysis and portfolio management for Mercantile Safe Deposit and
Trust, and National City Bank. Ms. Hale received a B.S. in Business and Finance
from Mount St. Mary's
21
<PAGE>
College and an M.B.A. from Kent State University. She holds the Chartered
Financial Analyst designation and is a member of the Association for Investment
Management and Research as well as the North Carolina Society of Security
Analysts, Inc. She is also a member of the National Association for Petroleum
Investment Analysts and the World Affairs Council of Washington, D.C.
Edward E. (Jack) Smiley, Jr., CFA, is a Senior Product Manager, Equity
Management for TradeStreet and Senior Portfolio Manager for Nations Emerging
Growth Fund. Mr. Smiley has been Portfolio Manager for Nations Emerging Growth
Fund since 1992. Prior to assuming his position with TradeStreet, he was Senior
Vice President and Senior Portfolio Manager for the Investment Management Group
at NationsBank. He has worked in the investment community since 1968. His past
experience includes management consulting and portfolio management for
Interfirst Investment Management, Merrill Lynch and Dean Witter. Mr. Smiley
received a B.B.A. in Management from Southern Methodist University. He holds the
Chartered Financial Analyst designation and is a member of the Association for
Investment Management and Research as well as the Dallas Association of
Investment Analysts.
Jeffery C. Moser, CFA, is a Senior Product Manager, Equity Management for
TradeStreet and Senior Portfolio Manager for Nations Disciplined Equity Fund.
Mr. Moser has been Portfolio Manager for Nations Disciplined Equity Fund since
1995. Prior to assuming his position with TradeStreet, he was Senior Vice
President and Senior Portfolio Manager for the Investment Management Group at
NationsBank. Mr. Moser has worked for the Investment Management Group at
NationsBank since 1983 where his responsibilities included institutional
portfolio management and equity analysis. Mr. Moser graduated Phi Beta Kappa
with a B.S. in Mathematics from Wake Forest University. He holds the Chartered
Financial Analyst designation and is a member of the Association for Investment
Management and Research as well as the North Carolina Society of Financial
Analysts, Inc.
Eric S. Williams, CFA, is a Senior Product Manager, Equity Management for
TradeStreet and is Senior Portfolio Manager for Nations Equity Income Fund. Mr.
Williams has been Portfolio Manager for Nations Equity Income Fund since 1991.
Prior to assuming his position with TradeStreet, he was Senior Vice President
and Senior Portfolio Manager for the Investment Management Group at NationsBank.
He has worked in the investment community since 1980. His past experience
includes fund analysis and portfolio management for National Bank of Detroit.
Mr. Williams received a B.S. in Accounting from East Carolina University, Summa
Cum Laude and an M.B.A. from Indiana University. He holds the Chartered
Financial Analyst designation, is on the Advisory Board of Indiana University's
Investment Management Academy, and is a member of the Association for Investment
Management and Research as well as the North Carolina Society of Financial
Analysts, Inc.
Morrison & Foerster LLP, counsel to Nations Fund and special counsel to
NationsBank, has advised Nations Fund and NationsBank, that NationsBank and its
affiliates may perform the services contemplated by the various Investment
Advisory Agreements and this Prospectus, without violation of the Glass-Steagall
Act. Such counsel has pointed out, however, that there are no controlling
judicial or administrative interpretations or decisions and that future judicial
or administrative interpretations of, or decisions relating to, present federal
or state statutes, including the Glass-Steagall Act, and regulations relating to
the permissible activities of banks and their subsidiaries or affiliates, as
well as future changes in federal or state statutes, including the
Glass-Steagall Act, and regulations and judicial or administrative decisions or
interpretations thereof, could prevent such entities from continuing to perform,
in whole or in part, such services. If any such entity were prohibited from
performing any of such services, it is expected that new agreements would be
proposed or entered into with another entity or entities qualified to perform
such services.
OTHER SERVICE PROVIDERS: Stephens Inc. ("Stephens"), with principal offices at
111 Center Street, Little Rock, Arkansas 72201,
22
<PAGE>
serves as the administrator of Nations Fund pursuant to Administration
Agreements. Pursuant to the terms of the Administration Agreements, Stephens
provides various administrative and corporate secretarial services to the Funds,
including providing general oversight of other service providers, office space,
utilities and various legal and administrative services in connection with the
satisfaction of various regulatory requirements applicable to the Funds.
First Data Investor Services Group, Inc. ("First Data"), formerly The
Shareholder Services Group, Inc., a wholly owned subsidiary of First Data
Corporation, with principal offices at One Exchange Place, Boston, Massachusetts
02109, serves as the co-administrator of Nations Fund pursuant to
Co-Administration Agreements. Under the Co-Administration Agreements, First Data
provides various administrative and accounting services to the Funds including
performing the calculations necessary to determine the net asset value per share
and dividends of each class of the Funds, preparing tax returns and financial
statements and maintaining the portfolio records and certain of the general
accounting records for the Funds.
For the services rendered pursuant to the Administration and Co-Administration
Agreements, Stephens and First Data are entitled to receive a combined fee at
the annual rate of up to 0.10% of each Fund's average daily net assets. For the
fiscal period from December 1, 1995 to March 31, 1996, after waivers, Nations
Fund Trust paid its administrators combined fees at the rate of 0.10% of the
following Funds' average daily net assets: Nations Value Fund, Nations Capital
Growth Fund, Nations Emerging Growth Fund, Nations Disciplined Equity Fund, and
Nations Balanced Assets Fund.
For the fiscal period from June 1, 1995 to March 31, 1996, after waivers,
Nations Fund, Inc. paid its administrator combined fees at the rate of 0.10% of
the average daily net assets of Nations Equity Income Fund.
NationsBank serves as sub-administrator for Nations Fund pursuant to a
Sub-Administration Agreement. Pursuant to the terms of the Sub-Administration
Agreement, NationsBank assists Stephens in supervising, coordinating and
monitoring various aspects of the Funds' administrative operations. For
providing such services, NationsBank shall be entitled to receive a monthly fee
from Stephens based on an annual rate of 0.01% of the Funds' average daily net
assets.
Shares of the Funds are sold on a continuous basis by Stephens, as the Funds'
sponsor and distributor. Stephens is a registered broker/dealer with principal
offices at 111 Center Street, Little Rock, Arkansas 72201. Nations Fund has
entered into distribution agreements with Stephens which provide that Stephens
has the exclusive right to distribute shares of the Funds. Stephens may pay
service fees or commissions to selling agents that assist customers in
purchasing Investor Shares of the Funds. See "Shareholder Servicing And
Distribution Plans."
NationsBank of Texas, N.A. ("NationsBank of Texas" or the "Custodian") serves as
custodian for the assets of each Fund. NationsBank of Texas is located at 1401
Elm Street, Dallas, Texas 75202, and is a wholly owned subsidiary of NationsBank
Corporation. In return for providing custodial services, NationsBank of Texas is
entitled to receive, in addition to out-of-pocket expenses, fees payable monthly
(i) at the rate of 1.25% of 1% of the average daily net assets of each Fund for
which it serves as custodian, (ii) $10.00 per repurchase collateral transaction
by such Funds, and (iii) $15.00 per purchase, sale and maturity transaction
involving such Funds.
First Data serves as transfer agent (the "Transfer Agent") for the Funds'
Investor A Shares. The Transfer Agent is located at One Exchange Place, Boston,
Massachusetts 02109.
Price Waterhouse LLP serves as independent accountant to Nations Fund. Its
address is 160 Federal Street, Boston, Massachusetts 02110.
EXPENSES: The accrued expenses of the Funds, as well as certain expenses
attributable to Investor A Shares, are deducted from accrued income before
dividends are declared. The Funds' expenses include, but are not limited to:
fees paid to the Adviser, NationsBank, Stephens and
23
<PAGE>
First Data; interest; trustees' and directors' fees; federal and state
securities registration and qualification fees; brokerage fees and commissions;
cost of preparing and printing prospectuses for regulatory purposes and for
distribution to existing shareholders; charges of the Custodian and Transfer
Agent; certain insurance premiums; outside auditing and legal expenses; costs of
shareholder reports and shareholder meetings, other expenses which are not
expressly assumed by the Adviser, NationsBank, Stephens or First Data under
their respective agreements with Nations Fund; and any extraordinary expenses.
Investor A Shares may bear certain class specific retail transfer agency
expenses and also bear certain additional shareholder service and/or sales
support costs. Any general expenses of Nations Fund Trust and/or Nations Fund,
Inc. that are not readily identifiable as belonging to a particular investment
portfolio are allocated among all portfolios in the proportion that the assets
of a portfolio bears to the assets of Nations Fund Trust and Nations Fund, Inc.
or in such other manner as the relevant Board of Trustees or Board of Directors
deems appropriate.
Organization And History
The Funds are members of the Nations Fund Family, which consists of Nations Fund
Trust, Nations Fund, Inc., Nations Fund Portfolios, Inc. and Nations
Institutional Reserves. The Nations Fund Family currently has more than 43
distinct investment portfolios and total assets in excess of $18 billion.
NATIONS FUND TRUST: Nations Fund Trust was organized as a Massachusetts business
trust on May 6, 1985. Nations Fund Trust's fiscal year end is March 31; prior to
1996, Nations Fund Trust's fiscal year end was November 30. The Funds currently
offer five classes of shares -- Primary A Shares, Primary B Shares, Investor A
Shares, Investor C Shares and Investor N Shares. This Prospectus relates only to
the Investor A Shares of Nations Capital Growth Fund, Nations Emerging Growth
Fund, Nations Disciplined Equity Fund, Nations Value Fund and Nations Balanced
Assets Fund of Nations Fund Trust. To obtain additional information regarding
the Funds' other classes of shares which may be available to you, contact your
Agent (as defined below) or Nations Fund at 1-800-321-7854.
Each share of Nations Fund Trust is without par value, represents an equal
proportionate interest in the related fund with other shares of the same class,
and is entitled to such dividends and distributions out of the income earned on
the assets belonging to such fund as are declared in the discretion of Nations
Fund Trust's Board of Trustees. Nations Fund Trust's Declaration of Trust
authorizes the Board of Trustees to classify or reclassify any class of shares
into one or more series of shares.
Shareholders are entitled to one vote for each full share held and a
proportionate fractional vote for each fractional share held. Shareholders of
each fund of Nations Fund Trust will vote in the aggregate and not by fund, and
shareholders of each fund will vote in the aggregate and not by class except as
otherwise expressly required by law or when the Board of Trustees determines
that the matter to be voted on affects only the interests of shareholders of a
particular fund or class. See Nations Fund Trust's SAI for examples of when the
Investment Company Act of 1940 (the "1940 Act") requires voting by fund.
As of July 15, 1996, NationsBank and its affiliates possessed or shared power to
dispose or vote with respect to more than 25% of the outstanding shares of
Nations Fund Trust and therefore could be considered to be a controlling person
of Nations Fund Trust for purposes of the 1940 Act. For more detailed
information concerning the percentage of each class or series of shares over
which NationsBank and its affiliates possessed or shared power to dispose or
vote as of a certain date, see Nations Fund Trust's SAI.
Nations Fund Trust does not presently intend to hold annual meetings except as
required by the
24
<PAGE>
1940 Act. Shareholders will have the right to remove Trustees. Nations Fund
Trust's Code of Regulations provides that special meetings of shareholders shall
be called at the written request of the shareholders entitled to vote at least
10% of the outstanding shares of Nations Fund Trust entitled to be voted at such
meeting.
NATIONS FUND, INC.: Nations Fund, Inc. was incorporated in Maryland on December
13, 1983, but had no operations prior to December 15, 1986. Nations Fund, Inc.'s
fiscal year end is March 31; prior to 1996, Nations Fund, Inc.'s fiscal year end
was May 31. As of the date of this Prospectus, the authorized capital stock of
Nations Fund, Inc. consists of 270,000,000,000 shares of common stock, par value
of $.001 per share, which are divided into series or funds each of which
consists of separate classes of shares. This Prospectus relates only to the
Investor A Shares of Nations Equity Income Fund of Nations Fund, Inc. To obtain
additional information regarding the Fund's other classes of shares which may be
available to you, contact your Selling Agent (as defined below) or Nations Fund
at 1-800-321-7854.
Shares of each fund and class have equal rights with respect to voting, except
that the holders of shares of a particular fund or class will have the exclusive
right to vote on matters affecting only the rights of the holders of such fund
or class. In the event of dissolution or liquidation, holders of each class will
receive pro rata, subject to the rights of creditors, (a) the proceeds of the
sale of that portion of the assets allocated to that class held in the
respective fund of Nations Fund, Inc., less (b) the liabilities of Nations Fund,
Inc. attributable to the respective fund or class or allocated among the funds
or classes based on the respective liquidation value of each fund or class.
Shareholders of Nations Fund, Inc. do not have cumulative voting rights, and
therefore the holders of more than 50% of the outstanding shares of all funds
voting together for election of directors may elect all of the members of the
Board of Directors of Nations Fund, Inc. Meetings of shareholders may be called
upon the request of 10% or more of the outstanding shares of Nations Fund, Inc.
There are no preemptive rights applicable to any of Nations Fund, Inc.'s shares.
Nations Fund, Inc.'s shares, when issued, will be fully paid and non-assessable.
As of July 15, 1996, NationsBank and its affiliates possessed or shared power to
dispose of or vote with respect to more than 25% of the outstanding shares of
Nations Fund, Inc. and therefore could be considered to be a controlling person
of Nations Fund, Inc. for purposes of the 1940 Act. For more detailed
information concerning the percentage of each class or series over which
NationsBank and its affiliates possessed or shared power to dispose or vote as
of a certain date, see Nations Fund, Inc.'s SAI. It is anticipated that Nations
Fund, Inc. will not hold annual shareholder meetings on a regular basis unless
required by the 1940 Act or Maryland law.
Because this Prospectus combines disclosure on two separate investment
companies, there is a possibility that one investment company could become
liable for a misstatement, inaccuracy or incomplete disclosure in this
Prospectus concerning the other investment company. Nations Fund Trust and
Nations Fund, Inc. have entered into an indemnification agreement that creates a
right of indemnification from the investment company responsible for any such
misstatement, inaccuracy or incomplete disclosure that may appear in this
Prospectus.
25
<PAGE>
About Your Investment
How To Buy Shares
The Funds have established various procedures for purchasing Investor A Shares
in order to accommodate different investors. Purchase orders for Investor A
Shares may be placed directly with a Fund or through banks, broker/dealers or
other financial institutions (including certain affiliates of NationsBank) that
have entered into a shareholder servicing agreement ("Servicing Agreement") with
Nations Fund ("Servicing Agents") and/or a sales support agreement ("Sales
Support Agreement") with Stephens ("Selling Agents"). Servicing Agents and
Selling Agents are sometimes referred to hereafter as "Agents."
In addition, Investor A Shares may be purchased through a Nations Fund Personal
Investment Planner account, which is a managed agency/asset allocation account
established with NBAI (an "Account"). Investments through an Account are
governed by the terms and conditions of the Account, which are set forth in the
Client Agreement and Disclosure Statement provided by NBAI to each investor who
establishes an Account. Because of the nature of the Account, certain of the
features described in this Prospectus are not available to investors purchasing
Investor A Shares through an Account. Potential investors through an Account
should refer to the Client Agreement and Disclosure Statement for more
information regarding the Account, including information regarding the fees and
expenses charged in connection with an Account.
There is a minimum initial investment of $1,000 in the Funds, except that the
minimum initial investment is:
(Bullet) $500 for IRA investors;
(Bullet) $250 for non-working spousal IRAs; and
(Bullet) $100 for investors participating on a monthly basis in the Systematic
Investment Plan described below.
There is no minimum investment amount for investments by 401(k) plans,
simplified employee pension plans ("SEPs"), salary reduction-simplified employee
pension plans ("SAR-SEPs") or salary reduction-Individual Retirement Account
("SAR-IRAs"). However, the assets of such plans must reach an asset value of
$1,000 ($500 for SEPs, SAR-SEPs and SAR-IRAs) within one year of the account
open date. If the assets of such plans do not reach the minimum asset size
within one year, Nations Fund reserves the right to redeem the shares held by
such plans on 60 days' written notice. The minimum subsequent investment is
$100, except for investments pursuant to the Systematic Investment Plan
described below.
Investor A Shares are purchased at net asset value per share. Purchases may be
effected on days on which the New York Stock Exchange (the "Exchange") is open
for business (a "Business Day").
Nations Fund and Stephens reserve the right to reject any purchase order. The
issuance of Investor A Shares is recorded on the books of the Funds, and share
certificates are not issued unless expressly requested in writing. Certificates
are not issued for fractional shares.
OPENING AN ACCOUNT DIRECTLY WITH A FUND: Investors may open a regular
(non-retirement) account directly with a Fund, either by mail or by wire.
BY MAIL: Investors should complete a New Account Application and forward it,
along with a check made payable to the Fund, to:
Nations Fund
P.O. Box 34602
Charlotte, NC 28254-4602
BY WIRE: Investors should call Investor Services at 1-800-982-2271 for an
account number and use the following wire instructions:
Nations Fund
c/o Boston Safe Deposit & Trust
26
<PAGE>
ABA #011001234
DDA #154202
Account Name
Account Number
Fund Name
Investors should complete a New Account Application and mail it to the address
above.
RETIREMENT ACCOUNTS: For IRAs and other retirement accounts, investors should
call Investor Services at 1-800-982-2271.
ADDITIONAL PURCHASES: Additional purchases may be made by mail or wire. To
purchase additional shares by mail, send a check made payable to the Fund with a
reinvestment slip to the address set forth above. To purchase additional shares
by wire, follow the wiring instructions set forth above.
EFFECTIVE TIME OF PURCHASES: Purchase orders for Investor A Shares of the Funds
which are received by Stephens or by the Transfer Agent before the close of
regular trading hours on the Exchange (currently 4:00 p.m., Eastern time) on any
Business Day are priced according to the net asset value determined on that day
but are not executed until 4:00 p.m., Eastern time, on the Business Day on which
immediately available funds in payment of the purchase price are received by the
Funds' Custodian. Such payment must be received no later than 4:00 p.m., Eastern
time, by the third Business Day following receipt of the order. If funds are not
received by such date, the order will not be accepted and notice thereof will be
given to the Agent placing the order. Payment for orders which are not received
or accepted will be returned after prompt inquiry to the sending Agent.
The Agents are responsible for transmitting orders for purchases of Investor A
Shares by their customers ("Customers"), and delivering required funds, on a
timely basis. Stephens is responsible for transmitting orders it receives to
Nations Fund.
SYSTEMATIC INVESTMENT PLAN: Under the Funds' Systematic Investment Plan ("SIP")
a shareholder may automatically purchase Investor A Shares. On a bi-monthly,
monthly or quarterly basis, a shareholder may direct cash to be transferred
automatically from his/her checking or savings account at any bank which is a
member of the Automated Clearing House to his/her Fund account. Transfers will
occur on or about the 15th and/or 30th day of the applicable month. The
systematic investment amount may be in any amount from $25 to $100,000. For more
information concerning the SIP, contact your Agent or Investor Services.
TELEPHONE TRANSACTIONS: Investors may effect purchases, redemptions (up to
$50,000) and exchanges by telephone. See "How To Redeem Shares" and "How To
Exchange Shares" below. Shareholders should be aware that by using the telephone
transaction feature, such shareholders may be giving up a measure of security
that they may have if they were to authorize written requests only. A
shareholder may bear the risk of any resulting losses from a telephone
transaction. Nations Fund will employ reasonable procedures to confirm that
instructions communicated by telephone are genuine, and if Nations Fund and its
service providers fail to employ such measures, they may be liable for any
losses due to unauthorized or fraudulent instructions. Nations Fund requires a
form of personal identification prior to acting upon instructions received by
telephone and provides written confirmation to shareholders of each telephone
share transaction. In addition, Nations Fund reserves the right to record all
telephone conversations.
How To Redeem Shares
For shareholders who open and maintain an account directly with a Fund,
redemption orders should be communicated to such Fund by calling Investor
Services at 1-800-982-2271 or in writing. (Shareholders must have established
telephone features on their account in order to effect telephone transactions.)
Redemption proceeds are normally sent by mail or wired within three Business
Days after receipt of the order by the Fund. For shareholders who purchased
their
27
<PAGE>
shares through an Agent, redemption orders should be transmitted by telephone or
in writing through the same Agent. Redemption proceeds are normally wired to the
redeeming Agent within three Business Days after receipt of the order by
Stephens or by the Transfer Agent. Redemption orders are effected at the net
asset value per share next determined after receipt of the order by the Fund,
Stephens, or the Transfer Agent, as the case may be. The Agents are responsible
for transmitting redemption orders to Stephens or to the Transfer Agent and for
crediting their Customer's account with the redemption proceeds on a timely
basis. Redemption proceeds for shares purchased by check may not be remitted
until at least 15 days after the date of purchase to ensure that the check has
cleared; a certified check, however, is deemed to be cleared immediately. No
charge for wiring redemption payments is imposed by Nations Fund. There is no
redemption charge.
Nations Fund may redeem a shareholder's Investor A Shares upon 60 days' written
notice if the balance in the shareholder's account drops below $500 as a result
of redemptions. Share balances also may be redeemed at the direction of an Agent
pursuant to arrangements between the Agent and its Customers. Nations Fund also
may redeem shares of the Funds involuntarily or make payment for redemption in
readily marketable securities or other property under certain circumstances in
accordance with the 1940 Act.
Prior to effecting a redemption of Investor A Shares represented by
certificates, the Transfer Agent must have received such certificates at its
principal office. All such certificates must be endorsed by the redeeming
shareholder or accompanied by a signed stock power, in each instance with the
signature guaranteed by a commercial bank or a member of a major stock exchange,
unless other arrangements satisfactory to Nations Fund have previously been
made. Nations Fund may require any additional information reasonably necessary
to evidence that a redemption has been duly authorized.
CONTINGENT DEFERRED SALES CHARGE: Subject to certain waivers specified below,
Investor A Shares of the Funds that were purchased prior to January 1, 1996 in
amounts of $1 million or more or through the Nations Fund Personal Investment
Planner may be subject to a CDSC equal to 1.00% of the lesser of the net asset
value or the purchase price of the shares being redeemed if such shares are
redeemed within one year of purchase, declining to 0.50% in the second year
after purchase and eliminated thereafter. No CDSC is imposed on increases in net
asset value above the initial purchase price, including shares acquired by
reinvestment of distributions.
Solely for purposes of determining the period of time that has elapsed from the
purchase of any Investor A Shares, all purchases are deemed to have been made on
the trade date of the transaction. In determining whether a CDSC is applicable
to a redemption, the calculation will be made in the manner that results in the
lowest possible charge being assessed. In this regard, it will be assumed that
the redemption is first of shares held for the longest period of time or shares
acquired pursuant to reinvestment of dividends or distributions. The charge will
not be applied to dollar amounts representing an increase in the net asset value
since the time of purchase.
The CDSC will be waived on redemptions of Investor A Shares (i) following the
death or disability (as defined in the Internal Revenue Code of 1986, as amended
(the "Code")) of a shareholder (including a registered joint owner), (ii) in
connection with the following retirement plan distributions: (a) by qualified
plans, (except in cases of plan level terminations); (b) distributions from an
IRA following attainment of age 59 1/2; (c) a tax-free return of an excess
contribution to an IRA, and (d) distributions from a qualified retirement plan
that are not subject to the 10% additional Federal withdrawal tax pursuant to
Section 72(t)(2) of the Code, (iii) effected pursuant to Nations Fund's right to
liquidate a shareholder's account, including instances where the aggregate net
asset value of the Investor A Shares held in the account is less than the
minimum account size, (iv) in connection with the combination of Nations Fund
with any other registered investment company by merger, acquisition of assets or
by any other transaction, and (v) effected pursuant to the Automatic Withdrawal
Plan discussed below, provided that such redemptions do not exceed, on an annual
basis, 12% of the net asset value of the Investor A Shares in the account.
Shareholders are respon-
28
<PAGE>
sible for providing evidence sufficient to establish that they are eligible for
any waiver of the CDSC.
Within 120 days after a redemption of Investor A Shares of a Fund, a shareholder
may reinvest any portion of the proceeds of such redemption in Investor A Shares
of the same Fund. The amount which may be so reinvested is limited to an amount
up to, but not exceeding, the redemption proceeds (or to the nearest full share
if fractional shares are not purchased). A shareholder exercising this privilege
would receive a pro rata credit for any CDSC paid in connection with the prior
redemption. A shareholder may not exercise this privilege with the proceeds of a
redemption of shares previously purchased through the reinvestment privilege. In
order to exercise this privilege, a written order for the purchase of Investor A
Shares must be received by the Transfer Agent or by Stephens within 120 days
after the redemption.
AUTOMATIC WITHDRAWAL PLAN: An Automatic Withdrawal Plan ("AWP") may be
established by a new or existing shareholder of the Funds if the value of the
Investor A Shares in his/her accounts within the Nations Fund Family (valued at
the net asset value at the time of the establishment of the AWP) equals $10,000
or more. Investor A Shares redeemed under the AWP will not be subject to a CDSC,
provided that the shares so redeemed do not exceed, on an annual basis, 12% of
the net asset value of the Investor A Shares in the account. Otherwise, any
applicable CDSC will be imposed on shares redeemed under the AWP. Shareholders
who elect to establish an AWP may receive a monthly, quarterly or annual check
or automatic transfer to a checking or savings account in a stated amount of not
less than $25 on or about the 10th or 25th day of the applicable month of
withdrawal. Investor A Shares will be redeemed (net of any applicable CDSC) as
necessary to meet withdrawal payments. Withdrawals will reduce principal and may
eventually deplete the shareholder's account. If a shareholder desires to
establish an AWP after opening an account, a signature guarantee will be
required. An AWP may be terminated by a shareholder on 30 days' written notice
to his/her Agent or by Nations Fund at any time.
How To Exchange Shares
GENERAL: The exchange feature enables a shareholder of a fund of Nations Fund to
acquire shares of the same class that are offered by any other fund of Nations
Fund when the shareholder believes that a shift between funds is an appropriate
investment decision. A qualifying exchange is based on the next calculated net
asset value per share of each fund after the exchange order is received.
For shareholders who maintain an account directly with a Fund, exchange requests
should be communicated to the Fund by calling Investor Services at
1-800-982-2271 or in writing. For shareholders who purchased their shares
through an Agent, exchange requests should be communicated to the Agent, who is
responsible for transmitting the request to Stephens or to the Transfer Agent.
The Funds and each of the other funds of Nations Fund may limit the number of
times this exchange feature may be exercised by a shareholder within a specified
period of time. Also, the exchange feature may be terminated or revised at any
time by Nations Fund upon such notice as may be required by applicable
regulatory agencies (presently 60 days for termination or material revision),
absent unusual circumstances.
The current prospectus for each fund of Nations Fund describes its investment
objective and policies, and shareholders should obtain a copy and examine it
carefully before investing. Exchanges are subject to the minimum investment
requirement and any other conditions imposed by each fund. In the case of any
shareholder holding a share certificate or certificates, no exchanges may be
made until all applicable share certificates have been received by the Transfer
Agent and deposited in the shareholder's account. An exchange will be treated
for Federal income tax
29
<PAGE>
purposes the same as a redemption of shares, on which the shareholder may
realize a capital gain or loss. And, the ability to deduct capital losses on an
exchange may be limited in situations where there is an exchange of shares
within 90 days after the shares are purchased.
The Investor A Shares exchanged must have a current value of at least $1,000
(except for exchanges through the Automatic Exchange Feature, which is described
below). Nations Fund reserves the right to reject any exchange request. Only
shares that may legally be sold in the state of the shareholder's residence may
be acquired in an exchange. Only shares of a class that is accepting investments
generally may be acquired in an exchange. During periods of significant economic
or market change, telephone exchanges may be difficult to complete. In such
event, shareholders should consider communicating their exchange requests by
mail.
If Investor A Shares of the Funds purchased prior to January 1, 1996 are
exchanged for shares of the same class of another fund, any CDSC applicable to
the original shares purchased will be applied upon the redemption of the
acquired shares. The holding period of such Investor A Shares (for purposes of
determining whether a CDSC is applicable upon redemption) will be computed from
the time of the initial purchase of the Investor A Shares of a Fund.
AUTOMATIC EXCHANGE FEATURE: Under the Funds' Automatic Exchange Feature ("AEF")
a shareholder may automatically exchange at least $25 on a monthly or quarterly
basis. A shareholder may direct proceeds to be exchanged from one fund of
Nations Fund to another as allowed by the applicable exchange rules within the
prospectus. Exchanges will occur on or about the 15th or 30th day of the
applicable month. The shareholder must have an existing position in both Funds
in order to establish the AEF. This feature may be established by directing a
request to the Transfer Agent by telephone or in writing. For additional
information, a shareholder should contact his/her Selling Agent or Investor
Services.
Shareholder Servicing And
Distribution Plans
The Funds' Shareholder Servicing and Distribution Plan (the "Investor A Plan"),
adopted pursuant to Rule 12b-1 under the 1940 Act, permits the Funds to
compensate (i) Servicing Agents and Selling Agents for services provided to
their Customers that own Investor A Shares and (ii) Stephens for
distribution-related expenses incurred in connection with Investor A Shares.
Aggregate payments under the Investor A Plan are calculated daily and paid
monthly at a rate or rates set from time to time by the Funds, provided that the
annual rate may not exceed 0.25% of the average daily net asset value of the
Investor A Shares of the Funds.
The fees payable to Servicing Agents under the Investor A Plan are used
primarily to compensate or reimburse Servicing Agents for shareholder services
provided, and related expenses incurred, by such Servicing Agents. The
shareholder services provided by Servicing Agents may include: (i) aggregating
and processing purchase and redemption requests for Investor A Shares from
Customers and transmitting net purchase and redemption orders to Stephens or the
Transfer Agent; (ii) providing Customers with a service that invests the assets
of their accounts in Investor A Shares pursuant to specific or preauthorized
instructions; (iii) processing dividend and distribution payments from the Funds
on behalf of Customers; (iv) providing information periodically to Customers
showing their positions in Investor A Shares; (v) arranging for bank wires; and
(vi) providing general shareholder liaison services. The fees payable to Selling
Agents are used primarily to compensate or reimburse Selling Agents for
providing sales support assistance in connection with the sale of Investor A
Shares to Customers, which may include forwarding sales literature
30
<PAGE>
and advertising provided by Nations Fund to Customers.
The fees under the Investor A Plan also may be used to reimburse Stephens for
distribution-related expenses actually incurred by Stephens, including, but not
limited to, expenses of organizing and conducting sales seminars, printing
prospectuses and statements of additional information (and supplements thereto)
and reports for other than existing shareholders, preparation and distribution
of advertising and sales literature and the costs of administering the Investor
A Plan.
Stephens may, from time to time, at its expense or as an expense for which it
may be reimbursed under the Investor A Plan, pay a bonus or other consideration
or incentive to Agents who sell a minimum dollar amount of shares of the Funds
during a specified period of time. Stephens also may, from time to time, pay
additional consideration to Agents not to exceed 1.00% of the offering price per
share on all sales of Investor A Shares as an expense of Stephens or for which
Stephens may be reimbursed under the Investor A Plan or upon receipt of a CDSC.
Any such additional consideration or incentive program may be terminated at any
time by Stephens.
In addition, Stephens has established a non-cash compensation program pursuant
to which broker/dealers or financial institutions that sell shares of the Funds
may earn additional compensation in the form of trips to sales seminars or
vacation destinations, tickets to sporting events, theater or other
entertainment, opportunities to participate in golf or other outings and gift
certificates for meals or merchandise. This non-cash compensation program may be
amended or terminated at any time by Stephens.
Nations Fund and Stephens may suspend or reduce payments under the Investor A
Plan at any time, and payments are subject to the continuation of the Investor A
Plan described above and the terms of the Servicing Agreements and Sales Support
Agreements. See the SAIs for more details on the Investor A Plan.
Nations Fund understands that Agents may charge fees to their Customers who are
the owners of Investor A Shares for various services provided in connection with
a Customer's account. These fees would be in addition to any amounts received by
a Selling Agent under its Sales Support Agreement with Stephens or by a
Servicing Agent under its Servicing Agreement with Nations Fund. The Sales
Support Agreements and Servicing Agreements require Agents to disclose to their
Customers any compensation payable to the Agent by Stephens or Nations Fund and
any other compensation payable by the Customers for various services provided in
connection with their accounts. Customers should read this Prospectus in light
of the terms governing their accounts with their Agents.
How The Funds Value Their Shares
The Funds calculate the net asset value of a share of each class by dividing the
total value of its assets, less liabilities, by the number of shares in the
class outstanding. Shares are valued as of the close of regular trading on the
Exchange (currently 4:00 p.m., Eastern time) on each Business Day. Currently,
the days on which the Exchange is closed (other than weekends) are: New Year's
Day, Presidents' Day, Good Friday, Memorial Day (observed), Independence Day,
Labor Day, Thanksgiving Day and Christmas Day.
Portfolio securities for which market quotations are readily available are
valued at market value. Short-term investments that will mature in 60 days or
less are valued at amortized cost, which approximates market value. All other
securities and assets are valued at their fair value following procedures
approved by the Trustees or Directors.
31
<PAGE>
How Dividends And Distributions Are
Made; Tax Information
DIVIDENDS AND DISTRIBUTIONS: The Funds distribute any net investment income each
calendar quarter and any net realized capital gains (including net short-term
capital gains) at least annually. Distributions from capital gains are made
after applying any available capital loss carryovers. Investor A Shares of the
Funds are eligible to receive dividends when declared, provided, however, that
the purchase order for such shares is received at least one day prior to the
dividend declaration and such shares continue to be eligible for dividends
through and including the day before the redemption order is executed.
Distributions paid by the Funds with respect to one class of shares may be
greater or less than those paid with respect to another class of shares due to
the different expenses of the different classes.
The net asset value of Investor A Shares will be reduced by the amount of any
dividend or distribution. Certain Agents may provide for the reinvestment of
dividends in the form of additional Investor A Shares of the same class in the
same Fund. Dividends and distributions are paid in cash within five Business
Days of the end of the quarter to which the dividend relates. Dividends and
distributions payable to a shareholder are paid in cash within five Business
Days after a shareholder's complete redemption of his/her Investor A Shares.
TAX INFORMATION: Each Fund intends to qualify as a "regulated investment
company" under the Code. Such qualification relieves the Fund of liability for
Federal income tax on amounts distributed in accordance with the Code.
Each Fund intends to distribute substantially all of its investment company
taxable income and net tax-exempt income each taxable year. Distributions by a
Fund of its net investment income (including net foreign currency gains) and the
excess, if any, of its net short-term capital gain over its net long-term
capital loss are taxable as ordinary income to shareholders who are not
currently exempt from Federal income tax, whether such income is received in
cash or reinvested in additional shares. (Federal income tax for distributions
to an IRA are generally deferred under the Code.)
Corporate investors in a Fund may be entitled to the dividends-received
deduction on all or a portion of such Fund's dividends to the extent that the
Fund's income is derived from dividends (which, if received directly, would
qualify for such deduction) received from domestic corporations. In order to
qualify for the dividends-received deduction, a corporate shareholder must hold
the fund shares paying the dividends upon which the deduction is based for at
least 46 days.
Substantially all of the Funds' net realized long-term capital gains will be
distributed at least annually. The Funds will generally have no tax liability
with respect to such gains, and the distributions will be taxable to
shareholders who are not exempt from Federal income tax as long-term capital
gains, regardless of how long the shareholders have held the Funds' shares and
whether such gains are received in cash or reinvested in additional shares.
Each year, shareholders will be notified as to the amount and Federal tax status
of all dividends and capital gains paid during the prior year. Such dividends
and capital gains may be subject to state and local taxes.
Dividends declared in October, November, or December of any year payable to
shareholders of record on a specified date in such months will be deemed to have
been received by shareholders and paid by the Funds on December 31 of such year
in the event such dividends are actually paid during January of the following
year.
Federal law requires Nations Fund to withhold 31% from any dividends (other than
exempt-interest dividends) paid by Nations Fund and/or redemptions (including
exchange redemptions) that occur in certain shareholder accounts if the
shareholder has not properly furnished a
certi-
32
<PAGE>
fied correct Taxpayer Identification Number and has not certified that
withholding does not apply, or if the Internal Revenue Service has notified
Nations Fund that the Taxpayer Identification Number listed on a shareholder
account is incorrect according to its records, or that the shareholder is
subject to backup withholding. Amounts withheld are applied to the shareholder's
Federal tax liability, and a refund may be obtained from the Internal Revenue
Service if withholding results in overpayment of taxes. Federal law also
requires the Funds to withhold 30% or the applicable tax treaty rate from
dividends paid to certain nonresident alien, non-U.S. partnership and non-U.S.
corporation shareholder accounts.
The foregoing discussion is based on tax laws and regulations which were in
effect as of the date of this Prospectus and summarizes only some of the
important Federal tax considerations generally affecting the Funds and their
shareholders. It is not intended as a substitute for careful tax planning;
investors should consult their tax advisors with respect to their specific tax
situations as well as with respect to state and local taxes. Further tax
information is contained in the SAIs.
Appendix A -- Portfolio Securities
The following are summary descriptions of certain types of instruments in which
a Fund may invest. The "How Objectives Are Pursued" section of the Prospectus
identifies each Fund's permissible investments, and the SAIs contain more
information concerning such investments.
ASSET-BACKED SECURITIES: Asset-backed securities arise through the grouping by
governmental, government-related, and private organizations of loans,
receivables, or other assets originated by various lenders. Asset-backed
securities consist of both mortgage and non-mortgage-backed securities.
Interests in pools of these assets 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 asset-backed securities include interests in pools of receivables,
such as motor vehicle installment purchase obligations and credit card
receivables. Such securities are generally issued as pass-through certificates,
which represent undivided fractional ownership interests in the underlying pools
of assets. Such securities also may be debt instruments, which are also known as
collateralized obligations and are generally issued as the debt of a special
purpose entity organized solely for the purpose of owning such assets and
issuing such debt.
BANK INSTRUMENTS: Bank instruments consist mainly of certificates of deposit,
time deposits and bankers' acceptances. The Funds will limit their investments
in bank obligations so they do not exceed 25% of each Fund's total assets at the
time of purchase.
U.S. dollar-denominated obligations issued by foreign branches of domestic banks
("Eurodollar" obligations) and domestic branches of foreign banks ("Yankee
dollar" obligations) and other foreign obligations involve special investment
risks, including the possibility that liquidity could be impaired because of
future political and economic developments, the obligations may
33
<PAGE>
be less marketable than comparable domestic obligations of domestic issuers, a
foreign jurisdiction might impose withholding taxes on interest income payable
on such obligations, deposits may be seized or nationalized, foreign
governmental restrictions such as exchange controls may be adopted which might
adversely affect the payment of principal of and interest on such obligations,
the selection of foreign obligations may be more difficult because there may be
less publicly available information concerning foreign issuers, there may be
difficulties in enforcing a judgment against a foreign issuer or the accounting,
auditing and financial reporting standards, practices and requirements
applicable to foreign issuers may differ from those applicable to domestic
issuers. In addition, foreign banks are not subject to examination by U.S.
Government agencies or instrumentalities.
BORROWINGS: When a Fund borrows money, the net asset value of a share may be
subject to greater fluctuation until the borrowing is paid off. The Funds may
borrow money from banks for temporary purposes in amounts of up to one-third of
their respective total assets, provided that borrowings in excess of 5% of the
value of the Funds' total assets must be repaid prior to the purchase of
portfolio securities. 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 and dollar roll transactions may be considered to
be borrowings. When a Fund invests in a reverse repurchase agreement, it sells a
portfolio security to another party, such as a bank or broker/dealer, in return
for cash, and agrees to buy the security back at a future date and price.
Reverse repurchase agreements may be used to provide cash to satisfy unusually
heavy redemption requests without having to sell portfolio securities, or for
other temporary or emergency purposes. Generally, the effect of such a
transaction is that the Funds can recover all or most of the cash invested in
the portfolio securities involved during the term of the reverse repurchase
agreement, while they will be able to keep the interest income associated with
those portfolio securities. Such transactions are only advantageous if the
interest cost to the Funds of the reverse repurchase transaction is less than
the cost of obtaining the cash otherwise.
At the time a Fund enters into a reverse repurchase agreement, it may establish
a segregated account with its custodian bank in which it will maintain cash,
U.S. Government securities or other liquid high grade debt obligations equal in
value to its obligations in respect of reverse repurchase agreements. Reverse
repurchase agreements involve the risk that the market value of the securities
the Funds are obligated to repurchase under the agreement may decline below the
repurchase price. In the event the buyer of securities under a reverse
repurchase agreement files for bankruptcy or becomes insolvent, the Funds' use
of proceeds of the agreement may be restricted pending a determination by the
other party, or its trustee or receiver, whether to enforce the Funds'
obligation to repurchase the securities. In addition, there is a risk of delay
in receiving collateral or securities or in repurchasing the securities covered
by the reverse repurchase agreement or even of a loss of rights in the
collateral or securities in the event the buyer of the securities under the
reverse repurchase agreement files for bankruptcy or becomes insolvent. The
Funds only enter into reverse repurchase agreements (and repurchase agreements)
with counterparties that are deemed by the Adviser to be credit worthy. Reverse
repurchase agreements are speculative techniques involving leverage, and are
subject to asset coverage described above. Under the requirements of the 1940
Act, the Funds are required to maintain an asset coverage (including the
proceeds of the borrowings) of at least 300% of all borrowings. Depending on
market conditions, the Funds' asset coverage and other factors at the time of a
reverse repurchase, the Funds may not establish a segregated account when the
Adviser believes it is not in the best interests of the Funds to do so. In this
case, such reverse repurchase agreements will be considered borrowings subject
to the asset coverage described above.
Dollar roll transactions consist of the sale by a Fund of mortgage-backed or
other asset-backed securities, together with a commitment to purchase similar,
but not identical, securities at a future date, at the same price. In addition,
a
34
<PAGE>
Fund is paid a fee as consideration for entering into the commitment to
purchase. If the broker/dealer to whom a Fund sells the security becomes
insolvent, the Fund's right to purchase or repurchase the security may be
restricted; the value of the security may change adversely over the term of the
dollar roll; the security that the Fund is required to repurchase may be worth
less than the security that the Fund originally held, and the return earned by
the Fund with the proceeds of a dollar roll may not exceed transaction costs.
COMMERCIAL INSTRUMENTS: Commercial instruments consist of short-term U.S.
dollar-denominated obligations issued by domestic corporations or foreign
corporations and foreign commercial banks. Investments by a Fund in commercial
paper will consist of issues rated in a manner consistent with such Fund's
investment policies and objective. In addition, a Fund may acquire unrated
commercial paper and corporate bonds that are determined by the Adviser at the
time of purchase to be of comparable quality to rated instruments that may be
acquired by a Fund. Commercial instruments include variable-rate master demand
notes, which are unsecured instruments that permit the indebtedness thereunder
to vary and provide for periodic adjustments in the interest rate, and variable-
and floating-rate instruments.
CONVERTIBLE SECURITIES, PREFERRED STOCK, AND WARRANTS: Certain of the Funds may
invest in debt securities convertible into or exchangeable for equity
securities, preferred stocks or warrants. Preferred stocks are securities that
represent an ownership interest in a corporation providing the owner with claims
on a company's earnings and assets before common stock owners, but after bond or
other debt security owners. Warrants are options to buy a stated number of
shares of common stock at a specified price any time during the life of the
warrants.
FIXED INCOME INVESTING: The performance of the fixed-income debt component of a
Fund's portfolio depends primarily on interest rate changes, the average
weighted maturity of the portfolio and the quality of the securities held. The
debt component of a Fund's portfolio will tend to decrease in value when
interest rates rise and increase when interest rates fall. A Fund's share price
and yield depend, in part, on the maturity and quality of its debt instruments.
FOREIGN CURRENCY TRANSACTIONS: To the extent provided under "How Objectives Are
Pursued," the Funds may enter into foreign currency exchange transactions to
convert foreign currencies to and from the U.S. Dollar. A Fund either enters
into these transactions on a spot (I.E., cash) basis at the spot rate prevailing
in the foreign currency exchange market, or uses forward contracts to purchase
or sell foreign currencies. A forward foreign currency exchange contract is an
obligation by a Fund to purchase or sell a specific currency at a future date,
which may be any fixed number of days from the date of the contract.
Foreign currency hedging transactions are an attempt to protect a Fund against
changes in foreign currency exchange rates between the trade and settlement
dates of specific securities transactions or changes in foreign currency
exchange rates that would adversely affect a portfolio position or an
anticipated portfolio position. Although these transactions tend to minimize the
risk of loss due to a decline in the value of the hedged currency, at the same
time they tend to limit any potential gain that might be realized should the
value of the hedged currency increase. Neither spot transactions nor forward
foreign currency exchange contracts eliminate fluctuations in the prices of a
Fund's portfolio securities or in foreign exchange rates, or prevent loss if the
prices of these securities should decline.
A Fund will generally enter into forward currency exchange contracts only under
two circumstances: (i) when the Fund enters into a contract for the purchase or
sale of a security denominated in a foreign currency, to "lock" in the U.S.
dollar price of the security; and (ii) when the Adviser believes that the
currency of a particular foreign country may experience a substantial movement
against another currency. Under certain circumstances, the Fund may commit a
substantial portion of its portfolio to the execution of these contracts. The
Adviser will consider the effects such a commitment would have on the investment
program of the Fund and the flexibility of the Fund to purchase additional
securities. Although forward contracts will be used primar-
35
<PAGE>
ily to protect the Fund from adverse currency movements, they also involve the
risk that anticipated currency movements will not be accurately predicted.
FOREIGN SECURITIES: Foreign securities include debt and equity obligations
(dollar- and non-dollar-denominated) of foreign corporations and banks as well
as obligations of foreign governments and their political subdivisions (which
will be limited to direct government obligations and government-guaranteed
securities). Such investments may subject a Fund to special investment risks,
including future political and economic developments, the possible imposition of
withholding taxes on interest income, possible seizure or nationalization of
foreign deposits, the possible establishment of exchange controls, or the
adoption of other foreign governmental restrictions which might adversely affect
the payment of principal and interest on such obligations. In addition, foreign
issuers in general may be subject to different accounting, auditing, reporting,
and record keeping standards than those applicable to domestic companies, and
securities of foreign issuers may be less liquid and their prices more volatile
than those of comparable domestic issuers.
Investments in foreign securities may present additional risks, whether made
directly or indirectly, including the political or economic instability of the
issuer or the country of issue and the difficulty of predicting international
trade patterns. In addition, there may be less publicly available information
about a foreign company than about a U.S. company. Further, foreign securities
markets are generally not as developed or efficient as those in the U.S., and in
most foreign markets volume and liquidity are less than in the United States.
Fixed commissions on foreign securities exchanges are generally higher than the
negotiated commissions on U.S. exchanges, and there is generally less government
supervision and regulation of foreign securities exchanges, brokers, and
companies than in the United States. With respect to certain foreign countries,
there is a possibility of expropriation or confiscatory taxation, limitations on
the removal of funds or other assets, or diplomatic developments that could
affect investments within those countries. Because of these and other factors,
securities of foreign companies acquired by a Fund may be subject to greater
fluctuation in price than securities of domestic companies.
FUTURES, OPTIONS AND OTHER DERIVATIVE INSTRUMENTS: To the extent provided under
"How Objectives Are Pursued" the Funds may attempt to reduce the overall level
of investment risk of particular securities and attempt to protect a Fund
against adverse market movements by investing in futures, options and other
derivative instruments. These include the purchase and writing of options on
securities (including index options) and options on foreign currencies, and
investing in futures contracts for the purchase or sale of instruments based on
financial indices, including interest rate indices or indices of U.S. or foreign
government, equity or fixed income securities ("futures contracts"), options on
futures contracts, forward contracts and swaps and swap-related products such as
interest rate swaps, currency swaps, caps, collars and floors.
The use of futures, options, forward contracts and swaps exposes a Fund to
additional investment risks and transaction costs. If the Adviser incorrectly
analyzes market conditions or does not employ the appropriate strategy with
respect to these instruments, a Fund could be left in a less favorable position.
Additional risks inherent in the use of futures, options, forward contracts and
swaps include: imperfect correlation between the price of futures, options and
forward contracts and movements in the prices of the securities or currencies
being hedged; the possible absence of a liquid secondary market for any
particular instrument at any time; and the possible need to defer closing out
certain hedged positions to avoid adverse tax consequences. A Fund may not
purchase put and call options which are traded on a national stock exchange in
an amount exceeding 5% of its net assets. Further information on the use of
futures, options and other derivative instruments, and the associated risks, is
contained in the SAIs.
ILLIQUID SECURITIES: Certain securities may be sold only pursuant to certain
legal restrictions, and may be difficult to sell. The Funds will not hold more
than 15% of the value of their respective net assets in securities that are
illiquid or such lower percentage as may be required by the
36
<PAGE>
states in which the appropriate Fund sells its shares. Repurchase agreements,
time deposits and guaranteed investment contracts that do not provide for
payment to a Fund within seven days after notice, and illiquid restricted
securities are subject to the limitation on illiquid securities.
If otherwise consistent with their investment objectives and policies, certain
Funds may purchase securities that are not registered under the Securities Act
of 1933 (the "1933 Act") but which can be sold to "qualified institutional
buyers" in accordance with Rule 144A 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 the
Fund's Board, after considering trading activity, availability of reliable price
information and other relevant information, that an adequate trading market
exists for that security. To the extent that, for a period of time, qualified
institutional 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.
LOWER-RATED DEBT SECURITIES: Nations Equity Income Fund may invest in
lower-rated debt securities. Lower-rated, high-yielding securities are those
rated "Ba" or "B" by Moody's or "BB" or "B" by S&P which are commonly referred
to as "junk bonds." These bonds provide poor protection for payment of principal
and interest. Lower-quality bonds involve greater risk of default or price
changes due to changes in the issuer's creditworthiness than securities assigned
a higher quality rating. These securities are considered to have speculative
characteristics and indicate an aggressive approach to income investing.
The market for lower-rated securities may be thinner and less active than that
for higher quality securities, which can adversely affect the price at which
these securities can be sold. If market quotations are not available, these
lower-rated securities will be valued in accordance with procedures established
by the Fund's Board, including the use of outside pricing services. Adverse
publicity and changing investor perceptions may affect the ability of outside
pricing services used by the Fund to value its portfolio securities, and the
Fund's ability to dispose of these lower-rated bonds.
MONEY MARKET INSTRUMENTS: The term "money market instruments" refers to
instruments with remaining maturities of one year or less. Money market
instruments may include, among other instruments, certain U.S. Treasury
obligations, U.S. Government Obligations, bank instruments, commercial
instruments, repurchase agreements and municipal securities. Such instruments
are described in this Appendix A.
37
<PAGE>
MUNICIPAL SECURITIES: The two principal classifications of municipal securities
are "general obligation" securities and "revenue" securities. General obligation
securities are secured by the issuer's pledge of its full faith, credit, and
taxing power for the payment of principal and interest. Revenue securities are
payable only from the revenues derived from a particular facility or class of
facilities or, in some cases, from the proceeds of a special excise tax or other
specific revenue source such as the user of the facility being financed. Private
activity bonds held by a Fund are in most cases revenue securities and are not
payable from the unrestricted revenues of the issuer. Consequently, the credit
quality of private activity bonds is usually directly related to the credit
standing of the corporate user of the facility involved.
Municipal securities may include "moral obligation" bonds, which are normally
issued by special purpose public authorities. If the issuer of moral obligation
bonds is unable to meet its debt service obligations from current revenues, it
may draw on a reserve fund, the restoration of which is a moral commitment but
not a legal obligation of the state or municipality which created the issuer.
Municipal securities may include variable- or floating-rate instruments issued
by industrial development authorities and other governmental entities. While
there may not be an active secondary market with respect to a particular
instrument purchased by a Fund, a Fund may demand payment of the principal and
accrued interest on the instrument or may resell it to a third party as
specified in the instruments. The absence of an active secondary market,
however, could make it difficult for a Fund to dispose of the instrument if the
issuer defaulted on its payment obligation or during periods the Fund is not
entitled to exercise its demand rights, and the Fund could, for these or other
reasons, suffer a loss.
Some of these instruments may be unrated, but unrated instruments purchased by a
Fund will be determined by the Adviser to be of comparable quality at the time
of purchase to instruments rated "high quality" by any major rating service.
Where necessary to ensure that an instrument is of comparable "high quality," a
Fund will require that an issuer's obligation to pay the principal of the note
may be backed by an unconditional bank letter or line of credit, guarantee, or
commitment to lend.
Municipal securities may include participations in privately arranged loans to
municipal borrowers, some of which may be referred to as "municipal leases," and
units of participation in trusts holding pools of tax-exempt leases. Such loans
in most cases are not backed by the taxing authority of the issuers and may have
limited marketability or may be marketable only by virtue of a provision
requiring repayment following demand by the lender. Such loans made by a Fund
may have a demand provision permitting the Fund to require payment within seven
days. Participations in such loans, however, may not have such a demand
provision and may not be otherwise marketable. To the extent these securities
are illiquid, they will be subject to each Fund's limitation on investments in
illiquid securities. As it deems appropriate, the Adviser will establish
procedures to monitor the credit standing of each such municipal borrower,
including its ability to meet contractual payment obligations.
Municipal participation interests may be purchased from financial institutions,
and give the purchaser an undivided interest in one or more underlying municipal
security. To the extent that municipal participation interests are considered to
be "illiquid securities," such instruments are subject to each Fund's limitation
on the purchase of illiquid securities.
In addition, certain of the Funds may acquire "stand-by commitments" from banks
or broker/dealers with respect to municipal securities held in their portfolios.
Under a stand-by commitment, a dealer would agree to purchase at a Fund's option
specified municipal securities at a specified price. A Fund will acquire
stand-by commitments solely to facilitate portfolio liquidity and do not intend
to exercise their rights thereunder for trading purposes.
Although the Funds do not presently intend to do so on a regular basis, a Fund
may invest more than 25% of its total assets in municipal securities the
interest on which is paid solely from revenues of similar projects if such
investment is deemed necessary or appropriate by the Adviser. To the extent that
more than 25% of a Fund's total assets are invested in municipal securities
38
<PAGE>
that are payable from the revenues of similar projects, a Fund will be subject
to the peculiar risks presented by such projects to a greater extent than it
would be if its assets were not so concentrated.
OTHER INVESTMENT COMPANIES: Each Fund may invest in securities issued by other
investment companies to the extent that such investments are consistent with the
Fund's investment objective and policies and permissible under the 1940 Act. As
a shareholder of another investment company, a Fund would bear, along with other
shareholders, its pro rata portion of the other investment company's expenses,
including advisory fees. These expenses would be in addition to the advisory and
other expenses that a Fund bears directly in connection with its own operations.
REAL ESTATE INVESTMENT TRUSTS: A real estate investment trust ("REIT") is a
managed portfolio of real estate investments which may include office buildings,
apartment complexes, hotels and shopping malls. An Equity REIT holds equity
positions in real estate, and it seeks to provide its shareholders with income
from the leasing of its properties, and with capital gains from any sales of
properties. A Mortgage REIT specializes in lending money to developers of
properties, and passes any interest income it may earn to its shareholders.
REITs may be affected by changes in the value of the underlying property owned
or financed by the REIT, while Mortgage REITs also may be affected by the
quality of credit extended. Both Equity and Mortgage REITs are dependent upon
management skill and may not be diversified. REITs also may be subject to heavy
cash flow dependency, defaults by borrowers, self-liquidation, and the
possibility of failing to qualify for tax-free pass-through of income under the
Code.
REPURCHASE AGREEMENTS: A repurchase agreement involves the purchase of a
security by a Fund and a simultaneous agreement (generally with a bank or
broker/dealer) to repurchase that security from the Fund at a specified price
and date or upon demand. This technique offers a method of earning income on
idle cash. A risk associated with repurchase agreements is the failure of the
seller to repurchase the securities as agreed, which may cause a Fund to suffer
a loss if the market value of such securities declines before they can be
liquidated on the open market. Repurchase agreements with a duration of more
than seven days are considered illiquid securities and are subject to the limit
stated above. A Fund may enter into joint repurchase agreements jointly with
other investment portfolios of Nations Fund.
SECURITIES LENDING: To increase return on portfolio securities, the Funds may
lend their portfolio securities to broker/dealers and other institutional
investors pursuant to agreements requiring that the loans be continuously
secured by collateral equal at all times in value to at least the market value
of the securities loaned. There is a risk of delay in receiving collateral or in
recovering the securities loaned or even a loss of rights in the collateral
should the borrower of the securities fail financially. However, loans are made
only to borrowers deemed by the Adviser to be credit worthy and when, in its
judgment, the income to be earned from the loan justifies the attendant risks.
The aggregate of all outstanding loans of a Fund may not exceed 30% of the value
of its total assets.
STOCK INDEX, INTEREST RATE AND CURRENCY FUTURES CONTRACTS: Certain of the Funds
may purchase and sell futures contracts and related options with respect to
non-U.S. stock indices, non-U.S. interest rates and foreign currencies, that
have been approved by the CFTC for investment by U.S. investors, for the purpose
of hedging against changes in values of a Fund's securities or changes in the
prevailing levels of interest rates or currency exchange rates. The contracts
entail certain risks, including but not limited to the following: no assurance
that futures contracts transactions can be offset at favorable prices; possible
reduction of a Fund's total return due to the use of hedging; possible lack of
liquidity due to daily limits on price fluctuation; imperfect correlation
between the contracts and the securities or currencies being hedged; and
potential losses in excess of the amount invested in the futures contracts
themselves.
Trading on foreign commodity exchanges presents additional risks. Unlike trading
on domestic commodity exchanges, trading on foreign commodity exchanges is not
regulated by the CFTC and may be subject to greater risks
39
<PAGE>
than trading on domestic exchanges. For example, some foreign exchanges are
principal markets for which no common clearing facility exists and a trader may
look only to the broker for performance of the contract. In addition, unless a
Fund hedges against fluctuations in the exchange rate between the U.S. dollar
and the currencies in which trading is done on foreign exchanges, any profits
that such Fund might realize could be eliminated by adverse changes in the
exchange rate, or the Fund could incur losses as a result of those changes.
U.S. GOVERNMENT OBLIGATIONS: U.S. Government Obligations consist of marketable
securities and instruments issued or guaranteed by the U.S. Government or any of
its agencies, authorities or instrumentalities. Direct obligations are issued by
the U.S. Treasury and include all U.S. Treasury instruments. 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 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 Association; 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.
WHEN-ISSUED, DELAYED DELIVERY AND FORWARD COMMITMENT SECURITIES: The purchase of
new issues of securities on a "when-issued," "delayed delivery" or "forward
commitment" basis occurs when the payment for and delivery of securities takes
place at a future date. Because actual payment for and delivery of such
securities generally take place 15 to 45 days after the purchase date,
purchasers of such securities bear the risk that interest rates on debt
securities at the time of delivery may be higher or lower than those contracted
for on the security purchased.
Appendix B -- Description Of Ratings
The following summarizes the highest six ratings used by S&P for corporate and
municipal bonds. The first four ratings denote investment grade securities.
AAA -- This is the highest rating assigned by S&P to a debt obligation and
indicates an extremely strong capacity to pay interest and repay principal.
AA -- Debt rated AA is considered to have a very strong capacity to pay
interest and repay principal and differs from AAA issues only in a small
degree.
A -- Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than debt in higher-rated
categories.
BBB -- Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than for those in
higher-rated categories.
BB, B -- Bonds rated BB and B are regarded, on balance, as predominantly
speculative with respect to capacity to pay
40
<PAGE>
interest and repay principal in accordance with the terms of the
obligation. BB represents the lowest degree of speculation and B a higher
degree of speculation. While such bonds will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or
major risk exposures to adverse conditions.
To provide more detailed indications of credit quality, the AA, A and BBB
ratings may be modified by the addition of a plus or minus sign to show relative
standing within these major rating categories.
The following summarizes the highest six ratings used by Moody's for corporate
and municipal bonds. The first four ratings denote investment grade securities.
Aaa -- Bonds that are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to
as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such
issues.
Aa -- Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there may
be other elements present which make the long-term risks appear somewhat
larger than in Aaa securities.
A -- Bonds that are rated A possess many favorable investment attributes
and are to be considered upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
Baa -- Bonds that are rated Baa are considered medium grade obligations,
I.E., they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable
over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba -- Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may
be small.
Moody's applies numerical modifiers (1, 2 and 3) with respect to corporate bonds
rated Aa through B. The modifier 1 indicates that the bond being rated ranks in
the higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates that the bond ranks in the lower
end of its generic rating category. With regard to municipal bonds, those bonds
in the Aa, A and Baa groups which Moody's believes possess the strongest
investment attributes are designated by the symbols Aa1, A1 or Baa1,
respectively.
The following summarizes the highest four ratings used by D&P for bonds, each of
which denotes that the securities are investment grade:
AAA -- Bonds that are rated AAA are of the highest credit quality. The risk
factors are considered to be negligible, being only 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.
41
<PAGE>
A -- Bonds that are rated A have protection factors which are average but
adequate. However, risk factors are more variable and greater in periods of
economic stress.
BBB -- Bonds that are rated BBB have below average protection factors but
still are considered sufficient for prudent investment. Considerable
variability in risk exists during economic cycles.
To provide more detailed indications of credit quality, the AA, A and BBB
ratings may be modified by the addition of a plus or minus sign to show relative
standing within these major categories.
The following summarizes the highest four ratings used by Fitch for bonds, each
of which denotes that the securities are investment grade:
AAA -- Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
AA -- Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated AAA. Because bonds
rated in the AAA and AA categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is
generally rated F-1+.
A -- Bonds considered to be investment grade and of high credit quality.
The obligor's ability to pay interest and repay principal is considered to
be strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.
BBB -- Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these
bonds, and therefore impair timely payment. The likelihood that the ratings
of these bonds will fall below investment grade is higher than for bonds
with higher ratings.
To provide more detailed indications of credit quality, the AA, A and BBB
ratings may be modified by the addition of a plus or minus sign to show relative
standing within these major rating categories.
The following summarizes the two highest ratings used by Moody's for short-term
municipal notes and variable rate demand obligations:
MIG-1/VMIG-1 -- Obligations bearing these designations are of the best
quality, enjoying strong protection from established cash flows, superior
liquidity support or demonstrated broad-based access to the market for
refinancing.
MIG-2/VMIG-2 -- Obligations bearing these designations are of high quality,
with ample margins of protection although not so large as in the preceding
group.
The following summarizes the two highest ratings used by S&P for short-term
municipal notes:
SP-1 -- Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics are given
a "plus" (+) designation.
SP-2 -- Satisfactory capacity to pay principal and interest.
The three highest rating categories of D&P for short-term debt, each of which
denotes that the securities are investment grade, are D-1, D-2 and D-3. D&P
employs three designations, D-1+, D-1 and D-1-, within the highest rating
category. D-1+ indicates highest certainty of timely payment. Short-term
liquidity, including internal operating factors and/or access to alternative
sources of funds, is judged to be "outstanding, and safety is just below
risk-free U.S. Treasury short-term obligations." D-1 indicates very high
certainty of timely payment. Liquidity factors are excellent and supported by
good fundamental protection factors. Risk factors are considered to be minor.
D-1- indicates high certainty of timely payment. Liquidity factors are strong
and supported by good fundamental protection
fac-
42
<PAGE>
tors. Risk factors are very small. D-2 indicates good certainty of timely
payment. Liquidity factors and company fundamentals are sound. Although ongoing
funding needs may enlarge total financing requirements, access to capital
markets is good. Risk factors are small. D-3 indicates satisfactory liquidity
and other protection factors which qualify the issue as investment grade. Risk
factors are larger and subject to more variation. Nevertheless, timely payment
is expected.
The following summarizes the two highest rating categories used by Fitch for
short-term obligations, each of which denotes securities that are investment
grade:
F-1+ securities possess exceptionally strong credit quality. Issues
assigned this rating are regarded as having the strongest degree of
assurance for timely payment.
F-1 securities possess very strong credit quality. Issues assigned this
rating reflect an assurance of timely payment only slightly less in degree
than issues rated F-1+.
F-2 securities possess good credit quality. Issues carrying this rating
have a satisfactory degree of assurance for timely payment, but the margin
of safety is not as great as for issues assigned the F-1+ and F-1 ratings.
Commercial paper rated A-1 by S&P indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted A-1+. Capacity for timely payment on
commercial paper rated A-2 is satisfactory, but the relative degree of safety is
not as high as for issues designated A-1.
The rating Prime-1 is the highest commercial paper rating assigned by Moody's.
Issuers rated Prime-1 (or related supporting institutions) are considered to
have a superior capacity for repayment of senior short-term promissory
obligations. Issuers rated Prime-2 (or related supporting institutions) are
considered to have a strong capacity for repayment of senior short-term
promissory obligations. This will normally be evidenced by many of the
characteristics of issuers rated Prime-1, but to a lesser degree. Earnings
trends and coverage ratios, while sound, will be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
For commercial paper, D&P uses the short-term debt ratings described above.
For commercial paper, Fitch uses the short-term debt ratings described above.
BankWatch ratings are based upon a qualitative and quantitative analysis of all
segments of the organization including, where applicable, holding company and
operating subsidiaries. BankWatch ratings do not constitute a recommendation to
buy or sell securities of any of these companies. Further, BankWatch does not
suggest specific investment criteria for individual clients.
BankWatch long-term ratings apply to specific issues of long-term debt and
preferred stock. The long-term ratings specifically assess the likelihood of
untimely payment of principal or interest over the term to maturity of the rated
instrument. The following are the four investment grade ratings used by
BankWatch for long-term debt:
AAA -- The highest category; indicates ability to repay principal and
interest on a timely basis is extremely high.
AA -- The second highest category; indicates a very strong ability to repay
principal and interest on a timely basis with limited incremental risk
versus issues rated in the highest category.
A -- The third highest category; indicates the ability to repay principal
and interest is strong. Issues rated "A" could be more vulnerable to
adverse developments (both internal and external) than obligations with
higher ratings.
BBB -- The lowest investment grade category; indicates an acceptable
capacity to repay principal and interest. Issues rated "BBB" are, however,
more vulnerable to adverse developments (both internal and external) than
obligations with higher ratings.
43
<PAGE>
The BankWatch short-term ratings apply to commercial paper, other senior
short-term obligations and deposit obligations of the entities to which the
rating has been assigned. The BankWatch short-term ratings specifically assess
the likelihood of an untimely payment of principal or interest.
TBW-1 -- The highest category; indicates a very high likelihood that
principal and interest will be paid on a timely basis.
TBW-2 -- The second highest category; while the degree of safety regarding
timely repayment of principal and interest is strong, the relative degree
of safety is not as high as for issues rated "TBW-1".
TBW-3 -- The lowest investment grade category; indicates that while more
susceptible to adverse developments (both internal and external) than
obligations with higher ratings, capacity to service principal and interest
in a timely fashion is considered adequate.
TBW-4 -- The lowest rating category; this rating is regarded as
non-investment grade and therefore speculative.
The following summarizes the four highest long-term ratings used by IBCA:
AAA -- Obligations for which there is the lowest expectation of investment
risk. Capacity for timely repayment of principal and interest is
substantial such that adverse changes in business, economic or financial
conditions are unlikely to increase investment risk significantly.
AA -- Obligations for which there is a very low expectation of investment
risk. Capacity for timely repayment of principal and interest is
substantial. Adverse changes in business, economic or financial conditions
may increase investment risk albeit not very significantly.
A -- Obligations for which there is a low expectation of investment risk.
Capacity for timely repayment of principal and interest is strong, although
adverse changes in business, economic or financial conditions may lead to
increased investment risk.
BB -- Obligations for which there is currently a low expectation of
investment risk. Capacity for timely repayment of principal and interest is
adequate, although adverse changes in business, economic or financial
conditions are more likely to lead to increased investment risk than for
obligations in other categories.
A plus or minus sign may be appended to a rating below AAA to denote
relative status within major rating categories.
The following summarizes the 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.
44
<PAGE>
Prospectus
INVESTOR A SHARES
JULY 31, 1996
This Prospectus describes NATIONS EQUITY INDEX FUND
(the "Fund") of Nations Fund Trust, an open-end
management investment company in the Nations Fund
Family ("Nations Fund" or "Nations Fund Family").
This Prospectus describes one class of shares of
the Fund -- Investor A Shares.
This Prospectus sets forth concisely the
information about the Fund that prospective
purchasers of Investor A Shares should consider
before investing. Investors should read this
Prospectus and retain it for future reference.
Additional information about Nations Fund Trust is
contained in a separate Statement of Additional
Information (the "SAI"), that has been filed with
the Securities and Exchange Commission (the "SEC")
and is available upon request without charge by
writing or calling Nations Fund at its address or
telephone number shown below. The SAI bears the
same date as this Prospectus and is incorporated by
reference in its entirety into this Prospectus.
NationsBanc Advisors, Inc. ("NBAI") is the
investment adviser to the Fund. TradeStreet
Investment Associates, Inc. ("TradeStreet") is
sub-investment adviser to the Fund. As used herein
the "Adviser" shall mean NBAI and/or TradeStreet as
the context may require.
SHARES OF NATIONS FUND ARE NOT DEPOSITS OR OTHER
OBLIGATIONS OF, OR ISSUED, ENDORSED OR GUARANTEED
BY, NATIONSBANK, N.A. ("NATIONSBANK") OR ANY OF ITS
AFFILIATES. SUCH SHARES ARE NOT INSURED BY THE U.S.
GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER
GOVERNMENT AGENCY. AN INVESTMENT IN THE FUND
INVOLVES CERTAIN RISKS, INCLUDING POSSIBLE LOSS OF
PRINCIPAL.
NATIONSBANK AND CERTAIN OF ITS AFFILIATES PROVIDE
CERTAIN OTHER SERVICES TO NATIONS FUND, FOR WHICH
THEY ARE COMPENSATED. STEPHENS INC., WHICH IS NOT
AFFILIATED WITH NATIONSBANK, IS THE SPONSOR AND
ADMINISTRATOR AND SERVES AS THE DISTRIBUTOR FOR
NATIONS FUND.
THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
Nations Equity Index Fund
For Fund information call:
1-800-321-7854
Nations Fund
c/o Stephens Inc.
One NationsBank Plaza
33rd Floor
Charlotte, NC 28255
(Nations Fund logo
appears here)
<PAGE>
Table Of Contents
About The Fund
Prospectus Summary 3
Expenses Summary 4
Financial Highlights 5
Objective 6
How Objective Is Pursued 6
How Performance Is Shown 8
How The Fund Is Managed 9
Organization And History 12
About Your Investment
How To Buy Shares 13
How To Redeem Shares 14
How To Exchange Shares 16
Shareholder Servicing And Distribution Plan 17
How The Fund Values Its Shares 18
How Dividends And Distributions Are Made; Tax
Information 18
Appendix A -- Portfolio Securities 20
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT
CONTAINED IN THIS PROSPECTUS, OR IN THE FUND'S SAI
INCORPORATED HEREIN BY REFERENCE, IN CONNECTION
WITH THE OFFERING MADE BY THIS PROSPECTUS AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY NATIONS FUND OR ITS DISTRIBUTOR. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFERING BY NATIONS FUND OR
BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE.
2
<PAGE>
About The Fund
Prospectus Summary
(Bullet) TYPE OF COMPANY: Open-end management investment company.
(Bullet) INVESTMENT OBJECTIVE AND POLICIES:
(Bullet) The investment objective of Nations Equity Index Fund is to
seek investment results that correspond, before fees and
expenses, to the total return of the Standard & Poor's 500
Composite Stock Price Index.
(Bullet) INVESTMENT ADVISER: NationsBanc Advisors, Inc. serves as the investment
adviser to the Fund. NBAI provides investment advice to more than 43
investment company portfolios in the Nations Fund Family. TradeStreet
Investment Associates, Inc. provides sub-advisory services to the Fund.
See "How The Fund Is Managed."
(Bullet) DIVIDENDS AND DISTRIBUTIONS: Nations Equity Index Fund declares and
pays dividends from net investment income each calendar quarter. The
Fund's net realized capital gains, including net short-term capital
gains are distributed at least annually.
(Bullet) RISK FACTORS: Although the Adviser seeks to achieve the investment
objective of the Fund, there is no assurance that it will be able to do
so. Investments in the Fund are not insured against loss of principal.
Investments by the Fund in common stocks and other equity securities
are subject to stock market risk, which is the risk that the value of
the stocks the Fund holds may decline over short or even extended
periods. Certain of the Fund's investments constitute derivative
securities. Certain types of derivative securities can, under certain
circumstances, significantly increase an investor's exposure to market
or other risks. For a discussion of these and other factors, see "How
Objective Is Pursued -- Risk Considerations" and "Appendix
A -- Portfolio Securities."
(Bullet) MINIMUM PURCHASE: $1,000 minimum initial investment per record holder
except that the minimum initial investment is: $500 for Individual
Retirement Account ("IRA") investors; $250 for non-working spousal
IRAs; and $100 for investors participating on a monthly basis in the
Systematic Investment Plan. There is no minimum investment amount for
investments by certain 401(k) and employee pension plans or salary
reduction -- Individual Retirement Accounts. The minimum subsequent
investment is $100, except for investments pursuant to the Systematic
Investment Plan. See "How To Buy Shares."
3
<PAGE>
Expenses Summary
Expenses are one of several factors to consider when investing in the Fund. The
following tables summarize shareholder transaction and operating expenses for
Investor A Shares of the Fund. The Examples show the cumulative expenses
attributable to a hypothetical $1,000 investment in the Fund over specified
periods.
<TABLE>
<CAPTION>
INVESTOR A SHARES
Nations Equity
SHAREHOLDER TRANSACTION EXPENSES Index Fund
<S> <C>
Maximum Sales Load Imposed on Purchases (as a percentage of offering price) None
Maximum Deferred Sales Charge (as a percentage of the lower of the original purchase price
or redemption proceeds)1 None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees (After Fee Waivers) .10%
Rule 12b-1 Fees (Including shareholder servicing fees) .25%
Other Expenses .25%
Total Operating Expenses (After Fee Waivers) .60%
</TABLE>
1 Investor A Shares that were purchased prior to January 1, 1996 remain subject
to the Deferred Sales charge, if any, applicable at the time of purchase. See
"How To Redeem Shares -- Contingent Deferred Sales Charge."
EXAMPLES:
You would pay the following expenses on a $1,000 investment in Investor A Shares
of the Fund, assuming (1) a 5% annual return and (2) redemption at the end of
each time period.
<TABLE>
<CAPTION>
Nations Equity
Index Fund
<S> <C>
1 Year $ 6
3 Years $ 19
5 Years $ 33
10 Years $ 75
</TABLE>
The purpose of the foregoing table is to assist an investor in understanding the
various shareholder transaction and operating expenses that an investor in
Investor A Shares will bear either directly or indirectly. The figures in the
above tables are based on amounts incurred during the Fund's most recent fiscal
period and have been adjusted as necessary to reflect current service provider
fees. There is no assurance that any fee waivers and reimbursements will
continue beyond the current fiscal year. Absent fee waivers and reimbursements,
"Management Fees" and "Total Operating Expenses" would have been .50% and 1.00%,
respectively. If fee waivers and/or reimbursements are discontinued, the amounts
contained in the "Examples" above may increase. Long-term shareholders in the
Fund could pay more in sales charges than the economic equivalent of the maximum
front-end sales charges applicable to mutual funds sold by members of the
National Association of Securities Dealers, Inc. For more complete descriptions
of the Fund's operating expenses, see "How The Fund Is Managed." For a more
complete description of the Rule 12b-1 and shareholder servicing fees payable by
the Fund, see "Shareholder Servicing And Distribution Plan."
THE FOREGOING SHOULD NOT BE CONSIDERED TO BE AN ACTUAL REPRESENTATION OF PAST OR
FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES AND RATES OF RETURN MAY BE
GREATER OR LESS THAN THOSE SHOWN.
4
<PAGE>
Financial Highlights
The following audited financial information has been derived from the financial
statements of Nations Fund Trust. Price Waterhouse LLP is the independent
accountant to Nations Fund Trust. The reports of Price Waterhouse LLP for the
most recent fiscal period of Nations Fund Trust accompany the financial
statements for such period and are incorporated by reference in the SAI, which
is available upon request. For more information see "Organization And History."
Shareholders of the Fund will receive unaudited semi-annual reports describing
the fund's investment operations and annual financial statements audited by the
Fund's independent accountant.
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
NATIONS EQUITY INDEX FUND
PERIOD PERIOD
ENDED ENDED
INVESTOR A SHARES 03/31/96(a) 11/30/95*
<S> <C> <C>
Operating performance:
Net asset value, beginning of period $ 12.91 $ 12.29
Net investment income 0.06 0.03
Net realized and unrealized gain/(loss) on investments 0.87 0.59
Net increase in net asset value from operations 0.93 0.62
Distributions:
Dividends from net investment income (0.12) --
Distributions from net realized capital gains (0.14) --
Total dividends and distributions (0.26) --
Net asset value, end of period $ 13.58 $ 12.91
Total return++ 7.26% 5.04%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 95 $ 11
Ratio of operating expenses to average net assets 0.35%+ 0.62%+
Ratio of operating expenses to average net assets including interest expense 0.35%+ 0.63%+
Ratio of net investment income to average net assets 1.99%+ 2.19%+
Portfolio turnover rate 2% 18%
Ratio of operating expenses to average net assets without waivers and/or expense
reimbursements 0.73%+ 1.03%+
Net investment income per share without waivers and/or expense reimbursements $ 0.05 $ 0.02
Average commission rate paid (b) $ 0.0291 N/A
</TABLE>
* Nations Equity Index Fund's Investor A Shares commenced operations on October
10, 1995.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
(b) Average commission rate paid per share of securities purchased and sold by
the Fund.
5
<PAGE>
Objective
NATIONS EQUITY INDEX FUND: The investment objective of the Nations Equity Index
Fund is to seek investment results that correspond, before fees and expenses, to
the total return of the Standard & Poor's 500 Composite Stock Price Index (the
"S&P 500 Index" or the "Index").(1)
(1) "Standard & Poor's 500" is a registered service mark of Standard & Poor's
Corporation ("S&P").
The Fund is not managed according to traditional methods of "active" investment
management, which involve the buying and selling of securities based upon
economic, financial, and market analyses and investment judgment. Instead, the
Fund, utilizing a "passive" or "indexing" investment approach, attempts to
duplicate the performance of the S&P 500 Index.
How Objective Is Pursued
NATIONS EQUITY INDEX FUND: Under normal conditions, the Fund will invest at
least 80% of its assets in equity securities of companies which compose the S&P
500 Index. The S&P 500 Index consists of 500 selected common stocks, most of
which are listed on the New York Stock Exchange. Different stocks have different
weightings in the Index, depending on the amount of stock outstanding and its
current price. In seeking to duplicate the performance of the S&P 500 Index, the
Adviser will attempt to allocate the Fund's portfolio among common stocks in
approximately the same weightings as the S&P 500 Index, beginning with the
heaviest weighted stocks that make up a larger portion of the Index's value.
The Adviser generally will seek to match the composition of the S&P 500 Index as
closely as possible, but may not always invest the Fund's portfolio to mirror
the Index exactly. Because of the difficulty and expense of executing relatively
small stock transactions, the Fund may not always be invested in the less
heavily weighted S&P 500 Index stocks and may at times have its portfolio
weighted differently from the S&P 500 Index. The Fund may omit or remove an S&P
500 Index stock from its portfolio if, following objective criteria, the Adviser
judges the stock to be insufficiently liquid or believes the merit of the
investment has been substantially impaired by extraordinary events or financial
conditions. The Adviser may purchase stocks that are not included in the S&P 500
Index to compensate for these differences if it believes that their prices will
move together with the prices of S&P 500 Index stocks omitted from the
portfolio.
The correlation between the performance of Nations Equity Index Fund before fees
and expenses and the S&P 500 Index is expected to be over 0.95 on an annual
basis. A correlation of 1.00 would indicate perfect correlation, which would be
achieved when the net asset value of the Fund, including the value of its
dividend and capital gains distributions, increases or decreases in exact
proportion to changes in the S&P 500 Index. The Fund's ability to track the S&P
500 Index, however, may be affected by, among other things, transaction costs,
changes in either the composition of the S&P 500 Index or the number of shares
outstanding for the components of the S&P 500 Index, and the timing and amount
of shareholder purchase and redemptions. The Fund may utilize stock index
futures contracts to minimize tracking error. In connection with engaging in
futures transactions, the Fund may hold cash, cash equivalents, and/or U.S.
Government securities.
Under normal conditions, the Adviser will attempt to invest as much of the
Fund's assets as is practical in common stocks. However, the Fund will maintain
a reasonable position in high-quality short-term debt securities and money
market instruments to meet redemption requests. If the Adviser believes that
market
6
<PAGE>
conditions warrant a temporary defensive posture, the Fund may invest without
limitation in high-quality short-term debt securities and money market
instruments. These securities and money market instruments may include domestic
and foreign commercial paper, certificates of deposit, bankers' acceptances and
time deposits, U.S. government securities and repurchase agreements.
The Fund also may invest a portion of its portfolio in instruments whose return
depends on stock market prices. These may include debt securities whose prices
or interest rates are indexed to the return of the S&P 500 Index, or swap
agreements linked to the S&P 500 Index, and options and futures contracts. The
Fund would invest in these types of instruments in order to seek to match the
total return of the Index in accordance with its investment objective. However,
instruments linked to stock market returns may not track the return of the Index
in all cases, and may involve additional credit risks. The Fund may also invest
in warrants. For additional information concerning the Fund's investment
practices, see "Appendix A."
The Fund also may invest in certain specified derivative securities including:
exchange-traded options; over-the-counter options executed with primary dealers,
including long calls and puts and covered calls to enhance return; and U.S. and
foreign exchange-traded financial futures approved by the Commodity Futures
Trading Commission ("CFTC") and options thereon for market exposure risk
management. The Fund may lend its portfolio securities to qualified
institutional investors. The Fund also may invest in restricted, private
placement and other illiquid securities. In addition, the Fund may invest in
securities issued by other investment companies, consistent with the Fund's
investment objective and policies.
ABOUT THE INDEX: The S&P 500 Index is composed of 500 common stocks, which are
chosen by S&P on a statistical basis. The inclusion of a stock in the S&P 500
Index in no way implies that S&P believes the stock to be an attractive
investment. The Index is determined, composed and calculated by S&P without
regard to the Fund. S&P is neither a sponsor of, nor in any way affiliated with
the Fund, and S&P makes no representation or warranty, expressed or implied, on
the advisability of investing in the Fund or as to the ability of the Index to
track general stock market performance. S&P disclaims all warranties of
merchantability or fitness for a particular purpose or use with respect to the
Index or any data included therein.
PORTFOLIO TURNOVER: Generally, the Fund will purchase portfolio securities for
capital appreciation or investment income, or both, and not for short-term
trading profits. If the Fund's annual portfolio turnover rate exceeds 100%, it
may result in higher brokerage costs and possible tax consequences for the Fund
and its shareholders. For the Fund's portfolio turnover rate see "Financial
Highlights."
RISK CONSIDERATIONS: Although the Adviser will seek to achieve the investment
objective of the Fund, there is no assurance that it will be able to do so. No
single Fund should be considered, by itself, to provide a complete investment
program for any investor. Investments in the Fund are not insured against loss
of principal.
Investments by the Fund in common stocks and other equity securities are subject
to stock market risks. The value of the stocks that the Fund holds, like the
broader stock market, may decline over short or even extended periods.
Certain of the Fund's investments constitute derivative securities, which are
securities whose value is derived, at least in part, from an underlying index or
reference rate. There are certain types of derivative securities that can, under
certain circumstances, significantly increase a purchaser's exposure to market
or other risks. The Adviser, however, only purchases derivative securities in
circumstances where it believes such purchases are consistent with the Fund's
investment objective and do not unduly increase the Fund's exposure to market or
other risks. For additional risk information regarding the Fund's investments in
particular instruments, see "Appendix A -- Portfolio Securities."
INVESTMENT LIMITATIONS: The Fund is subject to a number of investment
limitations. The following investment limitations are matters of fundamental
policy and may not be changed
7
<PAGE>
without the affirmative vote of the holders of a majority of the Fund's
outstanding shares. Other investment limitations that cannot be changed without
such a vote of shareholders are described in the SAI.
The Fund may not:
1. Purchase any securities which would cause 25% or more of the value of the
Fund's total assets at the time of such purchase to be invested in the
securities of one or more issuers conducting their principal activities in the
same industry. (For purposes of this limitation, U.S. Government securities and
tax-exempt securities issued by state or municipal governments and their
political subdivisions are not considered members of any industry.)
2. Make loans, except that the Fund may purchase and hold debt instruments
(whether such instruments are part of a public offering or privately placed),
may enter into repurchase agreements and may lend portfolio securities in
accordance with its investment policies.
3. Purchase securities of any one issuer (other than securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities) if,
immediately after such purchase, more than 5% of the value of the Fund's total
assets would be invested in the securities of such issuer, except that up to 25%
of the value of the Fund's total assets may be invested without regard to these
limitations and with respect to 75% of the Fund's assets, the Fund will not hold
more than 10% of the voting securities of any issuer.
The investment objective and policies of the Fund, unless otherwise specified,
may be changed without a vote of the Fund's shareholders. If the investment
objective or policies of the Fund change, shareholders should consider whether
the Fund remains an appropriate investment in light of their then current
positions and needs.
In order to register the Fund's shares for sale in certain states, the Fund may
make commitments more restrictive than the investment policies and limitations
described in this Prospectus and the SAI. Should the Fund determine that any
such commitment is no longer in the best interest of the Fund, it may consider
terminating sales of its shares in the states involved.
How Performance Is Shown
From time to time the Fund may advertise the total return and yield on a class
of shares. BOTH TOTAL RETURN AND YIELD FIGURES ARE BASED ON HISTORICAL DATA AND
ARE NOT INTENDED TO INDICATE FUTURE PERFORMANCE. The "total return" of a class
of shares of the Fund may be calculated on an average annual total return basis
or an aggregate total return basis. Average annual total return refers to the
average annual compounded rates of return on a class of shares over one-, five-,
and ten-year periods or the life of the Fund (as stated in the advertisement)
that would equate an initial amount invested at the beginning of a stated period
to the ending redeemable value of the investment (reflecting the deduction of
any applicable contingent deferred sales charge ("CDSC")), assuming the
reinvestment of all dividend and capital gain distributions. Aggregate total
return reflects the total percentage change in the value of the investment over
the measuring period, again assuming the reinvestment of all dividends and
capital gain distributions. Total return may also be presented for other periods
or may not reflect a deduction of any applicable CDSC.
"Yield" is calculated by dividing the annualized net investment income per share
during a recent 30-day (or one month) period of a class of shares of the Fund by
the maximum public offering price per share on the last day of that period. The
yield on a class of shares does not reflect deduction of any applicable CDSC.
Investment performance, which will vary, is based on many factors, including
market conditions, the composition of the Fund's portfolio and the Fund's
operating expenses. Investment performance also often reflects the risks
associ-
8
<PAGE>
ated with the Fund's investment objective and policies. These factors should be
considered when comparing the Fund's investment results to those of other mutual
funds and other investment vehicles. Since yields fluctuate, yield data cannot
necessarily be used to compare an investment in the Fund with bank deposits,
savings accounts, and similar investment alternatives which often provide an
agreed-upon or guaranteed fixed yield for a stated period of time.
In addition to Investor A Shares, the Fund offers Primary A and Primary B
Shares. Each class of shares may bear different sales charges, shareholder
servicing fees, loads and other expenses, that may cause the performance of a
class to differ from the performance of the other classes. Total return and
yield quotations will be computed separately for each class of the Fund's
shares. Any quotation of total return or yield not reflecting CDSCs would be
reduced if such sales charges were reflected. Any fees charged by a selling
agent and/or servicing agent directly to its customers' accounts in connection
with investments in the Fund will not be included in calculations of total
return or yield. The Fund's annual report contains additional performance
information and is available upon request without charge from the Fund's
distributor or an investor's Agent (as defined below).
How The Fund Is Managed
The business and affairs of Nations Fund Trust are managed under the direction
of its Board of Trustees. Nations Fund Trust's SAI contains the names of and
general background information concerning each Trustee of Nations Fund Trust.
Nations Fund and the Adviser have adopted codes of ethics which contain policies
on personal securities transactions by "access persons," including portfolio
managers and investment analysts. These policies substantially comply in all
material respects with the recommendations set forth in the May 9, 1994 Report
of the Advisory Group on Personal Investing of the Investment Company Institute.
INVESTMENT ADVISER: NationsBanc Advisors, Inc. serves as investment adviser to
the Fund. NBAI is a wholly owned subsidiary of NationsBank, which in turn is a
wholly owned banking subsidiary of NationsBank Corporation, a bank holding
company organized as a North Carolina corporation. NBAI has its principal
offices at One NationsBank Plaza, Charlotte, North Carolina 28255.
TradeStreet Investment Associates, Inc., with principal offices at One
NationsBank Plaza, Charlotte, North Carolina 28255, serves as sub-investment
adviser to the Fund. TradeStreet is a wholly owned subsidiary of NationsBank.
TradeStreet provides investment management services to individuals, corporations
and institutions.
Subject to the general supervision of Nations Fund Trust's Board of Trustees,
and in accordance with the Fund's investment policies, the Adviser formulates
guidelines and lists of approved investments for the Fund, makes decisions with
respect to and places orders for the Fund's purchases and sales of portfolio
securities and maintains records relating to such purchases and sales. The
Adviser is authorized to allocate purchase and sale orders for portfolio
securities to certain financial institutions, including, in the case of agency
transactions, financial institutions which are affiliated with the Adviser or
which have sold shares in the Fund, if the Adviser believes that the quality of
the transaction and the commission are comparable to what they would be with
other qualified brokerage firms. From time to time, to the extent consistent
with its investment objective, policies and restrictions, the Fund may invest in
securities of companies with which NationsBank has a lending relationship. For
the services provided and expenses assumed pursuant to an Investment Advisory
Agreement, NBAI is entitled to receive an advisory fee, computed daily
9
<PAGE>
and paid monthly, at the annual rate of 0.50% of the average daily net assets of
the Fund.
For the services provided and the expenses assumed pursuant to the sub-advisory
agreement, NBAI will pay TradeStreet sub-advisory fees, computed daily and paid
monthly, at the annual rate of 0.10% of the Fund's average daily net assets.
From time to time, NBAI (and/or TradeStreet) may waive or reimburse (either
voluntarily or pursuant to applicable state limitations) advisory fees and/or
expenses payable by the Fund. In addition, the Adviser may from time to time
compensate Agents, as defined below, for providing certain services to
Customers.
For the fiscal period from December 1, 1995 to December 31, 1995, after waivers,
Nations Fund Trust paid NationsBank under a prior Investment Advisory Agreement
advisory fees at the rate of 0.09% of the Fund's average daily net assets.
For the fiscal period from January 1, 1996 to March 31, 1996, after waivers,
Nations Fund Trust paid NBAI under the current Investment Advisory Agreement
advisory fees at the rate of 0.09% of the Fund's average daily net assets.
For the fiscal period from January 1, 1996 to March 31, 1996, after waivers,
NBAI paid TradeStreet under the current Sub-Advisory Agreement sub-advisory fees
at the rate of 0.10% of the Fund's average daily net assets.
Greg W. Golden is a Structured Products Manager, Equity Management for
TradeStreet and is Portfolio Manager for Nations Equity Index Fund. He has been
Portfolio Manager for Nations Equity Index Fund since 1993. Prior to assuming
his position with TradeStreet, he was Vice President and Structured Products
Manager for the Investment Management Group at NationsBank. He has worked in the
investment community since 1990. His past experience includes portfolio
management, derivatives management and quantitative analysis for NationsBank and
Sovran Bank of Tennessee. Mr. Golden received a B.B.A. in Finance from Belmont
University. He is a Chartered Financial Analyst candidate and a member of the
Association for Investment Management and Research as well as the North Carolina
Society of Financial Analysts, Inc.
Morrison & Foerster LLP, counsel to Nations Fund and special counsel to
NationsBank has advised NationsBank and Nations Fund that NationsBank and its
affiliates may perform the services contemplated by the Investment Advisory
Agreement, and this Prospectus without violation of the Glass-Steagall Act. Such
counsel has pointed out, however, that there are no controlling judicial or
administrative interpretations or decisions and that future judicial or
administrative interpretations of, or decisions relating to, present federal or
state statutes, including the Glass-Steagall Act, and regulations relating to
the permissible activities of banks and their subsidiaries or affiliates, as
well as future changes in federal or state statutes, including the
Glass-Steagall Act, and regulations and judicial or administrative decisions or
interpretations thereof, could prevent such entities from continuing to perform,
in whole or in part, such services. If any such entity were prohibited from
performing any of such services, it is expected that new agreements would be
proposed or entered into with another entity or entities qualified to perform
such services.
OTHER SERVICE PROVIDERS: Stephens Inc. ("Stephens"), with principal offices at
111 Center Street, Little Rock, Arkansas 72201, serves as the administrator of
Nations Fund pursuant to an Administration Agreement. Pursuant to the terms of
the Administration Agreement, Stephens provides various administrative and
corporate secretarial services to the Fund, including providing general
oversight of other service providers, office space, utilities and various legal
and administrative services in connection with the satisfaction of various
regulatory requirements applicable to the Fund.
First Data Investor Services Group, Inc. ("First Data"), formerly The
Shareholder Services Group, Inc., a wholly owned subsidiary of First Data
Corporation, with principal offices at One Exchange Place, Boston, Massachusetts
02109, serves as the co-administrator of Nations Fund pursuant to a
Co-Administration Agreement. Under the Co-Administration Agreement, First
10
<PAGE>
Data provides various administrative and accounting services to the Fund
including performing the calculations necessary to determine the net asset value
per share and dividends of each class of the Fund, preparing tax returns and
financial statements and maintaining the portfolio records and certain of the
general accounting records for the Fund.
For the services rendered pursuant to the Administration and Co-Administration
Agreements, Stephens and First Data are entitled to receive a combined fee at
the annual rate of up to 0.10% of the Fund's average daily net assets. For the
fiscal period from December 1, 1995 to March 31, 1996, after waivers, Nations
Fund Trust paid its administrators combined fees at the rate of 0.10% of the
average daily net assets of the Fund.
NationsBank serves as sub-administrator for Nations Fund pursuant to a
Sub-Administration Agreement. Pursuant to the terms of the Sub-Administration
Agreement, NationsBank assists Stephens in supervising, coordinating and
monitoring various aspects of the Fund's administrative operations. For
providing such services, NationsBank shall be entitled to receive a monthly fee
from Stephens based on an annual rate of 0.01% of the Fund's average daily net
assets.
Shares of the Fund are sold on a continuous basis by Stephens, as the Fund's
sponsor and distributor. Stephens is a registered broker/dealer with principal
offices at 111 Center Street, Little Rock, Arkansas 72201. Nations Fund has
entered into a distribution agreement with Stephens which provides that Stephens
has the exclusive right to distribute shares of the Fund. Stephens may pay
service fees or commissions to selling agents that assist customers in
purchasing Investor A Shares of the Fund. See "Shareholder Servicing And
Distribution Plan."
NationsBank of Texas, N.A. (the "Custodian") serves as custodian for the Fund.
The Custodian is located at 1401 Elm Street, Dallas, Texas 75202 and is a wholly
owned subsidiary of NationsBank Corporation. In return for providing custodial
services, the Custodian is entitled to receive, in addition to out-of-pocket
expenses, fees payable monthly (i) at the rate of 1.25% of 1% of the average
daily net assets of the Fund, (ii) $10.00 per repurchase collateral transaction
by the Fund, and (iii) $15.00 per purchase, sale and maturity transaction
involving the Fund.
First Data serves as transfer agent (the "Transfer Agent") for the Fund's
Investor A Shares. The Transfer Agent is located at One Exchange Place, Boston,
Massachusetts 02109.
Price Waterhouse LLP serves as independent accountant to Nations Fund. Its
address is 160 Federal Street, Boston, Massachusetts 02110.
EXPENSES: The accrued expenses of the Fund, as well as certain expenses
attributable to Investor A Shares, are deducted from accrued income before
dividends are declared. The Fund's expenses include, but are not limited to:
fees paid to the Adviser, NationsBank, Stephens and First Data; interest;
trustees' fees; federal and state securities registration and qualification
fees; brokerage fees and commissions; costs of preparing and printing
prospectuses for regulatory purposes and for distribution to existing
shareholders; charges of the Custodian and Transfer Agent; certain insurance
premiums; outside auditing and legal expenses; costs of shareholder reports and
shareholder meetings; other expenses which are not expressly assumed by the
Adviser, NationsBank, Stephens or First Data under their respective agreements
with Nations Fund; and any extraordinary expenses. Investor A Shares bear
certain class specific retail transfer agency expenses and also bear certain
additional shareholder service and/or sales support costs. Any general expenses
of Nations Fund Trust that are not readily identifiable as belonging to a
particular investment portfolio are allocated among all portfolios in the
proportion that the assets of a portfolio bears to the assets of Nations Fund
Trust or in such other manner as the Board of Trustees deems appropriate.
11
<PAGE>
Organization And History
The Fund is a member of the Nations Fund Family, which consists of Nations Fund
Trust, Nations Fund, Inc., Nations Fund Portfolios, Inc. and Nations
Institutional Reserves. The Nations Fund Family currently has more than 43
distinct investment portfolios and total assets in excess of $18 billion.
NATIONS FUND TRUST: Nations Fund Trust was organized as a Massachusetts business
trust on May 6, 1985. Nations Fund Trust's fiscal year end is March 31; prior to
1996, Nations Fund Trust's fiscal year end was November 30. The Fund currently
offers three classes of shares -- Primary A Shares, Primary B Shares and
Investor A Shares. This Prospectus relates only to the Investor A Shares. To
obtain additional information regarding the Fund's other classes of shares which
may be available to you, contact your Agent (as defined below) or Nations Fund
at 1-800-321-7854.
Each share of Nations Fund Trust is without par value, represents an equal
proportionate interest in the related fund with other shares of the same class,
and is entitled to such dividends and distributions out of the income earned on
the assets belonging to such fund as are declared in the discretion of Nations
Fund Trust's Board of Trustees. Nations Fund Trust's Declaration of Trust
authorizes the Board of Trustees to classify or reclassify any class of shares
into one or more series of shares.
Shareholders are entitled to one vote for each full share held and a
proportionate fractional vote for each fractional share held. Shareholders of
each fund of Nations Fund Trust will vote in the aggregate and not by fund, and
shareholders of each fund will vote in the aggregate and not by class except as
otherwise expressly required by law or when the Board of Trustees determines
that the matter to be voted on affects only the interests of shareholders of a
particular fund or class. See Nations Fund Trust's SAI for examples of when the
Investment Company Act of 1940 (the "1940 Act") requires voting by fund.
As of July 15, 1996, NationsBank and its affiliates possessed or shared power to
dispose or vote with respect to more than 25% of the outstanding shares of
Nations Fund Trust and therefore could be considered to be a controlling person
of Nations Fund Trust for purposes of the 1940 Act. For more detailed
information concerning the percentage of each class or series of shares over
which NationsBank and its affiliates possessed or shared power to dispose or
vote as of a certain date, see Nations Fund Trust's SAI.
Nations Fund Trust does not presently intend to hold annual meetings except as
required by the 1940 Act. Shareholders will have the right to remove Trustees.
Nations Fund Trust's Code of Regulations provides that special meetings of
shareholders shall be called at the written request of the shareholders entitled
to vote at least 10% of the outstanding shares of Nations Fund Trust entitled to
be voted at such meeting.
12
<PAGE>
About Your Investment
How To Buy Shares
The Fund has established various procedures for purchasing Investor A Shares in
order to accommodate different investors. Purchase orders for Investor A Shares
may be placed directly with the Fund or through banks, broker/dealers or other
financial institutions (including certain affiliates of NationsBank) that have
entered into a shareholder servicing agreement ("Servicing Agreement") with
Nations Fund ("Servicing Agents") and/or a sales support agreement ("Sales
Support Agreement") with Stephens ("Selling Agents"). Servicing Agents and
Selling Agents are sometimes referred to hereafter as "Agents."
In addition, Investor A Shares may be purchased through a Nations Fund Personal
Investment Planner account, which is a managed agency/asset allocation account
established with NBAI (an "Account"). Investments through an Account are
governed by the terms and conditions of the Account, which are set forth in the
Client Agreement and Disclosure Statement provided by NBAI to each investor who
establishes an Account. Because of the nature of the Account, certain of the
features described in this Prospectus are not available to investors purchasing
Investor A Shares through an Account. Potential investors through an Account
should refer to the Client Agreement and Disclosure Statement for more
information regarding the Account, including information regarding the fees and
expenses charged in connection with an Account.
There is a minimum initial investment of $1,000 in the Fund, except that the
minimum initial investment is:
(Bullet) $500 for IRA investors;
(Bullet) $250 for non-working spousal IRAs; and
(Bullet) $100 for investors participating on a monthly basis in the Systematic
Investment Plan described below.
There is no minimum investment amount for investments by 401(k) plans,
simplified employee pension plans ("SEPs"), salary reduction-simplified employee
pension plans ("SAR-SEPs") or salary reduction-Individual Retirement Accounts
("SAR-IRAs"). However, the assets of such plans must reach an asset value of
$1,000 ($500 for SEPs, SAR-SEPs and SAR-IRAs) within one year of the account
open date. If the assets of such plans do not reach the minimum asset size
within one year, Nations Fund reserves the right to redeem the shares held by
such plans on 60 days' written notice. The minimum subsequent investment is
$100, except for investments pursuant to the Systematic Investment Plan
described below.
Investor A Shares are purchased at net asset value per share. Purchases may be
effected on days on which the New York Stock Exchange (the "Exchange") is open
for business (a "Business Day").
Nations Fund and Stephens reserve the right to reject any purchase order. The
issuance of Investor A Shares is recorded on the books of the Fund, and share
certificates are not issued unless expressly requested in writing. Certificates
are not issued for fractional shares.
OPENING AN ACCOUNT DIRECTLY WITH THE FUND: Investors may open a regular
(non-retirement) account directly with the Fund, either by mail or by wire.
BY MAIL: Investors should complete a New Account Application and forward it,
along with a check made payable to the Fund, to:
Nations Fund
P.O. Box 34602
Charlotte, NC 28254-4602
13
<PAGE>
BY WIRE: Investors should call Investor Services at 1-800-982-2271 for an
account number and use the following wire instructions:
Nations Fund
c/o Boston Safe Deposit & Trust
ABA #011001234
DDA #154202
Account Name
Account Number
Fund Name
Investors should complete a New Account Application and mail it to the address
above.
RETIREMENT ACCOUNTS: For IRAs and other retirement accounts, investors should
call Investor Services at 1-800-982-2271.
ADDITIONAL PURCHASES: Additional purchases may be made by mail or wire. To
purchase additional shares by mail, send a check made payable to the Fund with a
reinvestment slip to the address set forth above. To purchase additional shares
by wire, follow the wiring instructions set forth above.
EFFECTIVE TIME OF PURCHASES: Purchase orders for Investor A Shares in the Fund
which are received by Stephens or by the Transfer Agent before the close of
regular trading hours on the Exchange (currently 4:00 p.m., Eastern time) on any
Business Day are priced according to the net asset value determined on that day
but are not executed until 4:00 p.m., Eastern time, on the Business Day on which
immediately available funds in payment of the purchase price are received by the
Fund's Custodian. Such payment must be received no later than 4:00 p.m., Eastern
time, by the third Business Day following receipt of the order. If funds are not
received by such date, the order will not be accepted and notice thereof will be
given to the Agent placing the order. Payment for orders which are not received
or accepted will be returned after prompt inquiry to the sending Agent.
The Agents are responsible for transmitting orders for purchases of Investor A
Shares by their customers ("Customers") and delivering required funds, on a
timely basis. Stephens is responsible for transmitting orders it receives to
Nations Fund.
SYSTEMATIC INVESTMENT PLAN: Under the Fund's Systematic Investment Plan ("SIP")
a shareholder may automatically purchase Investor A Shares. On a bi-monthly,
monthly or quarterly basis, a shareholder may direct cash to be transferred
automatically from his/her checking or savings account at any bank which is a
member of the Automated Clearing House to his/her Fund account. Transfers will
occur on or about the 15th and/or 30th day of the applicable month. The
systematic investment amount may be in any amount from $25 to $100,000. For more
information concerning the SIP, contact your Agent or Investor Services.
TELEPHONE TRANSACTIONS: Investors may effect purchases, redemptions (up to
$50,000) and exchanges by telephone. See "How To Redeem Shares" and "How To
Exchange Shares" below. Shareholders should be aware that by using the telephone
transaction feature, such shareholders may be giving up a measure of security
that they may have if they were to authorize written requests only. A
Shareholder may bear the risk of any resulting losses from a telephone
transaction. Nations Fund will employ reasonable procedures to confirm that
instructions communicated by telephone are genuine, and if Nations Fund and its
service providers fail to employ such measures, they may be liable for any
losses due to unauthorized or fraudulent instructions. Nations Fund requires a
form of personal identification prior to acting upon instructions received by
telephone and provides written confirmation to shareholders of each telephone
share transaction. In addition, Nations Fund reserves the right to record all
telephone conversations.
How To Redeem Shares
For shareholders who open and maintain an account directly with the Fund,
redemption orders should be communicated to the Fund by calling Investor
Services at 1-800-982-2271 or in writing (shareholders must have established
telephone features on their account in order to effect telephone transactions.)
Redemption proceeds are normally sent by mail or wired within
14
<PAGE>
three Business Days after receipt of the order by the Fund. For shareholders who
purchased their shares through an Agent, redemption orders should be transmitted
by telephone or in writing through the same Agent. Redemption proceeds are
normally wired to the redeeming Agent within three Business Days after receipt
of the order by Stephens or by the Transfer Agent. Redemption orders are
effected at the net asset value per share next determined after receipt of the
order by the Fund, Stephens, or the Transfer Agent, as the case may be. The
Agents are responsible for transmitting redemption orders to Stephens or to the
Transfer Agent and for crediting their Customer's account with the redemption
proceeds on a timely basis. Redemption proceeds for shares purchased by check
may not be remitted until at least 15 days after the date of purchase to ensure
that the check has cleared; a certified check, however, is deemed to be cleared
immediately. No charge for wiring redemption payments is imposed by Nations
Fund. There is no redemption charge.
Nations Fund may redeem a shareholder's Investor A Shares upon 60 days' written
notice if the balance in the shareholder's account drops below $500 as a result
of redemptions. Share balances also may be redeemed at the direction of an Agent
pursuant to arrangements between the Agent and its Customers. Nations Fund also
may redeem shares of the Fund involuntarily or make payment for redemption in
readily marketable securities or other property under certain circumstances in
accordance with the 1940 Act.
Prior to effecting a redemption of Investor A Shares represented by
certificates, the Transfer Agent must have received such certificates at its
principal office. All such certificates must be endorsed by the redeeming
shareholder or accompanied by a signed stock power, in each instance with the
signature guaranteed by a commercial bank or a member of a major stock exchange,
unless other arrangements satisfactory to Nations Fund have previously been
made. Nations Fund may require any additional information reasonably necessary
to evidence that a redemption has been duly authorized.
CONTINGENT DEFERRED SALES CHARGE: Subject to certain waivers specified below,
Investor A Shares of the Fund that were purchased prior to January 1, 1996
through an Account may be subject to a CDSC equal to 1.00% of the lesser of the
net asset value or the purchase price of the shares being redeemed if such
shares are redeemed within one year of purchase, declining to 0.50% in the
second year after purchase and eliminated thereafter. No CDSC is imposed on
increases in net asset value above the initial purchase price, including shares
acquired by reinvestment of distributions.
Solely for purposes of determining the period of time that has elapsed from the
purchase of any Investor A Shares, all purchases are deemed to have been made on
the trade date of the transaction. In determining whether a CDSC is applicable
to a redemption, the calculation will be made in the manner that results in the
lowest possible charge being assessed. In this regard, it will be assumed that
the redemption is first of shares held for the longest period of time or shares
acquired pursuant to reinvestment of dividends or distributions. The charge will
not be applied to dollar amounts representing an increase in the net asset value
since the time of purchase.
The CDSC will be waived on redemptions of Investor A Shares (i) following the
death or disability (as defined in the Internal Revenue Code of 1986, as amended
(the "Code")) of a shareholder (including a registered joint owner), (ii) in
connection with the following retirement plan distributions: (a) by qualified
plans, (except in cases of plan level terminations); (b) distributions from an
IRA following attainment of age 59 1/2; (c) a tax-free return of an excess
contribution to an IRA; and (d) distributions from a qualified retirement plan
that are not subject to the 10% additional Federal withdrawal tax pursuant to
Section 72(t)(2) of the Code, (iii) effected pursuant to Nations Fund's right to
liquidate a shareholder's account, including instances where the aggregate net
asset value of the Investor A Shares held in the account is less than the
minimum account size, (iv) in connection with the combination of Nations Fund
with any other registered investment company by merger, acquisition of assets or
by any other transaction, and (v) effected pursuant to the Automatic Withdrawal
Plan discussed below, provided that such
15
<PAGE>
redemptions do not exceed, on an annual basis, 12% of the net asset value of the
Investor A Shares in the account. Shareholders are responsible for providing
evidence sufficient to establish that they are eligible for any waiver of the
CDSC.
Within 120 days after a redemption of Investor A Shares of the Fund, a
shareholder may reinvest any portion of the proceeds of such redemption in
Investor A Shares of the Fund. The amount which may be reinvested is limited to
an amount up to, but not exceeding, the redemption proceeds (or to the nearest
full share if fractional shares are not purchased). A shareholder exercising
this privilege would receive a pro rata credit for any CDSC paid in connection
with the prior redemption. A shareholder may not exercise this privilege with
the proceeds of a redemption of shares previously purchased through the
reinvestment privilege. In order to exercise this privilege, a written order for
the purchase of Investor A Shares must be received by the Transfer Agent or by
Stephens within 120 days after the redemption.
AUTOMATIC WITHDRAWAL PLAN: An Automatic Withdrawal Plan ("AWP") may be
established by a new or existing shareholder of the Fund if the value of the
Investor A Shares in his/her accounts within the Nations Fund Family (valued at
the net asset value at the time of the establishment of the AWP) equals $10,000
or more. Shareholders who elect to establish an AWP may receive a monthly,
quarterly or annual check or automatic transfer to a checking or savings account
in a stated amount of not less than $25 on or about the 10th or 25th day of the
applicable month of withdrawal. Investor A Shares will be redeemed as necessary
to meet withdrawal payments. Withdrawals will reduce principal and may
eventually deplete the shareholder's account. If a shareholder desires to
establish an AWP after opening an account, a signature guarantee will be
required. An AWP may be terminated by a shareholder on 30 days' written notice
to his/her Agent or by Nations Fund at any time.
How To Exchange Shares
GENERAL: The exchange feature enables a shareholder of a fund of Nations Fund to
acquire shares of the same class that are offered by any other fund of Nations
Fund when the shareholder believes that a shift between funds is an appropriate
investment decision. A qualifying exchange is based on the next calculated net
asset value per share of each fund after the exchange order is received.
For shareholders who maintain an account directly with the Fund, exchange
requests should be communicated to the Fund by calling Investor Services at
1-800-982-2271 or in writing. For shareholders who purchased their shares
through an Agent, exchange requests should be communicated to the Agent, who is
responsible for transmitting the request to Stephens or to the Transfer Agent.
The Fund and each of the other funds of Nations Fund may limit the number of
times this exchange feature may be exercised by a shareholder within a specified
period of time. Also, the exchange feature may be terminated or revised at any
time by Nations Fund upon such notice as may be required by applicable
regulatory agencies (presently 60 days for termination or material revision),
absent unusual circumstances.
The current prospectus for each fund of Nations Fund describes its investment
objective and policies, and shareholders should obtain a copy and examine it
carefully before investing. Exchanges are subject to the minimum investment
requirement and any other conditions imposed by each fund. In the case of any
shareholder holding a share certificate or certificates, no exchanges may be
made until all applicable share certificates have been received by the Transfer
Agent and deposited in the shareholder's account. An exchange will be treated
for Federal income tax purposes the same as a redemption of shares, on
16
<PAGE>
which the shareholder may realize a capital gain or loss. And, the ability to
deduct capital losses on an exchange may be limited in situations where there is
an exchange of shares within 90 days after the shares are purchased.
The Investor A Shares exchanged must have a current value of at least $1,000
(except for exchanges through the Automatic Exchange Feature, which is described
below). Nations Fund reserves the right to reject any exchange request. Only
shares that may legally be sold in the state of the shareholder's residence may
be acquired in an exchange. Only shares of a class that is accepting investments
generally may be acquired in an exchange. During periods of significant economic
or market change, telephone exchanges may be difficult to complete. In such
event, shareholders should consider communicating their exchange requests by
mail.
If Investor A Shares of the Fund purchased prior to January 1, 1996 are
exchanged for shares of the same class of another fund, any CDSC applicable to
the original shares purchased will be applied upon the redemption of the
acquired shares. The holding period of such Investor A Shares (for purposes of
determining whether a CDSC is applicable upon redemption) will be computed from
the time of the initial purchase of the Investor A Shares of the Fund.
Shareholder Servicing And Distribution
Plan
The Fund's Shareholder Servicing and Distribution Plan (the "Investor A Plan"),
adopted pursuant to Rule 12b-1 under the 1940 Act, permits the Fund to
compensate (i) Servicing Agents and Selling Agents for services provided to
their Customers that own Investor A Shares and (ii) Stephens for
distribution-related expenses incurred in connection with Investor A Shares.
Aggregate payments under the Investor A Plan are calculated daily and paid
monthly at a rate or rates set from time to time by the Fund, provided that the
annual rate may not exceed 0.25% of the average daily net asset value of the
Investor A Shares of the Fund.
The fees payable to Servicing Agents under the Investor A Plan are used
primarily to compensate or reimburse Servicing Agents for shareholder services
provided, and related expenses incurred, by such Servicing Agents. The
shareholder services provided by Servicing Agents may include: (i) aggregating
and processing purchase and redemption requests for Investor A Shares from
Customers and transmitting net purchase and redemption orders to Stephens or the
Transfer Agent; (ii) providing Customers with a service that invests the assets
of their accounts in Investor A Shares pursuant to specific or preauthorized
instructions; (iii) processing dividend and distribution payments from the Fund
on behalf of Customers; (iv) providing information periodically to Customers
showing their positions in Investor A Shares; (v) arranging for bank wires; and
(vi) providing general shareholder liaison services. The fees payable to Selling
Agents are used primarily to compensate or reimburse Selling Agents for
providing sales support assistance in connection with the sale of Investor A
Shares to Customers, which may include forwarding sales literature and
advertising provided by Nations Fund to Customers.
The fees under the Investor A Plan also may be used to reimburse Stephens for
distribution-related expenses actually incurred by Stephens, including, but not
limited to, expenses of organizing and conducting sales seminars, printing
prospectuses and statements of additional information (and supplements thereto)
and reports for other than existing shareholders, preparation and distribution
of advertising and sales literature and the costs of administering the Investor
A Plan.
Stephens may, from time to time, at its expense or as an expense for which it
may be reimbursed under the Investor A Plan, pay a bonus or other
17
<PAGE>
consideration or incentive to Agents who sell a minimum dollar amount of shares
of the Fund during a specified period of time. Stephens also may, from time to
time, pay additional consideration to Agents not to exceed 1.00% of the offering
price per share on all sales of Investor A Shares as an expense of Stephens or
for which Stephens may be reimbursed under the Investor A Plan or upon receipt
of a CDSC. Any such additional consideration or incentive program may be
terminated at any time by Stephens.
In addition, Stephens has established a non-cash compensation program, pursuant
to which broker/dealers or financial institutions that sell shares of the Fund
may earn additional compensation in the form of trips to sales seminars or
vacation destinations, tickets to sporting events, theater or other
entertainment, opportunities to participate in golf or other outings and gift
certificates for meals or merchandise. This non-cash compensation program may be
amended or terminated at any time by Stephens.
Nations Fund and Stephens may suspend or reduce payments under the Investor A
Plan at any time, and payments are subject to the continuation of the Investor A
Plan described above and the terms of the Servicing Agreement and Sales Support
Agreement. See the SAI for more details on the Investor A Plan.
Nations Fund understands that Agents may charge fees to their Customers who are
the owners of Investor A Shares for various services provided in connection with
a Customer's account. These fees would be in addition to any amounts received by
a Selling Agent under its Sales Support Agreement with Stephens or by a
Servicing Agent under its Servicing Agreement with Nations Fund. The Sales
Support Agreement and Servicing Agreement require Agents to disclose to their
Customers any compensation payable to the Agent by Stephens or Nations Fund and
any other compensation payable by the Customers for various services provided in
connection with their accounts. Customers should read this Prospectus in light
of the terms governing their accounts with their Agents.
How The Fund Values Its Shares
The Fund calculates the net asset value of a share of each class by dividing the
total value of its assets, less liabilities, by the number of shares in the
class outstanding. Shares are valued as of the close of regular trading on the
Exchange (currently 4:00 p.m., Eastern time) on each Business Day. Currently,
the days on which the Exchange is closed (other than weekends) are: New Year's
Day, Presidents' Day, Good Friday, Memorial Day (observed), Independence Day,
Labor Day, Thanksgiving Day and Christmas Day.
Portfolio securities for which market quotations are readily available are
valued at market value. Short-term investments that will mature in 60 days or
less are valued at amortized cost, which approximates market value. All other
securities and assets are valued at their fair value following procedures
approved by the Trustees.
How Dividends And Distributions
Are Made; Tax Information
DIVIDENDS AND DISTRIBUTIONS: The Fund distributes any net investment income each
calendar quarter and any net realized capital gains (including net short-term
capital gains) at least annually. Distributions from capital gains are made
after applying any available capital loss carryovers. Distributions paid by the
Fund with respect to one class of shares may be greater or
18
<PAGE>
less than those paid with respect to another class of shares due to the
different expenses of the different classes.
The net asset value of Investor A Shares will be reduced by the amount of any
dividend or distribution. Certain Agents may provide for the reinvestment of
dividends in the form of additional Investor A Shares of the same class in the
Fund. Dividends and distributions are paid in cash within five Business Days of
the end of the quarter to which the dividend relates. Dividends and
distributions payable to a shareholder are paid in cash within five Business
Days after a shareholder's complete redemption of his/her Investor A Shares.
TAX INFORMATION: The Fund intends to qualify as a "regulated investment company"
under the Code. Such qualification relieves the Fund of liability for Federal
income tax on amounts distributed in accordance with the Code.
The Fund intends to distribute substantially all of its investment company
taxable income and net tax-exempt income each taxable year. Distributions by the
Fund of its net investment income and the excess, if any, of its net short-term
capital gain over its net long-term capital loss are taxable as ordinary income
to shareholders who are not currently exempt from Federal income tax, whether
such income is received in cash or reinvested in additional shares. (Federal
income tax for distributions to an IRA are generally deferred under the Code.)
Corporate investors in the Fund may be entitled to the dividends received
deduction on all or a portion of the Fund's dividends.
Substantially all of the Fund's net realized long-term capital gains will be
distributed at least annually. The Fund will generally have no tax liability
with respect to such gains, and the distributions will be taxable to
shareholders who are not exempt from Federal income tax as long-term capital
gains, regardless of how long the shareholders have held the Fund's shares and
whether such gains are received in cash or reinvested in additional shares.
Each year, shareholders will be notified as to the amount and Federal tax status
of all dividends and capital gains paid during the prior year. Such dividends
and capital gains may be subject to state and local taxes.
Dividends declared in October, November, or December of any year payable to
shareholders of record on a specified date in such months will be deemed to have
been received by shareholders and paid by the Fund on December 31 of such year
in the event such dividends are actually paid during January of the following
year.
Federal law requires Nations Fund to withhold 31% from any dividends (other than
exempt-interest dividends) paid by Nations Fund and/or redemptions (including
exchange redemptions) that occur in certain shareholder accounts if the
shareholder has not properly furnished a certified correct Taxpayer
Identification Number and has not certified that withholding does not apply, or
if the Internal Revenue Service has notified Nations Fund that the Taxpayer
Identification Number listed on a shareholder account is incorrect according to
its records, or that the shareholder is subject to backup withholding. Amounts
withheld are applied to the shareholder's Federal tax liability, and a refund
may be obtained from the Internal Revenue Service if withholding results in
overpayment of tax. Federal law also requires the Fund to withhold 30% or the
applicable tax treaty rate from dividends paid to certain nonresident alien,
non-U.S. partnership and non-U.S. corporation shareholder accounts.
The foregoing discussion is based on tax laws and regulations which were in
effect as of the date of this Prospectus and summarizes only some of the
important Federal tax considerations generally affecting the Fund and its
shareholders. It is not intended as a substitute for careful tax planning;
investors should consult their tax advisors with respect to their specific tax
situations as well as with respect to state and local taxes. Further tax
information is contained in the SAI.
19
<PAGE>
Appendix A -- Portfolio Securities
The following are summary descriptions of certain types of instruments in which
the Fund may invest. The "How Objective Is Pursued" section of this Prospectus
identifies the Fund's permissible investments, and the SAI contains more
information concerning such investments.
BANK INSTRUMENTS: Bank instruments consist mainly of certificates of deposit,
time deposits and bankers' acceptances. The Fund will limit its investments in
bank obligations so they do not exceed 25% of the Fund's total assets at the
time of purchase.
U.S. dollar-denominated obligations issued by foreign branches of domestic banks
("Eurodollar" obligations) and domestic branches of foreign banks ("Yankee
dollar" obligations) and other foreign obligations involve special investment
risks, including the possibility that liquidity could be impaired because of
future political and economic developments, the obligations may be less
marketable than comparable domestic obligations of domestic issuers, a foreign
jurisdiction might impose withholding taxes on interest income payable on such
obligations, deposits may be seized or nationalized, foreign governmental
restrictions such as exchange controls may be adopted which might adversely
affect the payment of principal of and interest on such obligations, the
selection of foreign obligations may be more difficult because there may be less
publicly available information concerning foreign issuers, there may be
difficulties in enforcing a judgment against a foreign issuer or the accounting,
auditing and financial reporting standards, practices and requirements
applicable to foreign issuers may differ from those applicable to domestic
issuers. In addition, foreign banks are not subject to examination by U.S.
Government agencies or instrumentalities.
BORROWINGS: When the Fund borrows money, the net asset value of a share may be
subject to greater fluctuation until the borrowing is paid off. The Fund may
borrow money from banks for temporary purposes in amounts of up to one-third of
its respective total assets, provided that borrowings in excess of 5% of the
value of the Fund's total assets must be repaid prior to the purchase of
portfolio securities. Pursuant to line of credit arrangements, the Fund 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 the Fund
invests in a reverse repurchase agreement, it sells a portfolio security to
another party, such as a bank or broker/dealer, in return for cash, and agrees
to buy the security back at a future date and price. Reverse repurchase
agreements may be used to provide cash to satisfy unusually heavy redemption
requests without having to sell portfolio securities, or for other temporary or
emergency purposes. Generally, the effect of such a transaction is that the Fund
can recover all or most of the cash invested in the portfolio securities
involved during the term of the reverse repurchase agreement, while it will be
able to keep the interest income associated with those portfolio securities.
Such transactions are only advantageous if the interest cost to the Fund of the
reverse repurchase transaction is less than the cost of obtaining the cash
otherwise.
At the time the Fund enters into a reverse repurchase agreement, it may
establish a segregated account with its custodian bank in which it will maintain
cash, U.S. Government securities or other liquid high grade debt obligations
equal in value to its obligations in respect of reverse repurchase agreements.
Reverse repurchase agreements involve the risk that the market value of the
securities the Fund is obligated to repurchase under the agreement may decline
below the repurchase price. In the event the buyer of securities under a reverse
repurchase agreement files for bankruptcy or becomes insolvent, the Fund's use
of proceeds of the agreement may be restricted pending a determination by the
other party, or its trustee or receiver, whether to enforce the Fund's
obligation to repurchase the securities. In addition,
20
<PAGE>
there is a risk of delay in receiving collateral or securities or in
repurchasing the securities covered by the reverse repurchase agreement or even
of a loss of rights in the collateral or securities in the event the buyer of
the securities under the reverse repurchase agreement files for bankruptcy or
becomes insolvent. The Fund only enters into reverse repurchase agreements (and
repurchase agreements) with counterparties that are deemed by the Adviser to be
credit worthy. Reverse repurchase agreements are speculative techniques
involving leverage, and are subject to asset coverage described above. Under the
requirements of the 1940 Act, the Fund is required to maintain an asset coverage
(including the proceeds of the borrowings) of at least 300% of all borrowings.
Depending on market conditions, the Fund's asset coverage and other factors at
the time of a reverse repurchase, the Fund may not establish a segregated
account when the Adviser believes it is not in the best interest of the Fund to
do so. In this case, such reverse repurchase agreements will be considered
borrowings subject to the asset coverage described above.
COMMERCIAL INSTRUMENTS: Commercial instruments consist of short-term U.S.
dollar-denominated obligations issued by domestic corporations or foreign
corporations and foreign commercial banks. Investments by the Fund in commercial
paper will consist of issues rated in a manner consistent with the Fund's
investment policies and objective. In addition, the Fund may acquire unrated
commercial paper and corporate bonds that are determined by the Adviser at the
time of purchase to be of comparable quality to rated instruments that may be
acquired by the Fund. Commercial instruments include variable-rate master demand
notes, which are unsecured instruments that permit the indebtedness thereunder
to vary and provide for periodic adjustments in the interest rate, and variable-
and floating-rate instruments.
CONVERTIBLE SECURITIES, PREFERRED STOCK, AND WARRANTS: The Fund may invest in
debt securities convertible into or exchangeable for equity securities,
preferred stocks or warrants. Preferred stocks are securities that represent an
ownership interest in a corporation providing the owner with claims on a
company's earnings and assets before common stock owners, but after bond or
other debt security owners. Warrants are options to buy a stated number of
shares of common stock at a specified price any time during the life of the
warrants.
FIXED INCOME INVESTING: The performance of the fixed income debt component of
the Fund's portfolio depends primarily on interest rate changes, the average
weighted maturity of the portfolio and the quality of the securities held. The
debt component of the Fund's portfolio will tend to decrease in value when
interest rates rise and increase when interest rates fall. The Fund's share
price and yield depend, in part, on the maturity and quality of its debt
instruments.
FUTURES, OPTIONS AND OTHER DERIVATIVE INSTRUMENTS: The Fund may attempt to
reduce the overall level of investment risk of particular securities and attempt
to protect the Fund against adverse market movements by investing in futures,
options and other derivative instruments. These include the purchase and writing
of options on securities (including index options) and options on foreign
currencies, and investing in futures contracts for the purchase or sale of
instruments based on financial indices, including interest rate indices or
indices of U.S. or foreign government, equity or fixed income securities
("futures contracts"), options on futures contracts, forward contracts and swaps
and swap-related products such as interest rate swaps, currency swaps, caps,
collars and floors.
The use of futures, options, forward contracts and swaps exposes the Fund to
additional investment risks and transaction costs. If the Adviser incorrectly
analyzes market conditions or does not employ the appropriate strategy with
respect to these instruments, the Fund could be left in a less favorable
position. Additional risks inherent in the use of futures, options, forward
contracts and swaps include: imperfect correlation between the price of futures,
options and forward contracts and movements in the prices of the securities or
currencies being hedged; the possible absence of a liquid secondary market for
any particular instrument at any time; and the possible need to defer closing
out certain hedged positions to avoid adverse tax consequences. The
21
<PAGE>
Fund may not purchase put and call options which are traded on a national stock
exchange in an amount exceeding 5% of its net assets. Further information on the
use of futures, options and other derivative instruments, and the associated
risks, is contained in the SAI.
ILLIQUID SECURITIES: Certain securities may be sold only pursuant to certain
legal restrictions, and may be difficult to sell. The Fund will not hold more
than 15% of the value of its net assets in securities that are illiquid or such
lower percentage as may be required by the states in which the Fund sells its
shares. Repurchase agreements, time deposits and guaranteed in-
vestment contracts that do not provide for payment within seven days after
notice, and illiquid restricted securities are subject to the limitation on
illiquid securities.
If otherwise consistent with its investment objective and policies, the Fund may
purchase securities that are not registered under the Securities Act of 1933, as
amended (the "1933 Act") but which can be sold to "qualified institutional
buyers" in accordance with Rule 144A 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 the
Adviser, acting under guidelines approved and monitored by the Fund's Board,
after considering trading activity, availability of reliable price information
and other relevant information, that an adequate trading market exists for that
security. To the extent that, for a period of time, qualified institutional 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 its
portfolio from interest rate fluctuations, the Fund may enter into various
hedging transactions, such as interest rate swaps and the purchase or sale of
interest rate caps and floors. Interest rate swaps involve the exchange by the
Fund with another party of their respective commitments to pay or receive
interest, E.G., an exchange of floating-rate payments for fixed-rate payments.
The Fund will enter into a swap transaction on a net basis, I.E. the payment
obligations of the Fund and the counterparty will be netted out with the Fund
receiving or paying, as the case may be, only the net amount of the two payment
obligations. The Fund will segregate, on a daily basis, cash or liquid high
quality debt securities with a value at least equal to the Fund's net
obligations, if any, under a swap agreement.
The purchase of an interest rate cap entitles the purchaser, to the extent that
a specified index exceeds a predetermined interest rate, to receive payments of
interest on a notional principal amount from the party selling such interest
rate cap. The purchase of an interest rate floor entitles the purchaser to
receive payments of interest on a notional principal amount from the party
selling such interest rate floor. The Adviser expects to enter into these
transactions on behalf of the Fund primarily to preserve a return or spread on a
particular investment or portion of its portfolio or to protect against any
increase in the price of securities the Fund anticipated purchasing at a later
date rather than for speculative purposes. The Fund will not sell interest rate
caps or floors that it does not own.
MONEY MARKET INSTRUMENTS: The term "money market instruments" refers to
instruments with remaining maturities of one year or less. Money market
instruments may include, among other instruments, certain U.S. Treasury
obligations, U.S. Government obligations, bank instruments, commercial
instruments, repurchase agreements and municipal securities. Such instruments
are described in this Appendix A.
OTHER INVESTMENT COMPANIES: The Fund may invest in securities issued by other
investment companies to the extent that such investments are consistent with the
Fund's investment objective and policies and permissible under the 1940 Act. As
a shareholder of another investment company, the Fund would bear, along with
other shareholders, its pro rata portion of the other investment company's
expenses, including advisory fees. These expenses would be in addition to the
advisory and other expenses that the Fund bears directly in connection with its
own operations.
22
<PAGE>
REPURCHASE AGREEMENTS: A repurchase agreement involves the purchase of a
security by the Fund and a simultaneous agreement (generally with a bank or
broker/dealer) to repurchase that security from the Fund at a specified price
and date or upon demand. This technique offers a method of earning income on
idle cash. A risk associated with repurchase agreements is the failure of the
seller to repurchase the securities as agreed, which may cause the Fund to
suffer a loss if the market value of such securities declines before they can be
liquidated on the open market. Repurchase agreements with a duration of more
than seven days are considered illiquid securities and are subject to the limit
stated above. The Fund may enter into joint repurchase agreements jointly with
other investment portfolios of Nations Fund.
SECURITIES LENDING: To increase return on portfolio securities, the Fund may
lend its portfolio securities to broker/dealers and other institutional
investors pursuant to agreements requiring that the loans be continuously
secured by collateral equal at all times in value to at least the market value
of the securities loaned. There is a risk of delay in receiving collateral or in
recovering the securities loaned or even a loss of rights in the collateral
should the borrower of the securities fail financially. However, loans are made
only to borrowers deemed by the Adviser to be credit worthy and when, in its
judgment, the income to be earned from the loan justifies the attendant risks.
The aggregate of all outstanding loans of the Fund may not exceed 30% of the
value of its total assets.
STOCK INDEX, INTEREST RATE AND CURRENCY FUTURES CONTRACTS: The Fund may purchase
and sell futures contracts and related options with respect to non-U.S. stock
indices, non-U.S. interest rates and foreign currencies, that have been approved
by the CFTC for investment by U.S. investors, for the purpose of hedging against
changes in values of the Fund's securities or changes in the prevailing levels
of interest rates or currency exchange rates. The contracts entail certain
risks, including but not limited to the following: no assurance that futures
contracts transactions can be offset at favorable prices; possible reduction of
the Fund's total return due to the use of hedging; possible lack of liquidity
due to daily limits on price fluctuation; imperfect correlation between the
contracts and the securities or currencies being hedged; and potential losses in
excess of the amount invested in the futures contracts themselves.
Trading on foreign commodity exchanges presents additional risks. Unlike trading
on domestic commodity exchanges, trading on foreign commodity exchanges is not
regulated by the CFTC and may be subject to greater risks than trading on
domestic exchanges. For example, some foreign exchanges are principal markets
for which no common clearing facility exists and a trader may look only to the
broker for performance of the contract. In addition, unless the Fund hedges
against fluctuations in the exchange rate between the U.S. dollar and the
currencies in which trading is done on foreign exchanges, any profits that the
Fund might realize could be eliminated by adverse changes in the exchange rate,
or the Fund could incur losses as a result of those changes.
U.S. GOVERNMENT OBLIGATIONS: U.S. Government obligations consist of marketable
securities and instruments issued or guaranteed by the U.S. Government or any of
its agencies, authorities or instrumentalities. Direct obligations are issued by
the U.S. Treasury and include all U.S. Treasury instruments. 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 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 Association; 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 instrumentali-
23
<PAGE>
ties if it is not obligated to do so by law. The market value of U.S. Government
obligations may fluctuate due to fluctuations in market interest rates. As a
general matter, the value of debt instruments, including U.S. Government
obligations, declines when market interest rates increase and rises when market
interest rates decrease. Certain types of U.S. Government obligations are
subject to fluctuations in yield or value due to their structure or contract
terms.
WHEN-ISSUED, DELAYED DELIVERY AND FORWARD COMMITMENT SECURITIES: The purchase of
new issues of securities on a "when-issued," "delayed delivery" or "forward
commitment" basis occurs when the payment for and delivery of securities takes
place at a future date. Because actual payment for and delivery of such
securities generally take place 15 to 45 days after the purchase date,
purchasers of such securities bear the risk that interest rates on debt
securities at the time of delivery may be higher or lower than those contracted
for on the security purchased.
24
<PAGE>
Prospectus
INVESTOR A SHARES
JULY 31, 1996
This Prospectus describes NATIONS SHORT-TERM INCOME
FUND, NATIONS SHORT-INTERMEDIATE GOVERNMENT FUND,
NATIONS GOVERNMENT SECURITIES FUND, NATIONS
STRATEGIC FIXED INCOME FUND AND NATIONS DIVERSIFIED
INCOME FUND (the "Funds") of Nations Fund Trust and
Nations Fund, Inc., each an open-end management
investment company in the Nations Fund Family
("Nations Fund" or "Nations Fund Family"). This
Prospectus describes one class of shares of the
Funds -- Investor A Shares.
This Prospectus sets forth concisely the
information about the Funds that prospective
purchasers of Investor A Shares should consider
before investing. Investors should read this
Prospectus and retain it for future reference.
Additional information about Nations Fund Trust and
Nations Fund, Inc., is contained in separate
Statements of Additional Information (the "SAIs"),
that have been filed with the Securities and
Exchange Commission (the "SEC") and are available
upon request without charge by writing or calling
Nations Fund at its address or telephone number
shown below. The SAIs for Nations Fund Trust and
Nations Fund, Inc., each dated July 31, 1996, are
incorporated by reference in their entirety into
this Prospectus. NationsBanc Advisors, Inc.
("NBAI") is the investment adviser to the Funds.
TradeStreet Investment Associates, Inc.
("TradeStreet") is sub-investment adviser to the
Funds. As used herein the "Adviser" shall mean NBAI
and/or TradeStreet as the context may require.
SHARES OF NATIONS FUND ARE NOT DEPOSITS OR OTHER
OBLIGATIONS OF, OR ISSUED, ENDORSED OR GUARANTEED
BY, NATIONSBANK, N.A. ("NATIONSBANK") OR ANY OF ITS
AFFILIATES. SUCH SHARES ARE NOT INSURED BY THE U.S.
GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER
GOVERNMENT AGENCY. AN INVESTMENT IN THE FUNDS
INVOLVES CERTAIN RISKS, INCLUDING POSSIBLE LOSS OF
PRINCIPAL.
NATIONSBANK AND CERTAIN OF ITS AFFILIATES PROVIDE
CERTAIN OTHER SERVICES TO NATIONS FUND, FOR WHICH
THEY ARE COMPENSATED. STEPHENS INC., WHICH IS NOT
AFFILIATED WITH NATIONSBANK, IS THE SPONSOR AND
ADMINISTRATOR AND SERVES AS THE DISTRIBUTOR FOR
NATIONS FUND.
THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
Nations Short-Term Income
Fund
Nations Short-Intermediate
Government Fund
Nations Government
Securities Fund
Nations Strategic Fixed
Income Fund
Nations Diversified Income
Fund
For Fund information call:
1-800-321-7854
Nations Fund
c/o Stephens Inc.
One NationsBank Plaza
33rd Floor
Charlotte, NC 28255
(Nations Fund Logo appears here).
<PAGE>
Table Of Contents
About The Funds
Prospectus Summary 3
Expenses Summary 5
Financial Highlights 6
Objectives 11
How Objectives Are Pursued 12
How Performance Is Shown 16
How The Funds Are Managed 17
Organization And History 21
About Your Investment
How To Buy Shares 23
How To Redeem Shares 25
How To Exchange Shares 26
Shareholder Servicing And Distribution Plans 28
How The Funds Value Their Shares 29
How Dividends And Distributions Are Made;
Tax Information 29
Appendix A -- Portfolio Securities 31
Appendix B -- Description Of Ratings 41
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT
CONTAINED IN THIS PROSPECTUS, OR IN THE
FUNDS' SAIS INCORPORATED HEREIN BY REFERENCE, IN
CONNECTION WITH THE OFFERING MADE BY THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY NATIONS FUND OR ITS
DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFERING BY NATIONS FUND OR BY THE DISTRIBUTOR IN
ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT
LAWFULLY BE MADE.
2
<PAGE>
About The Funds
Prospectus Summary
(Bullet) TYPE OF COMPANIES: Open-end management investment companies.
(Bullet) INVESTMENT OBJECTIVES AND POLICIES:
(Bullet) Nations Short-Term Income Fund's investment objective is to
seek high current income consistent with minimal fluctuation
of principal. The Fund invests in investment grade debt
securities.
(Bullet) Nations Short-Intermediate Government Fund's
investment objective is to seek high current income
consistent with modest fluctuation of principal. The
Fund invests primarily in securities issued or
guaranteed by the U.S. Government, its agencies or
instrumentalities.
(Bullet) Nations Government Securities Fund's
investment objective is to seek high current
income consistent with moderate fluctuation
of principal. The Fund invests primarily in
intermediate-term securities issued or
guaranteed by the U.S. Government, its
agencies or instrumentalities.
(Bullet) Nations Strategic Fixed Income
Fund's investment objective is to
seek total return by investing in
investment grade fixed income
securities.
(Bullet) Nations Diversified Income Fund's investment
objective is to seek total return with an emphasis on
current income by investing in a diversified
portfolio of fixed income securities.
(Bullet) INVESTMENT ADVISER: NationsBanc Advisors, Inc. serves as the investment
adviser to the Funds. NBAI provides investment advice to more than 43
investment company portfolios in the Nations Fund Family. TradeStreet
Investment Associates, Inc. provides sub-advisory services to the
Funds. See "How The Funds Are Managed."
(Bullet) DIVIDENDS AND DISTRIBUTIONS: The Funds declare dividends daily and pay
them monthly. Each Fund's net realized capital gains, including net
short-term capital gains are distributed at least annually.
(Bullet) RISK FACTORS: Although the Adviser seeks to achieve the investment
objective of each Fund, there is no assurance that it will be able to
do so. Investments in a Fund are not insured against loss of principal.
Investments by a Fund in debt securities are subject to interest rate
risk, which is the risk that increases in market interest rates will
adversely affect a Fund's investments in debt securities. The value of
a Fund's investments in debt securities, including U.S. Government
Obligations (as defined below), will tend to decrease when interest
rates rise and increase when interest rates fall. In general,
longer-term debt instruments tend to fluctuate in value more than
shorter-term debt instruments in response to interest rate movements.
In addition, debt securities which are not backed by the United States
Government are subject to credit risk, which is the risk that the
issuer may not be able to pay principal and/or interest when due.
Certain of the Funds' investments constitute derivative securities.
Certain types of derivative securities can, under certain
circumstances, significantly increase an investor's exposure to market
or other risks. For a discussion of these and other factors, see "How
Objectives Are Pursued -- Risk Considerations" and "Appendix
A -- Portfolio Securities."
3
<PAGE>
(Bullet) MINIMUM PURCHASE: $1,000 minimum initial investment per record holder
except that the minimum initial investment is: $500 for Individual
Retirement Account ("IRA") investors; $250 for non-working spousal
IRAs; and $100 for investors participating on a monthly basis in the
Systematic Investment Plan. There is no minimum investment amount for
investments by certain 401(k) and employee pension plans or salary
reduction-Individual Retirement Accounts. The minimum subsequent
investment is $100, except for investments pursuant to the Systematic
Investment Plan. See "How To Buy Shares."
4
<PAGE>
Expenses Summary
Expenses are one of several factors to consider when investing in the Funds. The
following tables summarize shareholder transaction and operating expenses for
Investor A Shares of the Funds. The Examples show the cumulative expenses
attributable to a hypothetical $1,000 investment in Investor A Shares of the
indicated Fund over specified periods.
INVESTOR A SHARES
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Nations Short- Nations
Nations Short- Intermediate Government Nations Strategic
SHAREHOLDER TRANSACTION EXPENSES Term Income Fund Government Fund Securities Fund Fixed Income Fund
Maximum Sales Load Imposed on Purchases (as a
percentage of offering price) None None None None
Maximum Deferred Sales Charge (as a percentage
of the lower of the original purchase price
or redemption proceeds)1 None None None None
<CAPTION>
Nations
Diversified
SHAREHOLDER TRANSACTION EXPENSES Income Fund
Maximum Sales Load Imposed on Purchases (as a
percentage of offering price) None
Maximum Deferred Sales Charge (as a percentage
of the lower of the original purchase price
or redemption proceeds)1 None
</TABLE>
ANNUAL FUND OPERATING
EXPENSES
(as a percentage of average
net assets)
<TABLE>
<S> <C> <C> <C> <C>
Management Fees (After Fee Waivers) .30% .40% .50% .50%
Rule 12b-1 Fees (including shareholder
servicing fees) (After Fee Waivers) .20%2 .20% .25% .20%
Other Expenses .25% .23% .30% .22%
Total Operating Expenses (After Fee Waivers) .75% .83% 1.05% .92%
<CAPTION>
Management Fees (After Fee Waivers) .50%
<S> <C>
Rule 12b-1 Fees (including shareholder
servicing fees) (After Fee Waivers) .25%
Other Expenses .27%
Total Operating Expenses (After Fee Waivers) 1.02%
</TABLE>
1 Investor A Shares that were purchased prior to January 1, 1996 remain subject
to the Deferred Sales Charge, if any, applicable at the time of purchase. See
"How To Redeem Shares -- Contingent Deferred Sales Charge."
2 Shareholder servicing fees for Nations Short-Term Income Fund are paid
pursuant to a separate Shareholder Servicing Plan. See "Shareholder Servicing
And Distribution Plans."
EXAMPLES:
You would pay the following expenses on a $1,000 investment in Investor A Shares
of the indicated Fund, assuming (1) a 5% annual return and (2) redemption at the
end of each time period.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Nations Short- Nations
Nations Short-Term Intermediate Government Nations Strategic
Income Fund Government Fund Securities Fund Fixed Income Fund
1 Year $ 8 $ 8 $ 11 $ 9
3 Years $ 24 $ 26 $ 33 $ 29
5 Years $ 42 $ 46 $ 58 $ 51
10 Years $ 94 $ 103 $ 128 $ 113
<CAPTION>
Nations
Diversified
Income Fund
1 Year $ 10
3 Years $ 32
5 Years $ 56
10 Years $ 125
</TABLE>
The purpose of the foregoing tables is to assist an investor in understanding
the various shareholder transaction and operating expenses that an investor in
Investor A Shares of the Funds will bear either
5
<PAGE>
directly or indirectly. Certain figures contained in the above tables are based
on amounts incurred during each Fund's most recent fiscal year and have been
adjusted as necessary to reflect current service provider fees. There is no
assurance that any fee waivers and reimbursements will continue beyond the
current fiscal year. If fees waivers and/or reimbursements are discontinued, the
amounts contained in the "Examples" above may increase. For more complete
descriptions of the Funds' operating expenses, see "How The Funds Are Managed."
For a more complete description of the Rule 12b-1 and shareholder servicing fees
payable by the Funds, see "Shareholder Servicing And Distribution Plans."
Absent fee waivers, "Management Fees," "Rule 12b-1 Fees" and "Total Operating
Expenses" for Investor A Shares of the indicated Fund would have been as
follows: Nations Short-Term Income Fund -- .60%, .25% and 1.10%, respectively;
Nations Short-Intermediate Government Fund -- .60%, .25% and 1.08%,
respectively; and Nations Strategic Fixed Income Fund -- .60%, .25% and 1.07%;
respectively. Absent fee waivers, "Management Fees" and "Total Operating
Expenses" for Investor A Shares of the indicated Fund would have been as
follows: Nations Government Securities Fund -- .64%, and 1.19%, respectively;
and Nations Diversified Income Fund -- .60% and 1.12%, respectively.
THE FOREGOING SHOULD NOT BE CONSIDERED TO BE AN ACTUAL REPRESENTATION OF PAST OR
FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES AND RATES OF RETURN MAY BE
GREATER OR LESS THAN THOSE SHOWN.
Financial Highlights
The audited financial information on the following pages has been derived from
the financial statements of Nations Fund Trust and Nations Fund, Inc. Price
Waterhouse LLP is the independent accountant to Nations Fund Trust and Nations
Fund, Inc. The reports of Price Waterhouse LLP for the most recent fiscal years
of Nations Fund Trust and Nations Fund, Inc. accompany the financial statements
for such periods and are incorporated by reference in the SAIs, which are
available upon request. For more information see "Organization And History."
Shareholders of a Fund will receive unaudited semi-annual reports describing the
Fund's investment operations and financial statements audited by the Funds'
independent accountant.
6
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS SHORT-TERM INCOME FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
PERIOD YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
INVESTOR A SHARES 03/31/96(b)# 11/30/95# 11/30/94# 11/30/93
Operating performance:
Net asset value, beginning of period $ 9.84 $ 9.48 $ 10.01 $ 9.75
Net investment income 0.19 0.59 0.48 0.51
Net realized and unrealized gain/(loss) on
investments (0.08) 0.36 (0.51) 0.26
Net increase/(decrease) in net asset value from
operations 0.11 0.95 (0.03) 0.77
Distributions:
Dividends from net investment income (0.19) (0.59) (0.46) (0.51)
Distributions in excess of net investment income -- -- (0.02) --
Distributions from capital -- -- (0.02) --
Total dividends and distributions (0.19) (0.59) (0.50) (0.51)
Net asset value, end of period $ 9.76 $ 9.84 $ 9.48 $ 10.01
Total return++ 1.13% 10.29% (0.33)% 8.03%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 2,810 $ 2,969 $ 2,490 $ 11,205
Ratio of operating expenses to average net assets 0.75%+ 0.76% 0.71% 0.57%
Ratio of net investment income to average net
assets 5.87%+ 6.12% 5.02% 5.07%
Portfolio turnover rate 73% 224% 293% 121%
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 1.08%+ 1.06% 1.03% 0.99%
Net investment income per share without waivers
and/or expense reimbursements $ 0.18 $ 0.56 $ 0.45 $ 0.48
<CAPTION>
PERIOD
ENDED
INVESTOR A SHARES 11/30/92*
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income 0.08
Net realized and unrealized gain/(loss) on
investments (0.26)
Net increase/(decrease) in net asset value from
operations (0.18)
Distributions:
Dividends from net investment income (0.07)
Distributions in excess of net investment income --
Distributions from capital --
Total dividends and distributions (0.07)
Net asset value, end of period $ 9.75
Total return++ (1.81)%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 254
Ratio of operating expenses to average net assets 0.45%+
Ratio of net investment income to average net
assets 5.39%+
Portfolio turnover rate 45%
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 1.05%+
Net investment income per share without waivers
and/or expense reimbursements $ 0.07
</TABLE>
* Nations Short-Term Income Fund Investor A Shares commenced operations on
October 2, 1992.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# Per share numbers have been calculated using the monthly average share
method, which more appropriately presents the per share data for the period
since the use of the undistributed income method did not accord with the
results of operations.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
7
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS SHORT-INTERMEDIATE GOVERNMENT FUND
<TABLE>
<CAPTION>
PERIOD YEAR YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED ENDED
INVESTOR A SHARES 03/31/96(b)# 11/30/95# 11/30/94 11/30/93 11/30/92 11/30/91*
<S> <C> <C> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning
of period $ 4.14 $ 3.93 $ 4.28 $ 4.16 $ 4.17 $ 4.00##
Net investment income 0.07 0.23 0.22 0.22 0.27 0.10
Net realized and unrealized
gain/(loss) on
investments (0.07) 0.21 (0.33) 0.14 (0.01) 0.17
Net increase/(decrease) in
net asset value from
operations 0.00 0.44 (0.11) 0.36 0.26 0.27
Distributions:
Dividends from net
investment income (0.07) (0.23) (0.22) (0.22) (0.27) (0.10)
Distributions in excess of
net investment income (0.00)(a) (0.00)(a) (0.00)(a) -- -- --
Distributions from net
realized capital gains -- -- (0.02) (0.02) -- --
Total dividends and
distributions (0.07) (0.23) (0.24) (0.24) (0.27) (0.10)
Net asset value, end of
period $ 4.07 $ 4.14 $ 3.93 $ 4.28 $ 4.16 $ 4.17
Total return++ 0.00%### 11.48% (2.41)% 8.85% 6.61%+++ 6.81%+++
Ratios to average net
assets/supplemental data:
Net assets, end of period
(in 000's) $ 57,381 $ 64,848 $ 77,128 $ 173,449 $ 188,624 $ 53,874
Ratio of operating expenses
to average net assets 0.83%+ 0.80% 0.77% 0.70% 0.48% 0.08%+
Ratio of net investment
income to average net
assets 5.12%+ 5.68% 5.58% 5.25% 6.34% 7.21%+
Portfolio turnover rate 189% 328% 133% 92% 25% 11%
Ratio of operating expenses
to average net assets
without waivers and/or
expense reimbursements 1.06%+ 1.00% 0.98% 0.94% 0.88% 0.82%+
Net investment income per
share without waivers
and/or expense
reimbursements $ 0.06 $ 0.22 $ 0.21 $ 0.21 $ 0.25 $ 0.00(a)
</TABLE>
* Nations Short-Intermediate Government Fund Investor A Shares commenced
operations on August 5, 1991.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated
and does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# Per share numbers have been calculated using the monthly average share
method, which more appropriately presents the per share data for the period
since the use of the undistributed income method did not accord with the
results of operations.
## The Nations Short-Intermediate Government Fund's net asset value upon
commencement of operations was $2.00 per share. Effective September 25,
1991, the net asset value doubled as a result of the reclassification of
each outstanding share into half as many shares (reverse split).
### Amount represents less than 0.01%.
(a) Amount represents less than $0.01.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
8
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS GOVERNMENT SECURITIES FUND
<TABLE>
<CAPTION>
PERIOD YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
INVESTOR A SHARES 03/31/96(b)# 05/31/95# 05/31/94 05/31/93# 05/31/92
<S> <C> <C> <C> <C> <C>
Operating performance:
Net asset value,
beginning of period $ 9.86 $ 9.80 $ 10.46 $ 10.36 $ 10.05
Net investment income 0.50 0.61 0.62 0.66 0.71
Net realized and
unrealized gain/(loss)
on investments (0.19) 0.06 (0.61) 0.16 0.38
Net increase/(decrease)
in net asset value
from operations 0.31 0.67 0.01 0.82 1.09
Distributions:
Dividends from net
investment income (0.48) (0.57) (0.56) (0.68) (0.75)
Distributions in excess
of net investment
income (0.02) -- (0.02) -- --
Distributions from net
realized capital gains -- -- -- -- --
Distributions in excess
of net realized
capital gains -- -- (0.05) (0.04) (0.03)
Distributions from
capital -- (0.04) (0.04) -- --
Total dividends and
distributions (0.50) (0.61) (0.67) (0.72) (0.78)
Net asset value, end of
period $ 9.67 $ 9.86 $ 9.80 $ 10.46 $ 10.36
Total return++ 3.20% 7.29% (0.11)% 8.18% 11.18%+++
Ratios to average net
assets/
supplemental data:
Net assets, end of
period (in 000's) $ 11,662 $ 10,928 $ 14,044 $ 15,354 $ 3,326
Ratio of operating
expenses to average
net assets 1.05%+ 1.01% 0.90% 1.00% 1.31%
Ratio of net investment
income to average net
assets 6.11%+ 6.44% 5.91% 6.52% 6.90%
Portfolio turnover rate 199% 413% 56% 103% 130%
Ratio of operating
expenses to average
net assets without
waivers and/or expense
reimbursements 1.20%+ 1.19% 1.11% 1.15% 1.97%
Net investment income
per share without
waivers and/or expense
reimbursements $ 0.49 $ 0.59 $ 0.59 $ 0.55 $ 0.07
<CAPTION>
PERIOD
ENDED
INVESTOR A SHARES 05/31/91*
<S> <C>
Operating performance:
Net asset value,
beginning of period $ 10.01
Net investment income 0.09
Net realized and
unrealized gain/(loss)
on investments 0.02
Net increase/(decrease)
in net asset value
from operations 0.11
Distributions:
Dividends from net
investment income (0.07)
Distributions in excess
of net investment
income --
Distributions from net
realized capital gains --
Distributions in excess
of net realized
capital gains --
Distributions from
capital --
Total dividends and
distributions (0.07)
Net asset value, end of
period $ 10.05
Total return++ 1.07%+++
Ratios to average net
assets/
supplemental data:
Net assets, end of
period (in 000's) $ 661
Ratio of operating
expenses to average
net assets 1.35%+
Ratio of net investment
income to average net
assets 7.22%+
Portfolio turnover rate 5%
Ratio of operating
expenses to average
net assets without
waivers and/or expense
reimbursements 1.94%+++
Net investment income
per share without
waivers and/or expense
reimbursements $ 0.08+++
</TABLE>
* Nations Government Securities Fund Investor A Shares commenced operations on
April 17, 1991.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# Per share numbers have been calculated using the monthly average shares
method, which more appropriately presents the per share data for the period
since the use of the undistributed income method did not acccord with the
results of operations.
(b) Fiscal year ended changed to March 31. Prior to this, the fiscal year ended
was May 31.
9
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS STRATEGIC FIXED INCOME FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C>
PERIOD YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
INVESTOR A SHARES 03/31/96(a) 11/30/95 11/30/94 11/30/93
Operating performance:
Net asset value, beginning of period $ 10.22 $ 9.32 $ 10.55 $ 9.94
Net investment income 0.18 0.57 0.51 0.54
Net realized and unrealized gain/(loss) on
investments (0.29) 0.90 (0.89) 0.62
Net increase/(decrease) in net asset value from
operations (0.11) 1.47 (0.38) 1.16
Distributions:
Dividends from net investment income (0.18) (0.57) (0.49) (0.54)
Distributions in excess of net investment
income -- -- (0.02) --
Distributions from net realized capital gains -- -- (0.34) (0.01)
Total dividends and distributions (0.18) (0.57) (0.85) (0.55)
Net asset value, end of period $ 9.93 $ 10.22 $ 9.32 $ 10.55
Total return++ (1.11)% 16.22% (3.76)% 11.88%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 6,440 $ 6,662 $ 967 $ 1,138
Ratio of operating expenses to average net
assets 0.92%+ 0.91% 0.86% 0.76%
Ratio of net investment income to average net
assets 5.29%+ 5.85% 5.25% 5.25%
Portfolio turnover rate 133% 228% 307% 161%
Ratio of operating expenses to average net
assets without waivers
and/or expense reimbursements 1.03%+ 1.01% 0.94% 0.92%
Net investment income per share without waivers
and/or expense reimbursements $ 0.18 $ 0.56 $ 0.50 $ 0.53
<CAPTION>
PERIOD
ENDED
INVESTOR A SHARES 11/30/92*
Operating performance:
Net asset value, beginning of period $ 9.99
Net investment income 0.01
Net realized and unrealized gain/(loss) on
investments (0.06)
Net increase/(decrease) in net asset value from
operations (0.05)
Distributions:
Dividends from net investment income --
Distributions in excess of net investment
income --
Distributions from net realized capital gains --
Total dividends and distributions --
Net asset value, end of period $ 9.94
Total return++ (0.49)%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 113
Ratio of operating expenses to average net
assets 0.40%+
Ratio of net investment income to average net
assets 6.00%+
Portfolio turnover rate 12%
Ratio of operating expenses to average net
assets without waivers
and/or expense reimbursements 1.00%+
Net investment income per share without waivers
and/or expense reimbursements $ 0.01
</TABLE>
* Nations Strategic Fixed Income Fund Investor A Shares commenced operations on
November 19, 1992.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
10
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS DIVERSIFIED INCOME FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
PERIOD YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
INVESTOR A SHARES 03/31/96(b) 11/30/95 11/30/94# 11/30/93#
Operating performance:
Net asset value, beginning of period $ 10.82 $ 9.67 $ 10.88 $ 9.96
Net investment income 0.22 0.71 0.72 0.76
Net realized and unrealized gain/(loss) on
investments (0.40) 1.15 (1.06) 0.92
Net increase/(decrease) in net asset value from
operations (0.18) 1.86 (0.34) 1.68
Distributions:
Dividends from net investment income (0.22) (0.71) (0.72) (0.76)
Distributions in excess of net investment
income -- -- (0.00)(a) --
Distributions from net realized capital gains -- -- (0.15) --
Total dividends and distributions (0.22) (0.71) (0.87) (0.76)
Net asset value, end of period $ 10.42 $ 10.82 $ 9.67 $ 10.88
Total return++ (1.67)% 19.82% (3.26)% 17.32%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 13,332 $ 13,150 $ 10,819 $ 13,291
Ratio of operating expenses to average net
assets 1.02%+ 1.05% 0.96% 0.70%
Ratio of net investment income to average net
assets 6.24%+ 6.78% 7.09% 6.87%
Portfolio turnover rate 69% 96% 144% 86%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 1.12%+ 1.18% 1.17% 1.10%
Net investment income per share without waivers
and/or expense reimbursements $ 0.22 $ 0.70 $ 0.70 $ 0.70
<CAPTION>
PERIOD
ENDED
INVESTOR A SHARES 11/30/92*
Operating performance:
Net asset value, beginning of period $ 10.02
Net investment income 0.01
Net realized and unrealized gain/(loss) on
investments (0.06)
Net increase/(decrease) in net asset value from
operations (0.05)
Distributions:
Dividends from net investment income (0.01)
Distributions in excess of net investment
income --
Distributions from net realized capital gains --
Total dividends and distributions (0.01)
Net asset value, end of period $ 9.96
Total return++ (0.49)%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 18
Ratio of operating expenses to average net
assets 0.40%+
Ratio of net investment income to average net
assets 7.61%+
Portfolio turnover rate 46%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 1.00%+
Net investment income per share without waivers
and/or expense reimbursements $ 0.01
</TABLE>
* Nations Diversified Income Fund Investor A Shares commenced operations on
November 25, 1992.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# Per share numbers have been calculated using the monthly average share
method, which more appropriately presents the per share data for the period
since the use of the undistributed income method did not accord with the
results of operations.
(a) Amount represents less than $0.01 per share.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
Objectives
NATIONS SHORT-TERM INCOME FUND: Nations Short-Term Income Fund's investment
objective is to seek high current income consistent with minimal fluctuation of
principal. The Fund invests in investment grade debt securities.
NATIONS SHORT-INTERMEDIATE GOVERNMENT FUND: Nations Short-Intermediate
Government Fund's investment objective is to seek high current income consistent
with modest fluctuation of principal. The Fund invests primarily in securities
issued or guaranteed by the U.S. Government, its agencies or instrumentalities.
NATIONS GOVERNMENT SECURITIES FUND: Nations Government Securities Fund's
investment objective is to seek high current income consistent with moderate
fluctuation of principal. The Fund invests primarily in intermediate-term
securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities.
11
<PAGE>
NATIONS STRATEGIC FIXED INCOME FUND: Nations Strategic Fixed Income Fund's
investment objective is to seek total return by investing in investment grade
fixed income securities.
NATIONS DIVERSIFIED INCOME FUND: Nations Diversified Income Fund's investment
objective is to seek total return with an emphasis on current income by
investing in a diversified portfolio of fixed income securities.
How Objectives Are Pursued
NATIONS SHORT-TERM INCOME FUND: In pursuing its investment objective, the Fund
will, under normal market conditions, invest at least 65% of the total value of
its assets in investment grade debt obligations. It is expected that the average
dollar-weighted maturity and duration of the Fund's portfolio will not exceed
three years.
The Fund may invest in corporate convertible and non-convertible debt
obligations, including bonds, notes and debentures rated investment grade by one
of the following six nationally recognized statistical rating organizations,
Duff & Phelps Credit Rating Co. ("D&P"), Fitch Investors Service, Inc.
("Fitch"), Standard & Poor's Corporation ("S&P"), Moody's Investors Service,
Inc. ("Moody's"), IBCA Limited or its affiliate, IBCA Inc. (collectively,
"IBCA") or Thomson BankWatch, Inc. ("BankWatch") (collectively, "NRSROs"), or,
if not so rated, determined by the Adviser to be of comparable quality to
instruments so rated; dollar-denominated debt obligations of foreign issuers,
including foreign corporations and foreign governments; and mortgage-related
securities of governmental issuers or of private issuers, including mortgage
pass-through certificates, collateralized mortgage obligations or "CMOs", real
estate investment trust securities or mortgage-backed bonds; other asset-backed
and municipal securities rated by one of the six NRSROs, or, if not so rated,
determined by the Adviser to be of comparable quality to instruments so rated.
The Fund may also invest in obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities ("U.S. Government Obligations").
Most obligations acquired by the Fund will be issued by companies or
governmental entities located within the United States. The Fund may invest up
to 25% of its assets in foreign securities.
As noted above, the Fund will invest in investment grade debt obligations.
Obligations rated in the lowest of the top four investment grade rating
categories (E.G. rated "BBB" by S&P or "Baa" by Moody's) have speculative
characteristics, and changes in economic conditions or other circumstances are
more likely to lead to a weakened capacity to make principal and interest
payments than is the case with higher grade debt obligations. Subsequent to its
purchase by the Fund, an issue of securities may cease to be rated or its rating
may be reduced below the minimum rating required for purchase by the Fund. The
Adviser will consider such an event in determining whether the Fund should
continue to hold the obligation. See "Appendix B" below for a description of
these rating designations.
The Fund also may invest in "high quality" money market instruments (I.E., those
within the two highest rating categories or unrated instruments determined by
the Adviser to be of comparable quality), repurchase agreements and cash. Such
obligations may include those issued by foreign banks and foreign branches of
U.S. banks. These investments may be in such proportions as, in the Adviser's
opinion, prevailing market or economic circumstances warrant.
NATIONS SHORT-INTERMEDIATE GOVERNMENT FUND: In pursuing its investment
objective, Nations Short-Intermediate Government Fund invests substantially all
of its assets in U.S. Government Obligations and repurchase agreements relating
to such obligations. Under normal market conditions, it is expected that the
average
12
<PAGE>
dollar-weighted maturity of the Fund's portfolio will be between three and five
years and the duration will not exceed five years. U.S. Government Obligations
have historically involved little risk of loss of principal if held to maturity.
However, due to fluctuations in interest rates, the market value of such
securities may vary during the period a shareholder owns shares of the Fund. The
value of the Fund's portfolio generally will vary inversely with changes in
prevailing interest rates.
The Fund also may invest in corporate convertible and non-convertible debt
obligations, including bonds, notes and debentures rated investment grade at the
time of purchase by one of the six NRSROs, or if not so rated, determined by the
Adviser to be of comparable quality to instruments so rated; dollar-denominated
debt obligations of foreign issuers, including foreign corporations and foreign
governments; mortgage-backed securities of governmental issuers or of private
issuers, including mortgage pass-through certificates, CMOs, real estate
investment trust securities or mortgage-backed bonds; other asset-backed and
municipal securities rated by one of the six NRSROs, or if not so rated,
determined by the Adviser to be of comparable quality.
The Fund also may invest in "high quality" money market instruments (I.E., those
within the two highest rating categories or unrated instruments deemed by the
Adviser to be of comparable quality), repurchase agreements and cash. Such
obligations may include those issued by foreign banks and foreign branches of
U.S. banks. These investments may be in such proportion as, in the Adviser's
opinion, prevailing market or economic circumstances warrant.
NATIONS GOVERNMENT SECURITIES FUND: In pursuing its investment objective,
Nations Government Securities Fund invests at least 65% of its assets in U.S.
Government Obligations. Under normal market conditions, it is expected that the
average dollar-weighted maturity of the Fund's portfolio will be between three
and 10 years and the Fund's duration is expected to be in a range of 3.5 to six
years.
The Fund also may invest in corporate convertible and non-convertible debt
obligations, including bonds, notes and debentures rated investment grade at the
time of purchase by one of the six NRSROs, or if not so rated, determined by the
Adviser to be of comparable quality to instruments so rated; dollar-denominated
debt obligations of foreign issuers, including foreign corporations and foreign
governments; mortgage-backed securities of governmental issuers or of private
issuers, including mortgage pass-through certificates, CMOs, real estate
investment trust securities or mortgage-backed bonds; other asset-backed and
municipal securities rated by one of the six NRSROs, or if not so rated,
determined by the Adviser to be of comparable quality.
The Fund also may invest in "high quality" money market instruments (I.E., those
within the two highest rating categories or unrated instruments deemed by the
Adviser to be of comparable quality), repurchase agreements and cash. Such
obligations may include those issued by foreign banks and foreign branches of
U.S. banks. These investments may be in such proportion as, in the Adviser's
opinion, prevailing market or economic circumstances warrant.
NATIONS STRATEGIC FIXED INCOME FUND: In pursuing its investment objective, the
Fund will, under normal market conditions, invest at least 65% of the total
value of its assets in investment grade fixed income securities. It is expected
that the average dollar-weighted maturity of the Fund's portfolio will be ten
years or less and under no circumstances will it exceed 15 years.
The Fund may invest in corporate convertible and non-convertible debt
obligations, including bonds, notes and debentures rated investment grade at the
time of purchase by one of the six NRSROs, or if not so rated, determined by the
Adviser to be of comparable quality to instruments so rated; U.S. Government
Obligations; dollar-denominated debt obligations of foreign issuers, including
foreign corporations and foreign governments; mortgage-backed securities of
governmental issuers or of private issuers, including mortgage pass-through
certificates, CMOs, real estate investment trust securities or mortgage-backed
bonds; other asset-backed and
13
<PAGE>
municipal securities rated by one of the six NRSROs, or if not so rated,
determined by the Adviser to be of comparable quality. The Fund also may invest
in dividend-paying preferred and common stock.
Most obligations acquired by the Fund will be issued by companies or
governmental entities located within the United States. The Fund may invest up
to 25% of its assets in foreign securities.
The Fund will invest in investment grade debt obligations. Obligations rated in
the lowest of the top four investment grade rating categories (E.G. rated "BBB"
by S&P or "Baa" by Moody's) have speculative characteristics, and changes in
economic conditions or other circumstances are more likely to lead to a weakened
capacity to make principal and interest payments than is the case with higher
grade debt obligations. Subsequent to its purchase by the Fund, an issue of
securities may cease to be rated or its rating may be reduced below the minimum
rating required for purchase by the Fund. The Adviser will consider such an
event in determining whether the Fund should continue to hold the obligation.
See "Appendix B" below for a description of these rating designations.
The Fund also may invest in "high quality" money market instruments (I.E., those
within the two highest rating categories or unrated instruments determined by
the Adviser to be of comparable quality), repurchase agreements and cash. Such
obligations may include those issued by foreign banks and foreign branches of
U.S. banks. These investments may be in such proportions as, in the Adviser's
opinion, prevailing market or economic circumstances warrant.
NATIONS DIVERSIFIED INCOME FUND: In pursuing its investment objective, the Fund
will, under normal market conditions, invest at least 65% of the total value of
its assets in investment grade debt obligations. It is expected that the average
dollar-weighted maturity of the Fund's portfolio will be greater than five
years.
The Fund may invest in corporate convertible and non-convertible debt
obligations such as fixed-and-variable rate bonds; U.S. Government Obligations;
dollar-denominated and non-dollar-denominated debt obligations of foreign
issuers, including foreign corporations and foreign governments; mortgage-backed
securities of governmental issuers or of private issuers, including mortgage
pass-through certificates, CMOs, real estate investment trust securities or
mortgage-backed bonds; other asset-backed and municipal securities rated by one
of the six NRSROs, or if not so rated, determined by the Adviser to be of
comparable quality. The Fund also may invest in dividend-paying convertible and
non-convertible preferred and common stocks.
Most obligations acquired by the Fund will be issued by companies or
governmental entities located within the United States. The Fund may invest up
to 25% of its assets in foreign securities.
Obligations rated in the lowest of the top four investment grade rating
categories (E.G. rated "BBB" by S&P or "Baa" by Moody's) have speculative
characteristics, and changes in economic conditions or other circumstances are
more likely to lead to a weakened capacity to make principal and interest
payments than is the case with higher grade debt obligations.
Up to 35% of the total value of the Fund's assets may be invested in
lower-quality fixed income securities rated "B" or better by Moody's or S&P, or
if not so rated, determined by the Adviser to be of comparable quality.
Securities which are rated "B" generally lack characteristics of the desirable
investment, and assurance of interest and principal payment over any long period
of time may be limited. Non-investment-grade debt securities are sometimes
referred to as "high yield bonds" or "junk bonds." They tend to have speculative
characteristics, generally involve more risk of principal and income than higher
rated securities, and have yields and market values that tend to fluctuate more
than higher quality securities.
Subsequent to its purchase by the Fund, an issue of securities may cease to be
rated or its rating may be reduced below the minimum rating required for
purchase by the Fund. The Adviser will consider such an event in determining
whether the Fund should continue to hold the
14
<PAGE>
obligation. See "Appendix B" below for a description of these rating
designations.
The Fund may hold or invest in "high quality" money market instruments (I.E.,
those within the two highest rating categories or unrated instruments deemed by
the Adviser to be of comparable quality), repurchase agreements and cash. Such
obligations may include those issued by foreign banks and foreign branches of
U.S. banks. These investments may be in such proportions as, in the Adviser's
opinion, prevailing market or economic circumstances warrant.
GENERAL: Each of the Funds may invest in certain specified derivative
securities, including: interest rate swaps, caps and floors for hedging
purposes; exchange-traded options; over-the-counter options executed with
primary dealers, including long calls and puts and covered calls to enhance
return; and U.S. and foreign exchange-traded financial futures and options
thereon approved by the Commodity Futures Trading Commission ("CFTC") for market
exposure risk-management. Each of the Funds may lend its portfolio securities to
qualified institutional investors and may invest in restricted, private
placement and other illiquid securities. Each of the Funds may engage in reverse
repurchase agreements and dollar roll transactions. Additionally, each Fund may
purchase securities issued by other investment companies, consistent with the
Fund's investment objective and policies.
Certain securities that have variable or floating interest rates or demand, put
or prepayment features may be deemed to have remaining maturities shorter than
their nominal maturities for purposes of determining the average weighted
maturity and duration of the Funds.
For more information concerning these and other instruments in which the Funds
may invest and their investment practices, see "Appendix A".
Although changes in the value of securities subsequent to their acquisition are
reflected in the net asset value of the Funds' shares, such changes will not
affect the income received by the Funds from such securities. However, since
available yields vary over time, no specific level of income can ever be
assured. The dividends paid by the Funds will increase or decrease in relation
to the income received by the Funds from their investments, which will in any
case be reduced by the Funds' expenses before being distributed to the Funds'
shareholders.
PORTFOLIO TURNOVER: Generally, the Funds will purchase portfolio securities for
capital appreciation or investment income, or both, and not for short-term
trading profits. If a Fund's annual portfolio turnover rate exceeds 100%, it may
result in higher brokerage costs and possible tax consequences for the Fund and
its shareholders. For the Funds' portfolio turnover rates, see "Financial
Highlights."
RISK CONSIDERATIONS: Although the Adviser will seek to achieve the investment
objective of each Fund, there is no assurance that it will be able to do so. No
single Fund should be considered, by itself, to provide a complete investment
program for any investor. Investments in a Fund are not insured against loss of
principal.
The value of a Fund's investments in debt securities, including U.S. Government
Obligations, will tend to decrease when interest rates rise and increase when
interest rates fall. In general, longer-term debt instruments tend to fluctuate
in value more than shorter-term debt instruments in response to interest rate
movements. In addition, debt securities that are not backed by the United States
Government are subject to credit risk, which is the risk that the issuer may not
be able to pay principal and/or interest when due.
Investments by a Fund in common stocks and other equity securities are subject
to stock market risks. The value of the stocks that the Fund holds, like the
broader stock market, may decline over short or even extended periods.
Certain of the Funds' investments constitute derivative securities, which are
securities whose value is derived, at least in part, from an underlying index or
reference rate. There are certain types of derivative securities that can, under
certain circumstances, significantly increase a purchaser's exposure to market
or other risks. The Adviser, however, only purchases derivative securities in
circumstances where it believes
15
<PAGE>
such purchases are consistent with the Fund's investment objective and do not
unduly increase the Fund's exposure to market or other risks. For additional
risk information regarding the Funds' investments in particular instruments, see
"Appendix A -- Portfolio Securities."
INVESTMENT LIMITATIONS: Each Fund is subject to a number of investment
limitations. The following investment limitations are matters of fundamental
policy and may not be changed without the affirmative vote of the holders of a
majority of the Fund's outstanding shares. Other investment limitations that
cannot be changed without such a vote of shareholders are described in the SAIs.
Each Fund may not:
1. Purchase any securities which would cause 25% or more of the value of the
Fund's total assets at the time of such purchase to be invested in the
securities of one or more issuers conducting their principal activities in the
same industry, provided that this limitation does not apply to investments in
obligations issued or guaranteed by the U.S. Government or its agencies and
instrumentalities.
2. Make loans, except that a Fund may purchase and hold debt instruments
(whether such instruments are part of a public offering or privately placed),
may enter into repurchase agreements and may lend portfolio securities in
accordance with its investment policies.
3. Each Fund may not:
Purchase securities of any one issuer (other than securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities) if,
immediately after such purchase, more than 5% of the value of such Fund's total
assets would be invested in the securities of such issuer, except that up to 25%
of the value of the Fund's total assets may be invested without regard to these
limitations and with respect to 75% of such Fund's assets, such Fund will not
hold more than 10% of the voting securities of any issuer.
The investment objective and policies of each Fund, unless otherwise specified,
may be changed without a vote of the Fund's shareholders. If the investment
objective or policies of a Fund change, shareholders should consider whether the
Fund remains an appropriate investment in light of their then current position
and needs.
In order to register a Fund's shares for sale in certain states, a Fund may make
commitments more restrictive than the investment policies and limitations
described in this Prospectus and the SAIs. Should a Fund determine that any such
commitment is no longer in the best interest of the Fund, it may consider
terminating sales of its shares in the states involved.
How Performance Is Shown
From time to time a Fund may advertise the total return and yield on a class of
shares. BOTH TOTAL RETURN AND YIELD FIGURES ARE BASED ON HISTORICAL DATA AND ARE
NOT INTENDED TO INDICATE FUTURE PERFORMANCE. The "total return" of a class of
shares may be calculated on an average annual total return basis or an aggregate
total return basis. The "total return" of a class of shares refers to the
average annual compounded rates of return over one-, five-, and ten-year periods
or the life of the Fund (as stated in the advertisement) that would equate an
initial amount invested at the beginning of a stated period to the ending
redeemable value of the investment (reflecting the deduction of any applicable
contingent deferred sales charge ("CDSC")), assuming the reinvestment of all
dividend and capital gain distributions. Aggregate total return reflects the
total percentage change in the value of the investment over the measuring
period, again assuming the reinvestment of all dividends and capital gain
distributions. Total return may also be presented for other periods or may not
reflect a deduction of the CDSC.
16
<PAGE>
"Yield" is calculated by dividing the annualized net investment income per share
during a recent 30-day (or one month) period of a class of shares of a Fund by
the maximum public offering price per share on the last day of that period. The
yield on a class of shares does not reflect deduction of any applicable CDSC.
Investment performance, which will vary, is based on many factors, including
market conditions, the composition of a Fund's portfolio and a Fund's operating
expenses. Investment performance also often reflects the risks associated with
such Fund's investment objective and policies. These factors should be
considered when comparing a Fund's investment results to those of other mutual
funds and other investment vehicles. Since yields fluctuate, yield data cannot
necessarily be used to compare an investment in a Fund with bank deposits,
savings accounts, and similar investment alternatives which often provide an
agreed-upon or guaranteed fixed yield for a stated period of time.
In addition to Investor A Shares, the Funds offer Primary A, Primary B, Investor
C and Investor N Shares. Each class of shares may bear different sales charges,
shareholder servicing fees, loads and other expenses, which may cause the
performance of a class to differ from the performance of the other classes.
Total return and yield quotations will be computed separately for each class of
the Funds' shares. Any quotation of total return or yield not reflecting CDSCs
would be reduced if such sales charges were reflected. Any fees charged by a
selling agent and/or servicing agent directly to its customers' accounts in
connection with investments in a Fund will not be included in calculations of
yield and total return or yield. Each Fund's annual report contains additional
performance information and is available upon request without charge from the
Funds' distributor or an investor's 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. The SAI for Nations Fund Trust contains the names of and general
background information concerning the Trustees of Nations Fund Trust. The SAI
for Nations Fund, Inc. contains the names of and general background information
concerning the Directors of Nations Fund, Inc.
Nations Fund and the Adviser have adopted codes of ethics which contain policies
on personal securities transactions by "access persons," including portfolio
managers and investment analysts. These policies substantially comply in all
material respects with the recommendations set forth in the May 9, 1994 Report
of the Advisory Group on Personal Investing of the Investment Company Institute.
INVESTMENT ADVISER: NationsBanc Advisors, Inc. serves as investment adviser to
the Funds. NBAI is a wholly owned subsidiary of NationsBank, which in turn is a
wholly owned banking subsidiary of NationsBank Corporation, a bank holding
company organized as a North Carolina corporation. NBAI has its principal
offices at One NationsBank Plaza, Charlotte, North Carolina 28255.
TradeStreet Investment Associates, Inc., with principal offices at One
NationsBank Plaza, Charlotte, North Carolina 28255, serves as sub-investment
adviser to all of the Funds. TradeStreet is a wholly owned subsidiary of
NationsBank. TradeStreet provides investment management services to individuals,
corporations, and institutions.
Subject to the general supervision of Nations Fund Trust's Board of Trustees and
Nations Fund, Inc.'s Board of Directors, and in accordance with the Funds'
investment policies, the Adviser formulates guidelines and lists of approved
investments for each Fund, makes decisions with respect to and places orders for
each Fund's purchases and sales of portfolio
17
<PAGE>
securities and maintains records relating to such purchases and sales. The
Adviser is authorized to allocate purchase and sale orders for portfolio
securities to certain financial institutions, including, in the case of agency
transactions, financial institutions which are affiliated with the Adviser or
which have sold shares in a Fund, if the Adviser believes that the quality of
the transaction and the commission are comparable to what they would be with
other qualified brokerage firms. From time to time, to the extent consistent
with its investment objective, policies and restrictions, each Fund may invest
in securities of companies with which NationsBank has a lending relationship.
For the services provided and expenses assumed pursuant to an Investment
Advisory Agreement, NBAI is entitled to receive advisory fees, computed daily
and paid monthly, at the annual rate of 0.60% of the average daily net assets of
each of Nations Short-Term Income Fund, Nations Diversified Income Fund, Nations
Strategic Fixed Income Fund, and Nations Short-Intermediate Government Fund; and
0.65% of the first $100 million of Nations Government Securities Fund's average
daily net assets, plus 0.55% of the Fund's average daily net assets in excess of
$100 million and up to $250 million, plus 0.50% of the Fund's average daily net
assets in excess of $250 million.
For the services provided and the expenses assumed pursuant to sub-advisory
agreements, NBAI will pay TradeStreet sub-advisory fees, computed daily and paid
monthly, at the annual rate of 0.15% of Nations Short-Term Income Fund's,
Nations Short-Intermediate Government Fund's, Nations Government Securities
Fund's, Nations Strategic Fixed Income Fund's and Nations Diversified Income
Fund's average daily net assets.
From time to time, NBAI (and/or TradeStreet) may waive or reimburse (either
voluntarily or pursuant to applicable state limitations) advisory fees and/or
expenses payable by a Fund. In addition, the Adviser may from time to time
compensate Agents, as defined below, for providing certain services to
Customers.
For the fiscal period from December 1, 1995 to December 31, 1995, after waivers,
Nations Fund Trust paid NationsBank under a prior Investment Advisory Agreement
advisory fees at the indicated rates of the following Funds' average daily net
assets: Nations Short-Intermediate Government Fund -- 0.37%; Nations Short-Term
Income Fund -- 0.27%; Nations Diversified Income Fund -- 0.50%; and Nations
Strategic Fixed Income Fund -- 0.50%.
For the fiscal period from June 1, 1995 to December 31, 1995, after waivers,
Nations Fund, Inc. paid NationsBank under a prior Investment Advisory Agreement
advisory fees at the rate of 0.48% of the average daily net assets of Nations
Government Securities Fund.
For the fiscal period from January 1, 1996 to March 31, 1996, after waivers,
Nations Fund Trust paid NBAI under the current Investment Advisory Agreement
advisory fees at the indicated rates of the following Funds' average daily net
assets: Nations Short-Intermediate Government Fund -- 0.37%; Nations Short-Term
Income Fund -- 0.27%; Nations Diversified Income Fund -- 0.50%; and Nations
Strategic Fixed Income Fund -- 0.50%.
For the fiscal period from January 1, 1996 to March 31, 1996, after waivers,
Nations Fund, Inc. paid NBAI under the current Investment Advisory Agreement
advisory fees at the rate of 0.48% of the average daily net assets of Nations
Government Securities Fund.
For the fiscal period from January 1, 1996 to March 1996, after waivers, NBAI
paid TradeStreet under the current Sub-Advisory Agreement sub-advisory fees at
the rate of 0.15% of the average daily net assets of Nations Short-Intermediate
Government Fund, Nations Short-Term Income Fund, Nations Diversified Income
Fund, Nations Strategic Fixed Income Fund and Nations Government Securities
Fund.
David M. Hetherington, CFA, is a Managing Director of Fixed Income Management.
Mr. Hetherington is responsible for overseeing all fixed income product
management and is Senior Portfolio Manager for Nations Short-Term Income Fund.
Mr. Hetherington has been Portfolio Manager for Nations Short-Term Income Fund
since 1995. Prior to assuming his position with TradeStreet, he was Senior Vice
President and Director of Fixed Income for the Investment
18
<PAGE>
Management Group at NationsBank. Mr. Hetherington has worked in the investment
community since 1975. His past experience includes working as a portfolio
manager, a trust investment officer and a securities analyst for First Citizens
Bank and Deposit Guarantee as well as working as an Economist for the U.S.
Department of Labor in the Bureau of Labor Statistics. Mr. Hetherington received
a B.A. in Economics from Duke University. He holds the Chartered Financial
Analyst designation and is a member of the Association for Investment Management
and Research.
Mark S. Ahnrud, CFA, is a Director of Fixed Income Management for TradeStreet
and Senior Portfolio Manager for Nations Diversified Income Fund. Mr. Ahnrud has
been Portfolio Manager for Nations Diversified Income Fund since 1992. Prior to
assuming his position with TradeStreet, he was Senior Vice President and Senior
Portfolio Manager for the Investment Management Group at NationsBank. Mr. Ahnrud
has worked for the Investment Management Group at NationsBank since 1985 where
his responsibilities initially included institutional investment management
sales and later involved high yield credit analysis. Mr. Ahnrud received a dual
B.S. in Finance and Investments from Babson College and an M.B.A. from Duke
University, Fuqua School of Business. He holds the Chartered Financial Analyst
designation and is a member of the Association for Investment Management and
Research as well as the North Carolina Society of Financial Analysts, Inc.
Gregory H. Cobb is a Senior Product Manager, Fixed Income Management for
TradeStreet and Senior Portfolio Manager for Nations Strategic Fixed Income
Fund. Mr. Cobb has been Portfolio Manager for Nations Strategic Fixed Income
Fund since 1995. Prior to assuming his position with TradeStreet, he was Vice
President and Senior Portfolio Manager for the Investment Management Group at
NationsBank. Mr. Cobb has worked in the investment community since 1987. His
past experience includes portfolio management of intermediate duration and
insurance products for Trust Company Bank and Barnett Bank Trust Company, Inc.
Mr. Cobb received a B.A. in Economics from the University of North Carolina at
Chapel Hill.
John S. Swaim is a Senior Product Manager, Fixed Income Management for
TradeStreet and Senior Portfolio Manager for Nations Short-Intermediate
Government Fund and Nations Government Securities Fund. Mr. Swaim has been
Portfolio Manager for the Funds since 1995. Prior to assuming his position with
TradeStreet, he was Vice President and Senior Portfolio Manager for the
Investment Management Group at NationsBank. Mr. Swaim has worked in the
investment community since 1986. His past experience includes derivative
products manager for the NationsBank Texas Corporate Investment Division
portfolio. Mr. Swaim received a B.S. from University of North Texas and an
M.B.A. from University of Texas at Arlington.
Morrison & Foerster LLP, counsel to Nations Fund and special counsel to
NationsBank, has advised Nations Fund and NationsBank that NationsBank and its
affiliates may perform the services contemplated by the Investment Advisory
Agreements and this Prospectus without violation of the Glass-Steagall Act. Such
counsel has pointed out, however, that there are no controlling judicial or
administrative interpretations or decisions and that future judicial or
administrative interpretations of, or decisions relating to, present federal or
state statutes, including the Glass-Steagall Act, and regulations relating to
the permissible activities of banks and their subsidiaries or affiliates, as
well as future changes in such statutes, regulations and judicial or
administrative decisions or interpretations, could prevent such entities from
continuing to perform, in whole or in part, such services. If any such entity
were prohibited from performing any such services, it is expected that new
agreements would be proposed or entered into with another entity or entities
qualified to perform such services.
OTHER SERVICE PROVIDERS: Stephens Inc. ("Stephens"), with principal offices at
111 Center Street, Little Rock, Arkansas 72201, serves as the administrator of
Nations Fund pursuant to Administration Agreements. Pursuant to the terms of the
Administration Agreement,
19
<PAGE>
Stephens provides various administrative and corporate secretarial services to
the Funds, including providing general oversight of other service providers,
office space, utilities and various legal and administrative services in
connection with the satisfaction of various regulatory requirements applicable
to the Funds.
First Data Investor Services Group, Inc. ("First Data"), formerly The
Shareholder Services Group, Inc., a wholly owned subsidiary of First Data
Corporation, with principal offices at One Exchange Place, Boston, Massachusetts
02109, serves as the co-administrator of the Funds pursuant to a
Co-Administration Agreements. Under the terms of the Co-Administration
Agreements, First Data provides various administrative and accounting services
to the Funds, including performing the calculations necessary to determine net
asset values and dividends, preparing tax returns and financial statements,
maintaining the portfolio records and certain general accounting records for the
Funds.
For the services rendered pursuant to the Administration and Co-Administration
Agreements, Stephens and First Data are entitled to receive a combined fee at
the annual rate of up to 0.10% of each Fund's average daily net assets.
For the fiscal period from December 1, 1995 to March 31, 1996, after waivers,
Nations Fund Trust paid its administrators combined fees at the rate of 0.10% of
the average daily net assets of Nations Short-Intermediate Government Fund,
Nations Short-Term Income Fund, Nations Diversified Income Fund and Nations
Strategic Fixed Income Fund.
For the fiscal period from June 1, 1995 to March 31, 1996, after waivers,
Nations Fund, Inc. paid its administrator combined fees at the rate of 0.10% of
the average daily net assets of Nations Government Securities Fund.
NationsBank serves as sub-administrator for Nations Fund pursuant to a
Sub-Administration Agreement. Pursuant to the terms of the Sub-Administration
Agreement, NationsBank assists Stephens in supervising, coordinating and
monitoring various aspects of the Funds' administrative operations. For
providing such services, NationsBank shall be entitled to receive a monthly fee
from Stephens based on an annual rate of 0.01% of the Funds' average daily net
assets.
Shares of the Funds are sold on a continuous basis by Stephens, as the Funds'
sponsor and distributor. Stephens is a registered broker/dealer with principal
offices at 111 Center Street, Little Rock, Arkansas 72201. Nations Fund has
entered into a distribution agreement with Stephens which provides that Stephens
has the exclusive right to distribute shares of the Funds. Stephens may pay
service fees or commissions to selling agents that assist customers in
purchasing Investor A Shares. See "Shareholder Servicing And Distribution
Plans."
NationsBank of Texas, N.A., ("NationsBank of Texas" or the "Custodian"), serves
as the Funds' custodian. NationsBank of Texas is located at 1401 Elm Street,
Dallas, Texas 75202 and is a wholly owned subsidiary of NationsBank Corporation.
In return for providing custodial services, NationsBank of Texas is entitled to
receive, in addition to out-of-pocket expenses, fees payable monthly (i) at the
rate of 1.25% of 1% of the average daily net assets of each Fund, (ii) $10.00
per repurchase collateral transaction by the Funds, and (iii) $15.00 per
purchase, sale and maturity transaction involving the Funds.
First Data serves as transfer agent (the "Transfer Agent") for the Funds'
Investor A Shares. The Transfer Agent is located at One Exchange Place, Boston,
Massachusetts 02109.
Price Waterhouse LLP serves as independent accountant to Nations Fund. Its
address is 160 Federal Street, Boston, Massachuetts 02110.
EXPENSES: The accrued expenses of each Fund, as well as certain expenses
attributable to Investor A Shares, are deducted from accrued income before
dividends are declared. Each Fund's expenses include, but are not limited to:
fees paid to the Adviser, NationsBank, Stephens and First Data; interest;
trustees' and directors' fees; federal and state securities registration and
qualification fees; brokerage fees and commissions; costs of preparing and
printing prospectuses for regulatory purposes and for distribution to existing
shareholders; charges of the Custodian and Transfer Agent; certain
insur-
20
<PAGE>
ance premiums; outside auditing and legal expenses; costs of shareholder reports
and shareholder meetings; other expenses which are not expressly assumed by the
Adviser, NationsBank, Stephens or First Data under their respective agreements
with Nations Fund; and any extraordinary expenses. Investor A Shares may bear
certain class specific retail transfer agency expenses and also bear certain
additional shareholder service and sales support costs. Any general expenses of
Nations Fund Trust and/or Nations Fund, Inc. that are not readily identifiable
as belonging to a particular investment portfolio are allocated among all
portfolios in the proportion that the assets of a portfolio bear to the assets
of Nations Fund Trust or Nations Fund, Inc. or in such other manner as the Board
of Trustees or Board of Directors deems appropriate.
Organization And History
The Funds are members of the Nations Fund Family, which consists of Nations Fund
Trust, Nations Fund, Inc., Nations Fund Portfolios, Inc. and Nations
Institutional Reserves. The Nations Fund Family currently has more than 43
distinct investment portfolios and total assets in excess of $18 billion.
NATIONS FUND TRUST: Nations Fund Trust was organized as a Massachusetts business
trust on May 6, 1985. Nations Fund Trust's fiscal year end is March 31; prior to
1996, Nations Fund Trust's fiscal year end was November 30. The Funds currently
offer five classes of shares -- Investor A, Investor C, Investor N, Primary A
and Primary B Shares. This Prospectus relates only to the Investor A Shares of
Nations Short-Term Income Fund, Nations Diversified Income Fund, Nations
Strategic Fixed Income Fund and Nations Short-Intermediate Government Fund of
Nations Fund Trust. To obtain additional information regarding the Funds' other
classes of shares which may be available to you, contact your Selling Agent (as
defined below) or Nations Fund at 1-800-321-7854.
Each share is without par value, represents an equal proportionate interest in
the related fund with other shares of the same class, and is entitled to such
dividends and distributions out of the income earned on the assets belonging to
such fund as are declared in the discretion of Nations Fund Trust's Board of
Trustees. Nations Fund Trust's Declaration of Trust authorizes the Board of
Trustees to classify or reclassify any class of shares into one or more series
of shares.
Shareholders are entitled to one vote for each full share held and a
proportionate fractional vote for each fractional share held. Shareholders of
each fund of Nations Fund Trust will vote in the aggregate and not by fund, and
shareholders of each fund will vote in the aggregate and not by class except as
otherwise expressly required by law or when the Board of Trustees determines
that the matter to be voted on affects only the interests of shareholders of a
particular fund or class. See the related SAI for examples of when the 1940 Act
requires voting by fund.
As of July 15, 1996, NationsBank and its affiliates possessed or shared power to
dispose or vote with respect to more than 25% of the outstanding shares of
Nations Fund Trust and therefore could be considered to be a controlling person
of Nations Fund Trust for purposes of the 1940 Act. For more detailed
information concerning the percentage of each class or series of shares over
which NationsBank and its affiliates possessed or shared power to dispose or
vote as of a certain date, see Nations Fund Trust's related SAI.
Nations Fund Trust does not presently intend to hold annual meetings except as
required by the 1940 Act. Shareholders will have the right to remove Trustees.
Nations Fund Trust's Code of Regulations provides that special meetings of
shareholders shall be called at the written request of the shareholders entitled
to vote at least 10% of the outstanding shares of Nations Fund Trust entitled to
be voted at such meeting.
NATIONS FUND, INC.: Nations Fund, Inc. was incorporated in Maryland on December
13, 1983, but had no operations prior to December 15,
21
<PAGE>
1986. Nations Fund, Inc.'s fiscal year end is March 31; prior to 1996, Nations
Fund, Inc.'s fiscal year end was May 31. As of the date of this Prospectus, the
authorized capital stock of Nations Fund, Inc. consists of 270,000,000,000
shares of common stock, par value of $.001 per share, which are divided into
series or funds each of which consists of separate classes of shares. This
Prospectus relates only to the Investor A Shares of Nations Government
Securities Fund of Nations Fund, Inc. To obtain additional information regarding
the Fund's other classes of shares which may be available to you, contact your
Agent (as defined below) or Nations Fund at 1-800-321-7854.
Shares of each fund and class have equal rights with respect to voting, except
that the holders of shares of a particular fund or class will have the exclusive
right to vote on matters affecting only the rights of the holders of such fund
or class. In the event of dissolution or liquidation, holders of each class will
receive pro rata, subject to the rights of creditors, (a) the proceeds of the
sale of that portion of the assets allocated to that class held in the
respective fund of Nations Fund, Inc., less (b) the liabilities of Nations Fund,
Inc. attributable to the respective fund or class or allocated among the funds
or classes based on the respective liquidation value of each fund or class.
Shareholders of Nations Fund, Inc. do not have cumulative voting rights, and
therefore the holders of more than 50% of the outstanding shares of all funds
voting together for election of directors may elect all of the members of the
Board of Directors of Nations Fund, Inc. Meetings of shareholders may be called
upon the request of 10% or more of the outstanding shares of Nations Fund, Inc.
There are no preemptive rights applicable to any of Nations Fund, Inc.'s shares.
Nations Fund, Inc.'s shares, when issued, will be fully paid and non-assessable.
As of July 15, 1996, NationsBank and its affiliates possessed or shared power to
dispose of or vote with respect to more than 25% of the outstanding shares of
Nations Fund, Inc. and therefore could be considered to be a controlling person
of Nations Fund, Inc. for purposes of the 1940 Act. For more detailed
information concerning the percentage of each class or series over which
NationsBank and its affiliates possessed or shared power to dispose or vote as
of a certain date, see Nations Fund, Inc.'s SAI. It is anticipated that Nations
Fund, Inc. will not hold annual shareholder meetings on a regular basis unless
required by the 1940 Act or Maryland law.
Because this Prospectus combines disclosure on two separate investment
companies, there is a possibility that one investment company could become
liable for a misstatement, inaccuracy or incomplete disclosure in this
Prospectus concerning the other investment company. Nations Fund Trust and
Nations Fund, Inc. have entered into an indemnification agreement that creates a
right of indemnification from the investment company responsible for any such
misstatement, inaccuracy or incomplete disclosure that may appear in this
Prospectus.
PENDING LEGAL PROCEEDINGS: A purported class action lawsuit against, among
others, Nations Government Securities Fund and Nations Short-Intermediate
Government Fund was filed by Lawrence Bergelt on May 21, 1996. The complaint was
amended and consolidated on July 11, 1996 in the United States District Court
for the Middle District of Florida, Tampa Division by Mr. Bergelt and others in
an action against the two funds, NationsBank Corporation and certain of its
affiliates, Dean Witter Distributors and certain of its affiliates, and Stephens
Inc. (Case No. 94-995-Civ.-T-23E). As relevant to Nations Government Securities
Fund and Nations Short-Intermediate Government Fund, plaintiffs allege that,
among other things, defendants violated the Securities Exchange Act of 1934 and
various state securities fraud statutes by employing a scheme to defraud
plaintiffs into purchasing shares of the funds and making untrue statements of
material fact and omitting to state material facts in connection with sales of
shares of the funds. Plaintiffs further allege that, among other things,
defendants concealed the risks associated with such funds by blurring the
distinctions between banks and non-bank subsidiaries and by obscuring the
differences between traditional, federally insured bank products and uninsured,
non-depository products.
22
<PAGE>
About Your Investment
How To Buy Shares
The Funds have established various procedures for purchasing Investor A Shares
in order to accommodate different investors. Purchase orders for Investor A
Shares may be placed directly with a Fund or through banks, broker/dealers or
other financial institutions (including certain affiliates of NationsBank) that
have entered into a shareholder servicing agreement ("Servicing Agreement") with
Nations Fund ("Servicing Agents") and/or a sales support agreement ("Sales
Support Agreement") with Stephens ("Selling Agents"). Servicing Agents and
Selling Agents are sometimes referred to hereafter as "Agents."
In addition, Investor A Shares may be purchased through a Nations Fund Personal
Investment Planner account, which is a managed agency/asset allocation account
established with NBAI (an "Account"). Investments through an Account are
governed by the terms and conditions of the Account, which are set forth in the
Client Agreement and Disclosure Statement provided by NBAI to each investor who
establishes an Account. Because of the nature of the Account, certain of the
features described in this Prospectus are not available to investors purchasing
Investor A Shares through an Account. Potential investors through an Account
should refer to the Client Agreement and Disclosure Statement for more
information regarding the Account, including information regarding the fees and
expenses charged in connection with an Account.
There is a minimum initial investment of $1,000 in the Funds, except that the
minimum initial investment is:
(Bullet) $500 IRA investors;
(Bullet) $250 for non-working spousal IRAs; and
(Bullet) $100 for investors participating on a monthly basis in the Systematic
Investment Plan described below.
There is no minimum investment amount for investments by 401(k) plans,
simplified employee pension plans ("SEPs"), salary reduction-simplified employee
pension plans ("SAR-SEPs") or salary reduction-Individual Retirement Accounts
("SAR-IRAs"). However, the assets of such plans must reach an asset value of
$1,000 ($500 for SEPs, SAR-SEPs and SAR-IRAs) within one year of the account
open date. If the assets of such plans do not reach the minimum asset size
within one year, Nations Fund reserves the right to redeem the shares held by
such plans on 60 days' written notice. The minimum subsequent investment is
$100, except for investments pursuant to the Systematic Investment Plan
described below.
Investor A Shares are purchased at net asset value per share. Purchases may be
effected on days on which the New York Stock Exchange (the "Exchange") is open
for business (a "Business Day").
Nations Fund and Stephens reserve the right to reject any purchase order. The
issuance of Investor A Shares is recorded on the books of the Funds, and share
certificates are not issued unless expressly requested in writing. Certificates
are not issued for fractional shares.
OPENING AN ACCOUNT DIRECTLY WITH A FUND: Investors may open a regular
(non-retirement) account directly with a Fund, either by mail or by wire.
23
<PAGE>
BY MAIL: Investors should complete a New Account Application and forward it,
along with a check made payable to the Fund, to:
Nations Fund
P.O. Box 34602
Charlotte, NC 28254-4602
BY WIRE: Investors should call Investor Services at 1-800-982-2271 for an
account number and use the following wire instructions:
Nations Fund
c/o Boston Safe Deposit & Trust
ABA #011001234
DDA #154202
Account Name
Account Number
Fund Name
Investors should complete a New Account Application and mail it to the address
above.
RETIREMENT ACCOUNTS: For IRAs and other retirement accounts, investors should
call Investor Services at 1-800-982-2271.
ADDITIONAL PURCHASES: Additional purchases may be made by mail or wire. To
purchase additional shares by mail, send a check made payable to the Fund which
identifies the name of the Fund and class of shares and include a reinvestment
slip to the address set forth above. To purchase additional shares by wire,
follow the wiring instructions set forth above.
EFFECTIVE TIME OF PURCHASES: Purchase orders for Investor A Shares of the Funds
which are received by Stephens or by the Transfer Agent before the close of
regular trading hours on the Exchange (currently 4:00 p.m., Eastern time) on any
Business Day are priced according to the net asset value determined on that day
but are not executed until 4:00 p.m., Eastern time, on the Business Day on which
immediately available funds in payment of the purchase price are received by the
Funds' Custodian. Such payment must be received no later than 4:00 p.m., Eastern
time, by the third Business Day following receipt of the order. If funds are not
received by such date, the order will not be accepted and notice thereof will be
given to the Agent placing the order. Payment for orders which are not received
or accepted will be returned after prompt inquiry to the sending Agent.
The Agents are responsible for transmitting orders for purchases of Investor A
Shares by their customers ("Customers"), and delivering required funds, on a
timely basis. Stephens is responsible for transmitting orders it receives to
Nations Fund.
SYSTEMATIC INVESTMENT PLAN: Under the Funds' Systematic Investment Plan ("SIP")
a shareholder may automatically purchase Investor A Shares. On a bi-monthly,
monthly or quarterly basis, a shareholder may direct cash to be transferred
automatically from his/her checking or savings account at any bank which is a
member of the Automated Clearing House to his/her Fund account. Transfers will
occur on or about the 15th and/or 30th day of the applicable month. The
systematic investment amount may be in any amount from $25 to $100,000. For more
information concerning the SIP, contact your Agent or Investor Services.
TELEPHONE TRANSACTIONS: Investors may effect purchases, redemptions (up to
$50,000) and exchanges by telephone. See "How To Redeem Shares" and "How To
Exchange Shares" below. Shareholders should be aware that by using the telephone
transaction feature, such shareholders may be giving up a measure of security
that they may have if they were to authorize written requests only. A
shareholder may bear the risk of any resulting losses from a telephone
transaction. Nations Fund will employ reasonable procedures to confirm that
instructions communicated by telephone are genuine, and if Nations Fund and its
service providers fail to employ such measures, they may be liable for any
losses due to unauthorized or fraudulent instructions. Nations Fund requires a
form of personal identification prior to acting upon instructions received by
telephone and provides written confirmation to shareholders of each telephone
share transaction. In addition, Nations Fund reserves the right to record all
telephone conversations.
24
<PAGE>
How To Redeem Shares
For shareholders who open and maintain an account directly with a Fund,
redemption orders should be communicated to such Fund by calling Investor
Services at 1-800-982-2271 or in writing. (Shareholders must have established
telephone features on their account in order to effect telephone transactions.)
Redemption proceeds are normally sent by mail or wired within three Business
Days after receipt of the order by the Fund. For shareholders who purchased
their shares through an Agent, redemption orders should be transmitted by
telephone or in writing through the same Agent. Redemption proceeds are normally
wired to the redeeming Agent within three Business Days after receipt of the
order by Stephens or by the Transfer Agent. Redemption orders are effected at
the net asset value per share next determined after receipt of the order by the
Fund, Stephens, or the Transfer Agent, as the case may be. The Agents are
responsible for transmitting redemption orders to Stephens or to the Transfer
Agent and for crediting their Customer's account with the redemption proceeds on
a timely basis. Redemption proceeds for shares purchased by check may not be
remitted until at least 15 days after the date of purchase to ensure that the
check has cleared; a certified check, however, is deemed to be cleared
immediately. No charge for wiring redemption payments is imposed by Nations
Fund. There is no redemption charge.
Nations Fund may redeem a shareholder's Investor A Shares upon 60 days' written
notice if the balance in the shareholder's account drops below $500 as a result
of redemptions. Share balances also may be redeemed at the direction of an Agent
pursuant to arrangements between the Agent and its Customers. Nations Fund also
may redeem shares of a Fund involuntarily or make payment for redemption in
readily marketable securities or other property under certain circumstances in
accordance with the 1940 Act.
Prior to effecting a redemption of Investor A Shares represented by
certificates, the Transfer Agent must have received such certificates at its
principal office. All such certificates must be endorsed by the redeeming
shareholder or accompanied by a signed stock power, in each instance with the
signature guaranteed by a commercial bank or a member of a major stock exchange,
unless other arrangements satisfactory to Nations Fund have previously been
made. Nations Fund may require any additional information reasonably necessary
to evidence that a redemption has been duly authorized.
CONTINGENT DEFERRED SALES CHARGE: Subject to certain waivers specified below,
Investor A Shares of the Funds that were purchased prior to January 1, 1996 in
amounts of $1 million or more or through the Nations Fund Personal Investment
Planner may be subject to a CDSC equal to 1.00% of the lesser of the net asset
value or the purchase price of the shares being redeemed if such shares are
redeemed within one year of purchase, declining to 0.50% in the second year
after purchase and eliminated thereafter. No CDSC is imposed on increases in net
asset value above the initial purchase price, including shares acquired by
reinvestment of distributions.
Solely for purposes of determining the period of time that has elapsed from the
purchase of any Investor A Shares, all purchases are deemed to have been made on
the trade date of the transaction. In determining whether a CDSC is applicable
to a redemption, the calculation will be made in the manner that results in the
lowest possible charge being assessed. In this regard, it will be assumed that
the redemption is first of shares held for the longest period of time or shares
acquired pursuant to reinvestment of dividends or distributions. The charge will
not be applied to dollar amounts representing an increase in the net asset value
since the time of purchase.
The CDSC will be waived on redemptions of Investor A Shares (i) following the
death or disability (as defined in the Internal Revenue Code of 1986, as amended
(the "Code")) of a shareholder (including a registered joint owner), (ii) in
connection with the following retirement plan distributions: (a) by qualified
retirement plans,
25
<PAGE>
(except in cases of plan level terminations); (b) distributions from an IRA
following attainment of age 59 1/2; (c) a tax-free return of an excess
contribution to an IRA, and (d) distributions from a qualified retirement plan
that are not subject to the 10% additional Federal withdrawal tax pursuant to
Section 72(t)(2) of the Code, (iii) effected pursuant to Nations Fund's right to
liquidate a shareholder's account, including instances where the aggregate net
asset value of the Investor A Shares held in the account is less than the
minimum account size, (iv) in connection with the combination of Nations Fund
with any other registered investment company by merger, acquisition of assets or
by any other transaction, and (v) effected pursuant to the Automatic Withdrawal
Plan discussed below, provided that such redemptions do not exceed, on an annual
basis, 12% of the net asset value of the Investor A Shares in the account.
Shareholders are responsible for providing evidence sufficient to establish that
they are eligible for any waiver of the CDSC.
Within 120 days after a redemption of Investor A Shares of a Fund, a shareholder
may reinvest any portion of the proceeds of such redemption in Investor A Shares
of the same Fund. The amount which may be so reinvested is limited to an amount
up to, but not exceeding, the redemption proceeds (or to the nearest full share
if fractional shares are not purchased). A shareholder exercising this privilege
would receive a pro rata credit for any CDSC paid in connection with the prior
redemption. A shareholder may not exercise this privilege with the proceeds of a
redemption of shares previously purchased through the reinvestment privilege. In
order to exercise this privilege, a written order for the purchase of Investor A
Shares must be received by the Transfer Agent or by Stephens within 120 days
after the redemption.
AUTOMATIC WITHDRAWAL PLAN: An Automatic Withdrawal Plan ("AWP") may be
established by a new or existing shareholder of the Funds if the value of the
Investor A Shares in his/her accounts within the Nations Fund Family (valued at
the net asset value at the time of the establishment of the AWP) equals $10,000
or more. Investor A Shares redeemed under the AWP will not be subject to a CDSC,
provided that the shares so redeemed do not exceed, on an annual basis, 12% of
the net asset value of the Investor A Shares in the account. Otherwise, any
applicable CDSC will be imposed on shares redeemed under the AWP. Shareholders
who elect to establish an AWP may receive a monthly, quarterly or annual check
or automatic transfer to a checking or savings account in a stated amount of not
less than $25 on or about the 10th or 25th day of the applicable month of
withdrawal. Investor A Shares will be redeemed (net of any applicable CDSC) as
necessary to meet withdrawal payments. Withdrawals will reduce principal and may
eventually deplete the shareholder's account. If a shareholder desires to
establish an AWP after opening an account, a signature guarantee will be
required. An AWP may be terminated by a shareholder on 30 days' written notice
to his/her Agent or by Nations Fund at any time.
How To Exchange Shares
GENERAL: The exchange feature enables a shareholder of a fund of Nations Fund to
acquire shares of the same class that are offered by any other fund of Nations
Fund when the shareholder believes that a shift between funds is an appropriate
investment decision. A qualifying exchange is based on the next calculated net
asset value per share of each fund after the exchange order is received.
For shareholders who maintain an account directly with a Fund, exchange requests
should be communicated to the Fund by calling Investor Services at
1-800-982-2271 or in writing. For shareholders who purchased their shares
through an Agent, exchange requests should be communicated to the Agent, who is
responsible for transmitting the request to Stephens or to the Transfer Agent.
26
<PAGE>
The Funds and each of the other funds of Nations Fund may limit the number of
times this exchange feature may be exercised by a shareholder within a specified
period of time. Also, the exchange feature may be terminated or revised at any
time by Nations Fund upon such notice as may be required by applicable
regulatory agencies (presently 60 days for termination or material revision),
absent unusual circumstances.
The current prospectus for each fund of Nations Fund describes its investment
objective and policies, and shareholders should obtain a copy and examine it
carefully before investing. Exchanges are subject to the minimum investment
requirement and any other conditions imposed by each fund. In the case of any
shareholder holding a share certificate or certificates, no exchanges may be
made until all applicable share certificates have been received by the Transfer
Agent and deposited in the shareholder's account. An exchange will be treated
for Federal income tax purposes the same as a redemption of shares, on which the
shareholder may realize a capital gain or loss. And, the ability to deduct
capital losses on an exchange may be limited in situations where there is an
exchange of shares within 90 days after the shares are purchased.
The Investor A Shares exchanged must have a current value of at least $1,000
(except for exchanges through the Automatic Exchange Feature, which is described
below). Nations Fund reserves the right to reject any exchange request. Only
shares that may legally be sold in the state of the shareholder's residence may
be acquired in an exchange. Only shares of a class that is accepting investments
generally may be acquired in an exchange. During periods of significant economic
or market change, telephone exchanges may be difficult to complete. In such
event, shareholders should consider communicating their exchange requests by
mail.
If Investor A Shares of the Funds purchased prior to January 1, 1996 are
exchanged for shares of the same class of another fund, any CDSC applicable to
the original shares purchased will be applied upon the redemption of the
acquired shares. The holding period of such Investor A Shares (for purposes of
determining whether a CDSC is applicable upon redemption) will be computed from
the time of the initial purchase of the Investor A Shares of a Fund.
Investor A Shares of Nations Short-Term Income Fund acquired directly or
indirectly through an exchange from Investor N Shares of another non-money
market fund may be re-exchanged only for Investor N Shares of another non-money
market fund, Investor C Shares of a Nations Fund money market fund or Investor A
Shares of Nations Short-Term Municipal Income Fund. Such shares (and any
Investor A or Investor C Shares acquired through the exchange of such shares)
will remain subject to the CDSC schedule applicable to the Investor N Shares
originally purchased. The holding period (for the purpose of determining the
applicable rate of the CDSC) does not accrue while the shares owned are Investor
A Shares of Nations Short-Term Municipal Income Fund or Nations Short-Term
Income Fund or Investor C Shares of a Nations Fund money market fund. The CDSC
that is ultimately charged upon redemption is based upon the total period of
time the shareholder holds Investor N Shares of any fund that charges a CDSC.
AUTOMATIC EXCHANGE FEATURE: Under the Funds' Automatic Exchange Feature ("AEF")
a shareholder may automatically exchange at least $25 on a monthly or quarterly
basis. A shareholder may direct proceeds to be exchanged from one fund of
Nations Fund to another as allowed by the applicable exchange rules within the
prospectus. Exchanges will occur on or about the 15th or 30th day of the
applicable month. The shareholder must have an existing position in both Funds
in order to establish the AEF. This feature may be established by directing a
request to the Transfer Agent by telephone or in writing. For additional
information, a shareholder should contact his/her Selling Agent or Investor
Services.
27
<PAGE>
Shareholder Servicing And Distribution
Plans
The Funds' Shareholder Servicing and Distribution Plan (the "Investor A Plan"),
adopted pursuant to Rule 12b-1 under the 1940 Act, permits each Fund to
compensate (i) Servicing Agents and Selling Agents for services provided to
their Customers that own Investor A Shares and (ii) Stephens for
distribution-related expenses incurred in connection with Investor A Shares.
Nations Short-Term Income Fund, however, may not pay for shareholder servicing
activities under the Investor A Plan. Aggregate payments under the Investor A
Plan are calculated daily and paid monthly at a rate or rates set from time to
time by each Fund, provided that the annual rate may not exceed 0.25% of the
average daily net asset value of the Investor A Shares of the Fund.
The fees payable to Servicing Agents under the Investor A Plan are used
primarily to compensate or reimburse Servicing Agents for shareholder services
provided, and related expenses incurred, by such Servicing Agents. The
shareholder services provided by Servicing Agents may include: (i) aggregating
and processing purchase and redemption requests for Investor A Shares from
Customers and transmitting net purchase and redemption orders to Stephens or the
Transfer Agent; (ii) providing Customers with a service that invests the assets
of their accounts in Investor A Shares pursuant to specific or preauthorized
instructions; (iii) processing dividend and distribution payments from a Fund on
behalf of Customers; (iv) providing information periodically to Customers
showing their positions in Investor A Shares; (v) arranging for bank wires; and
(vi) providing general shareholder liaison services. The fees payable to Selling
Agents are used primarily to compensate Selling Agents for providing sales
support assistance in connection with the sale of Investor A Shares to
Customers, which may include forwarding sales literature and advertising
provided by Nations Fund to Customers.
The fees under the Investor A Plan also may be used to reimburse Stephens for
distribution-related expenses actually incurred by Stephens, including, but not
limited to, expenses of organizing and conducting sales seminars, printing
prospectuses and statements of additional information (and supplements thereto)
and reports for other than existing shareholders, preparation and distribution
of advertising and sales literature and the costs of administering the Investor
A Plan.
Stephens may, from time to time, at its expense or as an expense for which it
may be reimbursed under the Investor A Plan, pay a bonus or other consideration
or incentive to Agents who sell a minimum dollar amount of shares of the Funds
during a specified period of time. Stephens also may, from time to time, pay
additional consideration to Agents not to exceed 1.00% of the offering price per
share on all sales of Investor A Shares as an expense of Stephens or for which
Stephens may be reimbursed under the Investor A Plan or upon receipt of a CDSC.
Any such additional consideration or incentive program may be terminated at any
time by Stephens.
In addition, Stephens has established a non-cash compensation program, pursuant
to which broker/dealers or financial institutions that sell shares of the Funds
may earn additional compensation in the form of trips to sales seminars or
vacation destinations, tickets to sporting events, theater or other
entertainment, opportunities to participate in golf or other outings and gift
certificates for meals or merchandise. This non-cash compensation program may be
amended or terminated at any time by Stephens.
Nations Fund and Stephens may suspend or reduce payments under the Investor A
Plan at any time, and payments are subject to the continuation of the Investor A
Plan described above and the terms of the Servicing Agreements and Sales Support
Agreements. See the SAIs for more details on the Investor A Plan.
28
<PAGE>
In addition, the Trustees have approved a Shareholder Servicing Plan ("Servicing
Plan") for the Investor A Shares of Nations Short-Term Income Fund. The
Servicing Plan permits Nations Short-Term Income Fund to compensate Servicing
Agents for services provided to their Customers that own Investor A Shares.
Payments under the Servicing Plan are calculated daily and paid monthly at a
rate or rates set from time to time by Nations Short-Term Income Fund, provided
that the annual rate may not exceed 0.25% of the average daily net asset value
of the Fund's Investor A Shares. The fees payable to Servicing Agents under the
Servicing Plan are used primarily to compensate or reimburse Servicing Agents
for shareholder services provided, and related expenses incurred, by such
Servicing Agents. The shareholder services provided by Servicing Agents may
include, but are not limited to, those discussed above with respect to the
Investor A Plan.
Nations Fund may suspend or reduce payments under the Servicing Plan at any
time, and payments are subject to the continuation of the Servicing Plan
described above and the terms of the Servicing Agreements. See the SAIs for more
details on the Servicing Plan.
Nations Fund understands that Agents may charge fees to their Customers who are
the owners of Investor A Shares for various services provided in connection with
a Customer's account. These fees would be in addition to any amounts received by
a Selling Agent under its Sales Support Agreement with Stephens or by a
Servicing Agent under its Servicing Agreement with Nations Fund. The Sales
Support Agreements and Servicing Agreements require Agents to disclose to their
Customers any compensation payable to the Agent by Stephens or Nations Fund and
any other compensation payable by the Customers for various services provided in
connection with their accounts. Customers should read this Prospectus in light
of the terms governing their accounts with their Agents.
How The Funds Value Their Shares
The Funds calculate the net asset value of a share of each class by dividing the
total value of its assets, less liabilities, by the number of shares in the
class outstanding. Shares are valued as of the close of regular trading on the
Exchange (currently 4:00 p.m., Eastern time) on each Business Day. Currently,
the days on which the Exchange is closed (other than weekends) are: New Year's
Day, Presidents' Day, Good Friday, Memorial Day (observed), Independence Day,
Labor Day, Thanksgiving Day and Christmas Day.
Portfolio securities for which market quotations are readily available are
valued at market value. Short-term investments that will mature in 60 days or
less are valued at amortized cost, which approximates market value. All other
securities and assets are valued at their fair value following procedures
approved by the Trustees or Directors.
How Dividends And Distributions Are
Made; Tax Information
DIVIDENDS AND DISTRIBUTIONS: Dividends from net investment income are declared
daily and paid monthly by the Funds. The Funds' net realized capital gains
(including net short-term capital gains) are distributed at least annually.
Distributions from capital gains are made after applying any available capital
loss carryovers. Distributions paid by the Funds with respect to one class of
shares may be greater or less than those paid with respect to another class of
shares
29
<PAGE>
due to the different expenses of the different classes.
The net asset value of Investor A Shares will be reduced by the amount of any
dividend or distribution. Certain Selling and Servicing Agents may provide for
the reinvestment of dividends in the form of additional Investor A Shares of the
same class in the same Fund. Dividends and distributions are paid in cash within
five Business Days of the end of the month or quarter to which the dividend
relates. Dividends and distributions payable to a shareholder are paid in cash
within five Business Days after a shareholder's complete redemption of his/her
Investor A Shares.
TAX INFORMATION: Each Fund intends to qualify as a "regulated investment
company" under the Code. Such qualification relieves a Fund of liability for
Federal income tax on amounts distributed in accordance with the Code.
The Funds intend to distribute substantially all of their investment company
taxable income and net tax-exempt income each taxable year. Distributions by a
Fund of its net investment income (including net foreign currency gains) and the
excess, if any, of its net short-term capital gain over its net long-term
capital loss are taxable as ordinary income to shareholders who are not
currently exempt from Federal income tax, whether such income is received in
cash or reinvested in additional shares. (Federal income tax for distributions
to an IRA are generally deferred under the Code.) Corporate investors may be
entitled to the dividends-received deduction on a portion of the dividends from
those Funds investing in the stock of domestic corporations.
Substantially all of the Funds' net realized long-term capital gains will be
distributed at least annually. The Funds will generally have no tax liability
with respect to such gains, and the distributions will be taxable to
shareholders who are not exempt from Federal income tax as long-term capital
gains, regardless of how long the shareholders have held the Funds' shares and
whether such gains are received in cash or reinvested in additional shares.
Each year, shareholders will be notified as to the amount and Federal tax status
of all dividends and capital gains paid during the prior year. Such dividends
and capital gains may be subject to state and local taxes.
Dividends declared in October, November, or December of any year payable to
shareholders of record on a specified date in such months will be deemed to have
been received by shareholders and paid by the Funds on December 31 of such year
in the event such dividends are actually paid during January of the following
year.
Federal law requires Nations Fund to withhold 31% from any dividends (other than
exempt-interest dividends) paid by Nations Fund and/or redemptions (including
exchange redemptions) that occur in certain shareholder accounts if the
shareholder has not properly furnished a certified correct Taxpayer
Identification Number and has not certified that withholding does not apply, or
if the Internal Revenue Service has notified Nations Fund that the Taxpayer
Identification Number listed on a shareholder account is incorrect according to
its records, or that the shareholder is subject to backup withholding. Amounts
withheld are applied to the shareholder's Federal tax liability, and a refund
may be obtained from the Internal Revenue Service if withholding results in
overpayment of taxes. Federal law also requires the Funds to withhold 30% or the
applicable tax treaty rate from dividends paid to certain nonresident alien,
non-U.S. partnership and non-U.S. corporation shareholder accounts.
The foregoing discussion is based on tax laws and regulations which were in
effect as of the date of this Prospectus and summarizes only some of the
important Federal tax considerations generally affecting the Funds and their
shareholders. It is not intended as a substitute for careful tax planning;
investors should consult their tax advisors with respect to their specific tax
situations as well as with respect to state and local taxes. Further tax
information is contained in the SAIs.
30
<PAGE>
Appendix A -- Portfolio Securities
The following are summary descriptions of certain types of instruments in which
a Fund may invest. The "How Objectives Are Pursued" section of this Prospectus
identifies each Fund's permissible investments, and the SAI contains more
information concerning such investments.
ASSET-BACKED SECURITIES: Asset-backed securities arise through the grouping by
governmental, government-related, and private organizations of loans,
receivables, or other assets originated by various lenders. Asset-backed
securities consist of both mortgage- and non-mortgage backed securities.
Interests in pools of these assets may differ from other forms of debt
securities, which normally provide for periodic payment of interest in fixed
amounts with principal paid at maturity or specified call dates. Conversely,
asset-backed securities provide periodic payments which may consist of both
interest and principal payments.
The life of an asset-backed security varies depending upon rate of the
prepayment of the underlying debt instruments. The rate of such prepayments will
be a function of current market interest rates, and other economic and
demographic factors. For example, falling interest rates generally result in an
increase in the rate of prepayments of mortgage loans while rising interest
rates generally decrease the rate of prepayments. An acceleration in prepayments
in response to sharply falling interest rates will shorten the security's
average maturity and limit the potential appreciation in the security's value
relative to a conventional debt security. Consequently, asset-backed securities
may not be as effective in locking in high, long-term yields. Conversely, in
periods of sharply rising rates, prepayments are generally slow, increasing the
security's average life and its potential for price depreciation.
MORTGAGE-BACKED SECURITIES: Mortgage-backed securities represent an ownership
interest in a pool of mortgage loans.
Mortgage pass-through securities may represent participation interests in pools
of residential mortgage loans originated by U.S. governmental or private lenders
and guaranteed, to the extent provided in such securities, by the U.S.
Government or one of its agencies, authorities or instrumentalities. Such
securities, which are ownership interests in the underlying mortgage loans,
differ from conventional debt securities, which provide for periodic payment of
interest in fixed amounts (usually semi-annually) and principal payments at
maturity or on specified call dates. Mortgage pass-through securities provide
for monthly payments that are a "pass-through" of the monthly interest and
principal payments (including any prepayments) made by the individual borrowers
on the pooled mortgage loans, net of any fees paid to the guarantor of such
securities and the servicer of the underlying mortgage loans.
The guaranteed mortgage pass-through securities in which a Fund may invest may
include those issued or guaranteed by the Government National Mortgage
Association, the Federal National Mortgage Association and the Federal Home Loan
Mortgage Corporation. Such Certificates are mortgage-backed securities which
represent a partial ownership interest in a pool of mortgage loans issued by
lenders such as mortgage bankers, commercial banks and savings and loan
associations. Such mortgage loans may have fixed or adjustable rates of
interest.
The average life of a mortgage-backed security is likely to be substantially
less than the original maturity of the mortgage pools underlying the securities.
Prepayments of principal by mortgagors and mortgage foreclosures will usually
result in the return of the greater part of principal invested far in advance of
the maturity of the mortgages in the pool.
The yield which will be earned on mortgage-backed securities may vary from their
coupon rates for the following reasons: (i) Certificates may be issued at a
premium or discount, rather than at par; (ii) Certificates may trade in the sec-
31
<PAGE>
ondary market at a premium or discount after issuance; (iii) interest is earned
and compounded monthly which has the effect of raising the effective yield
earned on the Certificates; and (iv) the actual yield of each Certificate is
affected by the prepayment of mortgages included in the mortgage pool underlying
the Certificates and the rate at which principal so prepaid is reinvested. In
addition, prepayment of mortgages included in the mortgage pool underlying a
GNMA Certificate purchased at a premium may result in a loss to the Fund.
Mortgage-backed securities issued by private issuers, whether or not such
obligations are subject to guarantees by the private issuer, may entail greater
risk than obligations directly or indirectly guaranteed by the U.S. Government.
Collateralized mortgage obligations or "CMOs" are debt obligations
collateralized by mortgage loans or mortgage pass-through securities (collateral
collectively hereinafter referred to as "Mortgage Assets"). Multi-class
pass-through securities are interests in a trust composed of Mortgage Assets and
all references herein to CMOs will include multi-class pass-through securities.
Payments of principal of and interest on the Mortgage Assets, and any
reinvestment income thereon, provide the funds to pay debt service on the CMOs
or make scheduled distribution on the multi-class pass-through securities.
Moreover, principal prepayments on the Mortgage Assets may cause the CMOs to be
retired substantially earlier than their stated maturities or final distribution
dates, resulting in a loss of all or part of the premium if any has been paid.
Interest is paid or accrues on all classes of the CMOs on a monthly, quarterly
or semiannual basis.
The principal and interest payments on the Mortgage Assets may be allocated
among the various classes of CMOs in several ways. Typically, payments of
principal, including any prepayments, on the underlying mortgages are applied to
the classes in the order of their respective stated maturities or final
distribution dates, so that no payment of principal is made on CMOs of a class
until all CMOs of other classes having earlier stated maturities or final
distribution dates have been paid in full.
Stripped mortgage-backed securities ("SMBS") are derivative multi-class mortgage
securities. A Fund will only invest in SMBS that are obligations backed by the
full faith and credit of the U.S. Government. SMBS are usually structured with
two classes that receive different proportions of the interest and principal
distributions from a pool of mortgage assets. A Fund will only invest in SMBS
whose mortgage assets are U.S. Government Obligations.
A common type of SMBS will be structured so that one class receives some of the
interest and most of the principal from the Mortgage Assets, while the other
class receives most of the interest and the remainder of the principal. If the
underlying Mortgage Assets experience greater than anticipated prepayments of
principal, a Fund may fail to fully recoup its initial investment in these
securities. The market value of any class which consists primarily or entirely
of principal payments generally is unusually volatile in response to changes in
interest rates.
The average life of mortgage-backed securities varies with the maturities of the
underlying mortgage instruments. The average life is likely to be substantially
less than the original maturity of the mortgage pools underlying the securities
as the result of mortgage prepayments, mortgage refinancings, or foreclosures.
The rate of mortgage prepayments, and hence the average life of the
certificates, will be a function of the level of interest rates, general
economic conditions, the location and age of the mortgage and other social and
demographic conditions. Such prepayments are passed through to the registered
holder with the regular monthly payments of principal and interest and have the
effect of reducing future payments. Estimated average life will be determined by
the Adviser and used for the purpose of determining the average weighted
maturity and duration of the Funds. For additional information concerning
mortgage-backed securities, see the related SAI.
NON-MORTGAGE ASSET-BACKED SECURITIES: Non-mortgage asset backed securities
include interests in pools of receivables, such as motor
32
<PAGE>
vehicle installment purchase obligations and credit card receivables. Such
securities are generally issued as pass- through certificates, which represent
undivided fractional ownership interests in the underlying pools of assets. Such
securities also may be debt instruments, which are also known as collateralized
obligations and are generally issued as the debt of a special purpose entity
organized solely for the purpose of owning such assets and issuing such debt.
Such securities also may include instruments issued by certain trusts,
partnerships or other special purpose issuers, including pass-through
certificates representing participations in, or debt instruments backed by, the
securities and other assets owned by such issuers.
Non-mortgage-backed securities are not issued or guaranteed by the U.S.
Government or its agencies or instrumentalities; however, the payment of
principal and interest on such obligations may be guaranteed up to certain
amounts and for a certain time period by a letter of credit issued by a
financial institution (such as a bank or insurance company) unaffiliated with
the issuers of such securities.
The purchase of non-mortgage-backed securities raises considerations peculiar to
the financing of the instruments underlying such securities. For example, most
organizations that issue asset-backed securities relating to motor vehicle
installment purchase obligations perfect their interests in their respective
obligations only by filing a financing statement and by having the servicer of
the obligations, which is usually the originator, take custody thereof. In such
circumstances, if the servicer were to sell the same obligations to another
party, in violation of its duty not to do so, there is a risk that such party
could acquire an interest in the obligations superior to that of the holders of
the asset-backed securities. Also, although most such obligations grant a
security interest in the motor vehicle being financed, in most states the
security interest in a motor vehicle must be noted on the certificate of title
to perfect such security interest against competing claims of other parties. Due
to the larger number of vehicles involved, however, the certificate of title to
each vehicle financed, pursuant to the obligations underlying the asset-backed
securities, usually is not amended to reflect the assignment of the seller's
security interest for the benefit of the holders of the asset-backed securities.
Therefore, there is the possibility that recoveries on repossessed collateral
may not, in some cases, be available to support payments on those securities. In
addition, various state and Federal laws give the motor vehicle owner the right
to assert against the holder of the owner's obligation certain defenses such
owner would have against the seller of the motor vehicle. The assertion of such
defenses could reduce payments on the related asset-backed securities. Insofar
as credit card receivables are concerned, credit card holders are entitled to
the protection of a number of state and Federal consumer credit laws, many of
which give such holders the right to set off certain amounts against balances
owed on the credit card, thereby reducing the amounts paid on such receivables.
In addition, unlike most other asset-backed securities, credit card receivables
are unsecured obligations of the card holder.
BANK INSTRUMENTS: Bank instruments consist mainly of certificates of deposit,
time deposits and bankers' acceptances. Each Fund will limit its investments in
bank obligations so they do not exceed 25% of its total assets at the time of
purchase.
U.S. dollar-denominated obligations issued by foreign branches of domestic banks
("Eurodollar" obligations) and domestic branches of foreign banks ("Yankee
dollar" obligations) and other foreign obligations involve special investment
risk, including the possibility that liquidity could be impaired because of
future political and economic developments, the obligations may be less
marketable than comparable domestic obligations of domestic issuers, a foreign
jurisdiction might impose withholding taxes on interest income payable on such
obligations, deposits may be seized or nationalized, foreign governmental
restrictions such as exchange controls may be adopted which might adversely
affect the payment of principal of and interest on such obligations, the
selection of foreign obligations may be more difficult because there may be less
publicly available information concerning foreign issuers, there may be
difficulties in enforc-
33
<PAGE>
ing a judgment against a foreign issuer or the accounting, auditing and
financial reporting standards, practices and requirements applicable to foreign
issuers may differ from those applicable to domestic issuers. In addition,
foreign banks are not subject to examination by U.S. Government agencies or
instrumentalities.
BORROWINGS: When a Fund borrows money, the net asset value of a share may be
subject to greater fluctuation until the borrowing is paid off. The Funds may
borrow money from banks for temporary purposes in amounts of up to one-third of
their respective total assets, provided that borrowings in excess of 5% of the
value of the Fund's total assets must be repaid prior to the purchase of
portfolio securities. 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 and dollar roll transactions may be considered to
be borrowings. When a Fund invests in a reverse repurchase agreement, it sells a
portfolio security to another party, such as a bank or broker/dealer, in return
for cash, and agrees to buy the security back at a future date and price.
Reverse repurchase agreements may be used to provide cash to satisfy unusually
heavy redemption requests without having to sell portfolio securities, or for
other temporary or emergency purposes. Generally, the effect of such a
transaction is that the Funds can recover all or most of the cash invested in
the portfolio securities involved during the term of the reverse repurchase
agreement, while they will be able to keep the interest income associated with
those portfolio securities. Such transactions are only advantageous if the
interest cost to the Funds of the reverse repurchase transaction is less than
the cost of obtaining the cash otherwise.
At the time a Fund enters into a reverse repurchase agreement, it may establish
a segregated account with its custodian bank in which it will maintain cash,
U.S. Government securities or other liquid high grade debt obligations equal in
value to its obligations in respect of reverse repurchase agreements. Reverse
repurchase agreements involve the risk that the market value of the securities a
Fund is obligated to repurchase under the agreement may decline below the
repurchase price. In the event the buyer of securities under a reverse
repurchase agreement files for bankruptcy or becomes insolvent, the Fund's use
of proceeds of the agreement may be restricted pending a determination by the
other party, or its trustee or receiver, whether to enforce the Fund's
obligation to repurchase the securities. In addition, there is a risk of delay
in receiving collateral or securities or in repurchasing the securities covered
by the reverse repurchase agreement or even of a loss of rights in the
collateral or securities in the event the buyer of the securities under the
reverse repurchase agreement files for bankruptcy or becomes insolvent. The
Funds only enter into reverse repurchase agreements (and repurchase agreements)
with counterparties that are deemed by the Adviser to be credit worthy. Reverse
repurchase agreements are speculative techniques involving leverage, and are
subject to asset coverage requirements if the Funds do not establish and
maintain a segregated account (as described above). Under the requirements of
the 1940 Act, the Funds are required to maintain an asset coverage (including
the proceeds of the borrowings) of at least 300% of all borrowings. Depending on
market conditions, the Fund's asset coverage and other factors at the time of a
reverse repurchase, the Funds may not establish a segregated account when the
Adviser believes it is not in the best interests of the Funds to do so. In this
case, such reverse repurchase agreements will be considered borrowings subject
to the asset coverage described above.
Dollar roll transactions consist of the sale by a Fund of mortgage-backed or
other asset-backed securities, together with a commitment to purchase similar,
but not identical, securities at a future date, at the same price. In addition,
a Fund is paid a fee as consideration for entering into the commitment to
purchase. If the broker/dealer to whom a Fund sells the security becomes
insolvent, the Fund's right to purchase or repurchase the security may be
restricted; the value of the security may change adversely over the term of the
dollar roll; the security that the Fund is required to repurchase may be worth
34
<PAGE>
less than the security that the Fund originally held, and the return earned by
the Fund with the proceeds of a dollar roll may not exceed transaction costs.
COMMERCIAL INSTRUMENTS: Commercial instruments consist of short-term U.S.
dollar-denominated obligations issued by domestic corporations or foreign
corporations and foreign commercial banks.
Investments by a Fund in commercial paper will consist of issues rated in a
manner consistent with such Fund's investment policies and objective. In
addition, a Fund may acquire unrated commercial paper and corporate bonds that
are determined by the Adviser at the time of purchase to be of comparable
quality to rated instruments that may be acquired by a Fund. Commercial
instruments include variable-rate master demand notes, which are unsecured
instruments that permit the indebtedness thereunder to vary and provide for
periodic adjustments in the interest rate, and variable- and floating-rate
instruments.
CONVERTIBLE SECURITIES, PREFERRED STOCK, AND WARRANTS: Certain of the Funds may
invest in debt securities convertible into or exchangeable for equity
securities, preferred stocks or warrants. Preferred stocks are securities that
represent an ownership interest in a corporation providing the owner with claims
on a company's earnings and assets before common stock owners, but after bond or
other debt security owners. Warrants are options to buy a stated number of
shares of common stock at a specified price any time during the life of the
warrants.
FIXED INCOME INVESTING: The performance of the fixed income debt component of a
Fund's portfolio depends primarily on interest rate changes, the average
weighted maturity of the portfolio and the quality of the securities held. The
debt component of a Fund's portfolio will tend to decrease in value when
interest rates rise and increase when interest rates fall. A Fund's share price
and yield depend, in part, on the maturity and quality of its debt instruments.
FOREIGN CURRENCY TRANSACTIONS: Certain of the Funds may enter into foreign
currency exchange transactions to convert foreign currencies to and from the
U.S. dollar. A Fund either enters into these transactions on a spot (I.E., cash)
basis at the spot rate prevailing in the foreign currency exchange market, or
uses forward contracts to purchase or sell foreign currencies. A forward foreign
currency exchange contract is an obligation by a Fund to purchase or sell a
specific currency at a future date, which may be any fixed number of days from
the date of the contract.
Foreign currency hedging transactions are an attempt to protect a Fund against
changes in foreign currency exchange rates between the trade and settlement
dates of specific securities transactions or changes in foreign currency
exchange rates that would adversely affect a portfolio position or an
anticipated portfolio position. Although these transactions tend to minimize the
risk of loss due to a decline in the value of the hedged currency, at the same
time they tend to limit any potential gain that might be realized should the
value of the hedged currency increase. Neither spot transactions nor forward
foreign currency exchange contracts eliminate fluctuations in the prices of a
Fund's portfolio securities or in foreign exchange rates, or prevent loss if the
prices of these securities should decline.
A Fund will generally enter into forward currency exchange contracts only under
two circumstances: (i) when such Fund enters into a contract for the purchase or
sale of a security denominated in a foreign currency, to "lock" in the U.S.
dollar price of the security; and (ii) when the Adviser believes that the
currency of a particular foreign country may experience a substantial movement
against another currency. Under certain circumstances, a Fund may commit a
substantial portion of its portfolio to the execution of these contracts. The
Adviser will consider the effects such a commitment would have on the investment
program of such Fund and the flexibility of such Fund to purchase additional
securities. Although forward contracts will be used primarily to protect a Fund
from adverse currency movements, they also involve the risk that anticipated
currency movements will not be accurately predicted. The Funds will
35
<PAGE>
generally not enter into forward contracts with terms of greater than one year.
FOREIGN SECURITIES: Foreign securities include debt and equity obligations
(dollar- and non-dollar-denominated) of foreign corporations and banks as well
as obligations of foreign governments and their political subdivisions (which
will be limited to direct government obligations and government-guaranteed
securities). Such investments may subject a Fund to special investment risks,
including future political and economic developments, the possible imposition of
withholding taxes on interest income, possible seizure or nationalization of
foreign deposits, the possible establishment of exchange controls, or the
adoption of other foreign governmental restrictions which might adversely affect
the payment of principal and interest on such obligations. In addition, foreign
issuers in general may be subject to different accounting, auditing, reporting,
and record keeping standards than those applicable to domestic companies, and
securities of foreign issuers may be less liquid and their prices more volatile
than those of comparable domestic issuers.
Investments in foreign securities may present additional risks, whether made
directly or indirectly, including the political or economic instability of the
issuer or the country of issue and the difficulty of predicting international
trade patterns. In addition, there may be less publicly available information
about a foreign company than about a U.S. company. Further, foreign securities
markets are generally not as developed or efficient as those in the U.S., and in
most foreign markets volume and liquidity are less than in the United States.
Fixed commissions on foreign securities exchanges are generally higher than the
negotiated commissions on U.S. exchanges, and there is generally less government
supervision and regulation of foreign securities exchanges, brokers, and
companies than in the United States. With respect to certain foreign countries,
there is a possibility of expropriation or confiscatory taxation, limitations on
the removal of funds or other assets, or diplomatic developments that could
affect investments within those countries. Because of these and other factors,
securities of foreign companies acquired by a Fund may be subject to greater
fluctuation in price than securities of domestic companies.
FUTURES, OPTIONS AND OTHER DERIVATIVE INSTRUMENTS: Certain of the Funds may
attempt to reduce the overall level of investment risk of particular securities
and attempt to protect such Funds against adverse market movements by investing
in futures, options and other derivative instruments. These include the purchase
and writing of options on securities (including index options) and options on
foreign currencies, and investing in futures contracts for the purchase or sale
of instruments based on financial indices, including interest rate indices or
indices of U.S. or foreign government, equity or fixed income securities
("futures contracts"), options on futures contracts, forward contracts and swaps
and swap-related products such as interest rate swaps, currency swaps, caps,
collars and floors.
The use of futures, options, forward contracts and swaps exposes a Fund to
additional investment risks and transaction costs. If the Adviser incorrectly
analyzes market conditions or does not employ the appropriate strategy with
respect to these instruments, a Fund could be left in a less favorable position.
Additional risks inherent in the use of futures, options, forward contracts and
swaps include: imperfect correlation between the price of futures, options and
forward contracts and movements in the prices of the securities or currencies
being hedged; the possible absence of a liquid secondary market for any
particular instrument at any time; and the possible need to defer closing out
certain hedged positions to avoid adverse tax consequences. A Fund may not
purchase put and call options which are traded on a national stock exchange in
an amount exceeding 5% of its net assets. Further information on the use of
futures, options and other derivative instruments, and the associated risks, is
contained in the SAIs.
ILLIQUID SECURITIES: Certain securities may be sold only pursuant to certain
legal restrictions, and may be difficult to sell. The Funds will not hold more
than 15% of the value of their respective net assets in securities that are
illiquid or such lower percentage as may be required by the
36
<PAGE>
states in which the appropriate Fund sells its shares. Repurchase agreements,
time deposits and guaranteed investment contracts that do not provide for
payment to a Fund within seven days after notice, and illiquid restricted
securities are subject to the limitation on illiquid securities.
If otherwise consistent with their investment objectives and policies, certain
Funds may purchase securities that are not registered under the Securities Act
of 1933, as amended (the "1933 Act") but which can be sold to "qualified
institutional buyers" in accordance with Rule 144A 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.
LOWER-RATED DEBT SECURITIES: Nations Diversified Income Fund may invest in
lower-rated debt securities. Lower-rated, high-yielding securities are those
rated "Ba" or "B" by Moody's or "BB" or "B" by S&P which are commonly referred
to as "junk bonds." These bonds provide poor protection for payment of principal
and interest. Lower-quality bonds involve greater risk of default or price
changes due to changes in the issuer's creditworthiness than securities assigned
a higher quality rating. These securities are considered to have speculative
characteristics and indicate an aggressive approach to income investing. Each
Fund that may invest in lower-rated debt securities intends to limit their
investments in lower-quality debt securities to 35% of assets.
The market for lower-rated securities may be thinner and less active than that
for higher quality securities, which can adversely affect the price at which
these securities can be sold. If market quotations are not available, these
lower-rated securities will be valued in accordance with procedures established
by the Funds' Boards, including the use of outside pricing services. Adverse
publicity and changing investor perceptions may affect the ability of outside
pricing services used by the Fund to value its portfolio securities, and the
Fund's ability to dispose of these lower-rated bonds.
The market prices of lower-rated securities may fluctuate more than higher-rated
securities and
37
<PAGE>
may decline significantly in periods of general economic difficulty which may
follow periods of rising interest rates. During an economic downturn or a
prolonged period of rising interest rates, the ability of issuers of lower
quality debt to service their payment obligations, meet projected goals, or
obtain additional financing may be impaired.
Since the risk of default is higher for lower-rated securities, the Adviser will
try to minimize the risks inherent in investing in lower-rated debt securities
by engaging in credit analysis, diversification, and attention to current
developments and trends affecting interest rates and economic conditions. The
Adviser will attempt to identify those issuers of high-yielding securities whose
financial condition is adequate to meet future obligations, have improved, or
are expected to improve in the future.
Unrated securities are not necessarily of lower quality than rated securities,
but they may not be attractive to as many buyers. Each Fund's policies regarding
lower-rated debt securities is not fundamental and may be changed at any time
without shareholder approval.
MONEY MARKET INSTRUMENTS: The term "money market instruments" refers to
instruments with remaining maturities of one year or less. Money market
instruments may include, among other instruments, certain U.S. Treasury
obligations, U.S. Government Obligations, bank instruments, commercial
instruments, repurchase agreements and municipal securities. Such instruments
are described in this Appendix A.
MUNICIPAL SECURITIES: The two principal classifications of municipal securities
are "general obligation" securities and "revenue" securities. General obligation
securities are secured by the issuer's pledge of its full faith, credit, and
taxing power for the payment of principal and interest. Revenue securities are
payable only from the revenues derived from a particular facility or class of
facilities or, in some cases, from the proceeds of a special excise tax or other
specific revenue source such as the user of the facility being financed. Private
activity bonds held by a Fund are in most cases revenue securities and are not
payable from the unrestricted revenues of the issuer. Consequently, the credit
quality of private activity bonds is usually directly related to the credit
standing of the corporate user of the facility involved.
Municipal securities may include "moral obligation" bonds, which are normally
issued by special purpose public authorities. If the issuer of moral obligation
bonds is unable to meet its debt service obligations from current revenues, it
may draw on a reserve fund, the restoration of which is a moral commitment but
not a legal obligation of the state or municipality which created the issuer.
Municipal securities may include variable- or floating-rate instruments issued
by industrial development authorities and other governmental entities. While
there may not be an active secondary market with respect to a particular
instrument purchased by a Fund, a Fund may demand payment of the principal and
accrued interest on the instrument or may resell it to a third party as
specified in the instruments. The absence of an active secondary market,
however, could make it difficult for a Fund to dispose of the instrument if the
issuer defaulted on its payment obligation or during periods the Fund is not
entitled to exercise its demand rights, and the Fund could, for these or other
reasons, suffer a loss. Some of these instruments may be unrated, but unrated
instruments purchased by a Fund will be determined by the Adviser to be of
comparable quality at the time of purchase to instruments rated "high quality"
by any major rating service. Where necessary to ensure that an instrument is of
comparable "high quality," a Fund will require that an issuer's obligation to
pay the principal of the note may be backed by an unconditional bank letter or
line of credit, guarantee, or commitment to lend.
Municipal securities may include participations in privately arranged loans to
municipal borrowers, some of which may be referred to as "municipal leases," and
units of participation in trusts holding pools of tax exempt leases. Such loans
in most cases are not backed by the taxing authority of the issuers and may have
limited marketability or may be marketable only by virtue of a provision
requiring repayment following demand by the lender. Such loans made by a Fund
may have a demand provision permitting the Fund to
38
<PAGE>
require payment within seven days. Participations in such loans, however, may
not have such a demand provision and may not be otherwise marketable. To the
extent these securities are illiquid, they will be subject to each Fund's
limitation on investments in illiquid securities. As it deems appropriate, the
Adviser will establish procedures to monitor the credit standing of each such
municipal borrower, including its ability to meet contractual payment
obligations.
Municipal participation interests may be purchased from financial institutions,
and give the purchaser an undivided interest in one or more underlying municipal
securities. To the extent that municipal participation interests are considered
to be "illiquid securities," such instruments are subject to each Fund's
limitation on the purchase of illiquid securities.
In addition, certain of the Funds may acquire "stand-by commitments" from banks
or broker/dealers with respect to municipal securities held in their portfolios.
Under a stand-by commitment, a dealer would agree to purchase at a Fund's option
specified municipal securities at a specified price. The Funds will acquire
stand-by commitments solely to facilitate portfolio liquidity and do not intend
to exercise their rights thereunder for trading purposes.
Although the Funds do not presently intend to do so on a regular basis, each may
invest more than 25% of its total assets in municipal securities the interest on
which is paid solely from revenues of similar projects if such investment is
deemed necessary or appropriate by the Adviser. To the extent that more than 25%
of a Fund's total assets are invested in municipal securities that are payable
from the revenues of similar projects, a Fund will be subject to the peculiar
risks presented by such projects to a greater extent than it would be if its
assets were not so concentrated.
OTHER INVESTMENT COMPANIES: Each Fund may invest in securities issued by other
investment companies to the extent that such investments are consistent with the
Fund's investment objective and policies and permissible under the 1940 Act. As
a shareholder of another investment company, a Fund would bear, along with other
shareholders, its pro rata portion of the other investment company's expenses,
including advisory fees. These expenses would be in addition to the advisory and
other expenses that a Fund bears directly in connection with its own operations.
REPURCHASE AGREEMENTS: A repurchase agreement involves the purchase of a
security by a Fund and a simultaneous agreement (generally with a bank or
broker/dealer) to repurchase that security from the Fund at a specified price
and date or upon demand. This technique offers a method of earning income on
idle cash. A risk associated with repurchase agreements is the failure of the
seller to repurchase the securities as agreed, which may cause a Fund to suffer
a loss if the market value of such securities declines before they can be
liquidated on the open market. Repurchase agreements with a duration of more
than seven days are considered illiquid securities and are subject to the limit
stated above. A Fund may enter into joint repurchase agreements jointly with
other investment portfolios of Nations Fund.
SECURITIES LENDING: To increase return on portfolio securities, the Funds may
lend their portfolio securities to broker/dealers and other institutional
investors pursuant to agreements requiring that the loans be continuously
secured by collateral equal at all times in value to at least the market value
of the securities loaned. There is a risk of delay in receiving collateral or in
recovering the securities loaned or even a loss of rights in the collateral
should the borrower of the securities fail financially. However, loans are made
only to borrowers deemed by the Adviser to be credit worthy and when, in its
judgment, the income to be earned from the loan justifies the attendant risks.
The aggregate of all outstanding loans of a Fund may not exceed 30% of the value
of its total assets.
STOCK INDEX, INTEREST RATE AND CURRENCY FUTURES CONTRACTS: The Funds may
purchase and sell futures contracts and related options with respect to non-U.S.
stock indices, non-U.S. interest rates and foreign currencies, that have been
approved by the CFTC for investment by U.S. investors, for the purpose of
hedging against changes in values of a Fund's securities or changes in the
prevailing levels of interest
39
<PAGE>
rates or currency exchange rates. The contracts entail certain risks, including
but not limited to the following: no assurance that futures contracts
transactions can be offset at favorable prices; possible reduction of a Fund's
total return due to the use of hedging; possible lack of liquidity due to daily
limits on price fluctuation; imperfect correlation between the contracts and the
securities or currencies being hedged; and potential losses in excess of the
amount invested in the futures contracts themselves.
Trading on foreign commodity exchanges presents additional risks. Unlike trading
on domestic commodity exchanges, trading on foreign commodity exchanges is not
regulated by the CFTC and may be subject to greater risks than trading on
domestic exchanges. For example, some foreign exchanges are principal markets
for which no common clearing facility exists and a trader may look only to the
broker for performance of the contract. In addition, unless a Fund hedges
against fluctuations in the exchange rate between the U.S. dollar and the
currencies in which trading is done on foreign exchanges, any profits that such
Fund might realize could be eliminated by adverse changes in the exchange rate,
or the Fund could incur losses as a result of those changes.
U.S. GOVERNMENT OBLIGATIONS: U.S. Government Obligations consist of marketable
securities and instruments issued or guaranteed by the U.S. Government or any of
its agencies, authorities or instrumentalities. Direct obligations are issued by
the U.S. Treasury and include all U.S. Treasury instruments. 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 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 Assocation. No assurance can be given that the U.S. Government would
provide financial support to government-sponsored instrumentalities if it is not
obligated to do so by law.
The market value of U.S. Government Obligations may fluctuate due to
fluctuations in market interest rates. As a general matter, the value of debt
instruments, including U.S. Government Obligations, declines when market
interest rates increase and rises when market interest rates decrease. Certain
types of U.S. Government Obligations are subject to fluctuations in yield or
value due to their structure or contract terms.
VARIABLE- AND FLOATING-RATE INSTRUMENTS: Certain instruments issued, guaranteed
or sponsored by the U.S. Government or its agencies, state and local government
issuers, and certain debt instruments issued by domestic banks and corporations
may carry variable or floating rates of interest. Such instruments bear interest
rates which are not fixed, but which vary with changes in specified market rates
or indices, such as a Federal Reserve composite index. A variable-rate demand
instrument is an obligation with a variable or floating interest rate and an
unconditional right of demand on the part of the holder to receive payment of
unpaid principal and accrued interest. An instrument with a demand period
exceeding seven days may be considered illiquid if there is no secondary market
for such security.
WHEN-ISSUED, DELAYED DELIVERY AND FORWARD COMMITMENT SECURITIES: The purchase of
new issues of securities on a "when-issued," "delayed delivery" or "forward
commitment" basis occurs when the payment for and delivery of securities takes
place at a future date. Because actual payment for and delivery of such
securities generally take place 15 to 45 days after the purchase date,
purchasers of such securities bear the risk that interest rates on debt
securities at the time of delivery may be higher or lower than those contracted
for on the security purchased.
40
<PAGE>
Appendix B -- Description Of Ratings
The following summarizes the highest six ratings used by S&P for corporate and
municipal bonds. The first four ratings denote investment grade securities.
AAA -- This is the highest rating assigned by S&P to a debt obligation and
indicates an extremely strong capacity to pay interest and repay principal.
AA -- Debt rated AA is considered to have a very strong capacity to pay
interest and repay principal and differs from AAA issues only in a small
degree.
A -- Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than debt in higher-rated
categories.
BBB -- Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than for those in
higher-rated categories.
BB,B -- Bonds rated BB and B are regarded, on balance, as predominantly
speculative with respect to capacity to pay interest and repay principal in
accordance with the terms of the obligation. BB represents the lowest
degree of speculation and B a higher degree of speculation. While such
bonds will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
To provide more detailed indications of credit quality, the AA, A and BBB
ratings may be modified by the addition of a plus or minus sign to show relative
standing within these major rating categories.
The following summarizes the highest six ratings used by Moody's for corporate
and municipal bonds. The first four ratings denote investment grade securities.
Aaa -- Bonds that are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to
as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such
issues.
Aa -- Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there may
be other elements present which make the long-term risks appear somewhat
larger than in Aaa securities.
A -- Bonds that are rated A possess many favorable investment attributes
and are to be considered upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
Baa -- Bonds that are rated Baa are considered medium grade obligations,
I.E., they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable
over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
41
<PAGE>
Ba -- Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may
be small.
Moody's applies numerical modifiers (1, 2 and 3) with respect to corporate bonds
rated Aa through B. The modifier 1 indicates that the bond being rated ranks in
the higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates that the bond ranks in the lower
end of its generic rating category. With regard to municipal bonds, those bonds
in the Aa, A and Baa groups which Moody's believes possess the strongest
investment attributes are designated by the symbols Aa1, A1 or Baa1,
respectively.
The following summarizes the highest four ratings used by D&P for bonds, each of
which denotes that the securities are investment grade:
AAA -- Bonds that are rated AAA are of the highest credit quality. The risk
factors are considered to be negligible, being only slightly more than for
risk-free U.S. Treasury debt.
AA -- Bonds that are rated AA are of high credit quality. Protection
factors are strong. Risk is modest, but may vary slightly from time to time
because of economic conditions.
A -- Bonds that are rated A have protection factors which are average but
adequate. However, risk factors are more variable and greater in periods of
economic stress.
BBB -- Bonds that are rated BBB have below average protection factors but
still are considered sufficient for prudent investment. Considerable
variability in risk exists during economic cycles.
To provide more detailed indications of credit quality, the AA, A and BBB
ratings may be modified by the addition of a plus or minus sign to show relative
standing within these major categories.
The following summarizes the highest four ratings used by Fitch for bonds, each
of which denotes that the securities are investment grade:
AAA -- Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
AA -- Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated AAA. Because bonds
rated in the AAA and AA categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is
generally rated F-1+.
A -- Bonds considered to be investment grade and of high credit quality.
The obligor's ability to pay interest and repay principal is considered to
be strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.
BBB -- Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these
bonds, and therefore impair timely payment. The likelihood that the ratings
of these bonds will fall below investment grade is higher than for bonds
with higher ratings.
To provide more detailed indications of credit quality, the AA, A and BBB
ratings may be modified by the addition of a plus or minus sign to
42
<PAGE>
show relative standing within these major rating categories.
The following summarizes the two highest ratings used by Moody's for short-term
municipal notes and variable-rate demand obligations:
MIG-1/VMIG-1 -- Obligations bearing these designations are of the best
quality, enjoying strong protection from established cash flows, superior
liquidity support or demonstrated broad-based access to the market for
refinancing.
MIG-2/VMIG-2 -- Obligations bearing these designations are of high quality,
with ample margins of protection although not so large as in the preceding
group.
The following summarizes the two highest ratings used by S&P for short-term
municipal notes:
SP-1 -- Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics are given
a "plus" (+) designation.
SP-2 -- Satisfactory capacity to pay principal and interest.
The three highest rating categories of D&P for short-term debt, each of which
denotes that the securities are investment grade, are D-1, D-2 and D-3. D&P
employs three designations, D-1+, D-1 and D-1-, within the highest rating
category. D-1+ indicates highest certainty of timely payment. Short-term
liquidity, including internal operating factors and/or access to alternative
sources of funds, is judged to be "outstanding, and safety is just below
risk-free U.S. Treasury short-term obligations." D-1 indicates very high
certainty of timely payment. Liquidity factors are excellent and supported by
good fundamental protection factors. Risk factors are considered to be minor.
D-1- indicates high certainty of timely payment. Liquidity factors are strong
and supported by good fundamental protection factors. Risk factors are very
small. D-2 indicates good certainty of timely payment. Liquidity factors and
company fundamentals are sound. Although ongoing funding needs may enlarge total
financing requirements, access to capital markets is good. Risk factors are
small. D-3 indicates satisfactory liquidity and other protection factors which
qualify the issue as investment grade. Risk factors are larger and subject to
more variation. Nevertheless, timely payment is expected.
The following summarizes the two highest rating categories used by Fitch for
short-term obligations, each of which denotes securities that are investment
grade:
F-1+ securities possess exceptionally strong credit quality. Issues
assigned this rating are regarded as having the strongest degree of
assurance for timely payment.
F-1 securities possess very strong credit quality. Issues assigned this
rating reflect an assurance of timely payment only slightly less in degree
than issues rated F-1+.
F-2 securities possess good credit quality. Issues carrying this rating
have a satisfactory degree of assurance for timely payment, but the margin
of safety is not as great as for issues assigned the F-1+ and F-1 ratings.
Commercial paper rated A-1 by S&P indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted A-1+. Capacity for timely payment on
commercial paper rated A-2 is satisfactory, but the relative degree of safety is
not as high as for issues designated A-1.
The rating Prime-1 is the highest commercial paper rating assigned by Moody's.
Issuers rated Prime-1 (or related supporting institutions) are considered to
have a superior capacity for repayment of senior short-term promissory
obligations. Issuers rated Prime-2 (or related supporting institutions) are
considered to have a strong capacity for repayment of senior short-term
promissory obligations. This will normally be evidenced by many of the
characteristics of issuers rated Prime-1, but to a lesser degree. Earnings
trends and coverage ratios, while sound, will be more subject to variation.
Capitalization characteristics, while still appropriate, may be
43
<PAGE>
more affected by external conditions. Ample alternate liquidity is maintained.
For commercial paper, D&P uses the short-term debt ratings described above.
For commercial paper, Fitch uses the short-term debt ratings described above.
BankWatch ratings are based upon a qualitative and quantitative analysis of all
segments of the organization including, where applicable, holding company and
operating subsidiaries. BankWatch ratings do not constitute a recommendation to
buy or sell securities of any of these companies. Further, BankWatch does not
suggest specific investment criteria for individual clients.
BankWatch long-term ratings apply to specific issues of long-term debt and
preferred stock. The long-term ratings specifically assess the likelihood of
untimely payment of principal or interest over the term to maturity of the rated
instrument. The following are the four investment grade ratings used by
BankWatch for long-term debt:
AAA -- The highest category; indicates ability to repay principal and
interest on a timely basis is extremely high.
AA -- The second highest category; indicates a very strong ability to repay
principal and interest on a timely basis with limited incremental risk
versus issues rated in the highest category.
A -- The third highest category; indicates the ability to repay principal
and interest is strong. Issues rated "A" could be more vulnerable to
adverse developments (both internal and external) than obligations with
higher ratings.
BBB -- The lowest investment grade category; indicates an acceptable
capacity to repay principal and interest. Issues rated "BBB" are, however,
more vulnerable to adverse developments (both internal and external) than
obligations with higher ratings.
The BankWatch short-term ratings apply to commercial paper, other senior
short-term obligations and deposit obligations of the entities to which the
rating has been assigned. The BankWatch short-term ratings specifically assess
the likelihood of an untimely payment of principal or interest.
TBW-1 -- The highest category; indicates a very high likelihood that
principal and interest will be paid on a timely basis.
TBW-2 -- The second highest category; while the degree of safety regarding
timely repayment of principal and interest is strong, the relative degree
of safety is not as high as for issues rated "TBW-1".
TBW-3 -- The lowest investment grade category; indicates that while more
susceptible to adverse developments (both internal and external) than
obligations with higher ratings, capacity to service principal and interest
in a timely fashion is considered adequate.
TBW-4 -- The lowest rating category; this rating is regarded as
non-investment grade and therefore speculative.
The following summarizes the four highest long-term ratings used by IBCA:
AAA -- Obligations for which there is the lowest expectation of investment
risk. Capacity for timely repayment of principal and interest is
substantial such that adverse changes in business, economic or financial
conditions are unlikely to increase investment risk significantly.
AA -- Obligations for which there is a very low expectation of investment
risk. Capacity for timely repayment of principal and interest is
substantial. Adverse changes in business, economic or financial conditions
may increase investment risk albeit not very significantly.
A -- Obligations for which there is a low expectation of investment risk.
Capacity for timely repayment of principal and interest is strong, although
adverse changes in busi-
44
<PAGE>
ness, economic or financial conditions may lead to increased investment
risk.
BBB -- Obligations for which there is currently a low expectation of
investment risk. Capacity for timely repayment of principal and interest is
adequate, although adverse changes in business, economic or financial
conditions are more likely to lead to increased investment risk for
obligations in other categories.
A plus or minus sign may be appended to a rating below AAA to denote relative
status within major rating categories.
The following summarizes the two highest short-term debt ratings used by IBCA:
A1+ -- 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.
45
<PAGE>
Prospectus
INVESTOR A SHARES
JULY 31, 1996
This Prospectus describes the investment portfolios
listed in the column to the right (each a "Fund"
and collectively the "Tax-Exempt Funds") of Nations
Fund Trust, an open-end management investment
company in the Nations Fund Family ("Nations Fund"
or "Nations Fund Family"). This Prospectus
describes one class of shares of the Tax-Exempt
Funds -- Investor A Shares.
This Prospectus sets forth concisely the
information about the Funds that prospective
purchasers of Investor A Shares should consider
before investing. Investors should read this
Prospectus and retain it for future reference.
Additional information about Nations Fund Trust, is
contained in a separate Statement of Additional
Information (the "SAI"), that has been filed with
the Securities and Exchange Commission (the "SEC")
and is available upon request without charge by
writing or calling Nations Fund at its address or
telephone number shown below. The SAI bears the
same date as this Prospectus and is incorporated by
reference in its entirety into this Prospectus.
NationsBanc Advisors, Inc. ("NBAI") is the
investment adviser to the Funds. TradeStreet
Investment Associates, Inc. ("TradeStreet") is sub-
investment adviser to the Funds. As used herein the
"Adviser" shall mean NBAI and/or TradeStreet as the
context may require.
SHARES OF NATIONS FUND ARE NOT DEPOSITS OR OTHER
OBLIGATIONS OF, OR ISSUED, ENDORSED OR GUARANTEED
BY, NATIONSBANK, N.A. ("NATIONSBANK") OR ANY OF ITS
AFFILIATES. SUCH SHARES ARE NOT INSURED BY THE U.S.
GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER
GOVERNMENT AGENCY. AN INVESTMENT IN THE FUNDS
INVOLVES CERTAIN RISKS, INCLUDING POSSIBLE LOSS OF
PRINCIPAL.
NATIONSBANK AND CERTAIN OF ITS AFFILIATES PROVIDE
CERTAIN OTHER SERVICES TO NATIONS FUND, FOR WHICH
THEY ARE COMPENSATED. STEPHENS INC., WHICH IS NOT
AFFILIATED WITH NATIONSBANK, IS THE SPONSOR AND
ADMINISTRATOR AND SERVES AS THE DISTRIBUTOR FOR
NATIONS FUND.
THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
NF-96137-796
TAX-EXEMPT FUNDS
Nations Short-Term Municipal Income Fund
Nations Intermediate Municipal Bond Fund
Nations Municipal Income Fund
Nations Florida Intermediate
Municipal Bond Fund
Nations Florida Municipal Bond Fund
Nations Georgia Intermediate
Municipal Bond Fund
Nations Georgia Municipal Bond Fund
Nations Maryland Intermediate
Municipal Bond Fund
Nations Maryland Municipal
Bond Fund
Nations North Carolina Intermediate Municipal Bond Fund
Nations North Carolina Municipal Bond Fund
Nations South Carolina Intermediate Municipal Bond Fund
Nations South Carolina Municipal Bond Fund
Nations Tennessee Intermediate Municipal Bond Fund
Nations Tennessee Municipal
Bond Fund
Nations Texas Intermediate
Municipal Bond Fund
Nations Texas Municipal Bond Fund
Nations Virginia Intermediate
Municipal Bond Fund
Nations Virginia Municipal
Bond Fund
For Fund information call:
1-800-321-7854
Nations Fund
c/o Stephens Inc.
One NationsBank Plaza
33rd Floor
Charlotte, NC 28255
(Nations Fund Logo appears here)
<PAGE>
Table Of Contents
About The Prospectus Summary 3
Funds
Expenses Summary 6
Financial Highlights 11
Objectives 29
How Objectives Are Pursued 31
How Performance Is Shown 35
How The Funds Are Managed 36
Organization And History 40
About Your How To Buy Shares 41
Investment How To Redeem Shares 42
How To Exchange Shares 44
Shareholder Servicing And Distribution Plan 45
How The Funds Value Their Shares 47
How Dividends And Distributions Are Made;
Tax Information 47
Appendix A -- Portfolio Securities 49
Appendix B -- Description Of Ratings 55
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT
CONTAINED IN THIS PROSPECTUS,
OR IN THE FUNDS' SAI INCORPORATED HEREIN BY
REFERENCE, IN CONNECTION WITH THE OFFERING MADE BY
THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY NATIONS FUND OR
ITS DISTRIBUTOR. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFERING BY NATIONS FUND OR BY THE
DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH
OFFERING MAY NOT LAWFULLY BE MADE.
2
<PAGE>
About The Funds
Prospectus Summary
(Bullet) TYPE OF COMPANY: Open-end management investment company.
(Bullet) INVESTMENT OBJECTIVES AND POLICIES:
(BULLET) Nations Municipal Income Fund's investment objective is to seek high
current income exempt from Federal income tax with the potential for
principal fluctuation associated with investments in long-term
municipal securities. The Fund invests in investment grade, long-term
municipal securities.
(Bullet) Nations Short-Term Municipal Income Fund's investment objective is to
seek high current income exempt from Federal income tax consistent
with minimal fluctuation of principal. The Fund invests in investment
grade, short-term municipal securities.
(Bullet) Nations Intermediate Municipal Bond Fund's investment objective is to
seek high current income exempt from Federal income tax consistent
with moderate fluctuation of principal. The Fund invests in
investment grade, intermediate-term municipal securities.
(Bullet) Nations Florida Intermediate Municipal Bond Fund's investment
objective is to seek high current income exempt from Federal income
and the Florida state intangibles taxes consistent with moderate
fluctuation of principal. The Fund invests in investment grade,
intermediate-term municipal securities.
(Bullet) Nations Florida Municipal Bond Fund's investment objective is to seek
high current income exempt from Federal income and the Florida state
intangibles taxes with the potential for principal fluctuation
associated with investments in long-term municipal securities. The
Fund invests in investment grade, long-term municipal securities.
(Bullet) Nations Georgia Intermediate Municipal Bond Fund's investment
objective is to seek high current income exempt from Federal and
Georgia state income taxes consistent with moderate fluctuation of
principal. The Fund invests in investment grade, intermediate-term
municipal securities.
(Bullet) Nations Georgia Municipal Bond Fund's investment objective is to seek
high current income exempt from Federal and Georgia state income
taxes with the potential for principal fluctuation associated with
investments in long-term municipal securities. The Fund invests in
investment grade, long-term municipal securities.
(Bullet) Nations Maryland Intermediate Municipal Bond Fund's investment
objective is to seek high current income exempt from Federal and
Maryland state income taxes consistent with moderate fluctuation of
principal. The Fund invests in investment grade, intermediate-term
municipal securities.
(Bullet) Nations Maryland Municipal Bond Fund's investment objective is to
seek high current income exempt from Federal and Maryland state
income taxes with the potential for principal fluctuation associated
with investments in long-term municipal securities. The Fund invests
in investment grade, long-term municipal securities.
3
<PAGE>
(Bullet) Nations North Carolina Intermediate Municipal Bond Fund's investment
objective is to seek high current income exempt from Federal and
North Carolina state income taxes consistent with moderate
fluctuation of principal. The Fund invests in investment grade,
intermediate-term municipal securities.
(Bullet) Nations North Carolina Municipal Bond Fund's investment objective is
to seek high current income exempt from Federal and North Carolina
state income taxes with the potential for principal fluctuation
associated with investments in long-term municipal securities. The
Fund invests in investment grade, long-term municipal securities.
(Bullet) Nations South Carolina Intermediate Municipal Bond Fund's investment
objective is to seek high current income exempt from Federal and
South Carolina state income taxes consistent with moderate
fluctuation of principal. The Fund invests in investment grade,
intermediate-term municipal securities.
(Bullet) Nations South Carolina Municipal Bond Fund's investment objective is
to seek high current income exempt from Federal and South Carolina
state income taxes with the potential for principal fluctuation
associated with investments in long-term municipal securities. The
Fund invests in investment grade, long-term municipal securities.
(Bullet) Nations Tennessee Intermediate Municipal Bond Fund's investment
objective is to seek high current income exempt from Federal income
tax and the Tennessee Hall Income Tax on unearned income consistent
with moderate fluctuation of principal. The Fund invests in
investment grade, intermediate-term municipal securities.
(Bullet) Nations Tennessee Municipal Bond Fund's investment objective is to
seek high current income exempt from Federal income tax and the
Tennessee Hall Income Tax on unearned income with the potential for
principal fluctuation associated with investments in long-term
municipal securities. The Fund invests in investment grade, long-term
municipal securities.
(Bullet) Nations Texas Intermediate Municipal Bond Fund's investment objective
is to seek high current income exempt from Federal income tax
consistent with moderate fluctuation of principal. The Fund invests
in investment grade, intermediate-term municipal securities.
(Bullet) Nations Texas Municipal Bond Fund's investment objective is to seek
high current income exempt from Federal income tax with the potential
for principal fluctuation associated with investments in long-term
municipal securities. The Fund invests in investment grade, long-term
municipal securities.
(Bullet) Nations Virginia Intermediate Municipal Bond Fund's investment
objective is to seek high current income exempt from Federal and
Virginia state income taxes consistent with moderate fluctuation of
principal. The Fund invests in investment grade, intermediate-term
municipal securities.
(Bullet) Nations Virginia Municipal Bond Fund's investment objective is to
seek high current income exempt from Federal and Virginia state
income taxes with the potential for principal fluctuation associated
with investments in long-term municipal securities. The Fund invests
in investment grade, long-term municipal securities.
(Bullet) INVESTMENT ADVISER: NationsBanc Advisors, Inc. serves as the investment
adviser to the Funds. NBAI provides investment advice to more than 43
investment company portfolios in the Nations Fund Family. TradeStreet
Investment Associates, Inc. provides sub-advisory services to the
Funds. See "How The Funds Are Managed."
4
<PAGE>
(Bullet) DIVIDENDS AND DISTRIBUTIONS: The Funds declare dividends daily and pay
them monthly. Each Fund's net realized capital gains, including net
short-term capital gains are distributed at least annually.
(Bullet) RISK FACTORS: Although the Adviser seeks to achieve the investment
objective of each Fund, there is no assurance that it will be able to
do so. Investments in a Fund are not insured against loss of principal.
Investments by a Fund in debt securities are subject to interest rate
risk, which is the risk that increases in market interest rates will
adversely affect a Fund's investments in debt securities. The value of
a Fund's investments in debt securities, including U.S. Government
obligations, will tend to decrease when interest rates rise and
increase when interest rates fall. In general, longer-term debt
instruments tend to fluctuate in value more than shorter-term debt
instruments in response to interest rate movements. In addition, debt
securities which are not backed by the United States Government are
subject to credit risk, which is the risk that the issuer may not be
able to pay principal and/or interest when due. Certain of the Funds'
investments constitute derivative securities. Certain types of
derivative securities can, under certain circumstances, significantly
increase an investor's exposure to market or other risks. Since the
State Intermediate Municipal Bond Funds and State Municipal Bond Funds
invest primarily in securities issued by entities located in a single
state, such Funds are more susceptible to changes in value due to
political or economic changes affecting such states or their
subdivisions. For a discussion of these and other factors, see "How
Objectives Are Pursued -- Risk Considerations" and "Appendix
A -- Portfolio Securities."
(Bullet) MINIMUM PURCHASE: $1,000 minimum initial investment per record holder.
$100 minimum subsequent investment (except for investments pursuant to
the Systematic Investment Plan). See "How To Buy Shares."
5
<PAGE>
Expenses Summary
Expenses are one of several factors to consider when investing in a Fund. The
following tables summarize shareholder transaction and operating expenses for
the Investor A Shares of the Funds. The Examples show the cumulative expenses
attributable to a hypothetical $1,000 investment in Investor A Shares of a Fund
over specified periods.
INVESTOR A SHARES
<TABLE>
<CAPTION>
Nations Nations Nations Florida Nations Georgia
SHAREHOLDER Short-Term Intermediate Nations Intermediate Nations Florida Intermediate
TRANSACTION Municipal Municipal Bond Municipal Municipal Bond Municipal Bond Municipal Bond
EXPENSES Income Fund Fund Income Fund Fund Fund Fund
<S> <C> <C> <C> <C> <C> <C>
Maximum Sales Load
Imposed on Purchases
(as a percentage of
offering price) None None None None None None
Maximum Deferred Sales
Charge (as a
percentage of the
lower of the
original purchase
price or redemption
proceeds)1 None None None None None None
ANNUAL FUND
OPERATING
EXPENSES
(as a percentage of
average net assets)
Management Fees (After
Fee Waivers) .30% .40% .40% .30% .40% .30%
Rule 12b-1 Fees
(including
shareholder
servicing fees)
(After Fee Waivers) .20%2 .20% .20% .20% .20% .20%
Other Expenses (After
Expense
Reimbursements) .10% .10% .20% .20% .20% .20%
Total Operating
Expenses (After Fee
Waivers and Expense
Reimbursements) .60% .70% .80% .70% .80% .70%
<CAPTION>
SHAREHOLDER Nations Georgia
TRANSACTION Municipal Bond
EXPENSES Fund
<S> <C>
Maximum Sales Load
Imposed on Purchases
(as a percentage of
offering price) None
Maximum Deferred Sales
Charge (as a
percentage of the
lower of the
original purchase
price or redemption
proceeds)1 None
ANNUAL FUND
OPERATING
EXPENSES
(as a percentage of
average net assets)
Management Fees (After
Fee Waivers) .30%
Rule 12b-1 Fees
(including
shareholder
servicing fees)
(After Fee Waivers) .20%
Other Expenses (After
Expense
Reimbursements) .30%
Total Operating
Expenses (After Fee
Waivers and Expense
Reimbursements) .80%
</TABLE>
1 Investor A Shares that were purchased prior to January 1, 1996 remain subject
to the Deferred Sales Charge, if any, applicable at the time of purchase. See
"How To Redeem Shares -- Contingent Deferred Sales Charge."
2 Shareholder servicing fees for Nations Short-Term Municipal Income Fund are
paid pursuant to a separate Shareholder Servicing Plan. See "Shareholder
Servicing And Distribution Plan."
6
<PAGE>
INVESTOR A SHARES
<TABLE>
<CAPTION>
Nations Nations Nations
Maryland Nations North Carolina Nations South Carolina
Intermediate Maryland Intermediate North Carolina Intermediate
SHAREHOLDER TRANSACTION Municipal Bond Municipal Bond Municipal Bond Municipal Bond Municipal Bond
EXPENSES Fund Fund Fund Fund Fund
<S> <C> <C> <C> <C> <C>
Maximum Sales Load Imposed on
Purchases (as a percentage of
offering price) None None None None None
Maximum Deferred Sales Charge (as
a percentage of the lower of
the original purchase price or
redemption proceeds)1 None None None None None
ANNUAL FUND OPERATING
EXPENSES
(as a percentage of average net
assets)
Management Fees (After Fee
Waivers) .30% .30% .30% .30% .30%
Rule 12b-1 Fees (including
shareholder servicing fees)
(After Fee Waivers) .20% .20% .20% .20% .20%
Other Expenses (After Expense
Reimbursement) .20% .30% .20% .30% .20%
Total Operating Expenses (After
Fee Waivers and Expense
Reimbursements) .70% .80% .70% .80% .70%
<CAPTION>
Nations
South Carolina
SHAREHOLDER TRANSACTION Municipal Bond
EXPENSES Fund
<S> <C>
Maximum Sales Load Imposed on
Purchases (as a percentage of
offering price) None
Maximum Deferred Sales Charge (as
a percentage of the lower of
the original purchase price or
redemption proceeds)1 None
ANNUAL FUND OPERATING
EXPENSES
(as a percentage of average net
assets)
Management Fees (After Fee
Waivers) .30%
Rule 12b-1 Fees (including
shareholder servicing fees)
(After Fee Waivers) .20%
Other Expenses (After Expense
Reimbursement) .30%
Total Operating Expenses (After
Fee Waivers and Expense
Reimbursements) .80%
</TABLE>
1 Investor A Shares that were purchased prior to January 1, 1996 remain subject
to the Deferred Sales Charge, if any, applicable at the time of purchase. See
"How To Redeem Shares -- Contingent Deferred Sales Charge."
7
<PAGE>
INVESTOR A SHARES
<TABLE>
<CAPTION>
Nations Nations Nations
Tennessee Nations Texas Virginia
Intermediate Tennessee Intermediate Nations Intermediate
SHAREHOLDER TRANSACTION Municipal Bond Municipal Bond Municipal Bond Texas Municipal Municipal Bond
EXPENSES Fund Fund Fund Bond Fund Fund
<S> <C> <C> <C> <C> <C>
Maximum Sales Load Imposed on
Purchases (as a percentage of
offering price) None None None None None
Maximum Deferred Sales Charge (as
a percentage of the lower of
the original purchase price or
redemption proceeds)1 None None None None None
ANNUAL FUND OPERATING
EXPENSES
(as a percentage of average net
assets)
Management Fees (After Fee
Waivers) .30% .30% .30% .30% .30%
Rule 12b-1 Fees (including
shareholder servicing fees)
(After Fee Waivers) .20% .20% .20% .20% .20%
Other Expenses (After Expense
Reimbursements) .20% .30% .20% .30% .20%
Total Operating Expenses (After
Fee Waivers and Expense
Reimbursements) .70% .80% .70% .80% .70%
<CAPTION>
Nations
Virginia
SHAREHOLDER TRANSACTION Municipal Bond
EXPENSES Fund
<S> <C>
Maximum Sales Load Imposed on
Purchases (as a percentage of
offering price) None
Maximum Deferred Sales Charge (as
a percentage of the lower of
the original purchase price or
redemption proceeds)1 None
ANNUAL FUND OPERATING
EXPENSES
(as a percentage of average net
assets)
Management Fees (After Fee
Waivers) .30%
Rule 12b-1 Fees (including
shareholder servicing fees)
(After Fee Waivers) .20%
Other Expenses (After Expense
Reimbursements) .30%
Total Operating Expenses (After
Fee Waivers and Expense
Reimbursements) .80%
</TABLE>
1 Investor A Shares that were purchased prior to January 1, 1996 remain subject
to the Deferred Sales Charge, if any, applicable at the time of purchase. See
"How To Redeem Shares -- Contingent Deferred Sales Charge."
3
EXAMPLES: You would pay the following expenses on a $1,000 investment in
Investor A Shares of the indicated Fund, assuming (1) a 5% annual return and (2)
redemption at the end of each time period.
<TABLE>
<CAPTION>
Nations Nations Nations Florida Nations Georgia
Short-Term Intermediate Intermediate Nations Florida Intermediate
Municipal Income Municipal Bond Nations Municipal Municipal Bond Municipal Bond Municipal Bond
Fund Fund Income Fund Fund Fund Fund
<S> <C> <C> <C> <C> <C> <C>
1 Year $ 6 $ 7 $ 8 $ 7 $ 8 $ 7
3 Years $ 19 $ 22 $ 26 $ 22 $ 26 $ 22
5 Years $ 33 $ 39 $ 44 $ 39 $ 44 $ 39
10 Years $ 75 $ 87 $ 99 $ 87 $ 99 $ 87
<CAPTION>
Nations Maryland
Nations Georgia Intermediate
Municipal Bond Municipal Bond
Fund Fund
<S> <C> <C>
1 Year $ 8 $ 7
3 Years $ 26 $ 22
5 Years $ 44 $ 39
10 Years $ 99 $ 87
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
Nations
Nations South Nations
North Carolina Nations Carolina South Nations Tennessee
Nations Maryland Intermediate North Carolina Intermediate Carolina Intermediate
Municipal Bond Municipal Bond Municipal Bond Municipal Bond Municipal Bond Municipal Bond
Fund Fund Fund Fund Fund Fund
<S> <C> <C> <C> <C> <C> <C>
1 Year $ 8 $ 7 $ 8 $ 7 $ 8 $ 7
3 Years $ 26 $ 22 $ 26 $ 22 $ 26 $ 22
5 Years $ 44 $ 39 $ 44 $ 39 $ 44 $ 39
10 Years $ 99 $ 87 $ 99 $ 87 $ 99 $ 87
<CAPTION>
Nations
Texas
Nations Tennessee Intermediate
Municipal Bond Municipal Bond
Fund Fund
<S> <C> <C>
1 Year $ 8 $ 7
3 Years $ 26 $ 22
5 Years $ 44 $ 39
10 Years $ 99 $ 87
</TABLE>
<TABLE>
<CAPTION>
<
Nations Virginia
Nations Intermediate Nations Virginia
Texas Municipal Municipal Bond Municipal Bond
Bond Fund Fund Fund
S> <C> <C> <C>
1 Year $ 8 $ 7 $ 8
3 Years $ 26 $ 22 $ 26
5 Years $ 44 $ 39 $ 44
10 Years $ 99 $ 87 $ 99
</TABLE>
The purpose of the foregoing tables is to assist an investor in understanding
the various shareholder transaction and operating expenses that an investor in
Investor A Shares of the Funds will bear either directly or indirectly. The
"Other Expenses" figures in the above tables for Investor A Shares of the
following Funds are based on estimated amounts for the Fund's current fiscal
year and reflect anticipated fee waivers and reimbursements: Nations Florida
Intermediate Municipal Bond Fund, Nations Florida Municipal Bond Fund, Nations
Georgia Municipal Bond Fund, Nations Maryland Municipal Bond Fund, Nations North
Carolina Intermediate Municipal Bond Fund, Nations North Carolina Municipal Bond
Fund, Nations South Carolina Municipal Bond Fund, Nations Tennessee Intermediate
Municipal Bond Fund, Nations Tennessee Municipal Bond Fund, Nations Texas
Intermediate Municipal Bond Fund, Nations Texas Municipal Bond Fund and Nations
Virginia Municipal Bond Fund. The figures for the other Funds reflect amounts
incurred during the Fund's most recent fiscal year and have been adjusted as
necessary to reflect current service provider fees. There is no assurance that
any fee waivers and reimbursements will continue beyond the current fiscal year.
If fee waivers and/or reimbursements are discontinued, the amounts contained in
the "Examples" above may increase. For more complete descriptions of the Funds'
operating expenses, see "How The Funds Are Managed." For a more complete
description of the Rule 12b-1 and shareholder servicing fees payable by the
Funds, see "Shareholder Servicing And Distribution Plan."
Absent fee waivers and reimbursements, "Management Fees," "Rule 12b-1 Fees,"
"Other Expenses" and "Total Operating Expenses" for the Investor A Shares of the
Funds would have been as follows: Nations Municipal Income Fund -- .60%, .25%,
.30% and 1.15%, respectively; Nations Short-Term Municipal Income Fund -- .50%,
.25%, .34% and 1.09%, respectively; Nations Intermediate Municipal Bond
Fund -- .50%, .25%, .33% and 1.08%, respectively; Nations Florida Intermediate
Municipal Bond Fund -- .50%, .25%, .36% and 1.11%, respectively; Nations Georgia
Intermediate Municipal Bond Fund -- .50%, .25%, .33% and 1.08%, respectively;
Nations Maryland Intermediate Municipal Bond Fund -- .50%, .25%, .30% and 1.05%,
respectively; Nations South Carolina Intermediate Municipal
9
<PAGE>
Bond Fund -- .50%, .25%, .32% and 1.05%, respectively; Nations Virginia
Intermediate Municipal Bond Fund -- .50%, .25%, .26% and 1.01%, respectively;
Nations North Carolina Intermediate Municipal Bond Fund -- .50%, .25%, .37% and
1.12%, respectively; Nations Tennessee Intermediate Municipal Bond Fund -- .50%,
.25%, .43% and 1.18%, respectively; Nations Texas Intermediate Municipal Bond
Fund -- .50%, .25%, .39% and 1.14%, respectively; Nations Florida Municipal Bond
Fund -- .60%, .25%, .34% and 1.19%, respectively; Nations Georgia Municipal Bond
Fund -- .60%, .25%, .50% and 1.35%, respectively; Nations Maryland Municipal
Bond Fund -- .60%, .25%, .48% and 1.33%, respectively; Nations North Carolina
Municipal Bond Fund -- .60%, .25%, .37% and 1.22%, respectively; Nations South
Carolina Municipal Bond Fund -- .60%, .25%, .50% and 1.35%, respectively;
Nations Tennessee Municipal Bond Fund -- .60%, .25%, .58% and 1.43%,
respectively; Nations Texas Municipal Bond Fund -- .60%, .25%, .48% and 1.32%,
respectively; and Nations Virginia Municipal Bond Fund -- .60%, .25%, .44% and
1.29%, respectively.
THE FOREGOING SHOULD NOT BE CONSIDERED TO BE AN ACTUAL REPRESENTATION OF PAST OR
FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES AND RATES OF RETURN MAY BE
GREATER OR LESS THAN THOSE SHOWN.
10
<PAGE>
Financial Highlights
The following audited financial information has been derived from the financial
statements of Nations Fund Trust. Price Waterhouse LLP is the independent
accountant to Nations Fund Trust. The reports of Price Waterhouse LLP for
Nations Fund Trust's most recent fiscal year accompany the financial statements
for such period and are incorporated by reference in the SAI, which is available
upon request. Shareholders of a Fund will receive unaudited semi-annual reports
describing the Fund's investment operations and annual financial statements
audited by the Funds' independent accountant.
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS SHORT-TERM MUNICIPAL INCOME FUND
<TABLE>
<CAPTION>
PERIOD YEAR YEAR
ENDED ENDED ENDED
INVESTOR A SHARES 03/31/96(b) 11/30/95 11/30/94
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 10.03 $ 9.69 $ 9.96
Net investment income 0.14 0.42 0.36
Net realized and unrealized gain/(loss) on investments (0.05) 0.34 (0.27)
Net increase in net asset value from operations 0.09 0.76 0.09
Distributions:
Dividends from net investment income (0.14) (0.42) (0.36)
Distributions from net realized capital gains -- -- (0.00)#
Total dividends and distributions (0.14) (0.42) (0.36)
Net asset value, end of period $ 9.98 $ 10.03 $ 9.69
Total return++ 0.90% 7.95% 0.90%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 4,599 $ 3,741 $ 217
Ratio of operating expenses to average net assets 0.60%+(a) 0.65%(a) 0.52%(a)
Ratio of net investment income to average net assets 4.17%+ 4.18% 3.65%
Portfolio turnover rate 16% 82% 57%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 1.06%+ 1.13% 0.99%
Net investment income per share without waivers and/or
expense reimbursements $ 0.12 $ 0.37 $ 0.33
<CAPTION>
PERIOD
ENDED
INVESTOR A SHARES 11/30/93*
<S> <C>
Operating performance:
Net asset value, beginning of period $ 9.98
Net investment income 0.03
Net realized and unrealized gain/(loss) on investments (0.02)
Net increase in net asset value from operations 0.01
Distributions:
Dividends from net investment income (0.03)
Distributions from net realized capital gains --
Total dividends and distributions (0.03)
Net asset value, end of period $ 9.96
Total return++ 0.06%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 731
Ratio of operating expenses to average net assets 0.24%+
Ratio of net investment income to average net assets 3.01%+
Portfolio turnover rate 45%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 1.19%+
Net investment income per share without waivers and/or
expense reimbursements $ 0.02
</TABLE>
* Nations Short-Term Municipal Income Fund's Investor A Shares commenced
operations on November 2, 1993.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
# Amount represents less than $0.01 per share.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
11
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS INTERMEDIATE MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
PERIOD YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
INVESTOR A SHARES 03/31/96(b) 11/30/95 11/30/94 11/30/93*
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 10.17 $ 9.24 $ 10.11 $ 10.10
Net investment income 0.15 0.47 0.42 0.12
Net realized and unrealized gain/(loss) on investments (0.14) 0.93 (0.86) 0.01
Net increase/(decrease) in net asset value from operations 0.01 1.40 (0.44) 0.13
Distributions:
Dividends from net investment income (0.15) (0.47) (0.42) (0.12)
Distributions in excess of net investment income -- -- (0.00)# --
Distributions from net realized capital gains -- -- (0.01) --
Total dividends and distributions (0.15) (0.47) (0.43) (0.12)
Net asset value, end of period $ 10.03 $ 10.17 $ 9.24 $ 10.11
Total return++ 0.13% 15.38% (4.48)% 1.28%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 1,500 $ 1,249 $ 172 $ 68
Ratio of operating expenses to average net assets 0.70%+(a) 0.65%(a) 0.53%(a) 0.39%+
Ratio of net investment income to average net assets 4.55%+ 4.71% 4.41% 3.92%+
Portfolio turnover rate 4% 31% 51% 23%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 1.03%+ 1.04% 1.06% 1.11%+
Net investment income per share without waivers and/or
expense reimbursements $ 0.14 $ 0.44 $ 0.38 $ 0.10
</TABLE>
* Nations Intermediate Municipal Bond Fund's Investor A Shares commenced
operations on August 17, 1993.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
# Amount represents less than $0.01 per share.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
12
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS MUNICIPAL INCOME FUND
<TABLE>
<CAPTION>
PERIOD YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
INVESTOR A SHARES 03/31/96(b) 11/30/95 11/30/94 11/30/93 11/30/92
<S> <C> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of
period $ 11.08 $ 9.64 $ 11.33 $ 10.65 $ 10.25
Net investment income 0.19 0.57 0.55 0.57 0.58
Net realized and unrealized
gain/(loss) on investments (0.24) 1.44 (1.44) 0.72 0.41
Net increase/(decrease) in net
asset value from operations (0.05) 2.01 (0.89) 1.29 0.99
Distributions:
Dividends from net investment
income (0.19) (0.57) (0.55) (0.57) (0.58)
Distributions in excess of net
investment income -- -- (0.00)# -- --
Distributions from net realized
capital gains -- -- (0.25) (0.04) (0.01)
Total dividends and distributions (0.19) (0.57) (0.80) (0.61) (0.59)
Net asset value, end of period $ 10.84 $ 11.08 $ 9.64 $ 11.33 $ 10.65
Total return++ (0.47)% 21.31% (8.34)% 12.37% 9.88%+++
Ratios to average net
assets/supplemental data:
Net assets, end of period (in
000's) $ 26,085 $ 27,963 $ 23,754 $ 28,415 $ 21,056
Ratio of operating expenses to
average net assets 0.80%+ 0.80% 0.79% 0.60% 0.52%
Ratio of operating expenses to
average net assets including
interest expense -- (a) --(a) 0.80% -- --
Ratio of net investment income to
average net assets 5.15%+ 5.43% 5.24% 5.09% 5.42%
Portfolio turnover rate 4% 49% 63% 48% 19%
Ratio of operating expenses to
average net assets without
waivers and/or expense
reimbursements 1.11%+ 1.08% 1.08% 0.99% 0.99%
Net investment income per share
without waivers and/or expense
reimbursements $ 0.18 $ 0.54 $ 0.52 $ 0.53 $ 0.53
<CAPTION>
PERIOD
ENDED
INVESTOR A SHARES 11/30/91*
<S> <C>
Operating performance:
Net asset value, beginning of
period $ 10.00
Net investment income 0.52
Net realized and unrealized
gain/(loss) on investments 0.25
Net increase/(decrease) in net
asset value from operations 0.77
Distributions:
Dividends from net investment
income (0.52)
Distributions in excess of net
investment income --
Distributions from net realized
capital gains --
Total dividends and distributions (0.52)
Net asset value, end of period $ 10.25
Total return++ 7.87%+++
Ratios to average net
assets/supplemental data:
Net assets, end of period (in
000's) $ 7,234
Ratio of operating expenses to
average net assets 0.20%+
Ratio of operating expenses to
average net assets including
interest expense --
Ratio of net investment income to
average net assets 6.07%+
Portfolio turnover rate 54%
Ratio of operating expenses to
average net assets without
waivers and/or expense
reimbursements 0.88%+
Net investment income per share
without waivers and/or expense
reimbursements $ 0.45
</TABLE>
* Nations Municipal Income Fund's Investor A Shares commenced operations on
February 1, 1991.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# Amount represents less than $0.01 per share.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
13
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS FLORIDA INTERMEDIATE MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
PERIOD YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
INVESTOR A SHARES 03/31/96(b) 11/30/95 11/30/94 11/30/93*
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 10.63 $ 9.61 $ 10.50 $ 9.99
Net investment income 0.16 0.46 0.43 0.42
Net realized and unrealized gain/(loss) on investments (0.17) 1.02 (0.88) 0.51
Net increase/(decrease) in net asset value from operations (0.01) 1.48 (0.45) 0.93
Distributions:
Dividends from net investment income (0.16) (0.46) (0.43) (0.42)
Distributions in excess of net investment income -- -- (0.00)# --
Distributions from net realized capital gains -- -- (0.01) --
Total dividends and distributions (0.16) (0.46) (0.44) (0.42)
Net asset value, end of period $ 10.46 $ 10.63 $ 9.61 $ 10.50
Total return++ (0.13)% 15.68% (4.43)% 9.44%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 2,029 $ 2,292 $ 2,114 $ 2,261
Ratio of operating expenses to average net assets 0.70%+(a) 0.75%(a) 0.73%(a) 0.59%+
Ratio of net investment income to average net assets 4.46%+ 4.50% 4.26% 4.13%+
Portfolio turnover rate 18% 27% 34% 15%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 1.06%+ 1.01% 0.94% 0.95%+
Net investment income per share without waivers and/or
expense reimbursements $ 0.14 $ 0.44 $ 0.41 $ 0.39
</TABLE>
* Nations Florida Intermediate Municipal Bond Fund Investor A Shares commenced
operations on December 14, 1992.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
# Amount represents less than $0.01 per share.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
14
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS FLORIDA MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
PERIOD YEAR PERIOD
ENDED ENDED ENDED
INVESTOR A SHARES 03/31/96(b) 11/30/95 11/30/94*
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 9.76 $ 8.40 $ 9.98
Net investment income 0.15 0.49 0.47
Net realized and unrealized gain/(loss) on investments (0.29) 1.36 (1.58)
Net increase/(decrease) in net asset value from operations (0.14) 1.85 (1.11)
Dividends from net investment income (0.15) (0.49) (0.47)
Total dividends and distributions (0.15) (0.49) (0.47)
Net asset value, end of period $ 9.47 $ 9.76 $ 8.40
Total return++ (1.40)% 22.45% (11.35)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 1,836 $ 1,787 $ 1,024
Ratio of operating expenses to average net assets 0.80%+(a) 0.59%(a) 0.39%+(a)
Ratio of net investment income to average net assets 4.83%+ 5.24% 5.37%+
Portfolio turnover rate 7% 13% 46%
Ratio of operating expenses to average net assets without waivers and/or
expense reimbursements 1.16%+ 1.15% 1.09%+
Net investment income per share without waivers and/or expense
reimbursements $ 0.14 $ 0.44 $ 0.42
</TABLE>
* Nations Florida Municipal Bond Fund Investor A Shares commenced operations on
December 10, 1993.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
15
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS GEORGIA INTERMEDIATE MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
PERIOD YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
INVESTOR A SHARES 03/31/96(b) 11/30/95 11/30/94 11/30/93
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 10.81 $ 9.82 $ 10.82 $ 10.28
Net investment income 0.16 0.48 0.47 0.48
Net realized and unrealized gain/(loss) on
investments (0.18) 0.99 (0.98) 0.57
Net increase/(decrease) in net asset value from
operations (0.02) 1.47 (0.51) 1.05
Distributions:
Dividends from net investment income (0.16) (0.48) (0.47) (0.48)
Distributions in excess of net investment
income -- -- (0.00)# --
Distributions from net realized capital gains -- -- (0.02) (0.03)
Total dividends and distributions (0.16) (0.48) (0.49) (0.51)
Net asset value, end of period $ 10.63 $ 10.81 $ 9.82 $ 10.82
Total return++ (0.19)% 15.20% (4.87)% 10.37%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 8,625 $ 9,175 $ 10,401 $ 16,752
Ratio of operating expenses to average net
assets 0.70%+ 0.75% 0.72% 0.61%
Ratio of operating expenses to average net
assets including interest expense --(a) --(a) 0.73% --
Ratio of net investment income to average net
assets 4.47%+ 4.56% 4.56% 4.42%
Portfolio turnover rate 3% 17% 22% 6%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 1.03%+ 1.00% 0.93% 0.92%
Net investment income per share without waivers
and/or expense reimbursements $ 0.15 $ 0.45 $ 0.45 $ 0.45
<CAPTION>
PERIOD
ENDED
INVESTOR A SHARES 11/30/92*
<S> <C>
Operating performance:
Net asset value, beginning of period $ 9.98
Net investment income 0.30
Net realized and unrealized gain/(loss) on
investments 0.30
Net increase/(decrease) in net asset value from
operations 0.60
Distributions:
Dividends from net investment income (0.30)
Distributions in excess of net investment
income --
Distributions from net realized capital gains --
Total dividends and distributions (0.30)
Net asset value, end of period $ 10.28
Total return++ 6.12%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 3,809
Ratio of operating expenses to average net
assets 0.34%+
Ratio of operating expenses to average net
assets including interest expense --
Ratio of net investment income to average net
assets 5.01%+
Portfolio turnover rate 12%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 0.91%+
Net investment income per share without waivers
and/or expense reimbursements $ 0.27
</TABLE>
* Nations Georgia Intermediate Municipal Bond Fund Investor A Shares commenced
operations on May 4, 1992.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# Amount represents less than $0.01 per share.
(a) The effect of interest expense on the operating ratio was less than 0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
16
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS GEORGIA MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
PERIOD YEAR PERIOD
ENDED ENDED ENDED
INVESTOR A SHARES 03/31/96(b) 11/30/95 11/30/94*
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 9.72 $ 8.38 $ 9.99
Net investment income 0.14 0.49 0.47
Net realized and unrealized gain/(loss) on investments (0.24) 1.34 (1.61)
Net increase/(decrease) in net asset value from operations (0.10) 1.83 (1.14)
Dividends from net investment income (0.14) (0.49) (0.47)
Total dividends and distributions (0.14) (0.49) (0.47)
Net asset value, end of period $ 9.48 $ 9.72 $ 8.38
Total return++ (1.08)% 22.25% (11.71)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 7 $ 7 $ 6
Ratio of operating expenses to average net assets 0.80%+(a) 0.60%(a) 0.39%+(a)
Ratio of net investment income to average net assets 4.76%+ 5.22% 5.42%+
Portfolio turnover rate 7% 26% 35%
Ratio of operating expenses to average net assets without waivers and/or
expense reimbursements 1.34%+ 1.29% 1.22%+
Net investment income per share without waivers and/or expense
reimbursements $ 0.12 $ 0.42 $ 0.40
</TABLE>
* Nations Georgia Municipal Bond Fund Investor A Shares commenced operations
on December 30, 1993.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
(a) The effect of interest expense on the operating ratio was less than 0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
17
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS MARYLAND INTERMEDIATE MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
PERIOD YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED ENDED
INVESTOR A SHARES 03/31/96(b) 11/30/95 11/30/94 11/30/93 11/30/92 11/30/91
<S> <C> <C> <C> <C> <C> <C>
Operating
performance:
Net asset value,
beginning of
period $ 10.95 $ 10.00 $ 11.09 $ 10.72 $ 10.44 $ 10.21
Net investment
income 0.16 0.48 0.48 0.51 0.54 0.60
Net realized and
unrealized
gain/(loss) on
investments (0.15) 0.98 (0.99) 0.44 0.31 0.24
Net
increase/(decrease)
in net asset value
from operations 0.01 1.46 (0.51) 0.95 0.85 0.84
Distributions:
Dividends from net
investment income (0.16) (0.48) (0.48) (0.51) (0.54) (0.60)
Distributions from
net realized
capital gains -- (0.03) (0.10) (0.07) (0.03) (0.01)
Distributions in
excess of net
realized capital
gains -- -- (0.00)# -- -- --
Total dividends and
distributions (0.16) (0.51) (0.58) (0.58) (0.57) (0.61)
Net asset value, end
of period $ 10.80 $ 10.95 $ 10.00 $ 11.09 $ 10.72 $ 10.44
Total return++ 0.09% 14.94% (4.82)% 8.96% 8.32%+++ 8.46%+++
Ratios to average
net
assets/supplemental
data:
Net assets, end of
period (in 000's) $ 19,456 $ 21,208 $ 22,145 $ 22,144 $ 20,092 $ 9,934
Ratio of operating
expenses to
average net assets 0.70%+(a) 0.75%(a) 0.71%(a) 0.64% 0.48% 0.20%
Ratio of net
investment income
to average net
assets 4.42%+ 4.56% 4.55% 4.58% 4.98% 5.76%
Portfolio turnover
rate 4% 11% 22% 26% 38% 26%
Ratio of operating
expenses to
average net assets
without waivers
and/or expense
reimbursements 1.01%+ 1.00% 0.91% 0.88% 0.87% 0.71%
Net investment
income per share
without waivers
and/or expense
reimbursements $ 0.15 $ 0.45 $ 0.46 $ 0.48 $ 0.50 $ 0.55
<CAPTION>
PERIOD
ENDED
INVESTOR A SHARES 11/30/90*
<S> <C>
Operating
performance:
Net asset value,
beginning of
period $ 10.00
Net investment
income 0.16
Net realized and
unrealized
gain/(loss) on
investments 0.21
Net
increase/(decrease)
in net asset value
from operations 0.37
Distributions:
Dividends from net
investment income (0.16)
Distributions from
net realized
capital gains --
Distributions in
excess of net
realized capital
gains --
Total dividends and
distributions (0.16)
Net asset value, end
of period $ 10.21
Total return++ 3.72%+++
Ratios to average
net
assets/supplemental
data:
Net assets, end of
period (in 000's) $ 2,228
Ratio of operating
expenses to
average net assets 0.21%+
Ratio of net
investment income
to average net
assets 6.12%+
Portfolio turnover
rate 49%
Ratio of operating
expenses to
average net assets
without waivers
and/or expense
reimbursements 0.84%+
Net investment
income per share
without waivers
and/or expense
reimbursements $ 0.13
</TABLE>
* Nations Maryland Intermediate Municipal Bond Fund Investor A Shares
commenced operations on September 1, 1990.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# Amount represents less than $0.01 per share.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
18
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS MARYLAND MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
PERIOD YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
INVESTOR A SHARES 03/31/96(b) 11/30/95 11/30/94 11/30/93*
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 9.63 $ 8.37 $ 9.77 $ 9.80
Net investment income 0.14 0.46 0.49 0.03
Net realized and unrealized gain/(loss) on investments (0.24) 1.26 (1.40) (0.03)
Net increase/(decrease) in net asset value from operations (0.10) 1.72 (0.91) 0.00
Dividends from net investment income (0.14) (0.46) (0.49) (0.03)
Total dividends and distributions (0.14) (0.46) (0.49) (0.03)
Net asset value, end of period $ 9.39 $ 9.63 $ 8.37 $ 9.77
Total return++ (1.01)% 20.99% (9.59)% 0.05%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 1,086 $ 1,031 $ 9 $ 6
Ratio of operating expenses to average net assets 0.80%+ 0.60% 0.39%(a) 0.13%+
Ratio of net investment income to average net assets 4.52%+ 4.94% 5.30% 3.97%+
Portfolio turnover rate 7% 11% 39% 1%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 1.43%+ 1.46% 1.48% 1.76%+
Net investment income per share without waivers and/or
expense reimbursements $ 0.12 $ 0.38 $ 0.41 $ 0.02
</TABLE>
* Nations Maryland Municipal Bond Fund Investor A Shares commenced operations
on November 4, 1993.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
19
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS NORTH CAROLINA INTERMEDIATE MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
PERIOD YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
INVESTOR A SHARES 03/31/96(b) 11/30/95 11/30/94 11/30/93*
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 10.51 $ 9.53 $ 10.46 $ 10.01
Net investment income 0.15 0.43 0.42 0.42
Net realized and unrealized gain/(loss) on investments (0.15) 0.99 (0.88) 0.45
Net increase/(decrease) in net asset value from operations 0.00 1.42 (0.46) 0.87
Distributions:
Dividends from net investment income (0.15) (0.43) (0.42) (0.42)
Distributions in excess of net investment income -- (0.00)# -- --
Distributions from net realized capital gains -- (0.01) (0.05) --
Total dividends and distributions (0.15) (0.44) (0.47) (0.42)
Net asset value, end of period $ 10.36 $ 10.51 $ 9.53 $ 10.46
Total return++ (0.01)% 15.18% (4.51)% 8.76%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 7,672 $ 8,525 $ 8,896 $ 13,749
Ratio of operating expenses to average net assets 0.70%+ 0.77%(a) 0.73%(a) 0.57%+
Ratio of net investment income to average net assets 4.27%+ 4.27% 4.20% 4.08%+
Portfolio turnover rate 3% 57% 37% 29%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 1.07%+ 1.04% 1.00% 1.00%+
Net investment income per share without waivers and/or
expense reimbursements $ 0.14 $ 0.41 $ 0.40 $ 0.38
</TABLE>
* Nations North Carolina Intermediate Municipal Bond Fund Investor A Shares
commenced operations on December 14, 1992.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
# Amount represents less than $0.01 per share.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
20
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS NORTH CAROLINA MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
PERIOD YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
INVESTOR A SHARES 03/31/96(b) 11/30/95 11/30/94 11/30/93*
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 9.73 $ 8.36 $ 9.85 $ 9.97
Net investment income 0.15 0.49 0.50 0.04
Net realized and unrealized gain/(loss) on investments (0.24) 1.37 (1.49) (0.12)
Net increase/(decrease) in net asset value from operations (0.09) 1.86 (0.99) (0.08)
Dividends from net investment income (0.15) (0.49) (0.50) (0.04)
Total dividends and distributions (0.15) (0.49) (0.50) (0.04)
Net asset value, end of period $ 9.49 $ 9.73 $ 8.36 $ 9.85
Total return++ (0.94)% 22.63% (10.41)% (0.80)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 448 $ 347 $ 1,161 $ 1,085
Ratio of operating expenses to average net assets 0.80%+ 0.58%(a) 0.39%(a) 0.09%+
Ratio of net investment income to average net assets 4.66%+ 5.23% 5.35% 3.97%+
Portfolio turnover rate 22% 40% 29% 10%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 1.19%+ 1.16% 1.10% 1.21%+
Net investment income per share without waivers and/or
expense reimbursements $ 0.14 $ 0.44 $ 0.43 $ 0.03
</TABLE>
* Nations North Carolina Municipal Bond Fund Investor A Shares commenced
operations on November 1, 1993.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
21
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS SOUTH CAROLINA INTERMEDIATE MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
PERIOD YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED
INVESTOR A SHARES 03/31/96(b) 11/30/95 11/30/94 11/30/93 11/30/92*
<S> <C> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of
period $ 10.69 $ 9.76 $ 10.61 $ 10.18 $ 9.98
Net investment income 0.16 0.49 0.48 0.48 0.30
Net realized and unrealized
gain/(loss) on investments (0.17) 0.93 (0.84) 0.43 0.20
Net increase/(decrease) in net
asset value from operations (0.01) 1.42 (0.36) 0.91 0.50
Distributions:
Dividends from net investment
income (0.16) (0.49) (0.48) (0.48) (0.30)
Distributions in excess of net
investment income -- -- (0.00)# -- --
Distributions from net realized
capital gains -- -- (0.01) -- --
Total dividends and distributions (0.16) (0.49) (0.49) (0.48) (0.30)
Net asset value, end of period $ 10.52 $ 10.69 $ 9.76 $ 10.61 $ 10.18
Total return++ (0.07)% 14.79% (3.54)% 9.16% 5.03%+++
Ratios to average net
assets/supplemental data:
Net assets, end of period (in
000's) $ 14,288 $ 14,452 $ 16,378 $ 20,024 $ 7,414
Ratio of operating expenses to
average net assets 0.70%+(a) 0.75%(a) 0.72%(a) 0.60% 0.33%+
Ratio of net investment income to
average net assets 4.61%+ 4.72% 4.64% 4.53% 4.83%+
Portfolio turnover rate 6% 11% 30% 11% 7%
Ratio of operating expenses to
average net assets without
waivers and/or expense
reimbursements 1.02%+ 0.95% 0.93% 0.90% 0.85%+
Net investment income per share
without waivers and/or expense
reimbursements $ 0.15 $ 0.47 $ 0.46 $ 0.45 $ 0.27
</TABLE>
* Nations South Carolina Intermediate Municipal Bond Fund Investor A Shares
commenced operations on May 5, 1992.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# Amount represents less than $0.01 per share.
(a) The effect of interest on the operating expense ratio was less than 0.01%.
(b) Fiscal year changed to March 31. Prior to this, the fiscal year end was
November 30.
22
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS SOUTH CAROLINA MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
PERIOD YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
INVESTOR A SHARES 03/31/96(b) 11/30/95 11/30/94 11/30/93*
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 9.99 $ 8.65 $ 9.86 $ 9.87
Net investment income 0.16 0.50 0.50 0.03
Net realized and unrealized gain/(loss) on investments (0.22) 1.34 (1.21) (0.01)
Net increase/(decrease) in net asset value from operations (0.06) 1.84 (0.71) 0.02
Dividends from net investment income (0.16) (0.50) (0.50) (0.03)
Total dividends and distributions (0.16) (0.50) (0.50) (0.03)
Net asset value, end of period $ 9.77 $ 9.99 $ 8.65 $ 9.86
Total return++ (0.64)% 21.74% (7.45)% 0.21%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 1,219 $ 1,238 $ 140 $ 14
Ratio of operating expenses to average net assets 0.80%+(a) 0.60%(a) 0.39%(a) 0.10%+
Ratio of net investment income to average net assets 4.76%+ 5.24% 5.30% 4.16%+
Portfolio turnover rate 20% 13% 14% 8%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 1.33%+ 1.28% 1.30% 1.63%+
Net investment income per share without waivers and/or
expense reimbursements $ 0.14 $ 0.44 $ 0.42 $ 0.02
</TABLE>
* Nations South Carolina Municipal Bond Fund Investor A Shares commenced
operations on November 8, 1993.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
23
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS TENNESSEE INTERMEDIATE MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
PERIOD YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
INVESTOR A SHARES 03/31/96(b) 11/30/95 11/30/94 11/30/93*
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 10.23 $ 9.30 $ 10.18 $ 10.00
Net investment income 0.15 0.44 0.43 0.29
Net realized and unrealized gain/(loss) on investments (0.14) 0.93 (0.87) 0.18
Net increase/(decrease) in net asset value from operations 0.01 1.37 (0.44) 0.47
Distributions:
Dividends from net investment income (0.15) (0.44) (0.43) (0.29)
Distributions in excess of net investment income -- -- (0.00)# --
Distributions from net realized capital gains -- -- (0.01) --
Total dividends and distributions (0.15) (0.44) (0.44) (0.29)
Net asset value, end of period $ 10.09 $ 10.23 $ 9.30 $ 10.18
Total return++ 0.06% 15.00% (4.41)% 4.68%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 7,439 $ 7,573 $ 7,831 $ 15,573
Ratio of operating expenses to average net assets 0.70%+ 0.77% 0.70% 0.42%+
Ratio of operating expenses to average net assets including
interest expense -- --(a) 0.71% --
Ratio of net investment income to average net assets 4.31%+ 4.45% 4.38% 4.16%+
Portfolio turnover rate 3% 34% 41% 16%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 1.22%+ 1.12% 1.07% 1.09%+
Net investment income per share without waivers and/or
expense reimbursements $ 0.13 $ 0.41 $ 0.40 $ 0.24
</TABLE>
* Nations Tennessee Intermediate Municipal Bond Fund Investor A Shares
commenced operations on April 2, 1993.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
# Amount represents less than $0.01 per share.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
24
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS TENNESSEE MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
PERIOD YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
INVESTOR A SHARES 03/31/96(b) 11/30/95 11/30/94 11/30/93*
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 9.87 $ 8.58 $ 9.80 $ 9.88
Net investment income 0.15 0.50 0.50 0.04
Net realized and unrealized gain/(loss) on investments (0.19) 1.29 (1.22) (0.08)
Net increase/(decrease) in net asset value from operations (0.04) 1.79 (0.72) (0.04)
Dividends from net investment income (0.15) (0.50) (0.50) (0.04)
Total dividends and distributions (0.15) (0.50) (0.50) (0.04)
Net asset value, end of period $ 9.68 $ 9.87 $ 8.58 $ 9.80
Total return++ (0.37)% 21.28% (7.58)% (0.43)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 973 $ 203 $ 43 $ 34
Ratio of operating expenses to average net assets 0.80%+ 0.60%(a) 0.39%(a) 0.17%+
Ratio of operating expenses to average net assets including
interest expense 0.81%+ -- -- --
Ratio of net investment income to average net assets 4.72%+ 5.29% 5.38% 4.31%+
Portfolio turnover rate 2% 45% 38% 3%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 1.67%+ 1.47% 1.38% 1.86%+
Net investment income per share without waivers and/or
expense reimbursements $ 0.12 $ 0.42 $ 0.42 $ 0.03
</TABLE>
* Nations Tennessee Municipal Bond Fund Investor A Shares commenced operations
on November 2, 1993.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
25
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS TEXAS INTERMEDIATE MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
PERIOD YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
INVESTOR A SHARES 03/31/96(b) 11/30/95 11/30/94 11/30/93*
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 10.36 $ 9.53 $ 10.35 $ 10.15
Net investment income 0.15 0.44 0.42 0.37
Net realized and unrealized gain/(loss) on investments (0.15) 0.83 (0.79) 0.20
Net increase/(decrease) in net asset value from operations 0.00 1.27 (0.37) 0.57
Distributions:
Dividends from net investment income (0.15) (0.44) (0.42) (0.37)
Distributions in excess of net investment income -- -- (0.00)# --
Distributions from net realized capital gains -- -- (0.03) --
Total dividends and distributions (0.15) (0.44) (0.45) (0.37)
Net asset value, end of period $ 10.21 $ 10.36 $ 9.53 $ 10.35
Total return++ (0.02)% 13.60% (3.66)% 5.64%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 801 $ 806 $ 718 $ 968
Ratio of operating expenses to average net assets 0.70%+ 0.77%(a) 0.73%(a) 0.59%+
Ratio of net investment income to average net assets 4.32%+ 4.42% 4.22% 4.28%+
Portfolio turnover rate 11% 64% 61% 63%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 1.09%+ 1.03% 0.96% 0.97%+
Net investment income per share without waivers and/or
expense reimbursements $ 0.14 $ 0.42 $ 0.40 $ 0.34
</TABLE>
* Nations Texas Intermediate Municipal Bond Fund Investor A Shares commenced
operations on February 4, 1993.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
# Amount represents less than $0.01 per share.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
26
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS TEXAS MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
PERIOD YEAR PERIOD
ENDED ENDED ENDED
INVESTOR A SHARES 03/31/96(b) 11/30/95 11/30/94*
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 9.70 $ 8.39 $ 9.92
Net investment income 0.15 0.49 0.47
Net realized and unrealized gain/(loss) on investments (0.21) 1.31 (1.53)
Net increase/(decrease) in net asset value from operations (0.06) 1.80 (1.06)
Dividends from net investment income (0.15) (0.49) (0.47)
Total dividends and distributions (0.15) (0.49) (0.47)
Net asset value, end of period $ 9.49 $ 9.70 $ 8.39
Total return++ (0.62)% 21.85% (10.98)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 317 $ 351 $ 55
Ratio of operating expenses to average net assets 0.80%+ 0.59%(a) 0.40%+(a)
Ratio of net investment income to average net assets 4.72%+ 5.25% 5.34%+
Portfolio turnover rate 6% 50% 107%
Ratio of operating expenses to average net assets without waivers and/or
expense reimbursements 1.31%+ 1.25% 1.24%+
Net investment income per share without waivers and/or expense
reimbursements $ 0.13 $ 0.43 $ 0.39
</TABLE>
* Nations Texas Municipal Bond Fund Investor A Shares commenced operations on
December 17, 1993.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
27
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS VIRGINIA INTERMEDIATE MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
PERIOD YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED ENDED
INVESTOR A SHARES 03/31/96(b) 11/30/95 11/30/94 11/30/93 11/30/92 11/30/91
<S> <C> <C> <C> <C> <C> <C>
Operating performance:
Net asset value,
beginning of period $ 10.83 $ 9.94 $ 10.99 $ 10.59 $ 10.34 $ 10.14
Net investment income 0.16 0.49 0.48 0.51 0.54 0.58
Net realized and
unrealized
gain/(loss) on
investments (0.14) 0.89 (0.96) 0.42 0.29 0.21
Net
increase/(decrease)
in net asset value
from operations 0.02 1.38 (0.48) 0.93 0.83 0.79
Distributions:
Dividends from net
investment income (0.16) (0.49) (0.48) (0.51) (0.54) (0.58)
Distributions from net
realized capital
gains -- (0.00)# (0.09) (0.02) (0.04) (0.01)
Distributions in
excess of net
realized capital
gains -- -- (0.00)# -- -- --
Total dividends and
distributions (0.16) (0.49) (0.57) (0.53) (0.58) (0.59)
Net asset value, end
of period $ 10.69 $ 10.83 $ 9.94 $ 10.99 $ 10.59 $ 10.34
Total return++ 0.20% 14.16% (4.52)% 8.91% 8.18%+++ 8.04%+++
Ratios to average net
assets/supplemental
data:
Net assets, end of
period (in 000's) $ 68,003 $ 73,253 $ 79,412 $ 103,689 $ 76,650 $ 44,540
Ratio of operating
expenses to average
net assets 0.70%+(a) 0.76%(a) 0.79%(a) 0.72% 0.65% 0.45%
Ratio of net
investment income to
average net assets 4.52%+ 4.67% 4.58% 4.65% 5.04% 5.67%
Portfolio turnover
rate 2% 22% 14% 26% 13% 24%
Ratio of operating
expenses to average
net assets without
waivers and/or
expense
reimbursements 0.96%+ 0.94% 0.91% 0.84% 0.97% 0.73%
Net investment income
per share without
waivers and/or
expense
reimbursements $ 0.15 $ 0.47 $ 0.47 $ 0.49 $ 0.50 $ 0.55
<CAPTION>
PERIOD
ENDED
INVESTOR A SHARES 11/30/90*
<S> <C>
Operating performance:
Net asset value,
beginning of period $ 10.08
Net investment income 0.61
Net realized and
unrealized
gain/(loss) on
investments 0.11
Net
increase/(decrease)
in net asset value
from operations 0.72
Distributions:
Dividends from net
investment income (0.66)
Distributions from net
realized capital
gains --
Distributions in
excess of net
realized capital
gains --
Total dividends and
distributions (0.66)
Net asset value, end
of period $ 10.14
Total return++ 7.41%+++
Ratios to average net
assets/supplemental
data:
Net assets, end of
period (in 000's) $ 24,303
Ratio of operating
expenses to average
net assets 0.26%+
Ratio of net
investment income to
average net assets 6.09%+
Portfolio turnover
rate 19%
Ratio of operating
expenses to average
net assets without
waivers and/or
expense
reimbursements 0.80% +
Net investment income
per share without
waivers and/or
expense
reimbursements $ 0.55
</TABLE>
* Nations Virginia Intermediate Municipal Bond Fund Investor A Shares
commenced operations on December 5, 1989.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# Amount represents less than $0.01 per share.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
28
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS VIRGINIA MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
PERIOD YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
INVESTOR A SHARES 03/31/96(b) 11/30/95 11/30/94 11/30/93*
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 9.62 $ 8.29 $ 9.77 $ 9.84
Net investment income 0.16 0.49 0.49 0.03
Net realized and unrealized gain/(loss) on investments (0.24) 1.33 (1.48) (0.07)
Net increase/(decrease) in net asset value from operations (0.08) 1.82 (0.99) (0.04)
Dividends from net investment income (0.16) (0.49) (0.49) (0.03)
Total dividends and distributions (0.16) (0.49) (0.49) (0.03)
Net asset value, end of period $ 9.38 $ 9.62 $ 8.29 $ 9.77
Total return++ (0.91)% 22.39% (10.44)% (0.42)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 661 $ 650 $ 168 $ 25
Ratio of operating expenses to average net assets 0.80%+ 0.59%(a) 0.39%(a) 0.10%+
Ratio of operating expenses to average net assets including
interest expense 0.81%+ -- -- --
Ratio of net investment income to average net assets 4.86%+ 5.31% 5.34% 3.88%+
Portfolio turnover rate 8% 16% 61% 0%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 1.27%+ 1.24% 1.17% 1.30%+
Net investment income per share without waivers and/or
expense reimbursements $ 0.14 $ 0.44 $ 0.43 $ 0.02
</TABLE>
* Nations Virginia Municipal Bond Fund Investor A Shares commenced operations
on November 8, 1993.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
Objectives
NATIONS MUNICIPAL INCOME FUND: The investment objective of Nations Municipal
Income Fund is to seek high current income exempt from Federal income tax with
the potential for principal fluctuation associated with investments in long-term
municipal securities. The Fund invests in investment grade, long-term municipal
securities.
NATIONS SHORT-TERM MUNICIPAL INCOME FUND: The investment objective of Nations
Short-Term Municipal Income Fund is to seek high current income exempt from
Federal income tax consistent with minimal fluctuation of principal. The Fund
invests in investment grade, short-term municipal securities.
NATIONS INTERMEDIATE MUNICIPAL BOND FUND: Nations Intermediate Municipal Bond
Fund's investment objective is to seek high current income exempt from Federal
income tax consistent with moderate fluctuation of principal. The Fund invests
in investment grade, intermediate-term municipal securities.
NATIONS FLORIDA INTERMEDIATE MUNICIPAL BOND FUND: Nations Florida Intermediate
Municipal Bond Fund's investment objective is to seek high current income exempt
from
Fed-
29
<PAGE>
eral income and the Florida state intangibles taxes consistent with moderate
fluctuation of principal. The Fund invests in investment grade,
intermediate-term municipal securities.
NATIONS FLORIDA MUNICIPAL BOND FUND: Nations Florida Municipal Bond Fund's
investment objective is to seek high current income exempt from Federal income
and the Florida state intangibles taxes with the potential for principal
fluctuation associated with investments in long-term municipal securities. The
Fund invests in investment grade, long-term municipal securities.
NATIONS GEORGIA INTERMEDIATE MUNICIPAL BOND FUND: Nations Georgia Intermediate
Municipal Bond Fund's investment objective is to seek high current income exempt
from Federal and Georgia state income taxes consistent with moderate fluctuation
of principal. The Fund invests in investment grade, intermediate-term municipal
securities.
NATIONS GEORGIA MUNICIPAL BOND FUND: Nations Georgia Municipal Bond Fund's
investment objective is to seek high current income exempt from Federal and
Georgia state income taxes with the potential for principal fluctuation
associated with investments in long-term municipal securities. The Fund invests
in investment grade, long-term municipal securities.
NATIONS MARYLAND INTERMEDIATE MUNICIPAL BOND FUND: Nations Maryland Intermediate
Municipal Bond Fund's investment objective is to seek high current income exempt
from Federal and Maryland state income taxes consistent with moderate
fluctuation of principal. The Fund invests in investment grade, intermediate-
term municipal securities.
NATIONS MARYLAND MUNICIPAL BOND FUND: Nations Maryland Municipal Bond Fund's
investment objective is to seek high current income exempt from Federal and
Maryland state income taxes with the potential for principal fluctuation
associated with investments in long-term municipal securities. The Fund invests
in investment grade, long-term municipal securities.
NATIONS NORTH CAROLINA INTERMEDIATE MUNICIPAL BOND FUND: Nations North Carolina
Intermediate Municipal Bond Fund's investment objective is to seek high current
income exempt from Federal and North Carolina state income taxes consistent with
moderate fluctuation of principal. The Fund invests in investment grade,
intermediate-term municipal securities.
NATIONS NORTH CAROLINA MUNICIPAL BOND FUND: Nations North Carolina Municipal
Bond Fund's investment objective is to seek high current income exempt from
Federal and North Carolina state income taxes with the potential for principal
fluctuation associated with investments in long-term municipal securities. The
Fund invests in investment grade, long-term municipal securities.
NATIONS SOUTH CAROLINA INTERMEDIATE MUNICIPAL BOND FUND: Nations South Carolina
Intermediate Municipal Bond Fund's investment objective is to seek high current
income exempt from Federal and South Carolina state income taxes consistent with
moderate fluctuation of principal. The Fund invests in investment grade,
intermediate-term municipal securities.
NATIONS SOUTH CAROLINA MUNICIPAL BOND FUND: Nations South Carolina Municipal
Bond Fund's investment objective is to seek high current income exempt from
Federal and South Carolina state income taxes with the potential for principal
fluctuation associated with investments in long-term municipal securities. The
Fund invests in investment grade, long-term municipal securities.
NATIONS TENNESSEE INTERMEDIATE MUNICIPAL BOND FUND: Nations Tennessee
Intermediate Municipal Bond Fund's investment objective is to seek high current
income exempt from Federal income tax and the Tennessee Hall Income Tax on
unearned income consistent with moderate fluctuation of principal. The Fund
invests in investment grade, intermediate-term municipal securities.
NATIONS TENNESSEE MUNICIPAL BOND FUND: Nations Tennessee Municipal Bond Fund's
investment objective is to seek high current income exempt from Federal income
tax and the Tennessee Hall Income Tax on unearned income
30
<PAGE>
with the potential for principal fluctuation associated with investments in
long-term municipal securities. The Fund invests in investment grade, long-term
municipal securities.
NATIONS TEXAS INTERMEDIATE MUNICIPAL BOND FUND: Nations Texas Intermediate
Municipal Bond Fund's investment objective is to seek high current income exempt
from Federal income tax consistent with moderate fluctuation of principal. The
Fund invests in investment grade, intermediate-term municipal securities.
NATIONS TEXAS MUNICIPAL BOND FUND: Nations Texas Municipal Bond Fund's
investment objective is to seek high current income exempt from Federal income
tax with the potential for principal fluctuation associated with investments in
long-term municipal securities. The Fund invests in investment grade, long-term
municipal securities.
NATIONS VIRGINIA INTERMEDIATE MUNICIPAL BOND FUND: Nations Virginia Intermediate
Municipal Bond Fund's investment objective is to seek high current income exempt
from Federal and Virginia state income taxes consistent with moderate
fluctuation of principal. The Fund invests in investment grade, intermediate-
term municipal securities.
NATIONS VIRGINIA MUNICIPAL BOND FUND: Nations Virginia Municipal Bond Fund's
investment objective is to seek high current income exempt from Federal and
Virginia state income taxes with the potential for principal fluctuation
associated with investments in long-term municipal securities. The Fund invests
in investment grade, long-term municipal securities.
Nations Florida Intermediate Municipal Bond Fund, Nations Georgia Intermediate
Municipal Bond Fund, Nations Maryland Intermediate Municipal Bond Fund, Nations
North Carolina Intermediate Municipal Bond Fund, Nations South Carolina
Intermediate Municipal Bond Fund, Nations Tennessee Intermediate Municipal Bond
Fund, Nations Texas Intermediate Municipal Bond Fund and Nations Virginia
Intermediate Municipal Bond Fund are sometimes collectively referred to as the
"State Intermediate Municipal Bond Funds," and Nations Florida Municipal Bond
Fund, Nations Georgia Municipal Bond Fund, Nations Maryland Municipal Bond Fund,
Nations North Carolina Municipal Bond Fund, Nations South Carolina Municipal
Bond Fund, Nations Tennessee Municipal Bond Fund, Nations Texas Municipal Bond
Fund and Nations Virginia Municipal Bond Fund are sometimes collectively
referred to as the "State Municipal Bond Funds".
How Objectives Are Pursued
NATIONS SHORT-TERM MUNICIPAL INCOME FUND, NATIONS INTERMEDIATE MUNICIPAL BOND
FUND AND NATIONS MUNICIPAL INCOME FUND: In pursuing their objectives, the Funds
will invest at least 80% of the total value of their assets in investment grade
obligations issued by or on behalf of states, territories, and possessions of
the United States, the District of Columbia, and their political subdivisions,
agencies, instrumentalities, and authorities, the interest on which, in the
opinion of counsel to the issuer or bond counsel, is exempt from Federal income
tax ("Municipal Securities"). To the extent consistent with the Funds'
investment approach described in this Prospectus, the Funds are managed to seek
capital appreciation and minimize capital losses due to interest rate movements.
Under normal market conditions, the average dollar-weighted maturity and
duration of each of the Funds' portfolios are expected to be as follows: Nations
Municipal Income Fund -- average dollar-weighted maturity greater than 10 years
and duration between 7.5 and 9.5 years; Nations Intermediate Municipal Bond
Fund -- average dollar-weighted maturity between three and 10 years and duration
between five and six years; Nations Short-Term Municipal Income Fund -- average
dollar-weighted maturity less than three years and duration between 1.25 and
2.75 years.
31
<PAGE>
Municipal securities will be rated investment grade at the time of purchase by
at least one of the following nationally recognized statistical rating
organizations: Standard & Poor's Corporation ("S&P"), Moody's Investors Service,
Inc. ("Moody's"), Duff & Phelps Credit Rating Co. ("D&P"), Fitch Investors
Service, Inc. ("Fitch"), IBCA Limited or its affiliate IBCA Inc. (collectively
"IBCA"), or Thomson BankWatch, Inc. ("BankWatch") (collectively, "NRSROs") or,
if unrated, determined by the Adviser to be of comparable quality at the time of
purchase to rated obligations that may be acquired by a Fund. Obligations rated
in the lowest of the top four investment grade rating categories (E.G. rated
"BBB" by S&P or "Baa" by Moody's) have speculative characteristics and changes
in economic conditions or other circumstances are more likely to lead to a
weakened capacity to make principal and interest payments than is the case with
higher grade debt obligations. Subsequent to its purchase by a Fund, an issue of
Municipal Securities may cease to be rated, or its rating may be reduced below
the minimum rating required for purchase by a Fund. The Adviser will consider
such an event in determining whether a Fund should continue to hold the
obligation. See "Appendix B" for a description of these rating designations.
During temporary defensive periods, the Funds may invest in short-term taxable
and non-taxable obligations in such proportions as, in the opinion of the
Adviser, prevailing market or economic conditions warrant. Taxable obligations
that may be acquired by a Fund include repurchase agreements and short-term debt
securities. Under normal market conditions, each Fund's investments in taxable
obligations and private activity bonds, the interest on which may be treated as
a specific tax preference item under the Federal alternative minimum tax, will
not exceed 20% of its total assets at the time of purchase. The Funds may hold
uninvested cash reserves pending investment or during defensive periods.
STATE INTERMEDIATE MUNICIPAL BOND FUNDS AND STATE MUNICIPAL BOND FUNDS: Under
normal market conditions, at least 80% of the total value of the assets of the
State Intermediate Municipal Bond Funds and the State Municipal Bond Funds will
be invested in Municipal Securities, and substantially all of each Fund's assets
will be invested in debt instruments, issued by or on behalf of the pertinent
state and its political subdivisions, agencies, instrumentalities and
authorities.
Under normal market conditions, the average dollar-weighted maturity and
duration of each of the State Intermediate Municipal Bond Funds and State
Municipal Bond Funds are expected to be as follows: State Intermediate Municipal
Bond Funds -- average dollar-weighted maturity between three and 10 years and
duration between five and six years; State Municipal Bond Funds -- average
dollar-weighted maturity greater than 10 years and duration greater than 10
years.
Each of the State Intermediate Municipal Bond Funds and the State Municipal Bond
Funds operates as a non-diversified fund (except to the extent diversification
is required for Federal income tax purposes).
Dividends paid by each of these Funds which are derived from interest
attributable to tax-exempt obligations of the pertinent state and that state's
political subdivisions, agencies, instrumentalities and authorities, as well as
certain other governmental issuers such as Puerto Rico, will be exempt from
regular Federal income tax and (with the exception of Texas and Florida) the
income tax of the pertinent state. Texas and Florida do not impose a state
income tax; however, Florida imposes a state intangibles tax. Dividends derived
from interest on obligations of other governmental issuers will be exempt from
regular Federal income tax, but generally will be subject to state income tax
(with the exception of Texas and Florida). (See "How Dividends And Distributions
Are Made; Tax Information.") During normal market conditions and as a matter of
fundamental investment policy, each of these Funds will invest at least 80% of
its total assets in obligations the interest on which will be exempt from
regular Federal income tax and (with the exception of Texas and Florida) the
income tax of the pertinent state.
32
<PAGE>
Municipal Securities acquired by the Funds will be rated investment grade at the
time of purchase by at least one NRSRO or, if unrated, determined by the Adviser
to be of comparable quality at the time of purchase to rated obligations that
may be acquired by the Funds. Obligations rated in the lowest of the top four
investment grade rating categories (E.G. rated "BBB" by S&P or "Baa" by Moody's)
have speculative characteristics, and changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity to make principal
and interest payments than is the case with higher grade debt obligations.
Subsequent to its purchase by a Fund, an issue of Municipal Securities may cease
to be rated, or its rating may be reduced below the minimum rating required for
purchase by a Fund. The Adviser will consider such an event in determining
whether a Fund should continue to hold the obligation. See "Appendix B" below
for a description of these rating designations.
During temporary defensive periods, the Funds may invest in short-term taxable
and non-taxable obligations in such proportions as, in the opinion of the
Adviser, prevailing market or economic conditions warrant. Taxable obligations
that may be acquired by the Funds include repurchase agreements and short-term
debt securities. Under normal market conditions, each Fund's investments in
taxable obligations and private activity bonds, the interest on which may be
treated as a specific tax preference item under the Federal alternative minimum
tax, will not exceed 20% of its total assets at the time of purchase.
GENERAL: Each Fund may invest in certain specified derivative securities,
including: interest rate swaps, caps and floors for hedging purposes;
exchange-traded options; over-the-counter options executed with primary dealers,
including long calls and puts and covered calls to enhance return; and U.S. and
foreign exchange-traded financial futures and options thereon approved by the
Commodity Futures Trading Commission ("CFTC") for market exposure risk
management. Each Fund also may lend its portfolio securities to qualified
institutional investors and may invest in restricted, private placement and
other illiquid securities. Additionally, each Fund may purchase securities
issued by other investment companies, consistent with the Fund's investment
objective and policies. The Funds also may invest in instruments issued by
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.
Certain government securities that have variable or floating interest rates or
demand, put or prepayment features or paydown schedules may be deemed to have
remaining maturities shorter than their nominal maturities for purposes of
determining the average weighted maturity and duration of the Funds.
For more information concerning these and other investments in which the Funds
may invest and the Funds' investment practices, see "Appendix A."
PORTFOLIO TURNOVER: Generally, the Funds will purchase portfolio securities for
capital appreciation or investment income, or both, and not for short-term
trading profits. If a Fund's annual portfolio turnover rate exceeds 100%, it may
result in higher brokerage costs and possible tax consequences for the Fund and
its shareholders. For the Funds' portfolio turnover rates, see "Financial
Highlights."
RISK CONSIDERATIONS: Although the Adviser will seek to achieve the investment
objective of each Fund, there is no assurance that it will be able to do so. No
single Fund should be considered, by itself, to provide a complete investment
program for any investor. Investments in a Fund are not insured against loss of
principal.
The value of a Fund's investments in debt securities, including U.S. Government
Obligations, will tend to decrease when interest rates rise and increase when
interest rates fall. In general, longer-term debt instruments tend to fluctuate
in value more than shorter-term debt instruments in response to interest rate
movements. In addition, debt securities that are not backed by the United States
Government are subject to credit risk, which is the risk that the issuer may not
be able to pay principal and/or interest when
33
<PAGE>
due. Since each of the State Intermediate Municipal Bond Funds and State
Municipal Bond Funds invests primarily in securities issued by entities located
in a single state, such Funds are more susceptible to changes in value due to
political or economic changes affecting that state or its subdivisions.
Certain of the Funds' investments constitute derivative securities, which are
securities whose value is derived, at least in part, from an underlying index or
reference rate. There are certain types of derivative securities that can, under
certain circumstances, significantly increase a purchaser's exposure to market
or other risks. The Adviser, however, only purchases derivative securities in
circumstances where it believes such purchases are consistent with a Fund's
investment objective and do not unduly increase the Fund's exposure to market or
other risks. For additional risk information regarding the Funds' investments in
particular instruments, see "Appendix A -- Portfolio Securities."
INVESTMENT LIMITATIONS: Each Fund is subject to a number of investment
limitations. The following investment limitations are matters of fundamental
policy and may not be changed without the affirmative vote of the holders of a
majority of the Fund's outstanding shares. Other investment limitations that
cannot be changed without such a vote of shareholders are described in the SAI.
Each Fund may not:
1. Purchase any securities which would cause 25% or more of the value of the
Fund's total assets at the time of such purchase to be invested in the
securities of one or more issuers conducting their principal activities in the
same industry. (For purposes of this limitation, U.S. Government securities and
tax-exempt securities issued by state or municipal governments and their
political subdivisions are not considered members of any industry.)
2. Make loans, except that a Fund may purchase and hold debt instruments
(whether such instruments are part of a public offering or privately placed),
may enter into repurchase agreements and may lend portfolio securities in
accordance with its investment policies.
Nations Short-Term Municipal Income Fund, Nations Intermediate Municipal Bond
Fund and Nations Municipal Income Fund may not:
Purchase securities of any one issuer (other than securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities) if,
immediately after such purchase, more than 5% of the value of such Fund's
total assets would be invested in the securities of such issuer, except
that up to 25% of the value of the Fund's total assets may be invested
without regard to these limitations and with respect to 75% of such Fund's
assets, such Fund will not hold more than 10% of the voting securities of
any issuer.
The State Intermediate Municipal Bond Funds and the State Municipal Bond Funds
may not:
Purchase securities of any one issuer (other than securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities) if,
immediately after such purchase, more than 25% of the value of a Fund's
total assets would be invested in the securities of one issuer, and with
respect to 50% of such Fund's total assets, more than 5% of its assets
would be invested in the securities of one issuer.
As a matter of fundamental policy, except during defensive periods, the State
Intermediate Municipal Bond Funds and the State Municipal Bond Funds will invest
at least 80% of their respective total net assets in Municipal Securities the
interest on which is exempt from Federal income taxes and the pertinent state's
income taxes (with the exception of Texas and Florida). Similarly, as a matter
of fundamental policy, except during defensive periods, Nations Short-Term
Municipal Income Fund, Nations Intermediate Municipal Bond Fund and Nations
Municipal Income Fund will invest at least 80% of their respective total net
assets in Municipal Securities the interest on which is exempt from Federal
income tax. For purposes of these fundamental policies, private activity bonds
are included in the term "Municipal Securities" only if the interest paid
thereon is exempt from Federal income tax and not treated as a specific tax
preference
34
<PAGE>
item under the Federal alternative minimum tax.
The investment objective and policies of each Fund, unless otherwise specified,
may be changed without a vote of the Fund's shareholders. If the investment
objective or policies of a Fund change, shareholders should consider whether the
Fund remains an appropriate investment in light of their then current positions
and needs.
In order to register a Fund's shares for sale in certain states, a Fund may make
commitments more restrictive than the investment policies and limitations
described in this Prospectus and the SAI. Should a Fund determine that any such
commitment is no longer in the best interests of the Fund, it may consider
terminating sales of its shares in the states involved.
How Performance Is Shown
From time to time a Fund may advertise the total return, yield and
tax-equivalent yield on a class of shares. TOTAL RETURN, YIELD AND TAX-
EQUIVALENT YIELD FIGURES ARE BASED ON HISTORICAL DATA AND ARE NOT INTENDED TO
INDICATE FUTURE PERFORMANCE. The "total return" of a class of shares of a Fund
may be calculated on an average annual total return basis or an aggregate total
return basis. Average annual total return refers to the average annual
compounded rates of return on a class of shares over one-, five-, and ten-year
periods or the life of a Fund (as stated in the advertisement) that would equate
an initial amount invested at the beginning of a stated period to the ending
redeemable value of the investment (reflecting the deduction of any applicable
contingent deferred sales charge ("CDSC")), assuming the reinvestment of all
dividend and capital gain distributions. Aggregate total return reflects the
total percentage change in the value of the investment over the measuring
period, again assuming the reinvestment of all dividends and capital gain
distributions. Total return may also be presented for other periods or may not
reflect a deduction of the CDSC.
"Yield" is calculated by dividing the annualized net investment income per share
during a recent 30-day (or one month) period of a class of shares of a Fund by
the maximum public offering price per share on the last day of that period. The
yield on a class of shares does not reflect deduction of any applicable CDSC.
The "tax-equivalent yield" of a class of shares of a Fund also may be quoted
from time to time, which shows the level of taxable yield needed to produce an
after-tax equivalent to the particular class's tax-free yield. This is done by
increasing such class's yield (calculated as above) by the amount necessary to
reflect the payment of Federal income tax at a stated tax rate.
Investment performance, which will vary, is based on many factors, including
market conditions, the composition of the Fund's portfolio and the Fund's
operating expenses. Investment performance also often reflects the risks
associated with a Fund's investment objective and policies. These factors should
be considered when comparing a Fund's investment results to those of other
mutual funds and other investment vehicles. Since yields fluctuate, yield data
cannot necessarily be used to compare an investment in the Funds with bank
deposits, savings accounts, and similar investment alternatives which often
provide an agreed-upon or guaranteed fixed yield for a stated period of time.
In addition to Investor A Shares, the Funds offer Primary A, Primary B, Investor
C and Investor N Shares. Each class of shares may bear different sales charges,
shareholder servicing fees, loads and other expenses, which may cause the
performance of a class to differ from the performance of the other classes.
Total return and yield quotations will be computed separately for each class of
the Funds' shares. Any quotation of total return or yield not reflecting CDSCs
would be reduced if such charges were reflected. Any fees charged by a selling
agent and/or servicing agent directly to its customers' accounts in
con-
35
<PAGE>
nection with investments in the Funds will not be included in calculations of
total return or yield. The Funds' annual report contains additional performance
information and is available upon request without charge from the Funds'
distributor or your Agent (as defined below).
How The Funds Are Managed
The business and affairs of Nations Fund Trust are managed under the direction
of its Trustees. The SAI contains the names of and general background
information concerning the Trustees of Nations Fund Trust.
Nations Fund and the Adviser have adopted codes of ethics which contain policies
on personal securities transactions by "access persons," including portfolio
managers and investment analysts. These policies substantially comply in all
material respects with the recommendations set forth in the May 9, 1994 Report
of the Advisory Group on Personal Investing of the Investment Company Institute.
INVESTMENT ADVISER: NationsBanc Advisors, Inc., serves as investment adviser to
the Funds. NBAI is a wholly owned subsidiary of NationsBank, which in turn is a
wholly owned banking subsidiary of NationsBank Corporation, a bank holding
company organized as a North Carolina corporation. NBAI has its principal
offices at One NationsBank Plaza, Charlotte, North Carolina 28255.
TradeStreet Investment Associates, Inc., with principal offices at One
NationsBank Plaza, Charlotte, North Carolina 28255, serves as sub-investment
adviser to the Funds. TradeStreet is a wholly owned subsidiary of NationsBank.
TradeStreet provides investment management services to individuals,
corporations, and institutions.
Subject to the general supervision of the Trustees of Nations Fund Trust, and in
accordance with each Fund's investment policies, the Adviser formulates
guidelines and lists of approved investments for each Fund, makes decisions with
respect to and places orders for each Fund's purchases and sales of portfolio
securities and maintains records relating to such purchases and sales. The
Adviser is authorized to allocate purchase and sale orders for portfolio
securities to certain financial institutions, including, in the case of agency
transactions, financial institutions which are affiliated with the Adviser or
which have sold shares in the Funds, if the Adviser believes that the quality of
the transaction and the commission are comparable to what they would be with
other qualified brokerage firms. From time to time, to the extent consistent
with their investment objectives, policies and restrictions, the Funds may
invest in securities of companies with which NationsBank has a lending
relationship. For the services provided and expenses assumed pursuant to an
Investment Advisory Agreement, NBAI is entitled to receive advisory fees,
computed daily and paid monthly, at the annual rates of: 0.50% of the average
daily net assets of each of Nations Short-Term Municipal Income Fund, Nations
Intermediate Municipal Bond Fund and the State Intermediate Municipal Bond
Funds; and 0.60% of the average daily net assets of each of Nations Municipal
Income Fund and the State Municipal Bond Funds.
For the services provided and the expenses assumed pursuant to a sub-advisory
agreement, NBAI will pay TradeStreet sub-advisory fees, computed daily and paid
monthly, at the annual rate of 0.07% of the average daily net assets of each
Fund.
From time to time, NBAI (and/or TradeStreet) may waive or reimburse (either
voluntarily or pursuant to applicable state limitations) advisory fees and/or
expenses payable by a Fund. In addition, the Adviser may from time to time
compensate Agents, as defined below, for providing certain services to
Customers.
For the fiscal period from December 1, 1995 to December 31, 1995, after waivers,
Nations Fund Trust paid NationsBank under a prior Investment Advisory Agreement
advisory fees at the
36
<PAGE>
indicated rates of the following Funds' average daily net assets: Nations
Municipal Income Fund -- 0.30%; Nations Short-Term Municipal Income
Fund -- 0.06%; Nations Intermediate Municipal Bond Fund -- 0.17%; Nations
Florida Intermediate Municipal Bond Fund -- 0.14%; Nations Florida Municipal
Bond Fund -- 0.26%; Nations Georgia Intermediate Municipal Bond Fund -- 0.17%;
Nations Georgia Municipal Bond Fund -- 0.10%; Nations Maryland Intermediate
Municipal Bond Fund -- 0.20%; Nations Maryland Municipal Bond Fund -- 0%;
Nations North Carolina Intermediate Municipal Bond Fund -- 0.13%; Nations North
Carolina Municipal Bond Fund -- 0.23%; Nations South Carolina Intermediate
Municipal Bond Fund -- 0.18%; Nations South Carolina Municipal Bond
Fund -- 0.10%; Nations Tennessee Intermediate Municipal Bond Fund 0%; Nations
Tennessee Municipal Bond Fund -- 0%; Nations Texas Intermediate Municipal Bond
Fund -- 0.11%; Nations Texas Municipal Bond Fund -- 0.12%; Nations Virginia
Intermediate Municipal Bond Fund -- 0.24%; and Nations Virginia Municipal Bond
Fund -- 0.16%.
For the fiscal period from January 1, 1996 to March 31, 1996, after waivers,
Nations Fund Trust paid NBAI under the current Investment Advisory Agreement
advisory fees at the indicated rates of the following Funds' average daily net
assets: Nations Municipal Income Fund -- 0.30%; Nations Short-Term Municipal
Income Fund -- 0.06%; Nations Intermediate Municipal Bond Fund -- 0.17%; Nations
Florida Intermediate Municipal Bond Fund -- 0.14%; Nations Florida Municipal
Bond Fund -- 0.26%; Nations Georgia Intermediate Municipal Bond Fund -- 0.17%;
Nations Georgia Municipal Bond Fund -- 0.10%; Nations Maryland Intermediate
Municipal Bond Fund -- 0.20%; Nations Maryland Municipal Bond Fund -- 0%;
Nations North Carolina Intermediate Municipal Bond Fund -- 0.13%; Nations North
Carolina Municipal Bond Fund -- 0.23%; Nations South Carolina Intermediate
Municipal Bond Fund -- 0.18%; Nations South Carolina Municipal Bond
Fund -- 0.10%; Nations Tennessee Intermediate Municipal Bond Fund -- 0%; Nations
Tennessee Municipal Bond Fund -- 0%; Nations Texas Intermediate Municipal Bond
Fund -- 0.11%; Nations Texas Municipal Bond Fund -- 0.12%; Nations Virginia
Intermediate Municipal Bond Fund -- 0.24%; and Nations Virginia Municipal Bond
Fund -- 0.16%.
For the fiscal period from January 1, 1996 to March 31, 1996, after waivers,
NBAI paid TradeStreet under the current Sub-Advisory Agreement sub-advisory fees
at the rate of 0.07% of the following Funds' average daily net assets: Nations
Municipal Income Fund, Nations Short-Term Municipal Income Fund, Nations
Intermediate Municipal Bond Fund, Nations Florida Intermediate Municipal Bond
Fund, Nations Florida Municipal Bond Fund, Nations Georgia Intermediate
Municipal Bond Fund, Nations Georgia Municipal Bond Fund, Nations Maryland
Intermediate Municipal Bond Fund, Nations Maryland Municipal Bond Fund, Nations
North Carolina Intermediate Municipal Bond Fund, Nations North Carolina
Municipal Bond Fund, Nations South Carolina Intermediate Municipal Bond Fund,
Nations South Carolina Municipal Bond Fund, Nations Tennessee Intermediate
Municipal Bond Fund, Nations Tennessee Municipal Bond Fund, Nations Texas
Intermediate Municipal Bond Fund, Nations Texas Municipal Bond Fund, Nations
Virginia Intermediate Municipal Bond Fund and Nations Virginia Municipal Bond
Fund.
Michele M. Poirier is a Senior Product Manager, Municipal Fixed Income
Management for TradeStreet and Senior Portfolio Manager for Nations Municipal
Income Fund, Nations Florida Intermediate Municipal Bond Fund, Nations Florida
Municipal Bond Fund, Nations Georgia Intermediate Municipal Bond Fund, Nations
Georgia Municipal Bond Fund, Nations South Carolina Intermediate Municipal Bond
Fund and Nations South Carolina Municipal Bond Fund. Ms. Poirier has been the
Portfolio Manager for Nations Municipal Income Fund, Nations Florida
Intermediate Municipal Bond Fund, Nations Georgia Intermediate Municipal Bond
Fund, and South Carolina Intermediate Municipal Bond Fund since 1992. She has
been Portfolio Manager for the other Funds since 1993. Prior to assuming her
position with TradeStreet, she was Senior Vice President and Senior Portfolio
Manager for the Investment
37
<PAGE>
Management Group at NationsBank. She has worked in the investment community
since 1974. Her past experience includes serving as Director of Trading,
Institutional Sales, and Municipal Trader for Financial Service Corporation,
Bankers Trust Company and The Robinson-Humphrey Company respectively. Ms.
Poirier received a B.B.A. in Marketing from Georgia State University.
Mathew M. Kiselak is a Product Manager, Municipal Fixed Income Management for
TradeStreet and Portfolio Manager for Nations Short-Term Municipal Income Fund,
Nations North Carolina Intermediate Municipal Bond Fund, Nations North Carolina
Municipal Bond Fund, Nations Tennessee Intermediate Municipal Bond Fund, Nations
Tennessee Municipal Bond Fund, Nations Texas Intermediate Municipal Bond Fund
and Nations Texas Municipal Bond Fund. Mr. Kiselak has been Portfolio Manager
for Nations North Carolina Intermediate Municipal Bond Fund and Nations North
Carolina Municipal Bond Fund since 1995. He has been Portfolio Manager for the
other Funds since 1994. Prior to assuming his position with TradeStreet, he was
Vice President and Portfolio Manager for the Investment Management Group at
NationsBank. He has worked in the investment community since 1987. His past
experience includes Portfolio Manager and Municipal Credit Analysis for Reich &
Tang Inc. Mr. Kiselak received a B.A. in Economics from Pace University.
John C. Kohl is a Director of Municipal Fixed Income Management for TradeStreet.
He is responsible for overseeing all municipal product management and is the
Senior Portfolio Manager for Nations Intermediate Municipal Bond Fund, Nations
Maryland Intermediate Municipal Bond Fund, Nations Maryland Municipal Bond Fund,
Nations Virginia Intermediate Municipal Bond Fund and Nations Virginia Municipal
Bond Fund. Mr. Kohl has been the Portfolio Manager for the Funds since 1994.
Prior to assuming his position with TradeStreet, he was Senior Vice President
and Senior Portfolio Manager for the Investment Management Group at NationsBank.
Mr. Kohl has worked in the investment community since 1979. His past experience
includes serving as Chief Investment Officer for London Pacific Life & Annuity,
Team Leader and Portfolio Manager for Harris Trust and Savings Bank, and
Management Consultant for asset-liability of Continental Bank. Mr. Kohl received
a joint B.A. in Economics and North American Studies from McGill University.
Morrison & Foerster LLP, counsel to Nations Fund and special counsel to
NationsBank, has advised Nations Fund and NationsBank that NationsBank and its
affiliates may perform the services contemplated by the Investment Advisory
Agreement and this Prospectus without violation of the Glass-Steagall Act. Such
counsel has pointed out, however, that there are no controlling judicial or
administrative interpretations or decisions and that future judicial or
administrative interpretations of, or decisions relating to, present federal or
state statutes, including the Glass-Steagall Act, and regulations relating to
the permissible activities of banks and their subsidiaries or affiliates, as
well as future changes in such statutes, regulations and judicial or
administrative decisions or interpretations, could prevent such entities from
continuing to perform, in whole or in part, such services. If any such entity
were prohibited from performing any such services, it is expected that new
agreements would be proposed or entered into with another entity or entities
qualified to perform such services.
OTHER SERVICE PROVIDERS: Stephens Inc. ("Stephens"), with principal offices at
111 Center Street, Little Rock, Arkansas 72201, serves as the administrator of
the Funds pursuant to an Administration Agreement. Pursuant to the terms of the
Administration Agreement, Stephens provides various administrative and corporate
secretarial services to the Funds, including providing general oversight of
other service providers, office space, utilities and various legal and
administrative services in connection with the satisfaction of various
regulatory requirements applicable to the Funds.
First Data Investor Services Group, Inc. ("First Data"), formerly The
Shareholder Services Group, Inc., a wholly owned subsidiary of First Data
Corporation, with principal offices at One Exchange Place, Boston, Massachusetts
02109,
38
<PAGE>
serves as the co-administrator of the Funds pursuant to a Co-Administration
Agreement. Under the Co-Administration Agreement, First Data provides various
administrative and accounting services to the Funds, including performing
calculations necessary to determine net asset values and dividends, preparing
tax returns and financial statements and maintaining the portfolio records and
certain general accounting records for the Funds. For the services rendered
pursuant to the Administration and Co-Administration Agreements, Stephens and
First Data are entitled to receive a combined fee at the annual rate of up to
0.10% of each Fund's average daily net assets.
For the fiscal period from December 1, 1995 to March 31, 1996, after waivers,
Nations Fund Trust paid its administrators combined fees at the rate of 0.10% of
each Funds' average daily net assets.
NationsBank serves as sub-administrator for Nations Fund pursuant to a
Sub-Administration Agreement. Pursuant to the terms of the Sub-Administration
Agreement, NationsBank assists Stephens in supervising, coordinating and
monitoring various aspects of the Funds' administrative operations. For
providing such services, NationsBank shall be entitled to receive a monthly fee
from Stephens based on an annual rate of 0.01% of the Funds' average daily net
assets.
Shares of the Funds are sold on a continuous basis by Stephens, as the Funds'
sponsor and distributor. Stephens is a registered broker/dealer with principal
offices at 111 Center Street, Little Rock, Arkansas 72201. Nations Fund has
entered into a distribution agreement with Stephens which provides that Stephens
has the exclusive right to distribute shares of the Funds. Stephens may pay
service fees or commissions to selling agents that assist customers in
purchasing Investor Shares of the Funds. See "Shareholder Servicing And
Distribution Plans."
NationsBank of Texas, N.A. (the "Custodian") serves as custodian for the assets
of each Fund. The Custodian is located at 1401 Elm Street, Dallas, Texas 75202
and is a wholly owned subsidiary of NationsBank Corporation. In return for
providing custodial services, the Custodian is entitled to receive, in addition
to out-of-pocket expenses, fees payable monthly (i) at the rate of 1.25% of 1%
of the average daily net assets of each Fund, (ii) $10.00 per repurchase
collateral transaction by the Funds, and (iii) $15.00 per purchase, sale and
maturity transaction involving the Funds.
First Data serves as transfer agent (the "Transfer Agent") for the Funds'
Investor Shares. The Transfer Agent is located at One Exchange Place, Boston,
Massachusetts 02109.
Price Waterhouse LLP serves as independent accountant to Nations Fund. Its
address is 160 Federal Street, Boston, Massachusetts 02110.
EXPENSES: The accrued expenses of a Fund, as well as certain expenses
attributable to Investor A Shares, are deducted from accrued income before
dividends are declared. Each Fund's expenses include, but are not limited to:
fees paid to the Adviser, NationsBank, Stephens and First Data; interest;
trustees' fees and federal and state securities registration and qualification
fees; brokerage fees and commissions; costs of preparing and printing
prospectuses for regulatory purposes and for distribution to existing
shareholders; charges of the Custodian and Transfer Agent; certain insurance
premiums; outside auditing and legal expenses; costs of shareholder reports and
shareholder meetings; other expenses which are not expressly assumed by the
Adviser, NationsBank, Stephens or First Data under their respective agreements
with Nations Fund; and any extraordinary expenses. Investor Shares may bear
certain class specific retail transfer agency expenses and also bear certain
additional shareholder service and/or sales support costs. Any general expenses
of Nations Fund Trust that are not readily identifiable as belonging to a
particular investment portfolio are allocated among all portfolios in the
proportion that the assets of a portfolio bear to the assets of Nations Fund
Trust or in such other manner as the Board of Trustees deems appropriate.
39
<PAGE>
Organization And History
The Funds are members of the Nations Fund Family, which consists of Nations Fund
Trust, Nations Fund, Inc., Nations Fund Portfolios, Inc. and Nations
Institutional Reserves. The Nations Fund Family currently has more than 43
distinct investment portfolios and total assets in excess of $18 billion.
Nations Fund Trust was organized as a Massachusetts business trust on May 6,
1985. Nations Fund Trust's fiscal year end is March 31; prior to 1996, Nations
Fund Trust's fiscal year end was November 30. The Funds currently offer five
classes of shares -- Primary A Shares, Primary B Shares, Investor A Shares,
Investor C Shares and Investor N Shares. This Prospectus relates only to the
Investor A Shares of Nations Municipal Income Fund, Nations Short-Term Municipal
Income Fund, Nations Intermediate Municipal Bond Fund, Nations Florida
Intermediate Municipal Bond Fund, Nations Florida Municipal Bond Fund, Nations
Georgia Intermediate Municipal Bond Fund, Nations Georgia Municipal Bond Fund,
Nations Maryland Intermediate Municipal Bond Fund, Nations Maryland Municipal
Bond Fund, Nations North Carolina Intermediate Municipal Bond Fund, Nations
North Carolina Municipal Bond Fund, Nations South Carolina Intermediate
Municipal Bond Fund, Nations South Carolina Municipal Bond Fund, Nations
Tennessee Intermediate Municipal Bond Fund, Nations Tennessee Municipal Bond
Fund, Nations Texas Intermediate Municipal Bond Fund, Nations Texas Municipal
Bond Fund, Nations Virginia Intermediate Municipal Bond Fund and Nations
Virginia Municipal Bond Fund. To obtain additional information regarding the
Funds' other classes of shares which may be available to you, contact your Agent
(as defined below) or Nations Fund at 1-800-321-7854.
Each share of Nations Fund Trust is without par value, represents an equal
proportionate interest in the related fund with other shares of the same class,
and is entitled to such dividends and distributions out of the income earned on
the assets belonging to such fund as are declared in the discretion of Nations
Fund Trust's Board of Trustees. Nations Fund Trust's Declaration of Trust
authorizes the Board of Trustees to classify or reclassify any class of shares
into one or more series of shares.
Shareholders are entitled to one vote for each full share held and a
proportionate fractional vote for each fractional share held. Shareholders of
each fund of Nations Fund Trust will vote in the aggregate and not by fund and
shareholders of each fund will vote in the aggregate and not by class except as
otherwise expressly required by law or when the Board of Trustees determines
that the matter to be voted on affects only the interests of shareholders of a
particular fund or class of shares. See the SAI for examples of instances where
the Investment Company Act of 1940 (the "1940 Act") requires voting by fund.
As of July 15, 1996, NationsBank and its affiliates possessed or shared power to
dispose or vote with respect to more than 25% of the outstanding shares of
Nations Fund Trust and therefore could be considered to be a controlling person
of Nations Fund Trust for purposes of the 1940 Act. For more detailed
information concerning the percentage of each class or series of shares over
which NationsBank and its affiliates possessed or shared power to dispose or
vote as of a certain date, see the SAI.
Nations Fund Trust does not presently intend to hold annual meetings except as
required by the 1940 Act. Shareholders will have the right to remove Trustees.
Nations Fund Trust's Code of Regulations provides that special meetings of
shareholders shall be called at the written request of the shareholders entitled
to vote at least 10% of the outstanding shares of Nations Fund Trust entitled to
be voted at such meeting.
40
<PAGE>
About Your Investment
How To Buy Shares
The Funds have established various procedures for purchasing Investor A Shares
in order to accommodate different investors. Purchase orders for Investor A
Shares may be placed directly with a Fund or through banks, broker/dealers or
other financial institutions (including certain affiliates of NationsBank) that
have entered into a shareholder servicing agreement ("Servicing Agreement") with
Nations Fund ("Servicing Agents") and/or a sales support agreement ("Sales
Support Agreement") with Stephens ("Selling Agents"). Servicing Agents and
Selling Agents are sometimes referred to hereafter as "Agents."
In addition, Investor A Shares may be purchased through a Nations Fund Personal
Investment Planner account, which is a managed agency/asset allocation account
established with NBAI (an "Account"). Investments through an Account are
governed by the terms and conditions of the Account, which are set forth in the
Client Agreement and Disclosure Statement provided by NBAI to each investor who
establishes an Account. Because of the nature of the Account, certain of the
features described in this Prospectus are not available to investors purchasing
Investor A Shares through an Account. Potential investors through an Account
should refer to the Client Agreement and Disclosure Statement for more
information regarding the Account, including information regarding the fees and
expenses charged in connection with an Account.
There is a minimum initial investment of $1,000 in the Funds. The minimum
subsequent investment is $100, except for investments pursuant to the Systematic
Investment Plan described below.
Investor A Shares are purchased at net asset value per share. Purchases may be
effected on days on which the New York Stock Exchange (the "Exchange") is open
for business (a "Business Day").
Nations Fund and Stephens reserve the right to reject any purchase order. The
issuance of Investor A Shares is recorded on the books of the Funds, and share
certificates are not issued unless expressly requested in writing. Certificates
are not issued for fractional shares.
OPENING AN ACCOUNT DIRECTLY WITH A FUND: Investors may open a regular
(non-retirement) account directly with a Fund, either by mail or by wire.
BY MAIL: Investors should complete a New Account Application and forward it,
along with a check made payable to the Fund, to:
Nations Fund
P.O. Box 34602
Charlotte, NC 28254-4602
BY WIRE: Investors should call Investor Services at 1-800-982-2271 for an
account number and use the following wire instructions:
Nations Fund
c/o Boston Safe Deposit & Trust
ABA #011001234
DDA #154202
Account Name
Account Number
Fund Name
Investors should complete a New Account Application and mail it to the address
above.
ADDITIONAL PURCHASES: Additional purchases may be made by mail or wire. To
purchase additional shares by mail, send a check made payable to the Fund with a
reinvestment slip to the address set forth above. To purchase additional shares
by wire, follow the wiring instructions set forth above.
41
<PAGE>
EFFECTIVE TIME OF PURCHASES: Purchase orders for Investor A Shares in the Funds
which are received by Stephens or by the Transfer Agent before the close of
regular trading hours on the Exchange (currently 4:00 p.m., Eastern time) on any
Business Day are priced according to the net asset value determined on that day
but are not executed until 4:00 p.m., Eastern time, on the Business Day on which
immediately available funds in payment of the purchase price are received by the
Funds' Custodian. Such payment must be received no later than 4:00 p.m., Eastern
time, by the third Business Day following receipt of the order. If funds are not
received by such date, the order will not be accepted and notice thereof will be
given to the Agent placing the order. Payment for orders which are not received
or accepted will be returned after prompt inquiry to the sending Agent.
The Agents are responsible for transmitting orders for purchases of Investor A
Shares by their customers ("Customers"), and delivering required funds, on a
timely basis. Stephens is responsible for transmitting orders it receives to
Nations Fund.
SYSTEMATIC INVESTMENT PLAN: Under the Funds' Systematic Investment Plan ("SIP")
a shareholder may automatically purchase Investor A Shares. On a bi-monthly,
monthly or quarterly basis, a shareholder may direct cash to be transferred
automatically from his/her checking or savings account at any bank which is a
member of the Automated Clearing House to his/her Fund account. Transfers will
occur on or about the 15th and/or 30th day of the applicable month. The
systematic investment amount may be in any amount from $25 to $100,000. For more
information concerning the SIP, contact your Agent or Investor Services.
TELEPHONE TRANSACTIONS: Investors may effect purchases, redemptions (up to
$50,000) and exchanges by telephone. See "How To Redeem Shares" and "How To
Exchange Shares" below. Shareholders should be aware that by using the telephone
transaction feature, such shareholders may be giving up a measure of security
that they may have if they were to authorize written requests only. A
shareholder may bear the risk of any resulting losses from a telephone
transaction. Nations Fund will employ reasonable procedures to confirm that
instructions communicated by telephone are genuine, and if Nations Fund and its
service providers fail to employ such measures, they may be liable for any
losses due to unauthorized or fraudulent instructions. Nations Fund requires a
form of personal identification prior to acting upon instructions received by
telephone and provides written confirmation to shareholders of each telephone
share transaction. In addition, Nations Fund reserves the right to record all
telephone conversations.
How To Redeem Shares
For shareholders who open and maintain an account directly with a Fund,
redemption orders should be communicated to such Fund by calling Investor
Services at 1-800-982-2271 or in writing. (Shareholders must have established
telephone features on their account in order to effect telephone transactions.)
Redemption proceeds are normally sent by mail or wired within three Business
Days after receipt of the order by the Fund. For shareholders who purchased
their shares through an Agent, redemption orders should be transmitted by
telephone or in writing through the same Agent. Redemption proceeds are normally
wired to the redeeming Agent within three Business Days after receipt of the
order by Stephens or by the Transfer Agent. Redemption orders are effected at
the net asset value per share next determined after receipt of the order by the
Fund, Stephens, or the Transfer Agent, as the case may be. The Agents are
responsible for transmitting redemption orders to Stephens or to the Transfer
Agent and for crediting their Customer's account with the redemption proceeds on
a timely basis. Redemption proceeds for shares purchased by check may not be
remitted until at least 15 days after the
42
<PAGE>
date of purchase to ensure that the check has cleared; a certified check,
however, is deemed to be cleared immediately. No charge for wiring redemption
payments is imposed by Nations Fund. There is no redemption charge.
Nations Fund may redeem a shareholder's Investor A Shares upon 60 days' written
notice if the balance in the shareholder's account drops below $500 as a result
of redemptions. Share balances also may be redeemed at the direction of an Agent
pursuant to arrangements between the Agent and its Customers. Nations Fund also
may redeem shares of a Fund involuntarily or make payment for redemption in
readily marketable securities or other property under certain circumstances in
accordance with the 1940 Act.
Prior to effecting a redemption of Investor A Shares represented by
certificates, the Transfer Agent must have received such certificates at its
principal office. All such certificates must be endorsed by the redeeming
shareholder or accompanied by a signed stock power, in each instance with the
signature guaranteed by a commercial bank or a member of a major stock exchange,
unless other arrangements satisfactory to Nations Fund have previously been
made. Nations Fund may require any additional information reasonably necessary
to evidence that a redemption has been duly authorized.
CONTINGENT DEFERRED SALES CHARGE: Subject to certain waivers specified below,
Investor A Shares of the Funds that were purchased prior to January 1, 1996 in
amounts of $1 million or more or through the Nations Fund Personal Investment
Planner may be subject to a CDSC equal to 1.00% of the lesser of the net asset
value or the purchase price of the shares being redeemed if such shares are
redeemed within one year of purchase, declining to 0.50% in the second year
after purchase and eliminated thereafter. No CDSC is imposed on increases in net
asset value above the initial purchase price, including shares acquired by
reinvestment of distributions.
Solely for purposes of determining the period of time that has elapsed from the
purchase of any Investor A Shares, all purchases are deemed to have been made on
the trade date of the transaction. In determining whether a CDSC is applicable
to a redemption, the calculation will be made in the manner that results in the
lowest possible charge being assessed. In this regard, it will be assumed that
the redemption is first of shares held for the longest period of time or shares
acquired pursuant to reinvestment of dividends or distributions. The charge will
not be applied to dollar amounts representing an increase in the net asset value
since the time of purchase.
The CDSC will be waived on redemptions of Investor A Shares (i) following the
death or disability (as defined in the Internal Revenue Code of 1986, as amended
(the "Code")) of a shareholder (including a registered joint owner), (ii)
effected pursuant to Nations Fund's right to liquidate a shareholder's account,
including instances where the aggregate net asset value of the Investor A Shares
held in the account is less than the minimum account size, and (iii) effected
pursuant to the Automatic Withdrawal Plan discussed below, provided that such
redemptions do not exceed, on an annual basis, 12% of the net asset value of the
Investor A Shares in the account. Shareholders are responsible for providing
evidence sufficient to establish that they are eligible for any waiver of the
CDSC.
Within 120 days after a redemption of Investor A Shares of a Fund, a shareholder
may reinvest any portion of the proceeds of such redemption in Investor A Shares
of the same Fund. The amount which may be so reinvested is limited to an amount
up to, but not exceeding, the redemption proceeds (or to the nearest full share
if fractional shares are not purchased). A shareholder exercising this privilege
would receive a pro rata credit for any CDSC paid in connection with the prior
redemption. A shareholder may not exercise this privilege with the proceeds of a
redemption of shares previously purchased through the reinvestment privilege. In
order to exercise this privilege, a written order for the purchase of Investor A
Shares must be received by the Transfer Agent or by Stephens within 120 days
after the redemption.
AUTOMATIC WITHDRAWAL PLAN: An Automatic Withdrawal Plan ("AWP") may be
established by a new or existing shareholder of the Funds if the value of the
Investor A Shares in his/her
43
<PAGE>
accounts within the Nations Fund Family (valued at the net asset value at the
time of the establishment of the AWP) equals $10,000 or more. Investor A Shares
redeemed under the AWP will not be subject to a CDSC, provided that the shares
so redeemed do not exceed, on an annual basis, 12% of the net asset value of the
Investor A Shares in the account. Otherwise, any applicable CDSC will be imposed
on shares redeemed under the AWP. Shareholders who elect to establish an AWP may
receive a monthly, quarterly or annual check or automatic transfer to a checking
or savings account in a stated amount of not less than $25 on or about the 10th
or 25th day of the applicable month of withdrawal. Investor A Shares will be
redeemed (net of any applicable CDSC) as necessary to meet withdrawal payments.
Withdrawals will reduce principal and may eventually deplete the shareholder's
account. If a shareholder desires to establish an AWP after opening an account,
a signature guarantee will be required. An AWP may be terminated by a
shareholder on 30 days' written notice to his/her Agent or by Nations Fund at
any time.
How To Exchange Shares
GENERAL: The exchange feature enables a shareholder of a fund of Nations Fund to
acquire shares of the same class that are offered by any other fund of Nations
Fund when the shareholder believes that a shift between funds is an appropriate
investment decision. A qualifying exchange is based on the next calculated net
asset value per share of each fund after the exchange order is received.
For shareholders who maintain an account directly with a Fund, exchange requests
should be communicated to the Fund by calling Investor Services at
1-800-982-2271 or in writing. For shareholders who purchased their shares
through an Agent, exchange requests should be communicated to the Agent, who is
responsible for transmitting the request to Stephens or to the Transfer Agent.
The Funds and each of the other funds of Nations Fund may limit the number of
times this exchange feature may be exercised by a shareholder within a specified
period of time. Also, the exchange feature may be terminated or revised at any
time by Nations Fund upon such notice as may be required by applicable
regulatory agencies (presently 60 days for termination or material revision),
absent unusual circumstances.
The current prospectus for each fund of Nations Fund describes its investment
objective and policies, and shareholders should obtain a copy and examine it
carefully before investing. Exchanges are subject to the minimum investment
requirement and any other conditions imposed by each fund. In the case of any
shareholder holding a share certificate or certificates, no exchanges may be
made until all applicable share certificates have been received by the Transfer
Agent and deposited in the shareholder's account. An exchange will be treated
for Federal income tax purposes the same as a redemption of shares, on which the
shareholder may realize a capital gain or loss. And, the ability to deduct
capital losses on an exchange may be limited in situations where there is an
exchange of shares within 90 days after the shares are purchased.
The Investor A Shares exchanged must have a current value of at least $1,000
(except for exchanges through the Automatic Exchange Feature, which is described
below). Nations Fund reserves the right to reject any exchange request. Only
shares that may legally be sold in the state of the shareholder's residence may
be acquired in an exchange. Only shares of a class that is accepting investments
generally may be acquired in an exchange. During periods of significant economic
or market change, telephone exchanges may be difficult to complete. In such
event, shareholders should consider communicating their exchange requests by
mail.
If Investor A Shares of the Funds purchased prior to January 1, 1996 are
exchanged for shares of the same class of another fund, any CDSC applicable to
the original shares
pur-
44
<PAGE>
chased will be applied upon the redemption of the acquired shares. The holding
period of such Investor A Shares (for purposes of determining whether a CDSC is
applicable upon redemption) will be computed from the time of the initial
purchase of the Investor A Shares of a Fund.
Investor A Shares of Nations Short-Term Municipal Income Fund acquired directly
or indirectly through an exchange from Investor N Shares of another non-money
market fund may be re-exchanged only for Investor N Shares of another non-money
market fund, Investor C Shares of a Nations Fund money market fund or Investor A
Shares of Nations Short-Term Income Fund. Such shares (and any Investor A or
Investor C Shares acquired through the exchange of such shares) will remain
subject to the CDSC schedule applicable to the Investor N Shares originally
purchased. The holding period (for the purpose of determining the applicable
rate of the CDSC) does not accrue while the shares owned are Investor A Shares
of Nations Short-Term Municipal Income Fund or Nations Short-Term Income Fund or
Investor C Shares of a Nations Fund money market fund. The CDSC that is
ultimately charged upon redemption is based upon the total period of time the
shareholder holds Investor N Shares of any fund that charges a CDSC.
AUTOMATIC EXCHANGE FEATURE: Under the Funds' Automatic Exchange Feature ("AEF")
a shareholder may automatically exchange at least $25 on a monthly or quarterly
basis. A shareholder may direct proceeds to be exchanged from one fund of
Nations Fund to another as allowed by the applicable exchange rules within the
prospectus. Exchanges will occur on or about the 15th or 30th day of the
applicable month. The shareholder must have an existing position in both funds
in order to establish the AEF. This feature may be established by directing a
request to the Transfer Agent by telephone or in writing. For additional
information, a shareholder should contact his/her Selling Agent or Investor
Services.
Shareholder Servicing And Distribution
Plan
The Funds' Shareholder Servicing and Distribution Plan (the "Investor A Plan"),
adopted pursuant to Rule 12b-1 under the 1940 Act, permits each Fund to
compensate (i) Servicing Agents and Selling Agents for services provided to
their Customers that own Investor A Shares and (ii) Stephens for
distribution-related expenses incurred in connection with Investor A Shares.
Nations Short-Term Municipal Income Fund, however, may not pay for shareholder
services under the Investor A Plan. Aggregate payments under the Investor A Plan
are calculated daily and paid monthly at a rate or rates set from time to time
by each Fund, provided that the annual rate may not exceed 0.25% of the average
daily net asset value of the Investor A Shares of the Fund.
The fees payable to Servicing Agents under the Investor A Plan are used
primarily to compensate or reimburse Servicing Agents for shareholder services
provided, and related expenses incurred, by such Servicing Agents. The
shareholder services provided by Servicing Agents may include: (i) aggregating
and processing purchase and redemption requests for Investor A Shares from
Customers and transmitting net purchase and redemption orders to Stephens or the
Transfer Agent; (ii) providing Customers with a service that invests the assets
of their accounts in Investor A Shares pursuant to specific or preauthorized
instructions; (iii) processing dividend and distribution payments from a Fund on
behalf of Customers; (iv) providing information periodically to Customers
showing their positions in Investor A Shares; (v) arranging for bank wires; and
(vi) providing general shareholder liaison services. Nations Short-Term
Municipal Income Fund, however, may not pay for shareholder services under the
Investor A Plan. The fees pay-
45
<PAGE>
able to Selling Agents are used primarily to compensate or reimburse Selling
Agents for providing sales support assistance in connection with the sale of
Investor A Shares to Customers, which may include forwarding sales literature
and advertising provided by Nations Fund to Customers.
The fees under the Investor A Plan also may be used to reimburse Stephens for
distribution-related expenses actually incurred by Stephens, including, but not
limited to, expenses of organizing and conducting sales seminars, printing
prospectuses and statements of additional information (and supplements thereto)
and reports for other than existing shareholders, preparation and distribution
of advertising and sales literature and the costs of administering the Investor
A Plan.
Stephens may, from time to time, at its expense or as an expense for which it
may be reimbursed under the Investor A Plan, pay a bonus or other consideration
or incentive to Agents who sell a minimum dollar amount of shares of the Funds
during a specified period of time. Stephens also may, from time to time, pay
additional consideration to Agents not to exceed 1.00% of the offering price per
share on all sales of Investor A Shares as an expense of Stephens or for which
Stephens may be reimbursed under the Investor A Plan or upon receipt of a CDSC.
Any such additional consideration or incentive program may be terminated at any
time by Stephens.
In addition, Stephens has established a non-cash compensation program, pursuant
to which broker/dealers or financial institutions that sell shares of the Funds
may earn additional compensation in the form of trips to sales seminars or
vacation destinations, tickets to sporting events, theater or other
entertainment, opportunities to participate in golf or other outings and gift
certificates for meals or merchandise. This non-cash compensation program may be
amended or terminated at any time by Stephens.
Nations Fund and Stephens may suspend or reduce payments under the Investor A
Plan at any time, and payments are subject to the continuation of the Investor A
Plan described above and the terms of the Servicing Agreements and Sales Support
Agreements. See the SAI for more details on the Investor A Plan.
In addition, the Trustees have approved a Shareholder Servicing Plan (the
"Servicing Plan") with respect to the Investor A Shares of the Nations
Short-Term Municipal Income Fund. Pursuant to its Servicing Plan, the Nations
Short-Term Municipal Income Fund may pay Servicing Agents that have entered into
a Servicing Agreement with Nations Fund for certain shareholder support services
that are provided by the Servicing Agents. Payments under the Fund's Servicing
Plan may not exceed 0.25% of the average daily net asset value of the Fund's
Investor A Shares. The shareholder services provided by Servicing Agents
include, but are not limited to, those listed above with respect to the Investor
A Plan.
Nations Fund may suspend or reduce payments under the Servicing Plan at any
time, and payments are subject to the continuation of the Servicing Plan
described above and the terms of the Servicing Agreements. See the SAI for more
details on the Servicing Plan.
Nations Fund understands that Agents may charge fees to their Customers who are
the owners of Investor A Shares for various services provided in connection with
a Customer's account. These fees would be in addition to any amounts received by
a Selling Agent under its Sales Support Agreement with Stephens or by a
Servicing Agent under its Servicing Agreement with Nations Fund. The Sales
Support Agreements and Servicing Agreements require Agents to disclose to their
Customers any compensation payable to the Agent by Stephens or Nations Fund and
any other compensation payable by the Customers for various services provided in
connection with their accounts. Customers should read this Prospectus in light
of the terms governing their accounts with their Agents.
46
<PAGE>
How The Funds Value Their Shares
The Funds calculate the net asset value of a share of each class by dividing the
total value of its assets, less liabilities, by the number of shares in the
class outstanding. Shares are valued as of the close of regular trading on the
Exchange (currently 4:00 p.m., Eastern time) on each Business Day. Currently,
the days on which the Exchange is closed (other than weekends) are: New Year's
Day, Presidents' Day, Good Friday, Memorial Day (observed), Independence Day,
Labor Day, Thanksgiving Day and Christmas Day.
Portfolio securities for which market quotations are readily available are
valued at market value. Short-term investments that will mature in 60 days or
less are valued at amortized cost, which approximates market value. All other
securities and assets are valued at their fair value following procedures
approved by the Trustees.
How Dividends And Distributions Are
Made; Tax Information
DIVIDENDS AND DISTRIBUTIONS: Dividends from net investment income are declared
daily and paid monthly by the Funds. Each Fund's net realized capital gains
(including net short-term capital gains) are distributed at least annually.
Distributions from capital gains are made after applying any available capital
loss carryovers. Distributions paid by the Funds with respect to one class of
shares may be greater or less than those paid with respect to another class of
shares due to the different expenses of the different classes.
The net asset value of Investor A Shares will be reduced by the amount of any
dividend or distribution. Certain Selling or Servicing Agents may provide for
the reinvestment of dividends in the form of additional Investor A Shares of the
same class of the same Fund. Dividends and distributions are paid in cash within
five Business Days of the end of the month or quarter to which the dividend
relates. Dividends and distributions payable to a shareholder are paid in cash
within five Business Days after a shareholder's complete redemption of his/her
Investor A Shares.
TAX INFORMATION: Each Fund intends to qualify as a "regulated investment
company" under the Code. Such qualification relieves a Fund of liability for
Federal income tax on amounts distributed in accordance with the Code.
As regulated investment companies, the Funds are permitted to pass through to
their shareholders tax-exempt income ("exempt-interest dividends") subject to
certain requirements which the Funds intend to satisfy. Distributions from
taxable income will be taxable as ordinary income to shareholders whether such
income is received in cash or reinvested in additional shares. The policy of the
Funds is to pay to their shareholders an amount equal to at least 90% of their
exempt-interest income and their investment company taxable income.
Exempt-interest dividends may be treated by shareholders as items of interest
excludable from their Federal gross income under Section 103(a) of the Code
unless under the circumstances applicable to the particular shareholder the
exclusion would be disallowed. (See the SAI under "Additional Information
Concerning Taxes.") Distributions from the Funds will not qualify for the
dividends-received deduction for corporate shareholders. Distributions of net
investment income by Nations Municipal Income Fund, Nations Short-Term Municipal
Income Fund and Nations Intermediate Municipal Bond Fund may be taxable to
investors even though a substantial portion of such distributions may be derived
from interest on tax-exempt obligations which, if realized directly, would be
exempt from such income tax.
47
<PAGE>
Substantially all of a Fund's net realized long-term capital gains will be
distributed at least annually. The Funds will generally have no tax liability
with respect to such gains, and the distributions will be taxable to
shareholders as long-term capital gains, regardless of how long the shareholders
have held the Fund's shares and whether such gains are received in cash or
reinvested in additional shares.
Each year, shareholders will be notified as to the amount and federal tax status
of all dividends and capital gains paid during the prior year. Such dividends
and capital gains may be subject to state and local taxes, as discussed more
fully below and in the SAI.
Dividends declared in October, November, or December of any year payable to
shareholders of record on a specified date in such months will be deemed to have
been received by shareholders and paid by a Fund on December 31 of such year in
the event such dividends are actually paid during January of the following year.
Federal law requires Nations Fund to withhold 31% from any dividends (other than
exempt-interest dividends) paid by Nations Fund and/or redemptions (including
exchange redemptions) that occur in certain shareholder accounts if the
shareholder has not properly furnished a certified correct Taxpayer
Identification Number and has not certified that withholding does not apply, or
if the Internal Revenue Service has notified Nations Fund that the Taxpayer
Identification Number listed on a shareholder account is incorrect according to
its records, or that the shareholder is subject to backup withholding. Amounts
withheld are applied to the shareholder's Federal tax liability, and a refund
may be obtained from the Internal Revenue Service if withholding results in
overpayment of taxes. Federal law also requires the Funds to withhold 30% or the
applicable tax treaty rate from dividends paid to certain nonresident alien,
non-U.S. partnership and non-U.S. corporation shareholder accounts.
If any of the Funds should hold certain private activity bonds issued after
August 7, 1986, shareholders must include, as an item of tax preference, the
portion of dividends paid by the Fund that is attributable to interest on such
bonds in their Federal alternative minimum taxable income for purposes of
determining liability (if any) for the 28% alternative minimum tax applicable to
individuals and the 20% alternative minimum tax and the environmental tax
applicable to corporations. Corporate shareholders must also take all
exempt-interest dividends into account in determining certain adjustments for
Federal alternative minimum and environmental tax purposes. The environmental
tax applicable to corporations is imposed at the rate of 0.12% on the excess of
the corporation's modified Federal alternative minimum taxable income over
$2,000,000. Shareholders receiving Social Security benefits should note that all
exempt-interest dividends will be taken into account in determining the
taxability of such benefits.
With respect to the State Intermediate Municipal Bond Funds and the State
Municipal Bond Funds, it is anticipated that exempt-interest dividends derived
from tax-exempt interest paid on municipal obligations of the pertinent state
and that state's political subdivisions, agencies, instrumentalities, and
authorities, and certain other issuers, including Puerto Rico and Guam, will be
exempt from state income tax with respect to those states which impose a state
income tax. Florida and Texas do not impose income taxes, but Florida imposes a
tax upon intangible personal property which may apply to shares of Nations
Florida Intermediate Municipal Bond Fund and Nations Florida Municipal Bond Fund
held by residents of that state. Florida has issued a Technical Assistance
Advisement indicating that shares of such Funds will not be subject to Florida's
intangibles tax, subject to certain requirements which the Funds intend to
satisfy. See the SAI for further details about state tax treatment relevant to
shareholders of the Funds.
In addition to annual disclosures as to Federal tax consequences of dividends
and distributions, shareholders of the State Intermediate Municipal Bond Funds
and the State Municipal Bond Funds will also be advised as to the state tax
consequences of dividends and distributions made each year.
48
<PAGE>
The foregoing discussion is based on tax laws and regulations which were in
effect as of the date of this Prospectus and summarizes only some of the
important tax considerations generally affecting the Funds and their
shareholders. It is not intended as a substitute for careful tax planning.
Accordingly, potential investors should consult their tax advisors with specific
reference to their own tax situations. Further tax information is contained in
the SAI.
Appendix A -- Portfolio Securities
The following are summary descriptions of certain types of instruments in which
a Fund may invest. The "How Objectives Are Pursued" section of the Prospectus
identifies each Fund's permissible investments, and the SAI contains more
information concerning such investments.
BANK INSTRUMENTS: Bank instruments consist mainly of certificates of deposit,
time deposits and bankers' acceptances. Each Fund will limit its investments in
bank obligations so they do not exceed 25% of each Fund's total assets at the
time of purchase.
U.S. dollar-denominated obligations issued by foreign branches of domestic banks
("Eurodollar" obligations) and domestic branches of foreign banks ("Yankee
dollar" obligations) and other foreign obligations involve special investment
risks, including the possibility that liquidity could be impaired because of
future political and economic developments, the obligations may be less
marketable than comparable domestic obligations of domestic issuers, a foreign
jurisdiction might impose withholding taxes on interest income payable on such
obligations, deposits may be seized or nationalized, foreign governmental
restrictions such as exchange controls may be adopted which might adversely
affect the payment of principal of and interest on such obligations, the
selection of foreign obligations may be more difficult because there may be less
publicly available information concerning foreign issuers, there may be
difficulties in enforcing a judgment against a foreign issuer or the accounting,
auditing and financial reporting standards, practices and requirements
applicable to foreign issuers may differ from those applicable to domestic
issuers. In addition, foreign banks are not subject to examination by U.S.
Government agencies or instrumentalities.
BORROWINGS: When a Fund borrows money, the net asset value of a share may be
subject to greater fluctuation until the borrowing is paid off. The Funds may
borrow money from banks for temporary purposes in amounts of up to one-third of
their respective total assets, provided that borrowings in excess of 5% of the
value of the Funds' total assets must be repaid prior to the purchase of
portfolio securities. 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.
FIXED-INCOME INVESTING: The performance of the fixed-income debt component of a
Fund's portfolio depends primarily on interest rate changes, the average
weighted maturity of the portfolio and the quality of the securities held. The
debt component of a Fund's portfolio will tend to decrease in value when
interest rates rise and increase when interest rates fall. A Fund's share price
and yield depend, in part, on the maturity and quality of its debt instruments.
FUTURES, OPTIONS AND OTHER DERIVATIVE INSTRUMENTS: Certain of the Funds may
attempt to reduce the overall level of investment risk of particular securities
and attempt to protect a Fund against adverse market movements by investing in
futures, options and other derivative instruments. These include the purchase
and writing of options on securities (including index options) and options on
foreign currencies, and investing in futures contracts for the purchase or sale
of instruments based on financial indices, including interest rate indices or
indices of U.S. or foreign government, equity or fixed income securities
("futures contracts"), options on futures contracts, forward contracts and
49
<PAGE>
swaps and swap-related products such as interest rate swaps, currency swaps,
caps, collars and floors.
The use of futures, options, forward contracts and swaps exposes a Fund to
additional investment risks and transaction costs. If the Adviser incorrectly
analyzes market conditions or does not employ the appropriate strategy with
respect to these instruments, a Fund could be left in a less favorable position.
Additional risks inherent in the use of futures, options, forward contracts and
swaps include: imperfect correlation between the price of futures, options and
forward contracts and movements in the prices of the securities or currencies
being hedged; the possible absence of a liquid secondary market for any
particular instrument at any time; and the possible need to defer closing out
certain hedged positions to avoid adverse tax consequences. A Fund may not
purchase put and call options which are traded on a national stock exchange in
an amount exceeding 5% of its net assets. Further information on the use of
futures, options and other derivative instruments, and the associated risks, is
contained in the SAI.
ILLIQUID SECURITIES: Certain securities may be sold only pursuant to certain
legal restrictions, and may be difficult to sell. The Funds will not hold more
than 15% of the value of their respective net assets in securities that are
illiquid or such lower percentage as may be required by the states in which the
appropriate Fund sells its shares. Repurchase agreements, time deposits and
guaranteed investment contracts that do not provide for payment to a Fund within
seven days after notice, and illiquid restricted securities are subject to the
limitation on illiquid securities. In addition, interests in privately arranged
loans acquired by the State Intermediate Municipal Bond Funds and the State
Municipal Bond Funds may be subject to this limitation.
If otherwise consistent with their investment objectives and policies, certain
Funds may purchase securities that are not registered under the Securities Act
of 1933, as amended (the "1933 Act") but which can be sold to "qualified
institutional buyers" in accordance with Rule 144A under the 1933 Act, or which
were issued under Section 4(a) 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
the Adviser, acting under guidelines approved and monitored by the Fund's Board,
after considering trading activity, availability of reliable price information
and other relevant information, that an adequate trading market exists for that
security. To the extent that, for a period of time, qualified institutional 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
50
<PAGE>
speculative purposes. A Fund will not sell interest rate caps or floors that it
does not own.
MONEY MARKET INSTRUMENTS: The term "money market instruments" refers to
instruments with remaining maturities of one year or less. Money market
instruments may include, among other instruments, certain U.S. Treasury
obligations, U.S. Government obligations, bank instruments, commercial
instruments, repurchase agreements and municipal securities. Such instruments
are described in this Appendix A.
MUNICIPAL SECURITIES: The two principal classifications of Municipal Securities
are "general obligation" securities and "revenue" securities. General obligation
securities are secured by the issuer's pledge of its full faith, credit, and
taxing power for the payment of principal and interest. Revenue securities are
payable only from the revenues derived from a particular facility or class of
facilities or, in some cases, from the proceeds of a special excise tax or other
specific revenue source such as the user of the facility being financed. Private
activity bonds held by a Fund are in most cases revenue securities and are not
payable from the unrestricted revenues of the issuer. Consequently, the credit
quality of private activity bonds is usually directly related to the credit
standing of the corporate user of the facility involved.
Municipal Securities may include "moral obligation" bonds, which are normally
issued by special purpose public authorities. If the issuer of moral obligation
bonds is unable to meet its debt service obligations from current revenues, it
may draw on a reserve fund, the restoration of which is a moral commitment but
not a legal obligation of the state or municipality which created the issuer.
Municipal Securities may include variable- or floating-rate instruments issued
by industrial development authorities and other governmental entities. While
there may not be an active secondary market with respect to a particular
instrument purchased by a Fund, a Fund may demand payment of the principal and
accrued interest on the instrument or may resell it to a third party as
specified in the instruments. The absence of an active secondary market,
however, could make it difficult for a Fund to dispose of the instrument if the
issuer defaulted on its payment obligation or during periods the Fund is not
entitled to exercise its demand rights, and the Fund could, for these or other
reasons, suffer a loss.
Some of these instruments may be unrated, but unrated instruments purchased by a
Fund will be determined by the Adviser to be of comparable quality at the time
of purchase to instruments rated "high quality" by any major rating service.
Where necessary to ensure that an instrument is of comparable "high quality," a
Fund will require that an issuer's obligation to pay the principal of the note
may be backed by an unconditional bank letter or line of credit, guarantee, or
commitment to lend.
Municipal Securities may include participations in privately arranged loans to
municipal borrowers, some of which may be referred to as "municipal leases."
Generally such loans are unrated, in which case they will be determined by the
Adviser to be of comparable quality at the time of purchase to rated instruments
that may be acquired by a Fund. Frequently, privately arranged loans have
variable interest rates and may be backed by a bank letter of credit. In other
cases, they may be unsecured or may be secured by assets not easily liquidated.
Moreover, such loans in most cases are not backed by the taxing authority of the
issuers and may have limited marketability or may be marketable only by virtue
of a provision requiring repayment following demand by the lender. Such loans
made by a Fund may have a demand provision permitting the Fund to require
payment within seven days. Participations in such loans, however, may not have
such a demand provision and may not be otherwise marketable. To the extent these
securities are illiquid, they will be subject to each Fund's limitation on
investments in illiquid securities. Recovery of an investment in any such loan
that is illiquid and payable on demand may depend on the ability of the
municipal borrower to meet an obligation for full repayment of principal and
payment of accrued interest within the demand period, normally seven days or
less (unless a Fund determines that a particular loan issue, unlike most such
loans, has a readily avail-
51
<PAGE>
able market). As it deems appropriate, the Adviser will establish procedures to
monitor the credit standing of each such municipal borrower, including its
ability to meet contractual payment obligations.
Municipal Securities may include units of participation in trusts holding pools
of tax-exempt leases. Municipal participation interests may be purchased from
financial institutions, and give the purchaser an undivided interest in one or
more underlying municipal security. To the extent that municipal participation
interests are considered to be "illiquid securities," such instruments are
subject to each Fund's limitation on the purchase of illiquid securities.
Municipal leases and participating interests therein which may take the form of
a lease or an installment sales contract, are issued by state and local
governments and authorities to acquire a wide variety of equipment and
facilities. Interest payments on qualifying leases are exempt from Federal
income tax.
In addition, certain of the Funds may acquire "stand-by commitments" from banks
or broker/dealers with respect to municipal securities held in their portfolios.
Under a stand-by commitment, a dealer would agree to purchase at a Fund's option
specified Municipal Securities at a specified price. A Fund will acquire
stand-by commitments solely to facilitate portfolio liquidity and do not intend
to exercise their rights thereunder for trading purposes.
Although the Funds do not presently intend to do so on a regular basis, each may
invest more than 25% of its total assets in Municipal Securities the interest on
which is paid solely from revenues of similar projects if such investment is
deemed necessary or appropriate by the Adviser. To the extent that more than 25%
of a Fund's total assets are invested in Municipal Securities that are payable
from the revenues of similar projects, a Fund will be subject to the peculiar
risks presented by such projects to a greater extent than it would be if its
assets were not so concentrated.
Since each of the State Intermediate Municipal Bond Funds and the State
Municipal Bond Funds will invest primarily in securities issued by issuers
located in one state, each of these Funds is susceptible to changes in value due
to political and economic factors affecting that state's issuers. A comparable
municipal bond fund which is not concentrated in obligations issued by issuers
located in one state would be less susceptible to these risks. If any issuer of
securities held by one of these Funds is unable to meets its financial
obligations, that Fund's income, capital, and liquidity may be adversely
affected.
The fourth most populous state, Florida, rated "Aa" by Moody's and "AA" by both
S&P and Fitch, has been and continues to be a leading tourist and retiree
destination. Florida's growing population and manageable debt load are just two
of the factors that will help Florida remain a solid investment. Led by the
service, construction and trade sectors, job growth in Florida has rebounded
from the lows of 1991-1992 and is projected to be almost double the national
average for 1996. Tourism was back in 1995 after it had suffered in the prior
two years due to hurricane Andrew and a rash of violent crimes involving foreign
tourists.
The state of Georgia has one of the best debt structures in the country, hence
the "Aaa" by Moody's, and "AAA" rating by both S&P and Fitch. The population of
Georgia has been growing at twice the national rate for the past four years. Job
growth and economic expansion have been outstanding in recent years, as Georgia
prepares to host the 1996 Summer Olympic Games. Following the Olympics,
Georgia's economy should continue to expand, albeit at a slightly lower rate.
This is due in part to Georgia's competitive manufacturing base, and the diverse
service and transportation center of Atlanta.
Maryland is one of the wealthiest states in the U.S. and has been able to
maintain its "Aaa" rating by Moody's, and "AAA" rating by both Fitch and S&P,
despite the contraction of government and defense related industries. Maryland's
economic base is highly diversified with a lower than average dependence on
manufacturing. Slow growth in Maryland is expected to continue, as government
cutbacks and downsizing reduce the employment opportunities within the
52
<PAGE>
state. Debt ratios are moderate and, with Maryland ranked fifth in per capita
income, it's no surprise that income taxes and highway use taxes provide the
vast majority of support for general obligation debt. As defense cutbacks
continue, Maryland's dependence on income taxes could depress growth within the
state below national levels.
North Carolina, rated "Aaa" by Moody's, and "AAA" by both S&P and Fitch, has
benefited from an inflow of people as well as businesses. This is due in part to
North Carolina's affordable housing, above-average growth in per capita income
and below-average cost of doing business. North Carolina's declining textile
industry has begun to give way to the high-tech and financial sectors, as
evidenced by the title of "Banking Center of the South." Consequently, high wage
job growth has been expanding at a pace greater than national averages and is
expected to continue to do so for the foreseeable future.
The dominance of the manufacturing sector has been both a positive and a
negative for South Carolina. On the positive side, the expansion of
manufacturing, specifically autos and related parts, has lessened the impact of
the naval base closure in Charleston and provided a much needed infusion of new
jobs. On the negative side, the cyclical nature of South Carolina's
manufacturing economy has kept per capita income below national levels and
considerably below regional levels. That said, South Carolina's low debt burden,
strong security arrangements and lack of credit extension have led to a "Aaa"
rating by Moody's, "AA+" rating by S&P and a "AAA" rating by Fitch, for the
state. Combine this with a conservative plan of finance, and South Carolina
looks to be in a very strong financial position, despite its reliance on the
manufacturing sector.
Tennessee's very low debt burden, nearly exclusive use of general obligation
debt and conservative financial policies all combine to give the state of
Tennessee a "Aaa" rating by Moody's, "AA+" rating by S&P, and a "AAA" rating by
Fitch. Tennessee's economy remains in a developing mode, as the state continues
to shift its growth in manufacturing output to autos (Tennessee ranks third in
the nation in automobile production) and related products from textiles.
Tennessee relies on sales tax revenues as a main source of funds. This could
prove to be a limiting factor were it not for Tennessee's strong pattern of job
growth and growing population.
Texas has proven its ability to adapt and rebound to a changing economic
environment, both within the state and abroad. Texas has also historically taken
a conservative approach to financial management, as is reflected in the state's
"Aa" rating by Moody's, "AA" rating by S&P, and "AA-" rating by Fitch. Although
Texas has consistently led the U.S. in employment growth, unemployment in Texas
is above the national average. This is due, in part, to the heavy migration into
the state (in 1994 Texas replaced New York as the second most populous state).
Look for economic conditions in Texas to improve further as Mexico comes out of
its economic dilemma.
The state of Virginia has earned its "Aaa" rating by Moody's and "AAA" rating by
S&P and Fitch, by having a low relative tax rate, high per capita income and
strong growth in service sector jobs. A very high share of Virginia's population
is college educated, so it's no surprise that Virginia has the highest per
capita income of any of the southern states. Virginia has also maintained a low
unemployment rate despite strong growth in the labor force. Although it has a
large exposure to defense and related industries, Virginia's prudent financial
management and low debt burden should help to insulate it from any government
cutbacks in those areas.
There can be no assurance that the economic conditions on which the above
ratings for a specific state are based will continue or that particular bond
issues may not be adversely affected by changes in economic or political
conditions. More detailed information about matters relating to each of the
State Intermediate Municipal Bond Funds and State Municipal Bond Funds is
contained in the SAI.
OTHER INVESTMENT COMPANIES: Each Fund may invest in securities issued by other
investment companies to the extent that such investments are consistent with the
Fund's invest-
53
<PAGE>
ment objective and policies and permissible under the 1940 Act. As a shareholder
of another investment company, a Fund would bear, along with other shareholders,
its pro rata portion of the other investment company's expenses, including
advisory fees. These expenses would be in addition to the advisory and other
expenses that a Fund bears directly in connection with its own operations.
STOCK INDEX, INTEREST RATE AND CURRENCY FUTURES CONTRACTS: The Funds may
purchase and sell futures contracts and related options with respect to non-U.S.
stock indices, non-U.S. interest rates and foreign currencies, that have been
approved by the CFTC for investment by U.S. investors, for the purpose of
hedging against changes in values of a Fund's securities or changes in the
prevailing levels of interest rates or currency exchange rates. The contracts
entail certain risks, including but not limited to the following: no assurance
that futures contracts transactions can be offset at favorable prices; possible
reduction of a Fund's total return due to the use of hedging; possible lack of
liquidity due to daily limits on price fluctuation; imperfect correlation
between the contracts and the securities or currencies being hedged; and
potential losses in excess of the amount invested in the futures contracts
themselves.
Trading on foreign commodity exchanges presents additional risks. Unlike trading
on domestic commodity exchanges, trading on foreign commodity exchanges is not
regulated by the CFTC and may be subject to greater risks than trading on
domestic exchanges. For example, some foreign exchanges are principal markets
for which no common clearing facility exists and a trader may look only to the
broker for performance of the contract. In addition, unless a Fund hedges
against fluctuations in the exchange rate between the U.S. dollar and the
currencies in which trading is done on foreign exchanges, any profits that such
Fund might realize could be eliminated by adverse changes in the exchange rate,
or the Fund could incur losses as a result of those changes.
U.S. GOVERNMENT OBLIGATIONS: U.S. Government obligations consist of marketable
securities and instruments issued or guaranteed by the U.S. Government or any of
its agencies, authorities or instrumentalities. Direct obligations are issued by
the U.S. Treasury and include all U.S. Treasury instruments. 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 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 Association, 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 banks and corporations
may carry variable or floating rates of interest. Such instruments bear interest
rates which are not fixed, but which vary with changes in specified market rates
or indices, such as a Federal Reserve composite index. A variable-rate demand
instrument is an obligation with a variable or floating interest rate and an
unconditional right of demand on the part of the holder to receive payment of
unpaid principal and accrued interest. An instrument with a demand period
exceeding seven days may be considered illiquid if there is no secondary market
for such security.
54
<PAGE>
WHEN-ISSUED, DELAYED DELIVERY AND FORWARD COMMITMENT SECURITIES: The purchase of
new issues of securities on a "when-issued," "delayed delivery" or "forward
commitment" basis occurs when the payment for and delivery of securities takes
place at a future date. Because actual payment for and delivery of such
securities generally take place 15 to 45 days after the purchase date,
purchasers of such securities bear the risk that interest rates on debt
securities at the time of delivery may be higher or lower than those contracted
for on the security purchased.
Appendix B -- Description Of Ratings
The following summarizes the highest four ratings used by S&P for corporate and
municipal bonds, each of which denotes that the securities are investment grade.
AAA -- This is the highest rating assigned by S&P to a debt obligation and
indicates an extremely strong capacity to pay interest and repay principal.
AA -- Debt rated AA is considered to have a very strong capacity to pay
interest and repay principal and differs from AAA issues only in a small
degree.
A -- Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than debt in higher-rated
categories.
BBB -- Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than for those in
higher-rated categories.
To provide more detailed indications of credit quality, the AA, A and BBB
ratings may be modified by the addition of a plus or minus sign to show relative
standing within these major rating categories.
The following summarizes the highest four ratings used by Moody's for corporate
and municipal bonds, each of which denotes that the securities are investment
grade.
Aaa -- Bonds that are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to
as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such
issues.
Aa -- Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there may
be other elements present which make the long-term risks appear somewhat
larger than in Aaa securities.
A -- Bonds that are rated A possess many favorable investment attributes
and are to be considered upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
Baa -- Bonds that are rated Baa are considered medium grade obligations,
I.E., they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable
over any great length of time. Such bonds lack
out-
55
<PAGE>
standing investment characteristics and in fact have speculative
characteristics as well.
Moody's applies numerical modifiers (1, 2 and 3) with respect to corporate bonds
rated Aa through B. The modifier 1 indicates that the bond being rated ranks in
the higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates that the bond ranks in the lower
end of its generic rating category. With regard to municipal bonds, those bonds
in the Aa, A and Baa groups which Moody's believes possess the strongest
investment attributes are designated by the symbols Aa1, A1 or Baa1,
respectively.
The following summarizes the highest four ratings used by D&P for bonds, each of
which denotes that the securities are investment grade:
AAA -- Bonds that are rated AAA are of the highest credit quality. The risk
factors are considered to be negligible, being only slightly more than for
risk-free U.S. Treasury debt.
AA -- Bonds that are rated AA are of high credit quality. Protection
factors are strong. Risk is modest, but may vary slightly from time to time
because of economic conditions.
A -- Bonds that are rated A have protection factors which are average but
adequate. However, risk factors are more variable and greater in periods of
economic stress.
BBB -- Bonds that are rated BBB have below average protection factors but
still are considered sufficient for prudent investment. Considerable
variability in risk exists during economic cycles.
To provide more detailed indications of credit quality, the AA, A and BBB
ratings may be modified by the addition of a plus or minus sign to show relative
standing within these major categories.
The following summarizes the highest four ratings used by Fitch for bonds, each
of which denotes that the securities are investment grade:
AAA -- Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
AA -- Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated AAA. Because bonds
rated in the AAA and AA categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is
generally rated F-1+.
A -- Bonds considered to be investment grade and of high credit quality.
The obligor's ability to pay interest and repay principal is considered to
be strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.
BBB -- Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these
bonds, and therefore impair timely payment. The likelihood that the ratings
of these bonds will fall below investment grade is higher than for bonds
with higher ratings.
To provide more detailed indications of credit quality, the AA, A and BBB
ratings may be modified by the addition of a plus or minus sign to show relative
standing within these major rating categories.
The following summarizes the two highest ratings used by Moody's for short-term
municipal notes and variable rate demand obligations:
MIG-1/VMIG-1 -- Obligations bearing these designations are of the best
quality, enjoying strong protection from established cash flows, superior
liquidity support or demonstrated broad-based access to the market for
refinancing.
MIG-2/VMIG-2 -- Obligations bearing these designations are of high quality,
with ample margins of protection although not so large as in the preceding
group.
56
<PAGE>
The following summarizes the two highest ratings used by S&P for short-term
municipal notes:
SP-1 -- Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics are given
a "plus" (+) designation.
SP-2 -- Satisfactory capacity to pay principal and interest.
The three highest rating categories of D&P for short-term debt, each of which
denotes that the securities are investment grade, are D-1, D-2 and D-3. D&P
employs three designations, D-1+, D-1 and D-1-, within the highest rating
category. D-1+ indicates highest certainty of timely payment. Short-term
liquidity, including internal operating factors and/or access to alternative
sources of funds, is judged to be "outstanding, and safety is just below
risk-free U.S. Treasury short-term obligations." D-1 indicates very high
certainty of timely payment. Liquidity factors are excellent and supported by
good fundamental protection factors. Risk factors are considered to be minor.
D-1- indicates high certainty of timely payment. Liquidity factors are strong
and supported by good fundamental protection factors. Risk factors are very
small. D-2 indicates good certainty of timely payment. Liquidity factors and
company fundamentals are sound. Although ongoing funding needs may enlarge total
financing requirements, access to capital markets is good. Risk factors are
small. D-3 indicates satisfactory liquidity and other protection factors which
qualify the issue as investment grade. Risk factors are larger and subject to
more variation. Nevertheless, timely payment is expected.
The following summarizes the two highest rating categories used by Fitch for
short-term obligations, each of which denotes securities that are investment
grade:
F-1+ securities possess exceptionally strong credit quality. Issues
assigned this rating are regarded as having the strongest degree of
assurance for timely payment.
F-1 securities possess very strong credit quality. Issues assigned this
rating reflect an assurance of timely payment only slightly less in degree
than issues rated F-1+.
F-2 securities possess good credit quality. Issues carrying this rating
have a satisfactory degree of assurance for timely payment, but the margin
of safety is not as great as for issues assigned the F-1+ and F-1 ratings.
Commercial paper rated A-1 by S&P indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted A-1+. Capacity for timely payment on
commercial paper rated A-2 is satisfactory, but the relative degree of safety is
not as high as for issues designated A-1.
The rating Prime-1 is the highest commercial paper rating assigned by Moody's.
Issuers rated Prime-1 (or related supporting institutions) are considered to
have a superior capacity for repayment of senior short-term promissory
obligations. Issuers rated Prime-2 (or related supporting institutions) are
considered to have a strong capacity for repayment of senior short-term
promissory obligations. This will normally be evidenced by many of the
characteristics of issuers rated Prime-1, but to a lesser degree. Earnings
trends and coverage ratios, while sound, will be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
For commercial paper, D&P uses the short-term debt ratings described above.
For commercial paper, Fitch uses the short-term debt ratings described above.
BankWatch ratings are based upon a qualitative and quantitative analysis of all
segments of the organization including, where applicable, holding company and
operating subsidiaries. BankWatch ratings do not constitute a recommendation to
buy or sell securities of any of these companies. Further, BankWatch does not
suggest specific investment criteria for individual clients.
BankWatch long-term ratings apply to specific issues of long-term debt and
preferred stock. The long-term ratings specifically assess the
likeli-
57
<PAGE>
hood of untimely payment of principal or interest over the term to maturity of
the rated instrument. The following are the four investment grade ratings used
by BankWatch for long-term debt:
AAA -- The highest category; indicates ability to repay principal and
interest on a timely basis is extremely high.
AA -- The second highest category; indicates a very strong ability to repay
principal and interest on a timely basis with limited incremental risk
versus issues rated in the highest category.
A -- The third highest category; indicates the ability to repay principal
and interest is strong. Issues rated "A" could be more vulnerable to
adverse developments (both internal and external) than obligations with
higher ratings.
BBB -- The lowest investment grade category; indicates an acceptable
capacity to repay principal and interest. Issues rated "BBB" are, however,
more vulnerable to adverse developments (both internal and external) than
obligations with higher ratings.
The BankWatch short-term ratings apply to commercial paper, other senior
short-term obligations and deposit obligations of the entities to which the
rating has been assigned. The BankWatch short-term ratings specifically assess
the likelihood of an untimely payment of principal or interest.
TBW-1 -- The highest category; indicates a very high likelihood that
principal and interest will be paid on a timely basis.
TBW-2 -- The second highest category; while the degree of safety regarding
timely repayment of principal and interest is strong, the relative degree
of safety is not as high as for issues rated "TBW-1".
TBW-3 -- The lowest investment grade category; indicates that while more
susceptible to adverse developments (both internal and external) than
obligations with higher ratings, capacity to service principal and interest
in a timely fashion is considered adequate.
TBW-4 -- The lowest rating category; this rating is regarded as
non-investment grade and therefore speculative.
The following summarizes the four highest long-term ratings used by IBCA:
AAA -- Obligations for which there is the lowest expectation of investment
risk. Capacity for timely repayment of principal and interest is
substantial such that adverse changes in business, economic or financial
conditions are unlikely to increase investment risk significantly.
AA -- Obligations for which there is a very low expectation of investment
risk. Capacity for timely repayment of principal and interest is
substantial. Adverse changes in business, economic or financial conditions
may increase investment risk albeit not very significantly.
A -- Obligations for which there is a low expectation of investment risk.
Capacity for timely repayment of principal and interest is strong, although
adverse changes in business, economic or financial conditions may lead to
increased investment risk.
BBB -- Obligations for which there is currently a low expectation of
investment risk. Capacity for timely repayment of principal and interest is
adequate, although adverse changes in business, economic or financial
conditions are more likely to lead to increased investment risk than for
obligations in other categories.
A plus or minus sign may be appended to a rating below AAA to denote
relative status within major rating categories.
The following summarizes the 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.
58
<PAGE>
Prospectus
INVESTOR B SHARES
JULY 31, 1996
This Prospectus describes the investment portfolios
(each a "Fund" and collectively, the "Money Market
Funds"), listed in the column to the right, of
Nations Fund Trust and Nations Fund, Inc., each an
open-end management investment company in the
Nations Fund Family ("Nations Fund" or "Nations
Fund Family"). This Prospectus describes one class
of shares of each Money Market Fund -- Investor B
Shares.
EACH MONEY MARKET FUND SEEKS TO MAINTAIN A NET
ASSET VALUE OF $1.00 PER SHARE.
INVESTMENTS IN THE 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 Investor B Shares should consider
before investing. Investors should read this
Prospectus and retain it for future reference.
Additional information about Nations Fund Trust and
Nations Fund, Inc. is contained in separate
Statements of Additional Information (the "SAIs"),
that have been filed with the Securities and
Exchange Commission (the "SEC") and are available
upon request without charge by writing or calling
Nations Fund at its address or telephone number
shown below. The SAIs bear the same date as this
Prospectus and are incorporated by reference in
their entirety into this Prospectus. NationsBanc
Advisors, Inc. ("NBAI") is the investment adviser
to the Funds. TradeStreet Investment Associates,
Inc. ("TradeStreet") is sub-investment adviser to
the Funds. As used herein the "Adviser" shall mean
NBAI and/or TradeStreet as the context may require.
SHARES OF NATIONS FUND ARE NOT DEPOSITS OR OTHER
OBLIGATIONS OF, OR ISSUED, ENDORSED OR GUARANTEED
BY, NATIONSBANK, N.A. ("NATIONSBANK") OR ANY OF ITS
AFFILIATES. SUCH SHARES ARE NOT INSURED BY THE U.S.
GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER
GOVERNMENT AGENCY. AN INVESTMENT IN THE FUNDS
INVOLVES CERTAIN RISKS, INCLUDING POSSIBLE LOSS OF
PRINCIPAL.
NATIONSBANK AND CERTAIN OF ITS AFFILIATES PROVIDE
CERTAIN OTHER SERVICES TO NATIONS FUND, FOR WHICH
THEY ARE COMPENSATED. STEPHENS INC., WHICH IS NOT
AFFILIATED WITH NATIONSBANK, IS THE SPONSOR AND
ADMINISTRATOR AND SERVES AS THE DISTRIBUTOR FOR
NATIONS FUND.
THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
Nations Prime
Fund
Nations Treasury
Fund
Nations Government
Money Market Fund
Nations Tax
Exempt Fund
For purchase, redemption
and performance 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-96138-796
<PAGE>
Table Of Contents
About The Funds
Prospectus Summary 3
Expenses Summary 4
Financial Highlights 5
Objectives 7
How Objectives Are Pursued 8
How Performance Is Shown 11
How the Funds Are Managed 11
Organization And History 15
About Your Investment
How To Buy Shares 16
How To Redeem Shares 17
How To Exchange Shares 18
Shareholder Servicing And Distribution Plans 19
How The Funds Value Their Shares 20
How Dividends And Distributions Are Made;
Tax Information 21
Appendix A -- Portfolio Securities 22
Appendix B -- Description Of Ratings 29
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT
CONTAINED IN THIS PROSPECTUS,
OR IN THE FUNDS' SAIS INCORPORATED HEREIN BY
REFERENCE, IN CONNECTION WITH THE OFFERING MADE BY
THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY NATIONS FUND OR
ITS DISTRIBUTOR. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFERING BY NATIONS FUND OR BY THE
DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH
OFFERING MAY NOT LAWFULLY BE MADE.
2
<PAGE>
About The Funds
Prospectus Summary
(Bullet) TYPE OF COMPANIES: Open-end management investment companies.
(Bullet) INVESTMENT OBJECTIVES AND POLICIES:
(Bullet) Nations Prime Fund's investment objective is to seek the
maximization of current income to the extent consistent with
the preservation of capital and the maintenance of liquidity.
(Bullet) Nations Treasury Fund's investment objective is the
maximization of current income to the extent
consistent with the preservation of capital and the
maintenance of liquidity.
(Bullet) Nations Government Money Market Fund's investment
objective is to seek as high a level of current
income as is consistent with liquidity and stability
of principal.
(Bullet) Nations Tax Exempt Fund's investment objective is to
seek as high a level of current interest income
exempt from Federal income taxes as is consistent
with liquidity and stability of principal.
(Bullet) INVESTMENT ADVISER: NationsBanc Advisors, Inc. serves as the investment
adviser to the Funds. NBAI provides investment advice to more than 43
investment company portfolios in the Nations Fund Family. TradeStreet
Investment Associates, Inc. provides sub-advisory services to the
Funds. See "How The Funds Are Managed."
(Bullet) DIVIDENDS AND DISTRIBUTIONS: Nations Prime Fund, Nations Treasury Fund,
Nations Government Money Market Fund and Nations Tax Exempt Fund
declare dividends daily and pay them monthly. Each Fund's net realized
capital gains, including net short-term capital gains are distributed
at least annually.
(Bullet) RISK FACTORS: Although the Adviser seeks to achieve the investment
objective of each Fund, there is no assurance that it will be able to
do so. Although each Fund seeks to maintain a stable net asset value of
$1.00 per share, there is no assurance that it will be able to do so.
Investments in a Fund are not insured against loss of principal. For a
discussion of these and other factors, see "How Objectives Are
Pursued -- Risk Considerations" and "Appendix A -- Portfolio
Securities."
(Bullet) MINIMUM PURCHASE: $25,000 minimum initial investment per record holder.
$1,000 minimum subsequent investment (except for investments pursuant
to the Systematic Investment Plan and reinvested dividends). See "How
To Buy Shares."
3
<PAGE>
Expenses Summary
Expenses are one of several factors to consider when investing in the Funds. The
following table summarizes shareholder transaction and operating expenses for
Investor B Shares of the Funds. The Examples show the cumulative expenses
attributable to a hypothetical $1,000 investment in the Funds over specified
periods.
<TABLE>
<CAPTION>
INVESTOR B SHARES
<S> <C> <C> <C>
Nations
Nations Prime Nations Treasury Government Money
Fund Fund Market Fund
</TABLE>
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<S> <C> <C> <C>
Sales Load Imposed on Purchases None None None
Deferred Sales Charge None None None
<CAPTION>
Nations
Tax Exempt
Fund
Sales Load Imposed on Purchases None
<S> <C>
Deferred Sales Charge None
</TABLE>
ANNUAL FUND OPERATING EXPENSES*
(as a percentage of average net assets)
<TABLE>
<S> <C> <C> <C>
Management Fees (After Fee Waivers) .20% .20% .20%
Rule 12b-1 Fees (After Fee Waivers) .00% .00% .00%
Shareholder Servicing Fees (After Fee Waivers) .25% .25% .25%
Other Expenses (After Expense Reimbursements) .10% .10% .10%
Total Operating Expenses (After Fee Waivers and Expense
Reimbursements) .55% .55% .55%
<CAPTION>
Management Fees (After Fee Waivers) .20%
Rule 12b-1 Fees (After Fee Waivers) .00%
Shareholder Servicing Fees (After Fee Waivers) .20%
Other Expenses (After Expense Reimbursements) .10%
Total Operating Expenses (After Fee Waivers and Expense
Reimbursements) .50%
</TABLE>
* The Funds and Stephens have voluntarily agreed to limit the total charges
against each Fund's net assets for sales distribution activities and/or
servicing of shareholder accounts to no more than .25% of each Fund's average
net assets per annum. This limitation will not be terminated without prior
notice to shareholders.
EXAMPLES:
You would pay the following expenses on a $1,000 investment in Investor B Shares
of the indicated Fund, assuming (1) a 5% annual return and (2) redemption at the
end of each time period.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Nations
Nations Nations Government
Prime Treasury Money
Fund Fund Market Fund
1 Year $ 6 $ 6 $ 6
3 Years $18 $18 $18
5 Years $31 $31 $31
10 Years $69 $69 $69
<CAPTION>
Nations
Tax Exempt
Fund
1 Year $ 5
3 Years $16
5 Years $28
10 Years $63
</TABLE>
The purpose of the foregoing table is to assist an investor in understanding the
various shareholder transaction and operating expenses that an investor in each
Fund will bear either directly or indirectly. The "Other Expenses" figures
contained in the above table are based on estimated amounts for the Funds'
current fiscal year and reflect anticipated fee waivers and reimbursements.
There is no assurance that these fee waivers and reimbursements will continue
beyond the current fiscal year. If fee waivers and/or reimbursements are
discontinued, the amounts contained in the "Examples" above may increase. For
more complete descriptions of the Funds' operating expenses, see "How The Funds
Are Managed."
4
<PAGE>
Absent expense reimbursements, "Rule 12b-1 Fees," "Other Expenses" and "Total
Operating Expenses" for Investor B Shares of the indicated Fund would be as
follows: Nations Prime Fund -- .10%, .17% and .72%, respectively; Nations
Treasury Fund -- .10%, .17% and .72%, respectively; Absent fee waivers and
expense reimbursements, "Management Fees," "Rule 12b-1 Fees," "Other Expenses"
and "Total Operating Expenses" for Nations Government Money Market Fund would
have been .40%, .10%, .19% and .94%, respectively. Absent fee waivers and
expense reimbursements, "Management Fees," "Rule 12b-1 Fees," "Shareholder
Servicing Fees," "Other Expenses" and "Total Operating Expenses" for Nations Tax
Exempt Fund would have been .40%, .10%, .25%, .13% and .88%, respectively.
THE FOREGOING SHOULD NOT BE CONSIDERED TO BE AN ACTUAL REPRESENTATION OF PAST OR
FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES AND RATES OF RETURN MAY BE
GREATER OR LESS THAN THOSE SHOWN.
Financial Highlights
The audited financial information on the following pages has been derived from
the financial statements of Nations Fund Trust and Nations Fund, Inc. Price
Waterhouse is the independent accountant to Nations Fund Trust and Nations Fund,
Inc. The reports of Price Waterhouse for the most recent fiscal years of Nations
Fund Trust and Nations Fund, Inc. accompany the financial statements for such
periods and are incorporated by reference in the SAIs, which are available upon
request. Shareholders of a Fund will receive unaudited semi-annual reports
describing the Fund's investment operations and annual financial statements
audited by the Fund's independent accountant.
FOR AN INVESTOR B SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS PRIME FUND
<TABLE>
<CAPTION>
PERIOD YEAR PERIOD
ENDED ENDED ENDED
INVESTOR B SHARES 03/31/96(a) 05/31/95 05/31/94*
<CAPTION>
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00
Net investment income 0.0447 0.0493 0.0015
Dividends from net investment income (0.0447) (0.0493) (0.0015)
Total dividends and distributions (0.0447) (0.0493) (0.0015)
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00
Total return++ 4.57% 5.03% 0.15%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 358,646 $ 216,973 $ 2
Ratio of operating expenses to average net assets 0.55%+ 0.56% 0.55%+
Ratio of net investment income to average net assets 5.37%+ 4.97% 2.95%+
Ratio of operating expenses to average net assets without waivers
and/or expense reimbursements 0.62%+ 0.64% 0.62%+
Net investment income per share without waivers and/or expense
reimbursements $ 0.0442 $ 0.0485 $ 0.0015
</TABLE>
* Nations Prime Fund Investor B Shares commenced operations on May 11, 1994.
+ Annualized.
++ Total return represents aggregrate total return for the periods indicated
and does not reflect the deduction of any applicable sales charges.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
May 31.
5
<PAGE>
FOR AN INVESTOR B SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS TREASURY FUND
<TABLE>
<CAPTION>
PERIOD YEAR PERIOD
ENDED ENDED ENDED
INVESTOR B SHARES 03/31/96(a) 05/31/95 05/31/94*
<CAPTION>
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00
Net investment income 0.0437 0.0468 0.0015
Dividends from net investment income (0.0437) (0.0468) (0.0015)
Distributions from net realized capital gains (0.0000)# (0.0000)# --
Total dividends and distributions (0.0437) (0.0468) (0.0015)
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00
Total return++ 4.46% 4.76% 0.14%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $1,525,048 $ 52,564 $ 2
Ratio of operating expenses to average net assets 0.55%+ 0.56% 0.55%+
Ratio of net investment income to average net assets 5.27%+ 4.73% 2.72%+
Ratio of operating expenses to average net assets without waivers
and/or reimbursements 0.62+ 0.61% 0.61%+
Net investment income per share without waivers and/or reimbursements $ 0.0432 $ 0.0463 $ 0.0014
</TABLE>
* Nations Treasury Fund Investor B Shares commenced operations on May 16, 1994.
+ Annualized.
++ Total return represents aggregrate total return for the periods indicated
and does not reflect the deduction of any applicable sales charges.
# Amount represents less than $0.0001.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
May 31.
<TABLE>
<CAPTION>
NATIONS GOVERNMENT MONEY MARKET FUND
PERIOD YEAR PERIOD
ENDED ENDED ENDED
INVESTOR B SHARES 03/31/96(a) 11/30/95 11/30/94*
<CAPTION>
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00
Net investment income 0.0165 0.0532 0.0222
Distributions:
Dividends from net investment income (0.0165) (0.0532) (0.0222)
Distributions from net realized capital gains -- -- (0.0000)#
Total dividends and distributions (0.0165) (0.0532) (0.0222)
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00
Total return++ 1.66% 5.45% 2.24%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 62,617 $ 27,079 $ 11,955
Ratio of operating expenses to average net assets 0.55%+ 0.55% 0.55%+
Ratio of net investment income to average net assets 4.95%+ 5.33% 3.54%+
Ratio of operating expenses to average net assets without waivers
and/or expense reimbursements 0.84%+ 0.82% 0.84%+
Net investment income per share without waivers and/or expense
reimbursements $ 0.0155 $ 0.0505 $ 0.0206
</TABLE>
* Nations Government Money Market Fund Investor B Shares commenced operations
on May 17, 1994.
+ Annualized.
++ Total return represents aggregrate total return for the periods indicated
and does not reflect the deduction of any applicable sales charges.
# Amount represents less than $0.0001 per share.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
6
<PAGE>
FOR AN INVESTOR B SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
NATIONS TAX EXEMPT FUND
PERIOD YEAR PERIOD
ENDED ENDED ENDED
INVESTOR B SHARES 03/31/96(a) 11/30/95 11/30/94*
<CAPTION>
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00
Net investment income 0.0106 0.0342 0.0141
Dividends from net investment income (0.0106) (0.0342) (0.0141)
Total dividends and distributions (0.0106) (0.0342) (0.0141)
Net asset value, end of year $ 1.00 $ 1.00 $ 1.00
Total return++ 1.06% 3.47% 1.43%
Ratios to average net assets/supplemental data:
Net assets, end of year (in 000's) $ 132,914 $ 86,374 $ 3
Ratio of operating expenses to average net assets 0.50%+ 0.50% 0.47%+
Ratio of net investment income to average net assets 3.15%+ 3.42% 2.39%+
Ratio of operating expenses to average net assets without waivers and/or
expense reimbursements 0.78%+ 0.77% 0.79%+
Net investment income per share without waivers and/or expense
reimbursements $ 0.0097 $ 0.0316 $ 0.0118
</TABLE>
* Nations Tax Exempt Fund Investor B Shares commenced operations on May 17,
1994.
+ Annualized.
++ Total return represents aggregrate total return for the periods indicated
and does not reflect the deduction of any applicable sales charges.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
Objectives
Each Money Market Fund endeavors to achieve its investment objective by
investing in a diversified portfolio of high quality money market instruments
with maturities of 397 days or less from the date of purchase. Securities
subject to repurchase agreements may bear longer maturities.
NATIONS PRIME FUND: Nations Prime Fund's investment objective is to seek the
maximization of current income to the extent consistent with the preservation of
capital and the maintenance of liquidity.
NATIONS TREASURY FUND: Nations Treasury Fund's investment objective is the
maximization of current income to the extent consistent with the preservation of
capital and the maintenance of liquidity.
NATIONS GOVERNMENT MONEY MARKET FUND: Nations Government Money Market Fund's
investment objective is to seek as high a level of current income as is
consistent with liquidity and stability of principal.
NATIONS TAX EXEMPT FUND: Nations Tax Exempt Fund's investment objective is to
seek as high a level of current interest income exempt from Federal income taxes
as is consistent with liquidity and stability of principal.
7
<PAGE>
How Objectives Are Pursued
NATIONS PRIME FUND: In pursuing its investment objective, the Fund may invest in
U.S. Treasury bills, notes and bonds and other instruments issued directly by
the U.S. Government ("U.S. Treasury Obligations"), other obligations issued or
guaranteed as to payment of principal and interest by the U.S. Government, its
agencies or instrumentalities (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 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
8
<PAGE>
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 considered, by itself, to provide a complete investment
program for any investor. Investments in a Fund are not insured against loss of
principal. For additional risk information regarding the Funds' investment in
particular instruments, see "Appendix A."
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.)
9
<PAGE>
2. Make loans, except that a Fund may purchase and hold debt instruments
(whether such instruments are part of a public offering or are privately
placed), may enter into repurchase agreements and may lend portfolio securities
in accordance with its investment policies.
3. Purchase securities of any one issuer (other than securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities) if,
immediately after such purchase, more than 5% of the value of such Fund's total
assets would be invested in the securities of such issuer, except that up to 25%
of the value of such Fund's total assets may be invested without regard to these
limitations and with respect to 75% of such Fund's assets, such Fund will not
hold more than 10% of the voting securities of any issuer.
In addition, as a matter of non-fundamental policy, the Nations Tax Exempt Fund
may not purchase any securities other than obligations the interest on which is
exempt from Federal income tax and stand-by commitments with respect to such
obligations. The investment objectives and policies of the Funds, unless
otherwise specified, may be changed without shareholder approval. If the
investment objective or policies of a Fund change, shareholders should consider
whether the Fund remains an appropriate investment in light of their then
current 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. Additionally,
(except for Nations Tax Exempt Fund) no more than 5% of total assets may be
invested, at the time of acquisition, in second tier securities in the
aggregate, and any investment in second tier securities of one issuer is limited
to the greater of 1% of total assets or one million dollars. Securities issued
by the U.S. Government, its agencies, authorities or instrumentalities are
exempt from the quality requirements, other than minimal credit risk. In the
event that a Fund's investment restrictions or permissible investments are more
restrictive than the requirements of Rule 2a-7, the Fund's own restrictions will
govern.
10
<PAGE>
How Performance Is Shown
From time to time, a Fund may advertise the "yield" and "effective yield" of a
class of shares, and Nations Tax Exempt Fund may advertise the "tax-equivalent
yield" of a class of shares. YIELD, EFFECTIVE YIELD AND TAX-EQUIVALENT YIELD
FIGURES ARE BASED ON HISTORICAL DATA AND ARE NOT INTENDED TO INDICATE FUTURE
PERFORMANCE.
The "yield" of a class of shares in a Fund refers to the income generated by an
investment in such class over a seven-day period identified in the
advertisement. This income is then "annualized." That is, the amount of income
generated by the investment during that week is assumed to be generated each
week over a 52-week period and is shown as a percentage of the investment. The
"effective yield" is calculated similarly, but, when annualized, the income
earned by an investment in a class of shares in a Fund is assumed to be
reinvested. The "effective yield" will be slightly higher than the "yield"
because of the compounding effect of this assumed reinvestment. The
"tax-equivalent yield" of each class of shares in Nations Tax Exempt Fund shows
the level of taxable yield needed to produce an after-tax equivalent to such
class's tax-free yield. This is done by increasing the class's yield (calculated
as above) by the amount necessary to reflect the payment of Federal income tax
at a stated tax rate. The tax-equivalent yield will always be higher than the
"yield" of a class of shares in Nations Tax Exempt Fund.
Since yields fluctuate, yield data cannot necessarily be used to compare an
investment in the Funds with bank deposits, savings accounts and similar
investment alternatives which often provide an agreed-upon or guaranteed fixed
yield for a stated period of time. Any fees charged by selling and/or servicing
agents to their customers' accounts for automatic investment or other cash
management services will not be included in calculations of yield.
In addition to Investor B Shares, the Funds offer Primary A, Primary B, Investor
A, Investor C and Investor D Shares. Each class of shares may bear different
sales charges, shareholder servicing fees and other expenses, which may cause
the performance of a class to differ from the performance of the other classes.
Performance quotations will be computed separately for each class of the Funds'
shares. The Funds' annual report contains additional performance information and
is available upon request without charge from the Funds' distributor or an
investor's 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 SAI contains the names of and general background information
concerning each Director of Nations Fund, Inc.
Nations Fund and the Adviser have adopted codes of ethics which contain policies
on personal securities transactions by "access persons," including portfolio
managers and investment analysts. These policies substantially comply in all
material respects with the recommendations set forth in the May 9, 1994 Report
of the Advisory Group on Personal Investing of the Investment Company Institute.
INVESTMENT ADVISER: NationsBanc Advisors, Inc. serves as investment adviser to
the Funds. NBAI is a wholly owned subsidiary of NationsBank, which in turn is a
wholly owned banking subsidiary of NationsBank Corporation, a bank holding
company organized as a North Carolina corporation. NBAI has its principal
11
<PAGE>
offices at One NationsBank Plaza, Charlotte, North Carolina 28255.
TradeStreet Investment Associates, Inc., with its principal offices at One
NationsBank Plaza, Charlotte, North Carolina 28255, serves as sub-investment
adviser to the Funds. TradeStreet is a wholly owned subsidiary of NationsBank.
TradeStreet provides investment management services to individuals, corporations
and institutions.
Subject to the general supervision of Nations Fund Trust's Board of Trustees and
Nations Fund, Inc.'s Board of Directors, and in accordance with each Fund's
investment policies, the Adviser formulates guidelines and lists of approved
investments for each Fund, makes decisions with respect to and places orders for
each Fund's purchases and sales of portfolio securities and maintains records
relating to such purchases and sales. The Adviser is authorized to allocate
purchase and sale orders for portfolio securities to certain financial
institutions, including, in the case of agency transactions, financial
institutions which are affiliated with the Adviser or which have sold shares in
such Fund, if the Adviser believes that the quality of the transactions and the
commissions are comparable to what they would be with other qualified brokerage
firms. From time to time, to the extent consistent with its investment
objective, policies and restrictions, each Fund may invest in securities of
companies with which NationsBank has a lending relationship. For the services
provided and expenses assumed pursuant to various Investment Advisory
Agreements, NBAI is entitled to receive advisory fees, computed daily and paid
monthly, at the annual rates of: 0.25% of the first $250 million of the combined
average daily net assets of both Nations Prime Fund and Nations Treasury Fund,
plus 0.20% of the combined average daily net assets of such Funds in excess of
$250 million; and 0.40% of the average daily net assets of each of Nations
Government Money Market Fund and Nations Tax Exempt Fund.
For the services provided and expenses assumed pursuant to sub-advisory
agreements, NBAI will pay TradeStreet sub-advisory fees, computed daily and paid
monthly, at the annual rate of 0.055% of the average daily net assets of each
Fund.
From time to time, NBAI (and/or TradeStreet) may waive or reimburse (either
voluntarily or pursuant to applicable state limitations) advisory fees and/or
expenses payable by a Fund.
For the fiscal period from December 1, 1995 to December 31, 1995, after waivers,
Nations Fund Trust paid NationsBank under a prior Investment Advisory Agreement
advisory fees at the indicated rates of the following Funds' average daily net
assets: Nations Government Money Market Fund -- 0.12%; and Nations Tax Exempt
Fund -- 0.13%.
For the fiscal period from June 1, 1995, to December 31, 1995, after waivers,
Nations Fund, Inc. paid NationsBank under a prior Investment Advisory Agreement
advisory fees at the rate of 0.18% of the average daily net assets of Nations
Prime Fund and Nations Treasury Fund.
For the fiscal period from January 1, 1996 to March 31, 1996, after waivers,
Nations Fund Trust paid NBAI under the current Investment Advisory Agreement
advisory fees at the indicated rates of the following Funds' average daily net
assets: Nations Government Money Market Fund -- 0.12%; and Nations Tax Exempt
Fund -- 0.13%:
For the fiscal period from January 1, 1996 to March 31, 1996, after waivers,
Nations Fund, Inc. paid NBAI under the current Investment Advisory Agreement
advisory fees at the rate of 0.18% of the average daily net assets of Nations
Prime Fund and Nations Treasury Fund.
For the fiscal period from January 1, 1996 to March 31, 1996, after waivers,
NBAI paid TradeStreet under the current Sub-Advisory Agreement sub-advisory fees
at the rate of 0.055% 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 Portfo-
12
<PAGE>
lio 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 for Nations Prime Fund since 1988. Prior to assuming her
position with TradeStreet, she was Vice President and Senior Portfolio Manager
for the Investment Management Group at NationsBank. Ms. Sherman has worked in
the investment community since 1981. Her past experience includes investment
research for William Lowry & Associates. Ms. Sherman received a B.S. in Business
Administration from the University of Texas at Dallas.
Morrison & Foerster LLP, counsel to Nations Fund and special counsel to
NationsBank, has advised Nations Fund and NationsBank that NationsBank and its
affiliates may perform the services contemplated by the Investment Advisory
Agreements and this Prospectus without violation of the Glass-Steagall Act. Such
counsel has pointed out, however, that there are no controlling judicial or
administrative interpretations or decisions and that future judicial or
administrative interpretations of, or decisions relating to, present federal or
state statutes, including the Glass-Steagall Act, and regulations relating to
the permissible activities of banks and their subsidiaries or affiliates, as
well as future changes in such statutes, regulations and judicial or
administrative decisions or interpretations, could prevent entities from
continuing to perform, in whole or in part, such services. If any such entity
were prohibited from performing any such services, it is expected that new
agreements would be proposed or entered into with another entity or entities
qualified to perform such services.
OTHER SERVICE PROVIDERS: Stephens Inc. ("Stephens"), with principal offices at
111 Center Street, Little Rock, Arkansas 72201, serves as the administrator of
Nations Fund pursuant to Administration Agreements. Pursuant to the terms of the
Administration Agreements, Stephens provides various administrative and
corporate secretarial services to the Funds, including providing general
oversight of other service providers, office space, utilities and various legal
and administrative services in connection with the satisfaction of various
regulatory requirements applicable to the Funds.
First Data Investor Services Group, Inc. ("First Data"), formerly The
Shareholder Services Group, Inc., a wholly owned subsidiary of First Data
Corporation, with principal offices at One Exchange Place, Boston, Massachusetts
02109, serves as the co-administrator of the Funds pursuant to Co-Administration
Agreements. Under the Co-Administration Agreements, First Data provides various
administrative and accounting services to the Funds, including performing
calculations necessary to determine net asset values and dividends, preparing
tax returns and financial statements and maintaining the portfolio records and
certain general accounting records for the Funds. For the services rendered
pursuant to the Administration and Co-Administration Agreements, Stephens and
First Data are entitled to receive a combined fee at the annual rate of up to
0.10% of each Fund's average daily net assets.
13
<PAGE>
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 a distribution agreement with Stephens which provides that Stephens
has the exclusive right to distribute shares of the Funds. Stephens may pay
service fees or commissions to selling agents that assist customers in
purchasing Investor B Shares of the Funds. See "Shareholder Servicing And
Distribution Plans."
NationsBank of Texas, N.A., serves as each Fund's custodian (the "Custodian").
The Custodian is located at 1401 Elm Street, Dallas, Texas 75202 and is a wholly
owned subsidiary of NationsBank Corporation. In return for providing custodial
services, the Custodian is entitled to receive, in addition to out-of-pocket
expenses, fees payable monthly (i) at the rate of 1.25% of 1% of the average
daily net assets of each Fund, (ii) $10.00 per repurchase collateral transaction
by the Funds, and (iii) $15.00 per purchase, sale and maturity transaction
involving the Funds.
First Data serves as transfer agent (the "Transfer Agent") for each Fund's
Investor B Shares. The Transfer Agent is located at One Exchange Place, Boston,
Massachusetts 02109.
Price Waterhouse LLP serves as independent accountant to Nations Funds. Its
address is 160 Federal Street, Boston, Massachusetts 02110.
EXPENSES: The accrued expenses of each Fund, as well as certain expenses
attributable to Investor B Shares, are deducted from accrued income before
dividends are declared. The respective Funds' expenses include, but are not
limited to: fees paid to the Adviser, NationsBank, Stephens and First Data;
interest; Directors' or Trustees' fees; federal and state securities
registration and qualification fees; brokerage fees and commissions; costs of
preparing and printing prospectuses for regulatory purposes and for distribution
to existing shareholders; charges of the Custodian and Transfer Agent; certain
insurance premiums; outside auditing and legal expenses; costs of shareholder
reports and shareholder meetings; other expenses which are not expressly assumed
by the Adviser, NationsBank, Stephens or First Data under their respective
agreements with Nations Fund; and any extraordinary expenses. Investor B Shares
may bear certain class specific retail transfer agency expenses and also bear
certain additional shareholder service and distribution costs. Any general
expenses of Nations Fund Trust and/or of Nations Fund, Inc. that are not readily
identifiable as belonging to a particular investment portfolio are allocated
among all portfolios in the proportion that the assets of a portfolio bears to
the assets of Nations Fund Trust and/or of Nations Fund, Inc. or in such other
manner as the Board of Trustees or Board of Directors deems appropriate.
14
<PAGE>
Organization And History
The Funds are members of the Nations Fund Family, which consists of Nations Fund
Trust, Nations Fund, Inc., Nations Fund Portfolios, Inc. and Nations
Institutional Reserves. The Nations Fund Family currently has more than 43
distinct investment portfolios and total assets in excess of $18 billion.
NATIONS FUND TRUST: Nations Fund Trust was organized as a Massachusetts business
trust on May 6, 1985. Nations Fund Trust's fiscal year end is March 31; prior to
1996, Nations Fund Trust's fiscal year end was November 30. The Funds currently
offer six classes of shares -- Primary A Shares, Primary B Shares, Investor A
Shares, Investor B Shares, Investor C Shares and Investor D Shares. This
Prospectus relates only to the Investor B Shares of Nations Government Money
Market Fund and Nations Tax Exempt Fund of Nations Fund Trust. To obtain
additional information regarding the Funds' other classes of shares which may be
available to you, contact your Selling Agent (as defined below) or Nations Fund
at 1-800-321-7854.
Each share of Nations Fund Trust is without par value, represents an equal
proportionate interest in the related fund with other shares of the same class,
and is entitled to such dividends and distributions out of the income earned on
the assets belonging to such fund as are declared in the discretion of Nations
Fund Trust's Board of Trustees. Nations Fund Trust's Declaration of Trust
authorizes the Board of Trustees to classify or reclassify any class of shares
into one or more series of shares.
Shareholders are entitled to one vote for each full share held and a
proportionate fractional vote for each fractional share held. Shareholders of
each fund of Nations Fund Trust will vote in the aggregate and not by fund and
shareholders of a fund will vote in the aggregate and not by class except as
otherwise expressly required by law or when the Board of Trustees determines
that the matter to be voted on affects only the interests of shareholders of a
particular fund or class. See Nations Fund Trust's SAI for examples of instances
where the 1940 Act requires voting by fund.
As of July 15, 1996, NationsBank and its affiliates possessed or shared power to
dispose or vote with respect to more than 25% of the outstanding shares of
Nations Fund Trust and therefore could be considered to be a controlling person
of Nations Fund Trust for purposes of the 1940 Act. For more detailed
information concerning the percentage of each class or series of shares over
which NationsBank and its affiliates possessed or shared power to dispose or
vote as of a certain date, see Nations Fund Trust's SAI.
Nations Fund Trust does not presently intend to hold annual meetings except as
required by the 1940 Act. Shareholders will have the right to remove trustees.
Nations Fund Trust's Code of Regulations provides that special meetings of
shareholders shall be called at the written request of the shareholders entitled
to vote at least 10% of the outstanding shares of Nations Fund Trust entitled to
be voted at such meeting.
NATIONS FUND, INC.: Nations Fund, Inc. was incorporated in Maryland on December
13, 1983, but had no operations prior to December 15, 1986. Nations Fund, Inc.'s
fiscal year end is March 31; prior to 1996, Nations Fund, Inc.'s fiscal year end
was May 31. As of the date of this Prospectus, the authorized capital stock of
Nations Fund, Inc. consists of 270,000,000,000 shares of common stock, par value
of $.001 per share, which are divided into series or portfolios, each of which
consists of separate classes of shares. This Prospectus relates only to the
Investor B Shares of Nations Prime Fund and Nations Treasury Fund of Nations
Fund, Inc. To obtain additional information regarding the Funds' other classes
of shares which may be available to you, contact your Selling Agent (as defined
below) or Nations Fund at 1-800-321-7854.
Shares of each fund and class have equal rights with respect to voting, except
that the holders of shares of a particular fund or class will have the
15
<PAGE>
exclusive right to vote on matters affecting only the rights of the holders of
such fund or class. In the event of dissolution or liquidation, holders of each
class will receive pro rata, subject to the rights of creditors, (a) the
proceeds of the sale of that portion of the assets allocated to that class held
in the respective fund of Nations Fund, Inc., less (b) the liabilities of
Nations Fund, Inc. attributable to the respective fund or class or allocated
among the funds or classes based on the respective liquidation value of each
fund or class.
Shareholders of Nations Fund, Inc. do not have cumulative voting rights, and
therefore the holders of more than 50% of the outstanding shares of all funds
voting together for election of Directors may elect all of the members of the
Board of Directors of Nations Fund, Inc. Meetings of shareholders may be called
upon the request of 10% or more of Nations Fund, Inc.'s outstanding shares.
There are no preemptive rights applicable to any of Nations Fund, Inc.'s shares.
Nations Fund, Inc.'s shares, when issued, will be fully paid and non-assessable.
As of July 15, 1996, NationsBank and its affiliates possessed or shared power to
dispose of or vote with respect to more than 25% of the outstanding shares of
Nations Fund, Inc. and therefore could be considered to be a controlling person
of Nations Fund, Inc. for purposes of the 1940 Act. For more detailed
information concerning the percentage of each class or series over which
NationsBank and its affiliates possessed or shared power to dispose or vote as
of a certain date, see Nations Fund, Inc.'s SAI. It is anticipated that Nations
Fund, Inc. will not hold annual shareholder meetings, except when required by
the 1940 Act or Maryland law.
Because this Prospectus combines disclosure on two separate investment
companies, there is a possibility that one investment company could become
liable for a misstatement, inaccuracy or incomplete disclosure in this
Prospectus concerning the other investment company. Nations Fund Trust and
Nations Fund, Inc. have entered into an indemnification agreement that creates a
right of indemnification from the investment company responsible for any such
misstatement, inaccuracy or incomplete disclosure that may appear in this
Prospectus.
About Your Investment
How To Buy Shares
The Funds have established various procedures for purchasing Investor B Shares
in order to accommodate different investors. Purchase orders may be placed
through banks, broker/dealers or other financial institutions (including certain
affiliates of NationsBank) that have entered into 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 $25,000 in the Funds; the minimum
subsequent investment is $1,000, except for investments pursuant to the
Systematic Investment Plan described below and reinvested dividends. Investor B
Shares of the Money Market Funds are purchased at net asset value per share
without the imposition of a sales charge. Purchases may be effected only on days
on which the Federal Reserve Bank of New York is open for business (a "Business
Day").
The Servicing Agents will provide various shareholder services for, and the
Selling Agents will provide sales support assistance to, their respective
customers ("Customers") who own Investor B Shares. Selling Agents and Servicing
Agents are sometimes referred to hereafter as "Agents." From time to time the
Agents, Stephens, and Nations Fund may agree to voluntarily reduce
16
<PAGE>
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 Investor B Shares is recorded on the books of the Funds, and share
certificates are not issued unless expressly requested in writing. Certificates
are not issued for fractional shares.
EFFECTIVE TIME OF PURCHASES: Purchases will be effected only when federal funds
are available for investment on the Business Day the purchase order is received
by Stephens or by the Transfer Agent. A purchase order must be received by
Stephens or by the Transfer Agent by 3:00 p.m., Eastern time (12:00 noon,
Eastern time, with respect to Nations Tax Exempt Fund and Nations Government
Money Market Fund). Absent prior arrangement with Stephens or the Transfer
Agent, purchase orders received after such time on any given day will not be
accepted; notice thereof will be given to the 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. Investor B Shares are
purchased at the net asset value per share next determined after receipt of the
order by Stephens or by the Transfer Agent.
The Agents are responsible for transmitting orders for purchases by their
Customers and delivering required funds on a timely basis. Stephens is
responsible for transmitting orders it receives to Nations Fund.
SYSTEMATIC INVESTMENT PLAN: Under the Funds' Systematic Investment Plan ("SIP")
a shareholder may automatically purchase Investor B Shares. On a bi-monthly,
monthly or quarterly basis, a shareholder may direct cash to be transferred
automatically from his/her checking or savings account at any bank which is a
member of the Automated Clearing House to his/her Fund account. Transfers will
occur on or about the 15th and/or 30th day of the applicable month. The
systematic investment amount may be in any amount from $500. For more
information concerning the SIP, contact your Selling Agent.
TELEPHONE TRANSACTIONS: An investor may effect purchases, redemptions (up to
$50,000) and exchanges by telephone. See "How To Redeem Shares" and "How To
Exchange Shares" below. If a shareholder desires to elect the telephone
transaction feature after opening an account, a signature guarantee will be
required. Shareholders should be aware that by using the telephone transaction
feature such shareholders may be giving up a measure of security that they may
have if they were to authorize written requests only. A shareholder may bear the
risk of any resulting losses from a telephone transaction. Nations Fund will
employ reasonable procedures to confirm that instructions communicated by
telephone are genuine, and if Nations Fund and its service providers fail to
employ such measures, they may be liable for any losses due to unauthorized or
fraudulent instructions. Nations Fund requires a form of personal identification
prior to acting upon instructions received by telephone and provides written
confirmation to shareholders of each telephone share transaction. In addition,
Nations Fund reserves the right to record all telephone conversations.
How To Redeem Shares
Redemption orders should be transmitted by telephone or in writing through the
same Selling Agent that transmitted the original purchase order. Redemption
orders are effected at the net asset value per share next determined after
receipt of the order by Stephens or by the Transfer Agent. The Selling Agents
are responsible for transmitting redemption orders to Stephens or to the
Transfer Agent and for crediting their Customer's account with the redemption
proceeds on a timely basis. No charge for wiring redemption payments is imposed
by Nations Fund.
17
<PAGE>
Redemption orders must be received on a Business Day before 3:00 p.m., Eastern
time (12:00 noon, Eastern time, with respect to Nations Tax Exempt Fund and
Nations Government Money Market Fund), and payment will normally be wired the
same day to Selling Agents. Nations Fund reserves the right to wire redemption
proceeds within three Business Days after receiving the redemption orders if, in
the judgment of NationsBank, an earlier payment could adversely impact a Fund.
However, redemption proceeds for shares purchased by check may not be remitted
until at least 15 days after the date of purchase to ensure that the check has
cleared; a certified check, however, is deemed to be cleared immediately.
Redemption orders received by Stephens or by the Transfer Agent after 3:00 p.m.,
Eastern time (12:00 noon, Eastern time, with respect to Nations Tax Exempt Fund
and Nations Government Money Market Fund), will be processed on the next
Business Day.
Nations Fund may redeem a shareholder's Investor B Shares upon 60 days' written
notice if the balance in the shareholder's account drops below $500 as a result
of redemptions. Share balances also may be redeemed at the direction of an Agent
pursuant to arrangements between the Agent and its Customers. Nations Fund also
may redeem shares of a Fund involuntarily or make payment for redemption in
readily marketable securities or other property under certain circumstances in
accordance with the 1940 Act.
Prior to effecting a redemption of Investor B Shares represented by
certificates, the Transfer Agent must have received such certificates at its
principal office. All such certificates must be endorsed by the redeeming
shareholder or accompanied by a signed stock power, in each instance with the
signature guaranteed by a commercial bank or a member of a major stock exchange,
unless other arrangements satisfactory to Nations Fund have previously been
made. Nations Fund may require any additional information reasonably necessary
to evidence that a redemption has been duly authorized.
Free checkwriting is available with respect to Investor B Shares of the Funds.
With this service, a shareholder may write checks in the amount of $500 or more.
To obtain checks, a shareholder must complete the signature section included
within the Account Application Form. To establish this checkwriting service
after opening an account in one of the Funds, the shareholder must contact
his/her Selling Agent by telephone or mail to obtain an Application Form. A
shareholder will receive the dividends and distributions declared on the shares
to be redeemed up to the day that a check is presented to the Custodian for
payment. Upon 30 days' prior written notice to shareholders, the checkwriting
privilege may be modified or terminated. An investor cannot close an account in
a Fund by writing a check.
AUTOMATIC WITHDRAWAL PLAN: An Automatic Withdrawal Plan ("AWP") may be
established by a new or existing shareholder of a Fund if the value of the
Investor B Shares in his/her accounts within the Nations Fund Family (valued at
the net asset value at the time of the establishment of the AWP) equals $10,000
or more. Shareholders who elect to establish an AWP may receive a monthly,
quarterly or annual check or automatic transfer to a checking or savings account
in a stated amount of not less than $500 on or about the 10th or 25th day of the
applicable month of withdrawal. Investor B Shares will be redeemed as necessary
to meet withdrawal payments. Withdrawals will reduce principal and may
eventually deplete the shareholder's account. If a shareholder desires to
establish an AWP after opening an account, a signature guarantee will be
required. An AWP may be terminated by a shareholder on 30 days' written notice
to his/her Selling Agent or by Nations Fund at any time.
How To Exchange Shares
The exchange feature enables a shareholder of Investor B Shares of a Money
Market Fund to acquire Investor B Shares of another Money Market Fund when that
shareholder believes that a shift between Funds is an appropriate investment
decision. An exchange of Investor B Shares for Investor B Shares of another
Money Market Fund is made on the basis of the next
18
<PAGE>
calculated net asset value per share of each Fund after the exchange order is
received.
The Funds and each of the other funds of Nations Fund may limit the number of
times this exchange feature may be exercised by a shareholder within a specified
period of time. Also, the exchange feature may be terminated or revised at any
time by Nations Fund upon such notice as may be required by applicable
regulatory agencies (presently 60 days for termination or material revision),
provided that the exchange feature may be terminated or materially
revised without notice under certain unusual circumstances.
The current prospectus for each fund of Nations Fund describes its investment
objective and policies, and shareholders should obtain a copy and examine it
carefully before investing. Exchanges are subject to the minimum investment
requirement and any other conditions imposed by each fund. In the case of any
shareholder holding a share certificate or certificates, no exchanges may be
made until all applicable share certificates have been received by the Transfer
Agent and deposited in the shareholder's account. An exchange will be treated
for Federal income tax purposes the same as a redemption of shares, on which the
shareholder may realize a capital gain or loss. However, the ability to deduct
capital losses on an exchange may be limited in situations where there is an
exchange of shares within 90 days after the shares are purchased.
Nations Fund reserves the right to reject any exchange request. Only shares that
may legally be sold in the state of the investor's residence may be acquired in
an exchange. Only shares of a class that is accepting investments generally may
be acquired in an exchange.
During periods of significant economic or market change, telephone exchanges may
be difficult to complete. In such event, shares may be exchanged by mailing your
request directly to the Selling Agent through which the original shares were
purchased. Investors should consult their Selling Agent or Stephens for further
information regarding exchanges.
Investor B Shares may be exchanged by directing a request directly to the
Selling Agent through which the original Investor B Shares were purchased or in
some cases Stephens or the Transfer Agent. Investors should consult their
Selling Agent or Stephens for further information regarding exchanges. Your
exchange feature may be governed by your account agreement with your Selling
Agent.
Shareholder Servicing And Distribution
Plans
SHAREHOLDER SERVICING PLAN: The Funds' shareholder servicing plan ("Servicing
Plan") permits each Fund to compensate Servicing Agents for certain shareholder
support services that are provided by the Servicing Agents to their Customers
that own Investor B Shares. Payments under the Servicing Plan will be calculated
daily and paid monthly at a rate set from time to time by the Board of Directors
or the Board of Trustees, provided that the annual rate may not exceed 0.25% of
the average daily net asset value of a Fund's Investor B Shares. The shareholder
services provided by Servicing Agents may include general shareholder liaison
services; processing purchase, exchange and redemption requests from Customers
and placing orders with Stephens or the Transfer Agent; processing dividend and
distribution payments from a Fund on behalf of Customers; providing sales
information periodically to Customers, including information showing their
positions in Investor B Shares; providing sub-accounting with respect to
Investor B Shares beneficially owned by Customers or the information necessary
for sub-accounting; responding to inquiries from Customers concerning their
investment in Investor B Shares; arranging for bank wires; and providing such
other similar services as may be reasonably requested.
Nations Fund may suspend or reduce payments under the Servicing Plan at any
time, and payments are subject to the continuation of the Funds' Servicing Plan
described above and the
19
<PAGE>
terms of the Servicing Agreements. See the SAIs for more details on the
Servicing Plan.
DISTRIBUTION PLAN: Pursuant to Rule 12b-1 under the 1940 Act, the Directors and
Trustees also have approved a Distribution Plan with respect to Investor B
Shares of the Funds. Pursuant to the Distribution Plan, each Fund may compensate
or reimburse Stephens for expenses incurred in connection with sales support
services. Payments under the Distribution Plan will be calculated daily and paid
monthly at a rate or rates set from time to time by the Board of Directors or
Board of Trustees provided that the annual rate may not exceed 0.10% of the
average daily net asset value of a Fund's Investor B Shares. Payments to
Stephens pursuant to the Distribution Plan will be used (i) to compensate
Selling Agents for providing sales support assistance relating to Investor B
Shares, (ii) for promotional activities intended to result in the sale of
Investor B Shares such as to pay for the preparation, printing and distribution
of prospectuses to other than current shareholders, and (iii) to compensate
Selling Agents for providing sales support services with respect to their
Customers who are, from time to time, beneficial and record holders of Investor
B Shares. Fees received by Stephens pursuant to the Distribution Plan will not
be used to pay any interest expenses, carrying charges or other financing costs
(except to the extent permitted by the SEC) and will not be used to pay any
general and administrative expenses of Stephens.
Nations Fund and Stephens may suspend or reduce payments under the Distribution
Plan at any time, and payments are subject to the continuation of the Funds'
Distribution Plan described above and the terms of the Sales Support Agreement
between Selling Agents and Stephens. See the SAIs for more details on the
Distribution Plan.
Nations Fund understands that Selling Agents and/or Servicing Agents may charge
fees to their Customers who are the owners of Investor B Shares for various
services provided in connection with a Customer's account. These fees would be
in addition to any amounts received by a Selling Agent under its Sales Support
Agreement with Stephens or by a Servicing Agent under its Servicing Agreement
with Nations Fund. The Sales Support Agreements and Servicing Agreements require
Agents to disclose to their Customers any compensation payable to the Agents by
Stephens or Nations Fund and any other compensation payable by the Customers for
various services provided in connection with their accounts. Customers of Agents
should read this Prospectus in light of the terms governing their accounts with
their Agents.
How The Funds Value Their Shares
The net asset value of a share of each class of shares in a Fund is calculated
by dividing the total value of its assets, less liabilities, by the number of
shares in the class outstanding. Shares are valued as of 3:00 p.m., Eastern time
(1:00 p.m., Eastern time, with respect to Nations Tax Exempt Fund and Nations
Government Money Market Fund), on each Business Day. Currently, the days on
which the Federal Reserve Bank of New York is closed (other than weekends) are:
New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Memorial Day
(observed), Independence Day, Labor Day, Columbus Day, Thanksgiving Day and
Christmas Day.
The assets of each Fund are valued based upon the amortized cost method.
Although Nations Fund seeks to maintain the net asset value per share of these
Funds at $1.00, there can be no assurance that their net asset value per share
will not vary.
20
<PAGE>
How Dividends And Distributions Are
Made; Tax Information
DIVIDENDS AND DISTRIBUTIONS: Dividends from net investment income of each Fund
are declared daily to shareholders at 3:00 p.m., Eastern time (1:00 p.m.,
Eastern time, with respect to Nations Tax Exempt Fund and Nations Government
Money Market Fund), on the day of declaration. Investor B Shares begin earning
dividends on the day the purchase order is executed and continue earning
dividends through and including the day before the redemption order is executed
(E.G., the settlement date). Dividends are paid within five Business Days after
the end of each month. Dividends are paid in the form of additional Investor B
Shares of the same Fund unless the Customer has elected prior to the date of
distribution to receive payment in cash. Such election, or any revocation
thereof, must be made in writing to the Fund's Transfer Agent and will become
effective with respect to dividends paid after its receipt. Your dividend
election may be governed by your account agreement with your Selling Agent.
Dividends are paid in cash within five Business Days after a shareholder's
complete redemption of his/her Investor B Shares in a Fund. To the extent that
there are any net short-term capital gains, they will be paid at least annually.
Each Fund's net investment income available for distribution to the holders of
Investor B Shares will be reduced by the amount of sales support and shareholder
servicing fees paid to Selling Agents and Servicing Agents, respectively. Each
Fund's net investment income available for distribution to the holders of
Investor B Shares will be reduced by the amount of retail transfer agency fees
allocated to Investor B Shares.
TAX INFORMATION: Each Fund intends to qualify as a "regulated investment
company" under the Internal Revenue Code of 1986, as amended (the "Code"). Such
qualification relieves a Fund of liability for Federal income tax on amounts
distributed in accordance with the Code.
Each Fund intends to distribute substantially all of its investment company
taxable income and net tax-exempt income each taxable year. Distributions by the
Nations Prime Fund, Nations Treasury Fund and Nations Government Money Market
Fund will be taxable as ordinary income to shareholders who are not currently
exempt from Federal income tax, whether such income is received in cash or
reinvested in additional shares. (Federal income tax for distributions to an IRA
are generally deferred under the Code.) These distributions will not qualify for
the dividends received deduction for corporate shareholders.
Dividends received from Nations Treasury Fund and Nations Government Money
Market Fund may qualify as tax-exempt dividends for state income tax purposes in
some states. The Funds do not expect to realize any long-term capital gains, and
therefore, do not expect to distribute any capital gains dividends.
Each year, shareholders will be notified as to the amount and Federal tax status
of all dividends (and capital gains, if applicable) paid during the prior year.
Such dividends (and capital gains) may be subject to state and local taxes.
Dividends declared in October, November, or December of any year payable to
shareholders of record on a specified date in such months will be deemed to have
been received by shareholders and paid by the Funds on December 31 of such year
in the event such dividends are actually paid during January of the following
year.
Federal law requires Nations Fund to withhold 31% from any dividends (other than
exempt-interest dividends) paid by Nations Fund and/or redemptions (including
exchange redemptions) that occur in certain shareholder accounts if the
shareholder has not properly furnished a certified correct Taxpayer
Identification Number and has not certified that withholding does not apply, or
if the Internal Revenue Service has
21
<PAGE>
notified Nations Fund that the Taxpayer Identification Number listed on a
shareholder account is incorrect according to its records, or that the
shareholder is subject to backup withholding. Amounts withheld are applied to
the shareholder's Federal tax liability, and a refund may be obtained from the
Internal Revenue Service if withholding results in overpayment of tax. Federal
law also requires the Funds to withhold 30% or the applicable tax treaty rate
from dividends paid to certain nonresident alien, non-U.S. partnership and
non-U.S. corporation shareholder accounts.
NATIONS TAX EXEMPT FUND: As a regulated investment company, Nations Tax Exempt
Fund is permitted to pass through to its shareholders tax-exempt income
("exempt-interest dividends") subject to certain requirements which the Fund
intends to satisfy. The Fund does not intend to earn investment company taxable
income or long-term capital gains; to the extent that it does earn taxable
income or realize long-term capital gains, distributions to shareholders from
such sources will be subject to Federal income tax. Exempt-interest dividends
may be treated by shareholders as items of interest excludable from their
federal gross income under Section 103(a) of the Code unless, under the
circumstances applicable to the particular shareholder, the exclusion would be
disallowed. (See Nations Fund Trust's SAI under "Additional Information
Concerning Taxes.") Distributions of net investment income by Nations Tax Exempt
Fund may be taxable to investors under state or local law even though a
substantial portion of such distribution may be derived from interest on
tax-exempt obligations which, if realized directly, would be exempt from such
income taxes.
If Nations Tax Exempt Fund should hold certain private activity bonds issued
after August 7, 1986, shareholders must include, as an item of tax preference,
the portion of dividends paid by the Fund that is attributable to interest on
such bonds in their Federal alternative minimum taxable income for purposes of
determining liability (if any) for the 28% alternative minimum tax applicable to
individuals and the 20% alternative minimum tax and the environmental tax
applicable to corporations. Corporate shareholders must also take all
exempt-interest dividends into account in determining certain adjustments for
Federal alternative minimum and environmental tax purposes. The environmental
tax applicable to corporations is imposed at the rate of 0.12% on the excess of
the corporation's modified Federal alternative minimum taxable income over
$2,000,000. Shareholders receiving Social Security benefits should note that all
exempt-interest dividends will be taken into account in determining the
taxability of such benefits. To the extent, if any, dividends paid to
shareholders are derived from taxable income or from long-term or short-term
capital gains, such dividends will not be exempt from Federal income tax and
also may be subject to state and local tax.
The foregoing discussion is based on tax laws and regulations that were in
effect as of the date of this Prospectus and summarizes only some of the
important Federal tax considerations generally affecting the Funds and their
shareholders. It is not intended as a substitute for careful tax planning;
investors should consult their tax advisors with respect to their specific tax
situations as well as with respect to state and local taxes. Further tax
information is contained in the SAIs.
Appendix A -- Portfolio Securities
The following are summary descriptions of certain types of instruments in which
a Fund may invest. The "How Objectives Are Pursued" section of this Prospectus
identifies each Fund's permissible investments, and the SAIs contain more
information concerning such investments.
ASSET-BACKED SECURITIES: Asset-backed securities arise through the grouping by
governmental, government-related, and private organizations of loans,
receivables, or other assets originated by various lenders. Asset-backed
securities consist of both mortgage- and non-
22
<PAGE>
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 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
23
<PAGE>
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 a Fund of the reverse repurchase transaction is less than the
cost of obtaining the cash otherwise.
At the time a Fund enters into a reverse repurchase agreement, it may establish
a segregated account with its custodian bank in which it will maintain cash,
U.S. Government securities ("U.S. Government Securities"), or other liquid high
grade debt obligations equal in value to its obligations in respect of reverse
repurchase agreements. Reverse repurchase agreements involve the risk that the
market value of the securities the Fund is obligated to repurchase under the
agreement may decline below the repurchase price. In the event the buyer of
securities under a reverse repurchase agreement files for bankruptcy or becomes
insolvent, the Fund's use of proceeds of the agreement may be restricted pending
a determination by the other party, or its trustee or receiver, whether to
enforce the Fund's obligation to repurchase the securities. In addition, there
is a risk of delay in receiving collateral or securities or in repurchasing the
securities covered by the reverse repurchase agreement or even of a loss of
rights in the collateral or securities in the event the buyer of the securities
under the reverse repurchase agreement files for bankruptcy or becomes
insolvent. The Funds only enter into reverse repurchase agreements (and
repurchase agreements) with counterparties that are deemed by the Adviser to be
credit worthy. Reverse repurchase agreements are speculative techniques
involving leverage, and are subject to asset coverage requirements if the Fund
does not establish and maintain a segregated account (as described above). Under
the requirements of the 1940 Act, a Fund is required to maintain an asset
coverage (including the proceeds of the borrowings) of at least 300% of all
borrowings. Depending on market conditions, a Fund's asset coverage and other
factors at the time of a reverse repurchase, the Fund may not establish a
segregated account when the Adviser believes it is not in the best interest of
the Fund to do so. In this case, such reverse repurchase agreements will be
considered borrowings subject to the asset coverage described above.
Currently, Nations Treasury Fund has entered into an arrangement whereby it
reinvests the proceeds of a reverse repurchase agreement in a tri-party
repurchase agreement and receives the net interest rate differential.
COMMERCIAL INSTRUMENTS: Commercial instruments consist of short-term U.S.
dollar-denominated obligations issued by domestic corporations or foreign
corporations and domestic and foreign commercial banks. The Nations Prime Fund
will limit purchases of commercial instruments to instruments which: (a) if
rated by at least two NRSROs, are rated in the highest rating category for
short-term debt obligations given by such organizations, or if only rated by one
such organization, are rated in the highest rating category for short-term debt
obligations given by such organization; or (b) if not rated, are (i) comparable
in priority and security to a class of short-term instruments of the same issuer
that has such rating(s), or (ii) of comparable quality to such instruments as
determined by Nations Fund, Inc.'s Board of Directors on the advice of the
Adviser.
Investments by a Fund in commercial paper will consist of issues rated in a
manner consistent with such Fund's investment policies and objective. In
addition, a Fund may acquire unrated commercial paper and corporate bonds that
are determined by the Adviser at the time of
pur-
24
<PAGE>
chase to be of comparable quality to rated instruments that may be acquired by
the Fund. Commercial instruments include variable-rate master demand notes,
which are unsecured instruments that permit the indebtedness thereunder to vary
and provide for periodic adjustments in the interest rate, and variable- and
floating-rate instruments.
FOREIGN SECURITIES: Foreign securities include debt 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 which, at the time of purchase, meet
quality and credit standards established by the Adviser. Generally, GICs are not
assignable or transferable without the permission of the issuing insurance
companies, and an active secondary market in GICs does not currently exist.
Also, a Fund may not receive the principal amount of a GIC from the insurance
company on seven days' notice or less, at which point the GIC may be considered
to be an illiquid investment.
ILLIQUID SECURITIES: Certain securities may be sold only pursuant to certain
legal restrictions, and may be difficult to sell. The Money Market Funds will
not hold more than 10% of the value of their respective net assets in securities
that are illiquid or such lower percentage as may be required by the states in
which the Funds sells their shares. Repurchase agreements, time de-
posits and GICs that do not provide for payment to a Fund within seven days
after notice, and illiquid restricted securities are subject to the limitation
on illiquid securities. In addition, interests in privately arranged loans
acquired by the Nations Prime Fund may be subject to this limitation.
25
<PAGE>
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
are 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 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
governmen-
26
<PAGE>
tal entities. While there may not be an active secondary market with respect to
a particular instrument purchased by a Fund, a Fund may demand payment of the
principal and accrued interest on the instrument or may resell it to a third
party as specified in the instrument. The absence of an active secondary market,
however, could make it difficult for a Fund to dispose of the instrument if the
issuer defaulted on its payment obligation or during periods the Fund is not
entitled to exercise its demand rights, and the Fund could, for these or other
reasons, suffer a loss.
Some of these instruments may be unrated, but unrated instruments purchased by a
Fund will be determined by the Adviser to be of comparable quality at the time
of purchase to instruments rated "high quality" by any major rating service. An
issuer's obligation to pay the principal of the note may be backed by an
unconditional bank letter or line of credit, guarantee, or commitment to lend.
Municipal Securities also may include municipal lease obligations, including
certificates of participation in municipal leases, and units of participation in
trusts holding pools of tax-exempt leases. A Fund may acquire municipal lease
obligations that may be assigned by the lessee to another party provided the
obligation continues to provide tax-exempt interest. Each Fund will not purchase
municipal lease obligations to the extent it holds municipal lease obligations
and illiquid securities in an amount exceeding 10% of its total assets unless
the Adviser determines that the municipal lease obligations are liquid pursuant
to guidelines established by the Funds' Boards. Pursuant to these guidelines,
the Adviser, in making this liquidity determination, will consider, among other
factors, the strength and nature of the secondary market for such obligations,
the prospect for its future marketability and whether such obligations are
rated. The Funds expect that they will only purchase rated municipal lease
obligations.
Municipal participation interests may be purchased from financial institutions,
and give the purchaser an undivided interest in one or more underlying Municipal
Securities. To the extent that municipal participation interests are considered
to be "illiquid securities" such instruments are subject to each Fund's
limitation on the purchase of illiquid securities.
In addition, certain of the Funds may acquire "stand-by commitments" from banks
or broker/dealers with respect to Municipal Securities held in their portfolios.
Under a stand-by commitment, a dealer would agree to purchase at a Fund's option
specified Municipal Securities at a specified price. A Fund will acquire
stand-by commitments solely to facilitate portfolio liquidity and without
intending to exercise its rights thereunder for trading purposes.
A Fund may invest in short-term securities, in commitments to purchase such
securities on a "when-issued" basis, and reserves the right to engage in "put"
transactions on a daily, weekly or monthly basis. Securities purchased on a
"when-issued" basis are subject to settlement within 45 days of the purchase
date. The interest rate realized on these securities is fixed as of the purchase
date and no interest accrues to the Fund before settlement. These securities are
subject to market fluctuation due to changes in market interest rates. The Funds
will only commit to purchase a security on a when-issued basis with the
intention of actually acquiring the security and will segregate sufficient
liquid assets to meet its purchase obligation.
A "put" feature permits a Fund to sell a security at a fixed price prior to
maturity. The underlying Municipal Securities subject to a put may be sold at
any time at the market rates. However, unless the put was an integral part of
the security as originally issued, it may not be marketable or assignable.
Therefore, the put would only have value to the Fund. In certain cases a premium
may be paid for put features. A premium paid will have the effect of reducing
the yield otherwise payable on the underlying security. The purpose of engaging
in transactions involving puts is to maintain flexibility and liquidity to
permit the Fund to meet redemptions and remain as fully invested as possible in
municipal securities. The Funds will limit their put transacations to
institutions which the Adviser believes present minimal credit risk, pursuant to
guidelines adopted by the Boards. Nations Tax Exempt Fund may invest more than
40% of its portfolio in securities with put or demand fea-
27
<PAGE>
tures 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 the trust, either
from the underlying securities owned by the trust or pursuant to other
arrangements entered into by the trust. A trust may enter into a swap
arrangement with a highly rated investment firm, pursuant to which the trust
grants to the counterparty certain of its rights with respect to the securities
owned by the trust in exchange for the obligation of the counterparty to make
payments to the trust according to an established formula. The trust obligations
purchased by the Fund must satisfy the quality and maturity requirements
generally applicable to the Fund pursuant to Rule 2a-7 under the 1940 Act.
U.S. GOVERNMENT OBLIGATIONS: U.S. Government Obligations consist of marketable
securities and instruments issued or guaranteed by the U.S. Government or any of
its agencies, authorities or instrumentalities. Direct obligations are issued by
the U.S. Treasury and include all U.S. Treasury instruments. 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 agencies and enterprises
acting under authority
28
<PAGE>
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 Association; 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 a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than debt in higher-rated
categories.
To provide more detailed indications of credit quality, the AA and A ratings may
be modified by the addition of a plus or minus sign to show relative standing
within this major rating category.
29
<PAGE>
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.
30
<PAGE>
The following summarizes the two highest ratings used by Moody's for short-term
municipal notes and variable-rate demand obligations:
MIG-1/VMIG-1 -- Obligations bearing these designations are of the best
quality, enjoying strong protection from established cash flows, superior
liquidity support or demonstrated broad-based access to the market for
refinancing.
MIG-2/VMIG-2 -- Obligations bearing these designations are of high quality,
with ample margins of protection although not so large as in the preceding
group.
The following summarizes the two highest ratings used by S&P for short-term
municipal notes:
SP-1 -- Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics are given
a "plus" (+) designation.
SP-2 -- Satisfactory capacity to pay principal and interest.
The 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
31
<PAGE>
suggest specific investment criteria for individual clients.
BankWatch long-term ratings apply to specific issues of long-term debt and
preferred stock. The long-term ratings specifically assess the likelihood of
untimely payment of principal or interest over the term to maturity of the rated
instrument. The following are the three highest investment grade ratings used by
BankWatch for long-term debt:
AAA -- The highest category; indicates ability to repay principal and
interest on a timely basis is very high.
AA -- The second highest category; indicates a superior ability to repay
principal and interest on a timely basis with limited incremental risk
versus issues rated in the highest category.
A -- The third highest category; indicates the ability to repay principal
and interest is strong. Issues rated "A" could be more vulnerable to
adverse developments (both internal and external) than obligations with
higher ratings.
The BankWatch short-term ratings apply to commercial paper, other senior
short-term obligations and deposit obligations of the entities to which the
rating has been assigned. The BankWatch short-term ratings specifically assess
the likelihood of an untimely payment of principal or interest.
TBW-1 -- The highest category; indicates a very high degree of likelihood
that principal and interest will be paid on a timely basis.
TBW-2 -- The second highest category; while the degree of safety regarding
timely repayment of principal and interest is strong, the relative degree
of safety is not as high as for issues rated "TBW-1".
The following summarizes the three highest long-term ratings used by IBCA:
AAA -- Obligations for which there is the lowest expectation of investment
risk. Capacity for timely repayment of principal and interest is
substantial such that adverse changes in business, economic or financial
conditions are unlikely to increase investment risk significantly.
AA -- Obligations for which there is a very low expectation of investment
risk. Capacity for timely repayment of principal and interest is
substantial. Adverse changes in business, economic or financial conditions
may increase investment risk albeit not very significantly.
A -- Obligations for which there is a low expectation of investment risk.
Capacity for timely repayment of principal and interest is strong, although
adverse changes in business, economic or financial conditions may lead to
increased investment risk.
A plus or minus sign may be appended to a rating below AAA to denote relative
status within major rating categories.
The following summarizes the two highest short-term debt ratings used by IBCA:
A1+ -- Where issues possess a particularly strong credit feature.
A1 -- Obligations supported by the highest capacity for timely repayment.
A2 -- Obligations supported by a good capacity for timely repayment.
32
<PAGE>
Prospectus
INVESTOR C SHARES
JULY 31, 1996
This Prospectus describes the investment portfolios
listed in the column to the right (each a "Fund"
and collectively the "Money Market Funds") of
Nations Fund Trust and Nations Fund, Inc., each an
open-end management investment company in the
Nations Fund Family ("Nations Fund" or "Nations
Fund Family"). This Prospectus describes one class
of shares of each Money Market Fund -- Investor C
Shares.
EACH MONEY MARKET FUND SEEKS TO MAINTAIN A NET
ASSET VALUE OF $1.00 PER SHARE.
INVESTMENTS IN THE MONEY MARKET FUNDS ARE NEITHER
INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT AND
THERE CAN BE NO ASSURANCE THAT THE MONEY MARKET
FUNDS WILL BE ABLE TO MAINTAIN A STABLE NET ASSET
VALUE OF $1.00 PER SHARE.
This Prospectus sets forth concisely the
information about the Funds that a prospective
purchaser of Investor C Shares should consider
before investing. Investors should read this
Prospectus and retain it for future reference.
Additional information about Nations Fund Trust and
Nations Fund, Inc. is contained in separate
Statements of Additional Information (the "SAIs"),
that have been filed with the Securities and
Exchange Commission (the "SEC") and are available
upon request without charge by writing or calling
Nations Fund at its address or telephone number
shown below. The SAIs bear the same date as this
Prospectus and are incorporated by reference in
their entirety into this Prospectus. NationsBanc
Advisors, Inc. ("NBAI") is the investment adviser
to the Funds. TradeStreet Investment Associates,
Inc. ("TradeStreet") is sub-investment adviser to
the Funds. As used herein the "Adviser" shall mean
NBAI and/or TradeStreet as the context may require.
SHARES OF NATIONS FUND ARE NOT DEPOSITS OR OTHER
OBLIGATIONS OF, OR ISSUED, ENDORSED OR GUARANTEED
BY, NATIONSBANK, N.A. ("NATIONSBANK") OR ANY OF ITS
AFFILIATES. SUCH SHARES ARE NOT INSURED BY THE U.S.
GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER
GOVERNMENT AGENCY. AN INVESTMENT IN THE FUNDS
INVOLVES CERTAIN RISKS, INCLUDING POSSIBLE LOSS OF
PRINCIPAL.
NATIONSBANK AND CERTAIN OF ITS AFFILIATES PROVIDE
CERTAIN OTHER SERVICES TO NATIONS FUND, FOR WHICH
THEY ARE COMPENSATED. STEPHENS INC., WHICH IS NOT
AFFILIATED WITH NATIONSBANK, IS THE SPONSOR AND
ADMINISTRATOR AND SERVES AS THE DISTRIBUTOR FOR
NATIONS FUND.
THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
Nations Prime
Fund
Nations Treasury
Fund
Nations Government
Money Market
Fund
Nations Tax
Exempt Fund
For Fund information call:
1-800-321-7854
Nations Fund
c/o Stephens Inc.
One NationsBank Plaza
33rd Floor
Charlotte, NC 28255
(Nations Fund logo
appears here)
NF-96139-796
<PAGE>
Table Of Contents
About The Funds
Prospectus Summary 3
Expenses Summary 4
Financial Highlights 5
Objectives 7
How Objectives Are Pursued 8
How Performance Is Shown 11
How The Funds Are Managed 11
Organization And History 14
About Your Investment
How To Buy Shares 16
How To Redeem Shares 17
How To Exchange Shares 18
Shareholder Servicing Plan 19
How The Funds Value Their Shares 19
How Dividends And Distributions Are Made;
Tax Information 20
Appendix A -- Portfolio Securities 22
Appendix B -- Description Of Ratings 29
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT
CONTAINED IN THIS PROSPECTUS,
OR IN THE FUNDS' SAIS INCORPORATED HEREIN BY
REFERENCE, IN CONNECTION WITH THE OFFERING MADE BY
THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY NATIONS FUND OR
ITS DISTRIBUTOR. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFERING BY NATIONS FUND OR BY THE
DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH
OFFERING MAY NOT LAWFULLY BE MADE.
2
<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."
3
<PAGE>
Expenses Summary
Expenses are one of several factors to consider when investing in the Funds. The
following table summarizes shareholder transaction and operating expenses for
Investor C Shares of the Funds. The Examples show the cumulative expenses
attributable to a hypothetical $1,000 investment in the Funds over specified
periods.
<TABLE>
<CAPTION>
INVESTOR C SHARES
Nations
Government Nations Tax
Nations Nations Money Exempt
SHAREHOLDER TRANSACTION EXPENSES Prime Fund Treasury Fund Market Fund Fund
<S> <C> <C> <C> <C>
Sales Load Imposed on Purchases None None None None
Deferred Sales Charge None None None None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees (After Fee Waivers) .20% .20% .20% .20%
Rule 12b-1 Fees None None None None
Shareholder Servicing Fees (After Fee Waivers) .25% .25% .25% .15%
Other Expenses (After Expense Reimbursements) .10% .10% .10% .10%
Total Operating Expenses (After Fee Waivers and Expense
Reimbursements) .55% .55% .55% .45%
</TABLE>
EXAMPLES:
You would pay the following expenses on a $1,000 investment in Investor C Shares
of the indicated Fund, assuming (1) a 5% annual return and (2) redemption at the
end of each time period.
<TABLE>
<CAPTION>
Nations
Nations Prime Nations Treasury Government Money
Fund Fund Market Fund
<S> <C> <C> <C>
1 Year $ 6 $ 6 $ 6
3 Years $ 18 $ 18 $ 18
5 Years $ 31 $ 31 $ 31
10 Years $ 69 $ 69 $ 69
</TABLE>
<TABLE>
<CAPTION>
Nations Tax
Exempt
Fund
<S> <C>
1 Year $ 5
3 Years $ 14
5 Years $ 25
10 Years $ 57
</TABLE>
The purpose of the foregoing table is to assist an investor in understanding the
various shareholder transaction and operating expenses that an investor in each
Fund will bear either directly or indirectly. The "Other Expenses" figures
contained in the above table are based on estimated amounts for the Funds'
current fiscal year and reflect anticipated fee waivers and reimbursements.
There is no assurance that any fee waivers and reimbursements will continue
beyond the current fiscal year. If fee waivers and/or reimbursements are
discontinued, the amounts contained in the "Examples" above may increase. For
more complete descriptions of the Funds' operating expenses, see "How The Funds
Are Managed."
4
<PAGE>
Absent expense reimbursements, "Other Expenses" and "Total Operating Expenses"
for Investor C Shares of the indicated Fund would have been as follows: Nations
Prime Fund -- .17% and .62%, respectively; Nations Treasury Fund -- .17% and
.62%, respectively. Absent fee waivers and expense reimbursements, "Management
Fees," "Other Expenses" and "Total Operating Expenses" for Nations Government
Money Market Fund would have been .40%, .19% and .84%, respectively. Absent fee
waivers and expense reimbursements, "Management Fees," "Shareholder Servicing
Fees," "Other Expenses" and "Total Operating Expenses" for the Nations Tax
Exempt Fund would have been .40%, .25%, .17% and .82%, respectively.
THE FOREGOING SHOULD NOT BE CONSIDERED TO BE AN ACTUAL REPRESENTATION OF PAST OR
FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES AND RATES OF RETURN MAY BE
GREATER OR LESS THAN THOSE SHOWN.
Financial Highlights
The audited financial information on the following pages has been derived from
the financial statements of Nations Fund Trust and Nations Fund, Inc. Price
Waterhouse LLP is the independent accountant to Nations Fund Trust and Nations
Fund, Inc. The reports of Price Waterhouse LLP for the most recent fiscal years
of Nations Fund Trust and Nations Fund, Inc. accompany the financial statements
for such periods and are incorporated by reference in the SAIs, which are
available upon request. Shareholders of a Fund will receive unaudited
semi-annual reports describing the Fund's investment operations and annual
financial statements audited by the Funds' independent accountant.
FOR AN INVESTOR C SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS PRIME FUND
<TABLE>
<CAPTION>
PERIOD YEAR PERIOD
ENDED ENDED ENDED
INVESTOR C SHARES 03/31/96(a) 05/31/95 05/31/94*
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00
Net investment income 0.0447 0.0493 0.0155
Dividends from net investment income (0.0447) (0.0493) (0.0155)
Total dividends and distributions (0.0447) (0.0493) (0.0155)
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00
Total return++ 4.57% 5.03% 1.58%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 74,822 $ 53,451 $ 1,481
Ratio of operating expenses to average net assets 0.55%+ 0.56% 0.55%+
Ratio of net investment income to average net assets 5.37%+ 4.97% 2.95%+
Ratio of operating expenses to average net assets without waivers
and/or reimbursements 0.62%+ 0.64% 0.62%+
Net investment income per share without waivers and/or
reimbursements $ 0.0442 $ 0.0485 $ 0.0151
</TABLE>
* Nations Prime Fund Investor C Shares commenced operations on November 26,
1993.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
May 31.
5
<PAGE>
FOR AN INVESTOR C SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS TREASURY FUND
<TABLE>
<CAPTION>
PERIOD YEAR PERIOD
ENDED ENDED ENDED
INVESTOR C SHARES 03/31/96(a) 05/31/95 05/31/94*
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00
Net investment income 0.0437 0.0468 0.0019
Dividends from net investment income (0.0437) (0.0468) (0.0019)
Distributions from net realized capital gains (0.0000)# (0.0000)# --
Total dividends and distributions (0.0437) (0.0468) (0.0019)
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00
Total return++ 4.46% 4.76% 0.19%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 8,783 $ 6,373 $ 191
Ratio of operating expenses to average net assets 0.55%+ 0.56% 0.55%+
Ratio of net investment income to average net assets 5.27%+ 4.73% 2.72%+
Ratio of operating expenses to average net assets without waivers and/or
expense reimbursements 0.62%+ 0.61% 0.61%+
Net investment income per share without waivers and/or expense reimbursements $ 0.0432 $ 0.0463 $ 0.0019
</TABLE>
* Nations Treasury Fund Investor C Shares commenced operations on May 11, 1994.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
# Amount represents less than $0.0001.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
May 31.
NATIONS GOVERNMENT MONEY MARKET FUND
<TABLE>
<CAPTION>
PERIOD YEAR PERIOD
ENDED ENDED ENDED
INVESTOR C SHARES 03/31/96(a) 11/30/95 11/30/94*
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00
Net investment income 0.0165 0.0532 0.0290
Distributions:
Dividends from net investment income (0.0165) (0.0532) (0.0290)
Dividends from net realized capital gains -- -- (0.0000)#
Total dividends and distributions (0.0165) (0.0532) (0.0290)
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00
Total return++ 1.66% 5.44% 2.94%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 1,731 $ 4,414 $ 476
Ratio of operating expenses to average net assets 0.55%+ 0.55% 0.55%+
Ratio of net investment income to average net assets 4.95%+ 5.33% 3.54%+
Ratio of operating expenses to average net assets without waivers and/or
expense reimbursements 0.84%+ 0.82% 0.84%+
Net investment income per share without waivers and/or expense reimbursements $ 0.0155 $ 0.0505 $ 0.0268
</TABLE>
* Nations Government Money Market Fund Investor C Shares commenced operations
on March 21, 1994.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
# Amount represents less than $0.0001 per share.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
6
<PAGE>
FOR AN INVESTOR C SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS TAX EXEMPT FUND
<TABLE>
<CAPTION>
PERIOD YEAR PERIOD
ENDED ENDED ENDED
INVESTOR C SHARES 03/31/96(a) 11/30/95 11/30/94*
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00
Net investment income 0.0107 0.0346 0.0203
Dividends from net investment income (0.0107) (0.0346) (0.0203)
Total dividends and distributions (0.0107) (0.0346) (0.0203)
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00
Total return++ 1.07% 3.52% 2.05%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 66,743 $ 41,409 $ 25,704
Ratio of operating expenses to average net assets 0.45%+ 0.45% 0.42%+
Ratio of net investment income to average net assets 3.20%+ 3.47% 2.44%+
Ratio of operating expenses to average net assets without waivers
and/or expense reimbursements 0.73%+ 0.72% 0.74%+
Net investment income per share without waivers and/or expense
reimbursements $ 0.0098 $ 0.0320 $ 0.0177
</TABLE>
* Nations Tax Exempt Fund Investor C Shares commenced operations on March 7,
1994.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
Objectives
Each Money Market Fund endeavors to achieve its investment objective by
investing in a diversified portfolio of high quality money market instruments
with maturities of 397 days or less from the date of purchase. Securities
subject to repurchase agreements may bear longer maturities.
NATIONS PRIME FUND: Nations Prime Fund's investment objective is to seek the
maximization of current income to the extent consistent with the preservation of
capital and the maintenance of liquidity.
NATIONS TREASURY FUND: Nations Treasury Fund's investment objective is the
maximization of current income to the extent consistent with the preservation of
capital and the maintenance of liquidity.
NATIONS GOVERNMENT MONEY MARKET FUND: Nations Government Money Market Fund's
investment objective is to seek as high a level of current income as is
consistent with liquidity and stability of principal.
NATIONS TAX EXEMPT FUND: Nations Tax Exempt Fund's investment objective is to
seek as high a level of current interest income exempt from Federal income taxes
as is consistent with liquidity and stability of principal.
7
<PAGE>
How Objectives Are Pursued
NATIONS PRIME FUND: In pursuing its investment objective, the Fund may invest in
U.S. Treasury bills, notes and bonds and other instruments issued directly by
the U.S. Government ("U.S. Treasury Obligations"), other obligations issued or
guaranteed as to payment of principal and interest by the U.S. Government, its
agencies or instrumentalities (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 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 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
8
<PAGE>
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 considered, by itself, to provide a complete investment
program for any investor. Investments in a Fund are not insured against loss of
principal. For additional risk information regarding the Funds' investment in
particular instruments, see "Appendix A."
INVESTMENT LIMITATIONS: The Funds are subject to a number of investment
limitations. The following investment limitations are matters of fundamental
policy and may not be changed with respect to a particular Fund without the
affirmative vote of the holders of a majority of that Fund's outstanding shares.
Other investment limitations that cannot be changed without such a vote of
shareholders are described in each Fund's SAI.
Each Fund may not:
1. Purchase any securities which would cause 25% or more of the value of the
Fund's total assets at the time of such purchase to be invested in the
securities of one or more issuers conducting their principal activities in the
same industry. (For purposes of this limitation, U.S. Government securities and
tax-exempt securities issued by state or municipal governments and their
political subdivisions are not considered members of any industry. In addition,
this limitation does not apply to investments in obligations of domestic banks.)
9
<PAGE>
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 or the SAIs. Should a Fund determine that any such
commitment is no longer in its best interests, it may consider terminating sales
of its shares in the states involved.
RESTRAINTS ON INVESTMENTS BY MONEY MARKET FUNDS: In order for the Funds to value
their investments on the basis of amortized cost (see "How The Funds Value Their
Shares"), investments must be in accordance with the requirements of Rule 2a-7
under the Investment Company Act of 1940, as amended ("1940 Act"), some of which
are described below. A Money Market Fund is limited to acquiring obligations
with a remaining maturity of 397 days or less, or obligations with 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 which, at the time of acquisition, are rated in the first or second
rating categories (known as "first tier" and "second tier" securities,
respectively) by the required number of NRSROs (at least two or, if only one
NRSRO has rated the security, that one NRSRO) or, if unrated by any NRSRO, are
(i) comparable in priority and security to a class of short-term securities of
the same issuer that has the required rating, or (ii) determined to be
comparable in quality to securities having the required rating. The
diversification requirements provide generally that a Money Market Fund may not
at the time of acquisition invest more than 5% of its assets in securities of
any one issuer except that up to 25% of total assets may be invested in the
first tier securities of a single issuer for three business days. Additionally,
(except for Nations Tax Exempt Fund) no more than 5% of total assets may be
invested, at the time of acquisition, in second tier securities in the
aggregate, and any investment in second tier securities of one issuer is limited
to the greater of 1% of total assets or one million dollars. Securities issued
by the U.S. Government, its agencies, authorities or instrumentalities are
exempt from the quality requirements, other than minimal credit risk. In the
event that a Fund's investment restrictions or permissible investments are more
restrictive than the requirements of Rule 2a-7, the Fund's own restrictions will
govern.
10
<PAGE>
How Performance Is Shown
From time to time the Funds may advertise the yield and effective yield on a
class of shares and Nations Tax Exempt Fund also may advertise the
tax-equivalent yield of a class of shares. YIELD, EFFECTIVE YIELD AND TAX
EQUIVALENT YIELD FIGURES ARE BASED ON HISTORICAL DATA AND ARE NOT INTENDED TO
INDICATE FUTURE PERFORMANCE.
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 servicing agents to their
customers' accounts for automatic investment or other cash management services
will not be included in calculations of yield.
In addition to Investor C Shares, the Funds offer Primary A, Primary B, Investor
A, Investor B and Investor D Shares. Each class of shares may bear different
sales charges, shareholder servicing fees and other expenses, which may cause
the performance of a class to differ from the performance of the other classes.
Performance quotations will be computed separately for each class of a Fund's
shares. Each Fund's annual report contains additional performance information
and is available upon request without charge from the Funds' distributor or the
investor's servicing agent.
How The Funds Are Managed
The business and affairs of each of Nations Fund Trust and Nations Fund, Inc.
are managed under the direction of its Board of Trustees and Board of Directors,
respectively. Nations Fund Trust's SAI contains the names of and general
background information concerning each Trustee of Nations Fund Trust. Nations
Fund, Inc.'s SAI contains the names of and general background information
concerning each Director of Nations Fund, Inc.
Nations Fund and the Adviser have adopted codes of ethics which contain policies
on personal securities transactions by "access persons," including portfolio
managers and investment analysts. These policies substantially comply in all
material respects with the recommendations set forth in the May 9, 1994 Report
of the Advisory Group on Personal Investing of the Investment Company Institute.
INVESTMENT ADVISER: NationsBanc Advisors, Inc. serves as investment adviser to
the Funds. NBAI is a wholly owned subsidiary of NationsBank, which in turn is a
wholly owned banking subsidiary of NationsBank Corporation, a bank holding
company organized as a North Carolina corporation. NationsBank has its principal
offices at One NationsBank Plaza, Charlotte, North Carolina 28255.
TradeStreet Investment Associates, Inc., with principal offices at One
NationsBank Plaza,
11
<PAGE>
Charlotte, North Carolina 28255, serves as sub-investment adviser to the Funds.
TradeStreet is a wholly owned subsidiary of NationsBank. TradeStreet provides
investment management services to individuals, corporations and institutions.
Subject to the general supervision of Nations Fund Trust's Board of Trustees and
Nations Fund, Inc.'s Board of Directors, and in accordance with each Fund's
investment policies, the Adviser formulates guidelines and lists of approved
investments for each Fund, makes decisions with respect to and places orders for
each Fund's purchases and sales of portfolio securities and maintains records
relating to such purchases and sales. With respect to Nations Tax Exempt Fund,
the Adviser is authorized to allocate purchase and sale orders for portfolio
securities to certain financial institutions, including, in the case of agency
transactions, financial institutions which are affiliated with the Adviser or
which have sold shares in such Fund, if the Adviser believes that the quality of
the transaction and the commission are comparable to what they would be with
other qualified brokerage firms. From time to time, to the extent consistent
with its investment objective, policies and restrictions, each Fund may invest
in securities of companies with which NationsBank has a lending relationship.
For the services provided and expenses assumed pursuant to various Investment
Advisory Agreements, NBAI is entitled to receive advisory fees, computed daily
and paid monthly, at the annual rates of: 0.25% of the first $250 million of the
combined average daily net assets of both Nations Prime Fund and Nations
Treasury Fund, plus 0.20% of the combined average daily net assets of such Funds
in excess of $250 million; and 0.40% of the average daily net assets of each of
Nations Government Money Market Fund and Nations Tax Exempt Fund.
For the services provided and expenses assumed pursuant to sub-advisory
agreements, NBAI will pay TradeStreet sub-advisory fees, computed daily and paid
monthly, at the annual rate of 0.055% of the average daily net assets of each
Fund.
From time to time, NBAI (and/or TradeStreet) may waive or reimburse (either
voluntarily or pursuant to applicable state limitations) advisory fees and/or
expenses payable by a Fund.
For the fiscal period from December 1, 1995 to December 31, 1995, after waivers,
Nations Fund Trust paid NationsBank under a prior Investment Advisory Agreement
advisory fees at the indicated rates of the following Funds' average daily net
assets: Nations Government Money Market Fund -- 0.12%; and Nations Tax Exempt
Fund -- 0.13%.
For the fiscal period from June 1, 1995 to December 31, 1995, after waivers,
Nations Fund, Inc. paid NationsBank under a prior Investment Advisory Agreement
advisory fees at the rate of 0.18% of the average daily net assets of Nations
Prime Fund and Nations Treasury Fund.
For the fiscal period from January 1, 1996 to March 31, 1996, after waivers,
Nations Fund Trust paid NBAI under the current Investment Advisory Agreement
advisory fees at the indicated rates of the following Funds' average daily net
assets: Nations Government Money Market Fund -- 0.12%; and Nations Tax Exempt
Fund -- 0.13%.
For the fiscal period from January 1, 1996 to March 31, 1996, after waivers,
Nations Fund, Inc. paid NBAI under the current Investment Advisory Agreement
advisory fees at the rate of 0.18% of the average daily net assets of Nations
Prime Fund and Nations Treasury Fund.
For the fiscal period from January 1, 1996 to March 31, 1996, after waivers,
NBAI paid TradeStreet under the current Sub-Advisory Agreement sub-advisory fees
at the rate of 0.055% of the average daily net assets of Nations Government
Money Market Fund, Nations Tax Exempt Fund, Nations Prime Fund, and Nations
Treasury Fund.
Melinda Allen Crosby is a Product Manager, Municipal Fixed Income Management for
TradeStreet and is Portfolio Manager for Nations Tax Exempt Fund. She has been
Portfolio Manager for Nations Tax Exempt Fund since 1991. 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
12
<PAGE>
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 Investor Services Group, Inc. ("First Data"), formerly The
Shareholder Services Group, Inc., a wholly owned subsidiary of First Data
Corporation, with principal offices at One Exchange Place, Boston, Massachusetts
02109, serves as the co-administrator of the Funds pursuant to Co-Administration
Agreements. Under the Co-Administration Agreements, First Data provides various
administrative and accounting services to the Funds, including performing
calculations necessary to determine net asset values and dividends, preparing
tax returns and financial statements and maintaining the portfolio records and
certain general accounting records for the Funds. For the services rendered
pursuant to the Administration and Co-Administration Agreements, Stephens and
First Data are entitled to receive a combined fee at the annual rate of up to
0.10% of each Fund's average daily net assets.
For the fiscal period from December 1, 1995 to March 31, 1996, after waivers,
Nations Fund Trust paid its administrators combined fees at the rate of 0.09% of
the average daily net assets of Nations Government Money Market Fund and Nations
Tax Exempt Fund.
13
<PAGE>
For the fiscal period from June 1, 1996 to March 31, 1996, after waivers,
Nations Fund, Inc. paid its administrators combined fees at the indicated rates
of the following Funds' average daily net assets: Nations Prime Fund -- 0.06%;
and Nations Treasury Fund -- 0.05%.
NationsBank serves as sub-administrator for Nations Fund pursuant to a
Sub-Administration Agreement. Pursuant to the terms of the Sub-Administration
Agreement, NationsBank assists Stephens in supervising, coordinating and
monitoring various aspects of the Funds' administrative operations. For
providing such services, NationsBank is entitled to receive a monthly fee from
Stephens based on an annual rate of 0.01% of the Funds' average daily net
assets.
Shares of the Funds are sold on a continuous basis by Stephens, as the Funds'
sponsor and distributor. Stephens is a registered broker/dealer with principal
offices at 111 Center Street, Little Rock, Arkansas 72201. Nations Fund has
entered into a distribution agreement with Stephens which provides that Stephens
has the exclusive right to distribute shares of the Funds. Stephens may pay
service fees or commissions to servicing agents that assist customers in
purchasing Investor C Shares of the Funds. See "Shareholder Servicing Plan."
NationsBank of Texas, N.A., serves as each Fund's custodian (the "Custodian").
The Custodian is located at 1401 Elm Street, Dallas, Texas 75202 and is a wholly
owned subsidiary of NationsBank Corporation. In return for providing custodial
services, the Custodian is entitled to receive, in addition to out-of-pocket
expenses, fees payable monthly (i) at the rate of 1.25% of 1% of the average
daily net assets of each Fund, (ii) $10.00 per repurchase collateral transaction
by the Funds, and (iii) $15.00 per purchase, sale and maturity transaction
involving the Funds.
First Data serves as transfer agent (the "Transfer Agent") for each Fund's
Investor C Shares. The Transfer Agent is located at One Exchange Place, Boston,
Massachusetts 02109.
Price Waterhouse LLP serves as independent accountant to Nations Fund. Its
address is 160 Federal Street, Boston, Massachusetts 02110.
EXPENSES: The accrued expenses of each Fund, as well as certain expenses
attributable to Investor C Shares are deducted from accrued income before
dividends are declared. The respective Fund's expenses include, but are not
limited to: fees paid to the Adviser, NationsBank, Stephens and First Data;
interest; Directors' or Trustees' fees; federal and state securities
registration and qualification fees; brokerage fees and commissions; costs of
preparing and printing prospectuses for regulatory purposes and for distribution
to existing shareholders; charges of the Custodian and Transfer Agent; certain
insurance premiums; outside auditing and legal expenses; costs of shareholder
reports and shareholder meetings; other expenses which are not expressly assumed
by the Adviser, NationsBank, Stephens or First Data under their respective
agreements with Nations Fund; and any extraordinary expenses. Investor C Shares
may bear certain class specific retail transfer agency expenses and also bear
certain additional shareholder service costs. Any general expenses of Nations
Fund Trust and/or of Nations Fund, Inc. that are not readily identifiable as
belonging to a particular investment portfolio are allocated among all
portfolios in the proportion that the assets of a portfolio bears to the assets
of Nations Fund Trust and/or Nations Fund, Inc. or in such other manner as the
Board of Trustees or Board of Directors deems appropriate.
Organization And History
The Funds are members of the Nations Fund Family, which consists of Nations Fund
Trust, Nations Fund, Inc., Nations Fund Portfolios, Inc. and Nations
Institutional Reserves. The Nations Fund Family currently has more than 43
distinct investment portfolios and total assets in excess of $18 billion.
NATIONS FUND TRUST: Nations Fund Trust was organized as a Massachusetts business
trust on May 6, 1985. Nations Fund Trust's fiscal year end is March 31; prior to
1996, Nations Fund
14
<PAGE>
Trust's fiscal year end was November 30. The Funds currently offer six classes
of shares -- Primary A Shares, Primary B Shares, Investor A Shares, Investor B
Shares, Investor C Shares and Investor D Shares. This Prospectus relates only to
the Investor C Shares of Nations Government Money Market Fund and Nations Tax
Exempt Fund of Nations Fund Trust. To obtain additional information regarding
the Funds' other classes of shares which may be available to you, contact your
Selling Agent (as defined below) or Nations Fund at 1-800-321-7854.
Each share of Nations Fund Trust is without par value, represents an equal
proportionate interest in the related fund with other shares of the same class,
and is entitled to such dividends and distributions out of the income earned on
the assets belonging to such fund as are declared in the discretion of Nations
Fund Trust's Board of Trustees. Nations Fund Trust's Declaration of Trust
authorizes the Board of Trustees to classify or reclassify any class of shares
into one or more series of shares.
Shareholders are entitled to one vote for each full share held and a
proportionate fractional vote for each fractional share held. Shareholders of
each fund of Nations Fund Trust will vote in the aggregate and not by fund and
shareholders of a fund will vote in the aggregate and not by class except as
otherwise expressly required by law or when the Board of Trustees determines
that the matter to be voted on affects only the interests of shareholders of a
particular fund or class of shares. See the SAI for examples of instances where
the 1940 Act requires voting by fund.
As of July 15, 1996, NationsBank and its affiliates possessed or shared power to
dispose or vote with respect to more than 25% of the outstanding shares of
Nations Fund Trust and therefore could be considered to be a controlling person
of Nations Fund Trust for purposes of the 1940 Act. For more detailed
information concerning the percentage of each class or series of shares over
which NationsBank and its affiliates possessed or shared power to dispose or
vote as of a certain date, see Nations Fund Trust's SAI.
Nations Fund Trust does not presently intend to hold annual meetings except as
required by the 1940 Act. Shareholders will have the right to remove Trustees.
Nations Fund Trust's Code of Regulations provides that special meetings of
shareholders shall be called at the written request of the shareholders entitled
to vote at least 10% of the outstanding shares of Nations Fund Trust entitled to
be voted at such meeting.
NATIONS FUND, INC.: Nations Fund, Inc. was incorporated in Maryland on December
13, 1983, but had no operations prior to December 15, 1986. Nations Fund, Inc.'s
fiscal year end is March 31; prior to 1996, Nations Fund, Inc.'s fiscal year end
was May 31. As of the date of this Prospectus, the authorized capital stock of
Nations Fund, Inc. consists of 270,000,000,000 shares of common stock, par value
of $.001 per share, which are divided into series or portfolios, each of which
consists of separate classes of shares. This Prospectus relates only to the
Investor C Shares of Nations Prime Fund and Nations Treasury Fund of Nations
Fund, Inc. To obtain additional information regarding the Funds' other classes
of shares which may be available to you, contact your Selling Agent (as defined
below) or Nations Fund at 1-800-321-7854.
Shares of each fund and class have equal rights with respect to voting, except
that the holders of shares of a particular fund or class will have the exclusive
right to vote on matters affecting only the rights of the holders of such fund
or class. In the event of dissolution or liquidation, holders of each class will
receive pro rata, subject to the rights of creditors, (a) the proceeds of the
sale of that portion of the assets allocated to that class held in the
respective fund of Nations Fund, Inc., less (b) the liabilities of Nations Fund,
Inc. attributable to the respective fund or class or allocated among the funds
or classes based on the respective liquidation value of each fund or class.
Shareholders of Nations Fund, Inc. do not have cumulative voting rights, and
therefore the holders of more than 50% of the outstanding shares of all funds
voting together for election of Directors may elect all of the members of the
Board of Directors of Nations Fund, Inc. Meetings of shareholders may be called
upon the request of 10% or more of Nations Fund, Inc.'s outstanding shares.
There are no preemptive rights applicable to any of Nations Fund, Inc.'s shares.
15
<PAGE>
Nations Fund, Inc.'s shares, when issued, will be fully paid and non-assessable.
As of July 15, 1996, NationsBank and its affiliates possessed or shared power to
dispose of or vote with respect to more than 25% of the outstanding shares of
Nations Fund, Inc. and therefore could be considered to be a controlling person
of Nations Fund, Inc. for purposes of the 1940 Act. For more detailed
information concerning the percentage of each class or series over which
NationsBank and its affiliates possessed or shared power to dispose or vote as
of a certain date, see Nations Fund, Inc.'s SAI. It is anticipated that Nations
Fund, Inc. will not hold annual shareholder meetings, except when required by
the 1940 Act or Maryland law.
Because this Prospectus combines disclosure on two separate investment
companies, there is a possibility that one investment company could become
liable for a misstatement, inaccuracy or incomplete disclosure in this
Prospectus concerning the other investment company. Nations Fund Trust and
Nations Fund, Inc. have entered into an indemnification agreement that creates a
right of indemnification from the investment company responsible for any such
misstatement, inaccuracy or incomplete disclosure that may appear in this
Prospectus.
About Your Investment
How To Buy Shares
The Funds have established various procedures for purchasing Investor C Shares
in order to accommodate different investors. Purchase orders may be placed
through banks, broker/dealers or other financial institutions (including certain
affiliates of NationsBank) that have entered into shareholder servicing
agreements ("Servicing Agreements") with Stephens ("Servicing Agents").
Investors exchanging Investor N Shares of a non-money market fund of the Nations
Fund Family for Investor C Shares of the Money Market Funds and investors who
have entered into managed account arrangements with a Servicing Agent are
eligible to invest in Investor C Shares of the Funds. Under a managed account
arrangement investors would be provided with some or all of the following types
of services or features: automated investment of excess account cash balances;
debit cards; checking privileges; direct deposit; automatic bill payment;
federal funds transfer; travelers checks; charge card protection; and periodic
summary account statements.
Investor C Shares of the Money Market Funds are purchased at net asset value per
share without the imposition of a sales charge. Purchases may be effected only
on days on which the Federal Reserve Bank of New York is open for business (a
"Business Day").
Servicing Agents will perform various shareholder services for their customers
("Customers") who from time to time own of record or beneficially Investor C
Shares. From time to time the Servicing Agents and the Funds may agree to
voluntarily reduce the fees payable for shareholder services. See "Shareholder
Servicing Plan."
Nations Fund and Stephens reserve the right to reject any purchase order. The
issuance of Investor C Shares is recorded on the books of the Funds and share
certificates are not issued.
EFFECTIVE TIME OF PURCHASES: Purchases will be effected only when federal funds
are available for investment on the Business Day the purchase order is received
by Stephens or by the Transfer Agent. A purchase order must be received by
Stephens or by the Transfer Agent by 3:00 p.m., Eastern time (12 noon, Eastern
time, with respect to Nations Tax Exempt Fund and Nations Government Money
Market Fund). Absent prior arrangement with Stephens or the Transfer Agent,
purchase orders received after such time on any given day will not be accepted;
notice thereof will be given to the Servicing Agent transmitting the order, and
any funds
16
<PAGE>
received will be returned promptly to the sending Servicing Agent. Any late
purchase orders that are not rejected pursuant to such a prior arrangement will
be executed on the following Business Day. If federal funds are not available by
4:00 p.m., Eastern time, the order will be canceled. Investor C Shares are
purchased at the net asset value per share next determined after receipt of the
order by Stephens or by the Transfer Agent.
The Servicing Agents are responsible for transmitting orders for purchases by
their Customers and delivering required funds on a timely basis. Stephens is
responsible for transmitting orders it receives to Nations Fund.
TELEPHONE TRANSACTIONS: Investors may effect purchases, redemptions (up to
$50,000) and exchanges by telephone. See "How To Redeem Shares" and "How To
Exchange Shares" below. If a shareholder desires to elect the telephone
transaction feature after opening an account, a signature guarantee will be
required. Shareholders should be aware that by using the telephone transaction
feature, such shareholders may be giving up a measure of security that they may
have if they were to authorize requests in writing only. A shareholder may bear
the risk of any resulting losses from a telephone transaction. Nations Fund will
employ reasonable procedures to confirm that instructions communicated by
telephone are genuine, and if Nations Fund and its service providers fail to
employ such measures, they may be liable for any losses due to unauthorized or
fraudulent instructions. Nations Fund requires a form of personal identification
prior to acting upon instructions received by telephone and provides written
confirmation to shareholders of each telephone share transaction. In addition,
Nations Fund reserves the right to record all telephone conversations.
How To Redeem Shares
Redemption orders should be transmitted by telephone or in writing through the
same Servicing Agent that transmitted the original purchase order. Redemption
orders are effected at the net asset value per share next determined after
receipt of the order by Stephens or by the Transfer Agent. The Servicing Agents
are responsible for transmitting redemption orders to Stephens or to the
Transfer Agent and for crediting their Customers' accounts with the redemption
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 noon, Eastern time, with respect to Nations Tax Exempt Fund and Nations
Government Money Market Fund), and payment will normally be wired the same day
to Servicing Agents. Nations Fund reserves the right to wire redemption proceeds
within three Business Days after receiving the redemption orders if, in the
judgment of NationsBank, an earlier payment could adversely impact a Fund.
However, redemption proceeds for shares purchased by check may not be remitted
until at least 15 days after the date of purchase to ensure that the check has
cleared; a certified check, however, is deemed to be cleared immediately.
Redemption orders received by Stephens or by the Transfer Agent after 3:00 p.m.,
Eastern time (12 noon, Eastern time, with respect to Nations Tax Exempt Fund and
Nations Government Money Market Fund), will be processed on the next Business
Day.
Nations Fund may redeem a shareholder's Investor C Shares upon 60 days' written
notice if the balance in the shareholder's account drops below $500 as a result
of redemptions. Share balances also may be redeemed at the direction of a
Servicing Agent pursuant to arrangements between the Servicing Agent and its
Customers. Nations Fund also may redeem shares of a Fund involuntarily or make
payment for redemption in readily marketable securities or other property under
certain circumstances in accordance with the 1940 Act.
Prior to effecting a redemption of Investor C Shares represented by
certificates, the Transfer Agent must have received such certificates at its
principal office. All such certificates must be
17
<PAGE>
endorsed by the redeeming shareholder or accompanied by a signed stock power, in
each instance with the signature guaranteed by a commercial bank or a member of
a major stock exchange, unless other arrangements satisfactory to Nations Fund
have previously been made. Nations Fund may require any additional information
reasonably necessary to evidence that a redemption has been duly authorized.
How To Exchange Shares
SHARES PURCHASED DIRECTLY THROUGH A SERVICING AGENT: Investor C Shares of a
Money Market Fund purchased directly through a Servicing Agent may not be
exchanged for shares of another fund of Nations Fund.
SHARES ACQUIRED THROUGH AN EXCHANGE: The exchange feature enables a shareholder
who acquires Investor C Shares of a Money Market Fund through an exchange of
Investor N Shares of a non-money market fund or a permissible exchange of
Investor A Shares of Nations Short-Term Income Fund or Nations Short-Term
Municipal Income Fund to re-exchange such shares for Investor C Shares of
another Money Market Fund, Investor N Shares of any non-money market fund of
Nations Fund (except Nations Short-Term Income Fund and Nations Short-Term
Municipal Income Fund) or for Investor A Shares of Nations Short-Term Income
Fund or Nations Short-Term Municipal Income Fund. A re-exchange of Investor C
Shares for shares of another fund is made on the basis of the next calculated
net asset value per share of each fund after the exchange order is received.
If a shareholder acquires Investor C Shares of a Money Market Fund through an
exchange, the acquired shares (and any other Investor A or Investor C Shares
acquired through a re-exchange of such shares) will remain subject to the
contingent deferred sales charge ("CDSC") schedule applicable to the original
Investor N Shares purchased.
The holding period (for the purpose of determining the applicable rate of the
CDSC) does not accrue as long as the investor holds Investor C Shares of a Money
Market Fund or Investor A Shares of Nations Short-Term Income Fund or Nations
Short-Term Municipal Income Fund. As a result, the CDSC that is ultimately
charged upon redemption is based upon the total holding period of Investor N
Shares of a non-money market fund that charges a CDSC.
The Funds and each of the other funds of Nations Fund may limit the number of
times this exchange feature may be exercised by a shareholder within a specified
period of time. Also, the exchange feature may be terminated or revised at any
time by Nations Fund upon such notice as may be required by applicable
regulatory agencies (presently 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(s) and policies, and shareholders should obtain a copy and examine it
carefully before investing. Exchanges are subject to the minimum investment
requirement and any other conditions imposed by each fund. In the case of any
shareholder holding a share certificate or certificates, no exchanges may be
made until all applicable share certificates have been received by the Transfer
Agent and deposited in the shareholder's account. An exchange will be treated
for Federal income tax purposes the same as a redemption of shares, on which the
shareholder may realize a capital gain or loss. However, the ability to deduct
capital losses on an exchange may be limited in situations where there is an
exchange of shares within 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
18
<PAGE>
a class that is accepting investments generally may be acquired in an exchange.
Investor C Shares may be exchanged by directing a request directly to the
Servicing Agent through which the original Investor C Shares were acquired or in
some cases to Stephens or the Transfer Agent. Your exchange feature may be
governed by your account agreement with your Servicing Agent.
During periods of significant economic or market change, telephone exchanges may
be difficult to complete. In such event, shares may be exchanged by mailing your
request directly to the Servicing Agent through which the original shares were
purchased. Investors should consult their Servicing Agent or Stephens for
further information regarding exchanges.
Shareholder Servicing Plan
The Directors and Trustees have approved a Shareholder Servicing Plan (the
"Servicing Plan") with respect to Investor C Shares of each Fund. Pursuant to
the Servicing Plan, a Fund may pay Servicing Agents that have entered into a
Servicing Agreement with Nations Fund for certain shareholder support services
that are provided by the Servicing Agents. Payments under the Servicing Plan
will be calculated daily and paid monthly at a rate set from time to time by the
Board of Directors or the Board of Trustees, provided that the annual rate may
not exceed 0.25% of the average daily net asset value of a Fund's Investor C
Shares. The shareholder services provided by Servicing Agents may include
general shareholder liaison services; pro-
cessing purchase, exchange and redemption requests from Customers and placing
orders with Stephens or the Transfer Agent; processing dividend and distribution
payments from a Fund on behalf of Customers; providing sales information
periodically to Customers, including information showing their positions in
Investor C Shares; providing sub-accounting with respect to Investor C Shares
beneficially owned by Customers or the information necessary for sub-accounting;
responding to inquiries from Customers concerning their investment in Investor C
Shares; arranging for bank wires; and providing such other similar services as
may be reasonably requested.
Nations Fund understands that Servicing Agents may charge fees to their
Customers who are the owners of Investor C Shares for additional services
provided in connection with their Customers' accounts. These fees would be in
addition to any amounts which may be received by Servicing Agents under a
Servicing Agreement with Nations Fund. The Servicing Agreements require
Servicing Agents to disclose to their Customers any compensation payable to the
Servicing Agents by Nations Fund and any other compensation payable by Customers
in connection with the investment of their assets in Investor C Shares.
Customers should read this Prospectus in light of the terms governing their
accounts with their Servicing Agents.
Nations Fund may suspend or reduce payments under the Servicing Plan at any
time, and payments are subject to the continuation of the Funds' Servicing Plan
described above and the terms of the Servicing Agreements. See the SAIs for more
details on the Servicing Plan.
How The Funds Value Their Shares
The net asset value of a share of each class of shares in the Funds is
calculated by dividing the total value of its assets, less liabilities, by the
number of shares in the class outstanding. Shares are valued as of 3:00 p.m.,
Eastern time (1:00 p.m., Eastern time, with respect to Nations Tax Exempt Fund
and Nations Government Money Market Fund), on each Business Day. Currently, the
days on which the Federal Reserve Bank of New York is closed (other than
19
<PAGE>
weekends) are: New Year's Day, Martin Luther King, Jr. Day, Presidents' Day,
Memorial Day (observed), Independence Day, Labor Day, Columbus Day, Thanksgiving
Day and Christmas Day.
The assets of each Money Market Fund are valued based upon the amortized cost
method. Although Nations Fund seeks to maintain the net asset value per share of
these Funds at $1.00, there can be no assurance that their net asset value per
share will not vary.
How Dividends And Distributions Are
Made; Tax Information
DIVIDENDS AND DISTRIBUTIONS: Dividends from net investment income of each Fund
are declared daily to shareholders at 3:00 p.m., Eastern time (1:00 p.m.,
Eastern time, with respect to Nations Tax Exempt Fund and Nations Government
Money Market Fund), on the day of declaration. Investor C Shares begin earning
dividends on the day the purchase order is executed and continue earning
dividends through and including the day before the redemption order is executed
(E.G., the settlement date). Dividends are paid within five Business Days after
the end of each month. Dividends are paid in the form of additional Investor C
Shares of the same Fund unless the Customer has elected prior to the date of
distribution to receive payment in cash. Such election, or any revocation
thereof, must be made in writing to the Funds' Transfer Agent and will become
effective with respect to dividends paid after its receipt. Your dividend
election may be governed by your account agreement with your Servicing Agent.
Dividends are paid in cash within five Business Days after a shareholder's
complete redemption of his/her Investor C Shares in a Fund. To the extent that
there are any net short-term capital gains, they will be paid at least annually.
Each Fund's net investment income available for distribution to the holders of
Investor C Shares will be reduced by the amount of shareholder servicing fees
paid to Servicing Agents and by the amount of retail transfer agency fees
payable to the Transfer Agent applicable to Investor C Shares.
TAX INFORMATION: Each Fund intends to qualify as a "regulated investment
company" under the Internal Revenue Code of 1986, as amended (the "Code"). Such
qualification relieves a Fund of liability for Federal income tax on amounts
distributed in accordance with the Code.
Each Fund intends to distribute substantially all of its investment company
taxable income and net tax-exempt income each taxable year. Distributions by the
Nations Prime Fund, Nations Treasury Fund and Nations Government Money Market
Fund will be taxable as ordinary income to shareholders who are not currently
exempt from Federal income tax, whether such income is received in cash or
reinvested in additional shares. (Federal income tax for distributions to an
Individual Retirement Account is generally deferred under the Code.) These
distributions will not qualify for the dividends received deduction for
corporate shareholders.
Dividends received from Nations Treasury Fund and Nations Government Money
Market Fund may qualify as tax-exempt dividends for state income tax purposes in
some states. The Funds do not expect to realize any long-term capital gains, and
therefore, do not expect to distribute any capital gains dividends.
Each year, shareholders will be notified as to the amount and Federal tax status
of all dividends (and capital gains, if applicable) paid during the prior year.
Such dividends (and capital gains) may be subject to state and local taxes.
Dividends declared in October, November, or December of any year payable to
shareholders of
20
<PAGE>
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 Fund to withhold 30% or the
applicable tax treaty rate from dividends paid to certain nonresident alien,
non-U.S. partnership and non-U.S. corporation shareholder accounts.
NATIONS TAX EXEMPT FUND: As a regulated investment company, Nations Tax Exempt
Fund is permitted to pass through to its shareholders tax-exempt income
("exempt-interest dividends") subject to certain requirements which the Fund
intends to satisfy. The Fund does not intend to earn investment company taxable
income or long-term capital gains; to the extent that it does earn taxable
income or realize long-term capital gains, distributions to shareholders from
such sources will be subject to Federal income tax. Exempt-interest dividends
may be treated by shareholders as items of interest excludable from their
federal gross income under Section 103(a) of the Code unless under the
circumstances applicable to the particular shareholder the exclusion would be
disallowed. (See the related SAI under "Additional Information Concerning
Taxes.") Distributions of net investment income by the Nations Tax Exempt Fund
may be taxable to investors under state or local law even though a substantial
portion of such distribution may be derived from interest on tax-exempt
obligations which, if realized directly, would be exempt from such income taxes.
If Nations Tax Exempt Fund should hold certain private activity bonds issued
after August 7, 1986, shareholders must include, as an item of tax preference,
the portion of dividends paid by the Fund that is attributable to interest on
such bonds in their Federal alternative minimum taxable income for purposes of
determining liability (if any) for the 28% alternative minimum tax applicable to
individuals and the 20% alternative minimum tax and the environmental tax
applicable to corporations. Corporate shareholders must also take all
exempt-interest dividends into account in determining certain adjustments for
Federal alternative minimum and environmental tax purposes. The environmental
tax applicable to corporations is imposed at the rate of 0.12% on the excess of
the corporation's modified Federal alternative minimum taxable income over
$2,000,000. Shareholders receiving Social Security benefits should note that all
exempt-interest dividends will be taken into account in determining the
taxability of such benefits. To the extent, if any, dividends paid to
shareholders are derived from taxable income or from long-term or short-term
capital gains, such dividends will not be exempt from Federal income tax and
also may be subject to state and local taxes.
The foregoing discussion is based on tax laws and regulations which were in
effect as of the date of this Prospectus and summarizes only some of the
important Federal tax considerations generally affecting the Funds and their
shareholders. It is not intended as a substitute for careful tax planning;
investors should consult their tax advisors with respect to their specific tax
situations as well as with respect to state and local taxes. Further tax
information is contained in the SAIs.
21
<PAGE>
Appendix A -- Portfolio Securities
The following are summary descriptions of certain types of instruments in which
a Fund may invest. The "How Objectives Are Pursued" section of the Prospectus
identifies each Fund's permissible investments, and the SAIs contain more
information concerning such investments.
ASSET-BACKED SECURITIES: Asset-backed securities arise through the grouping by
governmental, government-related, and private organizations of loans,
receivables, or other assets originated by various lenders. Asset-backed
securities consist of both mortgage- and non-mortgage-backed securities.
Interests in pools of these assets 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. Nations Prime Fund generally limits
investments in bank instruments to (a) U.S. dollar-denominated obligations of
U.S. banks which have total assets exceeding $1 billion and which are members of
the Federal Deposit Insurance Corporation (including obligations of foreign
branches of such banks) or of the 75 largest foreign commercial banks in terms
of total assets; or (b) U.S. dollar-denominated bank instruments issued by other
banks believed by the Adviser to present minimal credit risks. For purposes of
the foregoing, total assets may be determined on the basis of the bank's most
recent annual financial statements.
Nations Prime Fund may invest up to 100% of its assets in obligations issued by
banks. All Funds (except Nations Prime Fund) will limit their investments in
bank obligations so they do not exceed 25% of each Fund's total assets at the
time of purchase. Nations Prime Fund may invest in U.S. dollar-denominated
obligations issued by foreign branches of domestic banks ("Eurodollar"
obligations) and domestic branches of foreign banks ("Yankee dollar"
obligations).
Eurodollar, Yankee dollar, and other foreign obligations involve special
investment risks, including the possibility that liquidity could be impaired
because of future political and economic developments, the obligations may be
less marketable than comparable domestic obligations of domestic issuers, a
foreign jurisdiction might impose withholding taxes on interest income payable
on such obligations, deposits may be seized or nationalized, foreign
governmental restrictions such as exchange controls may be adopted which might
adversely affect the payment of principal of and interest on such obligations,
the selection of foreign obligations may be more difficult because there may be
less
22
<PAGE>
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 requre the untimely
disposition of securities.
Reverse repurchase agreements may be considered to be borrowings. When a Fund
invests in a reverse repurchase agreement, it sells a portfolio security to
another party, such as a bank or broker/dealer, in return for cash, and agrees
to buy the security back at a future date and price. Reverse repurchase
agreements may be used to provide cash to satisfy unusually heavy redemption
requests without having to sell portfolio securities, or for other temporary or
emergency purposes. In addition, 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 or other liquid high grade debt obligations equal in
value to its obligations in respect of reverse repurchase agreements. Reverse
repurchase agreements involve the risk that the market value of the securities
the Fund is obligated to repurchase under the agreement may decline below the
repurchase price. In the event the buyer of securities under a reverse
repurchase agreement files for bankruptcy or becomes insolvent, the Fund's use
of proceeds of the agreement may be restricted pending a determination by the
other party, or its trustee or receiver, whether to enforce the Fund's
obligation to repurchase the securities. In addition, there is a risk of delay
in receiving collateral or securities or in repurchasing the securities covered
by the reverse repurchase agreement or even of a loss of rights in the
collateral or securities in the event the buyer of the securities under the
reverse repurchase agreement files for bankruptcy or becomes insolvent. The Fund
only enters into reverse repurchase agreements (and repurchase agreements) with
counterparties that are deemed by the Adviser to be credit worthy. Reverse
repurchase agreements are speculative techniques involving leverage, and are
subject to asset coverage requirements if the Fund does not establish and
maintain a segregated account (as described above). Under the requirements of
the 1940 Act, the Funds are required to maintain an asset coverage (including
the proceeds of the borrowings) of at least 300% of all borrowings. Depending on
market conditions, a Fund's asset coverage and other factors at the time of a
reverse repurchase, the Fund may not establish a segregated account when the
Adviser believes it is not in the best interests of the Fund to do so. In this
case, such reverse repurchase agreements will be considered borrowings subject
to the asset coverage described above.
Currently, Nations Treasury Fund has entered into an arrangement whereby it
reinvests the proceeds of a reverse repurchase agreement in a tri-party
repurchase agreement and receives the net interest rate differential.
COMMERCIAL INSTRUMENTS: Commercial instruments consist of short-term U.S.
dollar-
23
<PAGE>
denominated obligations issued by domestic corporations or foreign corporations
and domestic and foreign commercial banks. Nations Prime Fund will limit
purchases of commercial instruments to instruments which: (a) if rated by at
least two NRSROs, are rated in the highest rating category for short-term debt
obligations given by such organizations, or if only rated by one such
organization, are rated in the highest rating category for short-term debt
obligations given by such organization; or (b) if not rated, are (i) comparable
in priority and security to a class of short-term instruments of the same issuer
that has such rating(s), or (ii) of comparable quality to such instruments as
determined by Nations Fund, Inc.'s Board of Directors on the advice of the
Adviser.
Investments by a Fund in commercial paper will consist of issues rated in a
manner consistent with such Fund's investment policies and objective. In
addition, a Fund may acquire unrated commercial paper and corporate bonds that
are determined by the Adviser at the time of purchase to be of comparable
quality to rated instruments that may be acquired by a Fund. Commercial
instruments include variable-rate master demand notes, which are unsecured
instruments that permit the indebtedness thereunder to vary and provide for
periodic adjustments in the interest rate, and variable- and floating-rate
instruments.
FOREIGN SECURITIES: Foreign securities include debt 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 GICs provide that this guaranteed interest will
not be less than a certain minimum rate. The insurance company may assess
periodic charges against a GIC for expense and service costs allocable to it,
and the charges will be deducted from the value of the deposit fund. The
purchase price paid for a GIC generally becomes part of the general assets of
the issuer, and the
24
<PAGE>
contract is paid from the general assets of the issuer.
A Fund will only purchase GICs from issuers which, at the time of purchase, meet
quality and credit standards established by the Adviser. Generally, GICs are not
assignable or transferable without the permission of the issuing insurance
companies, and an active secondary market in GICs does not currently exist.
Also, a Fund may not receive the principal amount of a GIC from the insurance
company on seven days' notice or less, at which point the GIC may be considered
to be an illiquid investment.
ILLIQUID SECURITIES: Certain securities may be sold only pursuant to certain
legal restrictions, and may be difficult to sell. The Money Market Funds will
not hold more than 10% of the value of their respective net assets in securities
that are illiquid or such lower percentage as may be required by the states in
which the appropriate Fund sells its shares. Repurchase agreements, time
deposits and GICs that do not provide for payment to a Fund within seven days
after notice, and illiquid restricted securities are subject to the limitation
on illiquid securities. In addition, interests in privately arranged loans
acquired by the Nations Prime Fund may be subject to this limitation.
If otherwise consistent with their investment objectives and policies, certain
Funds may purchase securities that are not registered under the Securities Act
of 1933, as amended (the "1933 Act") but which can be sold to "qualified
institutional buyers" in accordance with Rule 144A 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,
repur-
25
<PAGE>
chase agreements and municipal securities. Such instruments are described in
this Appendix A.
MUNICIPAL SECURITIES: The two principal classifications of Municipal Securities
are "general obligation" securities and "revenue" securities. General obligation
securities are secured by the issuer's pledge of its full faith, credit, and
taxing power for the payment of principal and interest. Revenue securities are
payable only from the revenues derived from a particular facility or class of
facilities or, in some cases, from the proceeds of a special excise tax or other
specific revenue source such as the user of the facility being financed. Private
activity bonds held by a Fund are in most cases revenue securities and are not
payable from the unrestricted revenues of the issuer. Consequently, the credit
quality of private activity bonds is usually directly related to the credit
standing of the corporate user of the facility involved.
Municipal Securities may include "moral obligation" bonds, which are normally
issued by special purpose public authorities. If the issuer of moral obligation
bonds is unable to meet its debt service obligations from current revenues, it
may draw on a reserve fund, the restoration of which is a moral commitment but
not a legal obligation of the state or municipality which created the issuer.
Municipal Securities may include variable- or floating-rate instruments issued
by industrial development authorities and other governmental entities. While
there may not be an active secondary market with respect to a particular
instrument purchased by a Fund, a Fund may demand payment of the principal and
accrued interest on the instrument or may resell it to a third party as
specified in the instrument. The absence of an active secondary market, however,
could make it difficult for a Fund to dispose of the instrument if the issuer
defaulted on its payment obligation or during periods the Fund is not entitled
to exercise its demand rights, and the Fund could, for these or other reasons,
suffer a loss.
Some of these instruments may be unrated, but unrated instruments purchased by a
Fund will be determined by the Adviser to be of comparable quality at the time
of purchase to instruments rated "high quality" by any major rating service. An
issuer's obligation to pay the principal of the note may be backed by an
unconditional bank letter or line of credit, guarantee, or commitment to lend.
Municipal Securities also may include municipal lease obligations, including
certificates of participation in municipal leases, and units of participation in
trusts holding pools of tax-exempt leases. A Fund may acquire municipal lease
obligations that may be assigned by the lessee to another party provided the
obligation continues to provide tax-exempt interest. Each Fund will not purchase
municipal lease obligations to the extent it holds municipal lease obligations
and illiquid securities in an amount exceeding 10% of its total assets unless
the Adviser determines that the municipal lease obligations are liquid pursuant
to guidelines established by the Funds' Boards. Pursuant to these guidelines,
the Adviser, in making this liquidity determination, will consider, among other
factors, the strength and nature of the secondary market for such obligations,
the prospect for its future marketability and whether such obligations are
rated. The Funds expect that they will only purchase rated municipal lease
obligations.
Municipal participation interests may be purchased from financial institutions,
and give the purchaser an undivided interest in one or more underlying Municipal
Securities. To the extent that municipal participation interests are considered
to be "illiquid securities" such instruments are subject to each Fund's
limitation on the purchase of illiquid securities.
In addition, certain of the Funds may acquire "stand-by commitments" from banks
or broker/dealers with respect to municipal securities held in their portfolios.
Under a stand-by commitment, a dealer would agree to purchase at a Fund's option
specified municipal securities at a specified price. A Fund will acquire
stand-by commitments solely to facilitate portfolio liquidity and without
intending to exercise its rights thereunder for trading purposes.
A Fund may invest in short-term securities, in commitments to purchase such
securities on a
26
<PAGE>
"when-issued" basis and reserves the right to engage in "put" transactions on a
daily, weekly or monthly basis. Securities purchased on a "when-issued" basis
are subject to settlement within 45 days of the purchase date. The interest rate
realized on these securities is fixed as of the purchase date and no interest
accrues to the Fund before settlement. These securities are subject to market
fluctuation due to changes in market interest rates. The Funds will only commit
to purchase a security on a when-issued basis with the intention of actually
acquiring the security and will segregate sufficient liquid assets to meet its
purchase obligation.
A "put" feature permits a Fund to sell a security at a fixed price prior to
maturity. The underlying Municipal Securities subject to a put may be sold at
any time at the market rates. However, unless the put was an integral part of
the security as originally issued, it may not be marketable or assignable.
Therefore, the put would only have value to the Fund. In certain cases a premium
may be paid for put features. A premium paid will have the effect of reducing
the yield otherwise payable on the underlying security. The purpose of engaging
in transactions involving puts is to maintain flexibility and liquidity to
permit the Fund to meet redemptions and remain as fully invested as possible in
Municipal Securities. The Funds will limit their put transactions to
institutions which the Adviser believes present minimal credit risk, pursuant to
guidelines adopted by the Boards. Nations Tax Exempt Fund may invest more than
40% of its portfolio in 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
out-
27
<PAGE>
standing loans of a Fund may not exceed 30% of the value of its total assets.
SHORT-TERM TRUST OBLIGATIONS: Nations Prime Fund may invest in short-term
obligations issued by special purpose trusts established to acquire specific
issues of government or corporate securities. Such obligations entitle the Fund
to a proportional fractional interest in payments received by a trust, either
from the underlying securities owned by the trust or pursuant to other
arrangements entered into by the trust. A trust may enter into a swap
arrangement with a highly rated investment firm, pursuant to which the trust
grants to the counterparty certain of its rights with respect to the securities
owned by the trust in exchange for the obligation of the counterparty to make
payments to the trust according to an established formula. The trust obligations
purchased by the Fund must satisfy the quality and maturity requirements
generally applicable to the Fund pursuant to Rule 2a-7 under the 1940 Act.
U.S. GOVERNMENT OBLIGATIONS: U.S. Government Obligations consist of marketable
securities and instruments issued or guaranteed by the U.S. Government or any of
its agencies, authorities or instrumentalities. Direct obligations are issued by
the U.S. Treasury and include all U.S. Treasury instruments. 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 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 Association; 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 takes
place at a future date. Because actual payment for and delivery of such
securities generally take place 15 to 45 days after the purchase date,
purchasers of such securities bear the risk that interest rates on debt
securities at the time of delivery may be higher or lower than those contracted
for on the security purchased.
28
<PAGE>
Appendix B -- Description Of Ratings
The following summarizes the highest three ratings used by S&P for corporate and
municipal bonds:
AAA -- This is the highest rating assigned by S&P to a debt obligation and
indicates an extremely strong capacity to pay interest and repay principal.
AA -- Debt rated AA is considered to have a very strong capacity to pay
interest and repay principal and differs from AAA issues only in a small
degree.
A -- Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than debt in higher-rated
categories.
To provide more detailed indications of credit quality, the AA and A ratings may
be modified by the addition of a plus or minus sign to show relative standing
within this major rating category.
The following summarizes the highest three ratings used by Moody's for corporate
and municipal bonds:
Aaa -- Bonds that are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to
as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such
issues.
Aa -- Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there may
be other elements present which make the long-term risks appear somewhat
larger than in Aaa securities.
A -- Bonds that are rated A possess many favorable investment attributes
and are to be considered upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
Moody's applies numerical modifiers (1, 2 and 3) with respect to corporate bonds
rated Aa and A. The modifier 1 indicates that the bond being rated ranks in the
higher end of its generic rating category; the modifier 2 indicates a mid-range
ranking; and the modifier 3 indicates that the bond ranks in the lower end of
its generic rating category. With regard to municipal bonds, those bonds in the
Aa and A groups which Moody's believes possess the strongest investment
attributes are designated by the symbols Aa1 and A1, respectively.
The following summarizes the highest three ratings used by D&P for bonds:
AAA -- Bonds that are rated AAA are of the highest credit quality. The risk
factors are considered to be negligible, being only slightly more than for
risk free U.S. Treasury debt.
AA -- Bonds that are rated AA are of high credit quality. Protection
factors are strong. Risk is modest, but may vary slightly from time to time
because of economic conditions.
A -- Bonds that are rated A have protection factors which are average but
adequate. However, risk factors are more variable and greater in periods of
economic stress.
To provide more detailed indications of credit quality, the AA and A ratings may
be modified by the addition of a plus or minus sign to show relative standing
within this major category.
29
<PAGE>
The following summarizes the highest three ratings used by Fitch for bonds:
AAA -- Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
AA -- Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated AAA. Because bonds
rated in the AAA and AA categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is
generally rated F-1+.
A -- Bonds considered to be investment grade and of high credit quality.
The obligor's ability to pay interest and repay principal is considered to
be strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.
To provide more detailed indications of credit quality, the AA and A ratings may
be modified by the addition of a plus or minus sign to show relative standing
within this major rating category.
The following summarizes the two highest ratings used by Moody's for short-term
municipal notes and variable-rate demand obligations:
MIG-1/VMIG-1 -- Obligations bearing these designations are of the best
quality, enjoying strong protection from established cash flows, superior
liquidity support or demonstrated broad-based access to the market for
refinancing.
MIG-2/VMIG-2 -- Obligations bearing these designations are of high quality,
with ample margins of protection although not so large as in the preceding
group.
The following summarizes the two highest ratings used by S&P for short-term
municipal notes:
SP-1 -- Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics are given
a "plus" (+) designation.
SP-2 -- Satisfactory capacity to pay principal and interest.
The two highest rating categories of D&P for short-term debt are D-1 and D-2.
D&P employs three designations, D-1+, D-1 and D-1-, within the highest rating
category. D-1+ indicates highest certainty of timely payment. Short-term
liquidity, including internal operating factors and/or access to alternative
sources of funds, is judged to be "outstanding, and safety is just below
risk-free U.S. Treasury short-term obligations." D-1 indicates very high
certainty of timely payment. Liquidity factors are excellent and supported by
good fundamental protection factors. Risk factors are considered to be minor.
D-1- indicates high certainty of timely payment. Liquidity factors are strong
and supported by good fundamental protection factors. Risk factors are very
small. D-2 indicates good certainty of timely payment. Liquidity factors and
company fundamentals are sound. Although ongoing funding needs may enlarge total
financing requirements, access to capital markets is good. Risk factors are
small.
The following summarizes the two highest rating categories used by Fitch for
short-term obligations:
F-1+ securities possess exceptionally strong credit quality. Issues
assigned this rating are regarded as having the strongest degree of
assurance for timely payment.
F-1 securities possess very strong credit quality. Issues assigned this
rating reflect an assurance of timely payment only slightly less in degree
than issues rated F-1+.
Commercial paper rated A-1 by S&P indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted A-1+. Capacity for timely payment on
commercial paper rated A-2 is satisfactory, but
30
<PAGE>
the relative degree of safety is not as high as for issues designated A-1.
The rating Prime-1 is the highest commercial paper rating assigned by Moody's.
Issuers rated Prime-1 (or related supporting institutions) are considered to
have a superior capacity for repayment of senior short-term promissory
obligations. Issuers rated Prime-2 (or related supporting institutions) are
considered to have a strong capacity for repayment of senior short-term
promissory obligations. This will normally be evidenced by many of the
characteristics of issuers rated Prime-1, but to a lesser degree. Earnings
trends and coverage ratios, while sound, will be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
For commercial paper, D&P uses the short-term debt ratings described above.
For commercial paper, Fitch uses the short-term debt ratings described above.
BankWatch ratings are based upon a qualitative and quantitative analysis of all
segments of the organization including, where applicable, holding company and
operating subsidiaries. BankWatch ratings do not constitute a recommendation to
buy or sell securities of any of these companies. Further, BankWatch does not
suggest specific investment criteria for individual clients.
BankWatch long-term ratings apply to specific issues of long-term debt and
preferred stock. The long-term ratings specifically assess the likelihood of
untimely payment of principal or interest over the term to maturity of the rated
instrument. The following are the three highest investment grade ratings used by
BankWatch for long-term debt:
AAA -- The highest category; indicates ability to repay principal and interest
on a timely basis is very high.
AA -- The second highest category; indicates a superior ability to repay
principal and interest on a timely basis with limited incremental risk versus
issues rated in the highest category.
A -- The third highest category; indicates the ability to repay principal and
interest is strong. Issues rated "A" could be more vulnerable to adverse
developments (both internal and external) than obligations with higher
ratings.
The BankWatch short-term ratings apply to commercial paper, other senior
short-term obligations and deposit obligations of the entities to which the
rating has been assigned. The BankWatch short-term ratings specifically assess
the likelihood of an untimely payment of principal or interest.
TBW-1 -- The highest category; indicates a very high degree of likelihood
that principal and interest will be paid on a timely basis.
TBW-2 -- The second highest category; while the degree of safety regarding
timely repayment of principal and interest is strong, the relative degree
of safety is not as high as for issues rated "TBW-1".
The following summarizes the three highest long-term ratings used by IBCA:
AAA -- Obligations for which there is the lowest expectation of investment
risk. Capacity for timely repayment of principal and interest is
substantial such that adverse changes in business, economic or financial
conditions are unlikely to increase investment risk significantly.
AA -- Obligations for which there is a very low expectation of investment
risk. Capacity for timely repayment of principal and interest is
substantial. Adverse changes in business, economic or financial conditions
may increase investment risk albeit not very significantly.
A -- Obligations for which there is a low expectation of investment risk.
Capacity for timely repayment of principal and interest is strong, although
adverse changes in business, economic or financial conditions may lead to
increased investment risk.
A plus or minus sign may be appended to a rating below AAA to denote relative
status within major rating categories.
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.
31
<PAGE>
Prospectus
INVESTOR C SHARES
JULY 31, 1996
This Prospectus describes NATIONS VALUE FUND,
NATIONS EQUITY INCOME FUND, NATIONS BALANCED ASSETS
FUND, NATIONS CAPITAL GROWTH FUND, NATIONS EMERGING
GROWTH FUND AND NATIONS DISCIPLINED EQUITY FUND
(the "Funds") of Nations Fund Trust and Nations
Fund, Inc., each an open-end management investment
company in the Nations Fund Family ("Nations Fund"
or "Nations Fund Family"). This Prospectus
describes one class of shares of the
Funds -- Investor C Shares.
This Prospectus sets forth concisely the
information about the Funds that prospective
purchasers of Investor C Shares should consider
before investing. Investors should read this
Prospectus and retain it for future reference.
Additional information about Nations Fund Trust and
Nations Fund, Inc. is contained in separate
Statements of Additional Information (the "SAIs"),
that have been filed with the Securities and
Exchange Commission (the "SEC") and are available
upon request without charge by writing or calling
Nations Fund at its address or telephone number
shown below. The SAIs for Nations Fund Trust and
Nations Fund, Inc., each dated July 31, 1996, are
incorporated by reference in their entirety into
this Prospectus. NationsBanc Advisors, Inc.
("NBAI") is the investment adviser to the Funds.
TradeStreet Investment Associates, Inc.
("TradeStreet") is sub-investment adviser to the
Funds. As used herein the "Adviser" shall mean NBAI
and/or TradeStreet as the context may require.
SHARES OF NATIONS FUND ARE NOT DEPOSITS OR OTHER
OBLIGATIONS OF, OR ISSUED, ENDORSED OR GUARANTEED
BY, NATIONSBANK, N.A. ("NATIONSBANK") OR ANY OF ITS
AFFILIATES. SUCH SHARES ARE NOT INSURED BY THE U.S.
GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER
GOVERNMENT AGENCY. AN INVESTMENT IN THE FUNDS
INVOLVES CERTAIN RISKS, INCLUDING POSSIBLE LOSS OF
PRINCIPAL.
NATIONSBANK AND CERTAIN OF ITS AFFILIATES PROVIDE
CERTAIN OTHER SERVICES TO NATIONS FUND, FOR WHICH
THEY ARE COMPENSATED. STEPHENS INC., WHICH IS NOT
AFFILIATED WITH NATIONSBANK, IS THE SPONSOR AND
ADMINISTRATOR AND SERVES AS THE DISTRIBUTOR FOR
NATIONS FUND.
THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
GROWTH AND INCOME FUNDS:
Nations Value Fund
Nations Equity Income Fund
Nations Balanced Assets
Fund
GROWTH FUNDS:
Nations Capital Growth Fund
Nations Emerging Growth
Fund
Nations Disciplined Equity
Fund
For Fund information call:
1-800-321-7854
Nations Fund
c/o Stephens Inc.
One NationsBank Plaza
33rd Floor
Charlotte, NC 28255
(Nations Fund Logo
appears here)
NF-96140-796
<PAGE>
Table Of Contents
About The Funds
Prospectus Summary 3
Expenses Summary 5
Financial Highlights 7
Objectives 12
How Objectives Are Pursued 13
How Performance Is Shown 19
How The Funds Are Managed 20
Organization And History 24
About Your Investment
How To Buy Shares 26
How To Redeem Shares 27
How To Exchange Shares 29
Shareholder Servicing And Distribution Plans 30
How The Funds Value Their Shares 31
How Dividends And Distributions Are Made;
Tax Information 32
Appendix A -- Portfolio Securities 33
Appendix B -- Description Of Ratings 41
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT
CONTAINED IN THIS PROSPECTUS, OR IN THE
FUNDS' SAIS INCORPORATED HEREIN BY REFERENCE, IN
CONNECTION WITH THE OFFERING MADE BY THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY NATIONS FUND OR ITS
DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFERING BY NATIONS FUND OR BY THE DISTRIBUTOR IN
ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT
LAWFULLY BE MADE.
2
<PAGE>
About The Funds
Prospectus Summary
(Bullet) TYPE OF COMPANIES: Open-end management investment companies.
(Bullet) INVESTMENT OBJECTIVES AND POLICIES:
(Bullet) Nations Value Fund's investment objective is to seek growth of
capital by investing in companies that are believed to be
undervalued.
(Bullet) Nations Equity Income Fund's investment objective is
to seek current income and growth of capital by
investing primarily in companies with above average
dividend yields.
(Bullet) Nations Balanced Assets Fund's investment objective is
to seek total return by investing in equity and fixed
income securities.
(Bullet) Nations Capital Growth Fund's investment objective is
to seek growth of capital by investing in companies
that are believed to have superior earnings growth
potential.
(Bullet) Nations Emerging Growth Fund's investment objective is
to seek capital appreciation by investing in emerging
growth companies that are believed to have superior
long-term earnings growth prospects.
(Bullet) Nations Disciplined Equity Fund's investment objective
is to seek growth of capital by investing in companies
that are expected to produce significant increases in
earnings per share.
(Bullet) INVESTMENT ADVISER: NationsBanc Advisors, Inc. serves as the investment
adviser to the Funds. NBAI provides investment advice to more than 43
investment company portfolios in the Nations Fund Family. TradeStreet
Investment Associates, Inc. provides sub-advisory services to the
Funds. See "How The Funds Are Managed."
(Bullet) DIVIDENDS AND DISTRIBUTIONS: The Funds declare and pay dividends from
net investment income each calendar quarter. Each Fund's net realized
capital gains, including net short-term capital gains are distributed
at least annually.
(Bullet) RISK FACTORS: Although the Adviser seeks to achieve the investment
objective of each Fund, there is no assurance that it will be able to
do so. Investments in a Fund are not insured against loss of principal.
Investments by a Fund in common stocks and other equity securities are
subject to stock market risk, which is the risk that the value of the
stocks the Fund holds may decline over short or even extended periods.
Investments by a Fund in debt securities are subject to interest rate
risk, which is the risk that increases in market interest rates will
adversely affect a Fund's investments in debt securities. The value of
a Fund's investments in debt securities, including U.S. Government
Obligations (as defined below), will tend to decrease when interest
rates rise and increase when interest rates fall. In general,
longer-term debt instruments tend to fluctuate in value more than
shorter-term debt instruments in response to interest rate movements.
In addition, debt securities which are not backed by the United States
Government are subject to credit risk, which is the risk that the
issuer may not be able to pay principal and/or interest when due.
Certain of the Funds'
3
<PAGE>
investments constitute derivative securities. Certain types of
derivative securities can, under certain circumstances, significantly
increase an investor's exposure to market or other risks. For a
discussion of these and other factors, see "How Objectives Are
Pursued -- Risk Considerations" and "Appendix A -- Portfolio
Securities."
(Bullet) MINIMUM PURCHASE: $1,000 minimum initial investment per record holder
except that the minimum initial investment is: $500 for Individual
Retirement Account ("IRA") investors; $250 for non-working spousal
IRAs; and $100 for investors participating on a monthly basis in the
Systematic Investment Plan. There is no minimum investment amount for
investments by certain 401(k) and employee pension plans or salary
reduction-Individual Retirement Accounts. Minimum subsequent investment
is $100, except for investments pursuant to the Systematic Investment
Plan. See "How To Buy Shares."
4
<PAGE>
Expenses Summary
Expenses are one of several factors to consider when investing in the Funds. The
following tables summarize shareholder transaction and operating expenses for
Investor C Shares of the Funds. The Examples show the cumulative expenses
attributable to a hypothetical $1,000 investment in the Funds over specified
periods.
<TABLE>
<CAPTION>
Nations Nations Nations
Nations Equity Balanced Capital Nations Emerging
INVESTOR C SHARES Value Fund Income Fund Assets Fund Growth Fund Growth Fund
<S> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Sales Load Imposed on Purchases None None None None None
Deferred Sales Charge (as a
percentage of the lower of the
original purchase price or
redemption proceeds)1 .50% .50% .50% .50% .50%
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net
assets)
Management Fees .75% .70% .75% .75% .75%
Rule 12b-1 Fees (After Fee
Waivers) .25% .25% .25% .25% .25%
Shareholder Servicing Fees .25% .25% .25% .25% .25%
Other Expenses .21% .20% .25% .21% .24%
Total Operating Expenses (After
Fee Waivers) 1.46% 1.40% 1.50% 1.46% 1.49%
Nations
Disciplined
INVESTOR C SHARES Equity Fund
SHAREHOLDER TRANSACTION EXPENSES
Sales Load Imposed on Purchases None
Deferred Sales Charge (as a
percentage of the lower of the
original purchase price or
redemption proceeds)1 .50%
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net
assets)
Management Fees .75%
Rule 12b-1 Fees (After Fee
Waivers) .25%
Shareholder Servicing Fees .25%
Other Expenses .27%
Total Operating Expenses (After
Fee Waivers) 1.52%
</TABLE>
1A Deferred Sales Charge, if any, is imposed only with respect to Investor C
Shares redeemed within one year of purchase. Investor C Shares purchased prior
to January 1, 1996 will continue to be subject to the 1.00% Deferred Sales
Charge.
5
<PAGE>
EXAMPLES:
You would pay the following expenses on a $1,000 investment in Investor C Shares
of the Funds assuming (1) a 5% annual return and (2) redemption at the end of
each time period.
<TABLE>
<CAPTION>
Nations Nations Nations Nations
Nations Equity Balanced Capital Growth Emerging Growth
Value Fund Income Fund Assets Fund Fund Fund
<S> <C> <C> <C> <C> <C>
1 Year $ 20 $ 19 $ 20 $ 20 $ 20
3 Years $ 46 $ 44 $ 47 $ 46 $ 47
5 Years $ 80 $ 77 $ 82 $ 80 $ 81
10 Years $ 175 $ 168 $ 179 $ 175 $ 178
Nations
Disciplined
Equity Fund
1 Year $ 20
3 Years $ 48
5 Years $ 83
10 Years $ 181
</TABLE>
You would pay the following expenses on a $1,000 investment in Investor C Shares
of the Funds, assuming a 5% annual return but no redemption.
<TABLE>
<CAPTION>
Nations Nations Nations Nations
Nations Equity Balanced Capital Growth Emerging Growth
Value Fund Income Fund Assets Fund Fund Fund
<S> <C> <C> <C> <C> <C>
1 Year $ 15 $ 14 $ 15 $ 15 $ 15
3 Years $ 46 $ 44 $ 47 $ 46 $ 47
5 Years $ 80 $ 77 $ 82 $ 80 $ 81
10 Years $ 175 $ 168 $ 179 $ 175 $ 178
Nations
Disciplined
Equity Fund
1 Year $ 15
3 Years $ 48
5 Years $ 83
10 Years $ 181
</TABLE>
The purpose of the foregoing tables is to assist an investor in understanding
the various shareholder transaction and operating expenses that an investor in
Investor C Shares of the Funds will bear either directly or indirectly. The
figures in the above tables are based on amounts incurred during each Fund's
most recent fiscal year and have been adjusted as necessary to reflect current
service provider fees. Absent fee waivers "Rule 12b-1 Fees" and "Total Operating
Expenses" would have been as follows: Nations Value Fund -- .75% and 1.96%,
respectively; Nations Equity Income Fund -- .75% and 1.90%, respectively;
Nations Balanced Assets Fund -- .75% and 2.00%, respectively; Nations Capital
Growth Fund -- .75% and 1.96%, respectively; Nations Emerging Growth
Fund -- .75% and 1.99%, respectively; and Nations Disciplined Equity
Fund -- .75% and 2.02%, respectively. There is no assurance that any fee waivers
will continue beyond the current fiscal year. If fee waivers and/or
reimbursements are discontinued, the amounts contained in the "Examples" above
may increase. Long-term shareholders of the Funds could pay more in sales
charges than the economic equivalent of the maximum front-end sales charges
applicable to mutual funds sold by members of the National Association of
Securities Dealers, Inc. For more complete descriptions of the Funds' operating
expenses, see "How The Funds Are Managed." For a more complete description of
the Rule 12b-1 and shareholder servicing fees payable by the Funds, see
"Shareholder Servicing And Distribution Plans."
THE FOREGOING SHOULD NOT BE CONSIDERED TO BE AN ACTUAL REPRESENTATION OF PAST OR
FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES AND RATES OF RETURN MAY BE
GREATER OR LESS THAN THOSE SHOWN.
6
<PAGE>
Financial Highlights
The audited financial information on the following pages has been derived from
the financial statements of Nations Fund Trust and Nations Fund, Inc. Price
Waterhouse LLP is the independent accountant to Nations Fund Trust and Nations
Fund, Inc. The reports of Price Waterhouse LLP for the most recent fiscal years
of Nations Fund Trust and Nations Fund, Inc. accompany the financial statements
for such periods and are incorporated by reference in the SAIs, which are
available upon request. For more information see "Organization And History."
Shareholders of the Funds will receive unaudited semi-annual reports describing
the Funds' investment operations and annual financial statements audited by the
Funds' independent accountant.
FOR AN INVESTOR C SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
NATIONS VALUE FUND
PERIOD YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
INVESTOR C SHARES 03/31/96(a) 11/30/95 11/30/94 11/30/93
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 16.09 $ 12.90 $ 13.64 $ 12.41
Net investment income 0.04 0.13 0.12 0.13
Net realized and unrealized gain/(loss) on
investments 1.05 3.88 (0.22) 1.32
Net increase/(decrease) in net asset value from
operations 1.09 4.01 (0.10) 1.45
Distributions:
Dividends from net investment income (0.06) (0.15) (0.10) (0.13)
Distributions from net realized capital gains (0.62) (0.67) (0.54) (0.09)
Total dividends and distributions (0.68) (0.82) (0.64) (0.22)
Net asset value, end of period $ 16.50 $ 16.09 $ 12.90 $ 13.64
Total return++ 6.99% 33.15% (0.92)% 11.85%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 4,633 $ 4,185 $ 2,983 $ 2,997
Ratio of operating expenses to average net
assets 1.58%+ 1.94% 1.93% 1.96%
Ratio of net investment income to average net
assets 0.68%+ 0.90% 0.85% 0.98%
Portfolio turnover rate 12% 63% 75% 64%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 1.58%+ 1.94% 1.93% 1.97%
Net investment income per share without waivers
and/or expense reimbursements $ 0.04 $ 0.13 $ 0.12 $ 0.13
Average commission rate paid (b) $ 0.0648 N/A N/A N/A
PERIOD
ENDED
INVESTOR C SHARES 11/30/92*
Operating performance:
Net asset value, beginning of period $ 11.63
Net investment income 0.07
Net realized and unrealized gain/(loss) on
investments 0.78
Net increase/(decrease) in net asset value from
operations 0.85
Distributions:
Dividends from net investment income (0.07)
Distributions from net realized capital gains --
Total dividends and distributions (0.07)
Net asset value, end of period $ 12.41
Total return++ 7.33%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 1,286
Ratio of operating expenses to average net
assets 1.98%+
Ratio of net investment income to average net
assets 1.22%+
Portfolio turnover rate 60%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 1.98%+
Net investment income per share without waivers
and/or expense reimbursements $ 0.07
Average commission rate paid (b) N/A
</TABLE>
* Nations Value Fund Investor C Shares commenced operations on June 17, 1992.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
(b) Average commission rate paid per share of securities purchased and sold by
the Fund.
7
<PAGE>
FOR AN INVESTOR C SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS EQUITY INCOME FUND
<TABLE>
<CAPTION>
PERIOD YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
INVESTOR C SHARES 03/31/96(a) 05/31/95 05/31/94 05/31/93*
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 11.83 $ 11.47 $ 12.04 $ 11.13
Net investment income 0.21 0.32 0.28 0.32
Net realized and unrealized gain on investments 1.78 1.08 0.21 1.32
Net increase in net asset value from operations 1.99 1.40 0.49 1.64
Distributions:
Dividends from net investment income (0.26) (0.31) (0.25) (0.28)
Distributions from net realized capital gains (0.37) (0.73) (0.81) (0.45)
Total dividends and distributions (0.63) (1.04) (1.06) (0.73)
Net asset value, end of period $ 13.19 $ 11.83 $ 11.47 $ 12.04
Total return++ 17.20% 13.49% 3.96% 15.31%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 4,612 $ 4,278 $ 4,221 $ 4,377
Ratio of operating expenses to average net assets 1.75%+ 1.92% 1.94% 1.92%+
Ratio of net investment income to average net assets 1.99%+ 2.75% 2.41% 2.37%+
Portfolio turnover rate 59% 158% 116% 55%
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 1.75%+ 1.93% 1.95% 2.04%+
Net investment income per share without waivers and/or
expense reimbursements $ 0.21 $ 0.32 $ 0.28 $ 0.31
Average commission rate paid (b) $ 0.0287 N/A N/A N/A
</TABLE>
* Nations Equity Income Fund Investor C Shares commenced operations on June
17, 1992.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
May 31.
(b) Average commission rate paid per share of securities purchased and sold by
the Fund.
8
<PAGE>
FOR AN INVESTOR C SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS BALANCED ASSETS FUND
<TABLE>
<CAPTION>
PERIOD YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
INVESTOR C SHARES 03/31/96(a) 11/30/95 11/30/94 11/30/93
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 12.61 $ 10.38 $ 10.82 $ 10.23
Net investment income 0.09 0.26 0.14 0.23
Net realized and unrealized gain/(loss) on
investments 0.45 2.21 (0.43) 0.59
Net increase/(decrease) in net asset value from
operations 0.54 2.47 (0.29) 0.82
Distributions:
Dividends from net investment income (0.14) (0.22) (0.15) (0.23)
Distributions from net realized capital gains (1.41) (0.02) -- --
Total dividends and distributions (1.55) (0.24) (0.15) (0.23)
Net asset value, end of period $ 11.60 $ 12.61 $ 10.38 $ 10.82
Total return++ 4.71% 24.03% (2.72)% 8.06%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 1,187 $ 992 $ 951 $ 1,196
Ratio of operating expenses to average net
assets 1.62%+ 1.99% 1.98% 1.90%
Ratio of net investment income to average net
assets 2.29%+ 2.25% 1.31% 1.82%
Portfolio turnover rate 83% 174% 156% 50%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 1.62%+ 1.99% 1.99% 1.97%
Net investment income per share without waivers
and/or expense reimbursements $ 0.09 $ 0.26 $ 0.14 $ 0.22
Average commission rate paid (b) $ 0.0598 N/A N/A N/A
PERIOD
ENDED
INVESTOR C SHARES 11/30/92*
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income 0.01
Net realized and unrealized gain/(loss) on
investments 0.22#
Net increase/(decrease) in net asset value from
operations 0.23
Distributions:
Dividends from net investment income --
Distributions from net realized capital gains --
Total dividends and distributions --
Net asset value, end of period $ 10.23
Total return++ 2.30%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 156
Ratio of operating expenses to average net
assets 1.30%+
Ratio of net investment income to average net
assets 2.85%+
Portfolio turnover rate 79%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 2.05%+
Net investment income per share without waivers
and/or expense reimbursements $ 0.01
Average commission rate paid (b) N/A
</TABLE>
* Nations Balanced Assets Fund Investor C Shares commenced operations on
October 2, 1992.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# The amount shown at this caption for each share outstanding throughout the
period may not accord with the change in the aggregate gains and losses in
the portfolio securities for the period because of the timing of purchases
and withdrawals of shares in relation to the fluctuating market value of the
portfolio.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end
was November 30.
(b) Average commission rate paid per share of securities purchased and sold by
the Fund.
9
<PAGE>
FOR AN INVESTOR C SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS CAPITAL GROWTH FUND
<TABLE>
<CAPTION>
PERIOD YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
INVESTOR C SHARES 03/31/96(a) 11/30/95 11/30/94 11/30/93
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 14.09 $ 11.14 $ 11.01 $ 10.67
Net investment income/(loss) 0.00(b) (0.03) (0.02) (0.00)(b)
Net realized and unrealized gain on investments 0.36 3.24 0.15 0.38
Net increase in net asset value from operations 0.36 3.21 0.13 0.38
Distributions:
Dividends from net investment income -- -- -- (0.03)
Distributions from net realized capital gains (1.19) (0.26) (0.00)(b) (0.01)
Total dividends and distributions (1.19) (0.26) (0.00)(b) (0.04)
Net asset value, end of period $ 13.26 $ 14.09 $ 11.14 $ 11.01
Total return++ 2.86% 29.61% 1.22% 3.61%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 3,655 $ 3,322 $ 2,394 $ 2,919
Ratio of operating expenses to average net
assets 1.58%+ 1.98% 1.90% 1.80%
Ratio of net investment income/(loss) to average
net assets (0.24)%+ (0.29)% (0.15)% (0.16)%
Portfolio turnover rate 25% 80% 56% 81%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 1.58%+ 1.98% 1.91% 1.89%
Net investment income/(loss) per share without
waivers and/or expense reimbursements $ (0.00)(b) $ (0.03) $ (0.02) $ 0.00(b)
Average commission rate paid (c) $ 0.0632 N/A N/A N/A
PERIOD
ENDED
INVESTOR C SHARES 11/30/92*
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income/(loss) (0.00)(b)
Net realized and unrealized gain on investments 0.67#
Net increase in net asset value from operations 0.67
Distributions:
Dividends from net investment income --
Distributions from net realized capital gains --
Total dividends and distributions 0.00(b)
Net asset value, end of period $ 10.67
Total return++ 6.70%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 406
Ratio of operating expenses to average net
assets 1.30%+
Ratio of net investment income/(loss) to average
net assets 0.33%+
Portfolio turnover rate 7%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 2.05%+
Net investment income/(loss) per share without
waivers and/or expense reimbursements $ 0.00(b)
Average commission rate paid (c) N/A
</TABLE>
* Nations Capital Growth Fund Investor C Shares commenced operations on
October 2, 1992.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# The amount shown at this caption for each share outstanding throughout the
period may not accord with the change in the aggregate gains and losses in
the portfolio securities for the period because of the timing of purchases
and withdrawals of shares in relation to the fluctuating market value of the
portfolio.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
(b) Amount represents less than $0.01 per share.
(c) Average commission rate paid per share of securities purchased and sold by
the Fund.
10
<PAGE>
FOR AN INVESTOR C SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS EMERGING GROWTH FUND
<TABLE>
<CAPTION>
PERIOD YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
INVESTOR C SHARES 03/31/96#(a) 11/30/95 11/30/94# 11/30/93*
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 13.87 $ 11.20 $ 10.78 $ 9.89
Net investment income/(loss) (0.03) (0.08) (0.14) (0.09)
Net realized and unrealized gain on investments 1.22 3.15 0.70 0.98
Net increase in net asset value from operations 1.19 3.07 0.56 0.89
Distributions:
Distributions from net realized capital gains (1.50) (0.40) (0.14) --
Total dividends and distributions (1.50) (0.40) (0.14) --
Net asset value, end of period $ 13.56 $ 13.87 $ 11.20 $ 10.78
Total return++ 9.64% 28.67% 5.19% 9.00%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 936 $ 805 $ 542 $ 469
Ratio of operating expenses to average net assets 1.61%+ 1.98% 2.01% 1.80%+
Ratio of net investment income/(loss) to average net assets (0.68)% (0.92)% (1.29)% (1.15)%+
Portfolio turnover rate 39% 139% 129% 159%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 1.61%+ 1.98% 2.01% 2.01%+
Net investment income/(loss) per share without waivers and/or
expense reimbursements $ (0.03) $ (0.08) $ (0.12) $ (0.11)
Average commission rate paid (b) $ 0.0599 N/A N/A N/A
</TABLE>
* Nations Emerging Growth Fund Investor C Shares commenced operations on
December 18, 1992.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
# The amount shown at this caption for each share outstanding throughout the
period may not accord with the change in the aggregate gains and losses in
the portfolio securities for the period because of the timing of purchases
and withdrawals of shares in relation to the fluctuating market value of the
portfolio.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
(b) Average commission rate paid per share of securities purchased and sold by
the Fund.
11
<PAGE>
FOR AN INVESTOR C SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS DISCIPLINED EQUITY FUND
<TABLE>
<CAPTION>
PERIOD PERIOD
ENDED ENDED
INVESTOR C SHARES 03/31/96(a) 11/30/95*
<S> <C> <C>
Operating performance:
Net asset value, beginning of period $ 16.97 $ 14.08
Net investment income/(loss) 0.01 (0.00)(b)
Net realized and unrealized gain/(loss) on investments 0.35 2.92
Net increase/(decrease) in net asset value from operations 0.36 2.92
Distributions:
Dividends from net investment income -- (0.03)
Distributions from net realized capital gains (0.23) --
Return of capital -- --
Total dividends and distributions (0.23) (0.03)
Net asset value, end of period $ 17.10 $ 16.97
Total return++ 2.19% 20.78%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 283 $ 322
Ratio of operating expenses to average net assets 1.65%+ 2.30%+
Ratio of net investment income/(loss) to average net assets 0.19%+ (0.15)%+
Portfolio turnover rate 47% 124%
Ratio of operating expenses to average net assets without waivers and/or expense
reimbursements 1.65%+ 2.30%+
Net investment income/(loss) per share without waivers and/or expense reimbursements $ 0.01 $ (0.00)(b)
Average commission rate paid (c) $ 0.0627 N/A
</TABLE>
* Nations Disciplined Equity Fund Investor C Shares commenced operations on May
10, 1995.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
(b) Amount represents less than $0.01 per share.
(c) Average commission rate paid per share of securities purchased and sold by
the Fund.
Objectives
GROWTH AND INCOME FUNDS:
NATIONS VALUE FUND: Nations Value Fund's investment objective is to seek growth
of capital by investing in companies that are believed to be undervalued.
NATIONS EQUITY INCOME FUND: Nations Equity Income Fund's investment objective is
to seek current income and growth of capital by investing primarily in companies
with above average dividend yields.
NATIONS BALANCED ASSETS FUND: Nations Balanced Assets Fund's investment
objective is to seek total return by investing in equity and fixed income
securities.
GROWTH FUNDS:
NATIONS CAPITAL GROWTH FUND: Nations Capital Growth Fund's investment objective
is to seek growth of capital by investing in companies
12
<PAGE>
that are believed to have superior earnings growth potential.
NATIONS EMERGING GROWTH FUND: Nations Emerging Growth Fund's investment
objective is to seek capital appreciation by investing in emerging growth
companies that are believed to have superior long-term earnings growth
prospects.
NATIONS DISCIPLINED EQUITY FUND: Nations Disciplined Equity Fund's investment
objective is to seek growth of capital by investing in companies that are
expected to produce significant increases in earnings per share.
How Objectives Are Pursued
GROWTH AND INCOME FUNDS:
NATIONS VALUE FUND: The Fund invests in stocks drawn from a broad universe of
companies monitored by the Adviser. The Adviser closely monitors these
companies, rating them for quality and projecting their future earnings and
dividends as well as other factors. To qualify for purchase, an issuer would
normally have a market capitalization of $500 million or more and have an
average daily trading volume of at least $3 million. These requirements are
generally considered by the Adviser to be adequate to support normal purchase
and sale activity without materially affecting prevailing market prices of the
issuer's shares. The Adviser also analyzes key financial ratios that measure the
growth, profitability and leverage of such issuers that it believes will help
maintain a portfolio of above-average quality.
Stocks are selected from this universe based on the Adviser's judgment of their
total return potential. The Adviser buys stocks that it believes are undervalued
relative to the overall stock market. The principal factor considered by the
Adviser in making these determinations is the ratio of a stock's price to
earnings relative to corresponding ratios of other stocks in the same industry
or economic sector. The Adviser believes that companies with lower price-to-
earnings ratios are more likely to provide better opportunities for capital
appreciation. This "value" approach generally produces a dividend yield greater
than the market average. The Adviser will attempt to temper risk by broad
diversification among economic sectors and industries. Through this strategy,
the Fund pursues above-average returns while seeking to avoid above-average
risks.
The Fund invests under normal market conditions at least 65% of its total assets
in common stocks. In addition to common stocks, the Fund also may invest in
preferred stocks, securities convertible into common stock, and other types of
securities having common stock characteristics (such as rights and warrants to
purchase equity securities). Although the Fund invests primarily in
publicly-traded common stocks of companies incorporated in the United States,
the Fund may invest up to 20% of its assets in foreign securities. The Fund also
may hold up to 20% of its total assets in obligations issued or guaranteed as to
payment of principal and interest by the U.S. Government, its agencies or
instrumentalities ("U.S. Government Obligations"), and investment grade
securities of domestic companies. Obligations with the lowest investment grade
rating (E.G. rated "BBB" by Standard & Poor's Corporation ("S&P") or "Baa" by
Moody's Investors Service, Inc. ("Moody's")) have speculative characteristics,
and changes in economic conditions or other circumstances are more likely to
lead to a weakened capacity to make principal and interest payments than is the
case with higher grade debt obligations. Subsequent to its purchase by the Fund,
an issue of securities may cease to be rated or its rating may be reduced below
the minimum rating required for purchase by the Fund. The Adviser will consider
such an event in determining whether the Fund should continue to hold the
obligation. Unrated obligations may be acquired by the Fund if they are
determined
13
<PAGE>
by the Adviser to be of comparable quality at the time of purchase to rated
obligations that may be acquired.
The Fund also may invest in various money market instruments and repurchase
agreements. The Fund may invest without limitation in such instruments pending
investment, to meet anticipated redemption requests, or as a temporary defensive
measure if market conditions warrant.
NATIONS EQUITY INCOME FUND: The investment program of the Fund is based on
several premises. First, dividends are normally a more stable and predictable
source of return than capital appreciation. While the price of a company's stock
generally increases or decreases in response to short-term earnings and market
fluctuations, its dividends are generally less volatile. Second, diversifying
equity holdings in a manner that includes every major economic sector
contributes to reduced volatility, without a commensurate reduction in expected
investment return. Finally, investing in dividend paying stocks in all the
economic sectors can provide greater income than the Standard & Poor's 500
Composite Stock Price Index ("S&P 500 Index") with less volatility.
Collectively, these traits may be combined in such a fashion as to produce
returns in excess of the market (S&P 500 Index) on a comparable risk basis.
New purchases for the Fund will generally be made in equity securities that:
(Bullet) are income producing;
(Bullet) appear undervalued relative to the S&P 500 Index on a risk adjusted
basis; and
(Bullet) have favorable trends in personal stock ownership by the underlying
company's officers and/or directors.
To achieve its objective, the Fund, under normal circumstances, will invest at
least 65% of its assets in income-producing common stocks, including securities
convertible into or ultimately exchangeable for common stock (I.E., convertible
bonds or convertible preferred stock), whose prospects for dividend growth and
capital appreciation are considered favorable by the Adviser. The securities
held by the Fund generally will be listed on a national exchange or, if not so
listed, will usually have an established over-the-counter market.
In order to further enhance its income, the Fund also may invest its assets in
fixed income securities (corporate and government bonds of various maturities),
preferred stocks and warrants. The Fund may invest in debt securities that are
considered investment grade (E.G. securities rated in one of the top four
investment categories by S&P or Moody's, or if not rated, are of equivalent
investment quality as determined by the Adviser). Obligations rated in the
lowest of the top four investment grade rating categories (E.G., rated "BBB" by
S&P) have speculative characteristics and changes in economic conditions or
other circumstances are more likely to lead to a weakened capacity to make
principal and interest payments than is the case with higher grade debt
obligations. The Fund also may invest up to 5% of its assets in debt securities
that are rated below investment grade (E.G. rated "BB" by S&P), or if not rated,
are of equivalent investment quality as determined by the Adviser. Non-
investment grade debt securities are sometimes referred to as "high yield bonds"
or "junk bonds." They tend to have speculative characteristics, generally
involve more risk of principal and income than higher rated securities, and have
yields and market values that tend to fluctuate more than higher quality
securities. The Fund will invest in such high-yield debt securities only when
the Adviser believes that the issue presents minimal credit risk. For a
description of corporate debt ratings, see "Appendix B." Although the Fund
invests primarily in securities of U.S. issuers, the Fund may invest up to 20%
of its total assets in foreign securities. The Fund will treat foreign
securities as illiquid unless there is an active and substantial secondary
market for such securities.
The Fund may invest in various money market instruments and repurchase
agreements. The Fund may invest without limitation in such instruments pending
investment, to meet anticipated redemption requests, or as a temporary defensive
measure if market conditions warrant.
NATIONS BALANCED ASSETS FUND: In pursuing the Fund's objective, the Adviser will
allocate the Fund's assets based upon its judgment of the
14
<PAGE>
relative valuation and the expected returns of the three major asset classes in
which the Fund principally invests: common stocks, fixed income securities and
cash equivalents. In assessing relative value and expected returns, the Adviser
will evaluate current economic and financial market conditions (both
domestically and internationally), current interest rate trends, earnings and
dividend prospects for common stocks, and overall financial market stability.
These asset classes are actively managed in an effort to maximize total return.
In general, the Adviser believes that common stocks offer the best opportunity
for long-term capital appreciation.
The Fund invests in common and preferred stocks of U.S. corporations and of
foreign issuers, as well as securities convertible into common stocks, and other
types of securities having common stock characteristics (such as rights and
warrants to purchase equity securities) that meet the Adviser's stringent
criteria. Fundamental research and valuation analysis are emphasized in the
stock selection process. Stock holdings are typically those of seasoned,
financially strong companies with favorable industry positioning.
Under normal circumstances, at least 25% of the total value of the Fund's assets
will be invested in fixed income securities. The Fund may invest in government,
corporate and municipal debt securities, as well as mortgage-backed and asset-
backed securities. Most obligations acquired by the Fund will be issued by
companies or governmental entities located within the United States. Debt
obligations acquired by the Fund will be rated investment grade at the time of
purchase by S&P, Moody's, Duff & Phelps Credit Rating Co. ("D&P"), Fitch
Investors Service, Inc. ("Fitch"), IBCA Limited or its affiliate IBCA Inc.
(collectively "IBCA"), or Thomson BankWatch, Inc. ("BankWatch") or, if unrated,
determined by the Adviser to be comparable in quality to instruments so rated.
Obligations with the lowest investment grade rating (E.G. rated "BBB" by S&P or
"Baa" by Moody's) have speculative characteristics, and changes in economic
conditions or other circumstances are more likely to lead to a weakened capacity
to make principal and interest payments than is the case with higher grade debt
obligations. See "Appendix B" for a description of these ratings designations.
Subsequent to its purchase by the Fund, an issue of securities may cease to be
rated or its rating may be reduced below the minimum rating required for
purchase by the Fund. The Adviser will consider such an event in determining
whether the Fund should continue to hold the obligation. Unrated obligations may
be acquired by the Fund if they are determined by the Adviser to be of
comparable quality at the time of purchase to rated obligations that may be
acquired.
Although the Fund invests primarily in securities of U.S. issuers, the Fund may
invest up to 25% of its total assets in foreign securities.
The Fund also may invest in various money market instruments and repurchase
agreements. The Fund may invest without limitation in such instruments pending
investment, to meet anticipated redemption requests, or as a temporary defensive
measure if market conditions warrant.
GROWTH FUNDS:
NATIONS CAPITAL GROWTH FUND: The investment philosophy of the Fund is based on
the belief that companies with superior growth characteristics selling at
reasonable prices will, over time, outperform the market. Therefore, the Fund
will generally seek to invest in larger capitalization, high-quality companies
which possess above-average earnings growth potential.
The Fund's equity investments will generally be made in companies which share
some of the following characteristics:
(Bullet) above-average earnings growth relative to the S&P 500 Index;
(Bullet) established operating histories, strong balance sheets and favorable
financial characteristics; and
(Bullet) above-average return on equity relative to the S&P 500 Index.
In addition, the Fund's investment program enables it to invest in the following
types of companies:
15
<PAGE>
(Bullet) companies that generate or apply new technologies, new and improved
distribution techniques, or new services, such as those in the business
equipment, electronics, specialty merchandising and health service
industries;
(Bullet) companies that own or develop natural resources, such as energy
exploration companies;
(Bullet) companies that may benefit from changing consumer demands and
lifestyles, such as financial service organizations and
telecommunication companies;
(Bullet) foreign companies, including those in countries with more rapid
economic growth than the U.S.;
(Bullet) companies whose earnings growth is projected at a pace in excess of the
average company (I.E., growth companies); and
(Bullet) companies whose earnings are temporarily depressed and are currently
out of favor with most investors.
Through intensive research, visits to many companies each year, and efficient
response to changing market conditions, the Adviser seeks to make the most of
the Fund's flexible charter.
Under normal market conditions, the Fund invests at least 65% of its total
assets in common stocks. In addition to common stocks, the Fund also may invest
in preferred stocks, securities convertible into common stocks and other types
of securities having common stock characteristics (such as rights and warrants
to purchase equity securities). Although the Fund invests primarily in publicly
traded common stocks of companies incorporated in the United States, the Fund
may invest up to 20% of its total assets in foreign securities.
The Fund also may invest in various money market instruments and repurchase
agreements. The Fund may invest without limitation in such instruments pending
investment, to meet anticipated redemption requests, or as a temporary defensive
measure if market conditions warrant.
NATIONS EMERGING GROWTH FUND: The Fund will invest in common stocks and
securities convertible into common stocks selected from a universe of emerging
growth companies monitored by the Adviser. Most of the companies will have
revenues between $50 million and $1.5 billion and a debt ratio of less than 50%
of capitalization. The universe focuses on companies with above-average earnings
growth rates and profit margins, yet the portfolio may include positions of
special situation companies whose growth is expected to accelerate. These
companies are believed to offer significant opportunities for capital
appreciation and the Adviser will attempt to identify these opportunities before
their potential is recognized by investors in general.
In selecting industries and companies for investment, the Adviser will consider
overall growth prospects, financial condition, competitive position, technology,
research and development, innovative products, marketing expertise,
productivity, labor costs, raw material costs and sources, profit margins,
return on investment, structural changes in local economies, capital resources,
the degree of governmental regulation or deregulation, management and other
factors.
Under normal market conditions, the Fund invests at least 65% of its total
assets in common stocks. The Fund also may invest in various money market
instruments and repurchase agreements. The Fund may invest without limitation in
such instruments pending investment, to meet anticipated redemption requests, or
as a temporary defensive measure if market conditions warrant.
The volatility of emerging growth stocks is higher than that of larger
companies. Many of these stocks trade over the counter and may not have
widespread interest among institutional investors. These securities may have
larger potential for gains but also carry more risk if unexpected company
developments adversely affect the stock prices. To help reduce risk, the Fund is
diversified and typically invests in 75 to 100 companies which represent a broad
range of industries and sectors, both in the United States and abroad. Although
the Fund invests primarily in securities of U.S. issuers, the Fund may invest up
to 20% of its total assets in foreign securities.
NATIONS DISCIPLINED EQUITY FUND: The investment philosophy of the Fund is based
on the premise that companies with positive
earn-
16
<PAGE>
ings trends also should experience positive trends in their share price. Based
on this philosophy, the Fund invests primarily in the common stocks of companies
that the Adviser believes are likely to experience significant increases in
earnings. By pursuing this investment philosophy, the Fund seeks to provide
investors with long-term capital appreciation which exceeds that of the S&P 500
Index.
In selecting stocks for purchase by the Fund, the Adviser utilizes quantitative
analysis supported by fundamental research. This approach seeks to identify
companies that have experienced positive historical earnings trends, as
evidenced by earnings forecasts issued by investment banks, broker/dealers and
other investment professionals. The Adviser believes that companies experiencing
such earnings trends have the potential to generate significant increases in per
share earnings. The Adviser also believes that companies with increasing
earnings should experience positive trends in their stock price. Although the
Fund seeks to invest in companies with increasing earnings, the Fund's
investment objective focuses on long-term capital appreciation; income is not an
objective of the Fund.
Under normal market conditions, the Fund invests at least 65% of its total
assets in common stocks of domestic issuers. With respect to the remainder of
the Fund's assets, the Fund may invest in a broad range of equity and debt
instruments, including preferred stocks, securities (debt and preferred stock)
convertible into common stock, warrants and rights to purchase common stocks,
options, U.S. government and corporate debt securities and various money market
instruments. The Fund will invest primarily in medium- and large-sized companies
(I.E. companies with market capitalizations of $500 million or greater) that are
determined to have favorable price/earnings ratios. The Fund also may invest in
securities issued by companies with market capitalizations of less than $500
million. The volatility of small-capitalization stocks is typically greater than
that of larger companies. To help reduce risk, the Fund will invest in the
securities of companies representing a broad range of industries and economic
sectors.
The Fund's investments in debt securities, including convertible securities,
will be limited to securities rated investment grade (E.G. securities rated in
one of the top four investment categories by a nationally recognized statistical
rating organization or, if not rated, are of equivalent quality as determined by
the Adviser). Obligations rated in the lowest of the top four investment grade
rating categories have speculative characteristics and changes in economic
conditions or other circumstances are more likely to lead to a weakened capacity
to make principal and interest payments than is the case with higher grade debt
obligations.
The Fund may invest up to 20% of its total assets in foreign securities. For
temporary defensive purposes if market conditions warrant, the Fund may invest
without limitation in preferred stocks, investment grade debt instruments, money
market instruments and repurchase agreements.
GENERAL: Each Fund may invest in certain specified derivative securities,
including: exchange-traded options; over-the-counter options executed with
primary dealers, including long calls and puts and covered calls to enhance
return; and U.S. and foreign exchange-traded financial futures approved by the
Commodity Futures Trading Commission ( the "CFTC") and options thereon for
market exposure risk management. Nations Balanced Assets Fund also may engage in
dollar roll transactions. Each Fund may lend its portfolio securities to
qualified institutional investors. Each Fund also may invest in restricted,
private placement and other illiquid securities and securities issued by other
investment companies, consistent with the Fund's investment objective and
policies. Each Fund may invest in real estate investment trust securities.
For more information concerning these and other instruments in which the Funds
may invest and their investment practices, see "Appendix A."
PORTFOLIO TURNOVER: Generally, the Funds will purchase portfolio securities for
capital appreciation or investment income, or both, and not for short-term
trading profits. For the Funds'
port-
17
<PAGE>
folio turnover rates, see "Financial Highlights." If a Fund's annual portfolio
turnover rate exceeds 100%, it may result in higher costs to the Fund, including
brokerage commissions or dealer markups and other transaction costs on the sale
of securities and the reinvestment in other securities. Portfolio turnover also
can generate short-term capital gains tax consequences.
RISK CONSIDERATIONS: Although the Adviser will seek to achieve the investment
objective of each Fund, there is no assurance that it will be able to do so. No
single Fund should be considered, by itself, to provide a complete investment
program for any investor. The net asset value of the shares of the Funds will
fluctuate based on market conditions. Therefore, investors should not rely upon
the Funds for short-term financial needs, nor are the Funds meant to provide a
vehicle for participating in short-term swings in the stock market. Investments
in a Fund are not insured against loss of principal.
Investments by a Fund in common stocks and other equity securities are subject
to stock market risks. The value of the stocks that the Fund holds, like the
broader stock market, may decline over short or even extended periods. The value
of a Fund's investments in debt securities, including U.S. Government
Obligations, will tend to decrease when interest rates rise and increase when
interest rates fall. In general, longer-term debt instruments tend to fluctuate
in value more than shorter-term debt instruments in response to interest rate
movements. In addition, debt securities that are not backed by the United States
Government are subject to credit risk, which is the risk that the issuer may not
be able to pay principal and/or interest when due.
Certain of the Funds' investments constitute derivative securities, which are
securities whose value is derived, at least in part, from an underlying index or
reference rate. There are certain types of derivative securities that can, under
certain circumstances, significantly increase a purchaser's exposure to market
or other risks. The Adviser, however, only purchases derivative securities in
circumstances where it believes such purchases are consistent with a Fund's
investment objective and do not unduly increase the Fund's exposure to market or
other risks. For additional risk information regarding the Funds' investments in
particular instruments, see "Appendix A -- Portfolio Securities."
INVESTMENT LIMITATIONS: Each Fund is subject to a number of investment
limitations. The following investment limitations are matters of fundamental
policy and may not be changed without the affirmative vote of the holders of a
majority of the Fund's outstanding shares. Other investment limitations that
cannot be changed without such a vote of shareholders are described in the SAIs.
Each Fund may not:
1. Purchase any securities which would cause 25% or more of the value of the
Fund's total assets at the time of such purchase to be invested in the
securities of one or more issuers conducting their principal activities in the
same industry. (For purposes of this limitation, U.S. Government securities and
tax-exempt securities issued by state or municipal governments and their
political subdivisions are not considered members of any industry.)
2. Make loans, except that a Fund may purchase and hold debt instruments
(whether such instruments are part of a public offering or privately placed),
may enter into repurchase agreements and may lend portfolio securities in
accordance with its investment policies.
3. Purchase securities of any one issuer (other than securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities) if,
immediately after such purchase, more than 5% of the value of such Fund's total
assets would be invested in the securities of such issuer, except that up to 25%
of the value of the Fund's total assets may be invested without regard to these
limitations and with respect to 75% of such Fund's assets, such Fund will not
hold more than 10% of the voting securities of any issuer.
The investment objective and policies of each Fund, unless otherwise specified,
may be changed without a vote of the Fund's shareholders. If the investment
objective or policies of a Fund change, shareholders should consider whether the
Fund remains an appropriate
18
<PAGE>
investment in light of their then current positions and needs.
In order to register a Fund's shares for sale in certain states, a Fund may make
commitments more restrictive than the investment policies and limitations
described in this Prospectus and the SAIs. Should a Fund determine that any such
commitment is no longer in the best interest of the Fund, it may consider
terminating sales of its shares in the states involved.
How Performance Is Shown
From time to time the Funds may advertise the total return and yield on a class
of shares. BOTH TOTAL RETURN AND YIELD FIGURES ARE BASED ON HISTORICAL DATA AND
ARE NOT INTENDED TO INDICATE FUTURE PERFORMANCE. The "total return" of a class
of shares of the Funds may be calculated on an average annual total return basis
or an aggregate total return basis. Average annual total return refers to the
average annual compounded rates of return on a class of shares over one-, five-,
and ten-year periods or the life of a Fund (as stated in the advertisement) that
would equate an initial amount invested at the beginning of a stated period to
the ending redeemable value of the investment (reflecting the deduction of any
applicable contingent deferred sales charge ("CDSC")), assuming the reinvestment
of all dividend and capital gain distributions. Aggregate total return reflects
the total percentage change in the value of the investment over the measuring
period, again assuming the reinvestment of all dividends and capital gain
distributions. Total return may also be presented for other periods or may not
reflect a deduction of any applicable CDSC.
"Yield" is calculated by dividing the annualized net investment income per share
during a recent 30-day (or one month) period of a class of shares of a Fund by
the maximum public offering price per share on the last day of that period. The
yield on a class of shares does not reflect deduction of any applicable CDSC.
Investment performance, which will vary, is based on many factors, including
market conditions, the composition of the Funds' portfolios and the Funds'
operating expenses. Investment performance also often reflects the risks
associated with a Fund's investment objective and policies. These factors should
be considered when comparing the Funds' investment results to those of other
mutual funds and other investment vehicles. Since yields fluctuate, yield data
cannot necessarily be used to compare an investment in the Funds with bank
deposits, savings accounts, and similar investment alternatives which often
provide an agreed-upon or guaranteed fixed yield for a stated period of time.
In addition to Investor C Shares, the Funds offer Primary A, Primary B, Investor
A and Investor N Shares. Each class of shares may bear different sales charges,
shareholder servicing fees, loads and other expenses, which may cause the
performance of a class to differ from the performance of the other classes.
Total return and yield quotations will be computed separately for each class of
the Funds' shares. Any quotation of total return or yield not reflecting CDSCs
would be reduced if such sales charges were reflected.
Any fees charged by a selling agent and/or servicing agent directly to its
customers' accounts in connection with investments in the Funds will not be
included in calculations of total return or yield. Each Fund's annual report
contains additional performance information and is available upon request
without charge from the Funds' distributor or an investor's Agent (as defined
below).
19
<PAGE>
How The Funds Are Managed
The business and affairs of Nations Fund Trust and Nations Fund, Inc. are
managed under the direction of their Board of Trustees and Board of Directors,
respectively. Nations Fund Trust's SAI contains the names of and general
background information concerning each Trustee of Nations Fund Trust. Nations
Fund, Inc.'s SAI contains the names of and general background information
concerning each Director of Nations Fund, Inc.
Nations Fund and the Adviser have adopted codes of ethics which contain policies
on personal securities transactions by "access persons," including portfolio
managers and investment analysts. These policies substantially comply in all
material respects with the recommendations set forth in the May 9, 1994 Report
of the Advisory Group on Personal Investing of the Investment Company Institute.
INVESTMENT ADVISER: NationsBanc Advisors, Inc., serves as investment adviser to
the Funds. NBAI is a wholly owned subsidiary of NationsBank, which in turn is a
wholly owned banking subsidiary of NationsBank Corporation, a bank holding
company organized as a North Carolina corporation. NBAI has its principal
offices at One NationsBank Plaza, Charlotte, North Carolina 28255.
TradeStreet Investment Associates, Inc., with principal offices at One
NationsBank Plaza, Charlotte, North Carolina 28255, serves as sub-investment
adviser to the Funds. TradeStreet is a wholly owned subsidiary of NationsBank.
TradeStreet provides investment management services to individuals, corporations
and institutions.
Subject to the general supervision of Nations Fund Trust's Board of Trustees and
Nations Fund, Inc.'s Board of Directors, and in accordance with each Fund's
investment policies, the Adviser formulates guidelines and lists of approved
investments for each Fund, makes decisions with respect to and places orders for
each Fund's purchases and sales of portfolio securities and maintains records
relating to such purchases and sales. The Adviser is authorized to allocate
purchase and sale orders for portfolio securities to certain financial
institutions, including, in the case of agency transactions, financial
institutions which are affiliated with the Adviser or which have sold shares in
the Funds, if the Adviser believes that the quality of the transaction and the
commission are comparable to what they would be with other qualified brokerage
firms. From time to time, to the extent consistent with its investment
objective, policies and restrictions, each Fund may invest in securities of
companies with which NationsBank has a lending relationship. For the services
provided and expenses assumed pursuant to various Investment Advisory
Agreements, NBAI is entitled to receive advisory fees, computed daily and paid
monthly, at the annual rates of: 0.75% of the average daily net assets of each
of Nations Capital Growth Fund, Nations Emerging Growth Fund, Nations
Disciplined Equity Fund, Nations Value Fund and Nations Balanced Assets Fund;
and 0.75% of the first $100 million of the Nations Equity Income Fund's average
daily net assets, plus 0.70% of the Fund's average daily net assets in excess of
$100 million and up to $250 million, plus 0.60% of the Fund's average daily net
assets in excess of $250 million.
For the services provided and the expenses assumed pursuant to sub-advisory
agreements, NBAI will pay TradeStreet sub-advisory fees, computed daily and paid
monthly, at the annual rates of: 0.25% of Nations Value Fund's, Nations Balanced
Assets Fund's, Nations Capital Growth Fund's, Nations Emerging Growth Fund's and
Nations Disciplined Equity Fund's average daily net assets; and 0.20% of Nations
Equity Income Fund's average daily net assets.
From time to time, NBAI (and/or TradeStreet) may waive or reimburse (either
voluntarily or pursuant to applicable state limitations) advisory fees and/or
expenses payable by a Fund.
20
<PAGE>
For the fiscal period from December 1, 1995 to December 31, 1995, after waivers,
Nations Fund Trust paid NationsBank under a prior Investment Advisory Agreement
advisory fees at the rate of 0.75% of the average daily net assets of Nations
Value Fund, Nations Capital Growth Fund, Nations Emerging Growth Fund, Nations
Disciplined Equity Fund and Nations Balanced Assets Fund.
For the fiscal period from June 1, 1995 to December 31, 1995, after waivers,
Nations Fund, Inc. paid NationsBank under a prior Investment Advisory Agreement
advisory fees at the rate of 0.67% of the average daily net assets of Nations
Equity Income Fund.
For the fiscal period from January 1, 1996 to March 31, 1996 after waivers,
Nations Fund Trust paid NBAI under the current Investment Advisory Agreement
advisory fees at the rate of 0.75% of the average daily net assets of Nations
Value Fund, Nations Capital Growth Fund, Nations Emerging Growth Fund, Nations
Disciplined Equity Fund and Nations Balanced Assets Fund.
For the fiscal period from January 1, 1996 to March 31, 1996, after waivers,
Nations Fund, Inc. paid NBAI under the current Investment Advisory Agreement
advisory fees at the rate of 0.67% of the average daily net assets of Nations
Equity Income Fund.
For the fiscal period from January 1, 1996 to March 31, 1996, after waivers,
NBAI paid TradeStreet under the current Sub-Advisory Agreement sub-advisory fees
at the indicated rates of the following Funds' average daily net assets: Nations
Value Fund -- 0.25%; Nations Capital Growth Fund -- 0.25%; Nations Emerging
Growth Fund -- 0.25%; Nations Disciplined Equity Fund -- 0.25%; Nations Balanced
Assets Fund -- 0.25%; and Nations Equity Income Fund -- .20%.
Sharon M. Herrmann, CFA, is a Director of Equity Management for TradeStreet and
Senior Portfolio Manager for Nations Value Fund. Ms. Herrmann has been Portfolio
Manager for Nations Value Fund since 1989. Prior to assuming her position with
TradeStreet, she was Senior Vice President and Portfolio Manager for the
Investment Management Group at NationsBank. Ms. Herrmann has worked for the
Investment Management Group at NationsBank since 1981 where her responsibilities
included fund management and institutional portfolio management. She attended
Virginia Wesleyan College. Ms. Herrmann holds the Chartered Financial Analyst
designation and is a member of the Association for Investment Management and
Research as well as the North Carolina Society of Financial Analysts, Inc.
Philip J. Sanders, CFA, is a Senior Product Manager, Equity Management for
TradeStreet and Senior Portfolio Manager for Nations Capital Growth Fund. Mr.
Sanders has been Portfolio Manager for Nations Capital Growth Fund since 1995.
Prior to assuming his position at TradeStreet, he was Senior Vice President and
Senior Portfolio Manager for the Investment Management Group at NationsBank. Mr.
Sanders has worked in the financial investment community since 1981. His past
experience includes portfolio management, equity research and financial analysis
for the Investment Management Group at NationsBank and Duke Power Company. Mr.
Sanders received a B.A. in Economics from the University of Michigan and an
M.B.A. from University of North Carolina at Charlotte. He holds the Chartered
Financial Analyst designation and is a member of the Association for Investment
Management and Research as well as the North Carolina Society of Financial
Analysts, Inc.
Julie L. Hale, CFA, is a Senior Product Manager, Equity Management for
TradeStreet and Senior Portfolio Manager for Nations Balanced Assets Fund. Ms.
Hale has been Portfolio Manager for the Nations Balanced Assets Fund since 1995.
Prior to assuming her position with TradeStreet, she was Vice President and
Senior Portfolio Manager for the Investment Management Group at NationsBank. She
has worked in the investment community since 1981. Her past experience includes
research analysis and portfolio management for Mercantile Safe Deposit and
Trust, and National City Bank. Ms. Hale received a B.S. in Business and Finance
from Mount St. Mary's College and an M.B.A. from Kent State University. She
holds the Chartered Financial Analyst designation and is a member
21
<PAGE>
of the Association for Investment Management and Research as well as the North
Carolina Society of Security Analysts, Inc. She is also a member of the National
Association for Petroleum Investment Analysts and the World Affairs Council of
Washington, D.C.
Edward E. (Jack) Smiley, Jr., CFA, is a Senior Product Manager, Equity
Management for TradeStreet, and Senior Portfolio Manager for Nations Emerging
Growth Fund. Mr. Smiley has been Portfolio Manager for Nations Emerging Growth
Fund since 1992. Prior to assuming his position with TradeStreet, he was Senior
Vice President and Senior Portfolio Manager for the Investment Management Group
at NationsBank. He has worked in the investment community since 1968. His past
experience includes management consulting and portfolio management for
Interfirst Investment Management, Merrill Lynch and Dean Witter. Mr. Smiley
received a B.B.A. in Management from Southern Methodist University. He holds the
Chartered Financial Analyst designation and is a member of the Association for
Investment Management and Research as well as the Dallas Association of
Investment Analysts.
Jeffery C. Moser, CFA, is a Senior Product Manager, Equity Management for
TradeStreet and Senior Portfolio Manager for Nations Disciplined Equity Fund.
Mr. Moser has been the Portfolio Manager of the Nations Disciplined Equity Fund
since 1995. Prior to assuming his position with TradeStreet, he was Senior Vice
President and Senior Portfolio Manager for the Investment Management Group at
NationsBank. Mr. Moser has worked for the Investment Management Group at
NationsBank since 1983 where his responsibilities included institutional
portfolio management and equity analysis. Mr. Moser graduated Phi Beta Kappa
with a B.S. in Mathematics from Wake Forest University. He holds the Chartered
Financial Analyst designation and is a member of the Association for Investment
Management and Research as well as the North Carolina Society of Financial
Analysts, Inc.
Eric S. Williams, CFA, is a Senior Product Manager, Equity Management for
TradeStreet and Senior Portfolio Manager for Nations Equity Income Fund. Mr.
Williams has been Portfolio Manager for Nations Equity Income Fund since 1991.
Prior to assuming his position with TradeStreet, he was Senior Vice President
and Senior Portfolio Manager for the Investment Management Group at NationsBank.
He has worked in the investment community since 1980. Past experience includes
fund analysis and portfolio management for National Bank of Detroit. Mr.
Williams received a B.S. in Accounting from East Carolina University, Summa Cum
Laude and an M.B.A. from Indiana University. He holds the Chartered Financial
Analyst designation, is on the Advisory Board of Indiana University's Investment
Management Academy, and is a member of the Association for Investment Management
and Research as well as the North Carolina Society of Financial Analysts, Inc.
Morrison & Foerster LLP, counsel to Nations Fund and special counsel to
NationsBank, has advised Nations Fund and NationsBank that NationsBank and its
affiliates may perform the services contemplated by the various Investment
Advisory Agreements and this Prospectus without violation of the Glass-Steagall
Act. Such counsel has pointed out, however, that there are no controlling
judicial or administrative interpretations or decisions and that future judicial
or administrative interpretations of, or decisions relating to, present federal
or state statutes, including the Glass-Steagall Act, and regulations relating to
the permissible activities of banks and their subsidiaries or affiliates, as
well as future changes in federal or state statutes, including the
Glass-Steagall Act, and regulations and judicial or administrative decisions or
interpretations thereof, could prevent such entities from continuing to perform,
in whole or in part, such services. If any such entity were prohibited from
performing any of such services, it is expected that new agreements would be
proposed or entered into with another entity or entities qualified to perform
such services.
OTHER SERVICE PROVIDERS: Stephens Inc. ("Stephens"), with principal offices at
111 Center Street, Little Rock, Arkansas 72201, serves as the administrator of
Nations Fund pursuant to Administration Agreements. Pursuant to the terms of the
Administration Agreements, Stephens provides various administrative and
22
<PAGE>
corporate secretarial services to the Funds, including providing general
oversight of other service providers, office space, utilities and various legal
and administrative services in connection with the satisfaction of various
regulatory requirements applicable to the Funds.
First Data Investor Services Group, Inc. ("First Data"), formerly The
Shareholder Services Group, Inc., a wholly owned subsidiary of First Data
Corporation, with principal offices at One Exchange Place, Boston, Massachusetts
02109, serves as the co-administrator of Nations Fund pursuant to
Co-Administration Agreements. Under the Co-Administration Agreements, First Data
provides various administrative and accounting services to the Funds including
performing the calculations necessary to determine the net asset value per share
and dividends of each class of the Funds, preparing tax returns and financial
statements and maintaining the portfolio records and certain of the general
accounting records for the Funds.
For the services rendered pursuant to the Administration and Co-Administration
Agreements, Stephens and First Data are entitled to receive a combined fee at
the annual rate of up to 0.10% of each Fund's average daily net assets.
For the fiscal period from December 1, 1995 to March 31, 1996, after waivers,
Nations Fund Trust paid its administrators combined fees at the rate of 0.10% of
the average daily net assets of Nations Value Fund, Nations Capital Growth Fund,
Nations Emerging Growth Fund, Nations Disciplined Equity Fund, and Nations
Balanced Assets Fund.
For the fiscal period from June 1, 1995 to March 31, 1996, after waivers,
Nations Fund, Inc. paid its administrator combined fees at the rate of 0.10% of
the average daily net assets of Nations Equity Income Fund.
NationsBank serves as sub-administrator for Nations Fund pursuant to a
Sub-Administration Agreement. Pursuant to the terms of the Sub-Administration
Agreement, NationsBank assists Stephens in supervising, coordinating and
monitoring various aspects of the Funds' administrative operations. For
providing such services, NationsBank shall be entitled to receive a monthly fee
from Stephens based on an annual rate of 0.01% of the Funds' average daily net
assets.
Shares of the Funds are sold on a continuous basis by Stephens, as the Funds'
sponsor and distributor. Stephens is a registered broker/dealer with principal
offices at 111 Center Street, Little Rock, Arkansas 72201. Nations Fund has
entered into distribution agreements with Stephens which provide that Stephens
has the exclusive right to distribute shares of the Funds. Stephens may pay
service fees or commissions to selling agents that assist customers in
purchasing Investor Shares of the Funds. See "Shareholder Servicing And
Distribution Plans."
NationsBank of Texas, N.A. ("NationsBank of Texas" or the "Custodian") serves as
custodian for the assets of each Fund. NationsBank of Texas is located at 1401
Elm Street, Dallas, Texas 75202, and is a wholly owned subsidiary of NationsBank
Corporation. In return for providing custodial services, NationsBank of Texas is
entitled to receive, in addition to out-of-pocket expenses, fees payable monthly
(i) at the rate of 1.25% of 1% of the average daily net assets of each Fund for
which it serves as custodian, (ii) $10.00 per repurchase collateral transaction
by such Funds, and (iii) $15.00 per purchase, sale and maturity transaction
involving such Funds.
First Data serves as transfer agent (the "Transfer Agent") for the Funds'
Investor C Shares. The Transfer Agent is located at One Exchange Place, Boston,
Massachusetts 02109.
Price Waterhouse LLP serves as independent accountant to Nations Fund. Its
address is 160 Federal Street, Boston, Massachusetts 02110.
EXPENSES: The accrued expenses of the Funds, as well as certain expenses
attributable to Investor C Shares, are deducted from accrued income before
dividends are declared. The Funds' expenses include, but are not limited to:
fees paid to the Adviser, NationsBank, Stephens and First Data; interest;
trustees' and directors' fees; federal and state securities registration and
qualification fees; brokerage fees and commissions; cost of preparing and
printing prospectuses for regulatory purposes and for
distribu-
23
<PAGE>
tion to existing shareholders; charges of the Custodian and Transfer Agent;
certain insurance premiums; outside auditing and legal expenses; costs of
shareholder reports and shareholder meetings, other expenses which are not
expressly assumed by the Adviser, NationsBank, Stephens or First Data under
their respective agreements with Nations Fund; and any extraordinary expenses.
Investor C Shares may bear certain class specific retail transfer agency
expenses and also bear certain additional shareholder service and/or sales
support costs. Any general expenses of Nations Fund Trust and/or Nations Fund,
Inc. that are not readily identifiable as belonging to a particular investment
portfolio are allocated among all portfolios in the proportion that the assets
of a portfolio bears to the assets of Nations Fund Trust and Nations Fund, Inc.
or in such other manner as the relevant Board of Trustees or Board of Directors
deems appropriate.
Organization And History
The Funds are members of the Nations Fund Family, which consists of Nations Fund
Trust, Nations Fund, Inc., Nations Fund Portfolios, Inc. and Nations
Institutional Reserves. The Nations Fund Family currently has more than 43
distinct investment portfolios and total assets in excess of $18 billion.
NATIONS FUND TRUST: Nations Fund Trust was organized as a Massachusetts business
trust on May 6, 1985. Nations Fund Trust's fiscal year end is March 31; prior to
1996, Nations Fund Trust's fiscal year end was November 30. The Funds currently
offer five classes of shares -- Primary A Shares, Primary B Shares, Investor A
Shares, Investor C Shares and Investor N Shares. This Prospectus relates only to
the Investor C Shares of Nations Capital Growth Fund, Nations Emerging Growth
Fund, Nations Disciplined Equity Fund, Nations Value Fund and Nations Balanced
Assets Fund of Nations Fund Trust. To obtain additional information regarding
the Funds' other classes of shares which may be available to you, contact your
Agent (as defined below) or Nations Fund at 1-800-321-7854.
Each share of Nations Fund Trust is without par value, represents an equal
proportionate interest in the related fund with other shares of the same class,
and is entitled to such dividends and distributions out of the income earned on
the assets belonging to such fund as are declared in the discretion of Nations
Fund Trust's Board of Trustees. Nations Fund Trust's Declaration of Trust
authorizes the Board of Trustees to classify or reclassify any class of shares
into one or more series of shares.
Shareholders are entitled to one vote for each full share held and a
proportionate fractional vote for each fractional share held. Shareholders of
each fund of Nations Fund Trust will vote in the aggregate and not by fund, and
shareholders of each fund will vote in the aggregate and not by class except as
otherwise expressly required by law or when the Board of Trustees determines
that the matter to be voted on affects only the interests of shareholders of a
particular fund or class. See Nations Fund Trust's SAI for examples of when the
Investment Company Act of 1940 (the "1940 Act") requires voting by fund.
As of July 15, 1996, NationsBank and its affiliates possessed or shared power to
dispose or vote with respect to more than 25% of the outstanding shares of
Nations Fund Trust and therefore could be considered to be a controlling person
of Nations Fund Trust for purposes of the 1940 Act. For more detailed
information concerning the percentage of each class or series of shares over
which NationsBank and its affiliates possessed or shared power to dispose or
vote as of a certain date, see Nations Fund Trust's SAI.
Nations Fund Trust does not presently intend to hold annual meetings except as
required by the 1940 Act. Shareholders will have the right to remove Trustees.
Nations Fund Trust's Code of Regulations provides that special meetings of
shareholders shall be called at the written
24
<PAGE>
request of the shareholders entitled to vote at least 10% of the outstanding
shares of Nations Fund Trust entitled to be voted at such meeting.
NATIONS FUND, INC.: Nations Fund, Inc. was incorporated in Maryland on December
13, 1983, but had no operations prior to December 15, 1986. Nations Fund, Inc.'s
fiscal year end is March 31; prior to 1996, Nations Fund, Inc.'s fiscal year end
was May 31. As of the date of this Prospectus, the authorized capital stock of
Nations Fund, Inc. consists of 270,000,000,000 shares of common stock, par value
of $.001 per share, which are divided into series or funds each of which
consists of separate classes of shares. This Prospectus relates only to the
Investor C Shares of Nations Equity Income Fund of Nations Fund, Inc. To obtain
additional information regarding the Fund's other classes of shares which may be
available to you, contact your Agent (as defined below) or Nations Fund at
1-800-321-7854.
Shares of each fund and class have equal rights with respect to voting, except
that the holders of shares of a particular fund or class will have the exclusive
right to vote on matters affecting only the rights of the holders of such fund
or class. In the event of dissolution or liquidation, holders of each class will
receive pro rata, subject to the rights of creditors, (a) the proceeds of the
sale of that portion of the assets allocated to that class held in the
respective fund of Nations Fund, Inc., less (b) the liabilities of Nations Fund,
Inc. attributable to the respective fund or class or allocated among the funds
or classes based on the respective liquidation value of each fund or class.
Shareholders of Nations Fund, Inc. do not have cumulative voting rights, and
therefore the holders of more than 50% of the outstanding shares of all funds
voting together for election of directors may elect all of the members of the
Board of Directors of Nations Fund, Inc. Meetings of shareholders may be called
upon the request of 10% or more of the outstanding shares of Nations Fund, Inc.
There are no preemptive rights applicable to any of Nations Fund, Inc.'s shares.
Nations Fund, Inc.'s shares, when issued, will be fully paid and non-assessable.
As of July 15, 1996, NationsBank and its affiliates possessed or shared power to
dispose of or vote with respect to more than 25% of the outstanding shares of
Nations Fund, Inc. and therefore could be considered to be a controlling person
of Nations Fund, Inc. for purposes of the 1940 Act. For more detailed
information concerning the percentage of each class or series over which
NationsBank and its affiliates possessed or shared power to dispose or vote as
of a certain date, see Nations Fund, Inc.'s SAI. It is anticipated that Nations
Fund, Inc. will not hold annual shareholder meetings on a regular basis unless
required by the 1940 Act or Maryland law.
Because this Prospectus combines disclosure on two separate investment
companies, there is a possibility that one investment company could become
liable for a misstatement, inaccuracy or incomplete disclosure in this
Prospectus concerning the other investment company. Nations Fund Trust and
Nations Fund, Inc. have entered into an indemnification agreement that creates a
right of indemnification from the investment company responsible for any such
misstatement, inaccuracy or incomplete disclosure that may appear in this
Prospectus.
25
<PAGE>
About Your Investment
How To Buy Shares
The Funds have established various procedures for purchasing Investor C Shares
in order to accommodate different investors. Purchase orders for Investor C
Shares may be placed through banks, broker/dealers or other financial
institutions (including certain affiliates of NationsBank) that have entered
into a 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, except that the minimum initial
investment is:
(Bullet) $500 for "IRA" investors;
(Bullet) $250 for non-working spousal IRAs; and
(Bullet) $100 for investors participating on a monthly basis in the Systematic
Investment Plan described below.
There is no minimum investment amount for investments by 401(k) plans,
simplified employee pension plans ("SEPs"), salary reduction-simplified employee
pension plans ("SAR-SEPs") or salary reduction-Individual Retirement Account
("SAR-IRAs"). However, the assets of such plans must reach an asset value of
$1,000 ($500 for SEPs, SAR-SEPs and SAR-IRAs) within one year of the account
open date. If the assets of such plans do not reach the minimum asset size
within one year, Nations Fund reserves the right to redeem the shares held by
such plans on 60 days' written notice. The minimum subsequent investment is
$100, except for investments pursuant to the Systematic Investment Plan
described below.
Investor C Shares are purchased at net asset value per share. Purchases may be
effected on days on which the New York Stock Exchange (the "Exchange") is open
for business (a "Business Day").
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 Investor C Shares. Servicing Agents and Selling
Agents are sometimes referred to hereafter as "Agents." From time to time the
Agents, Stephens and Nations Fund may agree to voluntarily reduce the maximum
fees payable for sales support or shareholder services.
Nations Fund and Stephens reserve the right to reject any purchase order. The
issuance of Investor C Shares is recorded on the books of the Funds, and share
certificates are not issued unless expressly requested in writing. Certificates
are not issued for fractional shares.
EFFECTIVE TIME OF PURCHASES: Purchase orders for Investor C Shares of the Funds
which are received by Stephens or by the Transfer Agent before the close of
regular trading hours on the Exchange (currently 4:00 p.m., Eastern time) on any
Business Day are priced according to the net asset value determined on that day
but are not executed until 4:00 p.m., Eastern time, on the Business Day on which
immediately available funds in payment of the purchase price are received by the
Funds' Custodian. Such payment must be received no later than 4:00 p.m., Eastern
time, by the third Business Day following receipt of the order. If funds are not
received by such date, the order will not be accepted and notice thereof will be
given to the Agent placing the order. Payment for orders which are not received
or accepted will be returned after prompt inquiry to the sending Agent.
The Agents are responsible for transmitting orders for purchases of Investor C
Shares by their Customers, and delivering required funds, on a timely basis.
Stephens is responsible for transmitting orders it receives to Nations Fund.
26
<PAGE>
SYSTEMATIC INVESTMENT PLAN: Under the Funds' Systematic Investment Plan ("SIP")
a shareholder may automatically purchase Investor C Shares. On a bi-monthly,
monthly or quarterly basis, a shareholder may direct cash to be transferred
automatically from his/her checking or savings account at any bank to his/her
Fund account. Transfers will occur on or about the 15th and/or 30th day of the
applicable month. The systematic investment amount may be in any amount from $25
to $100,000. For more information concerning the SIP, contact your Agent.
TELEPHONE TRANSACTIONS: Investors may effect purchases, redemptions (up to
$50,000) and exchanges by telephone. See "How To Redeem Shares" and "How To
Exchange Shares" below. If a shareholder desires to elect the telephone
transaction feature after opening an account, a signature guarantee will be
required. Shareholders should be aware that by using the telephone transaction
feature, such shareholders may be giving up a measure of security that they may
have if they were to authorize written requests only. A shareholder may bear the
risk of any resulting losses from a telephone transaction. Nations Fund will
employ reasonable procedures to confirm that instructions communicated by
telephone are genuine, and if Nations Fund and its service providers fail to
employ such measures, they may be liable for any losses due to unauthorized or
fraudulent instructions. Nations Fund requires a form of personal identification
prior to acting upon instructions received by telephone and provides written
confirmation to shareholders of each telephone share transaction. In addition,
Nations Fund reserves the right to record all telephone conversations.
How To Redeem Shares
Redemption orders should be transmitted by telephone or in writing through the
same Agent that transmitted the original purchase order. Redemption orders are
effected at the net asset value per share next determined after receipt of the
order by Stephens or by the Transfer Agent, less any applicable CDSC. The Agents
are responsible for transmitting redemption orders to Stephens or to the
Transfer Agent and for crediting their Customers' accounts with the redemption
proceeds on a timely basis. No charge for wiring redemption payments is imposed
by Nations Fund. Except for any CDSC which may be applicable upon redemption of
Investor C Shares, as described below, there is no redemption charge.
Redemption proceeds are normally wired to the redeeming Agent within three
Business Days after receipt of the order by Stephens or by the Transfer Agent.
However, redemption proceeds for shares purchased by check may not be remitted
until at least 15 days after the date of purchase to ensure that the check has
cleared; a certified check, however, is deemed to be cleared immediately.
Nations Fund may redeem a shareholder's Investor C Shares upon 60 days' written
notice if the balance in the shareholder's account drops below $500 as a result
of redemptions. Share balances also may be redeemed at the direction of an Agent
pursuant to arrangements between the Agent and its Customers. Nations Fund also
may redeem shares of the Funds involuntarily or make payment for redemption in
readily marketable securities or other property under certain circumstances in
accordance with the 1940 Act.
Prior to effecting a redemption of Investor C Shares represented by
certificates, the Transfer Agent must have received such certificates at its
principal office. All such certificates must be endorsed by the redeeming
shareholder or accompanied by a signed stock power, in each instance with the
signature guaranteed by a 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
27
<PAGE>
information reasonably necessary to evidence that a redemption has been duly
authorized.
CONTINGENT DEFERRED SALES CHARGE: Subject to certain waivers, Investor C Shares
of the Funds that are redeemed within one year of the date of purchase may be
subject to a CDSC equal to 0.50% of the lesser of the net asset value or the
purchase price of the shares being redeemed. Investor C Shares purchased prior
to January 1, 1996 remain subject to the 1.00% CDSC. No CDSC is imposed on
increases in net asset value above the initial purchase price, including shares
acquired by reinvestment of distributions.
Solely for purposes of determining the period of time that has elapsed from the
purchase of any Investor C Shares, all purchases are deemed to have been made on
the trade date of the transaction. In determining whether a CDSC is applicable
to a redemption, the calculation will be made in the manner that results in the
lowest possible charge being assessed. In this regard, it will be assumed that
the redemption is first of shares held for the longest period of time or shares
acquired pursuant to reinvestment of dividends or distributions. The charge will
not be applied to dollar amounts representing an increase in the net asset value
since the time of purchase.
The CDSC will be waived on redemptions of Investor C Shares (i) following the
death or disability (as defined in the Internal Revenue Code of 1986, as amended
(the "Code")) of a shareholder (including a registered joint owner), (ii) in
connection with the following retirement plan distributions: (a) by qualified
plans, (except in cases of plan level terminations); (b) distributions from an
IRA following attainment of age 59 1/2; (c) a tax-free return of an excess
contribution to an IRA, and (d) distributions from a qualified retirement plan
that are not subject to the 10% additional Federal withdrawal tax pursuant to
Section 72(t)(2) of the Code, (iii) effected pursuant to Nations Fund's right to
liquidate a shareholder's account, including instances where the aggregate net
asset value of the Investor C shares held in the account is less than the
minimum account size, (iv) in connection with the combination of Nations Fund
with any other registered investment company by merger, acquisition of assets or
by any other transaction, and (v) effected pursuant to the Automatic Withdrawal
Plan discussed below, provided that such redemptions do not exceed, on an annual
basis, 12% of the net asset value of the Investor C Shares in the account.
Shareholders are responsible for providing evidence sufficient to establish that
they are eligible for any waiver of the CDSC. Nations Fund may terminate any
waiver of the CDSC by providing notice in the Funds' Prospectus, but any such
termination would affect only shares purchased after such termination.
Within 120 days after a redemption of Investor C Shares of a Fund, a shareholder
may reinvest any portion of the proceeds of such redemption in Investor C Shares
of the same Fund. The amount which may be so reinvested is limited to an amount
up to, but not exceeding, the redemption proceeds (or to the nearest full share
if fractional shares are not purchased). A shareholder exercising this privilege
would receive a pro rata credit for any CDSC paid in connection with the prior
redemption. A shareholder may not exercise this privilege with the proceeds of a
redemption of shares previously purchased through the reinvestment privilege. In
order to exercise this privilege, a written order for the purchase of Investor C
Shares must be received by the Transfer Agent or by Stephens within 120 days
after the redemption.
AUTOMATIC WITHDRAWAL PLAN: An Automatic Withdrawal Plan ("AWP") may be
established by a new or existing shareholder of the Funds if the value of the
Investor C Shares in his/her accounts within the Nations Fund Family (valued at
the net asset value at the time of the establishment of the AWP) equals $10,000
or more. Investor C Shares redeemed under the AWP will not be subject to a CDSC,
provided that the shares so redeemed do not exceed, on an annual basis, 12% of
the net asset value of the Investor C Shares in the account. Otherwise, any
applicable CDSC will be imposed on shares redeemed under the AWP. Shareholders
who elect to establish an AWP may receive a 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
28
<PAGE>
withdrawal. Investor C Shares will be redeemed (net of any applicable CDSC) as
necessary to meet withdrawal payments. Withdrawals will reduce principal and may
eventually deplete the shareholder's account. If a shareholder desires to
establish an AWP after opening an account, a signature guarantee will be
required. An AWP may be terminated by a shareholder on 30 days' written notice
to his/her Agent or by Nations Fund at any time.
How To Exchange Shares
The exchange feature enables a shareholder of Investor C Shares of a Nations
Fund non-money market fund to acquire shares of the same class that are offered
by another non-money market fund of Nations Fund or Investor D Shares of any
Nations Fund money market fund when he or she believes that a shift between
funds is an appropriate investment decision. A qualifying exchange is based on
the next calculated net asset value per share of each fund after the exchange
order is received.
No CDSC will be imposed in connection with an exchange of Investor C Shares that
meets the requirements discussed in this section.
If a shareholder acquired Investor C Shares of a Nations Fund non-money market
fund or Investor D Shares of a Nations Fund money market fund through an
exchange, the CDSC applicable to the original shares purchased will be applied
to any redemption of the acquired shares. Additionally, when an investor
exchanges Investor C Shares of a Nations Fund non-money market fund for shares
of the same class of another non-money market fund or Investor D Shares of any
money market fund of Nations Fund, the remaining period of time (if any) that
the CDSC is in effect will be computed from the time of the initial purchase of
the previously held Investor C Shares.
AUTOMATIC EXCHANGE FEATURE: Under the Funds' Automatic Exchange Feature ("AEF")
a shareholder may automatically exchange at least $25 on a monthly or quarterly
basis. A shareholder may direct proceeds to be exchanged from one Nations Fund
to another as allowed by the applicable exchange rules within the prospectus.
Exchanges will occur on or about the 15th or 30th day of the applicable month.
The shareholder must have an existing position in both Funds in order to
establish the AEF. This feature may be established by directing a request to the
Transfer Agent by telephone or in writing. For additional information, an
investor should contact his/her Selling Agent.
GENERAL: The Funds and each of the other funds of Nations Fund may limit the
number of times this exchange feature may be exercised by a shareholder within a
specified period of time. Also, the exchange feature may be terminated or
revised at any time by Nations Fund upon such notice as may be required by
applicable regulatory agencies (presently 60 days for termination or material
revision), absent unusual circumstances.
The current prospectus for each fund of Nations Fund describes its investment
objective and policies, and shareholders should obtain a copy and examine it
carefully before investing. Exchanges are subject to the minimum investment
requirement and any other conditions imposed by each fund. In the case of any
shareholder holding a share certificate or certificates, no exchanges may be
made until all applicable share certificates have been received by the Transfer
Agent and deposited in the shareholder's account. An exchange will be treated
for Federal income tax purposes the same as a redemption of shares, on which the
shareholder may realize a capital gain or loss. However, the ability to deduct
capital losses on an exchange may be limited in situations where there is an
exchange of shares within 90 days after the shares are purchased.
The Investor C Shares exchanged must have a current value of at least $1,000
(except for exchange through the AEF). Nations Fund reserves the right to reject
any exchange request. Only shares that may legally be sold in the state of the
investor's residence may be
29
<PAGE>
acquired in an exchange. Only shares of a class that is accepting investments
generally may be acquired in an exchange. An investor may telephone an exchange
request by calling his/her Agent which is responsible for transmitting such
request to Stephens or to the Transfer Agent.
During periods of significant economic or market change, telephone exchanges may
be difficult to complete. In such event, shares may be exchanged by mailing the
request directly to the Agent through which the original shares were purchased.
An investor should consult his/her Agent or Stephens for further information
regarding exchanges.
Shareholder Servicing And Distribution
Plans
Pursuant to Rule 12b-1 under the 1940 Act, the Trustees and Directors have
approved a Distribution Plan with respect to Investor C Shares of the Funds.
Pursuant to the Distribution Plan, the Funds may compensate or reimburse
Stephens for any activities or expenses primarily intended to result in the sale
of the Funds' Investor C Shares. Payments under the Investor C Distribution Plan
will be calculated daily and paid monthly at a rate or rates set from time to
time by the Trustees and Directors, provided that the annual rate may not exceed
0.75% of the average daily net asset value of the Funds' Investor C Shares.
The fees payable under the Distribution Plan are used (i) to compensate Selling
Agents for providing sales support assistance relating to Investor C Shares,
(ii) to pay for promotional activities intended to result in the sale of
Investor C Shares such as the preparation, printing and distribution of
prospectuses to other than current shareholders, and (iii) to compensate Selling
Agents for providing sales support services with respect to their Customers who
are, from time to time, beneficial and record holders of Investor C Shares.
Currently, substantially all fees paid pursuant to the Distribution Plan are
paid to compensate Selling Agents for providing the services described in (i)
and (iii) above, with any remaining amounts being used by Stephens to partially
defray other expenses incurred by Stephens in distributing Investor C Shares.
Fees received by Stephens pursuant to the Distribution Plan will not be used to
pay any interest expenses, carrying charges or other financing costs (except to
the extent permitted by the SEC) and will not be used to pay any general and
administrative expenses of Stephens.
Nations Fund and Stephens may suspend or reduce payments under the Distribution
Plan at any time, and payments are subject to the continuation of the
Distribution Plan described above and the terms of the Sales Support Agreement
between Selling Agents and Stephens. See the SAIs for more details on the
Distribution Plan.
The Trustees and Directors also have approved a shareholder servicing plan
("Servicing Plan") for the Funds which permits the Funds to compensate Servicing
Agents for services provided to their Customers that own Investor C Shares.
Payments under the Servicing Plan are calculated daily and paid monthly at a
rate or rates set from time to time by the Funds, provided that the annual rate
may not exceed 0.25% of the average daily net asset value of the Funds' Investor
C Shares.
The fees payable under the Servicing Plan are used primarily to compensate or
reimburse Servicing Agents for shareholder services provided, and related
expenses incurred, by such Servicing Agents. The shareholder services provided
by Servicing Agents may include: (i) aggregating and processing purchase and
redemption requests for Investor C Shares from Customers and transmitting net
purchase and redemption orders to Stephens or the Transfer Agent;
30
<PAGE>
(ii) providing Customers with a service that invests the assets of their
accounts in Investor C Shares pursuant to specific or preauthorized
instructions; (iii) processing dividend and distribution payments from the Funds
on behalf of Customers; (iv) providing information periodically to Customers
showing their positions in Investor C Shares; (v) arranging for bank wires; and
(vi) providing general shareholder liaison services.
Nations Fund may suspend or reduce payments under the Servicing Plan at any
time, and payments are subject to the continuation of the Servicing Plan
described above and the terms of the Servicing Agreements. See the SAIs for more
details on the Servicing Plan.
Nations Fund understands that Agents may charge fees to their Customers who are
the owners of Investor C Shares for various services provided in connection with
a Customer's account. These fees would be in addition to any amounts received by
a Selling Agent under its Sales Support Agreement with Stephens or by a
Servicing Agent under its Servicing Agreement with Nations Fund. The Sales
Support Agreements and Servicing Agreements require Agents to disclose to their
Customers any compensation payable to the Agent by Stephens or Nations Fund and
any other compensation payable by the Customers for various services provided in
connection with their accounts. Customers should read this Prospectus in light
of the terms governing their accounts with their Agents.
Stephens may, from time to time, at its expense or as an expense for which it
may be reimbursed under the Distribution Plan, pay a bonus or other
consideration or incentive to Agents who sell a minimum dollar amount of shares
of the Funds during a specified period of time. Stephens also may, from time to
time, pay additional consideration to Agents not to exceed 0.75% of the offering
price per share on all sales of Investor C Shares as an expense of Stephens or
for which Stephens may be reimbursed under the Distribution Plan or upon receipt
of a CDSC. Any such additional consideration or incentive program may be
terminated at any time by Stephens.
In addition, Stephens has established a non-cash compensation program, pursuant
to which broker/dealers or financial institutions that sell shares of the Funds
may earn additional compensation in the form of trips to sales seminars or
vacation destinations, tickets to sporting events, theater or other
entertainment, opportunities to participate in golf or other outings and gift
certificates for meals or merchandise. This non-cash compensation program may be
amended or terminated at any time by Stephens.
How The Funds Value Their Shares
The Funds calculate the net asset value of a share of each class by dividing the
total value of its assets, less liabilities, by the number of shares in the
class outstanding. Shares are valued as of the close of regular trading on the
Exchange (currently 4:00 p.m., Eastern time) on each Business Day. Currently,
the days on which the Exchange is closed (other than weekends) are: New Year's
Day, Presidents' Day, Good Friday, Memorial Day (observed), Independence Day,
Labor Day, Thanksgiving Day and Christmas Day.
Portfolio securities for which market quotations are readily available are
valued at market value. Short-term investments that will mature in 60 days or
less are valued at amortized cost, which approximates market value. All other
securities and assets are valued at their fair value following procedures
approved by the Trustees or Directors.
31
<PAGE>
How Dividends And Distributions Are
Made; Tax Information
DIVIDENDS AND DISTRIBUTIONS: The Funds distribute any net investment income each
calendar quarter and any net realized capital gains (including net short-term
capital gains) at least annually. Distributions from capital gains are made
after applying any available capital loss carryovers. Investor C Shares of the
Funds are eligible to receive dividends when declared, provided, however, that
the purchase order for such shares is received at least one day prior to the
dividend declaration and such shares continue to be eligible for dividends
through and including the day before the redemption order is executed.
Distributions paid by the Funds with respect to one class of shares may be
greater or less than those paid with respect to another class of shares due to
the different expenses of the different classes.
The net asset value of Investor C Shares will be reduced by the amount of any
dividend or distribution. Certain Agents may provide for the reinvestment of
dividends in the form of additional Investor C Shares of the same class in the
same Fund. Dividends and distributions are paid in cash within five Business
Days of the end of the quarter to which the dividend relates. Dividends and
distributions payable to a shareholder are paid in cash within five Business
Days after a shareholder's complete redemption of his/her Investor C Shares.
TAX INFORMATION: Each Fund intends to qualify as a "regulated investment
company" under the Code. Such qualification relieves the Fund of liability for
Federal income tax on amounts distributed in accordance with the Code.
Each Fund intends to distribute substantially all of its investment company
taxable income and net tax-exempt income each taxable year. Distributions by a
Fund of its net investment income (including net foreign currency gains) and the
excess, if any, of its net short-term capital gain over its net long-term
capital loss are taxable as ordinary income to shareholders who are not
currently exempt from Federal income tax, whether such income is received in
cash or reinvested in additional shares. (Federal income tax for distributions
to an IRA are generally deferred under the Code.)
Corporate investors in the Funds may be entitled to the dividends-received
deduction on all or a portion of such Funds' dividends to the extent that a
Fund's income is derived from dividends (which, if received directly, would
qualify for such deduction) received from domestic corporations. In order to
qualify for the dividends-received deduction, a corporate shareholder must hold
the fund shares paying the dividends upon which the deduction is based for at
least 46 days.
Substantially all of the Funds' net realized long-term capital gains will be
distributed at least annually. The Funds will generally have no tax liability
with respect to such gains, and the distributions will be taxable to
shareholders who are not exempt from Federal income tax as long-term capital
gains, regardless of how long the shareholders have held the Funds' shares and
whether such gains are received in cash or reinvested in additional shares.
Each year, shareholders will be notified as to the amount and Federal tax status
of all dividends and capital gains paid during the prior year. Such dividends
and capital gains may be subject to state and local taxes.
Dividends declared in October, November, or December of any year payable to
shareholders of record on a specified date in such months will be deemed to have
been received by shareholders and paid by the Funds on December 31 of such year
in the event such dividends are actually paid during January of the following
year.
Federal law requires Nations Fund to withhold 31% from any dividends (other than
exempt-interest dividends) paid by Nations Fund and/or redemptions (including
exchange redemptions)
32
<PAGE>
that occur in certain shareholder accounts if the shareholder has not properly
furnished a certified correct Taxpayer Identification Number and has not
certified that withholding does not apply, or if the Internal Revenue Service
has notified Nations Fund that the Taxpayer Identification Number listed on a
shareholder account is incorrect according to its records, or that the
shareholder is subject to backup withholding. Amounts withheld are applied to
the shareholder's Federal tax liability, and a refund may be obtained from the
Internal Revenue Service if withholding results in overpayment of taxes. Federal
law also requires the Funds to withhold 30% or the applicable tax treaty rate
from dividends paid to certain nonresident alien, non-U.S. partnership and
non-U.S. corporation shareholder accounts.
The foregoing discussion is based on tax laws and regulations which were in
effect as of the date of this Prospectus and summarizes only some of the
important Federal tax considerations generally affecting the Funds and their
shareholders. It is not intended as a substitute for careful tax planning;
investors should consult their tax advisors with respect to their specific tax
situations as well as with respect to state and local taxes. Further tax
information is contained in the SAIs.
Appendix A -- Portfolio Securities
The following are summary descriptions of certain types of instruments in which
a Fund may invest. The "How Objectives Are Pursued" section of the Prospectus
identifies each Fund's permissible investments, and the SAIs contain more
information concerning such investments.
ASSET-BACKED SECURITIES: Asset-backed securities arise through the grouping by
governmental, government-related, and private organizations of loans,
receivables, or other assets originated by various lenders. Asset-backed
securities consist of both mortgage- and non-mortgage-backed securities.
Interests in pools of these assets 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 asset-backed securities include interests in pools of receivables,
such as motor vehicle installment purchase obligations and credit card
receivables. Such securities are generally issued as pass-through certificates,
which represent undivided fractional ownership interests in the underlying pools
of assets. Such securities also may be debt instruments, which are also known as
collateralized obligations and are generally issued as the debt of a special
purpose entity organized solely for the purpose of owning such assets and
issuing such debt.
BANK INSTRUMENTS: Bank instruments consist mainly of certificates of deposit,
time deposits and bankers' acceptances. The Funds will limit their investments
in bank obligations so they do not exceed 25% of each Fund's total assets at the
time of purchase.
U.S. dollar-denominated obligations issued by foreign branches of domestic banks
("Eurodollar" obligations) and domestic branches of foreign banks ("Yankee
dollar" obligations), and
33
<PAGE>
other foreign obligations involve special investment risks, including the
possibility that liquidity could be impaired because of future political and
economic developments, the obligations may be less marketable than comparable
domestic obligations of domestic issuers, a foreign jurisdiction might impose
withholding taxes on interest income payable on such obligations, deposits may
be seized or nationalized, foreign governmental restrictions such as exchange
controls may be adopted which might adversely affect the payment of principal of
and interest on such obligations, the selection of foreign obligations may be
more difficult because there may be less publicly available information
concerning foreign issuers, there may be difficulties in enforcing a judgment
against a foreign issuer or the accounting, auditing and financial reporting
standards, practices and requirements applicable to foreign issuers may differ
from those applicable to domestic issuers. In addition, foreign banks are not
subject to examination by U.S. Government agencies or instrumentalities.
BORROWINGS: When a Fund borrows money, the net asset value of a share may be
subject to greater fluctuation until the borrowing is paid off. The Funds may
borrow money from banks for temporary purposes in amounts of up to one-third of
their respective total assets, provided that borrowings in excess of 5% of the
value of the Funds' total assets must be repaid prior to the purchase of
portfolio securities. 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 and dollar roll transactions may be considered to
be borrowings. When a Fund invests in a reverse repurchase agreement, it sells a
portfolio security to another party, such as a bank or broker/dealer, in return
for cash, and agrees to buy the security back at a future date and price.
Reverse repurchase agreements may be used to provide cash to satisfy unusually
heavy redemption requests without having to sell portfolio securities, or for
other temporary or emergency purposes. Generally, the effect of such a
transaction is that the Funds can recover all or most of the cash invested in
the portfolio securities involved during the term of the reverse repurchase
agreement, while they will be able to keep the interest income associated with
those portfolio securities. Such transactions are only advantageous if the
interest cost to the Funds of the reverse repurchase transaction is less than
the cost of obtaining the cash otherwise.
At the time a Fund enters into a reverse repurchase agreement, it may establish
a segregated account with its custodian bank in which it will maintain cash,
U.S. Government securities or other liquid high grade debt obligations equal in
value to its obligations in respect of reverse repurchase agreements. Reverse
repurchase agreements involve the risk that the market value of the securities
the Funds are obligated to repurchase under the agreement may decline below the
repurchase price. In the event the buyer of securities under a reverse
repurchase agreement files for bankruptcy or becomes insolvent, the Funds' use
of proceeds of the agreement may be restricted pending a determination by the
other party, or its trustee or receiver, whether to enforce the Funds'
obligation to repurchase the securities. In addition, there is a risk of delay
in receiving collateral or securities or in repurchasing the securities covered
by the reverse repurchase agreement or even of a loss of rights in the
collateral or securities in the event the buyer of the securities under the
reverse repurchase agreement files for bankruptcy or becomes insolvent. The
Funds only enter into reverse repurchase agreements (and repurchase agreements)
with counterparties that are deemed by the Adviser to be credit worthy. Reverse
repurchase agreements are speculative techniques involving leverage, and are
subject to asset coverage described above. Under the requirements of the 1940
Act, the Funds are required to maintain an asset coverage (including the
proceeds of the borrowings) of at least 300% of all borrowings. Depending on
market conditions, the Funds' asset coverage and other factors at the time of a
reverse repurchase, the Funds may not establish a segregated account when the
Adviser believes it is not in the best interests of the Funds to do so. In this
case, such reverse repurchase agreements will be consid-
34
<PAGE>
ered borrowings subject to the asset coverage described above.
Dollar roll transactions consist of the sale by a Fund of mortgage-backed or
other asset-backed securities, together with a commitment to purchase similar,
but not identical, securities at a future date, at the same price. In addition,
a Fund is paid a fee as consideration for entering into the commitment to
purchase. If the broker/dealer to whom a Fund sells the security becomes
insolvent, the Fund's right to purchase or repurchase the security may be
restricted; the value of the security may change adversely over the term of the
dollar roll; the security that the Fund is required to repurchase may be worth
less than the security that the Fund originally held, and the return earned by
the Fund with the proceeds of a dollar roll may not exceed transaction costs.
COMMERCIAL INSTRUMENTS: Commercial instruments consist of short-term U.S.
dollar-denominated obligations issued by domestic corporations or foreign
corporations and foreign commercial banks. Investments by a Fund in commercial
paper will consist of issues rated in a manner consistent with such Fund's
investment policies and objective. In addition, a Fund may acquire unrated
commercial paper and corporate bonds that are determined by the Adviser at the
time of purchase to be of comparable quality to rated instruments that may be
acquired by a Fund. Commercial instruments include variable-rate master demand
notes, which are unsecured instruments that permit the indebtedness thereunder
to vary and provide for periodic adjustments in the interest rate, and variable-
and floating-rate instruments.
CONVERTIBLE SECURITIES, PREFERRED STOCK, AND WARRANTS: Certain of the Funds may
invest in debt securities convertible into or exchangeable for equity
securities, preferred stocks or warrants. Preferred stocks are securities that
represent an ownership interest in a corporation providing the owner with claims
on a company's earnings and assets before common stock owners, but after bond or
other debt security owners. Warrants are options to buy a stated number of
shares of common stock at a specified price any time during the life of the
warrants.
FIXED INCOME INVESTING: The performance of the fixed income debt component of a
Fund's portfolio depends primarily on interest rate changes, the average
weighted maturity of the portfolio and the quality of the securities held. The
debt component of a Fund's portfolio will tend to decrease in value when
interest rates rise and increase when interest rates fall. A Fund's share price
and yield depend, in part, on the maturity and quality of its debt instruments.
FOREIGN CURRENCY TRANSACTIONS: To the extent provided under "How Objectives Are
Pursued," the Funds may enter into foreign currency exchange transactions to
convert foreign currencies to and from the U.S. Dollar. A Fund either enters
into these transactions on a spot (I.E., cash) basis at the spot rate prevailing
in the foreign currency exchange market, or uses forward contracts to purchase
or sell foreign currencies. A forward foreign currency exchange contract is an
obligation by a Fund to purchase or sell a specific currency at a future date,
which may be any fixed number of days from the date of the contract.
Foreign currency hedging transactions are an attempt to protect a Fund against
changes in foreign currency exchange rates between the trade and settlement
dates of specific securities transactions or changes in foreign currency
exchange rates that would adversely affect a portfolio position or an
anticipated portfolio position. Although these transactions tend to minimize the
risk of loss due to a decline in the value of the hedged currency, at the same
time they tend to limit any potential gain that might be realized should the
value of the hedged currency increase. Neither spot transactions nor forward
foreign currency exchange contracts eliminate fluctuations in the prices of a
Fund's portfolio securities or in foreign exchange rates, or prevent loss if the
prices of these securities should decline.
A Fund will generally enter into forward currency exchange contracts only under
two circumstances: (i) when the Fund enters into a contract for the purchase or
sale of a security denominated in a foreign currency, to "lock" in the U.S.
dollar price of the security; and (ii) when the Adviser believes that the
currency of a particular
35
<PAGE>
foreign country may experience a substantial movement against another currency.
Under certain circumstances, the Fund may commit a substantial portion of its
portfolio to the execution of these contracts. The Adviser will consider the
effects such a commitment would have on the investment program of the Fund and
the flexibility of the Fund to purchase additional securities. Although forward
contracts will be used primarily to protect the Fund from adverse currency
movements, they also involve the risk that anticipated currency movements will
not be accurately predicted.
FOREIGN SECURITIES: Foreign securities include debt and equity obligations
(dollar- and non-dollar-denominated) of foreign corporations and banks as well
as obligations of foreign governments and their political subdivisions (which
will be limited to direct government obligations and government-guaranteed
securities). Such investments may subject a Fund to special investment risks,
including future political and economic developments, the possible imposition of
withholding taxes on interest income, possible seizure or nationalization of
foreign deposits, the possible establishment of exchange controls, or the
adoption of other foreign governmental restrictions which might adversely affect
the payment of principal and interest on such obligations. In addition, foreign
issuers in general may be subject to different accounting, auditing, reporting,
and record keeping standards than those applicable to domestic companies, and
securities of foreign issuers may be less liquid and their prices more volatile
than those of comparable domestic issuers.
Investments in foreign securities may present additional risks, whether made
directly or indirectly, including the political or economic instability of the
issuer or the country of issue and the difficulty of predicting international
trade patterns. In addition, there may be less publicly available information
about a foreign company than about a U.S. company. Further, foreign securities
markets are generally not as developed or efficient as those in the U.S., and in
most foreign markets volume and liquidity are less than in the United States.
Fixed commissions on foreign securities exchanges are generally higher than the
negotiated commissions on U.S. exchanges, and there is generally less government
supervision and regulation of foreign securities exchanges, brokers, and
companies than in the United States. With respect to certain foreign countries,
there is a possibility of expropriation or confiscatory taxation, limitations on
the removal of funds or other assets, or diplomatic developments that could
affect investments within those countries. Because of these and other factors,
securities of foreign companies acquired by a Fund may be subject to greater
fluctuation in price than securities of domestic companies.
FUTURES, OPTIONS AND OTHER DERIVATIVE INSTRUMENTS: To the extent provided under
"How Objectives Are Pursued" the Funds may attempt to reduce the overall level
of investment risk of particular securities and attempt to protect a Fund
against adverse market movements by investing in futures, options and other
derivative instruments. These include the purchase and writing of options on
securities (including index options) and options on foreign currencies, and
investing in futures contracts for the purchase or sale of instruments based on
financial indices, including interest rate indices or indices of U.S. or foreign
government, equity or fixed income securities ("futures contracts"), options on
futures contracts, forward contracts and swaps and swap-related products such as
interest rate swaps, currency swaps, caps, collars and floors.
The use of futures, options, forward contracts and swaps exposes a Fund to
additional investment risks and transaction costs. If the Adviser incorrectly
analyzes market conditions or does not employ the appropriate strategy with
respect to these instruments, a Fund could be left in a less favorable position.
Additional risks inherent in the use of futures, options, forward contracts and
swaps include: imperfect correlation between the price of futures, options and
forward contracts and movements in the prices of the securities or currencies
being hedged; the possible absence of a liquid secondary market for any
particular instrument at any time; and the possible need to defer closing out
certain hedged positions to avoid adverse tax consequences. A
36
<PAGE>
Fund may not purchase put and call options which are traded on a national stock
exchange in an amount exceeding 5% of its net assets. Further information on the
use of futures, options and other derivative instruments, and the associated
risks, is contained in the SAIs.
ILLIQUID SECURITIES: Certain securities may be sold only pursuant to certain
legal restrictions, and may be difficult to sell. The Funds will not hold more
than 15% of the value of their respective net assets in securities that are
illiquid or such lower percentage as may be required by the states in which the
appropriate Fund sells its shares. Repurchase agreements, time deposits and
guaranteed investment contracts that do not provide for payment to a Fund within
seven days after notice, and illiquid restricted securities are subject to the
limitation on illiquid securities.
If otherwise consistent with their investment objectives and policies, certain
Funds may purchase securities that are not registered under the Securities Act
of 1933, as amended (the "1933 Act") but which can be sold to "qualified
institutional buyers" in accordance with Rule 144A 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 the Fund's Board, after considering trading activity, availability
of reliable price information and other relevant information, that an adequate
trading market exists for that security. To the extent that, for a period of
time, qualified institutional 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.
LOWER-RATED DEBT SECURITIES: Nations Equity Income Fund may invest in
lower-rated debt securities. Lower-rated, high-yielding securities are those
rated "Ba" or "B" by Moody's or "BB" or "B" by S&P which are commonly referred
to as "junk bonds." These bonds provide poor protection for payment of principal
and interest. Lower-quality bonds involve greater risk of default or price
changes due to changes in the issuer's creditworthiness than securities assigned
a higher quality rating. These securities are considered to have speculative
characteristics and indicate an aggressive approach to income investing.
The market for lower-rated securities may be thinner and less active than that
for higher quality securities, which can adversely affect the price at which
these securities can be sold. If market quotations are not available, these
lower-rated securities will be valued in accordance with procedures established
by the Funds' Boards,
37
<PAGE>
including the use of outside pricing services. Adverse publicity and changing
investor perceptions may affect the ability of outside pricing services used by
the Fund to value its portfolio securities, and the Fund's ability to dispose of
these lower-rated bonds.
MONEY MARKET INSTRUMENTS: The term "money market instruments" refers to
instruments with remaining maturities of one year or less. Money market
instruments may include, among other instruments, certain U.S. Treasury
obligations, U.S. Government Obligations, bank instruments, commercial
instruments, repurchase agreements and municipal securities. Such instruments
are described in this Appendix A.
MUNICIPAL SECURITIES: The two principal classifications of municipal securities
are "general obligation" securities and "revenue" securities. General obligation
securities are secured by the issuer's pledge of its full faith, credit, and
taxing power for the payment of principal and interest. Revenue securities are
payable only from the revenues derived from a particular facility or class of
facilities or, in some cases, from the proceeds of a special excise tax or other
specific revenue source such as the user of the facility being financed. Private
activity bonds held by a Fund are in most cases revenue securities and are not
payable from the unrestricted revenues of the issuer. Consequently, the credit
quality of private activity bonds is usually directly related to the credit
standing of the corporate user of the facility involved.
Municipal securities may include "moral obligation" bonds, which are normally
issued by special purpose public authorities. If the issuer of moral obligation
bonds is unable to meet its debt service obligations from current revenues, it
may draw on a reserve fund, the restoration of which is a moral commitment but
not a legal obligation of the state or municipality which created the issuer.
Municipal securities may include variable- or floating-rate instruments issued
by industrial development authorities and other governmental entities. While
there may not be an active secondary market with respect to a particular
instrument purchased by a Fund, a Fund may demand payment of the principal and
accrued interest on the instrument or may resell it to a third party as
specified in the instruments. The absence of an active secondary market,
however, could make it difficult for a Fund to dispose of the instrument if the
issuer defaulted on its payment obligation or during periods the Fund is not
entitled to exercise its demand rights, and the Fund could, for these or other
reasons, suffer a loss.
Some of these instruments may be unrated, but unrated instruments purchased by a
Fund will be determined by the Adviser to be of comparable quality at the time
of purchase to instruments rated "high quality" by any major rating service.
Where necessary to ensure that an instrument is of comparable "high quality," a
Fund will require that an issuer's obligation to pay the principal of the note
may be backed by an unconditional bank letter or line of credit, guarantee, or
commitment to lend.
Municipal securities may include participations in privately arranged loans to
municipal borrowers, some of which may be referred to as "municipal leases," and
units of participation in trusts holding pools of tax-exempt leases. Such loans
in most cases are not backed by the taxing authority of the issuers and may have
limited marketability or may be marketable only by virtue of a provision
requiring repayment following demand by the lender. Such loans made by a Fund
may have a demand provision permitting the Fund to require payment within seven
days. Participations in such loans, however, may not have such a demand
provision and may not be otherwise marketable. To the extent these securities
are illiquid, they will be subject to each Fund's limitation on investments in
illiquid securities. As it deems appropriate, the Adviser will establish
procedures to monitor the credit standing of each such municipal borrower,
including its ability to meet contractual payment obligations.
Municipal participation interests may be purchased from financial institutions,
and give the purchaser an undivided interest in one or more underlying municipal
security. To the extent 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.
38
<PAGE>
In addition, certain of the Funds may acquire "stand-by commitments" from banks
or broker/dealers with respect to municipal securities held in their portfolios.
Under a stand-by commitment, a dealer would agree to purchase at a Fund's option
specified municipal securities at a specified price. A Fund will acquire
stand-by commitments solely to facilitate portfolio liquidity and do not intend
to exercise their rights thereunder for trading purposes.
Although the Funds do not presently intend to do so on a regular basis, a Fund
may invest more than 25% of its total assets in municipal securities the
interest on which is paid solely from revenues of similar projects if such
investment is deemed necessary or appropriate by the Adviser. To the extent that
more than 25% of a Fund's total assets are invested in municipal securities that
are payable from the revenues of similar projects, a Fund will be subject to the
peculiar risks presented by such projects to a greater extent than it would be
if its assets were not so concentrated.
OTHER INVESTMENT COMPANIES: Each Fund may invest in securities issued by other
investment companies to the extent that such investments are consistent with the
Fund's investment objective and policies and permissible under the 1940 Act. As
a shareholder of another investment company, a Fund would bear, along with other
shareholders, its pro rata portion of the other investment company's expenses,
including advisory fees. These expenses would be in addition to the advisory and
other expenses that a Fund bears directly in connection with its own operations.
REAL ESTATE INVESTMENT TRUSTS: A real estate investment trust ("REIT") is a
managed portfolio of real estate investments which may include office buildings,
apartment complexes, hotels and shopping malls. An Equity REIT holds equity
positions in real estate, and it seeks to provide its shareholders with income
from the leasing of its properties, and with capital gains from any sales of
properties. A Mortgage REIT specializes in lending money to developers of
properties, and passes any interest income it may earn to its shareholders.
REITs may be affected by changes in the value of the underlying property owned
or financed by the REIT, while Mortgage REITs also may be affected by the
quality of credit extended. Both Equity and Mortgage REITs are dependent upon
management skill and may not be diversified. REITs also may be subject to heavy
cash flow dependency, defaults by borrowers, self-liquidation, and the
possibility of failing to qualify for tax-free pass-through of income under the
Code.
REPURCHASE AGREEMENTS: A repurchase agreement involves the purchase of a
security by a Fund and a simultaneous agreement (generally with a bank or
broker/dealer) to repurchase that security from the Fund at a specified price
and date or upon demand. This technique offers a method of earning income on
idle cash. A risk associated with repurchase agreements is the failure of the
seller to repurchase the securities as agreed, which may cause a Fund to suffer
a loss if the market value of such securities declines before they can be
liquidated on the open market. Repurchase agreements with a duration of more
than seven days are considered illiquid securities and are subject to the limit
stated above. A Fund may enter into joint repurchase agreements jointly with
other investment portfolios of Nations Fund.
SECURITIES LENDING: To increase return on portfolio securities, the Funds may
lend their portfolio securities to broker/dealers and other institutional
investors pursuant to agreements requiring that the loans be continuously
secured by collateral equal at all times in value to at least the market value
of the securities loaned. There is a risk of delay in receiving collateral or in
recovering the securities loaned or even a loss of rights in the collateral
should the borrower of the securities fail financially. However, loans are made
only to borrowers deemed by the Adviser to be credit worthy and when, in its
judgment, the income to be earned from the loan justifies the attendant risks.
The aggregate of all outstanding loans of a Fund may not exceed 30% of the value
of its total assets.
STOCK INDEX, INTEREST RATE AND CURRENCY FUTURES CONTRACTS: Certain of the Funds
may purchase and sell futures contracts and related options with respect to
non-U.S. stock indices,
39
<PAGE>
non-U.S. interest rates and foreign currencies, that have been approved by the
CFTC for investment by U.S. investors, for the purpose of hedging against
changes in values of a Fund's securities or changes in the prevailing levels of
interest rates or currency exchange rates. The contracts entail certain risks,
including but not limited to the following: no assurance that futures contracts
transactions can be offset at favorable prices; possible reduction of a Fund's
total return due to the use of hedging; possible lack of liquidity due to daily
limits on price fluctuation; imperfect correlation between the contracts and the
securities or currencies being hedged; and potential losses in excess of the
amount invested in the futures contracts themselves.
Trading on foreign commodity exchanges presents additional risks. Unlike trading
on domestic commodity exchanges, trading on foreign commodity exchanges is not
regulated by the CFTC and may be subject to greater risks than trading on
domestic exchanges. For example, some foreign exchanges are principal markets
for which no common clearing facility exists and a trader may look only to the
broker for performance of the contract. In addition, unless a Fund hedges
against fluctuations in the exchange rate between the U.S. dollar and the
currencies in which trading is done on foreign exchanges, any profits that such
Fund might realize could be eliminated by adverse changes in the exchange rate,
or the Fund could incur losses as a result of those changes.
U.S. GOVERNMENT OBLIGATIONS: U.S. Government Obligations consist of marketable
securities and instruments issued or guaranteed by the U.S. Government or any of
its agencies, authorities or instrumentalities. Direct obligations are issued by
the U.S. Treasury and include all U.S. Treasury instruments. 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 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 Association; 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.
WHEN-ISSUED, DELAYED DELIVERY AND FORWARD COMMITMENT SECURITIES: The purchase of
new issues of securities on a "when-issued," "delayed delivery" or "forward
commitment" basis occurs when the payment for and delivery of securities takes
place at a future date. Because actual payment for and delivery of such
securities generally take place 15 to 45 days after the purchase date,
purchasers of such securities bear the risk that interest rates on debt
securities at the time of delivery may be higher or lower than those contracted
for on the security purchased.
40
<PAGE>
Appendix B -- Description Of Ratings
The following summarizes the highest six ratings used by S&P for corporate and
municipal bonds. The first four ratings denote investment grade securities.
AAA -- This is the highest rating assigned by S&P to a debt obligation and
indicates an extremely strong capacity to pay interest and repay principal.
AA -- Debt rated AA is considered to have a very strong capacity to pay
interest and repay principal and differs from AAA issues only in a small
degree.
A -- Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than debt in higher-rated
categories.
BBB -- Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than for those in
higher-rated categories.
BB, B -- Bonds rated BB and B are regarded, on balance, as predominantly
speculative with respect to capacity to pay interest and repay principal in
accordance with the terms of the obligation. BB represents the lowest
degree of speculation and B a higher degree of speculation. While such
bonds will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
To provide more detailed indications of credit quality, the AA, A and BBB
ratings may be modified by the addition of a plus or minus sign to show relative
standing within these major rating categories.
The following summarizes the highest six ratings used by Moody's for corporate
and municipal bonds. The first four ratings denote investment grade securities.
Aaa -- Bonds that are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to
as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such
issues.
Aa -- Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there may
be other elements present which make the long-term risks appear somewhat
larger than in Aaa securities.
A -- Bonds that are rated A possess many favorable investment attributes
and are to be considered upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
Baa -- Bonds that are rated Baa are considered medium grade obligations,
I.E., they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable
over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
41
<PAGE>
Ba -- Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may
be small.
Moody's applies numerical modifiers (1, 2 and 3) with respect to corporate bonds
rated Aa through B. The modifier 1 indicates that the bond being rated ranks in
the higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates that the bond ranks in the lower
end of its generic rating category. With regard to municipal bonds, those bonds
in the Aa, A and Baa groups which Moody's believes possess the strongest
investment attributes are designated by the symbols Aa1, A1 or Baa1,
respectively.
The following summarizes the highest four ratings used by D&P for bonds, each of
which denotes that the securities are investment grade:
AAA -- Bonds that are rated AAA are of the highest credit quality. The risk
factors are considered to be negligible, being only slightly more than for
risk-free U.S. Treasury debt.
AA -- Bonds that are rated AA are of high credit quality. Protection
factors are strong. Risk is modest, but may vary slightly from time to time
because of economic conditions.
A -- Bonds that are rated A have protection factors which are average but
adequate. However, risk factors are more variable and greater in periods of
economic stress.
BBB -- Bonds that are rated BBB have below average protection factors but
still are considered sufficient for prudent investment. Considerable
variability in risk exists during economic cycles.
To provide more detailed indications of credit quality, the AA, A and BBB
ratings may be modified by the addition of a plus or minus sign to show relative
standing within these major categories.
The following summarizes the highest four ratings used by Fitch for bonds, each
of which denotes that the securities are investment grade:
AAA -- Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
AA -- Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated AAA. Because bonds
rated in the AAA and AA categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is
generally rated F-1+.
A -- Bonds considered to be investment grade and of high credit quality.
The obligor's ability to pay interest and repay principal is considered to
be strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.
BBB -- Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these
bonds, and therefore impair timely payment. The likelihood that the ratings
of these bonds will fall below investment grade is higher than for bonds
with higher ratings.
To provide more detailed indications of credit quality, the AA, A and BBB
ratings may be modified by the addition of a plus or minus sign to
42
<PAGE>
show relative standing within these major rating categories.
The following summarizes the two highest ratings used by Moody's for short-term
municipal notes and variable rate demand obligations:
MIG-1/VMIG-1 -- Obligations bearing these designations are of the best
quality, enjoying strong protection from established cash flows, superior
liquidity support or demonstrated broad-based access to the market for
refinancing.
MIG-2/VMIG-2 -- Obligations bearing these designations are of high quality,
with ample margins of protection although not so large as in the preceding
group.
The following summarizes the two highest ratings used by S&P for short-term
municipal notes:
SP-1 -- Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics are given
a "plus" (+) designation.
SP-2 -- Satisfactory capacity to pay principal and interest.
The three highest rating categories of D&P for short-term debt, each of which
denotes that the securities are investment grade, are D-1, D-2 and D-3. D&P
employs three designations, D-1+, D-1 and D-1-, within the highest rating
category. D-1+ indicates highest certainty of timely payment. Short-term
liquidity, including internal operating factors and/or access to alternative
sources of funds, is judged to be "outstanding, and safety is just below
risk-free U.S. Treasury short-term obligations." D-1 indicates very high
certainty of timely payment. Liquidity factors are excellent and supported by
good fundamental protection factors. Risk factors are considered to be minor.
D-1- indicates high certainty of timely payment. Liquidity factors are strong
and supported by good fundamental protection factors. Risk factors are very
small. D-2 indicates good certainty of timely payment. Liquidity factors and
company fundamentals are sound. Although ongoing funding needs may enlarge total
financing requirements, access to capital markets is good. Risk factors are
small. D-3 indicates satisfactory liquidity and other protection factors which
qualify the issue as investment grade. Risk factors are larger and subject to
more variation. Nevertheless, timely payment is expected.
The following summarizes the two highest rating categories used by Fitch for
short-term obligations, each of which denotes securities that are investment
grade:
F-1+ securities possess exceptionally strong credit quality. Issues
assigned this rating are regarded as having the strongest degree of
assurance for timely payment.
F-1 securities possess very strong credit quality. Issues assigned this
rating reflect an assurance of timely payment only slightly less in degree
than issues rated F-1+.
F-2 securities possess good credit quality. Issues carrying this rating
have a satisfactory degree of assurance for timely payment, but the margin
of safety is not as great as for issues assigned the F-1+ and F-1 ratings.
Commercial paper rated A-1 by S&P indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted A-1+. Capacity for timely payment on
commercial paper rated A-2 is satisfactory, but the relative degree of safety is
not as high as for issues designated A-1.
The rating Prime-1 is the highest commercial paper rating assigned by Moody's.
Issuers rated Prime-1 (or related supporting institutions) are considered to
have a superior capacity for repayment of senior short-term promissory
obligations. Issuers rated Prime-2 (or related supporting institutions) are
considered to have a strong capacity for repayment of senior short-term
promissory obligations. This will normally be evidenced by many of the
characteristics of issuers rated Prime-1, but to a lesser degree. Earnings
trends and coverage ratios, while sound, will be more subject to variation.
Capitalization characteristics, while still appropriate, may be
43
<PAGE>
more affected by external conditions. Ample alternate liquidity is maintained.
For commercial paper, D&P uses the short-term debt ratings described above.
For commercial paper, Fitch uses the short-term debt ratings described above.
BankWatch ratings are based upon a qualitative and quantitative analysis of all
segments of the organization including, where applicable, holding company and
operating subsidiaries. BankWatch ratings do not constitute a recommendation to
buy or sell securities of any of these companies. Further, BankWatch does not
suggest specific investment criteria for individual clients.
BankWatch long-term ratings apply to specific issues of long-term debt and
preferred stock. The long-term ratings specifically assess the likelihood of
untimely payment of principal or interest over the term to maturity of the rated
instrument. The following are the four investment grade ratings used by
BankWatch for long-term debt:
AAA -- The highest category; indicates ability to repay principal and
interest on a timely basis is very high.
AA -- The second highest category; indicates a superior ability to repay
principal and interest on a timely basis with limited incremental risk
versus issues rated in the highest category.
A -- The third highest category; indicates the ability to repay principal
and interest is strong. Issues rated "A" could be more vulnerable to
adverse developments (both internal and external) than obligations with
higher ratings.
BBB -- The lowest investment grade category; indicates an acceptable
capacity to repay principal and interest. Issues rated "BBB" are, however,
more vulnerable to adverse developments (both internal and external) than
obligations with higher ratings.
The BankWatch short-term ratings apply to commercial paper, other senior
short-term obligations and deposit obligations of the entities to which the
rating has been assigned. The BankWatch short-term ratings specifically assess
the likelihood of an untimely payment of principal or interest.
TBW-1 -- The highest category; indicates a very high degree of likelihood
that principal and interest will be paid on a timely basis.
TBW-2 -- The second highest category; while the degree of safety regarding
timely repayment of principal and interest is strong, the relative degree
of safety is not as high as for issues rated "TBW-1".
TBW-3 -- The lowest investment grade category; indicates that while more
susceptible to adverse developments (both internal and external) than
obligations with higher ratings, capacity to service principal and interest
in a timely fashion is considered adequate.
TBW-4 -- The lowest rating category; this rating is regarded as
non-investment grade and therefore speculative.
The following summarizes the four highest long-term ratings used by IBCA:
AAA -- Obligations for which there is the lowest expectation of investment
risk. Capacity for timely repayment of principal and interest is
substantial such that adverse changes in business, economic or financial
conditions are unlikely to increase investment risk significantly.
AA -- Obligations for which there is a very low expectation of investment
risk. Capacity for timely repayment of principal and interest is
substantial. Adverse changes in business, economic or financial conditions
may increase investment risk albeit not very significantly.
A -- Obligations for which there is a low expectation of investment risk.
Capacity for timely repayment of principal and interest is strong, although
adverse changes in busi-
44
<PAGE>
ness, economic or financial conditions may lead to increased investment
risk.
BBB -- Obligations for which there is currently a low expectation of
investment risk. Capacity for timely repayment of principal and interest is
adequate, although adverse changes in business, economic or financial
conditions are more likely to lead to increased investment risk than for
obligations in other categories.
A plus of 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.
45
<PAGE>
(THIS PAGE LEFT BLANK INTENTIONALLY)
<PAGE>
Prospectus
INVESTOR C SHARES
JULY 31, 1996
This Prospectus describes the investment portfolios
listed in the column to the right (each a "Fund"
and collectively the "Tax-Exempt Funds") of Nations
Fund Trust, an open-end management investment
company in the Nations Fund Family ("Nations Fund"
or "Nations Fund Family"). This Prospectus
describes one class of shares of the Tax-Exempt
Funds -- Investor C Shares.
This Prospectus sets forth concisely the
information about the Funds that prospective
purchasers of Investor C Shares should consider
before investing. Investors should read this
Prospectus and retain it for future reference.
Additional information about Nations Fund Trust is
contained in a separate Statement of Additional
Information (the "SAI"), that has been filed with
the Securities and Exchange Commission (the "SEC")
and is available upon request without charge by
writing or calling Nations Fund at its address or
telephone number shown below. The SAI bears the
same date as this Prospectus and is incorporated by
reference in its entirety into this Prospectus.
NationsBanc Advisors, Inc. ("NBAI") is the
investment adviser to the Funds. TradeStreet
Investment Associates, Inc. ("TradeStreet") is sub-
investment adviser to the Funds. As used herein the
"Adviser" shall mean NBAI and/or TradeStreet as the
context may require.
SHARES OF NATIONS FUND ARE NOT DEPOSITS OR OTHER
OBLIGATIONS OF, OR ISSUED, ENDORSED OR GUARANTEED
BY, NATIONSBANK, N.A. ("NATIONSBANK") OR ANY OF ITS
AFFILIATES. SUCH SHARES ARE NOT INSURED BY THE U.S.
GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER
GOVERNMENT AGENCY. AN INVESTMENT IN THE FUNDS
INVOLVES CERTAIN RISKS, INCLUDING POSSIBLE LOSS OF
PRINCIPAL.
NATIONSBANK AND CERTAIN OF ITS AFFILIATES PROVIDE
CERTAIN OTHER SERVICES TO NATIONS FUND, FOR WHICH
THEY ARE COMPENSATED. STEPHENS INC., WHICH IS NOT
AFFILIATED WITH NATIONSBANK, IS THE SPONSOR AND
ADMINISTRATOR AND SERVES AS THE DISTRIBUTOR FOR
NATIONS FUND.
THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
TAX-EXEMPT FUNDS
Nations Short-Term Municipal Income Fund
Nations Intermediate Municipal Bond Fund
Nations Municipal Income Fund
Nations Florida Intermediate
Municipal Bond Fund
Nations Florida Municipal Bond Fund
Nations Georgia Intermediate
Municipal Bond Fund
Nations Georgia Municipal Bond Fund
Nations Maryland Intermediate
Municipal Bond Fund
Nations Maryland Municipal
Bond Fund
Nations North Carolina Intermediate Municipal Bond Fund
Nations North Carolina Municipal Bond Fund
Nations South Carolina Intermediate Municipal Bond Fund
Nations South Carolina Municipal Bond Fund
Nations Tennessee Intermediate Municipal Bond Fund
Nations Tennessee Municipal
Bond Fund
Nations Texas Intermediate
Municipal Bond Fund
Nations Texas Municipal Bond Fund
Nations Virginia Intermediate
Municipal Bond Fund
Nations Virginia Municipal
Bond Fund
For Fund information call:
1-800-321-7854
Nations Fund
c/o Stephens Inc.
One NationsBank Plaza
33rd Floor
Charlotte, NC 28255
(Nations Fund Logo appears here)
NF-96141-796
<PAGE>
Table Of Contents
About The Funds
Prospectus Summary 3
Expenses Summary 6
Financial Highlights 12
Objectives 30
How Objectives Are Pursued 32
How Performance Is Shown 36
How the Funds Are Managed 37
Organization And History 41
About Your
Investment
How To Buy Shares 42
How To Redeem Shares 43
How To Exchange Shares 44
Shareholder Servicing And Distribution Plans 46
How The Funds Value Their Shares 47
How Dividends And Distributions Are Made;
Tax Information 47
Appendix A -- Portfolio Securities 49
Appendix B -- Description Of Ratings 55
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT
CONTAINED IN THIS PROSPECTUS, OR IN THE
FUNDS' SAI INCORPORATED HEREIN BY REFERENCE, IN
CONNECTION WITH THE OFFERING MADE BY THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY NATIONS FUND OR ITS
DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFERING BY NATIONS FUND OR BY THE DISTRIBUTOR IN
ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT
LAWFULLY BE MADE.
2
<PAGE>
About The Funds
Prospectus Summary
(Bullet) TYPE OF COMPANY: Open-end management investment company.
(Bullet) INVESTMENT OBJECTIVES AND POLICIES:
(Bullet) Nations Municipal Income Fund's investment objective is to
seek high current income exempt from Federal income tax with
the potential for principal fluctuation associated with
investments in long-term municipal securities. The Fund
invests in investment grade, long-term municipal securities.
(Bullet) Nations Short-Term Municipal Income Fund's investment
objective is to seek high current income exempt from
Federal income tax consistent with minimal fluctuation
of principal. The Fund invests in investment
grade, short-term municipal securities.
(Bullet) Nations Intermediate Municipal Bond Fund's
investment objective is to seek high current income
exempt from Federal income tax
consistent with moderate fluctuation
of principal. The Fund invests in
investment grade, intermediate-term
municipal securities.
(Bullet) Nations Florida Intermediate
Municipal Bond Fund's investment
objective is to seek high current
income exempt from Federal income
and the Florida state intangibles
taxes consistent with moderate
fluctuation of principal. The Fund
invests in investment grade,
intermediate-term municipal
securities.
(Bullet) Nations Florida Municipal Bond Fund's investment
objective is to seek high current income exempt from
Federal income and the Florida state intangibles
taxes with the potential for principal fluctuation
associated with investments in long-term
municipal securities. The Fund invests in investment
grade, long-term municipal securities.
(Bullet) Nations Georgia Intermediate Municipal Bond Fund's investment
objective is to seek high current income exempt
from Federal and Georgia state income taxes consistent with
moderate fluctuation of principal. The Fund invests in
investment grade, intermediate-term municipal securities.
(Bullet) Nations Georgia Municipal Bond Fund's investment objective
is to seek high current income exempt from Federal and
Georgia state income taxes with the potential for principal
fluctuation associated with investments in long-term
municipal securities. The Fund invests in investment grade,
long-term municipal securities.
(Bullet) Nations Maryland Intermediate Municipal Bond Fund's
investment objective is to seek high current income exempt
from Federal and Maryland state income taxes consistent
with moderate fluctuation of principal. The Fund invests
in investment grade, intermediate-term municipal securities.
(Bullet) Nations Maryland Municipal Bond Fund's investment objective
is to seek high current income exempt from Federal and
Maryland state income taxes with the potential for principal
fluctuation associated with investments in long-term
municipal securities. The Fund invests in investment grade,
long-term municipal securities.
3
<PAGE>
(Bullet) Nations North Carolina Intermediate Municipal Bond
Fund's investment objective to seek high current income
exempt from Federal and North Carolina state income
taxes consistent with moderate fluctuation of principal.
The Fund invests in investment grade, intermediate-term
municipal securities.
(Bullet) Nations North Carolina Municipal Bond Fund's investment
objective is to seek high current income exempt from
Federal and North Carolina state income taxes with the
potential for principal fluctuation associated with
investments in long-term municipal securities. The
Fund invests in investment grade, long-term municipal
securities.
(Bullet) Nations South Carolina Intermediate Municipal Bond
Fund's investment objective is to seek high current
income exempt from Federal and South Carolina state
income taxes consistent with moderate fluctuation of
principal. The Fund invests in investment grade,
intermediate-term municipal securities.
(Bullet) Nations South Carolina Municipal Bond Fund's investment
objective is to seek high current income exempt from
Federal and South Carolina state income taxes with the
potential for principal fluctuation associated with
investments in long-term municipal securities. The Fund
invests in investment grade, long-term municipal
securities.
(Bullet) Nations Tennessee Intermediate Municipal Bond Fund's
investment objective is to seek high current income
exempt from Federal income tax and the Tennessee Hall
Income Tax on unearned income consistent with moderate
fluctuation of principal. The Fund invests in investment
grade, intermediate-term municipal securities.
(Bullet) Nations Tennessee Municipal Bond Fund's investment
objective is to seek high current income exempt from
Federal Income Tax and the Tennessee Hall Income Tax
on unearned income with the potential for principal
fluctuation associated with investments in long-term
municipal securities. The Fund invests in investment
grade, long-term municipal securities.
(Bullet) Nations Texas Intermediate Municipal Bond Fund's
investment objective is to seek high current income
exempt from Federal income tax consistent with moderate
fluctuation of principal. The Fund invests in investment
grade, intermediate-term municipal securities.
(Bullet) Nations Texas Municipal Bond Fund's investment
objective is to seek high current income exempt from
Federal income tax with the potential for principal
fluctuation associated with investments in long-term
municipal securities. The Fund invests in investment
grade, long-term municipal securities.
(Bullet) Nations Virginia Intermediate Municipal Bond Fund's
investment objective is to seek high current income
exempt from Federal and Virginia state income taxes
consistent with moderate fluctuation of principal. The
Fund invests in investment grade, intermediate-term
municipal securities.
(Bullet) Nations Virginia Municipal Bond Fund's investment
objective is to seek high current income exempt from
Federal and Virginia state income taxes with the
potential for principal fluctuation associated with
investments in long-term municipal securities. The
Fund invests in investment grade, long-term municipal
securities.
(Bullet) INVESTMENT ADVISER: NationsBanc Advisors, Inc. serves as the investment
adviser to the Funds. NBAI provides investment advice to more than 43
investment company portfolios in the Nations Fund Family. TradeStreet
Investment Associates, Inc. provides sub-advisory services to the
Funds. See "How The Funds Are Managed."
4
<PAGE>
(Bullet) DIVIDENDS AND DISTRIBUTIONS: The Funds declare dividends daily and pay
them monthly. Each Fund's net realized capital gains, including net
short-term capital gains are distributed at least annually.
(Bullet) RISK FACTORS: Although the Adviser seeks to achieve the investment
objective of each Fund, there is no assurance that it will be able to
do so. Investments in a Fund are not insured against loss of principal.
Investments by a Fund in debt securities are subject to interest rate
risk, which is the risk that increases in market interest rates will
adversely affect a Fund's investments in debt securities. The value of
a Fund's investments in debt securities, including U.S. Government
obligations, will tend to decrease when interest rates rise and
increase when interest rates fall. In general, longer-term debt
instruments tend to fluctuate in value more than shorter-term debt
instruments in response to interest rate movements. In addition, debt
securities which are not backed by the United States Government are
subject to credit risk, which is the risk that the issuer may not be
able to pay principal and/or interest when due. Certain of the Funds'
investments constitute derivative securities. Certain types of
derivative securities can, under certain circumstances, significantly
increase an investor's exposure to market or other risks. Since the
State Intermediate Municipal Bond Funds and State Municipal Bond Funds
invest primarily in securities issued by entities located in a single
state, such Funds are more susceptible to changes in value due to
political or economic changes affecting such states or their
subdivisions. For a discussion of these and other factors, see "How
Objectives Are Pursued -- Risk Considerations" and "Appendix
A -- Portfolio Securities."
(Bullet) MINIMUM PURCHASE: $1,000 minimum initial investment per record holder.
$100 minimum subsequent investment (except for investments pursuant to
the Systematic Investment Plan). See "How To Buy Shares."
5
<PAGE>
Expenses Summary
Expenses are one of several factors to consider when investing in a Fund. The
following tables summarize shareholder transaction and operating expenses for
the Investor C Shares of the Funds. The Examples show the cumulative expenses
attributable to a hypothetical $1,000 investment in Investor C Shares of a Fund
over specified periods.
INVESTOR C SHARES
<TABLE>
<CAPTION>
Nations Nations Nations Florida Nations Georgia
SHAREHOLDER Short-Term Intermediate Nations Intermediate Nations Florida Intermediate
TRANSACTION Municipal Municipal Bond Municipal Municipal Bond Municipal Bond Municipal Bond
EXPENSES Income Fund Fund Income Fund Fund Fund Fund
<S> <C> <C> <C> <C> <C> <C>
Sales Load Imposed on
Purchases None None None None None None
Deferred Sales Charge (as
a percentage of the
lower of the original
purchase price or
redemption proceeds)1 .50% .50% .50% .50% .50% .50%
ANNUAL FUND
OPERATING
EXPENSES
(as a percentage of
average net assets)
Management Fees (After
Fee Waivers)2 .30% .40% .40% .30% .40% .30%
Rule 12b-1 Fees (After
Fee Waivers)2 .10% .25% .25% .25% .25% .25%
Shareholder Servicing
Fees (After Fee
Waivers)2 .25% .25% .25% .25% .25% .25%
Other Expenses (After
Expense Reimbursements) .10% .10% .20% .20% .20% .20%
Total Operating Expenses
(After Fee Waivers and
Expense Reimbursments)2 .75% 1.00% 1.10% 1.00% 1.10% 1.00%
<CAPTION>
SHAREHOLDER Nations Georgia
TRANSACTION Municipal Bond
EXPENSES Fund
Sales Load Imposed on
Purchases None
Deferred Sales Charge (as
a percentage of the
lower of the original
purchase price or
redemption proceeds)1 .50%
ANNUAL FUND
OPERATING
EXPENSES
(as a percentage of
average net assets)
Management Fees (After
Fee Waivers)2 .30%
Rule 12b-1 Fees (After
Fee Waivers)2 .25%
Shareholder Servicing
Fees (After Fee
Waivers)2 .25%
Other Expenses (After
Expense Reimbursements) .30%
Total Operating Expenses
(After Fee Waivers and
Expense Reimbursments)2 1.10%
</TABLE>
1 A Deferred Sales Charge is imposed only with respect to Investor C Shares
redeemed within one year of purchase. Investor C Shares purchased prior to
January 1, 1996 will continue to be subject to the 1.00% Deferred Sales
Charge.
2 See page 11 for a discussion of the actual expenses absent such fee waivers.
6
<PAGE>
INVESTOR C SHARES
<TABLE>
<CAPTION>
Nations Nations Nations
Maryland Nations North Carolina Nations South Carolina
Intermediate Maryland Intermediate North Carolina Intermediate
SHAREHOLDER TRANSACTION Municipal Bond Municipal Bond Municipal Bond Municipal Bond Municipal Bond
EXPENSES Fund Fund Fund Fund Fund
<S> <C> <C> <C> <C> <C>
Sales Load Imposed on Purchases None None None None None
Deferred Sales Charge (as a percentage
of the lower of the original
purchase price or redemption
proceeds)1 .50% .50% .50% .50% .50%
ANNUAL FUND
OPERATING
EXPENSES
(as a percentage of average net
assets)
Management Fees (After Fee Waivers)2 .30% .30% .30% .30% .30%
Rule 12b-1 Fees (After Fee Waivers)2 .25% .25% .25% .25% .25%
Shareholder Servicing Fees .25% .25% .25% .25% .25%
Other Expenses (After Expense
Reimbursements) .20% .30% .20% .30% .20%
Total Operating Expenses (After Fee
Waivers and Expense Reimbursements)2 1.00% 1.10% 1.00% 1.10% 1.00%
<CAPTION>
Nations
South Carolina
SHAREHOLDER TRANSACTION Municipal Bond
EXPENSES Fund
Sales Load Imposed on Purchases None
Deferred Sales Charge (as a percentage
of the lower of the original
purchase price or redemption
proceeds)1 .50%
ANNUAL FUND
OPERATING
EXPENSES
(as a percentage of average net
assets)
Management Fees (After Fee Waivers)2 .30%
Rule 12b-1 Fees (After Fee Waivers)2 .25%
Shareholder Servicing Fees .25%
Other Expenses (After Expense
Reimbursements) .30%
Total Operating Expenses (After Fee
Waivers and Expense Reimbursements)2 1.10%
</TABLE>
1 A Deferred Sales Charge is imposed only with respect to Investor C Shares
redeemed within one year of purchase. Investor C Shares purchased prior to
January 1, 1996 will continue to be subject to the 1.00% Deferred Sales
Charge.
2 See page 11 for a discussion of actual expenses absent such fee waivers.
7
<PAGE>
INVESTOR C SHARES
<TABLE>
<CAPTION>
Nations Nations Nations
Tennessee Nations Texas Virginia Nations
Intermediate Tennessee Intermediate Nations Intermediate Virginia
SHAREHOLDER TRANSACTION Municipal Bond Municipal Bond Municipal Bond Texas Municipal Municipal Bond Municipal
EXPENSES Fund Fund Fund Bond Fund Fund Bond Fund
<S> <C> <C> <C> <C> <C>
Sales Load Imposed on Purchases None None None None None None
Deferred Sales Charge (as a
percentage of the lower of the
original purchase price or
redemption proceeds)1 .50% .50% .50% .50% .50% .50%
ANNUAL FUND OPERATING
EXPENSES
(as a percentage of average net
assets)
Management Fees (After Fee
Waivers)2 .30% .30% .30% .30% .30% .30%
Rule 12b-1 Fees (After Fee
Waivers)2 .25% .25% .25% .25% .25% .25%
Shareholder Servicing Fees .25% .25% .25% .25% .25% .25%
Other Expenses (After Expense
Reimbursements) .20% .30% .20% .30% .20% .30%
Total Operating Expenses
(After Fee Waivers and Expense
Reimbursements)2 1.00% 1.10% 1.00% 1.10% 1.00% 1.10%
</TABLE>
1 A Deferred Sales Charge is imposed only with respect to Investor C Shares
redeemed within one year of purchase. Investor C Shares purchased prior to
January 1, 1996 will continue to be subject to the 1.00% Deferred Sales
Charge.
2 See page 11 for a discussion of actual expenses absent such fee waivers.
8
<PAGE>
EXAMPLES: You would pay the following expenses on a $1,000 investment in
Investor C Shares of the indicated Fund, assuming (1) a 5% annual return and (2)
redemption at the end of each time period.
<TABLE>
<CAPTION>
Nations Nations Nations Florida Nations Georgia
Short-Term Intermediate Intermediate Nations Florida Intermediate
Municipal Income Municipal Bond Nations Municipal Municipal Bond Municipal Bond Municipal Bond
Fund Fund Income Fund Fund Fund Fund
<S> <C> <C> <C> <C> <C> <C>
1 Year $ 13 $ 15 $ 16 $ 15 $ 16 $ 15
3 Years $ 24 $ 32 $ 35 $ 32 $ 35 $ 32
5 Years $ 42 $ 55 $ 61 $ 55 $ 61 $ 55
10 Years $ 93 $ 122 $ 134 $ 122 $ 134 $ 122
<CAPTION>
Nations Maryland
Nations Georgia Intermediate
Municipal Bond Municipal Bond
Fund Fund
<S> <C> <C>
1 Year $ 16 $ 15
3 Years $ 35 $ 32
5 Years $ 61 $ 55
10 Years $ 134 $ 122
<CAPTION>
Nations Nations
North Carolina Nations South Carolina Nations Nations Tennessee
Nations Maryland Intermediate North Carolina Intermediate South Carolina Intermediate
Municipal Bond Municipal Bond Municipal Bond Municipal Bond Municipal Bond Municipal Bond
Fund Fund Fund Fund Fund Fund
<S> <C> <C> <C> <C> <C> <C>
1 Year $ 16 $ 15 $ 16 $ 15 $ 16 $ 15
3 Years $ 35 $ 32 $ 35 $ 32 $ 35 $ 32
5 Years $ 61 $ 55 $ 61 $ 55 $ 61 $ 55
10 Years $ 134 $ 122 $ 134 $ 122 $ 134 $ 122
<CAPTION>
Nations
Texas
Nations Tennessee Intermediate
Municipal Bond Municipal Bond
Fund Fund
<S> <C> <C>
1 Year $ 16 $ 15
3 Years $ 35 $ 32
5 Years $ 61 $ 55
10 Years $ 134 $ 122
<CAPTION>
Nations Virginia
Nations Intermediate Nations Virginia
Texas Municipal Municipal Bond Municipal Bond
Bond Fund Fund Fund
<S> <C> <C> <C>
1 Year $ 16 $ 15 $ 16
3 Years $ 35 $ 32 $ 35
5 Years $ 61 $ 55 $ 61
10 Years $ 134 $ 122 $ 134
</TABLE>
9
<PAGE>
EXAMPLES: You would pay the following expenses on a $1,000 investment in
Investor C Shares of the indicated Fund, assuming a 5% annual return but no
redemption.
<TABLE>
<CAPTION>
Nations Nations Nations Florida Nations Georgia
Short-Term Intermediate Intermediate Nations Florida Intermediate
Municipal Income Municipal Bond Nations Municipal Municipal Bond Municipal Bond Municipal Bond
Fund Fund Income Fund Fund Fund Fund
<S> <C> <C> <C> <C> <C> <C>
1 Year $ 8 $ 10 $ 11 $ 10 $ 11 $ 10
3 Years $ 24 $ 32 $ 35 $ 32 $ 35 $ 32
5 Years $ 42 $ 55 $ 61 $ 55 61 $ 55
10 Years $ 93 $ 122 $ 134 $ 122 $ 134 $ 122
<CAPTION>
Nations Maryland
Nations Georgia Intermediate
Municipal Bond Municipal Bond
Fund Fund
1 Year $ 11 $ 10
3 Years $ 35 $ 32
5 Years $ 61 $ 55
10 Years $ 134 $ 122
<CAPTION>
Nations North Nations
Carolina Nations North South Carolina Nations Nations Tennessee
Nations Maryland Intermediate Carolina Intermediate South Carolina Intermediate
Municipal Bond Municipal Bond Municipal Bond Municipal Bond Municipal Bond Municipal Bond
Fund Fund Fund Fund Fund Fund
<S> <C> <C> <C> <C> <C> <C>
1 Year $ 11 $ 10 $ 11 $ 10 $ 11 $ 10
3 Years $ 35 $ 32 $ 35 $ 32 $ 35 $ 32
5 Years $ 61 $ 55 $ 61 $ 55 $ 61 $ 55
10 Years $ 134 $ 122 $ 134 $ 122 $ 134 $ 122
<CAPTION>
Nations
Texas
Nations Tennessee Intermediate
Municipal Bond Municipal Bond
Fund Fund
<S> <C> <C>
1 Year $ 11 $ 10
3 Years $ 35 $ 32
5 Years $ 61 $ 55
10 Years $ 134 $ 122
<CAPTION>
Nations Virginia
Nations Intermediate Nations Virginia
Texas Municipal Municipal Bond Municipal Bond
Bond Fund Fund Fund
<S> <C> <C> <C>
1 Year $ 11 $ 10 $ 11
3 Years $ 35 $ 32 $ 35
5 Years $ 61 $ 55 $ 61
10 Years $ 134 $ 122 $ 134
</TABLE>
10
<PAGE>
The purpose of the foregoing tables is to assist an investor in understanding
the various shareholder transaction and operating expenses that an investor in
Investor C Shares of the Funds will bear either directly or indirectly. The
"Other Expenses" figures in the above tables for Investor C Shares of the
following Funds are based on estimated amounts for the Fund's current fiscal
year and reflect anticipated fee waivers and reimbursements: Nations Florida
Intermediate Municipal Bond Fund, Nations Florida Municipal Bond Fund, Nations
Georgia Municipal Bond Fund, Nations Maryland Municipal Bond Fund, Nations North
Carolina Intermediate Municipal Bond Fund, Nations North Carolina Municipal Bond
Fund, Nations South Carolina Municipal Bond Fund, Nations Tennessee Intermediate
Municipal Bond Fund, Nations Tennessee Municipal Bond Fund, Nations Texas
Intermediate Municipal Bond Fund, Nations Texas Municipal Bond Fund and Nations
Virginia Municipal Bond Fund. The figures for the other Funds reflect amounts
incurred during the Fund's most recent fiscal year and have been adjusted as
necessary to reflect current service provider fees. There is no assurance that
any fee waivers and reimbursements will continue beyond the current fiscal year.
If fee waivers and/or reimbursements are discontinued, the amounts contained in
the "Examples" above may increase. Long-term shareholders of a Fund could pay
more in sales charges than the economic equivalent of the maximum front-end
sales charges applicable to mutual funds sold by members of the National
Association of Securities Dealers, Inc. For more complete descriptions of the
Funds' operating expenses, see "How The Funds Are Managed." For a more complete
description of the Rule 12b-1 and shareholder servicing fees payable by the
Funds, see "Shareholder Servicing And Distribution Plans."
Absent fee waivers and expense reimbursements "Management Fees," "Rule 12b-1
Fees," "Other Expenses" and "Total Operating Expenses" for Investor C Shares of
the Funds would have been as follows: Nations Municipal Income Fund -- .60%,
.75%, .30% and 1.90%, respectively; Nations Intermediate Municipal Bond
Fund -- .50%, .75%, .33% and 1.83%, respectively; Nations Florida Intermediate
Municipal Bond Fund -- .50%, .75%, .36% and 1.86%, respectively; Nations Florida
Municipal Bond Fund -- .60%, .75%, .34% and 1.94%, respectively; Nations Georgia
Intermediate Municipal Bond Fund -- .50%, .75%, .33% and 1.83%, respectively;
Nations Georgia Municipal Bond Fund -- .60%, .75%, .50% and 2.10%, respectively;
Nations Maryland Intermediate Municipal Bond Fund -- .50%, .75%, .30% and 1.80%,
respectively; Nations Maryland Municipal Bond Fund -- .60%, .75%, .48% and
2.08%, respectively; Nations North Carolina Intermediate Bond Fund -- .50%,
.75%, .37% and 1.87%, respectively; Nations North Carolina Municipal Bond
Fund -- .60%, .75%, .37% and 1.97%, respectively; Nations South Carolina
Intermediate Municipal Bond Fund -- .50%, .75%, .32% and 1.82%, respectively;
Nations South Carolina Municipal Bond Fund -- .60%, .75%, .50% and 2.10%,
respectively; Nations Tennessee Intermediate Municipal Bond Fund -- .50%, .75%,
.43% and 1.93%, respectively; Nations Tennessee Municipal Bond Fund -- .60%,
.75%, .58% and 2.18%, respectively; Nations Texas Intermediate Municipal Bond
Fund -- .50%, .75%, .39% and 1.89%, respectively; Nations Texas Municipal Bond
Fund -- .60%, .75%, .48% and 2.08%, respectively; Nations Virginia Intermediate
Municipal Bond Fund -- .50%, .75%, .26% and 1.76%, respectively; and Nations
Virginia Municipal Bond Fund -- .60%, .75%, .44% and 2.04%, respectively. Absent
fee waivers and expense reimbursements, "Management Fees," "Rule 12b-1 Fees,"
"Other Expenses" and "Total Operating Expenses" for Investor C Shares of Nations
Short-Term Municipal Income Fund would have been .50%, .75%, .34% and 1.84%,
respectively.
THE FOREGOING SHOULD NOT BE CONSIDERED TO BE AN ACTUAL REPRESENTATION OF PAST OR
FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES AND RATES OF RETURN MAY BE
GREATER OR LESS THAN THOSE SHOWN.
11
<PAGE>
Financial Highlights
The following audited financial information has been derived from the financial
statements of Nations Fund Trust. Price Waterhouse LLP, is the independent
accountant to Nations Fund Trust. The reports of Price Waterhouse LLP for
Nations Fund Trust's most recent fiscal year accompany the financial statements
for such period and are incorporated by reference in the SAI, which is available
upon request. Shareholders of a Fund will receive unaudited semi-annual reports
describing the Fund's investment operations and annual financial statements
audited by the Funds' independent accountant.
FOR AN INVESTOR C SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
NATIONS SHORT-TERM MUNICIPAL INCOME FUND
PERIOD YEAR PERIOD
ENDED ENDED ENDED
INVESTOR C SHARES 03/31/96(b) 11/30/95 11/30/94*
<CAPTION>
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 10.03 $ 9.69 $ 9.84
Net investment income 0.14 0.42 0.19
Net realized and unrealized gain/(loss) on investments (0.05) 0.34 (0.15)
Net increase in net assets value from operations 0.09 0.76 0.04
Distributions:
Dividends from net investment income (0.14) (0.42) (0.19)
Distributions from net realized capital gains -- -- (0.00)#
Total dividends and distributions (0.14) (0.42) (0.19)
Net asset value, end of period $ 9.98 $ 10.03 $ 9.69
Total return++ 0.85% 7.95% 0.45%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 2,072 $ 1,953 $ 323
Ratio of operating expenses to average net assets 0.72%+(a) 0.70%(a) 0.59%+(a)
Ratio of net investment income to average net assets 4.05%+ 4.13% 3.58%+
Portfolio turnover rate 16% 82% 57%
Ratio of operating expenses to average net assets without waivers and/or
expense reimbursements 1.18%+ 1.18% 1.05%+
Net investment income per share without waivers and/or expense
reimbursements $ 0.12 $ 0.37 $ 0.18
</TABLE>
* Nations Short-Term Municipal Income Fund's Investor C Shares commenced
operations on May 19, 1994.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
# Amount represents less than $0.01 per share.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
12
<PAGE>
FOR AN INVESTOR C SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
NATIONS INTERMEDIATE MUNICIPAL BOND FUND
PERIOD YEAR PERIOD
ENDED ENDED ENDED
INVESTOR C SHARES 03/31/96(b) 11/30/95 11/30/94*
<CAPTION>
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 10.17 $ 9.24 $ 9.35
Net investment income 0.14 0.43 0.03
Net realized and unrealized gain/(loss) on investments (0.14) 0.93 (0.11)
Net increase/(decrease) in net asset value from operations 0.00 1.36 (0.08)
Distributions:
Dividends from net investment income (0.14) (0.43) (0.03)
Distributions in excess of net investment income -- -- --
Distributions from net realized capital gains -- -- --
Total dividends and distributions (0.14) (0.43) (0.03)
Net asset value, end of period $ 10.03 $ 10.17 $ 9.24
Total return++ 0.03% 14.96% (0.52)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 716 $ 359 $ 2
Ratio of operating expenses to average net assets 1.00%+(a) 0.95%(a) 0.85%+(a)
Ratio of net investment income to average net assets 4.25%+ 4.41% 4.09%+
Portfolio turnover rate 4% 31% 51%
Ratio of operating expenses to average net assets without waivers and/or
expense reimbursements 1.33%+ 1.34% 1.38%+
Net investment income per share without waivers and/or expense
reimbursements $ 0.13 $ 0.40 $ 0.02
</TABLE>
* Nations Intermediate Municipal Bond Fund's Investor C Shares commenced
operations on November 3, 1994.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
13
<PAGE>
FOR AN INVESTOR C SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS MUNICIPAL INCOME FUND
<TABLE>
<CAPTION>
PERIOD YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
INVESTOR C SHARES 03/31/96(b) 11/30/95 11/30/94 11/30/93
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 11.08 $ 9.64 $ 11.33 $ 10.65
Net investment income 0.18 0.51 0.49 0.50
Net realized and unrealized gain/(loss) on
investments (0.24) 1.44 (1.44) 0.72
Net increase/(decrease) in net asset value from
operations (0.06) 1.95 (0.95) 1.22
Distributions:
Dividends from net investment income (0.18) (0.51) (0.49) (0.50)
Distributions in excess of net investment income -- -- (0.00)# --
Distributions from net realized capital gains -- -- (0.25) (0.04)
Total dividends and distributions (0.18) (0.51) (0.74) (0.54)
Net asset value, end of period $ 10.84 $ 11.08 $ 9.64 $ 11.33
Total return++ (0.60)% 20.65% (8.86)% 11.69%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 2,173 $ 2,268 $ 3,064 $ 6,331
Ratio of operating expenses to average net assets 1.16%+ 1.35% 1.36% 1.27%
Ratio of operating expenses to average net assets
including interest expense --(a) --(a) 1.37% --
Ratio of net investment income to average net
assets 4.79%+ 4.88% 4.67% 4.49%
Portfolio turnover rate 4% 49% 63% 48%
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 1.47%+ 1.63% 1.65% 1.59%
Net investment income per share without waivers
and/or expense reimbursements $ 0.17 $ 0.48 $ 0.46 $ 0.46
<CAPTION>
YEAR
ENDED
INVESTOR C SHARES 11/30/92*
<S> <C>
Operating performance:
Net asset value, beginning of period $ 10.48
Net investment income 0.21
Net realized and unrealized gain/(loss) on
investments 0.17
Net increase/(decrease) in net asset value from
operations 0.38
Distributions:
Dividends from net investment income (0.21)
Distributions in excess of net investment income --
Distributions from net realized capital gains --
Total dividends and distributions (0.21)
Net asset value, end of period $ 10.65
Total return++ 3.63%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 3,744
Ratio of operating expenses to average net assets 1.21%+
Ratio of operating expenses to average net assets
including interest expense --
Ratio of net investment income to average net
assets 4.36%+
Portfolio turnover rate 19%
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 1.61%+
Net investment income per share without waivers
and/or expense reimbursements $ 0.19
</TABLE>
* Nations Municipal Income Fund's Investor C Shares commenced operations on
June 17, 1992.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# Amount represents less than $0.01 per share.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
14
<PAGE>
FOR AN INVESTOR C SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS FLORIDA INTERMEDIATE MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
PERIOD YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
INVESTOR C SHARES 03/31/96(b) 11/30/95 11/30/94 11/30/93*
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 10.63 $ 9.61 $ 10.50 $ 9.98
Net investment income 0.15 0.43 0.39 0.35
Net realized and unrealized gain/(loss) on investments (0.17) 1.02 (0.88) 0.52
Net increase/(decrease) in net asset value from
operations (0.02) 1.45 (0.49) 0.87
Distributions:
Dividends from net investment income (0.15) (0.43) (0.39) (0.35)
Distributions in excess of net investment income -- -- (0.00)# --
Distributions from net realized capital gains -- -- (0.01) --
Total dividends and distributions (0.15) (0.43) (0.40) (0.35)
Net asset value, end of period $ 10.46 $ 10.63 $ 9.61 $ 10.50
Total return++ (0.23)% 15.34% (4.81)% 8.80%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 275 $ 277 $ 614 $ 684
Ratio of operating expenses to average net assets 1.00%+(a) 1.05%(a) 1.13%(a) 1.19%+
Ratio of net investment income to average net assets 4.16% 4.20% 3.86% 3.53%+
Portfolio turnover rate 18% 27% 34% 15%
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 1.36%+ 1.31% 1.34% 1.55%+
Net investment income per share without waivers and/or
expense reimbursements $ 0.13 $ 0.41 $ 0.37 $ 0.31
</TABLE>
* Nations Florida Intermediate Municipal Bond Fund Investor C Shares commenced
operations on December 17, 1992.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
# Amount represents less than $0.01 per share.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
15
<PAGE>
FOR AN INVESTOR C SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
NATIONS FLORIDA MUNICIPAL BOND FUND
PERIOD YEAR PERIOD
ENDED ENDED ENDED
INVESTOR C SHARES 03/31/96(b) 11/30/95 11/30/94*
<CAPTION>
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 9.76 $ 8.40 $ 8.47
Net investment income 0.14 0.44 0.03
Net realized and unrealized gain/(loss) on investments (0.29) 1.36 (0.07)
Net increase/(decrease) in net asset value from operations (0.15) 1.80 (0.04)
Dividends from net investment income (0.14) (0.44) (0.03)
Total dividends and distributions (0.14) (0.44) (0.03)
Net asset value, end of period $ 9.47 $ 9.76 $ 8.40
Total return++ (1.52)% 21.80% (0.43)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 38 $ 38 $ 2
Ratio of operating expenses to average net assets 1.15%+(a) 1.14%(a) 0.96%+(a)
Ratio of net investment income to average net assets 4.48%+ 4.69% 4.80%+
Portfolio turnover rate 7% 13% 46%
Ratio of operating expenses to average net assets without waivers
and/or expense reimbursements 1.51%+ 1.70% 1.66%+
Net investment income per share without waivers and/or expense
reimbursements $ 0.13 $ 0.39 $ 0.03
</TABLE>
* Nations Florida Municipal Bond Fund's Investor C Shares commenced operations
on November 3, 1994.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
16
<PAGE>
FOR AN INVESTOR C SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS GEORGIA INTERMEDIATE MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
PERIOD YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
INVESTOR C SHARES 03/31/96(b) 11/30/95 11/30/94 11/30/93
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 10.81 $ 9.82 $ 10.82 $ 10.29
Net investment income 0.15 0.45 0.43 0.42
Net realized and unrealized gain/(loss) on
investments (0.18) 0.99 (0.98) 0.56
Net increase/(decrease) in net asset value from
operations (0.03) 1.44 (0.55) 0.98
Distributions:
Dividends from net investment income (0.15) (0.45) (0.43) (0.42)
Distributions in excess of net investment
income -- -- (0.00)# --
Distributions from net realized capital gains -- -- (0.02) (0.03)
Total dividends and distributions (0.15) (0.45) (0.45) (0.45)
Net asset value, end of period $ 10.63 $ 10.81 $ 9.82 $ 10.82
Total return++ (0.29)% 14.85% (5.25)% 9.61%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 2,445 $ 2,606 $ 2,397 $ 2,990
Ratio of operating expenses to average net
assets 1.00%+ 1.05% 1.12% 1.21%
Ratio of operating expenses to average net
assets including interest expense --(a) --(a) 1.13% --
Ratio of net investment income to average net
assets 4.17%+ 4.26% 4.16% 3.82%
Portfolio turnover rate 3% 17% 22% 6%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 1.33%+ 1.30% 1.33% 1.52%
Net investment income per share without waivers
and/or expense reimbursements $ 0.14 $ 0.42 $ 0.41 $ 0.39
<CAPTION>
PERIOD
ENDED
INVESTOR C SHARES 11/30/92*
<S> <C>
Operating performance:
Net asset value, beginning of period $ 10.11
Net investment income 0.20
Net realized and unrealized gain/(loss) on
investments 0.18
Net increase/(decrease) in net asset value from
operations 0.38
Distributions:
Dividends from net investment income (0.20)
Distributions in excess of net investment
income --
Distributions from net realized capital gains --
Total dividends and distributions (0.20)
Net asset value, end of period $ 10.29
Total return++ 3.82%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 992
Ratio of operating expenses to average net
assets 0.91%+
Ratio of operating expenses to average net
assets including interest expense --
Ratio of net investment income to average net
assets 4.21%+
Portfolio turnover rate 12%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 1.72%+
Net investment income per share without waivers
and/or expense reimbursements $ 0.16
</TABLE>
* Nations Georgia Intermediate Municipal Bond Fund Investor C Shares commenced
operations on June 17, 1992.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# Amount represents less than $0.01 per share.
(a) The effect of interest expense on the operating ratio was less than 0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
17
<PAGE>
FOR AN INVESTOR C SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS GEORGIA MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
PERIOD YEAR PERIOD
ENDED ENDED ENDED
INVESTOR C SHARES 03/31/96(b) 11/30/95 11/30/94*
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 9.72 $ 8.38 $ 8.45
Net investment income 0.14 0.44 0.03
Net realized and unrealized gain/(loss) on investments (0.24) 1.34 (0.07)
Net increase/(decrease) in net asset value from operations (0.10) 1.78 (0.04)
Dividends from net investment income (0.14) (0.44) (0.03)
Total dividends and distributions (0.14) (0.44) (0.03)
Net asset value, end of period $ 9.48 $ 9.72 $ 8.38
Total return++ (1.03)% 21.59% (0.44)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 69 $ 69 $ 2
Ratio of operating expenses to average net assets 1.16%+(a) 1.15%(a) 0.96%+(a)
Ratio of net investment income to average net assets 4.40%+ 4.67% 4.85%+
Portfolio turnover rate 7% 26% 35%
Ratio of operating expenses to average net assets without waivers and/or
expense reimbursements 1.70%+ 1.84% 1.79%+
Net investment income per share without waivers and/or expense
reimbursements $ 0.12 $ 0.37 $ 0.02
</TABLE>
* Nations Georgia Municipal Bond Fund's Investor C Shares commenced operations
on November 3, 1994.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
(a) The effect of interest expense on the operating ratio was less than 0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
18
<PAGE>
FOR AN INVESTOR C SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS MARYLAND INTERMEDIATE MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
PERIOD YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
INVESTOR C SHARES 03/31/96(b) 11/30/95 11/30/94 11/30/93
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 10.95 $ 10.00 $ 11.09 $ 10.72
Net investment income 0.15 0.45 0.44 0.40
Net realized and unrealized gain/(loss) on
investments (0.15) 0.98 (0.99) 0.44
Net increase/(decrease) in net asset value from
operations 0.00 1.43 (0.55) 0.84
Distributions:
Dividends from net investment income (0.15) (0.45) (0.44) (0.40)
Distributions from net realized capital gains -- (0.03) (0.10) (0.07)
Distributions in excess of net realized capital
gains -- -- (0.00)# --
Total dividends and distributions (0.15) (0.48) (0.54) (0.47)
Net asset value, end of period $ 10.80 $ 10.95 $ 10.00 $ 11.09
Total return++ (0.01)% 14.59% (5.20)% 8.30%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 2,900 $ 2,808 $ 2,570 $ 4,424
Ratio of operating expenses to average net assets 1.00%+(a) 1.05%(a) 1.11%(a) 1.24%
Ratio of net investment income to average net
assets 4.12%+ 4.26% 4.15% 3.98%
Portfolio turnover rate 4% 11% 22% 26%
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 1.31%+ 1.30% 1.31% 1.48%
Net investment income per share without waivers
and/or expense reimbursements $ 0.14 $ 0.42 $ 0.42 $ 0.38
<CAPTION>
PERIOD
ENDED
INVESTOR C SHARES 11/30/92*
<S> <C>
Operating performance:
Net asset value, beginning of period $ 10.58
Net investment income 0.19
Net realized and unrealized gain/(loss) on
investments 0.14
Net increase/(decrease) in net asset value from
operations 0.33
Distributions:
Dividends from net investment income (0.19)
Distributions from net realized capital gains --
Distributions in excess of net realized capital
gains --
Total dividends and distributions (0.19)
Net asset value, end of period $ 10.72
Total return++ 3.13%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 1,796
Ratio of operating expenses to average net assets 1.16%+
Ratio of net investment income to average net
assets 3.88%+
Portfolio turnover rate 38%
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 1.44%+
Net investment income per share without waivers
and/or expense reimbursements $ 0.18
</TABLE>
* Nations Maryland Intermediate Municipal Bond Fund Investor C Shares
commenced operations on June 17, 1992.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# Amount represents less than $0.01 per share.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
19
<PAGE>
FOR AN INVESTOR C SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
NATIONS MARYLAND MUNICIPAL BOND FUND
PERIOD YEAR PERIOD
ENDED ENDED ENDED
INVESTOR C SHARES 03/31/96(b) 11/30/95 11/30/94*
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 9.63 $ 8.37 $ 8.44
Net investment income 0.13 0.41 0.03
Net realized and unrealized gain/(loss) on investments (0.24) 1.26 (0.07)
Net increase/(decrease) in net asset value from operations (0.11) 1.67 (0.04)
Dividends from net investment income (0.13) (0.41) (0.03)
Total dividends and distributions (0.13) (0.41) (0.03)
Net asset value, end of period $ 9.39 $ 9.63 $ 8.37
Total return++ (1.13)% 20.29% (0.45)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 2 $ 2 $ 2
Ratio of operating expenses to average net assets 1.16%+ 1.15% 0.96%+(a)
Ratio of net investment income to average net assets 4.16%+ 4.39% 4.73%+
Portfolio turnover rate 7% 11% 39%
Ratio of operating expenses to average net assets without waivers and/or
expense reimbursements 1.79%+ 2.01% 2.05%+
Net investment income per share without waivers and/or expense
reimbursements $ 0.11 $ 0.33 $ 0.02
</TABLE>
* Nations Maryland Municipal Bond Fund's Investor C Shares commenced
operations on November 3, 1994.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
20
<PAGE>
FOR AN INVESTOR C SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS NORTH CAROLINA INTERMEDIATE MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
PERIOD YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
INVESTOR C SHARES 03/31/96(b) 11/30/95 11/30/94 11/30/93*
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 10.51 $ 9.53 $ 10.46 $ 9.99
Net investment income 0.14 0.40 0.38 0.35
Net realized and unrealized gain/(loss) on investments (0.15) 0.99 (0.88) 0.47
Net increase/(decrease) in net asset value from operations (0.01) 1.39 (0.50) 0.82
Distributions:
Dividends from net investment income (0.14) (0.40) (0.38) (0.35)
Distributions in excess of net investment income -- (0.00)# -- --
Distributions from net realized capital gains -- (0.01) (0.05) --
Total dividends and distributions (0.14) (0.41) (0.43) (0.35)
Net asset value, end of period $ 10.36 $ 10.51 $ 9.53 $ 10.46
Total return++ (0.12)% 14.84% (4.89)% 8.26%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 1,379 $ 1,366 $ 1,486 $ 1,592
Ratio of operating expenses to average net assets 1.00%+ 1.07%(a) 1.13%(a) 1.17%+
Ratio of net investment income to average net assets 3.97%+ 3.97% 3.80% 3.48%+
Portfolio turnover rate 3% 57% 37% 29%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 1.37%+ 1.34% 1.40% 1.60%+
Net investment income per share without waivers and/or
expense reimbursements $ 0.13 $ 0.38 $ 0.36 $ 0.30
</TABLE>
* Nations North Carolina Intermediate Municipal Bond Fund Investor C Shares
commenced operations on December 16, 1992.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
# Amount represents less than $0.01 per share.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
21
<PAGE>
FOR AN INVESTOR C SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS NORTH CAROLINA MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
PERIOD YEAR PERIOD
ENDED ENDED ENDED
<S> <C> <C> <C>
INVESTOR C SHARES 03/31/96(b) 11/30/95 11/30/94*
Operating performance:
Net asset value, beginning of period $ 9.73 $ 8.36 $ 8.45
Net investment income 0.14 0.43 0.03
Net realized and unrealized gain/(loss) on investments (0.24) 1.37 (0.09)
Net increase/(decrease) in net asset value from operations (0.10) 1.80 (0.06)
Dividends from net investment income (0.14) (0.43) (0.03)
Total dividends and distributions (0.14) (0.43) (0.03)
Net asset value, end of period $ 9.49 $ 9.73 $ 8.36
Total return++ (1.04)% 21.93% (0.67)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 17 $ 2 $ 2
Ratio of operating expenses to average net assets 1.14%+ 1.13%(a) 0.96%+(a)
Ratio of net investment income to average net assets 4.32%+ 4.68% 4.78%+
Portfolio turnover rate 22% 40% 29%
Ratio of operating expenses to average net assets without waivers and/or
expense reimbursements 1.53%+ 1.71% 1.67%+
Net investment income per share without waivers and/or expense
reimbursements $ 0.13 $ 0.38 $ 0.03
</TABLE>
* Nations North Carolina Municipal Bond Fund's Investor C Shares commenced
operations on November 3, 1994.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
22
<PAGE>
FOR AN INVESTOR C SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS SOUTH CAROLINA INTERMEDIATE MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
PERIOD YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
INVESTOR C SHARES 03/31/96(b) 11/30/95 11/30/94 11/30/93
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 10.69 $ 9.76 $ 10.61 $ 10.18
Net investment income 0.15 0.46 0.44 0.42
Net realized and unrealized gain/(loss) on
investments (0.17) 0.93 (0.84) 0.43
Net increase/(decrease) in net asset value from
operations (0.02) 1.39 (0.40) 0.85
Distributions:
Dividends from net investment income (0.15) (0.46) (0.44) (0.42)
Distributions in excess of net investment
income -- -- (0.00)# --
Distributions from net realized capital gains -- -- (0.01) --
Total dividends and distributions (0.15) (0.46) (0.45) (0.42)
Net asset value, end of period $ 10.52 $ 10.69 $ 9.76 $ 10.61
Total return++ (0.17)% 14.45% (3.94)% 8.51%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 5,409 $ 5,527 $ 6,167 $ 8,499
Ratio of operating expenses to average net
assets 1.00%+(a) 1.05%(a) 1.12%(a) 1.20%
Ratio of net investment income to average net
assets 4.31%+ 4.42% 4.24% 3.93%
Portfolio turnover rate 6% 11% 30% 11%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 1.32%+ 1.25% 1.33% 1.50%
Net investment income per share without waivers
and/or expense reimbursements $ 0.14 $ 0.44 $ 0.42 $ 0.39
<CAPTION>
PERIOD
ENDED
INVESTOR C SHARES 11/30/92*
<S> <C>
Operating performance:
Net asset value, beginning of period $ 10.05
Net investment income 0.20
Net realized and unrealized gain/(loss) on
investments 0.13
Net increase/(decrease) in net asset value from
operations 0.33
Distributions:
Dividends from net investment income (0.20)
Distributions in excess of net investment
income --
Distributions from net realized capital gains --
Total dividends and distributions (0.20)
Net asset value, end of period $ 10.18
Total return++ 3.27%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 4,436
Ratio of operating expenses to average net
assets 0.88%+
Ratio of net investment income to average net
assets 4.10%+
Portfolio turnover rate 7%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 1.48%+
Net investment income per share without waivers
and/or expense reimbursements $ 0.17
</TABLE>
* Nations South Carolina Intermediate Municipal Bond Fund Investor C Shares
commenced operations on June 17, 1992.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# Amount represents less than $0.01 per share.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
23
<PAGE>
FOR AN INVESTOR C SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS SOUTH CAROLINA MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
PERIOD YEAR PERIOD
ENDED ENDED ENDED
INVESTOR C SHARES 03/31/96(b) 11/30/95 11/30/94*
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 9.99 $ 8.65 $ 8.73
Net investment income 0.15 0.45 0.03
Net realized and unrealized gain/(loss) on investments (0.22) 1.34 (0.08)
Net increase/(decrease) in net asset value from operations (0.07) 1.79 (0.05)
Dividends from net investment income (0.15) (0.45) (0.03)
Total dividends and distributions (0.15) (0.45) (0.03)
Net asset value, end of period $ 9.77 $ 9.99 $ 8.65
Total return++ (0.76)% 21.01% (0.52)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 264 $ 20 $ 2
Ratio of operating expenses to average net assets 1.17%+(a) 1.15%(a) 0.96%+(a)
Ratio of net investment income to average net assets 4.39%+ 4.69% 4.73%+
Portfolio turnover rate 20% 13% 14%
Ratio of operating expenses to average net assets without waivers and/or
expense reimbursements 1.70%+ 1.83% 1.87%+
Net investment income per share without waivers and/or expense
reimbursements $ 0.13 $ 0.39 $ 0.03
</TABLE>
* Nations South Carolina Municipal Bond Fund's Investor C Shares commenced
operations on November 3, 1994.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
24
<PAGE>
FOR AN INVESTOR C SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS TENNESSEE INTERMEDIATE MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
PERIOD YEAR PERIOD
ENDED ENDED ENDED
INVESTOR C SHARES 03/31/96(b) 11/30/95 11/30/94*
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 10.23 $ 9.30 $ 9.38
Net investment income 0.14 0.41 0.03
Net realized and unrealized gain/(loss) on investments (0.14) 0.93 (0.08)
Net increase/(decrease) in net asset value from operations 0.00 1.34 (0.05)
Distributions:
Dividends from net investment income (0.14) (0.41) (0.03)
Distributions in excess of net investment income -- -- --
Distributions from net realized capital gains -- -- --
Total dividends and distributions (0.14) (0.41) (0.03)
Net asset value, end of period $ 10.09 $ 10.23 $ 9.30
Total return++ (0.02)% 14.62% (0.53)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 2 $ 2 $ 2
Ratio of operating expenses to average net assets 1.00%+ 1.07% 1.02%+
Ratio of operating expenses to average net assets including interest
expense -- --(a) 1.03%+
Ratio of net investment income to average net assets 4.01%+ 4.15% 4.06%+
Portfolio turnover rate 3% 34% 41%
Ratio of operating expenses to average net assets without waivers and/or
expense reimbursements 1.52%+ 1.42% 1.39%+
Net investment income per share without waivers and/or expense
reimbursements $ 0.12 $ 0.38 $ 0.02
</TABLE>
* Nations Tennessee Intermediate Municipal Bond Fund's Investor C Shares
commenced operations on November 3, 1994.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
25
<PAGE>
FOR AN INVESTOR C SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS TENNESSEE MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
PERIOD YEAR PERIOD
ENDED ENDED ENDED
INVESTOR C SHARES 03/31/96(b) 11/30/95 11/30/94*
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 9.87 $ 8.58 $ 8.62
Net investment income 0.14 0.45 0.03
Net realized and unrealized gain/(loss) on investments (0.19) 1.29 (0.04)
Net increase/(decrease) in net asset value resulting from operations (0.05) 1.74 (0.01)
Dividends from net investment income (0.14) (0.45) (0.03)
Total dividends and distributions (0.14) (0.45) (0.03)
Net asset value, end of period $ 9.68 $ 9.87 $ 8.58
Total return++ (0.49)% 20.62% (0.07)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 37 $ 64 $ 2
Ratio of operating expenses to average net assets 1.18%+ 1.15%(a) 0.96%+(a)
Ratio of operating expenses to average net assets including interest
expense 1.18%+ -- --
Ratio of net investment income to average net assets 4.34%+ 4.74% 4.81%+
Portfolio turnover rate 2% 45% 38%
Ratio of operating expenses to average net assets without waivers and/or
expense reimbursements 2.05%+ 2.02% 1.95%+
Net investment income per share without waivers and/or expense
reimbursements $ 0.11 $ 0.37 $ 0.02
</TABLE>
* Nations Tennessee Municipal Bond Fund's Investor C Shares commenced
operations on November 3, 1994.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
26
<PAGE>
FOR AN INVESTOR C SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS TEXAS INTERMEDIATE MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
PERIOD YEAR PERIOD
ENDED ENDED ENDED
INVESTOR C SHARES 03/31/96(b) 11/30/95 11/30/94*
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 10.36 $ 9.53 $ 9.55
Net investment income 0.14 0.41 0.03
Net realized and unrealized gain/(loss) on investments (0.15) 0.83 (0.02)
Net increase/(decrease) in net asset value from operations (0.01) 1.24 0.01
Distributions:
Dividends from net investment income (0.14) (0.41) (0.03)
Distributions in excess of net investment income -- -- (0.00)#
Distributions from net realized capital gains -- -- --
Total dividends and distributions (0.14) (0.41) (0.03)
Net asset value, end of period $ 10.21 $ 10.36 $ 9.53
Total return++ (0.12)% 13.27% 0.08%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 569 $ 570 $ 2
Ratio of operating expenses to average net assets 1.00%+ 1.07%(a) 1.05%+(a)
Ratio of net investment income to average net assets 4.02%+ 4.12% 3.90%+
Portfolio turnover rate 11% 64% 61%
Ratio of operating expenses to average net assets without waivers and/or
expense reimbursements 1.39%+ 1.33% 1.28%+
Net investment income per share without waivers and/or expense
reimbursements $ 0.13 $ 0.39 $ 0.02
</TABLE>
* Nations Texas Intermediate Municipal Bond Fund's Investor C Shares commenced
operations on November 3, 1994.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
# Amount represents less than $0.01 per share.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
27
<PAGE>
FOR AN INVESTOR C SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS TEXAS MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
PERIOD YEAR PERIOD
ENDED ENDED ENDED
INVESTOR C SHARES 03/31/96(b) 11/30/95 11/30/94*
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 9.70 $ 8.39 $ 8.46
Net investment income 0.14 0.43 0.03
Net realized and unrealized gain/(loss) on investments (0.21) 1.31 (0.07)
Net increase/(decrease) in net asset value from operations (0.07) 1.74 (0.04)
Dividends from net investment income (0.14) (0.43) (0.03)
Total dividends and distributions (0.14) (0.43) (0.03)
Net asset value, end of period $ 9.49 $ 9.70 $ 8.39
Total return++ (0.74)% 21.15% (0.43)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 70 $ 70 $ 2
Ratio of operating expenses to average net assets 1.16%+ 1.14%(a) 0.97%+(a)
Ratio of net investment income to average net assets 4.36%+ 4.70% 4.77%+
Portfolio turnover rate 6% 50% 107%
Ratio of operating expenses to average net assets without waivers and/or
expense reimbursements 1.67%+ 1.80% 1.81%+
Net investment income per share without waivers and/or expense
reimbursements $ 0.12 $ 0.37 $ 0.02
</TABLE>
* Nations Texas Municipal Bond Fund's Investor C Shares commenced operations
on November 3, 1994.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
28
<PAGE>
FOR AN INVESTOR C SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS VIRGINIA INTERMEDIATE MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
PERIOD YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
INVESTOR C SHARES 03/31/96(b) 11/30/95 11/30/94 11/30/93
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 10.83 $ 9.94 $ 10.99 $ 10.59
Net investment income 0.15 0.46 0.44 0.44
Net realized and unrealized gain/(loss) on
investments (0.14) 0.89 (0.96) 0.42
Net increase/(decrease) in net asset value from
operations 0.01 1.35 (0.52) 0.86
Distributions:
Dividends from net investment income (0.15) (0.46) (0.44) (0.44)
Distributions from net realized capital gains -- (0.00)# (0.09) (0.02)
Distributions in excess of net realized capital
gains -- -- (0.00)# --
Total dividends and distributions (0.15) (0.46) (0.53) (0.46)
Net asset value, end of period $ 10.69 $ 10.83 $ 9.94 $ 10.99
Total return++ 0.10% 13.82% (4.90)% 8.25%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 6,909 $ 7,152 $ 8,372 $ 11,176
Ratio of operating expenses to average net
assets 1.00%+(a) 1.06%(a) 1.19%(a) 1.32%
Ratio of net investment income to average net
assets 4.22%+ 4.37% 4.18% 4.05%
Portfolio turnover rate 2% 22% 14% 26%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 1.26%+ 1.24% 1.31% 1.44%
Net investment income per share without waivers
and/or expense reimbursements $ 0.14 $ 0.44 $ 0.43 $ 0.43
<CAPTION>
PERIOD
ENDED
INVESTOR C SHARES 11/30/92*
<S> <C>
Operating performance:
Net asset value, beginning of period $ 10.44
Net investment income 0.19
Net realized and unrealized gain/(loss) on
investments 0.15
Net increase/(decrease) in net asset value from
operations 0.34
Distributions:
Dividends from net investment income (0.19)
Distributions from net realized capital gains --
Distributions in excess of net realized capital
gains --
Total dividends and distributions (0.19)
Net asset value, end of period $ 10.59
Total return++ 3.36%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 4,769
Ratio of operating expenses to average net
assets 1.28%+
Ratio of net investment income to average net
assets 3.99%+
Portfolio turnover rate 13%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 2.80%+
Net investment income per share without waivers
and/or expense reimbursements $ 0.12
</TABLE>
* Nations Virginia Intermediate Municipal Bond Fund Investor C Shares
commenced operations on June 17, 1992.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# Amount represents less than $0.01 per share.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
29
<PAGE>
FOR AN INVESTOR C SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS VIRGINIA MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
PERIOD YEAR PERIOD
ENDED ENDED ENDED
INVESTOR C SHARES 03/31/96(b) 11/30/95 11/30/94*
<CAPTION>
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 9.62 $ 8.29 $ 8.38
Net investment income 0.14 0.44 0.03
Net realized and unrealized gain/(loss) on investments (0.24) 1.33 (0.09)
Net increase/(decrease) in net asset value from operations (0.10) 1.77 (0.06)
Dividends from net investment income (0.14) (0.44) (0.03)
Total dividends and distributions (0.14) (0.44) (0.03)
Net asset value, end of period $ 9.38 $ 9.62 $ 8.29
Total return++ (1.03)% 21.71% (0.67)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 43 $ 34 $ 2
Ratio of operating expenses to average net assets 1.16%+ 1.14%(a) 0.96%+(a)
Ratio of operating expenses to net assets including interest expense 1.17%+ -- --
Ratio of net investment income to average net assets 4.50%+ 4.76% 4.77%+
Portfolio turnover rate 8% 16% 61%
Ratio of operating expenses to average net assets without waivers and/or
expense reimbursements 1.63%+ 1.79% 1.74%+
Net investment income per share without waivers and/or expense
reimbursements $ 0.12 $ 0.39 $ 0.03
</TABLE>
* Nations Virginia Municipal Bond Fund Investor C Shares commenced operations
on November 3, 1994.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year ended changed to March 31. Prior to this, the fiscal year end
was November 30.
Objectives
NATIONS MUNICIPAL INCOME FUND: The investment objective of Nations Municipal
Income Fund is to seek high current income exempt from Federal income tax with
the potential for principal fluctuation associated with investments in long-term
municipal securities. The Fund invests in investment grade, long-term municipal
securities.
NATIONS SHORT-TERM MUNICIPAL INCOME FUND: The investment objective of Nations
Short-Term Municipal Income Fund is to seek high current income exempt from
Federal income tax consistent with minimal fluctuation of principal. The Fund
invests in investment grade, short-term municipal securities.
NATIONS INTERMEDIATE MUNICIPAL BOND FUND: Nations Intermediate Municipal Bond
Fund's investment objective is to seek high current income exempt from Federal
income tax consistent with moderate fluctuation of principal. The Fund invests
in investment grade, intermediate-term municipal securities.
NATIONS FLORIDA INTERMEDIATE MUNICIPAL BOND FUND: Nations Florida Intermediate
Municipal Bond Fund's investment objective is to seek high current income exempt
from Federal income and the Florida state intangibles taxes consistent with
moderate fluctuation of principal. The Fund invests in investment grade,
intermediate-term municipal securities.
30
<PAGE>
NATIONS FLORIDA MUNICIPAL BOND FUND: Nations Florida Municipal Bond Fund's
investment objective is to seek high current income exempt from Federal income
and the Florida state intangibles taxes with the potential for principal
fluctuation associated with investments in long-term municipal securities. The
Fund invests in investment grade, long-term municipal securities.
NATIONS GEORGIA INTERMEDIATE MUNICIPAL BOND FUND: Nations Georgia Intermediate
Municipal Bond Fund's investment objective is to seek high current income exempt
from Federal and Georgia state income taxes consistent with moderate fluctuation
of principal. The Fund invests in investment grade, intermediate-term municipal
securities.
NATIONS GEORGIA MUNICIPAL BOND FUND: Nations Georgia Municipal Bond Fund's
investment objective is to seek high current income exempt from Federal and
Georgia state income taxes with the potential for principal fluctuation
associated with investments in long-term municipal securities. The Fund invests
in investment grade, long-term municipal securities.
NATIONS MARYLAND INTERMEDIATE MUNICIPAL BOND FUND: Nations Maryland Intermediate
Municipal Bond Fund's investment objective is to seek high current income exempt
from Federal and Maryland state income taxes consistent with moderate
fluctuation of principal. The Fund invests in investment grade, intermediate-
term municipal securities.
NATIONS MARYLAND MUNICIPAL BOND FUND: Nations Maryland Municipal Bond Fund's
investment objective is to seek high current income exempt from Federal and
Maryland state income taxes with the potential for principal fluctuation
associated with investments in long-term municipal securities. The Fund invests
in investment grade, long-term municipal securities.
NATIONS NORTH CAROLINA INTERMEDIATE MUNICIPAL BOND FUND: Nations North Carolina
Intermediate Municipal Bond Fund's investment objective is to seek high current
income exempt from Federal and North Carolina state income taxes consistent with
moderate fluctuation of principal. The Fund invests in investment grade,
intermediate-term municipal securities.
NATIONS NORTH CAROLINA MUNICIPAL BOND FUND: Nations North Carolina Municipal
Bond Fund's investment objective is to seek high current income exempt from
Federal and North Carolina state income taxes with the potential for principal
fluctuation associated with investments in long-term municipal securities. The
Fund invests in investment grade, long-term municipal securities.
NATIONS SOUTH CAROLINA INTERMEDIATE MUNICIPAL BOND FUND: Nations South Carolina
Intermediate Municipal Bond Fund's investment objective is to seek high current
income exempt from Federal and South Carolina state income taxes consistent with
moderate fluctuation of principal. The Fund invests in investment grade,
intermediate-term municipal securities.
NATIONS SOUTH CAROLINA MUNICIPAL BOND FUND: Nations South Carolina Municipal
Bond Fund's investment objective is to seek high current income exempt from
Federal and South Carolina state income taxes with the potential for principal
fluctuation associated with investments in long-term municipal securities. The
Fund invests in investment grade, long-term municipal securities.
NATIONS TENNESSEE INTERMEDIATE MUNICIPAL BOND FUND: Nations Tennessee
Intermediate Municipal Bond Fund's investment objective is to seek high current
income exempt from Federal income tax and the Tennessee Hall Income Tax on
unearned income consistent with moderate fluctuation of principal. The Fund
invests in investment grade, intermediate-term municipal securities.
NATIONS TENNESSEE MUNICIPAL BOND FUND: Nations Tennessee Municipal Bond Fund's
investment objective is to seek high current income exempt from Federal income
tax and the Tennessee Hall Income Tax on unearned income with the potential for
principal fluctuation associated with investments in long-term municipal
securities. The Fund invests in investment grade, long-term municipal
securities.
31
<PAGE>
NATIONS TEXAS INTERMEDIATE MUNICIPAL BOND FUND: Nations Texas Intermediate
Municipal Bond Fund's investment objective is to seek high current income exempt
from Federal income tax consistent with moderate fluctuation of principal. The
Fund invests in investment grade, intermediate-term municipal securities.
NATIONS TEXAS MUNICIPAL BOND FUND: Nations Texas Municipal Bond Fund's
investment objective is to seek high current income exempt from Federal income
tax with the potential for principal fluctuation associated with investments in
long-term municipal securities. The Fund invests in investment grade, long-term
municipal securities.
NATIONS VIRGINIA INTERMEDIATE MUNICIPAL BOND FUND: Nations Virginia Intermediate
Municipal Bond Fund's investment objective is to seek high current income exempt
from Federal and Virginia state income taxes consistent with moderate
fluctuation of principal. The Fund invests in investment grade, intermediate-
term municipal securities.
NATIONS VIRGINIA MUNICIPAL BOND FUND: Nations Virginia Municipal Bond Fund's
investment objective is to seek high current income exempt from Federal and
Virginia state income taxes with the potential for principal fluctuation
associated with investments in long-term municipal securities. The Fund invests
in investment grade, long-term municipal securities.
Nations Florida Intermediate Municipal Bond Fund, Nations Georgia Intermediate
Municipal Bond Fund, Nations Maryland Intermediate Municipal Bond Fund, Nations
North Carolina Intermediate Municipal Bond Fund, Nations South Carolina
Intermediate Municipal Bond Fund, Nations Tennessee Intermediate Municipal Bond
Fund, Nations Texas Intermediate Municipal Bond Fund and Nations Virginia
Intermediate Municipal Bond Fund are sometimes collectively referred to as the
"State Intermediate Municipal Bond Funds," and Nations Florida Municipal Bond
Fund, Nations Georgia Municipal Bond Fund, Nations Maryland Municipal Bond Fund,
Nations North Carolina Municipal Bond Fund, Nations South Carolina Municipal
Bond Fund, Nations Tennessee Municipal Bond Fund, Nations Texas Municipal Bond
Fund and Nations Virginia Municipal Bond Fund are sometimes collectively
referred to as the "State Municipal Bond Funds."
How Objectives Are Pursued
NATIONS SHORT-TERM MUNICIPAL INCOME FUND, NATIONS INTERMEDIATE MUNICIPAL BOND
FUND AND NATIONS MUNICIPAL INCOME FUND: In pursuing their objectives, the Funds
will invest at least 80% of the total value of their assets in investment grade
obligations issued by or on behalf of states, territories, and possessions of
the United States, the District of Columbia, and their political subdivisions,
agencies, instrumentalities, and authorities, the interest on which, in the
opinion of counsel to the issuer or bond counsel, is exempt from Federal income
tax ("Municipal Securities"). To the extent consistent with the Funds'
investment approach described in this Prospectus, the Funds are managed to seek
capital appreciation and minimize capital losses due to interest rate movements.
Under normal market conditions, the average dollar-weighted maturity and
duration of each of the Funds' portfolios are expected to be as follows: Nations
Municipal Income Fund -- average weighted dollar-maturity greater than 10 years
and duration between 7.5 and 9.5 years; Nations Intermediate Municipal Bond
Fund -- average weighted maturity between three and 10 years and duration
between five and six years; Nations Short-Term Municipal Income Fund -- average
weighted dollar-maturity less than three years and duration between 1.25 and
2.75 years.
Municipal Securities will be rated investment grade at the time of purchase by
at least one of the following nationally recognized statistical rating
organizations: Standard & Poor's Corporation ("S&P"), Moody's Investors Service,
Inc.
32
<PAGE>
("Moody's"), Duff & Phelps Credit Rating Co. ("D&P"), Fitch Investors Service,
Inc. ("Fitch"), IBCA Limited or its affiliate IBCA Inc. (collectively "IBCA"),
or Thomson BankWatch, Inc. ("BankWatch") (collectively, "NRSROs") or, if
unrated, determined by the Adviser to be of comparable quality at the time of
purchase to rated obligations that may be acquired by a Fund. Obligations rated
in the lowest of the top four investment grade rating categories (E.G. rated
"BBB" by S&P or "Baa" by Moody's) have speculative characteristics and changes
in economic conditions or other circumstances are more likely to lead to a
weakened capacity to make principal and interest payments than is the case with
higher grade debt obligations. Subsequent to its purchase by a Fund, an issue of
Municipal Securities may cease to be rated, or its rating may be reduced below
the minimum rating required for purchase by a Fund. The Adviser will consider
such an event in determining whether a Fund should continue to hold the
obligation. See "Appendix B" for a description of these rating designations.
During temporary defensive periods, the Funds may invest in short-term taxable
and non-taxable obligations in such proportions as, in the opinion of the
Adviser, prevailing market or economic conditions warrant. Taxable obligations
that may be acquired by a Fund include repurchase agreements and short-term debt
securities. Under normal market conditions, each Fund's investments in taxable
obligations and private activity bonds, the interest on which may be treated as
a specific tax preference item under the Federal alternative minimum tax, will
not exceed 20% of its total assets at the time of purchase. The Funds may hold
uninvested cash reserves pending investment or during defensive periods.
STATE INTERMEDIATE MUNICIPAL BOND FUNDS AND STATE MUNICIPAL BOND FUNDS: Under
normal market conditions, at least 80% of the total value of the assets of the
State Intermediate Municipal Bond Funds and the State Municipal Bond Funds will
be invested in Municipal Securities, and substantially all of each Fund's assets
will be invested in debt instruments, issued by or on behalf of the pertinent
state and its political subdivisions, agencies, instrumentalities and
authorities.
Under normal market conditions, the average dollar-weighted maturity and
duration of each of the State Intermediate Municipal Bond Funds and State
Municipal Bond Funds are expected to be as follows: State Intermediate Municipal
Bond Funds -- average dollar-weighted maturity between three and 10 years and
duration between five and six years; State Municipal Bond Funds -- average
dollar-weighted maturity greater than 10 years and duration greater than 10
years.
Each of the State Intermediate Municipal Bond Funds and the State Municipal Bond
Funds operates as a non-diversified fund (except to the extent diversification
is required for Federal income tax purposes).
Dividends paid by each of these Funds which are derived from interest
attributable to tax-exempt obligations of the pertinent state and that state's
political subdivisions, agencies, instrumentalities and authorities, as well as
certain other governmental issuers such as Puerto Rico, will be exempt from
regular Federal income tax and (with the exception of Texas and Florida) the
income tax of the pertinent state. Texas and Florida do not impose a state
income tax; however, Florida imposes a state intangibles tax. Dividends derived
from interest on obligations of other governmental issuers will be exempt from
regular Federal income tax, but generally will be subject to state income tax
(with the exception of Texas and Florida). (See "How Dividends And Distributions
Are Made; Tax Information.") During normal market conditions and as a matter of
fundamental investment policy, each of these Funds will invest at least 80% of
its total assets in obligations the interest on which will be exempt from
regular Federal income tax and (with the exception of Texas and Florida) the
income tax of the pertinent state.
Municipal Securities acquired by the Funds will be rated investment grade at the
time of purchase by at least one NRSRO or, if unrated, determined by the Adviser
to be of comparable quality at the time of purchase to rated obligations that
may be acquired by the Funds. Obliga-
33
<PAGE>
tions rated in the lowest of the top four investment grade rating categories
(E.G. rated "BBB" by S&P or "Baa" by Moody's) have speculative characteristics,
and changes in economic conditions or other circumstances are more likely to
lead to a weakened capacity to make principal and interest payments than is the
case with higher grade debt obligations. Subsequent to its purchase by a Fund,
an issue of Municipal Securities may cease to be rated, or its rating may be
reduced below the minimum rating required for purchase by a Fund. The Adviser
will consider such an event in determining whether a Fund should continue to
hold the obligation. See "Appendix B" below for a description of these rating
designations.
During temporary defensive periods, the Funds may invest in short-term taxable
and non-taxable obligations in such proportions as, in the opinion of the
Adviser, prevailing market or economic conditions warrant. Taxable obligations
that may be acquired by the Funds include repurchase agreements and short-term
debt securities. Under normal market conditions, each Fund's investments in
taxable obligations and private activity bonds, the interest on which may be
treated as a specific tax preference item under the Federal alternative minimum
tax, will not exceed 20% of its total assets at the time of purchase.
GENERAL: Each Fund may invest in certain specified derivative securities,
including: interest rate swaps, caps and floors for hedging purposes;
exchange-traded options; over-the-counter options executed with primary dealers,
including long calls and puts and covered calls to enhance return; and U.S. and
foreign exchange-traded financial futures and options thereon approved by the
Commodity Futures Trading Commission ("CFTC") for market exposure
risk-management. Each Fund also may lend its portfolio securities to qualified
institutional investors and may invest in restricted, private placement and
other illiquid securities. Additionally, each Fund may purchase securities
issued by other investment companies, consistent with the Fund's investment
objective and policies. The Funds may invest in instruments issued by 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.
Certain government securities that have variable or floating interest rates or
demand, put or prepayment features or paydown schedules may be deemed to have
remaining maturities shorter than their nominal maturities for purposes of
determining the average weighted maturity and duration of the Funds.
For more information concerning these and other investments in which the Funds
may invest and the Funds' investment practices, see "Appendix A."
PORTFOLIO TURNOVER: Generally, the Funds will purchase portfolio securities for
capital appreciation or investment income, or both, and not for short-term
trading profits. If a Fund's annual portfolio turnover rate exceeds 100%, it may
result in higher brokerage costs and possible tax consequences for the Fund and
its shareholders. For the Funds' portfolio turnover rates, see "Financial
Highlights."
RISK CONSIDERATIONS: Although the Adviser will seek to achieve the investment
objective of each Fund, there is no assurance that it will be able to do so. No
single Fund should be considered, by itself, to provide a complete investment
program for any investor. Investments in a Fund are not insured against loss of
principal.
The value of a Fund's investments in debt securities, including U.S. Government
obligations, will tend to decrease when interest rates rise and increase when
interest rates fall. In general, longer-term debt instruments tend to fluctuate
in value more than shorter-term debt instruments in response to interest rate
movements. In addition, debt securities that are not backed by the United States
Government are subject to credit risk, which is the risk that the issuer may not
be able to pay principal and/or interest when due. Since each of the State
Intermediate Municipal Bond Funds and State Municipal Bond Funds invests
primarily in securities issued by entities located in a single state, such Funds
are more susceptible to changes in value due to polit-
34
<PAGE>
ical or economic changes affecting that state or its subdivisions.
Certain of the Funds' investments constitute derivative securities, which are
securities whose value is derived, at least in part, from an underlying index or
reference rate. There are certain types of derivative securities that can, under
certain circumstances, significantly increase a purchaser's exposure to market
or other risks. The Funds' investment adviser, however, only purchases
derivative securities in circumstances where it believes such purchases are
consistent with the Fund's investment objective and do not unduly increase the
Fund's exposure to market or other risks. For additional risk information
regarding the Funds' investments in particular instruments, see "Appendix
A -- Portfolio Securities."
INVESTMENT LIMITATIONS: Each Fund is subject to a number of investment
limitations. The following investment limitations are matters of fundamental
policy and may not be changed without the affirmative vote of the holders of a
majority of a Fund's outstanding shares. Other investment limitations that
cannot be changed without such a vote of shareholders are described in the SAI.
Each Fund may not:
1. Purchase any securities which would cause 25% or more of the value of the
Fund's total assets at the time of such purchase to be invested in the
securities of one or more issuers conducting their principal activities in the
same industry. (For purposes of this limitation, U.S. Government securities and
tax-exempt securities issued by state or municipal governments and their
political subdivisions are not considered members of any industry.)
2. Make loans, except that a Fund may purchase and hold debt instruments
(whether such instruments are part of a public offering or privately placed),
may enter into repurchase agreements and may lend portfolio securities in
accordance with its investment policies.
Nations Short-Term Municipal Income Fund, Nations Intermediate Municipal Bond
Fund and Nations Municipal Income Fund may not:
Purchase securities of any one issuer (other than securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities) if,
immediately after such purchase, more than 5% of the value of such Fund's
total assets would be invested in the securities of such issuer, except
that up to 25% of the value of the Fund's total assets may be invested
without regard to these limitations and with respect to 75% of such Fund's
assets, such Fund will not hold more than 10% of the voting securities of
any issuer.
The State Intermediate Municipal Bond Funds and the State Municipal Bond Funds
may not:
Purchase securities of any one issuer (other than securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities) if,
immediately after such purchase, more than 25% of the value of a Fund's
total assets would be invested in the securities of one issuer, and with
respect to 50% of such Fund's total assets, more than 5% of its assets
would be invested in the securities of one issuer.
As a matter of fundamental policy, except during defensive periods, the State
Intermediate Municipal Bond Funds and the State Municipal Bond Funds will invest
at least 80% of their respective total net assets in Municipal Securities the
interest on which is exempt from Federal income tax and the pertinent state's
income taxes (with the exception of Texas and Florida). Similarly, as a matter
of fundamental policy, except during defensive periods, Nations Short-Term
Municipal Income Fund, Nations Intermediate Municipal Bond Fund and Nations
Municipal Income Fund will invest at least 80% of their respective total net
assets in Municipal Securities the interest on which is exempt from Federal
income tax. For purposes of these fundamental policies, private activity bonds
are included in the term "Municipal Securities" only if the interest paid
thereon is exempt from Federal income tax and not treated as a specific tax
preference item under the Federal alternative minimum tax.
The investment objective and policies of each Fund, unless otherwise specified,
may be
35
<PAGE>
changed without a vote of the Fund's shareholders. If the investment objective
or policies of a Fund change, shareholders should consider whether the Fund
remains an appropriate investment in light of their then current positions and
needs.
In order to register a Fund's shares for sale in certain states, a Fund may make
commitments more restrictive than the investment policies and limitations
described in this Prospectus and the SAI. Should a Fund determine that any such
commitment is no longer in the best interest of the Fund, it may consider
terminating sales of its shares in the states involved.
How Performance Is Shown
From time to time a Fund may advertise the total return, yield and
tax-equivalent yield on a class of shares. TOTAL RETURN, YIELD AND TAX-
EQUIVALENT YIELD FIGURES ARE BASED ON HISTORICAL DATA AND ARE NOT INTENDED TO
INDICATE FUTURE PERFORMANCE. The "total return" of a class of shares of a Fund
may be calculated on an average annual total return basis or an aggregate total
return basis. Average annual total return refers to the average annual
compounded rates of return on a class of shares over one-, five-, and ten-year
periods or the life of a Fund (as stated in the advertisement) that would equate
an initial amount invested at the beginning of a stated period to the ending
redeemable value of the investment (reflecting the deduction of any applicable
contingent deferred sales charge ("CDSC")), assuming the reinvestment of all
dividend and capital gain distributions. Aggregate total return reflects the
total percentage change in the value of the investment over the measuring
period, again assuming the reinvestment of all dividends and capital gain
distributions. Total return may also be presented for other periods or may not
reflect a deduction of the CDSC.
"Yield" is calculated by dividing the annualized net investment income per share
during a recent 30-day (or one month) period of a class of shares of a Fund by
the maximum public offering price per share on the last day of that period. The
yield on a class of shares does not reflect deduction of any applicable CDSC.
The "tax-equivalent yield" of a class of shares of a Fund also may be quoted
from time to time, which shows the level of taxable yield needed to produce an
after-tax equivalent to the particular class's tax-free yield. This is done by
increasing such class's yield (calculated as above) by the amount necessary to
reflect the payment of Federal income tax at a stated tax rate.
Investment performance, which will vary, is based on many factors, including
market conditions, the composition of the Fund's portfolio and the Fund's
operating expenses. Investment performance also often reflects the risks
associated with a Fund's investment objective and policies. These factors should
be considered when comparing a Fund's investment results to those of other
mutual funds and other investment vehicles. Since yields fluctuate, yield data
cannot necessarily be used to compare an investment in the Funds with bank
deposits, savings accounts, and similar investment alternatives which often
provide an agreed-upon or guaranteed fixed yield for a stated period of time.
In addition to Investor C Shares, the Funds offer Primary A, Primary B, Investor
A and Investor N Shares. Each Class of shares may bear different sales charges,
shareholder servicing fees, loads and other expenses, which may cause the
performance of a class to differ from the performance of the other classes.
Total return and yield quotations will be computed separately for each class of
the Funds' shares. Any quotation of total return or yield not reflecting CDSCs
would be reduced if such charges were reflected. Any fees charged by a selling
agent and/or servicing agent directly to its customers' accounts in connection
with investments in the Funds will not be included in calculations of total
return or yield. The Funds' annual report contains additional performance
information and is available upon request without charge from the Funds'
distributor or an investor's selling agent.
36
<PAGE>
How The Funds Are Managed
The business and affairs of Nations Fund Trust are managed under the direction
of its Trustees. The SAI contains the names of and general background
information concerning the Trustees of Nations Fund Trust.
Nations Fund and the Adviser have adopted codes of ethics which contain policies
on personal securities transactions by "access persons," including portfolio
managers and investment analysts. These policies substantially comply in all
material respects with the recommendations set forth in the May 9, 1994 Report
of the Advisory Group on Personal Investing of the Investment Company Institute.
INVESTMENT ADVISER: NationsBanc Advisors, Inc. serves as investment adviser to
the Funds. NBAI is a wholly owned subsidiary of NationsBank, which in turn is a
wholly owned banking subsidiary of NationsBank Corporation, a bank holding
company organized as a North Carolina corporation. NBAI has its principal
offices at One NationsBank Plaza, Charlotte, North Carolina 28255.
TradeStreet Investment Associates, Inc., with principal offices at One
NationsBank Plaza Charlotte, North Carolina 28255, serves as sub-investment
adviser to the Funds. TradeStreet is a wholly owned subsidiary of NationsBank.
TradeStreet provides investment management services to individuals, corporations
and institutions.
Subject to the general supervision of the Trustees of Nations Fund Trust, and in
accordance with each Fund's investment policies, the Adviser formulates
guidelines and lists of approved investments for each Fund, makes decisions with
respect to and places orders for each Fund's purchases and sales of portfolio
securities and maintains records relating to such purchases and sales. The
Adviser is authorized to allocate purchase and sale orders for portfolio
securities to certain financial institutions, including, in the case of agency
transactions, financial institutions which are affiliated with the Adviser or
which have sold shares in the Funds, if the Adviser believes that the quality of
the transaction and the commission are comparable to what they would be with
other qualified brokerage firms. From time to time, to the extent consistent
with their investment objectives, policies and restrictions, the Funds may
invest in securities of companies with which NationsBank has a lending
relationship. For the services provided and expenses assumed pursuant to an
Investment Advisory Agreement, NBAI is entitled to receive advisory fees,
computed daily and paid monthly, at the annual rates of: 0.50% of the average
daily net assets of each of Nations Short-Term Municipal Income Fund, Nations
Intermediate Municipal Bond Fund and the State Intermediate Municipal Bond
Funds; and 0.60% of the average daily net assets of each of Nations Municipal
Income Fund and the State Municipal Bond Funds.
For the services provided and the expenses assumed pursuant to a sub-advisory
agreement, NBAI will pay TradeStreet sub-advisory fees, computed daily and paid
monthly, at the annual rates of 0.07% of the average daily net assets of each
Fund.
From time to time, NBAI (and/or TradeStreet) may waive or reimburse (either
voluntarily or pursuant to applicable state limitations) advisory fees and/or
expenses payable by a Fund.
For the fiscal period from December 1, 1995 to December 31, 1995, after waivers,
Nations Fund Trust paid NationsBank under a prior Investment Advisory Agreement
advisory fees at the indicated rates of the following Funds' average daily net
assets: Nations Municipal Income Fund -- 0.30%; Nations Short-Term Municipal
Income Fund -- 0.06%; Nations Intermediate Municipal Bond Fund -- 0.17%; Nations
Florida Intermediate Municipal Bond Fund -- 0.14%; Nations Florida Municipal
Bond Fund -- 0.26%; Nations Georgia Intermediate Municipal Bond Fund -- 0.17%;
Nations Georgia Municipal Bond Fund -- 0.10%; Nations Maryland Intermediate
Municipal Bond Fund -- 0.20%; Nations Mary-
37
<PAGE>
land Municipal Bond Fund -- 0.12%; Nations North Carolina Intermediate Municipal
Bond Fund -- 0.13%; Nations North Carolina Municipal Bond Fund -- 0.23%; Nations
South Carolina Intermediate Municipal Bond Fund -- 0.18%; Nations South Carolina
Municipal Bond Fund -- 0.10%; Nations Tennessee Intermediate Municipal Bond
Fund -- 0.07%; Nations Tennessee Municipal Bond Fund -- 0.02%; Nations Texas
Intermediate Municipal Bond Fund -- 0.11%; Nations Texas Municipal Bond
Fund -- 0.12%; Nations Virginia Intermediate Municipal Bond Fund -- 0.24%; and
Nations Virginia Municipal Bond Fund -- 0.16%.
For the fiscal period from January 1, 1996 to March 31, 1996, after waivers,
Nations Fund Trust paid NBAI under the current Investment Advisory Agreement
advisory fees at the indicated rates of the following Funds' average daily net
assets: Nations Municipal Income Fund -- 0.30%; Nations Short-Term Municipal
Income Fund -- 0.06%; Nations Intermediate Municipal Bond Fund -- 0.17%; Nations
Florida Intermediate Municipal Bond Fund -- 0.14%; Nations Florida Municipal
Bond Fund -- 0.26%; Nations Georgia Intermediate Municipal Bond Fund -- 0.17%;
Nations Georgia Municipal Bond Fund -- 0.10%; Nations Maryland Intermediate
Municipal Bond Fund -- 0.20%; Nations Maryland Municipal Bond Fund -- 0.12%;
Nations North Carolina Intermediate Municipal Bond Fund -- 0.13%; Nations North
Carolina Municipal Bond Fund -- 0.23%; Nations South Carolina Intermediate
Municipal Bond Fund -- 0.18%; Nations South Carolina Municipal Bond
Fund -- 0.10%; Nations Tennessee Intermediate Municipal Bond Fund -- 0.07%;
Nations Tennessee Municipal Bond Fund -- 0.02%; Nations Texas Intermediate
Municipal Bond Fund -- 0.11%; Nations Texas Municipal Bond Fund -- 0.12%;
Nations Virginia Intermediate Municipal Bond Fund -- 0.24%; and Nations Virginia
Municipal Bond Fund -- 0.16%.
For the fiscal period from January 1, 1996 to March 31, 1996, after waivers,
NBAI paid TradeStreet under the current Sub-Advisory Agreement sub-advisory fees
at the rate of 0.07% of the following Funds' average daily net assets: Nations
Municipal Income Fund, Nations Short-Term Municipal Income Fund, Nations
Intermediate Municipal Bond Fund, Nations Florida Intermediate Municipal Bond
Fund, Nations Florida Municipal Bond Fund, Nations Georgia Intermediate
Municipal Bond Fund, Nations Georgia Municipal Bond Fund, Nations Maryland
Intermediate Municipal Bond Fund, Nations Maryland Municipal Bond Fund, Nations
North Carolina Intermediate Municipal Bond Fund, Nations North Carolina
Municipal Bond Fund, Nations South Carolina Intermediate Municipal Bond Fund,
Nations South Carolina Municipal Bond Fund, Nations Tennessee Intermediate
Municipal Bond Fund, Nations Tennessee Municipal Bond Fund, Nations Texas
Intermediate Municipal Bond Fund, Nations Texas Municipal Bond Fund, Nations
Virginia Intermediate Municipal Bond Fund and Nations Virginia Municipal Bond
Fund.
Michele M. Poirier is a Senior Product Manager, Municipal Fixed Income
Management for TradeStreet and Senior Portfolio Manager for Nations Municipal
Income Fund, Nations Florida Intermediate Municipal Bond Fund, Nations Florida
Municipal Bond Fund, Nations Georgia Intermediate Municipal Bond Fund, Nations
Georgia Municipal Bond Fund, Nations South Carolina Intermediate Municipal Bond
Fund and Nations South Carolina Municipal Bond Fund. Ms. Poirier has been the
Portfolio Manager for Nations Municipal Income Fund, Nations Florida
Intermediate Municipal Bond Fund, Nations Georgia Intermediate Municipal Bond
Fund, and South Carolina Intermediate Municipal Bond Fund since 1992. She has
been Portfolio Manager for the other Funds since 1993. Prior to assuming her
position with TradeStreet, she was Senior Vice President and Senior Portfolio
Manager for the Investment Management Group at NationsBank. She has worked in
the investment community since 1974. Her past experience includes serving as
Director of Trading, Institutional Sales, and Municipal Trader for Financial
Service Corporation, Bankers Trust Company and The Robinson-Humphrey Company,
respectively. Ms. Poirier received a B.B.A. in Marketing from Georgia State
University.
38
<PAGE>
Mathew M. Kiselak is a Product Manager, Municipal Fixed Income Management for
TradeStreet and Portfolio Manager for Nations Short-Term Municipal Income Fund,
Nations North Carolina Intermediate Municipal Bond Fund, Nations North Carolina
Municipal Bond Fund, Nations Tennessee Intermediate Municipal Bond Fund, Nations
Tennessee Municipal Bond Fund, Nations Texas Intermediate Municipal Bond Fund
and Nations Texas Municipal Bond Fund. Mr. Kiselak has been the Portfolio
Manager for Nations North Carolina Intermediate Municipal Bond Fund and Nations
North Carolina Municipal Bond Fund since 1995. He has been Portfolio Manager for
the other Funds since 1994. Prior to assuming his position with TradeStreet, he
was Vice President and Portfolio Manager for the Investment Management Group at
NationsBank. He has worked in the investment community since 1987. His past
experience includes Portfolio Manager and Municipal Credit Analysis for Reich &
Tang Inc. Mr. Kiselak received a B.A. in Economics from Pace University.
John C. Kohl is a Director of Municipal Fixed Income Management for TradeStreet
and Managing Director of the Municipal Product Management Group. He is
responsible for overseeing all municipal product management and is the Senior
Portfolio Manager for Nations Intermediate Municipal Bond Fund, Nations Maryland
Intermediate Municipal Bond Fund, Nations Maryland Municipal Bond Fund, Nations
Virginia Intermediate Municipal Bond Fund and Nations Virginia Municipal Bond
Fund. Mr. Kohl has been the Portfolio Manager for the Funds since 1994. Prior to
assuming his position with TradeStreet, he was Senior Vice President and Senior
Portfolio Manager for the Investment Management Group at NationsBank. Mr. Kohl
has worked in the investment community since 1979. His past experience includes
serving as Chief Investment Officer for London Pacific Life & Annuity, Team
Leader and Portfolio Manager for Harris Trust and Savings Bank, and Management
Consultant for asset-liability of Continental Bank. Mr. Kohl received a joint
B.A. in Economics and North American Studies from McGill University.
Morrison & Foerster LLP, counsel to Nations Fund and special counsel to
NationsBank, has advised Nations Fund and NationsBank that NationsBank and its
affiliates may perform the services contemplated by the Investment Advisory
Agreement and this Prospectus without violation of the Glass-Steagall Act. Such
counsel has pointed out, however, that there are no controlling judicial or
administrative interpretations or decisions and that future judicial or
administrative interpretations of, or decisions relating to, present federal or
state statutes, including the Glass-Steagall Act, and regulations relating to
the permissible activities of banks and their subsidiaries or affiliates, as
well as future changes in such statutes, regulations and judicial or
administrative decisions or interpretations, could prevent such entities from
continuing to perform, in whole or in part, such services. If any such entity
were prohibited from performing any such services, it is expected that new
agreements would be proposed or entered into with another entity or entities
qualified to perform such services.
OTHER SERVICE PROVIDERS: Stephens Inc. ("Stephens"), with principal offices at
111 Center Street, Little Rock, Arkansas 72201, serves as the administrator of
the Funds pursuant to an Administration Agreement. Pursuant to the terms of the
Administration Agreement, Stephens provides various administrative and corporate
secretarial services to the Funds, including providing general oversight of
other service providers, office space, utilities and various legal and
administrative services in connection with the satisfaction of various
regulatory requirements applicable to the Funds.
First Data Investor Services Group, Inc. ("First Data"), formerly The
Shareholder Services Group, Inc., a wholly owned subsidiary of First Data
Corporation, with principal offices at One Exchange Place, Boston, Massachusetts
02109, serves as the co-administrator of the Funds pursuant to a
Co-Administration Agreement. Under the Co-Administration Agreement, First Data
provides various administrative and accounting services to the Funds, including
performing calculations necessary to determine net asset values and dividends,
preparing tax returns and
39
<PAGE>
financial statements and maintaining the portfolio records and certain general
accounting records for the Funds. For the services rendered pursuant to the
Administration and Co-Administration Agreements, Stephens and First Data are
entitled to receive a combined fee at the annual rate of up to 0.10% of each
Fund's average daily net assets.
For the fiscal period from December 1, 1995 to March 31, 1996, after waivers,
Nations Fund Trust paid its administrators combined fees at the rate of 0.10% of
each Fund's average daily net assets.
NationsBank serves as sub-administrator for Nations Fund pursuant to a
Sub-Administration Agreement. Pursuant to the terms of the Sub-Administration
Agreement, NationsBank assists Stephens in supervising, coordinating and
monitoring various aspects of the Funds' administrative operations. For
providing such services, NationsBank shall be entitled to receive a monthly fee
from Stephens based on an annual rate of .01% of the Funds' average daily net
assets.
Shares of the Funds are sold on a continuous basis by Stephens, as the Funds'
sponsor and distributor. Stephens is a registered broker/ dealer with principal
offices at 111 Center Street, Little Rock, Arkansas 72201. Nations Fund has
entered into a distribution agreement with Stephens which provides that Stephens
has the exclusive right to distribute shares of the Funds. Stephens may pay
service fees or commissions to selling agents that assist customers in
purchasing Investor C Shares of the Funds. See "Shareholder Servicing And
Distribution Plans."
NationsBank of Texas, N.A. (the "Custodian") serves as custodian for the assets
of each Fund. The Custodian is located at 1401 Elm Street, Dallas, Texas 75202
and is a wholly owned subsidiary of NationsBank Corporation. In return for
providing custodial services, the Custodian is entitled to receive, in addition
to out-of-pocket expenses, fees payable monthly (i) at the rate of 1.25% of 1%
of the average daily net assets of each Fund, (ii) $10.00 per repurchase
collateral transaction by the Funds, and (iii) $15.00 per purchase, sale and
maturity transaction involving the Funds.
First Data serves as transfer agent (the "Transfer Agent") for the Funds'
Investor C Shares. The Transfer Agent is located at One Exchange Place, Boston,
Massachusetts 02109.
Price Waterhouse LLP serves as independent accountant to Nations Fund. Its
address is 160 Federal Street, Boston, Massachusetts 02110.
EXPENSES: The accrued expenses of each Fund, as well as certain expenses
attributable to Investor C Shares, are deducted from accrued income before
dividends are declared. Each Fund's expenses include, but are not limited to:
fees paid to the Adviser, NationsBank, Stephens and First Data; interest;
trustees' fees and federal and state securities registration and qualification
fees; brokerage fees and commissions; costs of preparing and printing
prospectuses for regulatory purposes and for distribution to existing
shareholders; charges of the Custodian and Transfer Agent; certain insurance
premiums; outside auditing and legal expenses; costs of shareholder reports and
shareholder meetings; other expenses which are not expressly assumed by the
Adviser, NationsBank, Stephens or First Data under their respective agreements
with Nations Fund; and any extraordinary expenses. Investor C Shares may bear
certain class specific retail transfer agency expenses and also bear certain
additional shareholder service and/or sales support costs. Any general expenses
of Nations Fund Trust that are not readily identifiable as belonging to a
particular investment portfolio are allocated among all portfolios in the
proportion that the assets of a portfolio bear to the assets of Nations Fund
Trust or in such other manner as the Board of Trustees deems appropriate.
40
<PAGE>
Organization And History
The Funds are members of the Nations Fund Family, which consists of Nations Fund
Trust, Nations Fund, Inc., Nations Fund Portfolios, Inc. and Nations
Institutional Reserves. The Nations Fund Family currently has more than 43
distinct investment portfolios and total assets in excess of $18 billion.
Nations Fund Trust was organized as a Massachusetts business trust on May 6,
1985. Nations Fund Trust's fiscal year end is March 31; prior to 1996, Nations
Fund Trust's fiscal year end was November 30. The Funds currently offer five
classes of shares -- Primary A Shares, Primary B Shares, Investor A Shares,
Investor C Shares and Investor N Shares. This Prospectus relates only to the
Investor C Shares of Nations Municipal Income Fund, Nations Short-Term Municipal
Income Fund, Nations Intermediate Municipal Bond Fund, Nations Florida
Intermediate Municipal Bond Fund, Nations Florida Municipal Bond Fund, Nations
Georgia Intermediate Municipal Bond Fund, Nations Georgia Municipal Bond Fund,
Nations Maryland Intermediate Municipal Bond Fund, Nations Maryland Municipal
Bond Fund, Nations North Carolina Intermediate Municipal Bond Fund, Nations
North Carolina Municipal Bond Fund, Nations South Carolina Intermediate
Municipal Bond Fund, Nations South Carolina Municipal Bond Fund, Nations
Tennessee Intermediate Municipal Bond Fund, Nations Tennessee Municipal Bond
Fund, Nations Texas Intermediate Municipal Bond Fund, Nations Texas Municipal
Bond Fund, Nations Virginia Intermediate Municipal Bond Fund and Nations
Virginia Municipal Bond Fund. To obtain additional information regarding the
Funds' other classes of shares which may be available to you, contact your
Selling Agent (as defined below) or Nations Fund at 1-800-321-7854.
Each share of Nations Fund Trust is without par value, represents an equal
proportionate interest in the related fund with other shares of the same class,
and is entitled to such dividends and distributions out of the income earned on
the assets belonging to such fund as are declared in the discretion of Nations
Fund Trust's Board of Trustees. Nations Fund Trust's Declaration of Trust
authorizes the Board of Trustees to classify or reclassify any class of shares
into one or more series of shares.
Shareholders are entitled to one vote for each full share held and a
proportionate fractional vote for each fractional share held. Shareholders of
each fund of Nations Fund Trust will vote in the aggregate and not by fund and
shareholders of each fund will vote in the aggregate and not by class except as
otherwise expressly required by law or when the Board of Trustees determines
that the matter to be voted on affects only the interests of shareholders of a
particular fund or class of shares. See the SAI for examples of instances where
the Investment Company Act of 1940 (the "1940 Act") requires voting by fund.
As of July 15, 1996, NationsBank and its affiliates possessed or shared power to
dispose or vote with respect to more than 25% of the outstanding shares of
Nations Fund Trust and therefore could be considered to be a controlling person
of Nations Fund Trust for purposes of the 1940 Act. For more detailed
information concerning the percentage of each class or series of shares over
which NationsBank and its affiliates possessed or shared power to dispose or
vote as of a certain date, see the SAI.
Nations Fund Trust does not presently intend to hold annual meetings except as
required by the 1940 Act. Shareholders will have the right to remove Trustees.
Nations Fund Trust's Code of Regulations provides that special meetings of
shareholders shall be called at the written request of the shareholders entitled
to vote at least 10% of the outstanding shares of Nations Fund Trust entitled to
be voted at such meeting.
41
<PAGE>
About Your Investment
How To Buy Shares
The Funds have established various procedures for purchasing Investor C Shares
in order to accommodate different investors. Purchase orders for Investor C
Shares may be placed through banks, broker/dealers or other financial
institutions (including certain affiliates of NationsBank) that have entered
into a 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. The minimum subsequent
investment is $100, except for investments pursuant to the Systematic Investment
Plan described below.
Investor C Shares may be purchased at net asset value per share. Purchases may
be effected on days on which the New York Stock Exchange (the "Exchange") is
open for business (a "Business Day").
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 Investor C Shares. Servicing Agents and Selling
Agents are sometimes referred to hereafter as "Agents." From time to time the
Agents, Stephens and Nations Fund may agree to voluntarily reduce the maximum
fees payable for sales support or shareholder services.
Nations Fund and Stephens reserve the right to reject any purchase order. The
issuance of Investor C Shares is recorded on the books of the Funds and share
certificates are not issued unless expressly requested in writing. Certificates
are not issued for fractional shares.
EFFECTIVE TIME OF PURCHASES: Purchase orders for Investor C Shares of the Funds
which are received by Stephens or by the Transfer Agent before the close of
regular trading hours on the Exchange (currently 4:00 p.m., Eastern time) on any
Business Day are priced according to the net asset value determined on that day
but are not executed until 4:00 p.m., Eastern time, on the Business Day on which
immediately available funds in payment of the purchase price are received by the
Funds' Custodian. Such payment must be received no later than 4:00 p.m., Eastern
time, by the third Business Day following receipt of the order. If funds are not
received by such date, the order will not be accepted and notice thereof will be
given to the Agent placing the order. Payment for orders which are not received
or accepted will be returned after prompt inquiry to the sending Agent.
The Agents are responsible for transmitting orders for purchases of Investor C
Shares by their Customers, and delivering required funds, on a timely basis.
Stephens is responsible for transmitting orders it receives to Nations Fund.
SYSTEMATIC INVESTMENT PLAN: Under the Funds' Systematic Investment Plan ("SIP")
a shareholder may automatically purchase Investor C Shares. On a bi-monthly,
monthly or quarterly basis, shareholders may direct cash to be transferred
automatically from their checking or savings account at any bank to their Fund
account. Transfers will occur on or about the 15th and/or 30th day of the
applicable month. The systematic investment amount may be in any amount from $25
to $100,000. For more information concerning the SIP, contact your Agent.
TELEPHONE TRANSACTIONS: Investors may effect purchases, redemptions (up to
$50,000) and exchanges by telephone. See "How to Redeem Shares" and "How To
Exchange Shares" below. If a shareholder desires to elect the telephone
transaction feature after opening an account, a signature guarantee will be
required. Shareholders should be aware that by using the telephone transaction
feature, such shareholders may be giving up a measure of security that they may
have if they were to authorize written requests
42
<PAGE>
only. A shareholder may bear the risk of any resulting losses from a telephone
transaction. Nations Fund will employ reasonable procedures to confirm that
instructions communicated by telephone are genuine, and if Nations Fund and its
service providers fail to employ such measures, they may be liable for any
losses due to unauthorized or fraudulent instructions. Nations Fund requires a
form of personal identification prior to acting upon instructions received by
telephone and provides written confirmation to shareholders of each telephone
share transaction. In addition, Nations Fund reserves the right to record all
telephone conversations.
How To Redeem Shares
Redemption orders should be transmitted by telephone or in writing through the
same Agent that transmitted the original purchase order. Redemption orders are
effected at the net asset value per share next determined after receipt of the
order by Stephens or by the Transfer Agent, less any applicable CDSC. The Agents
are responsible for transmitting redemption orders to Stephens or to the
Transfer Agent and for crediting their Customers' accounts with the redemption
proceeds on a timely basis. No charge for wiring redemption payments is imposed
by Nations Fund. Except for any CDSC which may be applicable upon redemption of
Investor C Shares, as described below, there is no redemption charge.
Redemption proceeds are normally wired to the redeeming Agent within three
Business Days after receipt of the order by Stephens or by the Transfer Agent.
However, redemption proceeds for shares purchased by check may not be remitted
until at least 15 days after the date of purchase to ensure that the check has
cleared; a certified check, however, is deemed to be cleared immediately.
Nations Fund may redeem a shareholder's Investor C Shares upon 60 days' written
notice if the balance in the shareholder's account drops below $500 as a result
of redemptions. Share balances also may be redeemed at the direction of an Agent
pursuant to arrangements between the Agent and its Customers. Nations Fund also
may redeem shares of a Fund involuntarily or make payment for redemption in
readily marketable securities or other property under certain circumstances in
accordance with the 1940 Act.
Prior to effecting a redemption of Investor C Shares represented by
certificates, the Transfer Agent must have received such certificates at its
principal office. All such certificates must be endorsed by the redeeming
shareholder or accompanied by a signed stock power, in each instance with the
signature guaranteed by a commercial bank or a member of a major stock exchange,
unless other arrangements satisfactory to Nations Fund have previously been
made. Nations Fund may require any additional information reasonably necessary
to evidence that a redemption has been duly authorized.
CONTINGENT DEFERRED SALES CHARGE: Subject to certain waivers, Investor C Shares
of each Fund that are redeemed within one year of the date of purchase may be
subject to a CDSC equal to 0.50% of the lesser of the net asset value or the
purchase price of the shares being redeemed. Investor C Shares purchased prior
to January 1, 1996 remain subject to the 1.00% CDSC (except Nations Short-Term
Municipal Income Fund). No CDSC is imposed on increases in net asset value above
the initial purchase price, including shares acquired by reinvestment of
distributions.
Solely for purposes of determining the period of time that has elapsed from the
purchase of any Investor C Shares, all purchases are deemed to have been made on
the trade date of the transaction. In determining whether a CDSC is applicable
to a redemption, the calculation will be made in the manner that results in the
lowest possible charge being assessed. In this regard, it will be assumed that
the redemption is first of shares held for the longest period of time or shares
acquired pursuant to reinvestment of dividends
43
<PAGE>
or distributions. The charge will not be applied to dollar amounts representing
an increase in the net asset value since the time of purchase.
The CDSC will be waived on redemptions of Investor C Shares (i) following the
death or disability (as defined in the Internal Revenue Code of 1986, as amended
(the "Code") of a shareholder (including a registered joint owner), (ii)
effected pursuant to Nations Fund's right to liquidate a shareholder's account,
including instances where the aggregate net asset value of the Investor C Shares
held in the account is less than the minimum account size, and (iii) effected
pursuant to the Automatic Withdrawal Plan discussed below, provided that such
redemptions do not exceed, on an annual basis, 12% of the net asset value of the
Investor C Shares in the account. Shareholders are responsible for providing
evidence sufficient to establish that they are eligible for any waiver of the
CDSC. Nations Fund may terminate any waiver of the CDSC by providing notice in
the Prospectus, but any such termination would affect only shares purchased
after such termination.
Within 120 days after a redemption of Investor C Shares of a Fund, a shareholder
may reinvest any portion of the proceeds of such redemption in Investor C Shares
of the same Fund. The amount which may be so reinvested is limited to an amount
up to, but not exceeding, the redemption proceeds (or to the nearest full share
if fractional shares are not purchased). A shareholder exercising this privilege
would receive a pro rata credit for any CDSC paid in connection with the prior
redemption. A shareholder may not exercise this privilege with the proceeds of a
redemption of shares previously purchased through the reinvestment privilege. In
order to exercise this privilege, a written order for the purchase of Investor C
Shares must be received by the Transfer Agent or by Stephens within 120 days
after the redemption.
AUTOMATIC WITHDRAWAL PLAN: An Automatic Withdrawal Plan ("AWP") may be
established by an existing shareholder of the Funds if the value of the Investor
C Shares in his/her accounts within the Nations Fund Family (valued at the net
asset value at the time of the establishment of the AWP) equals $10,000 or more.
Investor C Shares redeemed under the AWP will not be subject to a CDSC, provided
that the shares so redeemed do not exceed, on an annual basis, 12% of the net
asset value of the Investor C Shares in the accounts. Otherwise, any applicable
CDSC will be imposed on shares redeemed under the AWP. Shareholders who elect to
establish an AWP may receive a monthly, quarterly or annual check or automatic
transfer to a checking or savings account in a stated amount of not less than
$25 on or about the 10th or 25th day of the applicable month of withdrawal.
Investor C Shares will be redeemed (net of any applicable CDSC) as necessary to
meet withdrawal payments. Withdrawals will reduce principal and may eventually
deplete the shareholder's account. If a shareholder desires to establish an AWP
after opening an account, a signature guarantee will be required. AWPs may be
terminated by shareholders on 30 days' written notice to their Agent or by
Nations Fund at any time.
How To Exchange Shares
The exchange feature enables a shareholder of Investor C Shares of a Nations
Fund non-money market fund to acquire shares of the same class that are offered
by another non-money market fund of Nations Fund or Investor D Shares of any
Nations Fund money market fund when he or she believes that a shift between
funds is an appropriate investment decision. A qualifying exchange is based on
the next calculated net asset value per share of each fund after the exchange
order is received.
No CDSC will be imposed in connection with an exchange of Investor C Shares that
meets the requirements discussed in this section.
If a shareholder acquires Investor C Shares of a Nations Fund non-money market
fund or Investor D Shares of a Nations Fund money market
44
<PAGE>
fund through an exchange, the CDSC applicable to the original shares purchased
will be applied to any redemption of the acquired shares (except for exchanges
of Nations Short-Term Municipal Income Fund shares purchased prior to January 1,
1996, which will be subject to the CDSC schedule applicable to the acquired
Fund). Additionally, when an investor exchanges Investor C Shares of a Nations
Fund non-money market fund for shares of the same class of another non-money
market fund or Investor D Shares of any money market fund of Nations Fund, the
remaining period of time (if any) that the CDSC is in effect will be computed
from the time of the initial purchase of the previously held Investor C Shares
(except for shares of Nations Short-Term Municipal Income Fund purchased prior
to January 1, 1996). If an investor exchanges Investor C Shares of the Nations
Short-Term Municipal Income Fund purchased prior to January 1, 1996 for shares
of the same class of another non-money market fund, the remaining period of time
that the CDSC applicable to the acquired shares is in effect will be computed
from the time of the exchange.
AUTOMATIC EXCHANGE FEATURE: Under the Funds' Automatic Exchange Feature ("AEF"),
a shareholder may automatically exchange at least $25 on a monthly or quarterly
basis. A shareholder may direct proceeds to be exchanged from one Nations Fund
to another as allowed by the applicable exchange rules within the prospectus.
Exchanges will occur on or about the 15th or 30th day of the applicable month.
The shareholder must have an existing position in both Funds in order to
establish the AEF. This feature may be established by directing a request to the
Transfer Agent by telephone or in writing. For additional information, an
investor should contact his/her Selling Agent.
GENERAL: The Funds and each of the other funds of Nations Fund may limit the
number of times this exchange feature may be exercised by a shareholder within a
specified period of time. Also, the exchange feature may be terminated or
revised at any time by Nations Fund upon such notice as may be required by
applicable regulatory agencies (presently 60 days for termination or material
revision), absent unusual circumstances.
The current prospectus for each fund of Nations Fund describes its investment
objective and policies, and shareholders should obtain a copy and examine it
carefully before investing. Exchanges are subject to the minimum investment
requirement and any other conditions imposed by each fund. In the case of any
shareholder holding a share certificate or certificates, no exchanges may be
made until all applicable share certificates have been received by the Transfer
Agent and deposited in the shareholder's account. An exchange will be treated
for Federal income tax purposes the same as a redemption of shares, on which the
shareholder may realize a capital gain or loss. However, the ability to deduct
capital losses on an exchange may be limited in situations where there is an
exchange of shares within 90 days after the shares are purchased.
The Investor C Shares exchanged must have a current value of at least $1,000
(except for exchanges through the AEF). Nations Fund reserves the right to
reject any exchange request. Only shares that may legally be sold in the state
of the investor's residence may be acquired in an exchange. Only shares of a
class that is accepting investments generally may be acquired in an exchange. An
investor may telephone an exchange request by calling his/her Agent which is
responsible for transmitting such request to Stephens or to the Transfer Agent.
During periods of significant economic or market change, telephone exchanges may
be difficult to complete. In such event, shares may be exchanged by mailing the
request directly to the Agent through which the original shares were purchased.
An investor should consult his/her Agent or Stephens for further information
regarding exchanges.
45
<PAGE>
Shareholder Servicing And Distribution
Plans
Pursuant to Rule 12b-1 under the 1940 Act, the Trustees have approved a
Distribution Plan with respect to Investor C Shares of the Funds. Pursuant to
the Distribution Plan, each Fund may compensate or reimburse Stephens for any
activities or expenses primarily intended to result in the sale of the Fund's
Investor C Shares. Payments under the Distribution Plan will be calculated daily
and paid monthly at a rate or rates set from time to time by the Trustees,
provided that the annual rate may not exceed 0.75% of the average daily net
asset value of each Fund's Investor C Shares.
The fees payable under the Distribution Plan are used (i) to compensate Selling
Agents for providing sales support assistance relating to Investor C Shares,
(ii) to pay for promotional activities intended to result in the sale of
Investor C Shares such as the preparation, printing and distribution of
prospectuses to other than current shareholders, and (iii) to compensate Selling
Agents for providing sales support services with respect to their Customers who
are, from time to time, beneficial and record holders of Investor C Shares.
Currently, substantially all fees paid pursuant to the Distribution Plan are
paid to compensate Selling Agents for providing the services described in (i)
and (iii) above, with any remaining amounts being used by Stephens to partially
defray other expenses incurred by Stephens in distributing Investor C Shares.
Fees received by Stephens pursuant to the Distribution Plan will not be used to
pay any interest expenses, carrying charges or other financing costs (except to
the extent permitted by the SEC) and will not be used to pay any general and
administrative expenses of Stephens.
Nations Fund and Stephens may suspend or reduce payments under the Distribution
Plan at any time, and payments are subject to the continuation of the
Distribution Plan described above and the terms of the Sales Support Agreement
between Selling Agents and Stephens. See the SAI for more details on the
Distribution Plan.
The Trustees also have approved a shareholder servicing plan (the "Investor C
Servicing Plan") for each Fund which permits the Fund to compensate Servicing
Agents for services provided to their Customers that own Investor C Shares.
Payments under the Investor C Servicing Plan are calculated daily and paid
monthly at a rate or rates set from time to time by each Fund, provided that the
annual rate may not exceed 0.25% of the average daily net asset value of the
Fund's Investor C Shares.
The fees payable under the Investor C Servicing Plan are used primarily to
compensate or reimburse Servicing Agents for shareholder services provided, and
related expenses incurred, by such Servicing Agents. The shareholder services
provided by Servicing Agents may include: (i) aggregating and processing
purchase and redemption requests for Investor C Shares from Customers and
transmitting net purchase and redemption orders to Stephens or the Transfer
Agent; (ii) providing Customers with a service that invests the assets of their
accounts in Investor C Shares pursuant to specific or preauthorized
instructions; (iii) processing dividend and distribution payments from a Fund on
behalf of Customers; (iv) providing information periodically to Customers
showing their positions in Investor C Shares; (v) arranging for bank wires; and
(vi) providing general shareholder liaison services.
Nations Fund may suspend or reduce payments under the Investor C Servicing Plan
at any time, and payments are subject to the continuation of the Investor C
Servicing Plan described above and the terms of the Servicing Agreements. See
the SAI for more details on the Investor C Servicing Plan.
Nations Fund understands that Agents may charge fees to their Customers who are
the own-
46
<PAGE>
ers of the Funds' Investor Shares in connection with a Customer's account. These
fees would be in addition to any amounts received by a Selling Agent under its
Sales Support Agreement with Stephens or by a Servicing Agent under its
Servicing Agreement with Nations Fund. The Sales Support Agreements and
Servicing Agreements require Agents to disclose to their Customers any
compensation payable to the Agent by Stephens or Nations Fund and any other
compensation payable by the Customers for various services provided in
connection with their accounts. Customers should read this Prospectus in light
of the terms governing their accounts with their Agents.
Stephens may, from time to time, at its expense or as an expense for which it
may be reimbursed under the Distribution Plan, pay a bonus or other
consideration or incentive to Agents who sell a minimum dollar amount of shares
of a Fund during a specified period of time. Stephens also may, from time to
time, pay additional consideration to dealers not to exceed 0.75% of the
offering price per share on all sales of Investor C Shares as an expense of
Stephens or for which Stephens may be reimbursed under the Distribution Plan or
upon receipt of a CDSC. Any such additional consideration or incentive program
may be terminated at any time by Stephens.
In addition, Stephens has established a non-cash compensation program pursuant
to which broker/dealers or financial institutions that sell shares of the Funds
may earn additional compensation in the form of trips to sales seminars or
vacation destinations, tickets to sporting events, theater or other
entertainment, opportunities to participate in golf or other outings and gift
certificates for meals or merchandise. This non-cash compensation program may be
amended or terminated at any time by Stephens.
How The Funds Value Their Shares
The Funds calculate the net asset value of a share of each class by dividing the
total value of its assets, less liabilities, by the number of shares in the
class outstanding. Shares are valued as of the close of regular trading on the
Exchange (currently 4:00 p.m., Eastern time) on each Business Day. Currently,
the days on which the Exchange is closed (other than weekends) are: New Year's
Day, Presidents' Day, Good Friday, Memorial Day (observed), Independence Day,
Labor Day, Thanksgiving Day and Christmas Day.
Portfolio securities for which market quotations are readily available are
valued at market value. Short-term investments that will mature in 60 days or
less are valued at amortized cost, which approximates market value. All other
securities and assets are valued at their fair value following procedures
approved by the Trustees.
How Dividends And Distributions Are
Made; Tax Information
DIVIDENDS AND DISTRIBUTIONS: Dividends from net investment income are declared
daily and paid monthly by the Funds. Each Fund's net realized capital gains
(including net short-term capital gains) are distributed at least annually.
Distributions from capital gains are made after applying any available capital
loss carryovers. Distributions paid by the Funds with respect to one class of
shares may be greater or less than those paid with respect to another class of
shares due to the different expenses of the different classes.
The net asset value of Investor C Shares will be reduced by the amount of any
dividend or distribution. Certain Selling or Servicing Agents may provide for
the reinvestment of dividends in the
47
<PAGE>
form of additional Investor C Shares of the same class of the same Fund.
Dividends and distributions are paid in cash within five Business Days of the
end of the month or quarter to which the dividend relates. Dividends and
distributions payable to a shareholder are paid in cash within five Business
Days after a shareholder's complete redemption of his/her Investor Shares.
TAX INFORMATION: Each Fund intends to qualify as a "regulated investment
company" under the Code. Such qualification relieves a Fund of liability for
Federal income tax on amounts distributed in accordance with the Code.
As regulated investment companies, the Funds are permitted to pass through to
their shareholders tax-exempt income ("exempt-interest dividends") subject to
certain requirements which the Funds intend to satisfy. Distributions from
taxable income will be taxable as ordinary income to shareholders whether such
income is received in cash or reinvested in additional shares. The policy of the
Funds is to pay to their shareholders an amount equal to at least 90% of their
exempt-interest income and their investment company taxable income.
Exempt-interest dividends may be treated by shareholders as items of interest
excludable from their Federal gross income under Section 103(a) of the Code
unless under the circumstances applicable to the particular shareholder the
exclusion would be disallowed. (See the SAI under "Additional Information
Concerning Taxes.") Distributions from the Funds will not qualify for the
dividends-received deduction for corporate shareholders. Distributions of net
investment income by Nations Municipal Income Fund, Nations Short-Term Municipal
Income Fund and Nations Intermediate Municipal Bond Fund may be taxable to
investors even though a substantial portion of such distributions may be derived
from interest on tax-exempt obligations which, if realized directly, would be
exempt from such income taxes.
Substantially all of a Fund's net realized long-term capital gains will be
distributed at least annually. The Funds will generally have no tax liability
with respect to such gains, and the distributions will be taxable to
shareholders as long-term capital gains, regardless of how long the shareholders
have held the Fund's shares and whether such gains are received in cash or
reinvested in additional shares.
Each year, shareholders will be notified as to the amount and federal tax status
of all dividends and capital gains paid during the prior year. Such dividends
and capital gains may be subject to state and local taxes, as discussed more
fully below and in the SAI.
Dividends declared in October, November, or December of any year payable to
shareholders of record on a specified date in such months will be deemed to have
been received by shareholders and paid by a Fund on December 31 of such year in
the event such dividends are actually paid during January of the following year.
Federal law requires Nations Fund to withhold 31% from any dividends (other than
exempt-interest dividends) paid by Nations Fund and/or redemptions (including
exchange redemptions) that occur in certain shareholder accounts if the
shareholder has not properly furnished a certified correct Taxpayer
Identification Number and has not certified that withholding does not apply, or
if the Internal Revenue Service has notified Nations Fund that the Taxpayer
Identification Number listed on a shareholder account is incorrect according to
its records, or that the shareholder is subject to backup withholding. Amounts
withheld are applied to the shareholder's Federal tax liability, and a refund
may be obtained from the Internal Revenue Service if withholding results in
overpayment of taxes. Federal law also requires the Funds to withhold 30% or the
applicable tax treaty rate from dividends paid to certain nonresident alien,
non-U.S. partnership and non-U.S. corporation shareholder accounts.
If any of the Funds should hold certain private activity bonds issued after
August 7, 1986, shareholders must include, as an item of tax preference, the
portion of dividends paid by the Fund that is attributable to interest on such
bonds in their Federal alternative minimum taxable income for purposes of
determining liability (if any) for the 28% alternative minimum tax applicable to
individuals and the 20% alternative minimum tax and the environmental tax
appli-
48
<PAGE>
cable to corporations. Corporate shareholders must also take all exempt-interest
dividends into account in determining certain adjustments for Federal
alternative minimum and environmental tax purposes. The environmental tax
applicable to corporations is imposed at the rate of 0.12% on the excess of the
corporation's modified Federal alternative minimum taxable income over
$2,000,000. Shareholders receiving Social Security benefits should note that all
exempt-interest dividends will be taken into account in determining the
taxability of such benefits.
With respect to the State Intermediate Municipal Bond Funds and the State
Municipal Bond Funds, it is anticipated that exempt-interest dividends derived
from tax-exempt interest paid on municipal obligations of the pertinent state
and that state's political subdivisions, agencies, instrumentalities, and
authorities, and certain other issuers, including Puerto Rico and Guam, will be
exempt from state income tax with respect to those states which impose a state
income tax. Florida and Texas do not impose income taxes, but Florida imposes a
tax upon intangible personal property which may apply to shares of Nations
Florida Intermediate Municipal Bond Fund and Nations Florida Municipal Bond Fund
held by residents of that state. Florida has issued a Technical Assistance
Advisement indicating that shares of such Funds will not be subject to Florida's
intangibles tax, subject to certain requirements which the Funds intend to
satisfy. See the SAI for further details about state tax treatment relevant to
shareholders of the Funds.
In addition to annual disclosures as to Federal tax consequences of dividends
and distributions, shareholders of the State Intermediate Municipal Bond Funds
and the State Municipal Bond Funds will also be advised as to the state tax
consequences of dividends and distributions made each year.
The foregoing discussion is based on tax laws and regulations which were in
effect as of the date of this Prospectus and summarizes only some of the
important tax considerations generally affecting the Funds and their
shareholders. It is not intended as a substitute for careful tax planning.
Accordingly, potential investors should consult their tax advisors with specific
reference to their own tax situations. Further tax information is contained in
the SAI.
Appendix A -- Portfolio Securities
The following are summary descriptions of certain types of instruments in which
a Fund may invest. The "How Objectives Are Pursued" section of the Prospectus
identifies each Fund's permissible investments, and the SAI contains more
information concerning such investments.
BANK INSTRUMENTS: Bank instruments consist mainly of certificates of deposit,
time deposits and bankers' acceptances. Each Fund will limit its investments in
bank obligations so they do not exceed 25% of the Fund's total assets at the
time of purchase.
U.S. dollar-denominated obligations issued by foreign branches of domestic banks
("Eurodollar" obligations) and domestic branches of foreign banks ("Yankee
dollar" obligations) and other foreign obligations involve special investment
risks, including the possibility that liquidity could be impaired because of
future political and economic developments, the obligations may be less
marketable than comparable domestic obligations of domestic issuers, a foreign
jurisdiction might impose withholding taxes on interest income payable on such
obligations, deposits may be seized or nationalized, foreign governmental
restrictions such as exchange controls may be adopted which might adversely
affect the payment of principal of and interest on such obligations, the
selection of foreign obligations may be more difficult because there may be less
publicly available information concerning foreign issuers, there may be
difficulties in enforcing a judgment against a foreign issuer or the accounting,
auditing and financial reporting standards, practices and requirements
applicable
49
<PAGE>
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.
FIXED INCOME INVESTING: The performance of the fixed income debt component of a
Fund's portfolio depends primarily on interest rate changes, the average
weighted maturity of the portfolio and the quality of the securities held. The
debt component of a Fund's portfolio will tend to decrease in value when
interest rates rise and increase when interest rates fall. A Fund's share price
and yield depend, in part, on the maturity and quality of its debt instruments.
FUTURES, OPTIONS AND OTHER DERIVATIVE INSTRUMENTS: Certain of the Funds may
attempt to reduce the overall level of investment risk of particular securities
and attempt to protect a Fund against adverse market movements by investing in
futures, options and other derivative instruments. These include the purchase
and writing of options on securities (including index options) and options on
foreign currencies, and investing in futures contracts for the purchase or sale
of instruments based on financial indices, including interest rate indices or
indices of U.S. or foreign government, equity or fixed income securities
("futures contracts"), options on futures contracts, forward contracts and swaps
and swap-related products such as interest rate swaps, currency swaps, caps,
collars and floors.
The use of futures, options, forward contracts and swaps exposes a Fund to
additional investment risks and transaction costs. If the Adviser incorrectly
analyzes market conditions or does not employ the appropriate strategy with
respect to these instruments, a Fund could be left in a less favorable position.
Additional risks inherent in the use of futures, options, forward contracts and
swaps include: imperfect correlation between the price of futures, options and
forward contracts and movements in the prices of the securities or currencies
being hedged; the possible absence of a liquid secondary market for any
particular instrument at any time; and the possible need to defer closing out
certain hedged positions to avoid adverse tax consequences. A Fund may not
purchase put and call options which are traded on a national stock exchange in
an amount exceeding 5% of its net assets. Further information on the use of
futures, options and other derivative instruments, and the associated risks, is
contained in the SAI.
ILLIQUID SECURITIES: Certain securities may be sold only pursuant to certain
legal restrictions, and may be difficult to sell. The Funds will not hold more
than 15% of the value of their respective net assets in securities that are
illiquid or such lower percentage as may be required by the states in which the
appropriate Fund sells its shares. Repurchase agreements, time deposits and
guaranteed investment contracts that do not provide for payment to a Fund within
seven days after notice, and illiquid restricted securities are subject to the
limitation on illiquid securities. In addition, interests in privately arranged
loans acquired by the State Intermediate Municipal Bond Funds and the State
Municipal Bond Funds may be subject to this limitation.
If otherwise consistent with their investment objectives and policies, certain
Funds may purchase securities which are not registered under the Securities Act
of 1933, as amended (the "1933 Act") but which can be sold to "qualified
institutional buyers" in accordance with Rule 144A 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
the Adviser, acting under guidelines approved and monitored by the Fund's Board,
after considering trading activity, availability of reliable
50
<PAGE>
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
portfolio from interest rate fluctuations, certain of the Funds may enter into
various hedging transactions, such as interest rate swaps and the purchase or
sale of interest rate caps and floors. Interest rate swaps involve the exchange
by a Fund with another party of their respective commitments to pay or receive
interest, E.G., an exchange of floating-rate payments for fixed-rate payments. A
Fund will enter into a swap transaction on a net basis, I.E. the payment
obligations of the Fund and the counterparty will be netted out with the Fund
receiving or paying, as the case may be, only the net amount of the two payment
obligations. A Fund will segregate, on a daily basis, cash or liquid high
quality debt securities with a value at least equal to the Fund's net
obligations, if any, under a swap agreement.
The purchase of an interest rate cap entitles the purchaser, to the extent that
a specified index exceeds a predetermined interest rate, to receive payments of
interest on a notional principal amount from the party selling such interest
rate cap. The purchase of an interest rate floor entitles the purchaser to
receive payments of interest on a notional principal amount from the party
selling such interest rate floor. The Adviser expects to enter into these
transactions on behalf of a Fund primarily to preserve a return or spread on a
particular investment or portion of its portfolio or to protect against any
increase in the price of securities the Fund anticipated purchasing at a later
date rather than for speculative purposes. A Fund will not sell interest rate
caps or floors that it does not own.
MONEY MARKET INSTRUMENTS: The term "money market instruments" refers to
instruments with remaining maturities of one year or less. Money market
instruments may include, among other instruments, certain U.S. Treasury
obligations, U.S. Government obligations, bank instruments, commercial
instruments, repurchase agreements and municipal securities. Such instruments
are described in this Appendix A.
MUNICIPAL SECURITIES: The two principal classifications of Municipal Securities
are "general obligation" securities and "revenue" securities. General obligation
securities are secured by the issuer's pledge of its full faith, credit, and
taxing power for the payment of principal and interest. Revenue securities are
payable only from the revenues derived from a particular facility or class of
facilities or, in some cases, from the proceeds of a special excise tax or other
specific revenue source such as the user of the facility being financed. Private
activity bonds held by a Fund are in most cases revenue securities and are not
payable from the unrestricted revenues of the issuer. Consequently, the credit
quality of private activity bonds is usually directly related to the credit
standing of the corporate user of the facility involved.
Municipal Securities may include "moral obligation" bonds, which are normally
issued by special purpose public authorities. If the issuer of moral obligation
bonds is unable to meet its debt service obligations from current revenues, it
may draw on a reserve fund, the restoration of which is a moral commitment but
not a legal obligation of the state or municipality which created the issuer.
Municipal Securities may include variable- or floating-rate instruments issued
by industrial development authorities and other governmental entities. While
there may not be an active secondary market with respect to a particular
instrument purchased by a Fund, a Fund may demand payment of the principal and
accrued interest on the instrument or may resell it to a third party as
specified in the instruments. The absence of an active secondary market,
however, could make it difficult for a Fund to dispose of the instrument if the
issuer defaulted on its payment obligation or during periods the Fund is not
entitled to exercise its demand rights, and the Fund could, for these or other
reasons, suffer a loss.
51
<PAGE>
Some of these instruments may be unrated, but unrated instruments purchased by a
Fund will be determined by NationsBank to be of comparable quality at the time
of purchase to instruments rated "high quality" by any major rating service.
Where necessary to ensure that an instrument is of comparable "high quality," a
Fund will require that an issuer's obligation to pay the principal of the note
may be backed by an unconditional bank letter or line of credit, guarantee, or
commitment to lend.
Municipal Securities may include participations in privately arranged loans to
municipal borrowers, some of which may be referred to as "municipal leases."
Generally such loans are unrated, in which case they will be determined by the
Adviser to be of comparable quality at the time of purchase to rated instruments
that may be acquired by a Fund. Frequently, privately arranged loans have
variable interest rates and may be backed by a bank letter of credit. In other
cases, they may be unsecured or may be secured by assets not easily liquidated.
Moreover, such loans in most cases are not backed by the taxing authority of the
issuers and may have limited marketability or may be marketable only by virtue
of a provision requiring repayment following demand by the lender. Such loans
made by a Fund may have a demand provision permitting the Fund to require
payment within seven days. Participations in such loans, however, may not have
such a demand provision and may not be otherwise marketable. To the extent these
securities are illiquid, they will be subject to each Fund's limitation on
investments in illiquid securities. Recovery of an investment in any such loan
that is illiquid and payable on demand may depend on the ability of the
municipal borrower to meet an obligation for full repayment of principal and
payment of accrued interest within the demand period, normally seven days or
less (unless a Fund determines that a particular loan issue, unlike most such
loans, has a readily available market). As it deems appropriate, the Adviser
will establish procedures to monitor the credit standing of each such municipal
borrower, including its ability to meet contractual payment obligations.
Municipal Securities may include units of participation in trusts holding pools
of tax-exempt leases. Municipal participation interests may be purchased from
financial institutions, and give the purchaser an undivided interest in one or
more underlying Municipal Security. To the extent that municipal participation
interests are considered to be "illiquid securities," such instruments are
subject to each Fund's limitation on the purchase of illiquid securities.
Municipal leases and participating interests therein which may take the form of
a lease or an installment sales contract, are issued by state and local
governments and authorities to acquire a wide variety of equipment and
facilities. Interest payments on qualifying leases are exempt from Federal
income taxes.
In addition, certain of the Funds may acquire "stand-by commitments" from banks
or broker/dealers with respect to Municipal Securities held in their portfolios.
Under a stand-by commitment, a dealer would agree to purchase at a Fund's option
specified Municipal Securities at a specified price. A Fund will acquire
stand-by commitments solely to facilitate portfolio liquidity and do not intend
to exercise their rights thereunder for trading purposes.
Although the Funds do not presently intend to do so on a regular basis, each may
invest more than 25% of its total assets in Municipal Securities the interest on
which is paid solely from revenues of similar projects if such investment is
deemed necessary or appropriate by the Adviser. To the extent that more than 25%
of a Fund's total assets are invested in Municipal Securities that are payable
from the revenues of similar projects, a Fund will be subject to the peculiar
risks presented by such projects to a greater extent than it would be if its
assets were not so concentrated.
Since each of the State Intermediate Municipal Bond Funds and the State
Municipal Bond Funds will invest primarily in securities issued by issuers
located in one state, each of these Funds is susceptible to changes in value due
to political and economic factors affecting that state's issuers. A comparable
municipal bond fund which is not concentrated in obligations issued by issuers
located in one state would be
52
<PAGE>
less susceptible to these risks. If any issuer of securities held by one of
these Funds is unable to meets its financial obligations, that Fund's income,
capital, and liquidity may be adversely affected.
The fourth most populous state, Florida, rated "Aa" by Moody's and "AA" by both
S&P and Fitch, has been and continues to be a leading tourist and retiree
destination. Florida's growing population and manageable debt load are just two
of the factors that will help Florida remain a solid investment. Led by the
service, construction and trade sectors, job growth in Florida has rebounded
from the lows of 1991-1992 and is projected to be almost double the national
average for 1996. Tourism was back in 1995 after it had suffered in the prior
two years due to hurricane Andrew and a rash of violent crimes involving foreign
tourists.
The state of Georgia has one of the best debt structures in the country, hence
the "Aaa" by Moody's, and "AAA" rating by both S&P and Fitch. The population of
Georgia has been growing at twice the national rate for the past four years. Job
growth and economic expansion have been outstanding in recent years, as Georgia
prepares to host the 1996 Summer Olympic Games. Following the Olympics,
Georgia's economy should continue to expand, albeit at a slightly lower rate.
This is due in part to Georgia's competitive manufacturing base, and the diverse
service and transportation center of Atlanta.
Maryland is one of the wealthiest states in the U.S. and has been able to
maintain its "Aaa" rating by Moody's, and "AAA" rating by both Fitch and S&P,
despite the contraction of government and defense related industries. Maryland's
economic base is highly diversified with a lower than average dependence on
manufacturing. Slow growth in Maryland is expected to continue, as government
cutbacks and downsizing reduce the employment opportunities within the state.
Debt ratios are moderate and, with Maryland ranked fifth in per capita income,
it's no surprise that income taxes and highway use taxes provide the vast
majority of support for general obligation debt. As defense cutbacks continue,
Maryland's dependence on income taxes could depress growth within the state
below national levels.
North Carolina, rated "Aaa" by Moody's, and "AAA" by both S&P and Fitch, has
benefited from an inflow of people as well as businesses. This is due in part to
North Carolina's affordable housing, above-average growth in per capita income
and below-average cost of doing business. North Carolina's declining textile
industry has begun to give way to the high-tech and financial sectors, as
evidenced by the title of "Banking Center of the South." Consequently, high wage
job growth has been expanding at a pace greater than national averages and is
expected to continue to do so for the foreseeable future.
The dominance of the manufacturing sector has been both a positive and a
negative for South Carolina. On the positive side, the expansion of
manufacturing, specifically autos and related parts, has lessened the impact of
the naval base closure in Charleston and provided a much needed infusion of new
jobs. On the negative side, the cyclical nature of South Carolina's
manufacturing economy has kept per capita income below national levels and
considerably below regional levels. That said, South Carolina's low debt burden,
strong security arrangements and lack of credit extension have led to a "Aaa"
rating by Moody's, "AA+" rating by S&P and a "AAA" rating by Fitch, for the
state. Combine this with a conservative plan of finance, and South Carolina
looks to be in a very strong financial position, despite its reliance on the
manufacturing sector.
Tennessee's very low debt burden, nearly exclusive use of general obligation
debt and conservative financial policies all combine to give the state of
Tennessee a "Aaa" rating by Moody's, "AA+" rating by S&P, and a "AAA" rating by
Fitch. Tennessee's economy remains in a developing mode, as the state continues
to shift its growth in manufacturing output to autos (Tennessee ranks third in
the nation in automobile production) and related products from textiles.
Tennessee relies on sales tax revenues as a main source of funds. This could
prove to be a limiting factor were it not for Tennessee's strong pattern of job
growth and growing population.
53
<PAGE>
Texas has proven its ability to adapt and rebound to a changing economic
environment, both within the state and abroad. Texas has also historically taken
a conservative approach to financial management, as is reflected in the state's
"Aa" rating by Moody's, "AA" rating by S&P, and "AA-" rating by Fitch. Although
Texas has consistently led the U.S. in employment growth, unemployment in Texas
is above the national average. This is due, in part, to the heavy migration into
the state (in 1994 Texas replaced New York as the second most populous state).
Look for economic conditions in Texas to improve further as Mexico comes out of
its economic dilemma.
The state of Virginia has earned its "Aaa" rating by Moody's and "AAA" rating by
S&P and Fitch, by having a low relative tax rate, high per capita income and
strong growth in service sector jobs. A very high share of Virginia's population
is college educated, so it's no surprise that Virginia has the highest per
capita income of any of the southern states. Virginia has also maintained a low
unemployment rate despite strong growth in the labor force. Although it has a
large exposure to defense and related industries, Virginia's prudent financial
management and low debt burden should help to insulate it from any government
cutbacks in those areas.
There can be no assurance that the economic conditions on which the above
ratings for a specific state are based will continue or that particular bond
issues may not be adversely affected by changes in economic or political
conditions. More detailed information about matters relating to each of the
State Intermediate Municipal Bond Funds and State Municipal Bond Funds is
contained in the SAI.
OTHER INVESTMENT COMPANIES: Each Fund may invest in securities issued by other
investment companies to the extent that such investments are consistent with the
Fund's investment objective and policies and permissible under the 1940 Act. As
a shareholder of another investment company, a Fund would bear, along with other
shareholders, its pro rata portion of the other investment company's expenses,
including advisory fees. These expenses would be in addition to the advisory and
other expenses that a Fund bears directly in connection with its own operations.
STOCK INDEX, INTEREST RATE AND CURRENCY FUTURES CONTRACTS: The Funds may
purchase and sell futures contracts and related options with respect to non-U.S.
stock indices, non-U.S. interest rates and foreign currencies, that have been
approved by the CFTC for investment by U.S. investors, for the purpose of
hedging against changes in values of a Fund's securities or changes in the
prevailing levels of interest rates or currency exchange rates. The contracts
entail certain risks, including but not limited to the following: no assurance
that futures contracts transactions can be offset at favorable prices; possible
reduction of a Fund's total return due to the use of hedging; possible lack of
liquidity due to daily limits on price fluctuation; imperfect correlation
between the contracts and the securities or currencies being hedged; and
potential losses in excess of the amount invested in the futures contracts
themselves.
Trading on foreign commodity exchanges presents additional risks. Unlike trading
on domestic commodity exchanges, trading on foreign commodity exchanges is not
regulated by the CFTC and may be subject to greater risks than trading on
domestic exchanges. For example, some foreign exchanges are principal markets
for which no common clearing facility exists and a trader may look only to the
broker for performance of the contract. In addition, unless a Fund hedges
against fluctuations in the exchange rate between the U.S. dollar and the
currencies in which trading is done on foreign exchanges, any profits that such
Fund might realize could be eliminated by adverse changes in the exchange rate,
or the Fund could incur losses as a result of those changes.
U.S. GOVERNMENT OBLIGATIONS: U.S. Government obligations consist of marketable
securities and instruments issued or guaranteed by the U.S. Government or any of
its agencies, authorities or instrumentalities. Direct obligations are issued by
the U.S. Treasury and include all U.S. Treasury instruments. 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 agencies
54
<PAGE>
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
Association; 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 banks and corporations
may carry variable or floating rates of interest. Such instruments bear interest
rates which are not fixed, but which vary with changes in specified market rates
or indices, such as a Federal Reserve composite index. A variable-rate demand
instrument is an obligation with a variable or floating interest rate and an
unconditional right of demand on the part of the holder to receive payment of
unpaid principal and accrued interest. An instrument with a demand period
exceeding seven days may be considered illiquid if there is no secondary market
for such security.
WHEN-ISSUED, DELAYED DELIVERY AND FORWARD COMMITMENT SECURITIES: The purchase of
new issues of securities on a "when-issued," "delayed delivery" or "forward
commitment" basis occurs when the payment for and delivery of securities 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 four ratings used by S&P for corporate and
municipal bonds, each of which denotes that the securities are investment grade.
AAA -- This is the highest rating assigned by S&P to a debt obligation and
indicates an extremely strong capacity to pay interest and repay principal.
AA -- Debt rated AA is considered to have a very strong capacity to pay
interest and repay principal and differs from AAA issues only in a small
degree.
A -- Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than debt in higher-rated
categories.
BBB -- Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than for those in
higher-rated categories.
To provide more detailed indications of credit quality, the AA, A and BBB
ratings may be modified by the addition of a plus or minus sign to show relative
standing within these major rating categories.
55
<PAGE>
The following summarizes the highest four ratings used by Moody's for corporate
and municipal bonds,each of which denotes that the securities are investment
grade.
Aaa -- Bonds that are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to
as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such
issues.
Aa -- Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there may
be other elements present which make the long-term risks appear somewhat
larger than in Aaa securities.
A -- Bonds that are rated A possess many favorable investment attributes
and are to be considered upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
Baa -- Bonds that are rated Baa are considered medium grade obligations,
I.E., they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable
over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Moody's applies numerical modifiers (1, 2 and 3) with respect to corporate bonds
rated Aa through B. The modifier 1 indicates that the bond being rated ranks in
the higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates that the bond ranks in the lower
end of its generic rating category. With regard to municipal bonds, those bonds
in the Aa, A and Baa groups which Moody's believes possess the strongest
investment attributes are designated by the symbols Aa1, A1 or Baa1,
respectively.
The following summarizes the highest four ratings used by D&P for bonds, each of
which denotes that the securities are investment grade:
AAA -- Bonds that are rated AAA are of the highest credit quality. The risk
factors are considered to be negligible, being only slightly more than for
risk-free U.S. Treasury debt.
AA -- Bonds that are rated AA are of high credit quality. Protection
factors are strong. Risk is modest, but may vary slightly from time to time
because of economic conditions.
A -- Bonds that are rated A have protection factors which are average but
adequate. However, risk factors are more variable and greater in periods of
economic stress.
BBB -- Bonds that are rated BBB have below average protection factors but
still are considered sufficient for prudent investment. Considerable
variability in risk exists during economic cycles.
To provide more detailed indications of credit quality, the AA, A and BBB
ratings may be modified by the addition of a plus or minus sign to show relative
standing within these major categories.
The following summarizes the highest four ratings used by Fitch for bonds, each
of which denotes that the securities are investment grade:
AAA -- Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
AA -- Bonds considered to be investment grade and of very high credit
quality. The
56
<PAGE>
obligor's ability to pay interest and repay principal is very strong,
although not quite as strong as bonds rated AAA. Because bonds rated in the
AAA and AA categories are not significantly vulnerable to foreseeable
future developments, short-term debt of these issuers is generally rated
F-1+.
A -- Bonds considered to be investment grade and of high credit quality.
The obligor's ability to pay interest and repay principal is considered to
be strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.
BBB -- Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these
bonds, and therefore impair timely payment. The likelihood that the ratings
of these bonds will fall below investment grade is higher than for bonds
with higher ratings.
To provide more detailed indications of credit quality, the AA, A and BBB
ratings may be modified by the addition of a plus or minus sign to show relative
standing within these major rating categories.
The following summarizes the two highest ratings used by Moody's for short-term
municipal notes and variable-rate demand obligations:
MIG-1/VMIG-1 -- Obligations bearing these designations are of the best
quality, enjoying strong protection from established cash flows, superior
liquidity support or demonstrated broad-based access to the market for
refinancing.
MIG-2/VMIG-2 -- Obligations bearing these designations are of high quality,
with ample margins of protection although not so large as in the preceding
group.
The following summarizes the two highest ratings used by S&P for short-term
municipal notes:
SP-1 -- Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics are given
a "plus" (+) designation.
SP-2 -- Satisfactory capacity to pay principal and interest.
The three highest rating categories of D&P for short-term debt, each of which
denotes that the securities are investment grade, are D-1, D-2 and D-3. D&P
employs three designations, D-1+, D-1 and D-1-, within the highest rating
category. D-1+ indicates highest certainty of timely payment. Short-term
liquidity, including internal operating factors and/or access to alternative
sources of funds, is judged to be "outstanding, and safety is just below
risk-free U.S. Treasury short-term obligations." D-1 indicates very high
certainty of timely payment. Liquidity factors are excellent and supported by
good fundamental protection factors. Risk factors are considered to be minor.
D-1- indicates high certainty of timely payment. Liquidity factors are strong
and supported by good fundamental protection factors. Risk factors are very
small. D-2 indicates good certainty of timely payment. Liquidity factors and
company fundamentals are sound. Although ongoing funding needs may enlarge total
financing requirements, access to capital markets is good. Risk factors are
small. D-3 indicates satisfactory liquidity and other protection factors which
qualify the issue as investment grade. Risk factors are larger and subject to
more variation. Nevertheless, timely payment is expected.
The following summarizes the two highest rating categories used by Fitch for
short-term obligations, each of which denotes securities that are investment
grade:
F-1+ securities possess exceptionally strong credit quality. Issues
assigned this rating are regarded as having the strongest degree of
assurance for timely payment.
F-1 securities possess very strong credit quality. Issues assigned this
rating reflect an assurance of timely payment only slightly less in degree
than issues rated F-1+.
57
<PAGE>
F-2 securities possess good credit quality. Issues carrying this rating
have a satisfactory degree of assurance for timely payment, but the margin
of safety is not as great as for issues assigned the F-1+ and F-1 ratings.
Commercial paper rated A-1 by S&P indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted A-1+. Capacity for timely payment on
commercial paper rated A-2 is satisfactory, but the relative degree of safety is
not as high as for issues designated A-1.
The rating Prime-1 is the highest commercial paper rating assigned by Moody's.
Issuers rated Prime-1 (or related supporting institutions) are considered to
have a superior capacity for repayment of senior short-term promissory
obligations. Issuers rated Prime-2 (or related supporting institutions) are
considered to have a strong capacity for repayment of senior short-term
promissory obligations. This will normally be evidenced by many of the
characteristics of issuers rated Prime-1, but to a lesser degree. Earnings
trends and coverage ratios, while sound, will be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
D&P uses the short-term ratings described above for commercial paper.
Fitch uses the short-term ratings described above for commercial paper.
BankWatch ratings are based upon a qualitative and quantitative analysis of all
segments of the organization including, where applicable, holding company and
operating subsidiaries. BankWatch ratings do not constitute a recommendation to
buy or sell securities of any of these companies. Further, BankWatch does not
suggest specific investment criteria for individual clients.
BankWatch long-term ratings apply to specific issues of long-term debt and
preferred stock. The long-term ratings specifically assess the likelihood of
untimely payment of principal or interest over the term to maturity of the rated
instrument. The following are the four investment grade ratings used by
BankWatch for long-term debt:
AAA -- The highest category; indicates ability to repay principal and
interest on a timely basis is extremely high.
AA -- The second highest category; indicates a very strong ability to repay
principal and interest on a timely basis with limited incremental risk
versus issues rated in the highest category.
A -- The third highest category; indicates the ability to repay principal
and interest is strong. Issues rated "A" could be more vulnerable to
adverse developments (both internal and external) than obligations with
higher ratings.
BBB -- The lowest investment grade category; indicates an acceptable
capacity to repay principal and interest. Issues rated "BBB" are, however,
more vulnerable to adverse developments (both internal and external) than
obligations with higher ratings.
The BankWatch short-term ratings apply to commercial paper, other senior
short-term obligations and deposit obligations of the entities to which the
rating has been assigned. The BankWatch short-term ratings specifically assess
the likelihood of an untimely payment of principal or interest.
TBW-1 -- The highest category; indicates a very high likelihood that
principal and interest will be paid on a timely basis.
TBW-2 -- The second highest category; while the degree of safety regarding
timely repayment of principal and interest is strong, the relative degree
of safety is not as high as for issues rated "TBW-1".
TBW-3 -- The lowest investment grade category; indicates that while more
susceptible to adverse developments (both internal and external) than
obligations with higher ratings, capacity to service principal and interest
in a timely fashion is considered adequate.
58
<PAGE>
TBW-4 -- The lowest rating category; this rating is regarded as
non-investment grade and therefore speculative.
The following summarizes the four highest long-term ratings used by IBCA:
AAA -- Obligations for which there is the lowest expectation of investment
risk. Capacity for timely repayment of principal and interest is
substantial such that adverse changes in business, economic or financial
conditions are unlikely to increase investment risk significantly.
AA -- Obligations for which there is a very low expectation of investment
risk. Capacity for timely repayment of principal and interest is
substantial. Adverse changes in business, economic or financial conditions
may increase investment risk albeit not very significantly.
A -- Obligations for which there is a low expectation of investment risk.
Capacity for timely repayment of principal and interest is strong, although
adverse changes in business, economic or financial conditions may lead to
increased investment risk.
BBB -- Obligations for which there is currently a low expectation of
investment risk. Capacity for timely repayment of principal and interest is
adequate, although adverse changes in business, economic or financial
conditions are more likely to lead to increased investment risk than for
obligations in other categories.
A plus or minus sign may be appended to a rating below AAA to denote relative
status within major rating categories.
The following summarizes the 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.
59
<PAGE>
<PAGE>
Prospectus
INVESTOR C SHARES
JULY 31, 1996
This Prospectus describes NATIONS SHORT-TERM INCOME
FUND, NATIONS SHORT-INTERMEDIATE GOVERNMENT FUND,
NATIONS GOVERNMENT SECURITIES FUND, NATIONS
STRATEGIC FIXED INCOME FUND AND NATIONS DIVERSIFIED
INCOME FUND (the "Funds") of Nations Fund Trust and
Nations Fund, Inc., each an open-end management
investment company in the Nations Fund Family
("Nations Fund" or "Nations Fund Family"). This
Prospectus describes one class of shares of the
Funds -- Investor C Shares.
This Prospectus sets forth concisely the
information about the Funds that prospective
purchasers of Investor C Shares should consider
before investing. Investors should read this
Prospectus and retain it for future reference.
Additional information about Nations Fund Trust and
Nations Fund, Inc. is contained in separate
Statements of Additional Information (the "SAIs"),
that have been filed with the Securities and
Exchange Commission (the "SEC") and are available
upon request without charge by writing or calling
Nations Fund at its address or telephone number
shown below. The SAIs for Nations Fund Trust and
Nations Fund, Inc., each dated July 31, 1996, are
incorporated by reference in their entirety into
this Prospectus. NationsBanc Advisors, Inc.
("NBAI") is the investment adviser to the Funds.
TradeStreet Investment Associates, Inc.
("TradeStreet") is sub-investment adviser to the
Funds. As used herein the "Adviser" shall mean NBAI
and/or TradeStreet as the context may require.
SHARES OF NATIONS FUND ARE NOT DEPOSITS OR OTHER
OBLIGATIONS OF, OR ISSUED, ENDORSED OR GUARANTEED
BY, NATIONSBANK, N.A. ("NATIONSBANK") OR ANY OF ITS
AFFILIATES. SUCH SHARES ARE NOT INSURED BY THE U.S.
GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER
GOVERNMENT AGENCY. AN INVESTMENT IN THE FUNDS
INVOLVES CERTAIN RISKS, INCLUDING POSSIBLE LOSS OF
PRINCIPAL.
NATIONSBANK AND CERTAIN OF ITS AFFILIATES PROVIDE
CERTAIN OTHER SERVICES TO NATIONS FUND, FOR WHICH
THEY ARE COMPENSATED. STEPHENS INC., WHICH IS NOT
AFFILIATED WITH NATIONSBANK, IS THE SPONSOR AND
ADMINISTRATOR AND SERVES AS THE DISTRIBUTOR FOR
NATIONS FUND.
THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
Nations Short-Term Income
Fund
Nations Short-Intermediate
Government Fund
Nations Government
Securities Fund
Nations Strategic Fixed
Income Fund
Nations Diversified Income
Fund
For Fund information call:
1-800-321-7854
Nations Fund
c/o Stephens Inc.
One NationsBank Plaza
33rd Floor
Charlotte, NC 28255
(Nations Fund Logo appears here)
NF-96142-796
<PAGE>
Table Of Contents
About The Funds
Prospectus Summary 3
Expenses Summary 4
Financial Highlights 5
Objectives 10
How Objectives Are Pursued 11
How Performance Is Shown 15
How the Funds Are Managed 16
Organization And History 20
About Your Investment
How To Buy Shares 22
How To Redeem Shares 23
How To Exchange Shares 25
Shareholder Servicing And Distribution Plans 26
How The Funds Value Their Shares 27
How Dividends And Distributions Are Made;
Tax Information 28
Appendix A -- Portfolio Securities 29
Appendix B -- Description Of Ratings 39
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT
CONTAINED IN THIS PROSPECTUS, OR IN THE FUNDS'
SAIS INCORPORATED HEREIN BY REFERENCE, IN
CONNECTION WITH THE OFFERING MADE BY
THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY NATIONS FUND OR
ITS DISTRIBUTOR. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFERING BY NATIONS FUND OR BY THE
DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH
OFFERING MAY NOT LAWFULLY BE MADE.
2
<PAGE>
About The Funds
Prospectus Summary
(Bullet) TYPE OF COMPANIES: Open-end management investment companies.
(Bullet) INVESTMENT OBJECTIVES AND POLICIES:
(Bullet) Nations Short-Term Income Fund's investment objective is to
seek high current income consistent with minimal fluctuation
of principal. The Fund invests in investment grade debt
securities.
(Bullet) Nations Short-Intermediate Government Fund's investment objective is
to seek high current income consistent with modest fluctuation of
principal. The Fund invests primarily in securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities.
(Bullet) Nations Government Securities Fund's investment objective is to seek
high current income consistent with moderate fluctuation of
principal. The Fund invests primarily in intermediate-term securities
issued or guaranteed by the U.S. Government, its agencies or
instrumentalities.
(Bullet) Nations Strategic Fixed Income Fund's investment objective is to seek
total return by investing in investment grade fixed income
securities.
(Bullet) Nations Diversified Income Fund's investment objective is to seek
total return with an emphasis on current income by investing in a
diversified portfolio of fixed income securities.
(Bullet) INVESTMENT ADVISER: NationsBanc Advisors, Inc. serves as the investment
adviser to the Funds. NBAI provides investment advice to more than 43
investment company portfolios in the Nations Fund Family. TradeStreet
Investment Associates, Inc. provides sub-advisory services to the
Funds. See "How The Funds Are Managed."
(Bullet) DIVIDENDS AND DISTRIBUTIONS: The Funds declare dividends daily and pay
them monthly. Each Fund's net realized capital gains, including net
short-term capital gains are distributed at least annually.
(Bullet) RISK FACTORS: Although the Adviser seeks to achieve the investment
objective of each Fund, there is no assurance that it will be able to
do so. Investments in a Fund are not insured against loss of principal.
Investments by a Fund in debt securities are subject to interest rate
risk, which is the risk that increases in market interest rates will
adversely affect a Fund's investments in debt securities. The value of
a Fund's investments in debt securities, including U.S. Government
Obligations (as defined below), will tend to decrease when interest
rates rise and increase when interest rates fall. In general,
longer-term debt instruments tend to fluctuate in value more than
shorter-term debt instruments in response to interest rate movements.
In addition, debt securities which are not backed by the United States
Government are subject to credit risk, which is the risk that the
issuer may not be able to pay principal and/or interest when due.
Certain of the Fund's investments constitute derivative securities.
Certain types of derivative securities can, under certain
circumstances, significantly increase an investor's exposure to market
or other risks. For a discussion of these and other factors, see "How
Objectives Are Pursued -- Risk Considerations" and "Appendix
A -- Portfolio Securities."
(Bullet) MINIMUM PURCHASE: $1,000 minimum initial investment per record holder
except that the minimum initial investment is: $500 for Individual
Retirement Account ("IRA") investors; $250 for non-working spousal
IRAs; and $100 for investors participating on a monthly basis in the
Systematic Investment Plan. There is no minimum investment amount for
investments by certain 401(k) and employee pension plans or salary
reduction -- Individual Retirement Accounts. See "How To Buy Shares."
3
<PAGE>
Expenses Summary
Expenses are one of several factors to consider when investing in the Funds. The
following tables summarize shareholder transaction and operating expenses for
Investor C Shares of the Funds. The Examples show the cumulative expenses
attributable to a hypothetical $1,000 investment in Investor C Shares of the
indicated Fund over specified periods.
INVESTOR C SHARES
<TABLE>
<CAPTION>
Nations Short- Nations
Nations Short- Intermediate Government Nations Strategic
SHAREHOLDER TRANSACTION EXPENSES Term Income Fund Government Fund Securities Fund Fixed Income Fund
<S> <C> <C> <C> <C>
Sales Load Imposed on Purchases None None None None
Deferred Sales Charge (as a percentage of the
lower of the original purchase price or
redemption proceeds)1 .50% .50% .50% .50%
Nations
Diversified
SHAREHOLDER TRANSACTION EXPENSES Income Fund
Sales Load Imposed on Purchases None
Deferred Sales Charge (as a percentage of the
lower of the original purchase price or
redemption proceeds)1 .50%
</TABLE>
ANNUAL FUND OPERATING
EXPENSES
(as a percentage of average net assets)
<TABLE>
<S> <C> <C> <C> <C>
Management Fees (After Fee Waivers) .30% .40% .50% .50%
Rule 12b-1 Fees (After Fee Waivers) .10% .25% .25% .25%
Shareholder Servicing Fees .25% .25% .25% .25%
Other Expenses .25% .23% .30% .22%
Total Operating Expenses (After Fee Waivers) .90% 1.13% 1.30% 1.22%
Management Fees (After Fee Waivers) .50%
Rule 12b-1 Fees (After Fee Waivers) .25%
Shareholder Servicing Fees .25%
Other Expenses .27%
Total Operating Expenses (After Fee Waivers) 1.27%
</TABLE>
1 A Deferred Sales Charge is imposed only with respect to Investor C Shares
redeemed within one year of the date of purchase. Investor C Shares purchased
prior to January 1, 1996 will continue to be subject to the 1.00% Deferred
Sales Charge.
EXAMPLES:
You would pay the following expenses on a $1,000 investment in Investor C Shares
of the indicated Fund, assuming (1) a 5% annual return and (2) redemption at the
end of each time period.
<TABLE>
<CAPTION>
Nations Short- Nations
Nations Short- Intermediate Government Nations Strategic
Term Income Fund Government Fund Securities Fund Fixed Income Fund
<S> <C> <C> <C> <C>
1 Year $ 14 $ 17 $ 18 $ 17
3 Years $ 29 $ 36 $ 41 $ 39
5 Years $ 50 $ 62 $ 71 $ 67
10 Years $ 111 $ 137 $ 157 $ 148
Nations
Diversified
Income Fund
1 Year $ 18
3 Years $ 40
5 Years $ 70
10 Years $ 153
</TABLE>
4
<PAGE>
You would pay the following expenses on a $1,000 investment in Investor C Shares
of the indicated Fund, assuming a 5% annual return but no redemption.
<TABLE>
<CAPTION>
Nations Short- Nations
Nations Short- Intermediate Government Nations Strategic
Term Income Fund Government Fund Securities Fund Fixed Income Fund
<S> <C> <C> <C> <C>
1 Year $ 9 $ 12 $ 13 $ 12
3 Years $ 29 $ 36 $ 41 $ 39
5 Years $ 50 $ 62 $ 71 $ 67
10 Years $ 111 $ 137 $ 157 $ 148
Nations
Diversified
Income Fund
1 Year $ 13
3 Years $ 40
5 Years $ 70
10 Years $ 153
</TABLE>
The purpose of the foregoing tables is to assist an investor in understanding
the various shareholder transaction and operating expenses that an investor in
Investor C Shares of the Funds will bear either directly or indirectly. Certain
figures contained in the above tables are based on amounts incurred during each
Fund's most recent fiscal year and have been adjusted as necessary to reflect
current service provider fees. There is no assurance that any fee waivers and
reimbursements will continue beyond the current fiscal year. If fees waivers
and/or reimbursements are discontinued, the amounts contained in the "Examples"
above may increase. Long-term shareholders of the Funds could pay more in sales
charges than the economic equivalent of the maximum front-end sales charges
applicable to mutual funds sold by members of the National Association of
Securities Dealers, Inc. For more complete descriptions of the Funds' operating
expenses, see "How The Funds Are Managed." For a more complete description of
the Rule 12b-1 and shareholder servicing fees payable by the Funds, see
"Shareholder Servicing And Distribution Plans."
Absent fee waivers, "Management Fees," "Rule 12b-1 Fees" and "Total Operating
Expenses" for Investor C Shares of the indicated Fund would have been as
follows: Nations Short-Term Income Fund -- .60%, .75% and 1.85%, respectively;
Nations Short-Intermediate Government Fund -- .60%, .75% and 1.83%,
respectively; Nations Strategic Fixed Income Fund -- .60%, .75% and 1.82%;
Nations Government Securities Fund -- .64%, .75% and 1.94%, respectively; and
Nations Diversified Income Fund -- .60%, .75% and 1.87%, respectively.
THE FOREGOING SHOULD NOT BE CONSIDERED TO BE AN ACTUAL REPRESENTATION OF PAST OR
FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES AND RATES OF RETURN MAY BE
GREATER OR LESS THAN THOSE SHOWN.
Financial Highlights
The audited financial information on the following pages has been derived from
the financial statements of Nations Fund Trust and Nations Fund, Inc. Price
Waterhouse LLP is the independent accountant to Nations Fund Trust and Nations
Fund, Inc. The reports of Price Waterhouse LLP for the most recent fiscal years
of Nations Fund Trust and Nations Fund, Inc. accompany the financial statements
for such periods and are incorporated by reference in the SAIs, which are
available upon request. For more information see "Organization And History."
Shareholders of a Fund will receive unaudited semi-annual reports describing the
Fund's investment operations and financial statements audited by the Funds'
independent accountant.
5
<PAGE>
FOR AN INVESTOR C SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS SHORT-TERM INCOME FUND
<TABLE>
<CAPTION>
PERIOD YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
INVESTOR C SHARES 03/31/96(b)# 11/30/95# 11/30/94# 11/30/93
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 9.84 $ 9.48 $ 10.01 $ 9.75
Net investment income 0.19 0.57 0.46 0.48
Net realized and unrealized gain/(loss) on
investments (0.08) 0.36 (0.51) 0.26
Net increase/(decrease) in net asset value from
operations 0.11 0.93 (0.05) 0.74
Distributions:
Dividends from net investment income (0.19) (0.57) (0.44) (0.48)
Distributions in excess of net investment
income -- -- (0.02) --
Distributions from capital -- -- (0.02) --
Total dividends and distributions (0.19) (0.57) (0.48) (0.48)
Net asset value, end of period $ 9.76 $ 9.84 $ 9.48 $ 10.01
Total return++ 1.07% 10.08% (0.51)% 7.73%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 6,121 $ 6,056 $ 8,102 $ 19,851
Ratio of operating expenses to average net
assets 0.90%+ 0.91% 0.89% 0.87%
Ratio of net investment income to average net
assets 5.72%+ 5.97% 4.84% 4.77%
Portfolio turnover rate 73% 224% 293% 121%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 1.23%+ 1.21% 1.21% 1.29%
Net investment income per share without waivers
and/or expense reimbursements $ 0.18 $ 0.54 $ 0.43 $ 0.45
PERIOD
ENDED
INVESTOR C SHARES 11/30/92*
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income 0.08
Net realized and unrealized gain/(loss) on
investments (0.26)
Net increase/(decrease) in net asset value from
operations (0.18)
Distributions:
Dividends from net investment income (0.07)
Distributions in excess of net investment
income --
Distributions from capital --
Total dividends and distributions (0.07)
Net asset value, end of period $ 9.75
Total return++ (1.82)%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 6,747
Ratio of operating expenses to average net
assets 0.80%+
Ratio of net investment income to average net
assets 5.04%+
Portfolio turnover rate 45%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 1.40%+
Net investment income per share without waivers
and/or expense reimbursements $ 0.07
</TABLE>
* Nations Short-Term Income Fund Investor C Shares commenced operations on
October 2, 1992.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# Per share numbers have been calculated using the monthly average share
method, which more appropriately presents the per share data for the period
since the use of the undistributed income method did not accord with the
results of operations.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
6
<PAGE>
FOR AN INVESTOR C SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS SHORT-INTERMEDIATE GOVERNMENT FUND
<TABLE>
<CAPTION>
PERIOD YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED
INVESTOR C SHARES 03/31/96(b)# 11/30/95# 11/30/94 11/30/93 11/30/92*
<S> <C> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 4.14 $ 3.93 $ 4.28 $ 4.16 $ 4.19
Net investment income 0.07 0.22 0.20 0.20 0.10
Net realized and unrealized gain/(loss) on
investments (0.07) 0.21 (0.33) 0.14 (0.03)
Net increase/(decrease) in net asset value from
operations 0.00 0.43 (0.13) 0.34 0.07
Distributions:
Dividends from net investment income (0.07) (0.22) (0.20) (0.20) (0.10)
Distributions in excess of net investment
income (0.00)(a) (0.00)(a) (0.00)(a) -- --
Distributions from net realized capital gains -- -- (0.02) (0.02) --
Total dividends and distributions (0.07) (0.22) (0.22) (0.22) (0.10)
Net asset value, end of period $ 4.07 $ 4.14 $ 3.93 $ 4.28 $ 4.16
Total return++ (0.10)% 11.15% (2.80)% 8.20% 1.64%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 11,820 $ 13,206 $ 16,725 $ 31,440 $ 24,352
Ratio of operating expenses to average net
assets 1.13%+ 1.10% 1.17% 1.30% 1.18%+
Ratio of net investment income to average net
assets 4.82%+ 5.38% 5.18% 4.65% 4.80%+
Portfolio turnover rate 189% 328% 133% 92% 25%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 1.36%+ 1.30% 1.38% 1.54% 1.44%+
Net investment income per share without waivers
and/or expense reimbursements $ 0.06 $ 0.21 $ 0.19 $ 0.19 $ 0.09
</TABLE>
* Nations Short-Intermediate Government Fund Investor C Shares commenced
operations on June 17, 1992.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# Per share numbers have been calculated using the monthly average share
method, which more appropriately represents the per share data for the period
since use of the undistributed income method did not accord with the results
of operations.
(a) Amount represents less than $0.01.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
7
<PAGE>
FOR AN INVESTOR C SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS GOVERNMENT SECURITIES FUND
<TABLE>
<CAPTION>
PERIOD YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
INVESTOR C SHARES 03/31/96(b)# 05/31/95# 05/31/94 05/31/93*#
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 9.86 $ 9.80 $ 10.46 $ 10.52
Net investment income 0.47 0.57 0.55 0.59
Net realized and unrealized gain/(loss) on
investments (0.19) 0.06 (0.61) 0.02
Net increase/(decrease) in net asset value from
operations 0.28 0.63 (0.06) 0.61
Distributions:
Dividends from net investment income (0.45) (0.53) (0.50) (0.63)
Dividends in excess of net investment income (0.02) -- (0.01) --
Distributions from net realized capital gains -- -- -- --
Distributions in excess of net realized capital
gains -- -- (0.05) (0.04)
Distributions from capital -- (0.04) (0.04) --
Total dividends and distributions (0.47) (0.57) (0.60) (0.67)
Net asset value, end of period $ 9.67 $ 9.86 $ 9.80 $ 10.46
Total return++ 2.83% 6.76% (0.69)% 5.37%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 2,558 $ 2,945 $ 5,265 $ 5,998
Ratio of operating expenses to average net
assets 1.48%+ 1.51% 1.48% 1.60%+
Ratio of net investment income to average net
assets 5.68%+ 5.94% 5.33% 5.92%+
Portfolio turnover rate 199% 413% 56% 103%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 1.63%+ 1.69% 1.69% 1.75%+
Net investment income per share without waivers
and/or expense reimbursements $ 0.46 $ 0.55 $ 0.53 $ 0.42
</TABLE>
* Nations Government Securities Fund Investor C Shares commenced operations on
July 6, 1992.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
# Per share amounts have been calculated using the average shares method, which
more appropriately presents the per share data for the period since the use
of the undistributed income method did not accord with the results of
operations.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
May 31.
8
<PAGE>
FOR AN INVESTOR C SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS STRATEGIC FIXED INCOME FUND
<TABLE>
<CAPTION>
PERIOD YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
INVESTOR C SHARES 03/31/96(a) 11/30/95 11/30/94 11/30/93
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 10.22 $ 9.32 $ 10.55 $ 9.94
Net investment income 0.17 0.54 0.47 0.48
Net realized and unrealized gain/(loss) on
investments (0.29) 0.90 (0.89) 0.62
Net increase/(decrease) in net asset value from
operations (0.12) 1.44 (0.42) 1.10
Distributions:
Dividends from net investment income (0.17) (0.54) (0.45) (0.48)
Distributions in excess of net investment
income -- -- (0.02) --
Distributions from net realized capital gains -- -- (0.34) (0.01)
Total dividends and distributions (0.17) (0.54) (0.81) (0.49)
Net asset value, end of period $ 9.93 $ 10.22 $ 9.32 $ 10.55
Total return++ (1.22)% 15.87% (4.14)% 11.20%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 299 $ 227 $ 41 $ 65
Ratio of operating expenses to average net
assets 1.22%+ 1.21% 1.43% 1.36%
Ratio of net investment income to average net
assets 4.99%+ 5.55% 4.68% 4.65%
Portfolio turnover rate 133% 228% 307% 161%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 1.33%+ 1.31% 1.51% 1.52%
Net investment income per share without waivers
and/or expense reimbursements $ 0.17 $ 0.53 $ 0.46 $ 0.47
PERIOD
ENDED
INVESTOR C SHARES 11/30/92*
Operating performance:
Net asset value, beginning of period $ 9.97
Net investment income 0.02
Net realized and unrealized gain/(loss) on
investments (0.04)
Net increase/(decrease) in net asset value from
operations (0.02)
Distributions:
Dividends from net investment income (0.01)
Distributions in excess of net investment
income --
Distributions from net realized capital gains --
Total dividends and distributions (0.01)
Net asset value, end of period $ 9.94
Total return++ (0.22)%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 84
Ratio of operating expenses to average net
assets 1.03%+
Ratio of net investment income to average net
assets 5.40%+
Portfolio turnover rate 12%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 1.63%+
Net investment income per share without waivers
and/or expense reimbursements $ 0.02
</TABLE>
* Nations Strategic Fixed Income Fund Investor C Shares commenced operations on
November 16, 1992.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
9
<PAGE>
FOR AN INVESTOR C SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS DIVERSIFIED INCOME FUND
<TABLE>
<CAPTION>
PERIOD YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
INVESTOR C SHARES 03/31/96(b) 11/30/95 11/30/94# 11/30/93#
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 10.82 $ 9.67 $ 10.88 $ 9.96
Net investment income 0.21 0.66 0.67 0.70
Net realized and unrealized gain/(loss) on
investments (0.40) 1.15 (1.06) 0.92
Net increase/(decrease) in net asset value from
operations (0.19) 1.81 (0.39) 1.62
Distributions:
Dividends from net investment income (0.21) (0.66) (0.67) (0.70)
Distributions in excess of net investment
income -- -- (0.00)(a) --
Distributions from net realized capital gains -- -- (0.15) --
Total dividends and distributions (0.21) (0.66) (0.82) (0.70)
Net asset value, end of period $ 10.42 $ 10.82 $ 9.67 $ 10.88
Total return++ (1.77)% 19.22% (3.77)% 16.65%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 3,454 $ 3,582 $ 2,636 $ 3,633
Ratio of operating expenses to average net
assets 1.33%+ 1.55% 1.49% 1.30%
Ratio of net investment income to average net
assets 5.93%+ 6.28% 6.56% 6.27%
Portfolio turnover rate 69% 96% 144% 86%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 1.43%+ 1.68% 1.70% 1.70%
Net investment income per share without waivers
and/or expense reimbursements $ 0.21 $ 0.65 $ 0.65 $ 0.64
PERIOD
ENDED
INVESTOR C SHARES 11/30/92*
Operating performance:
Net asset value, beginning of period $ 9.93
Net investment income 0.03
Net realized and unrealized gain/(loss) on
investments 0.02
Net increase/(decrease) in net asset value from
operations 0.05
Distributions:
Dividends from net investment income (0.02)
Distributions in excess of net investment
income --
Distributions from net realized capital gains --
Total dividends and distributions (0.02)
Net asset value, end of period $ 9.96
Total return++ 0.54%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 149
Ratio of operating expenses to average net
assets 1.00%+
Ratio of net investment income to average net
assets 7.01%+
Portfolio turnover rate 46%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 1.60%+
Net investment income per share without waivers
and/or expense reimbursements $ 0.03
</TABLE>
* Nations Diversified Income Fund Investor C Shares commenced operations on
November 9, 1992.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# Per share numbers have been calculated using the monthly average share
method, which more appropriately presents the per share data for the period
since the use of the undistributed income method did not accord with the
results of operations.
(a) Amount represents less than $0.01.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
Objectives
NATIONS SHORT-TERM INCOME FUND: Nations Short-Term Income Fund's investment
objective is to seek high current income consistent with minimal fluctuation of
principal. The Fund invests in investment grade debt securities.
NATIONS SHORT-INTERMEDIATE GOVERNMENT FUND: Nations Short-Intermediate
Government Fund's investment objective is to seek high current income consistent
with modest fluctuation of principal. The Fund invests primarily in securities
issued or guaranteed by the U.S. Government, its agencies or instrumentalities.
NATIONS GOVERNMENT SECURITIES FUND: Nations Government Securities Fund's
investment objective is to seek high current income consistent with moderate
fluctuation of principal. The Fund invests primarily in intermediate-term
securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities.
NATIONS STRATEGIC FIXED INCOME FUND: Nations Strategic Fixed Income Fund's
investment objective is to seek total return by investing in investment grade
fixed income securities.
NATIONS DIVERSIFIED INCOME FUND: Nations Diversified Income Fund's investment
objective is to seek total return with an emphasis on current income by
investing in a diversified portfolio of fixed income securities.
10
<PAGE>
How Objectives Are Pursued
NATIONS SHORT-TERM INCOME FUND: In pursuing its investment objective, the Fund
will, under normal market conditions, invest at least 65% of the total value of
its assets in investment grade debt obligations. It is expected that the average
dollar-weighted maturity and duration of the Fund's portfolio will not exceed
three years.
The Fund may invest in corporate convertible and non-convertible debt
obligations, including bonds, notes and debentures rated investment grade by one
of the following six nationally recognized statistical rating organizations,
Duff & Phelps Credit Rating Co. ("D&P"), Fitch Investors Service, Inc.
("Fitch"), Standard & Poor's Corporation ("S&P"), Moody's Investors Service,
Inc. ("Moody's"), IBCA Limited or its affiliate, IBCA Inc. (collectively,
"IBCA") or Thomson BankWatch, Inc. ("BankWatch") (collectively, "NRSROs"), or,
if not so rated, determined by the Adviser to be of comparable quality to
instruments so rated; dollar-denominated debt obligations of foreign issuers,
including foreign corporations and foreign governments; and mortgage-related
securities of governmental issuers or of private issuers, including mortgage
pass-through certificates, collateralized mortgage obligations or "CMOs", real
estate investment trust securities or mortgage-backed bonds; other asset-backed
and municipal securities rated by one of the six NRSROs, or, if not so rated,
determined by the Adviser to be of comparable quality to instruments so rated.
The Fund may also invest in obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities ("U.S. Government Obligations").
Most obligations acquired by the Fund will be issued by companies or
governmental entities located within the United States. The Fund may invest up
to 25% of its assets in foreign securities.
As noted above, the Fund will invest in investment grade debt obligations.
Obligations rated in the lowest of the top four investment grade rating
categories (E.G. rated "BBB" by S&P or "Baa" by Moody's) have speculative
characteristics, and changes in economic conditions or other circumstances are
more likely to lead to a weakened capacity to make principal and interest
payments than is the case with higher grade debt obligations. Subsequent to its
purchase by the Fund, an issue of securities may cease to be rated or its rating
may be reduced below the minimum rating required for purchase by the Fund. The
Adviser will consider such an event in determining whether the Fund should
continue to hold the obligation. See "Appendix B" below for a description of
these rating designations.
The Fund also may invest in "high quality" money market instruments (I.E., those
within the two highest rating categories or unrated instruments determined by
the Adviser to be of comparable quality), repurchase agreements and cash. Such
obligations may include those issued by foreign banks and foreign branches of
U.S. banks. These investments may be in such proportions as, in the Adviser's
opinion, prevailing market or economic circumstances warrant.
NATIONS SHORT-INTERMEDIATE GOVERNMENT FUND: In pursuing its investment
objective, Nations Short-Intermediate Government Fund invests substantially all
of its assets in U.S. Government Obligations and repurchase agreements relating
to such obligations. Under normal market conditions, it is expected that the
average dollar-weighted maturity of the Fund's portfolio will be between three
and five years and the duration will not exceed five years. U.S. Government
Obligations have historically involved little risk of loss of principal if held
to maturity. However, due to fluctuations in interest rates, the market value of
such securities may vary during the period a shareholder owns shares of the
Fund. The value of the Fund's portfolio generally will vary inversely with
changes in prevailing interest rates.
The Fund also may invest in corporate convertible and non-convertible debt
obligations, including bonds, notes and debentures rated investment grade at the
time of purchase by one of the
11
<PAGE>
six NRSROs, or if not so rated, determined by the Adviser to be of comparable
quality to instruments so rated; dollar-denominated debt obligations of foreign
issuers, including foreign corporations and foreign governments; mortgage-backed
securities of governmental issuers or of private issuers, including mortgage
pass-through certificates, CMOs, real estate investment trust securities or
mortgage-backed bonds; other asset-backed and municipal securities rated by one
of the six NRSROs, or if not so rated, determined by the Adviser to be of
comparable quality.
The Fund also may invest in "high quality" money market instruments (I.E., those
within the two highest rating categories or unrated instruments deemed by the
Adviser to be of comparable quality), repurchase agreements and cash. Such
obligations may include those issued by foreign banks and foreign branches of
U.S. banks. These investments may be in such proportion as, in the Adviser's
opinion, prevailing market or economic circumstances warrant.
NATIONS GOVERNMENT SECURITIES FUND: In pursuing its investment objective,
Nations Government Securities Fund invests at least 65% of its assets in U.S.
Government Obligations. Under normal market conditions, it is expected that the
average dollar-weighted maturity of the Fund's portfolio will be between three
and 10 years and the Fund's duration is expected to be in a range of 3.5 to six
years.
The Fund also may invest in corporate convertible and non-convertible debt
obligations, including bonds, notes and debentures rated investment grade at the
time of purchase by one of the six NRSROs, or if not so rated, determined by the
Adviser to be of comparable quality to instruments so rated; dollar-denominated
debt obligations of foreign issuers, including foreign corporations and foreign
governments; mortgage-backed securities of governmental issuers or of private
issuers, including mortgage pass-through certificates, CMOs, real estate
investment trust securities or mortgage-backed bonds; other asset-backed and
municipal securities rated by one of the six NRSROs, or if not so rated,
determined by the Adviser to be of comparable quality.
The Fund also may invest in "high quality" money market instruments (I.E., those
within the two highest rating categories or unrated instruments deemed by the
Adviser to be of comparable quality), repurchase agreements and cash. Such
obligations may include those issued by foreign banks and foreign branches of
U.S. banks. These investments may be in such proportion as, in the Adviser's
opinion, prevailing market economic circumstances warrant.
NATIONS STRATEGIC FIXED INCOME FUND: In pursuing its investment objective, the
Fund will, under normal market conditions, invest at least 65% of the total
value of its assets in investment grade fixed income securities. It is expected
that the average dollar-weighted maturity of the Fund's portfolio will be ten
years or less and under no circumstances will it exceed 15 years.
The Fund may invest in corporate convertible and non-convertible debt
obligations, including bonds, notes and debentures rated investment grade at the
time of purchase by one of the six NRSROs, or if not so rated, determined by the
Adviser to be of comparable quality to instruments so rated; U.S. Government
Obligations; dollar-denominated debt obligations of foreign issuers, including
foreign corporations and foreign governments; mortgage-backed securities of
governmental issuers or of private issuers, including mortgage pass-through
certificates, CMOs, real estate investment trust securities or mortgage-backed
bonds; other asset-backed and municipal securities rated by one of the six
NRSROs, or if not so rated, determined by the Adviser to be of comparable
quality. The Fund also may invest in dividend-paying preferred and common stock.
Most obligations acquired by the Fund will be issued by companies or
governmental entities located within the United States. The Fund may invest up
to 25% of its assets in foreign securities.
The Fund will invest in investment grade debt obligations. Obligations rated in
the lowest of the top four investment grade rating categories (E.G. rated "BBB"
by S&P or "Baa" by Moody's) have speculative characteristics, and changes in
economic conditions or other circumstances are
12
<PAGE>
more likely to lead to a weakened capacity to make principal and interest
payments than is the case with higher grade debt obligations. Subsequent to its
purchase by the Fund, an issue of securities may cease to be rated or its rating
may be reduced below the minimum rating required for purchase by the Fund. The
Adviser will consider such an event in determining whether the Fund should
continue to hold the obligation. See "Appendix B" below for a description of
these rating designations.
The Fund also may invest in "high quality" money market instruments (I.E., those
within the two highest rating categories or unrated instruments determined by
the Adviser to be of comparable quality), repurchase agreements and cash. Such
obligations may include those issued by foreign banks and foreign branches of
U.S. banks. These investments may be in such proportions as, in the Adviser's
opinion, prevailing market or economic circumstances warrant.
NATIONS DIVERSIFIED INCOME FUND: In pursuing its investment objective, the Fund
will invest at least 65% of the total value of its assets in investment grade
debt obligations. It is expected that the average dollar-weighted maturity of
the Fund's portfolio will greater than five years.
The Fund may invest in corporate convertible and non-convertible debt
obligations such as fixed and variable rate bonds; U.S. Government Obligations;
dollar-denominated and non-dollar-denominated debt obligations of foreign
issuers, including foreign corporations and foreign governments; mortgage-backed
securities of governmental issuers or of private issuers, including mortgage
pass-through certificates, CMOs, real estate investment trust securities or
mortgage-backed bonds; other asset-backed and municipal securities rated by one
of the six NRSROs, or if not so rated, determined by the Adviser to be of
comparable quality. The Fund also may invest in dividend-paying convertible and
non-convertible preferred and common stocks.
Most obligations acquired by the Fund will be issued by companies or
governmental entities located within the United States. The Fund may invest up
to 25% of its assets in foreign securities.
Obligations rated in the lowest of the top four investment grade rating
categories (E.G. rated "BBB" by S&P or "Baa" by Moody's) have speculative
characteristics, and changes in economic conditions or other circumstances are
more likely to lead to a weakened capacity to make principal and interest
payments than is the case with higher grade debt obligations.
Up to 35% of the total value of the Fund's assets may be invested in
lower-quality fixed income securities rated "B" or better by Moody's or S&P, or
if not so rated, determined by the Adviser to be of comparable quality.
Securities which are rated "B" generally lack characteristics of the desirable
investment, and assurance of interest and principal payment over any long period
of time may be limited. Non-investment-grade debt securities are sometimes
referred to as "high yield bonds" or "junk bonds." They tend to have speculative
characteristics, generally involve more risk of principal and income than higher
rated securities, and have yields and market values that tend to fluctuate more
than higher quality securities.
Subsequent to its purchase by the Fund, an issue of securities may cease to be
rated or its rating may be reduced below the minimum rating required for
purchase by the Fund. The Adviser will consider such an event in determining
whether the Fund should continue to hold the obligation. See "Appendix B" below
for a description of these rating designations.
The Fund may hold or invest in "high quality" money market instruments (I.E.,
those within the two highest rating categories or unrated instruments deemed by
the Adviser to be of comparable quality), repurchase agreements and cash. Such
obligations may include those issued by foreign banks and foreign branches of
U.S. banks. These investments may be in such proportions as, in the Adviser's
opinion, prevailing market or economic circumstances warrant.
GENERAL: Each of the Funds may invest in certain specified derivative
securities, including: interest rate swaps, caps and floors for hedging
purposes; exchange-traded options; over-the-counter options executed with
primary dealers, including long calls and puts and covered calls to
13
<PAGE>
enhance return; and U.S. and foreign exchange-traded financial futures and
options thereon approved by the Commodity Futures Trading Commission ("CFTC")
for market exposure risk-management. Each of the Funds may lend its portfolio
securities to qualified institutional investors and may invest in restricted,
private placement and other illiquid securities. Each of the Funds may engage in
reverse repurchase agreements and dollar roll transactions. Additionally, each
Fund may purchase securities issued by other investment companies, consistent
with the Fund's investment objective and policies.
Certain securities that have variable or floating interest rates or demand, put
or prepayment features may be deemed to have remaining maturities shorter than
their nominal maturities for purposes of determining the average weighted
maturity and duration of the Funds.
For more information concerning these and other instruments in which the Funds
invest and their investment practices, see "Appendix A."
Although changes in the value of securities subsequent to their acquisition are
reflected in the net asset value of the Funds' shares, such changes will not
affect the income received by the Funds from such securities. However, since
available yields vary over time, no specific level of income can ever be
assured. The dividends paid by the Funds will increase or decrease in relation
to the income received by the Funds from their investments, which will in any
case be reduced by the Funds' expenses before being distributed to the Funds'
shareholders.
PORTFOLIO TURNOVER: Generally, the Funds will purchase portfolio securities for
capital appreciation or investment income, or both, and not for short-term
trading profits. If a Fund's annual portfolio turnover rate exceeds 100%, it may
result in higher brokerage costs and possible tax consequences for the Fund and
its shareholders. For the Funds' portfolio turnover rates, see "Financial
Highlights."
RISK CONSIDERATIONS: Although the Adviser will seek to achieve the investment
objective of each Fund, there is no assurance that it will be able to do so. No
single Fund should be considered, by itself, to provide a complete investment
program for any investor. Investments in a Fund are not insured against loss of
principal.
The value of a Fund's investments in debt securities, including U.S. Government
Obligations, will tend to decrease when interest rates rise and increase when
interest rates fall. In general, longer-term debt instruments tend to fluctuate
in value more than shorter-term debt instruments in response to interest rate
movements. In addition, debt securities that are not backed by the U.S.
Government are subject to credit risk, which is the risk that the issuer may not
be able to pay principal and/or interest when due.
Investments by a Fund in common stocks and other equity securities are subject
to stock market risks. The value of the stocks that the Fund holds, like the
broader stock market, may decline over short or even extended periods.
Certain of the Funds' investments constitute derivative securities, which are
securities whose value is derived, at least in part, from an underlying index or
reference rate. There are certain types of derivative securities that can, under
certain circumstances, significantly increase a purchaser's exposure to market
or other risks. The Adviser, however, only purchases derivative securities in
circumstances where it believes such purchases are consistent with the Fund's
investment objective and do not unduly increase the Fund's exposure to market or
other risks. For additional risk information regarding the Funds' investments in
particular instruments, see "Appendix A -- Portfolio Securities."
INVESTMENT LIMITATIONS: Each Fund is subject to a number of investment
limitations. The following investment limitations are matters of fundamental
policy and may not be changed without the affirmative vote of the holders of a
majority of the Fund's outstanding shares. Other investment limitations that
cannot be changed without such a vote of shareholders are described in the SAIs.
Each Fund may not:
1. Purchase any securities which would cause 25% or more of the value of the
Fund's total
14
<PAGE>
assets at the time of such purchase to be invested in the securities of one or
more issuers conducting their principal activities in the same industry,
provided that this limitation does not apply to investments in obligations
issued or guaranteed by the U.S. Government or its agencies and
instrumentalities.
2. Make loans, except that a Fund may purchase and hold debt instruments
(whether such instruments are part of a public offering or privately placed),
may enter into repurchase agreements and may lend portfolio securities in
accordance with its investment policies.
3. Each Fund may not:
Purchase securities of any one issuer (other than securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities) if,
immediately after such purchase, more than 5% of the value of such Fund's total
assets would be invested in the securities of such issuer, except that up to 25%
of the value of the Fund's total assets may be invested without regard to these
limitations and with respect to 75% of such Fund's assets, such Fund will not
hold more than 10% of the voting securities of any issuer.
The investment objective and policies of each Fund, unless otherwise specified,
may be changed without a vote of the Fund's shareholders. If the investment
objective or policies of a Fund change, shareholders should consider whether the
Fund remains an appropriate investment in light of their then current position
and needs.
In order to register a Fund's shares for sale in certain states, a Fund may make
commitments more restrictive than the investment policies and limitations
described in this Prospectus and the SAIs. Should a Fund determine that any such
commitment is no longer in the best interest of the Fund, it may consider
terminating sales of its shares in the states involved.
How Performance Is Shown
From time to time a Fund may advertise the total return and yield on a class of
shares. BOTH TOTAL RETURN AND YIELD FIGURES ARE BASED ON HISTORICAL DATA AND ARE
NOT INTENDED TO INDICATE FUTURE PERFORMANCE. The "total return" of a class of
shares may be calculated on an average annual total return basis or an aggregate
total return basis. The "total return" of a class of shares refers to the
average annual compounded rates of return over one-, five-, and ten-year periods
or the life of the Fund (as stated in the advertisement) that would equate an
initial amount invested at the beginning of a stated period to the ending
redeemable value of the investment (reflecting the deduction of any applicable
contingent deferred sales charge ("CDSC")), assuming the reinvestment of all
dividend and capital gain distributions. Aggregate total return reflects the
total percentage change in the value of the investment over the measuring
period, again assuming the reinvestment of all dividends and capital gain
distributions. Total return may also be presented for other periods or may not
reflect a deduction of the CDSC.
"Yield" is calculated by dividing the annualized net investment income per share
during a recent 30-day (or one month) period of a class of shares of a Fund by
the maximum public offering price per share on the last day of that period. The
yield on a class of shares does not reflect deduction of any applicable CDSC.
Investment performance, which will vary, is based on many factors, including
market conditions, the composition of a Fund's portfolio and a Fund's operating
expenses. Investment performance also often reflects the risks associated with
such Fund's investment objective and policies. These factors should be
considered when comparing a Fund's investment results to those of other mutual
funds and other investment vehicles. Since yields fluctuate, yield data cannot
necessarily be used to compare an investment in a Fund with bank deposits,
savings accounts, and similar investment alternatives which often
15
<PAGE>
provide an agreed-upon or guaranteed fixed yield for a stated period of time.
In addition to Investor C Shares, the Funds offer Primary A, Primary B, Investor
A and Investor N Shares. Each class of shares may bear different sales charges,
shareholder servicing fees, loads and other expenses, which may cause the
performance of a class to differ from the performance of the other classes.
Total return and yield quotations will be computed separately for each class of
the Funds' shares. Any quotation of total return or yield not reflecting CDSCs
would be reduced if such sales charges were reflected. Any fees charged by a
selling agent and/or servicing agent directly to its customers' accounts in
connection with investments in a Fund will not be included in calculations of
yield and total return or yield. Each Fund's annual report contains additional
performance information and is available upon request without charge from the
Funds' distributor or an investor's selling agent.
How The Funds Are Managed
The business and affairs of each of Nations Fund Trust and Nations Fund, Inc.
are managed under the direction of its Board of Trustees and Board of Directors,
respectively. The SAI for Nations Fund Trust contains the names of and general
background information concerning the Trustees of Nations Fund Trust. The SAI
for Nations Fund, Inc. contains the names of and general background information
concerning the Directors of Nations Fund, Inc.
Nations Fund and the Adviser have adopted codes of ethics which contain policies
on personal securities transactions by "access persons," including portfolio
managers and investment analysts. These policies substantially comply in all
material respects with the recommendations set forth in the May 9, 1994 Report
of the Advisory Group on Personal Investing of the Investment Company Institute.
INVESTMENT ADVISER: NationsBanc Advisors, Inc. serves as investment adviser to
the Funds. NBAI is a wholly owned subsidiary of NationsBank, which in turn is a
wholly owned banking subsidiary of NationsBank Corporation, a bank holding
company organized as a North Carolina corporation. NBAI has its principal
offices at One NationsBank Plaza, Charlotte, North Carolina 28255.
TradeStreet Investment Associates, Inc., with principal offices at One
NationsBank Plaza, Charlotte, North Carolina 28255, serves as sub-investment
adviser to the Funds. TradeStreet is a wholly owned subsidiary of NationsBank.
TradeStreet provides investment management services to individuals, corporations
and institutions.
Subject to the general supervision of Nations Fund Trust's Board of Trustees and
Nations Fund, Inc.'s Board of Directors, and in accordance with the Funds'
investment policies, the Adviser formulates guidelines and lists of approved
investments for each Fund, makes decisions with respect to and places orders for
each Fund's purchases and sales of portfolio securities and maintains records
relating to such purchases and sales. The Adviser is authorized to allocate
purchase and sale orders for portfolio securities to certain financial
institutions, including, in the case of agency transactions, financial
institutions which are affiliated with the Adviser or which have sold shares of
a Fund, if the Adviser believes that the quality of the transaction and the
commission are comparable to what they would be with other qualified brokerage
firms. From time to time, to the extent consistent with its investment
objective, policies and restrictions, each Fund may invest in securities of
companies with which NationsBank has a lending relationship. For the services
provided and expenses assumed pursuant to the Investment Advisory Agreement,
NBAI is entitled to receive advisory fees, computed daily and paid monthly, at
the annual rate of 0.60% of the average daily net assets of each of Nations
Short-Term Income Fund, Nations Diversified Income
16
<PAGE>
Fund, Nations Strategic Fixed Income Fund and Nations Short-Intermediate
Government Fund; and 0.65% of the first $100 million of the Nations Government
Securities Fund's average daily net assets, plus 0.55% of the Fund's average
daily net assets in excess of $100 million and up to $250 million, plus 0.50% of
the Fund's average daily net assets in excess of $250 million.
For the services provided and the expenses assumed pursuant to sub-advisory
agreements, NBAI will pay TradeStreet sub-advisory fees, computed daily and paid
monthly, at the annual rate of 0.15% of Nations Short-Term Income Fund's,
Nations Short-Intermediate Government Fund's, Nations Government Securities
Fund's, Nations Strategic Fixed Income Fund's and Nations Diversified Income
Fund's average daily net assets.
From time to time, NBAI and/or TradeStreet may waive or reimburse (either
voluntarily or pursuant to applicable state limitations) advisory fees and/or
expenses payable by a Fund.
For the fiscal period from December 1, 1995 to December 31, 1995, after waivers,
Nations Fund Trust paid NationsBank under a prior Investment Advisory Agreement
advisory fees at the indicated rates of the following Funds' average daily net
assets: Nations Short-Intermediate Government Fund -- 0.37%; Nations Short-Term
Income Fund -- 0.27%; Nations Diversified Income Fund -- 0.50%; and Nations
Strategic Fixed Income Fund -- 0.50%.
For the fiscal period from June 1, 1995 to December 31, 1995, after waivers,
Nations Fund, Inc. paid NationsBank under a prior Investment Advisory Agreement
advisory fees at the rate of 0.48% of the average daily net assets of Nations
Government Securities Fund.
For the fiscal period from January 1, 1996 to March 31, 1996, after waivers,
Nations Fund Trust paid NBAI under the current Investment Advisory Agreement
advisory fees at the indicated rates of the following Funds' average daily net
assets: Nations Short-Intermediate Government Fund -- 0.37%; Nations Short-Term
Income Fund -- 0.27%; Nations Diversified Income Fund -- 0.50%; and Nations
Strategic Fixed Income Fund -- 0.50%.
For the fiscal period from January 1, 1996 to March 31, 1996, after waivers,
Nations Fund, Inc. paid NBAI under the current Investment Advisory Agreement
advisory fees at the rate of 0.48% of the average daily net assets of Nations
Government Securities Fund.
For the fiscal period from January 1, 1996 to March 31, 1996, after waivers,
NBAI paid TradeStreet under the current Sub-Advisory Agreement sub-advisory fees
at the rate of 0.15% of the average daily net assets of Nations Short-
Intermediate Government Fund, Nations Short-Term Income Fund, Nations
Diversified Income Fund, Nations Strategic Fixed Income Fund and Nations
Government Securities Fund.
David M. Hetherington, CFA, is a Managing Director of Fixed Income Management.
Mr. Hetherington is responsible for overseeing all fixed income product
management and is Senior Portfolio Manager for Nations Short-Term Income Fund.
Mr. Hetherington has been Portfolio Manager for the Nations Short-Term Income
Fund since 1995. Prior to assuming his position with TradeStreet, he was Senior
Vice President and Director of Fixed Income for the Investment Management Group
at NationsBank. Mr. Hetherington has worked in the investment community since
1975. His past experience includes working as a portfolio manager, a trust
investment officer and a securities analyst for First Citizens Bank and Deposit
Guarantee as well as working as an Economist for the U.S. Department of Labor in
the Bureau of Labor Statistics. Mr. Hetherington received a B.A. in Economics
from Duke University. He holds the Chartered Financial Analyst designation and
is a member of the Association for Investment Management and Research.
Mark S. Ahnrud, CFA, is a Director of Fixed Income Management for TradeStreet
and Senior Portfolio Manager for Nations Diversified Income Fund. Mr. Ahnrud has
been Portfolio Manager for the Nations Diversified Income Fund since 1992. Prior
to assuming his position with TradeStreet, he was Senior Vice President and
Senior Portfolio Manager for the Investment Management Group at NationsBank. Mr.
Ahnrud has worked for the Investment Management Group at NationsBank since 1985
where his
17
<PAGE>
responsibilities initially included institutional investment management sales
and later involved high yield credit analysis. Mr. Ahnrud received a dual B.S.
in Finance and Investments from Babson College and an M.B.A. from Duke
University, Fuqua School of Business. He holds the Chartered Financial Analyst
designation and is a member of the Association for Investment Management and
Research as well as the North Carolina Society of Financial Analysts, Inc.
Gregory H. Cobb is a Senior Product Manager, Fixed Income Management for
TradeStreet and Senior Portfolio Manager for Nations Strategic Fixed Income
Fund. Mr. Cobb has been Portfolio Manager for Nations Strategic Fixed Income
Fund since 1995. Prior to assuming his position with TradeStreet, he was Vice
President and Senior Portfolio Manager for the Investment Management Group at
NationsBank. Mr. Cobb has worked in the investment community since 1987. His
past experience includes portfolio management of intermediate duration and
insurance products for Trust Company Bank and Barnett Bank Trust Company Inc.
Mr. Cobb received a B.A. in Economics from the University of North Carolina at
Chapel Hill.
John S. Swaim is a Senior Product Manager, Fixed Income Management for
TradeStreet and Senior Portfolio Manager for Nations Short-Intermediate
Government Fund and Nations Government Securities Fund. Mr. Swaim has been
Portfolio Manager for the Funds since 1995. Prior to assuming his position with
TradeStreet, he was Vice President and Senior Portfolio Manager for the
Investment Management Group at NationsBank. Mr. Swaim has worked in the
investment community since 1986. His past experience includes derivative
products manager for the NationsBank Texas Corporate Investment Division
portfolio. Mr. Swaim received a B.S. from University of North Texas and an
M.B.A. from University of Texas at Arlington.
Morrison & Foerster LLP, counsel to Nations Fund and special counsel to
NationsBank, has advised Nations Fund and NationsBank that NationsBank and its
affiliates may perform the services contemplated by the Investment Advisory
Agreements and this Prospectus without violation of the Glass-Steagall Act. Such
counsel has pointed out, however, that there are no controlling judicial or
administrative interpretations or decisions and that future judicial or
administrative interpretations of, or decisions relating to, present federal or
state statutes, including the Glass-Steagall Act, and regulations relating to
the permissible activities of banks and their subsidiaries or affiliates, as
well as future changes in such statutes, regulations and judicial or
administrative decisions or interpretations, could prevent such entities from
continuing to perform, in whole or in part, such services. If any such entity
were prohibited from performing any such services, it is expected that new
agreements would be proposed or entered into with another entity or entities
qualified to perform such services.
OTHER SERVICE PROVIDERS: Stephens Inc. ("Stephens"), with principal offices at
111 Center Street, Little Rock, Arkansas 72201, serves as the administrator of
Nations Fund pursuant to Administration Agreements. Pursuant to the terms of the
Administration Agreements, Stephens provides various administrative and
corporate secretarial services to the Funds, including providing general
oversight of other service providers, office space, utilities and various legal
and administrative services in connection with the satisfaction of various
regulatory requirements applicable to the Funds.
First Data Investor Services Group, Inc. ("First Data"), formerly The
Shareholder Services Group, Inc., a wholly owned subsidiary of First Data
Corporation, with principal offices at One Exchange Place, Boston, Massachusetts
02109, serves as the co-administrator of the Funds pursuant to Co-Administration
Agreements. Under the terms of the Co-Administration Agreements, First Data
provides various administrative and accounting services to the Funds, including
performing the calculations necessary to determine net asset values and
dividends, preparing tax returns and financial statements, maintaining the
portfolio records and certain general accounting records for the Funds.
For the services rendered pursuant to the Administration and Co-Administration
Agreements, Stephens and First Data are entitled to
18
<PAGE>
receive a combined fee at the annual rate of up to 0.10% of each Fund's average
daily net assets.
For the fiscal period from December 1, 1995 to March 31, 1996, after waivers,
Nations Fund Trust paid its administrators combined fees at the rate of 0.10% of
the average daily net assets of Nations Short-Intermediate Government Fund,
Nations Short-Term Income Fund, Nations Diversified Income Fund, and Nations
Strategic Fixed Income Fund.
For the fiscal period from June 1, 1995 to March 31, 1996, after waivers,
Nations Fund, Inc. paid its administrator combined fees at the rate of 0.10% of
the average daily net assets of Nations Government Securities Fund.
NationsBank serves as sub-administrator for Nations Fund pursuant to a
Sub-Administration Agreement. Pursuant to the terms of the Sub-Administration
Agreement, NationsBank assists Stephens in supervising, coordinating and
monitoring various aspects of the Funds' administrative operations. For
providing such services, NationsBank shall be entitled to receive a monthly fee
from Stephens based on an annual rate of 0.01% of the Funds' average daily net
assets.
Shares of the Funds are sold on a continuous basis by Stephens, as the Funds'
sponsor and distributor. Stephens is a registered broker/dealer with principal
offices at 111 Center Street, Little Rock, Arkansas 72201. Nations Fund has
entered into a distribution agreement with Stephens which provides that Stephens
has the exclusive right to distribute shares of the Funds. Stephens may pay
service fees or commissions to selling agents that assist customers in
purchasing Investor Shares. See "Shareholder Servicing And Distribution Plans."
NationsBank of Texas, N.A., ("NationsBank of Texas", or the "Custodian"), serves
as the Funds' custodian. NationsBank of Texas is located at 1401 Elm Street,
Dallas, Texas 75202 and is a wholly owned subsidiary of NationsBank Corporation.
In return for providing custodial services, NationsBank of Texas is entitled to
receive, in addition to out-of-pocket expenses, fees payable monthly (i) at the
rate of 1.25% of 1% of the average daily net assets of each Fund, (ii) $10.00
per repurchase collateral transaction by the Funds, and (iii) $15.00 per
purchase, sale and maturity transaction involving the Funds.
First Data serves as transfer agent (the "Transfer Agent") for the Funds'
Investor C Shares. The Transfer Agent is located at One Exchange Place, Boston,
Massachusetts 02109.
Price Waterhouse LLP serves as independent accountant to Nations Fund. Its
address is 160 Federal Street, Boston, Massachuetts 02110.
EXPENSES: The accrued expenses of each Fund, as well as certain expenses
attributable to Investor C Shares, are deducted from accrued income before
dividends are declared. Each fund's expenses include, but are not limited to:
fees paid to the Adviser, NationsBank, Stephens and First Data; interest;
trustees' and directors' fees; federal and state securities registration and
qualification fees; brokerage fees and commissions; costs of preparing and
printing prospectuses for regulatory purposes and for distribution to existing
shareholders; charges of the Custodian and Transfer Agent; certain insurance
premiums; outside auditing and legal expenses; costs of shareholder reports and
shareholder meetings; other expenses which are not expressly assumed by the
Adviser, NationsBank, Stephens or First Data under their respective agreements
with Nations Fund; and any extraordinary expenses. Investor C Shares may bear
certain class specific retail transfer agency expenses and also bear certain
additional shareholder service and sales support costs. Any general expenses of
Nations Fund Trust and/or Nations Fund, Inc. that are not readily identifiable
as belonging to a particular investment portfolio are allocated among all
portfolios in the proportion that the assets of a portfolio bear to the assets
of Nations Fund Trust and Nations Fund, Inc. or in such other manner as the
Board of Trustees or Board of Directors deems appropriate.
19
<PAGE>
Organization And History
The Funds are members of the Nations Fund Family, which consists of Nations Fund
Trust, Nations Fund, Inc., Nations Fund Portfolios, Inc. and Nations
Institutional Reserves. The Nations Fund Family currently has more than 43
distinct investment portfolios and total assets in excess of $18 billion.
NATIONS FUND TRUST: Nations Fund Trust was organized as a Massachusetts business
trust on May 6, 1985. Nations Fund Trust's fiscal year end is March 31; prior to
1996, Nations Fund Trust's fiscal year end was November 30. The Funds currently
offer five classes of shares -- Investor A, Investor C, Investor N, Primary A
and Primary B Shares. This Prospectus relates only to the Investor C Shares of
Nations Short-Term Income Fund, Nations Diversified Income Fund, Nations
Strategic Fixed Income Fund and Nations Short-Intermediate Government Fund of
Nations Fund Trust. To obtain additional information regarding the Funds' other
classes of shares which may be available to you, contact your Selling Agent (as
defined below) or Nations Fund at 1-800-321-7854.
Each share is without par value, represents an equal proportionate interest in
the related fund with other shares of the same class, and is entitled to such
dividends and distributions out of the income earned on the assets belonging to
such fund as are declared in the discretion of Nations Fund Trust's Board of
Trustees. Nations Fund Trust's Declaration of Trust authorizes the Board of
Trustees to classify or reclassify any class of shares into one or more series
of shares.
Shareholders are entitled to one vote for each full share held and a
proportionate fractional vote for each fractional share held. Shareholders of
each fund of Nations Fund Trust will vote in the aggregate and not by fund, and
shareholders of each fund will vote in the aggregate and not by class except as
otherwise expressly required by law or when the Board of Trustees determines
that the matter to be voted on affects only the interests of shareholders of a
particular fund or class. See the related SAI for examples of when the 1940 Act
requires voting by fund.
As of July 15, 1996, NationsBank and its affiliates possessed or shared power to
dispose or vote with respect to more than 25% of the outstanding shares of
Nations Fund Trust and therefore could be considered to be a controlling person
of Nations Fund Trust for purposes of the 1940 Act. For more detailed
information concerning the percentage of each class or series of shares over
which NationsBank and its affiliates possessed or shared power to dispose or
vote as of a certain date, see Nations Fund Trust's related SAI.
Nations Fund Trust does not presently intend to hold annual meetings except as
required by the 1940 Act. Shareholders will have the right to remove Trustees.
Nations Fund Trust's Code of Regulations provides that special meetings of
shareholders shall be called at the written request of the shareholders entitled
to vote at least 10% of the outstanding shares of Nations Fund Trust entitled to
be voted at such meeting.
NATIONS FUND, INC.: Nations Fund, Inc. was incorporated in Maryland on December
13, 1983, but had no operations prior to December 15, 1986. Nations Fund, Inc.'s
fiscal year end is March 31; prior to 1996, Nations Fund, Inc.'s fiscal year end
was May 31. As of the date of this Prospectus, the authorized capital stock of
Nations Fund, Inc. consists of 270,000,000,000 shares of common stock, par value
of $.001 per share, which are divided into series or funds each of which
consists of separate classes of shares. This Prospectus relates only to the
Investor C Shares of Nations Government Securities Fund of Nations Fund, Inc. To
obtain additional information regarding the Fund's other classes of shares which
may be available to you, contact your Selling Agent (as defined below) or
Nations Fund at 1-800-321-7854.
Shares of each fund and class have equal rights with respect to voting, except
that the holders of shares of a particular fund or class will have the
20
<PAGE>
exclusive right to vote on matters affecting only the rights of the holders of
such fund or class. In the event of dissolution or liquidation, holders of each
class will receive pro rata, subject to the rights of creditors, (a) the
proceeds of the sale of that portion of the assets allocated to that class held
in the respective fund of Nations Fund, Inc., less (b) the liabilities of
Nations Fund, Inc. attributable to the respective fund or class or allocated
among the funds or classes based on the respective liquidation value of each
fund or class.
Shareholders of Nations Fund, Inc. do not have cumulative voting rights, and
therefore the holders of more than 50% of the outstanding shares of all funds
voting together for election of directors may elect all of the members of the
Board of Directors of Nations Fund, Inc. Meetings of shareholders may be called
upon the request of 10% or more of the outstanding shares of Nations Fund, Inc.
There are no preemptive rights applicable to any of Nations Fund, Inc.'s shares.
Nations Fund, Inc.'s shares, when issued, will be fully paid and non-assessable.
As of July 15, 1996, NationsBank and its affiliates possessed or shared power to
dispose of or vote with respect to more than 25% of the outstanding shares of
Nations Fund, Inc. and therefore could be considered to be a controlling person
of Nations Fund, Inc. for purposes of the 1940 Act. For more detailed
information concerning the percentage of each class or series over which
NationsBank and its affiliates possessed or shared power to dispose or vote as
of a certain date, see Nations Fund, Inc.'s SAI. It is anticipated that Nations
Fund, Inc. will not hold annual shareholder meetings on a regular basis unless
required by the 1940 Act or Maryland law.
Because this Prospectus combines disclosure on two separate investment
companies, there is a possibility that one investment company could become
liable for a misstatement, inaccuracy or incomplete disclosure in this
Prospectus concerning the other investment company. Nations Fund Trust and
Nations Fund, Inc. have entered into an indemnification agreement that creates a
right of indemnification from the investment company responsible for any such
misstatement, inaccuracy or incomplete disclosure that may appear in this
Prospectus.
PENDING LEGAL PROCEEDINGS: A purported class action lawsuit against, among
others, Nations Government Securities Fund and Nations Short-Intermediate
Government Fund was filed by Lawrence Bergelt on May 21, 1996. The complaint was
amended and consolidated on July 11, 1996 in the United States District Court
for the Middle District of Florida, Tampa Division by Mr. Bergelt and others in
an action against the two funds, NationsBank Corporation and certain of its
affiliates, Dean Witter Distributors and certain of its affiliates, and Stephens
Inc. (Case No. 94-995-Civ.-T-23E). As relevant to Nations Government Securities
Fund and Nations Short-Intermediate Government Fund, plaintiffs allege that,
among other things, defendants violated the Securities Exchange Act of 1934 and
various state securities fraud statutes by employing a scheme to defraud
plaintiffs into purchasing shares of the funds and making untrue statements of
material fact and omitting to state material facts in connection with sales of
shares of the funds. Plaintiffs further allege that, among other things,
defendants concealed the risks associated with such funds by blurring the
distinctions between banks and non-bank subsidiaries and by obscuring the
differences between traditional, federally insured bank products and uninsured,
non-depository products.
21
<PAGE>
About Your Investment
How To Buy Shares
The Funds have established various procedures for purchasing Investor C Shares
in order to accommodate different investors. Purchase orders for Investor C
Shares may be placed through banks, broker/dealers or other financial
institutions (including certain affiliates of NationsBank) that have entered
into a servicing agreement ("Servicing Agreement") with NationsBank ("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 reserves the right to redeem the shares held by
such plans on 60 days' written notice. The minimum subsequent investment is
$100, except for investments pursuant to the Systematic Investment Plan
described below.
Investor C Shares are purchased at net asset value per share. Purchases may be
effected on days on which the New York Stock Exchange (the "Exchange") is open
for business (a "Business Day").
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 Investor C Shares. In addition, banks,
broker/dealers or other financial institutions (including certain affiliates of
NationsBank) that have entered into Servicing Agreements with Nations Fund
("Servicing Agents") will provide various shareholder services for their
Customers who own Investor C Shares. Servicing Agents and Selling Agents are
sometimes referred to hereafter as "Agents." From time to time the Agents,
Stephens and Nations Fund may agree to voluntarily reduce the maximum fees
payable for sales support or shareholder services.
Nations Fund and Stephens reserve the right to reject any purchase order. The
issuance of Investor C Shares is recorded on the books of the Funds, and share
certificates are not issued unless expressly requested in writing. Certificates
are not issued for fractional shares.
EFFECTIVE TIME OF PURCHASES: Purchase orders for Investor C Shares of the Funds
which are received by Stephens or by the Transfer Agent before the close of
regular trading hours on the Exchange (currently 4:00 p.m., Eastern time) on any
Business Day are priced according to the net asset value determined on that day
but are not executed until 4:00 p.m., Eastern time, on the Business Day on which
immediately available funds in payment of the purchase price are received by the
Funds' Custodian. Such payment must be received no later than 4:00 p.m., Eastern
time, by the third Business Day following receipt of the order. If funds are not
received by such date, the order will not be accepted and notice thereof will be
given to the Agent placing the order. Payment for orders which are not received
or accepted will be returned after prompt inquiry to the sending Agent.
The Agents are responsible for transmitting orders for purchases of Investor C
Shares by their Customers, and delivering required funds,
22
<PAGE>
on a timely basis. Stephens is responsible for transmitting orders it receives
to Nations Fund.
SYSTEMATIC INVESTMENT PLAN: Under the Funds' Systematic Investment Plan ("SIP")
a shareholder may automatically purchase Investor C Shares. On a bi-monthly,
monthly or quarterly basis, a shareholder may direct cash to be transferred
automatically from his/her checking or savings account at any bank which is a
member of the Automated Clearing House to his/her Fund account. Transfers will
occur on or about the 15th and/or 30th day of the applicable month. The
systematic investment amount may be in any amount from $25 to $100,000. For more
information concerning the SIP, contact your Agent.
TELEPHONE TRANSACTIONS: Investors may effect purchases, redemptions (up to
$50,000) and exchanges by telephone. See "How To Redeem Shares" and "How To
Exchange Shares" below. If a shareholder desires to elect the telephone
transaction feature after opening an account, a signature guarantee will be
required. Shareholders should be aware that by using the telephone transaction
feature, such shareholders may be giving up a measure of security that they may
have if they were to authorize written requests only. A shareholder may bear the
risk of any resulting losses from a telephone transaction. Nations Fund will
employ reasonable procedures to confirm that instructions communicated by
telephone are genuine, and if Nations Fund and its service providers fail to
employ such measures, they may be liable for any losses due to unauthorized or
fraudulent instructions. Nations Fund requires a form of personal identification
prior to acting upon instructions received by telephone and provides written
confirmation to shareholders of each telephone share transaction. In addition,
Nations Fund reserves the right to record all telephone conversations.
How To Redeem Shares
Redemption orders should be transmitted by telephone or in writing through the
same Agent that transmitted the original purchase order. Redemption orders are
effected at the net asset value per share next determined after receipt of the
order by Stephens or by the Transfer Agent, less any applicable CDSC. The Agents
are responsible for transmitting redemption orders to Stephens or to the
Transfer Agent and for crediting their Customers' accounts with the redemption
proceeds on a timely basis. No charge for wiring redemption payments is imposed
by Nations Fund. Except for any CDSC which may be applicable upon redemption of
Investor C Shares, as described below, there is no redemption charge.
Redemption proceeds are normally wired to the redeeming Agent within three
Business Days after receipt of the order by Stephens or by the Transfer Agent.
However, redemption proceeds for shares purchased by check may not be remitted
until at least 15 days after the date of purchase to ensure that the check has
cleared; a certified check, however, is deemed to be cleared immediately.
Nations Fund may redeem a shareholder's Investor C Shares upon 60 days' written
notice if the balance in the shareholder's account drops below $500 as a result
of redemptions. Share balances also may be redeemed at the direction of an Agent
pursuant to arrangements between the Agent and its Customers. Nations Fund also
may redeem shares of a Fund involuntarily or make payment for redemption in
readily marketable securities or other property under certain circumstances in
accordance with the 1940 Act.
Prior to effecting a redemption of Investor C Shares represented by
certificates, the Transfer Agent must have received such certificates at its
principal office. All such certificates must be endorsed by the redeeming
shareholder or accompanied by a signed stock power, in each instance with the
signature guaranteed by a commercial bank or a member of a major stock exchange,
unless other arrangements satisfactory to Nations Fund have previously been
made. Nations Fund may require any additional
23
<PAGE>
information reasonably necessary to evidence that a redemption has been duly
authorized.
CONTINGENT DEFERRED SALES CHARGE: Subject to certain waivers, Investor C Shares
of the Funds that are redeemed within one year of the date of purchase will be
subject to a CDSC equal to 0.50% of the lesser of the net asset value or the
purchase price of the shares being redeemed. Investor C Shares purchased prior
to January 1, 1996 remain subject to the 1.00% CDSC (except for Nations
Short-Term Income Fund). No CDSC is imposed on increases in net asset value
above the initial purchase price, including shares acquired by reinvestment of
distributions.
Solely for purposes of determining the period of time that has elapsed from the
purchase of any Investor Shares, all purchases are deemed to have been made on
the trade date of the transaction. In determining whether a CDSC is applicable
to a redemption, the calculation will be made in the manner that results in the
lowest possible charge being assessed. In this regard, it will be assumed that
the redemption is first of shares held for the longest period of time or shares
acquired pursuant to reinvestment of dividends or distributions. The charge will
not be applied to dollar amounts representing an increase in the net asset value
since the time of purchase.
The CDSC will be waived on redemptions of Investor C Shares (i) following the
death or disability (as defined in the Internal Revenue Code of 1986, as amended
(the "Code")) of a shareholder (including a registered joint owner), (ii) in
connection with the following retirement plan distributions: (a) by qualified
retirement plans, (except in cases of plan level terminations); (b)
distributions from an IRA following attainment of age 59 1/2; (c) a tax-free
return of an excess contribution to an IRA, and (d) distributions from a
qualified retirement plan that are not subject to the 10% additional Federal
withdrawal tax pursuant to Section 72(t)(2) of the Code, (iii) effected pursuant
to Nations Fund's right to liquidate a shareholder's account, including
instances where the aggregate net asset value of the Investor C Shares held in
the account is less than the minimum account size, (iv) in connection with the
combination of Nations Fund with any other registered investment company by
merger, acquisition of assets or by any other transaction, and (v) effected
pursuant to the Automatic Withdrawal Plan discussed below, provided that such
redemptions do not exceed, on an annual basis, 12% of the net asset value of the
Investor C Shares in the account. Shareholders are responsible for providing
evidence sufficient to establish that they are eligible for any waiver of the
CDSC. Nations Fund may terminate any waiver of the CDSC by providing notice in
the Prospectus, but any such termination would affect only shares purchased
after such termination.
Within 120 days after a redemption of Investor C Shares of a Fund, a shareholder
may reinvest any portion of the proceeds of such redemption in Investor C Shares
of the same Fund. The amount which may be so reinvested is limited to an amount
up to, but not exceeding, the redemption proceeds (or to the nearest full share
if fractional shares are not purchased). A shareholder exercising this privilege
would receive a pro rata credit for any CDSC paid in connection with the prior
redemption. A shareholder may not exercise this privilege with the proceeds of a
redemption of shares previously purchased through the reinvestment privilege. In
order to exercise this privilege, a written order for the purchase of Investor C
Shares must be received by the Transfer Agent or by Stephens within 120 days
after the redemption.
AUTOMATIC WITHDRAWAL PLAN: An Automatic Withdrawal Plan ("AWP") may be
established by a new or existing shareholder of the Funds if the value of the
Investor C Shares in his/her accounts within the Nations Fund Family (valued at
the net asset value at the time of the establishment of the AWP) equals $10,000
or more. Investor C Shares redeemed under the AWP will not be subject to a CDSC,
provided that the shares so redeemed do not exceed, on an annual basis, 12% of
the net asset value of the and Investor C Shares in the account. Otherwise, any
applicable CDSC will be imposed on shares redeemed under the AWP. Shareholders
who elect to establish an AWP may receive a monthly, quarterly or annual check
or automatic transfer to a checking or savings account in a stated amount of not
less than $25 on or about
24
<PAGE>
the 10th or 25th day of the applicable month of withdrawal. Investor C Shares
will be redeemed (net of any applicable CDSC) as necessary to meet withdrawal
payments. Withdrawals will reduce principal and may eventually deplete the
shareholder's account. If a shareholder desires to establish an AWP after
opening an account, a signature guarantee will be required. An AWP may be
terminated by a shareholder on 30 days' written notice to his/her Agent or by
Nations Fund at any time.
How To Exchange Shares
The exchange feature enables a shareholder of Investor C Shares of a Nations
Fund non-money market fund to acquire shares of the same class that are offered
by another non-money market fund of Nations Fund or Investor D Shares of any
Nations Fund money market fund when he or she believes that a shift between
funds is an appropriate investment decision. A qualifying exchange is based on
the next calculated net asset value per share of each fund after the exchange
order is received.
No CDSC will be imposed in connection with an exchange of Investor C Shares that
meets the requirements discussed in this section.
If a shareholder acquires Investor C Shares of a Nations Fund non-money market
fund or Investor D Shares of a Nations Fund money market fund through an
exchange, the CDSC applicable to the original shares purchased will be applied
to any redemption of the acquired shares (except for exchanges of Nations
Short-Term Income Fund shares purchased prior to January 1, 1996, which will be
subject to the CDSC schedule applicable to the acquired Fund). Additionally,
when an investor exchanges Investor C Shares of a Nations Fund non-money market
fund for shares of the same class of another non-money market fund or Investor D
Shares of any money market fund of Nations Fund, the remaining period of time
(if any) that the CDSC is in effect will be computed from the time of the
initial purchase of the previously held Investor C Shares (except for shares of
Nations Short-Term Income Fund purchased prior to January 1, 1996). If an
investor exchanges Investor C Shares of the Nations Short-Term Income Fund
purchased prior to January 1, 1996 for shares of the same class of another
non-money market fund, the remaining period of time that the CDSC applicable to
the acquired shares is in effect will be computed from the time of the exchange.
AUTOMATIC EXCHANGE FEATURE: Under the Funds' Automatic Exchange Feature ("AEF")
a shareholder may automatically exchange at least $25 on a monthly or quarterly
basis. A shareholder may direct proceeds to be exchanged from one Nations Fund
to another as allowed by the applicable exchange rules within the prospectus.
Exchanges will occur on or about the 15th or 30th day of the applicable month.
The shareholder must have an existing position in both Funds in order to
establish the AEF. This feature may be established by directing a request to the
Transfer Agent by telephone or in writing. For additional information, an
investor should contact his/her Selling Agent.
GENERAL: The Funds and each of the other funds of Nations Fund may limit the
number of times this exchange feature may be exercised by a shareholder within a
specified period of time. Also, the exchange feature may be terminated or
revised at any time by Nations Fund upon such notice as may be required by
applicable regulatory agencies (presently 60 days for termination or material
revision), absent unusual circumstances.
The current prospectus for each fund of Nations Fund describes its investment
objective and policies, and shareholders should obtain a copy and examine it
carefully before investing. Exchanges are subject to the minimum investment
requirement and any other conditions imposed by each fund. In the case of any
shareholder holding a share certificate or certificates, no exchanges may be
made until all applicable share certificates have been received by the Transfer
Agent
25
<PAGE>
and deposited in the shareholder's account. An exchange will be treated for
Federal income tax purposes the same as a redemption of shares, on which the
shareholder may realize a capital gain or loss. However, the ability to deduct
capital losses on an exchange may be limited in situations where there is an
exchange of shares within 90 days after the shares are purchased.
The Investor C Shares exchanged must have a current value of at least $1,000
(except for exchanges through the AEF). Nations Fund reserves the right to
reject any exchange request. Only shares that may legally be sold in the state
of the investor's residence may be acquired in an exchange. Only shares of a
class that is accepting investments generally may be acquired in an exchange. An
investor may telephone an exchange request by calling his/her Selling or
Servicing Agent which is responsible for transmitting such request to Stephens
or to the Transfer Agent.
During periods of significant economic or market change, telephone exchanges may
be difficult to complete. In such event, shares may be exchanged by mailing the
request directly to the Selling or Servicing Agent through which the original
shares were purchased. An investor should consult his/her Selling or Servicing
Agent or Stephens for further information regarding exchanges.
Shareholder Servicing And Distribution
Plans
Pursuant to Rule 12b-1 under the 1940 Act, the Trustees have approved a
Distribution Plan with respect to the Investor C Shares of each Fund. Pursuant
to the Distribution Plan, each Fund may compensate or reimburse Stephens for any
activities or expenses primarily intended to result in the sale of the Fund's
Investor C Shares. Payments under the Distribution Plan will be calculated daily
and paid monthly at a rate or rates set from time to time by the Trustees
provided that the annual rate may not exceed 0.75% of the average daily net
asset value of each Fund's Investor C Shares.
The fees payable under the Distribution Plan are used (i) to compensate Selling
Agents for providing sales support assistance relating to Investor C Shares,
(ii) to pay for promotional activities intended to result in the sale of
Investor C Shares such as the preparation, printing and distribution of
prospectuses to other than current shareholders, and (iii) to compensate Selling
Agents for providing sales support services with respect to their Customers who
are, from time to time, beneficial and record holders of Investor C Shares.
Currently, substantially all fees paid pursuant to the Distribution Plan are
paid to compensate Selling Agents for providing the services described in (i)
and (iii) above, with any remaining amounts being used by Stephens to partially
defray other expenses incurred by Stephens in distributing Investor C Shares.
Fees received by Stephens pursuant to the Distribution Plan will not be used to
pay any interest expenses, carrying charges or other financing costs (except to
the extent permitted by the SEC) and will not be used to pay any general and
administrative expenses of Stephens.
Nations Fund and Stephens may suspend or reduce payments under the Distribution
Plan at any time, and payments are subject to the continuation of the
Distribution Plan described above and the terms of the Sales Support Agreement
between Selling Agents and Stephens. See the relevant SAI for more details on
the Distribution Plan.
The Trustees and Directors also have approved a shareholder servicing plan
("Investor C Servicing Plan") for each Fund which permits the Funds to
compensate Servicing Agents for services provided to their Customers that own
Investor C Shares. Payments under the Investor C Servicing Plan are calculated
daily and paid monthly at a rate or rates set from time to time by the Funds,
provided that the annual rate may
26
<PAGE>
not exceed 0.25% of the average daily net asset value of the Investor C Shares.
The fees payable under the Investor C Servicing Plan are used primarily to
compensate or reimburse Servicing Agents for shareholder services provided, and
related expenses incurred, by such Servicing Agents. The shareholder services
provided by Servicing Agents may include: (i) aggregating and processing
purchase and redemption requests for Investor C Shares from Customers and
transmitting net purchase and redemption orders to Stephens or the Transfer
Agent; (ii) providing Customers with a service that invests the assets of their
accounts in Investor C Shares pursuant to specific or preauthorized
instructions; (iii) processing dividend and distribution payments from a Fund on
behalf of Customers; (iv) providing information periodically to Customers
showing their positions in Investor C Shares; (v) arranging for bank wires; and
(vi) providing general shareholder liaison services.
Nations Fund may suspend or reduce payments under the Investor C Servicing Plan
at any time, and payments are subject to the continuation of the Investor C
Servicing Plan described above and the terms of the Servicing Agreements. See
the SAI for more details on the Investor C Servicing Plan.
Nations Fund understands that Agents may charge fees to their Customers who are
the owners of Investor Shares for various services provided in connection with a
Customer's account. These fees would be in addition to any amounts received by a
Selling Agent under its Sales Support Agreement with Stephens or by a Servicing
Agent under its Servicing Agreement with Nations Fund. The Sales Support
Agreements and Servicing Agreements require Agents to disclose to their
Customers any compensation payable to the Agent by Stephens or Nations Fund and
any other compensation payable by the Customers for various services provided in
connection with their accounts. Customers should read this Prospectus in light
of the terms governing their accounts with their Agents.
Stephens may, from time to time, at its expense or as an expense for which it
may be reimbursed under the Distribution Plan, pay a bonus or other
consideration or incentive to Agents who sell a minimum dollar amount of shares
of a Fund during a specified period of time. Stephens also may, from time to
time, pay additional consideration to Agents not to exceed 0.75% of the offering
price per share on all sales of Investor C Shares as an expense of Stephens or
for which Stephens may be reimbursed under the Distribution Plan or upon receipt
of a CDSC. Any such additional consideration or incentive program may be
terminated at any time by Stephens.
In addition, Stephens has established a non-cash compensation program pursuant
to which broker/dealers or financial institutions that sell shares of the Funds
may earn additional compensation in the form of trips to sales seminars or
vacation destinations, tickets to sporting events, theater or other
entertainment, opportunities to participate in golf or other outings and gift
certificates for meals or merchandise. This non-cash compensation program may be
amended or terminated at any time by Stephens.
How The Funds Value Their Shares
The Funds calculate the net asset value of a share of each class by dividing the
total value of its assets, less liabilities, by the number of shares in the
class outstanding. Shares are valued as of the close of regular trading on the
Exchange (currently 4:00 p.m., Eastern time) on each Business Day. Currently,
the days on which the Exchange is closed (other than weekends) are: New Year's
Day, Presidents' Day, Good Friday, Memorial Day (observed), Independence Day,
Labor Day, Thanksgiving Day and Christmas Day.
Portfolio securities for which market quotations are readily available are
valued at market value. Short-term investments that will mature in 60 days or
less are valued at amortized cost, which approximates market value. All other
securities and assets are valued at their fair value following procedures
approved by the Trustees or Directors.
27
<PAGE>
How Dividends And Distributions Are
Made; Tax Information
DIVIDENDS AND DISTRIBUTIONS: Dividends from net investment income are declared
daily and paid monthly by the Funds. The Funds' net realized capital gains
(including net short-term capital gains) are distributed at least annually.
Distributions from capital gains are made after applying any available capital
loss carryovers. Distributions paid by the Funds with respect to one class of
shares may be greater or less than those paid with respect to another class of
shares due to the different expenses of the different classes.
The net asset value of Investor C Shares will be reduced by the amount of any
dividend or distribution. Certain Selling and Servicing Agents may provide for
the reinvestment of dividends in the form of additional Investor Shares of the
same class in the same Fund. Dividends and distributions are paid in cash within
five Business Days of the end of the month or quarter to which the dividend
relates. Dividends and distributions payable to a shareholder are paid in cash
within five Business Days after a shareholder's complete redemption of his/her
Investor C Shares.
TAX INFORMATION: Each Fund intends to qualify as a "regulated investment
company" under the Code. Such qualification relieves a Fund of liability for
Federal income tax on amounts distributed in accordance with the Code.
The Funds intend to distribute substantially all of their investment company
taxable income and net tax-exempt income each taxable year. Distributions by a
Fund of its net investment income (including net foreign currency gains) and the
excess, if any, of its net short-term capital gain over its net long-term
capital loss are taxable as ordinary income to shareholders who are not
currently exempt from Federal income tax, whether such income is received in
cash or reinvested in additional shares. (Federal income tax for distributions
to an IRA are generally deferred under the Code.) Corporate investors may be
entitled to the dividends-received deduction on a portion of the dividends from
those Funds investing in the stock of domestic corporations.
Substantially all of the Funds' net realized long-term capital gains will be
distributed at least annually. The Funds will generally have no tax liability
with respect to such gains, and the distributions will be taxable to
shareholders who are not exempt from Federal income taxes as long-term capital
gains, regardless of how long the shareholders have held the Funds' shares and
whether such gains are received in cash or reinvested in additional shares.
Each year, shareholders will be notified as to the amount and Federal tax status
of all dividends and capital gains paid during the prior year. Such dividends
and capital gains may be subject to state and local taxes.
Dividends declared in October, November, or December of any year payable to
shareholders of record on a specified date in such months will be deemed to have
been received by shareholders and paid by the Funds on December 31 of such year
in the event such dividends are actually paid during January of the following
year.
Federal law requires Nations Fund to withhold 31% from any dividends (other than
exempt-interest dividends) paid by Nations Fund and/or redemptions (including
exchange redemptions) that occur in certain shareholder accounts if the
shareholder has not properly furnished a certified correct Taxpayer
Identification Number and has not certified that withholding does not apply, or
if the Internal Revenue Service has notified Nations Fund that the Taxpayer
Identification Number listed on a shareholder account is incorrect according to
its records, or that the shareholder is subject to backup withholding. Amounts
withheld are applied to the shareholder's Federal tax liability, and a refund
may be obtained from the Internal Revenue Service if withholding results in
overpayment of taxes.
28
<PAGE>
Federal law also requires the Funds to withhold 30% or the applicable tax treaty
rate from dividends paid to certain nonresident alien, non-U.S. partnership and
non-U.S. corporation shareholder accounts.
The foregoing discussion is based on tax laws and regulations which were in
effect as of the date of this Prospectus and summarizes only some of the
important Federal tax considerations generally affecting the Funds and their
shareholders. It is not intended as a substitute for careful tax planning;
investors should consult their tax advisors with respect to their specific tax
situations as well as with respect to state and local taxes. Further tax
information is contained in the SAIs.
Appendix A -- Portfolio Securities
The following are summary descriptions of certain types of instruments in which
a Fund may invest. The "How Objectives Are Pursued" section of the Prospectus
identifies each Fund's permissible investments, and this SAI contains more
information concerning such investments.
ASSET-BACKED SECURITIES: Asset-backed securities arise through the grouping by
governmental, government-related, and private organizations of loans,
receivables, or other assets originated by various lenders. Asset-backed
securities consist of both mortgage- and non-mortgage backed securities.
Interests in pools of these assets may differ from other forms of debt
securities, which normally provide for periodic payment of interest in fixed
amounts with principal paid at maturity or specified call dates. Conversely,
asset-backed securities provide periodic payments which may consist of both
interest and principal payments.
The life of an asset-backed security varies depending upon rate of the
prepayment of the underlying debt instruments. The rate of such prepayments will
be a function of current market interest rates and other economic and
demographic factors. For example, falling interest rates generally result in an
increase in the rate of prepayments of mortgage loans while rising interest
rates generally decrease the rate of prepayments. An acceleration in prepayments
in response to sharply falling interest rates will shorten the security's
average maturity and limit the potential appreciation in the security's value
relative to a conventional debt security. Consequently, asset-backed securities
may not be as effective in locking in high, long-term yields. Conversely, in
periods of sharply rising rates, prepayments are generally slow, increasing the
security's average life and its potential for price depreciation.
MORTGAGE-BACKED SECURITIES: Mortgage-backed securities represent an ownership
interest in a pool of mortgage loans.
Mortgage pass-through securities may represent participation interests in pools
of residential mortgage loans originated by U.S. governmental or private lenders
and guaranteed, to the extent provided in such securities, by the U.S.
Government or one of its agencies, authorities or instrumentalities. Such
securities, which are ownership interests in the underlying mortgage loans,
differ from conventional debt securities, which provide for periodic payment of
interest in fixed amounts (usually semi-annually) and principal payments at
maturity or on specified call dates. Mortgage pass-through securities provide
for monthly payments that are a "pass-through" of the monthly interest and
principal payments (including any prepayments) made by the individual borrowers
on the pooled mortgage loans, net of any fees paid to the guarantor of such
securities and the servicer of the underlying mortgage loans.
The guaranteed mortgage pass-through securities in which a Fund may invest may
include those issued or guaranteed by the Government National Mortgage
Association, the Federal National Mortgage Association and the Federal Home Loan
Mortgage Corporation. Such Certificates are mortgage-backed securities which
represent a partial ownership interest in a pool
29
<PAGE>
of mortgage loans issued by lenders such as mortgage bankers, commercial banks
and savings and loan associations. Such mortgage loans may have fixed or
adjustable rates of interest.
The average life of a mortgage-backed security is likely to be substantially
less than the original maturity of the mortgage pools underlying the securities.
Prepayments of principal by mortgagors and mortgage foreclosures will usually
result in the return of the greater part of principal invested far in advance of
the maturity of the mortgages in the pool.
The yield which will be earned on mortgage-backed securities may vary from their
coupon rates for the following reasons: (i) Certificates may be issued at a
premium or discount, rather than at par; (ii) Certificates may trade in the
secondary market at a premium or discount after issuance; (iii) interest is
earned and compounded monthly which has the effect of raising the effective
yield earned on the Certificates; and (iv) the actual yield of each Certificate
is affected by the prepayment of mortgages included in the mortgage pool
underlying the Certificates and the rate at which principal so prepaid is
reinvested. In addition, prepayment of mortgages included in the mortgage pool
underlying a GNMA Certificate purchased at a premium may result in a loss to the
Fund.
Mortgage-backed securities issued by private issuers, whether or not such
obligations are subject to guarantees by the private issuer, may entail greater
risk than obligations directly or indirectly guaranteed by the U.S. Government.
Collateralized mortgage obligations or "CMOs" are debt obligations
collateralized by mortgage loans or mortgage pass-through securities (collateral
collectively hereinafter referred to as "Mortgage Assets"). Multi-class
pass-through securities are interests in a trust composed of Mortgage Assets and
all references herein to CMOs will include multi-class pass-through securities.
Payments of principal of and interest on the Mortgage Assets, and any
reinvestment income thereon, provide the funds to pay debt service on the CMOs
or make scheduled distribution on the multi-class pass-through securities.
Moreover, principal prepayments on the Mortgage Assets may cause the CMOs to be
retired substantially earlier than their stated maturities or final distribution
dates, resulting in a loss of all or part of the premium if any has been paid.
Interest is paid or accrues on all classes of the CMOs on a monthly, quarterly
or semiannual basis.
The principal and interest payments on the Mortgage Assets may be allocated
among the various classes of CMOs in several ways. Typically, payments of
principal, including any prepayments, on the underlying mortgages are applied to
the classes in the order of their respective stated maturities or final
distribution dates, so that no payment of principal is made on CMOs of a class
until all CMOs of other classes having earlier stated maturities or final
distribution dates have been paid in full.
Stripped mortgage-backed securities ("SMBS") are derivative multi-class mortgage
securities. A Fund will only invest in SMBS that are obligations backed by the
full faith and credit of the U.S. Government. SMBS are usually structured with
two classes that receive different proportions of the interest and principal
distributions from a pool of mortgage assets. A Fund will only invest in SMBS
whose mortgage assets are U.S. Government obligations.
A common type of SMBS will be structured so that one class receives some of the
interest and most of the principal from the Mortgage Assets, while the other
class receives most of the interest and the remainder of the principal. If the
underlying Mortgage Assets experience greater than anticipated prepayments of
principal, a Fund may fail to fully recoup its initial investment in these
securities. The market value of any class which consists primarily or entirely
of principal payments generally is unusually volatile in response to changes in
interest rates.
The average life of mortgage-backed securities varies with the maturities of the
underlying mortgage instruments. The average life is likely to be substantially
less than the original maturity of the mortgage pools underlying the securities
as the result of mortgage prepayments, mortgage refinancings, or foreclosures.
The rate
30
<PAGE>
of mortgage prepayments, and hence the average life of the certificates, will be
a function of the level of interest rates, general economic conditions, the
location and age of the mortgage and other social and demographic conditions.
Such prepayments are passed through to the registered holder with the regular
monthly payments of principal and interest and have the effect of reducing
future payments. Estimated average life will be determined by the Adviser and
used for the purpose of determining the average weighted maturity and duration
of the Funds. For additional information concerning mortgage-backed securities,
see the related SAI.
NON-MORTGAGE ASSET-BACKED SECURITIES: Non-mortgage asset-backed securities
include interests in pools of receivables, such as motor vehicle installment
purchase obligations and credit card receivables. Such securities are generally
issued as pass-through certificates, which represent undivided fractional
ownership interests in the underlying pools of assets. Such securities also may
be debt instruments, which are also known as collateralized obligations and are
generally issued as the debt of a special purpose entity organized solely for
the purpose of owning such assets and issuing such debt. Such securities also
may include instruments issued by certain trusts, partnerships or other special
purpose issuers, including pass-through certificates representing participations
in, or debt instruments backed by, the securities and other assets owned by such
issuers.
Non-mortgage-backed securities are not issued or guaranteed by the U.S.
Government or its agencies or instrumentalities; however, the payment of
principal and interest on such obligations may be guaranteed up to certain
amounts and for a certain time period by a letter of credit issued by a
financial institution (such as a bank or insurance company) unaffiliated with
the issuers of such securities.
The purchase of non-mortgage-backed securities raises considerations peculiar to
the financing of the instruments underlying such securities. For example, most
organizations that issue asset-backed securities relating to motor vehicle
installment purchase obligations perfect their interests in their respective
obligations only by filing a financing statement and by having the servicer of
the obligations, which is usually the originator, take custody thereof. In such
circumstances, if the servicer were to sell the same obligations to another
party, in violation of its duty not to do so, there is a risk that such party
could acquire an interest in the obligations superior to that of the holders of
the asset-backed securities. Also, although most such obligations grant a
security interest in the motor vehicle being financed, in most states the
security interest in a motor vehicle must be noted on the certificate of title
to perfect such security interest against competing claims of other parties. Due
to the larger number of vehicles involved, however, the certificate of title to
each vehicle financed, pursuant to the obligations underlying the asset-backed
securities, usually is not amended to reflect the assignment of the seller's
security interest for the benefit of the holders of the asset-backed securities.
Therefore, there is the possibility that recoveries on repossessed collateral
may not, in some cases, be available to support payments on those securities. In
addition, various state and Federal laws give the motor vehicle owner the right
to assert against the holder of the owner's obligation certain defenses such
owner would have against the seller of the motor vehicle. The assertion of such
defenses could reduce payments on the related asset-backed securities. Insofar
as credit card receivables are concerned, credit card holders are entitled to
the protection of a number of state and Federal consumer credit laws, many of
which give such holders the right to set off certain amounts against balances
owed on the credit card, thereby reducing the amounts paid on such receivables.
In addition, unlike most other asset-backed securities, credit card receivables
are unsecured obligations of the card holder.
BANK INSTRUMENTS: Bank instruments consist mainly of certificates of deposit,
time deposits and bankers' acceptances. Each Fund will limit its investments in
bank obligations so they do not exceed 25% of its total assets at the time of
purchase.
U.S. dollar-denominated obligations issued by foreign branches of domestic banks
("Eurodollar" obligations) and domestic branches of for-
31
<PAGE>
eign banks ("Yankee dollar" obligations), and other foreign obligations involve
special investment risk, including the possibility that liquidity could be
impaired because of future political and economic developments, the obligations
may be less marketable than comparable domestic obligations of domestic issuers,
a foreign jurisdiction might impose withholding taxes on interest income payable
on such obligations, deposits may be seized or nationalized, foreign
governmental restrictions such as exchange controls may be adopted which might
adversely affect the payment of principal of and interest on such obligations,
the selection of foreign obligations may be more difficult because there may be
less publicly available information concerning foreign issuers, there may be
difficulties in enforcing a judgment against a foreign issuer or the accounting,
auditing and financial reporting standards, practices and requirements
applicable to foreign issuers may differ from those applicable to domestic
issuers. In addition, foreign banks are not subject to examination by U.S.
Government agencies or instrumentalities.
BORROWINGS: When a Fund borrows money, the net asset value of a share may be
subject to greater fluctuation until the borrowing is paid off. The Funds may
borrow money from banks for temporary purposes in amounts of up to one-third of
their respective total assets, provided that borrowings in excess of 5% of the
value of the Fund's total assets must be repaid prior to the purchase of
portfolio securities. 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 and dollar roll transactions may be considered to
be borrowings. When a Fund invests in a reverse repurchase agreement, it sells a
portfolio security to another party, such as a bank or broker/dealer, in return
for cash, and agrees to buy the security back at a future date and price.
Reverse repurchase agreements may be used to provide cash to satisfy unusually
heavy redemption requests without having to sell portfolio securities, or for
other temporary or emergency purposes. Generally, the effect of such a
transaction is that the Funds can recover all or most of the cash invested in
the portfolio securities involved during the term of the reverse repurchase
agreement, while they will be able to keep the interest income associated with
those portfolio securities. Such transactions are only advantageous if the
interest cost to the Funds of the reverse repurchase transaction is less than
the cost of obtaining the cash otherwise.
At the time a Fund enters into a reverse repurchase agreement, it may establish
a segregated account with its custodian bank in which it will maintain cash,
U.S. Government Securities or other liquid high grade debt obligations equal in
value to its obligations in respect of reverse repurchase agreements. Reverse
repurchase agreements involve the risk that the market value of the securities a
Fund is obligated to repurchase under the agreement may decline below the
repurchase price. In the event the buyer of securities under a reverse
repurchase agreement files for bankruptcy or becomes insolvent, the Fund's use
of proceeds of the agreement may be restricted pending a determination by the
other party, or its trustee or receiver, whether to enforce the Fund's
obligation to repurchase the securities. In addition, there is a risk of delay
in receiving collateral or securities or in repurchasing the securities covered
by the reverse repurchase agreement or even of a loss of rights in the
collateral or securities in the event the buyer of the securities under the
reverse repurchase agreement files for bankruptcy or becomes insolvent. The
Funds only enter into reverse repurchase agreements (and repurchase agreements)
with counterparties that are deemed by the Adviser to be credit worthy. Reverse
repurchase agreements are speculative techniques involving leverage, and are
subject to asset coverage requirements if the Funds do not establish and
maintain a segregated account (as described above). Under the requirements of
the 1940 Act, the Funds are required to maintain an asset coverage (including
the proceeds of the borrowings) of at least 300% of all borrowings. Depending on
market conditions, the Fund's asset coverage and other factors at the time of a
reverse repurchase, the Funds may not establish a segregated account when the
Adviser believes
32
<PAGE>
it is not in the best interests of the Funds to do so. In this case, such
reverse repurchase agreements will be considered borrowings subject to the asset
coverage described above.
Dollar roll transactions consist of the sale by a Fund of mortgage-backed or
other asset-backed securities, together with a commitment to purchase similar,
but not identical, securities at a future date, at the same price. In addition,
a Fund is paid a fee as consideration for entering into the commitment to
purchase. If the broker/dealer to whom a Fund sells the security becomes
insolvent, the Fund's right to purchase or repurchase the security may be
restricted; the value of the security may change adversely over the term of the
dollar roll; the security that the Fund is required to repurchase may be worth
less than the security that the Fund originally held, and the return earned by
the Fund with the proceeds of a dollar roll may not exceed transaction costs.
COMMERCIAL INSTRUMENTS: Commercial instruments consist of short-term U.S.
dollar-denominated obligations issued by domestic corporations or foreign
corporations and foreign commercial banks.
Investments by a Fund in commercial paper will consist of issues rated in a
manner consistent with such Fund's investment policies and objective. In
addition, a Fund may acquire unrated commercial paper and corporate bonds that
are determined by the Adviser at the time of purchase to be of comparable
quality to rated instruments that may be acquired by a Fund. Commercial
instruments include variable-rate master demand notes, which are unsecured
instruments that permit the indebtedness thereunder to vary and provide for
periodic adjustments in the interest rate, and variable- and floating-rate
instruments.
CONVERTIBLE SECURITIES, PREFERRED STOCK, AND WARRANTS: Certain of the Funds may
invest in debt securities convertible into or exchangeable for equity
securities, preferred stocks or warrants. Preferred stocks are securities that
represent an ownership interest in a corporation providing the owner with claims
on a company's earnings and assets before common stock owners, but after bond or
other debt security owners. Warrants are options to buy a stated number of
shares of common stock at a specified price any time during the life of the
warrants.
FIXED INCOME INVESTING: The performance of the fixed income debt component of a
Fund's portfolio depends primarily on interest rate changes, the average
weighted maturity of the portfolio and the quality of the securities held. The
debt component of a Fund's portfolio will tend to decrease in value when
interest rates rise and increase when interest rates fall. A Fund's share price
and yield depend, in part, on the maturity and quality of its debt instruments.
FOREIGN CURRENCY TRANSACTIONS: Certain of the Funds may enter into foreign
currency exchange transactions to convert foreign currencies to and from the
U.S. dollar. A Fund either enters into these transactions on a spot (I.E., cash)
basis at the spot rate prevailing in the foreign currency exchange market, or
uses forward contracts to purchase or sell foreign currencies. A forward foreign
currency exchange contract is an obligation by a Fund to purchase or sell a
specific currency at a future date, which may be any fixed number of days from
the date of the contract.
Foreign currency hedging transactions are an attempt to protect a Fund against
changes in foreign currency exchange rates between the trade and settlement
dates of specific securities transactions or changes in foreign currency
exchange rates that would adversely affect a portfolio position or an
anticipated portfolio position. Although these transactions tend to minimize the
risk of loss due to a decline in the value of the hedged currency, at the same
time they tend to limit any potential gain that might be realized should the
value of the hedged currency increase. Neither spot transactions nor forward
foreign currency exchange contracts eliminate fluctuations in the prices of a
Fund's portfolio securities or in foreign exchange rates, or prevent loss if the
prices of these securities should decline.
A Fund will generally enter into forward currency exchange contracts only under
two circumstances: (i) when such Fund enters into a con-
33
<PAGE>
tract for the purchase or sale of a security denominated in a foreign currency,
to "lock" in the U.S. dollar price of the security; and (ii) when the Adviser
believes that the currency of a particular foreign country may experience a
substantial movement against another currency. Under certain circumstances, a
Fund may commit a substantial portion of its portfolio to the execution of these
contracts. The Adviser will consider the effects such a commitment would have on
the investment program of such Fund and the flexibility of such Fund to purchase
additional securities. Although forward contracts will be used primarily to
protect a Fund from adverse currency movements, they also involve the risk that
anticipated currency movements will not be accurately predicted. The Funds will
generally not enter into forward contracts with terms of greater than one year.
FOREIGN SECURITIES: Foreign securities include debt and equity obligations
(dollar- and non-dollar-denominated) of foreign corporations and banks as well
as obligations of foreign governments and their political subdivisions (which
will be limited to direct government obligations and government-guaranteed
securities). Such investments may subject a Fund to special investment risks,
including future political and economic developments, the possible imposition of
withholding taxes on interest income, possible seizure or nationalization of
foreign deposits, the possible establishment of exchange controls, or the
adoption of other foreign governmental restrictions which might adversely affect
the payment of principal and interest on such obligations. In addition, foreign
issuers in general may be subject to different accounting, auditing, reporting,
and record keeping standards than those applicable to domestic companies, and
securities of foreign issuers may be less liquid and their prices more volatile
than those of comparable domestic issuers.
Investments in foreign securities may present additional risks, whether made
directly or indirectly, including the political or economic instability of the
issuer or the country of issue and the difficulty of predicting international
trade patterns. In addition, there may be less publicly available information
about a foreign company than about a U.S. company. Further, foreign securities
markets are generally not as developed or efficient as those in the U.S., and in
most foreign markets volume and liquidity are less than in the United States.
Fixed commissions on foreign securities exchanges are generally higher than the
negotiated commissions on U.S. exchanges, and there is generally less government
supervision and regulation of foreign securities exchanges, brokers, and
companies than in the United States. With respect to certain foreign countries,
there is a possibility of expropriation or confiscatory taxation, limitations on
the removal of funds or other assets, or diplomatic developments that could
affect investments within those countries. Because of these and other factors,
securities of foreign companies acquired by a Fund may be subject to greater
fluctuation in price than securities of domestic companies.
FUTURES, OPTIONS AND OTHER DERIVATIVE INSTRUMENTS: Certain of the Funds may
attempt to reduce the overall level of investment risk of particular securities
and attempt to protect such Funds against adverse market movements by investing
in futures, options and other derivative instruments. These include the purchase
and writing of options on securities (including index options) and options on
foreign currencies, and investing in futures contracts for the purchase or sale
of instruments based on financial indices, including interest rate indices or
indices of U.S. or foreign government, equity or fixed income securities
("futures contracts"), options on futures contracts, forward contracts and swaps
and swap-related products such as interest rate swaps, currency swaps, caps,
collars and floors.
The use of futures, options, forward contracts and swaps exposes a Fund to
additional investment risks and transaction costs. If the Adviser incorrectly
analyzes market conditions or does not employ the appropriate strategy with
respect to these instruments, a Fund could be left in a less favorable position.
Additional risks inherent in the use of futures, options, forward contracts and
swaps include: imperfect correlation between the price of futures, options and
forward contracts and movements in the prices of
34
<PAGE>
the securities or currencies being hedged; the possible absence of a liquid
secondary market for any particular instrument at any time; and the possible
need to defer closing out certain hedged positions to avoid adverse tax
consequences. A Fund may not purchase put and call options which are traded on a
national stock exchange in an amount exceeding 5% of its net assets. Further
information on the use of futures, options and other derivative instruments, and
the associated risks, is contained in the SAIs.
ILLIQUID SECURITIES: Certain securities may be sold only pursuant to certain
legal restrictions, and may be difficult to sell. The Funds will not hold more
than 15% of the value of their respective net assets in securities that are
illiquid or such lower percentage as may be required by the states in which the
appropriate Fund sells its shares. Repurchase agreements, time deposits and
guaranteed investment contracts that do not provide for payment to a Fund within
seven days after notice, and illiquid restricted securities are subject to the
limitation on illiquid securities.
If otherwise consistent with their investment objectives and policies, certain
Funds may purchase securities that are not registered under the Securities Act
of 1933, as amended (the "1933 Act") but which can be sold to "qualified
institutional buyers" in accordance with Rule 144A 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.
LOWER-RATED DEBT SECURITIES: Nations Diversified Income Fund may invest in
lower-rated debt securities. Lower-rated, high-yielding securities are those
rated "Ba" or "B" by Moody's or "BB" or "B" by S&P which are commonly referred
to as "junk bonds." These bonds provide poor protection for payment of principal
and interest. Lower-quality bonds involve greater risk of default or price
changes due to changes in the issuer's creditworthiness than securities assigned
a higher quality rating. These securities are considered to have speculative
characteristics and indicate an aggressive approach to income investing. Each
Fund that may invest in lower-rated debt securities intends
35
<PAGE>
to limit their investments in lower-quality debt securities to 35% of assets.
The market for lower-rated securities may be thinner and less active than that
for higher quality securities, which can adversely affect the price at which
these securities can be sold. If market quotations are not available, these
lower-rated securities will be valued in accordance with procedures established
by the Funds' Boards, including the use of outside pricing services. Adverse
publicity and changing investor perceptions may affect the ability of outside
pricing services used by a Fund to value its portfolio securities, and a Fund's
ability to dispose of these lower-rated bonds.
The market prices of lower-rated securities may fluctuate more than higher-rated
securities and may decline significantly in periods of general economic
difficulty which may follow periods of rising interest rates. During an economic
downturn or a prolonged period of rising interest rates, the ability of issuers
of lower quality debt to service their payment obligations, meet projected
goals, or obtain additional financing may be impaired.
Since the risk of default is higher for lower-rated securities, the Adviser will
try to minimize the risks inherent in investing in lower-rated debt securities
by engaging in credit analysis, diversification, and attention to current
developments and trends affecting interest rates and economic conditions. The
Adviser will attempt to identify those issuers of high-yielding securities whose
financial condition is adequate to meet future obligations, have improved, or
are expected to improve in the future.
Unrated securities are not necessarily of lower quality than rated securities,
but they may not be attractive to as many buyers. Each Fund's policies regarding
lower-rated debt securities is not fundamental and may be changed at any time
without shareholder approval.
MONEY MARKET INSTRUMENTS: The term "money market instruments" refers to
instruments with remaining maturities of one year or less. Money market
instruments may include, among other instruments, certain U.S. Treasury
obligations, U.S. Government obligations, bank instruments, commercial
instruments, repurchase agreements and municipal securities. Such instruments
are described in this Appendix A.
MUNICIPAL SECURITIES: The two principal classifications of municipal securities
are "general obligation" securities and "revenue" securities. General obligation
securities are secured by the issuer's pledge of its full faith, credit, and
taxing power for the payment of principal and interest. Revenue securities are
payable only from the revenues derived from a particular facility or class of
facilities or, in some cases, from the proceeds of a special excise tax or other
specific revenue source such as the user of the facility being financed. Private
activity bonds held by a Fund are in most cases revenue securities and are not
payable from the unrestricted revenues of the issuer. Consequently, the credit
quality of private activity bonds is usually directly related to the credit
standing of the corporate user of the facility involved.
Municipal securities may include "moral obligation" bonds, which are normally
issued by special purpose public authorities. If the issuer of moral obligation
bonds is unable to meet its debt service obligations from current revenues, it
may draw on a reserve fund, the restoration of which is a moral commitment but
not a legal obligation of the state or municipality which created the issuer.
Municipal securities may include variable- or floating-rate instruments issued
by industrial development authorities and other governmental entities. While
there may not be an active secondary market with respect to a particular
instrument purchased by a Fund, a Fund may demand payment of the principal and
accrued interest on the instrument or may resell it to a third party as
specified in the instruments. The absence of an active secondary market,
however, could make it difficult for a Fund to dispose of the instrument if the
issuer defaulted on its payment obligation or during periods the Fund is not
entitled to exercise its demand rights, and the Fund could, for these or other
reasons, suffer a loss. Some of these instruments may be unrated, but unrated
instruments purchased by a Fund will be determined by the Adviser to be of
comparable quality at the time of purchase to instruments rated "high quality"
36
<PAGE>
by any major rating service. Where necessary to ensure that an instrument is of
comparable "high quality," a Fund will require that an issuer's obligation to
pay the principal of the note may be backed by an unconditional bank letter or
line of credit, guarantee, or commitment to lend.
Municipal securities may include participations in privately arranged loans to
municipal borrowers, some of which may be referred to as "municipal leases," and
units of participation in trusts holding pools of tax exempt leases. Such loans
in most cases are not backed by the taxing authority of the issuers and may have
limited marketability or may be marketable only by virtue of a provision
requiring repayment following demand by the lender. Such loans made by a Fund
may have a demand provision permitting the Fund to require payment within seven
days. Participations in such loans, however, may not have such a demand
provision and may not be otherwise marketable. To the extent these securities
are illiquid, they will be subject to each Fund's limitation on investments in
illiquid securities. As it deems appropriate, the Adviser will establish
procedures to monitor the credit standing of each such municipal borrower,
including its ability to meet contractual payment obligations.
Municipal participation interests may be purchased from financial institutions,
and give the purchaser an undivided interest in one or more underlying municipal
securities. To the extent that municipal participation interests are considered
to be "illiquid securities," such instruments are subject to each Fund's
limitation on the purchase of illiquid securities.
In addition, certain of the Funds may acquire "stand-by commitments" from banks
or broker/dealers with respect to municipal securities held in their portfolios.
Under a stand-by commitment, a dealer would agree to purchase at a Fund's option
specified municipal securities at a specified price. The Funds will acquire
stand-by commitments solely to facilitate portfolio liquidity and do not intend
to exercise their rights thereunder for trading purposes.
Although the Funds do not presently intend to do so on a regular basis, each may
invest more than 25% of its total assets in municipal securities the interest on
which is paid solely from revenues of similar projects if such investment is
deemed necessary or appropriate by the Adviser. To the extent that more than 25%
of a Fund's total assets are invested in municipal securities that are payable
from the revenues of similar projects, a Fund will be subject to the peculiar
risks presented by such projects to a greater extent than it would be if its
assets were not so concentrated.
OTHER INVESTMENT COMPANIES: Each Fund may invest in securities issued by other
investment companies to the extent that such investments are consistent with the
Fund's investment objective and policies and permissible under the 1940 Act. As
a shareholder of another investment company, a Fund would bear, along with other
shareholders, its pro rata portion of the other investment company's expenses,
including advisory fees. These expenses would be in addition to the advisory and
other expenses that a Fund bears directly in connection with its own operations.
REPURCHASE AGREEMENTS: A repurchase agreement involves the purchase of a
security by a Fund and a simultaneous agreement (generally with a bank or
broker/dealer) to repurchase that security from the Fund at a specified price
and date or upon demand. This technique offers a method of earning income on
idle cash. A risk associated with repurchase agreements is the 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
37
<PAGE>
is a risk of delay in receiving collateral or in recovering the securities
loaned or even a loss of rights in the collateral should the borrower of the
securities fail financially. However, loans are made only to borrowers deemed by
the Adviser to be credit worthy and when, in its judgment, the income to be
earned from the loan justifies the attendant risks. The aggregate of all
outstanding loans of a Fund may not exceed 30% of the value of its total assets.
STOCK INDEX, INTEREST RATE AND CURRENCY FUTURES CONTRACTS: The Funds may
purchase and sell futures contracts and related options with respect to non-U.S.
stock indices, non-U.S. interest rates and foreign currencies, that have been
approved by the CFTC for investment by U.S. investors, for the purpose of
hedging against changes in values of a Fund's securities or changes in the
prevailing levels of interest rates or currency exchange rates. The contracts
entail certain risks, including but not limited to the following: no assurance
that futures contracts transactions can be offset at favorable prices; possible
reduction of a Fund's total return due to the use of hedging; possible lack of
liquidity due to daily limits on price fluctuation; imperfect correlation
between the contracts and the securities or currencies being hedged; and
potential losses in excess of the amount invested in the futures contracts
themselves.
Trading on foreign commodity exchanges presents additional risks. Unlike trading
on domestic commodity exchanges, trading on foreign commodity exchanges is not
regulated by the CFTC and may be subject to greater risks than trading on
domestic exchanges. For example, some foreign exchanges are principal markets
for which no common clearing facility exists and a trader may look only to the
broker for performance of the contract. In addition, unless a Fund hedges
against fluctuations in the exchange rate between the U.S. dollar and the
currencies in which trading is done on foreign exchanges, any profits that such
Fund might realize could be eliminated by adverse changes in the exchange rate,
or the Fund could incur losses as a result of those changes.
U.S. GOVERNMENT OBLIGATIONS: U.S. Government Obligations consist of marketable
securities and instruments issued or guaranteed by the U.S. Government or any of
its agencies, authorities or instrumentalities. Direct obligations are issued by
the U.S. Treasury and include all U.S. Treasury instruments. 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 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 Association; 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 banks and corporations
may carry variable or floating rates of interest. Such instruments bear interest
rates which are not fixed, but which vary with changes in specified market rates
or indices, such as a Federal Reserve composite index. A variable-rate demand
instrument is an obligation with a variable or floating interest rate and an
unconditional right of demand on the part of the holder to receive payment of
unpaid principal and accrued interest. An instrument with a demand period
38
<PAGE>
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 six ratings used by S&P for corporate and
municipal bonds. The first four ratings denote investment grade securities.
AAA -- This is the highest rating assigned by S&P to a debt obligation and
indicates an extremely strong capacity to pay interest and repay principal.
AA -- Debt rated AA is considered to have a very strong capacity to pay
interest and repay principal and differs from AAA issues only in a small
degree.
A -- Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than debt in higher-rated
categories.
BBB -- Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than for those in
higher-rated categories.
BB, B -- Bonds rated BB and B are regarded, on balance, as predominantly
speculative with respect to capacity to pay interest and repay principal in
accordance with the terms of the obligation. BB represents the lowest
degree of speculation and B a higher degree of speculation. While such
bonds will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
To provide more detailed indications of credit quality, the AA, A and BBB
ratings may be modified by the addition of a plus or minus sign to show relative
standing within these major rating categories.
The following summarizes the highest six ratings used by Moody's for corporate
and municipal bonds. The first four ratings denote investment grade securities.
Aaa -- Bonds that are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to
as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such
issues.
Aa -- Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there may
be other elements present which make the long-term risks appear somewhat
larger than in Aaa securities.
39
<PAGE>
A -- Bonds that are rated A possess many favorable investment attributes
and are to be considered upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
Baa -- Bonds that are rated Baa are considered medium grade obligations,
I.E., they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable
over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba -- Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may
be small.
Moody's applies numerical modifiers (1, 2 and 3) with respect to corporate bonds
rated Aa through B. The modifier 1 indicates that the bond being rated ranks in
the higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates that the bond ranks in the lower
end of its generic rating category. With regard to municipal bonds, those bonds
in the Aa, A and Baa groups which Moody's believes possess the strongest
investment attributes are designated by the symbols Aa1, A1 or Baa1,
respectively.
The following summarizes the highest four ratings used by D&P for bonds, each of
which denotes that the securities are investment grade:
AAA -- Bonds that are rated AAA are of the highest credit quality. The risk
factors are considered to be negligible, being only slightly more than for
risk-free U.S. Treasury debt.
AA -- Bonds that are rated AA are of high credit quality. Protection
factors are strong. Risk is modest, but may vary slightly from time to time
because of economic conditions.
A -- Bonds that are rated A have protection factors which are average but
adequate. However, risk factors are more variable and greater in periods of
economic stress.
BBB -- Bonds that are rated BBB have below average protection factors but
still are considered sufficient for prudent investment. Considerable
variability in risk exists during economic cycles.
To provide more detailed indications of credit quality, the AA, A and BBB
ratings may be modified by the addition of a plus or minus sign to show relative
standing within these major categories.
The following summarizes the highest four ratings used by Fitch for bonds, each
of which denotes that the securities are investment grade:
AAA -- Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
AA -- Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated AAA. Because bonds
rated in the AAA and AA categories 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 eco-
40
<PAGE>
nomic conditions and circumstances than bonds with higher ratings.
BBB -- Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these
bonds, and therefore impair timely payment. The likelihood that the ratings
of these bonds will fall below investment grade is higher than for bonds
with higher ratings.
To provide more detailed indications of credit quality, the AA, A and BBB
ratings may be modified by the addition of a plus or minus sign to show relative
standing within these major rating categories.
The following summarizes the two highest ratings used by Moody's for short-term
municipal notes and variable-rate demand obligations:
MIG-1/VMIG-1 -- Obligations bearing these designations are of the best
quality, enjoying strong protection from established cash flows, superior
liquidity support or demonstrated broad-based access to the market for
refinancing.
MIG-2/VMIG-2 -- Obligations bearing these designations are of high quality,
with ample margins of protection although not so large as in the preceding
group.
The following summarizes the two highest ratings used by S&P for short-term
municipal notes:
SP-1 -- Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics are given
a "plus" (+) designation.
SP-2 -- Satisfactory capacity to pay principal and interest.
The three highest rating categories of D&P for short-term debt, each of which
denotes that the securities are investment grade, are D-1, D-2 and D-3. D&P
employs three designations, D-1+, D-1 and D-1-, within the highest rating
category. D-1+ indicates highest certainty of timely payment. Short-term
liquidity, including internal operating factors and/or access to alternative
sources of funds, is judged to be "outstanding, and safety is just below
risk-free U.S. Treasury short-term obligations." D-1 indicates very high
certainty of timely payment. Liquidity factors are excellent and supported by
good fundamental protection factors. Risk factors are considered to be minor.
D-1- indicates high certainty of timely payment. Liquidity factors are strong
and supported by good fundamental protection factors. Risk factors are very
small. D-2 indicates good certainty of timely payment. Liquidity factors and
company fundamentals are sound. Although ongoing funding needs may enlarge total
financing requirements, access to capital markets is good. Risk factors are
small. D-3 indicates satisfactory liquidity and other protection factors which
qualify the issue as investment grade. Risk factors are larger and subject to
more variation. Nevertheless, timely payment is expected.
The following summarizes the two highest rating categories used by Fitch for
short-term obligations, each of which denotes securities that are investment
grade:
F-1+ securities possess exceptionally strong credit quality. Issues
assigned this rating are regarded as having the strongest degree of
assurance for timely payment.
F-1 securities possess very strong credit quality. Issues assigned this
rating reflect an assurance of timely payment only slightly less in degree
than issues rated F-1+.
F-2 securities possess good credit quality. Issues carrying this rating
have a satisfactory degree of assurance for timely payment, but the margin
of safety is not as great as for issues assigned the F-1+ and F-1 ratings.
Commercial paper rated A-1 by S&P indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted A-1+. Capacity for timely payment on
commercial paper rated A-2 is satisfactory, but
41
<PAGE>
the relative degree of safety is not as high as for issues designated A-1.
The rating Prime-1 is the highest commercial paper rating assigned by Moody's.
Issuers rated Prime-1 (or related supporting institutions) are considered to
have a superior capacity for repayment of senior short-term promissory
obligations. Issuers rated Prime-2 (or related supporting institutions) are
considered to have a strong capacity for repayment of senior short-term
promissory obligations. This will normally be evidenced by many of the
characteristics of issuers rated Prime-1, but to a lesser degree. Earnings
trends and coverage ratios, while sound, will be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
For commercial paper, D&P uses the short-term debt ratings described above.
For commercial paper, Fitch uses the short-term debt ratings described above.
BankWatch ratings are based upon a qualitative and quantitative analysis of all
segments of the organization including, where applicable, holding company and
operating subsidiaries. BankWatch ratings do not constitute a recommendation to
buy or sell securities of any of these companies. Further, BankWatch does not
suggest specific investment criteria for individual clients.
BankWatch long-term ratings apply to specific issues of long-term debt and
preferred stock. The long-term ratings specifically assess the likelihood of
untimely payment of principal or interest over the term to maturity of the rated
instrument. The following are the four investment grade ratings used by
BankWatch for long-term debt:
AAA -- The highest category; indicates ability to repay principal and
interest on a timely basis is extremely high.
AA -- The second highest category; indicates a very strong ability to repay
principal and interest on a timely basis with limited incremental risk
versus issues rated in the highest category.
A -- The third highest category; indicates the ability to repay principal
and interest is strong. Issues rated "A" could be more vulnerable to
adverse developments (both internal and external) than obligations with
higher ratings.
BBB -- The lowest investment grade category; indicates an acceptable
capacity to repay principal and interest. Issues rated "BBB" are, however,
more vulnerable to adverse developments (both internal and external) than
obligations with higher ratings.
The BankWatch short-term ratings apply to commercial paper, other senior
short-term obligations and deposit obligations of the entities to which the
rating has been assigned. The BankWatch short-term ratings specifically assess
the likelihood of an untimely payment of principal or interest.
TBW-1 -- The highest category; indicates a very high likelihood that
principal and interest will be paid on a timely basis.
TBW-2 -- The second highest category; while the degree of safety regarding
timely repayment of principal and interest is strong, the relative degree
of safety is not as high as for issues rated "TBW-1".
TBW-3 -- The lowest investment grade category; indicates that while more
susceptible to adverse developments (both internal and external) than
obligations with higher ratings, capacity to service principal and interest
in a timely fashion is considered adequate.
TBW-4 -- The lowest rating category; this rating is regarded as
non-investment grade and therefore speculative.
The following summarizes the four highest long-term ratings used by IBCA:
AAA -- Obligations for which there is the lowest expectation of investment
risk. Capacity for timely repayment of principal
42
<PAGE>
and interest is substantial such that adverse changes in business, economic
or financial conditions are unlikely to increase investment risk
significantly.
AA -- Obligations for which there is a very low expectation of investment
risk. Capacity for timely repayment of principal and interest is
substantial. Adverse changes in business, economic or financial conditions
may increase investment risk albeit not very significantly.
A -- Obligations for which there is a low expectation of investment risk.
Capacity for timely repayment of principal and interest is strong, although
adverse changes in business, economic or financial conditions may lead to
increased investment risk.
BBB -- Obligations for which there is currently a low expectation of
investment risk. Capacity for timely repayment of principal and interest is
adequate, although adverse changes in business, economic or financial
conditions are more likely to lead to increased investment risk than for
obligations in other categories.
A plus or minus sign may be appended to a rating below AAA to denote relative
status within major rating categories.
The following summarizes the two highest short-term debt ratings used by IBCA:
A1+ -- 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.
43
<PAGE>
Prospectus
INVESTOR C SHARES
JULY 31, 1996
This Prospectus describes three equity
portfolios -- NATIONS INTERNATIONAL EQUITY FUND,
NATIONS EMERGING MARKETS FUND and NATIONS PACIFIC
GROWTH FUND -- and one bond portfolio -- NATIONS
GLOBAL GOVERNMENT INCOME FUND (each, a
"Fund") -- of Nations Fund, Inc. and Nations Fund
Portfolios, Inc. ("Nations Portfolios"), each an
open-end management investment company in the
Nations Fund Family ("Nations Fund" or "Nations
Fund Family"). This Prospectus describes one class
of shares of each Fund -- Investor C Shares.
This Prospectus sets forth concisely the
information about each Fund that a prospective
purchaser of Investor C Shares should consider
before investing. Investors should read this
Prospectus and retain it for future reference.
Additional information about Nations Fund, Inc. and
Nations Portfolios is contained in separate
Statements of Additional Information (the "SAIs"),
that have been filed with the Securities and
Exchange Commission (the "SEC") and are available
upon request without charge by writing or calling
Nations Fund at its address or telephone number
shown below. The SAIs for Nations Fund, Inc. and
Nations Portfolios, each dated July 31, 1996, are
incorporated by reference in their entirety into
this Prospectus. NationsBanc Advisors, Inc.
("NBAI") is the investment adviser to the Funds.
Gartmore Global Partners ("Gartmore") is
sub-investment adviser to the Funds. As used herein
the "Adviser" shall mean NBAI and/or Gartmore as
the context may require.
SHARES OF NATIONS FUND ARE NOT DEPOSITS OR OTHER
OBLIGATIONS OF, OR ISSUED, ENDORSED OR GUARANTEED
BY, NATIONSBANK, N.A. ("NATIONSBANK") OR ANY OF ITS
AFFILIATES. SUCH SHARES ARE NOT INSURED BY THE U.S.
GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER
GOVERNMENT AGENCY. AN INVESTMENT IN THE FUNDS
INVOLVES CERTAIN RISKS, INCLUDING POSSIBLE LOSS OF
PRINCIPAL.
NATIONSBANK AND CERTAIN OF ITS AFFILIATES PROVIDE
CERTAIN OTHER SERVICES TO NATIONS FUND, FOR WHICH
THEY ARE COMPENSATED. STEPHENS INC., WHICH IS NOT
AFFILIATED WITH NATIONSBANK, IS THE SPONSOR AND
ADMINISTRATOR AND SERVES AS THE DISTRIBUTOR FOR
NATIONS FUND.
THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
Nations International
Equity Fund
Nations Emerging
Markets Fund
Nations Pacific
Growth Fund
Nations Global
Government Income Fund
For Fund information call:
1-800-321-7854
Nations Fund
c/o Stephens Inc.
One NationsBank Plaza
33rd Floor
Charlotte, NC 28255
(Nations Fund Logo appears here)
NF-96143-796
<PAGE>
Table Of Contents
About The Funds
Prospectus Summary 3
Expenses Summary 4
Financial Highlights 6
Objectives 9
How Objectives Are Pursued 10
How Performance Is Shown 15
How The Funds Are Managed 16
Organization And History 20
About Your Investment
How To Buy Shares 21
How To Redeem Shares 23
How To Exchange Shares 25
Shareholder Servicing And Distribution Plans 26
How The Funds Value Their Shares 27
How Dividends And Distributions Are Made;
Tax Information 27
Appendix A -- Portfolio Securities 29
Appendix B -- Description Of Ratings 34
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT
CONTAINED IN THIS PROSPECTUS, OR IN THE
FUNDS' SAIS INCORPORATED HEREIN BY REFERENCE, IN
CONNECTION WITH THE OFFERING MADE BY THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY NATIONS FUND OR ITS
DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFERING BY NATIONS FUND OR BY THE DISTRIBUTOR IN
ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT
LAWFULLY BE MADE.
2
<PAGE>
About The Funds
Prospectus Summary
(Bullet) TYPE OF COMPANIES: Open-end management investment companies.
(Bullet) INVESTMENT OBJECTIVES AND POLICIES:
(Bullet) Nations International Equity Fund's investment objective is to
seek long-term capital growth by investing primarily in equity
securities of non-United States companies in Europe,
Australia, the Far East and other regions, including
developing countries.
(Bullet) Nations Emerging Markets Fund's investment objective
is to seek long-term capital growth by investing
primarily in equity securities of companies in
emerging market countries, such as those in Latin
America, Eastern Europe, the Pacific Basin, the Far
East, Africa and India.
(Bullet) Nations Pacific Growth Fund's investment
objective is to seek long-term capital
growth by investing primarily in equity
securities of companies in the Pacific Basin
and the Far East (excluding Japan).
(Bullet) Nations Global Government Income
Fund's investment objective is to
seek total return by investing
primarily in high quality debt
securities issued by governments,
banks and supranational entities
located throughout the world.
(Bullet) INVESTMENT ADVISER: NationsBanc Advisors, Inc. serves as the investment
adviser to the Funds. NBAI provides investment advice to more than 43
investment company portfolios in the Nations Fund Family. Gartmore
Global Partners provides sub-advisory services to the Funds. See "How
The Funds Are Managed."
(Bullet) DIVIDENDS AND DISTRIBUTIONS: Nations International Equity, Nations
Emerging Markets and Nations Pacific Growth Funds declare and pay
dividends from net investment income each calendar quarter and the
Nations Global Government Income Fund declares dividends daily and pays
them monthly. Each Fund's net realized capital gains, including net
short-term capital gains are distributed at least annually.
(Bullet) RISK FACTORS: The Funds are designed for long-term investors seeking
international diversification and who are willing to bear the risks
associated with international investing, such as foreign currency
fluctuations and economic and political risks. For a discussion of
these and other factors, see "How Objectives Are Pursued -- Special
Risk Considerations Relevant to an Investment in the Funds."
(Bullet) MINIMUM PURCHASE. $1,000 minimum initial investment per record holder
except that the minimum initial investment is: $500 for Individual
Retirement Account ("IRA") investors: $250 for non-working spousal
IRAs; and $100 for investors participating on a monthly basis in the
Systematic Investment Plan. There is no minimum investment amount for
investments by certain 401(k) and employee pension plans or salary
reduction -- Individual Retirement Accounts. The minimum subsequent
investment is $100, except for investments pursuant to the Systematic
Investment Plan. See "How To Buy Shares."
3
<PAGE>
Expenses Summary
Expenses are one of several factors to consider when investing in the Funds. The
following tables summarize shareholder transaction and operating expenses for
Investor C Shares of the Funds. The Examples show the cumulative expenses
attributable to a hypothetical $1,000 investment in the Funds over specified
periods.
INVESTOR C SHARES
<TABLE>
<CAPTION>
Nations
International Nations Emerging Nations Pacific
Equity Fund Markets Fund Growth Fund
SHAREHOLDER TRANSACTION EXPENSES
<S> <C> <C> <C>
Sales Load Imposed on Purchases None None None
Deferred Sales Charge (as a percentage of the lower of the
original purchase price or redemption proceeds)1 .50% .50% .50%
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees .90% 1.10% .90%
Rule 12b-1 Fees (After Fee Waivers) .25% .25% .25%
Shareholder Servicing Fees .25% .25% .25%
Other Expenses .27% 1.03% .86%
Total Operating Expenses (After Fee Waivers) 1.67% 2.63% 2.26%
Nations Global
Government
Income Fund
SHAREHOLDER TRANSACTION EXPENSES
Sales Load Imposed on Purchases None
Deferred Sales Charge (as a percentage of the lower of the
original purchase price or redemption proceeds)1 .50%
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees .70%
Rule 12b-1 Fees (After Fee Waivers) .25%
Shareholder Servicing Fees .25%
Other Expenses .62%
Total Operating Expenses (After Fee Waivers) 1.82%
</TABLE>
1 A Deferred Sales Charge is imposed only with respect to Investor C Shares
redeemed within one year of the date of purchase. Investor C Shares purchased
prior to January 1, 1996 will continue to be subject to the 1.00% Deferred
Sales Charge.
EXAMPLES:
You would pay the following expenses on a $1,000 investment in Investor C Shares
of the Funds assuming (1) a 5% annual return and (2) redemption at the end of
each time period.
<TABLE>
<CAPTION>
Nations Nations Nations
International Emerging Markets Pacific Growth
Equity Fund Fund Fund
<S> <C> <C> <C>
1 Year $ 22 $ 32 $ 28
3 Years $ 53 $ 82 $ 71
5 Years $ 91 $ 140 $ 121
10 Years $ 198 $ 296 $ 260
Nations Global
Government
Income Fund
1 Year $ 23
3 Years $ 57
5 Years $ 99
10 Years $ 214
</TABLE>
4
<PAGE>
You would pay the following expenses on a $1,000 investment in Investor C Shares
of the Funds, assuming a 5% annual return but no redemption.
<TABLE>
<CAPTION>
Nations Nations Nations
International Emerging Markets Pacific Growth
Equity Fund Fund Fund
<S> <C> <C> <C>
1 Year $ 17 $ 27 $ 23
3 Years $ 53 $ 82 $ 71
5 Years $ 91 $ 140 $ 121
10 Years $ 198 $ 296 $ 260
Nations Global
Government
Income Fund
1 Year $ 18
3 Years $ 57
5 Years $ 99
10 Years $ 214
</TABLE>
The purpose of the foregoing tables is to assist an investor in understanding
the various shareholder transaction and operating expenses that an investor in
Investor C Shares of the Funds will bear either directly or indirectly. The
figures in the above tables are based on amounts incurred during the Funds' most
recent fiscal year and have been adjusted as necessary to reflect current
service provider fees and waivers. Absent fee waivers, "Rule 12b-1 Fees" and
"Total Operating Expenses" would be as follows: Nations International Equity
Fund -- .75% and 2.17%, respectively; Nations Emerging Markets Fund -- .75% and
3.13%, respectively; Nations Pacific Growth Fund -- .75% and 2.76%,
respectively; and Nations Global Government Fund -- .75% and 2.32%,
respectively. There is no assurance that any fee waivers and reimbursements will
continue beyond the current fiscal year. If fee waivers and/or reimbursements
are discontinued, the amounts contained in the "Examples" above may increase.
Long-term shareholders of the Funds could pay more in sales charges than the
economic equivalent of the maximum front-end sales charges applicable to mutual
funds sold by members of the National Association of Securities Dealers, Inc.
For more complete descriptions of the Funds' operating expenses, see "How The
Funds Are Managed." For a more complete description of the Rule 12b-1 and
shareholder servicing fees payable by the Funds, see "Shareholder Servicing And
Distribution Plans."
THE FOREGOING SHOULD NOT BE CONSIDERED TO BE AN ACTUAL REPRESENTATION OF PAST OR
FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES AND RATES OF RETURN MAY BE
GREATER OR LESS THAN THOSE SHOWN.
5
<PAGE>
Financial Highlights
The audited financial information on the following pages has been derived from
the financial statements of Nations Fund, Inc. and Nations Portfolios. Price
Waterhouse LLP is the independent accountant to Nations Fund, Inc. and Nations
Portfolios. The reports of Price Waterhouse LLP for the most recent fiscal years
of Nations Fund, Inc. and Nations Portfolios accompany the financial statements
for such periods and are incorporated by reference in the SAIs, which are
available upon request. For more information see "Organization And History."
Shareholders of the Funds will receive unaudited semi-annual reports describing
the Funds' investment operations and annual financial statements audited by the
Funds' independent accountant.
FOR AN INVESTOR C SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS INTERNATIONAL EQUITY FUND
<TABLE>
<CAPTION>
PERIOD YEAR YEAR
ENDED ENDED ENDED
INVESTOR C SHARES 03/31/96(a)# 05/31/95# 05/31/94#
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 11.45 $ 11.86 $ 10.49
Net investment income/(loss) (0.03) 0.02 (0.03)
Net realized and unrealized gain/(loss) on
investments 1.75 (0.21) 1.43
Net increase/(decrease) in net asset value from
operations 1.72 (0.19) 1.40
Distributions:
Dividends from net investment income -- -- (0.01)
Distributions in excess of net investment income (0.02) -- --
Distributions from net realized capital gains (0.02) (0.12) (0.02)
Distributions in excess of net realized capital
gains -- (0.10) --
Total dividends and distributions (0.04) (0.22) (0.03)
Net asset value, end of period $ 13.13 $ 11.45 $ 11.86
Total return++ 15.09%% (1.56)% 13.21%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 652 $ 495 $ 339
Ratio of operating expenses to average net assets 2.09%+ 2.03% 2.17%
Ratio of net investment income/(loss) to average
net assets (0.27)%+ 0.17% (0.25)%
Portfolio turnover rate 26% 92% 39%
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 2.102%+ 2.04% 2.18%
Net investment income/(loss) per share without
waivers and/or expense reimbursements $ (0.03) $ 0.02 $ (0.03)
Average commission rate paid (b) $ 0.0272 -- --
PERIOD
ENDED
INVESTOR C SHARES 05/31/93*#
Operating performance:
Net asset value, beginning of period $ 10.10
Net investment income/(loss) 0.00**
Net realized and unrealized gain/(loss) on
investments 0.48
Net increase/(decrease) in net asset value from
operations 0.48
Distributions:
Dividends from net investment income (0.07)
Distributions in excess of net investment income --
Distributions from net realized capital gains (0.02)
Distributions in excess of net realized capital
gains --
Total dividends and distributions (0.09)
Net asset value, end of period $ 10.49
Total return++ 4.97%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 200
Ratio of operating expenses to average net assets 2.30%+
Ratio of net investment income/(loss) to average
net assets 0.03%+
Portfolio turnover rate 41%
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 2.32%+
Net investment income/(loss) per share without
waivers and/or expense reimbursements $ 0.00**
Average commission rate paid (b) --
</TABLE>
* Nations International Equity Fund Investor C Shares commenced operations on
June 17, 1992.
** Amount represents less than $0.01 per share.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
# Per share numbers have been calculated using the monthly average shares
method, which more appropriately presents the per share data for the period
since the use of the undistributed income method did not accord with the
results of operations.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
May 31.
(b) Average commission rate paid per shares of securities purchased and sold by
the Fund.
6
<PAGE>
FOR AN INVESTOR C SHARE OUTSTANDING THROUGHOUT THE PERIOD
NATIONS EMERGING MARKETS FUND
<TABLE>
<CAPTION>
PERIOD
ENDED
INVESTOR C SHARES 03/31/96*#
<S> <C>
Operating Performance:
Net asset value, beginning of period $ 10.00
Net investment income/(loss) (0.10)
Net realized and unrealized gain on investments (0.37)
Net increase in net asset value from operations (0.27)
Dividends from net investment income --
Distributions in excess of net investment income --
Distributions from net realized capital gains --
Total dividends and distributions --
Net asset value, end of period $ 10.27
Total return++ (2.70)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 23
Ratio of operating expenses to average net assets 3.02%+
Ratio of net investment income to average net assets (1.27)%+
Portfolio turnover rate 17%
Average commission rate paid (a) $ 0.0004
</TABLE>
* Nations Emerging Markets Fund Investor C Shares commenced operations on June
30, 1995.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
# Per share numbers have been calculated using the average shares method, which
more appropriately presents the per share data for the period, since the use
of the undistributed income method did not accord with the results of
operations.
(a) Average commission rate paid per share of securities purchased and sold by
the Fund.
7
<PAGE>
FOR AN INVESTOR C SHARE OUTSTANDING THROUGHOUT THE PERIOD
NATIONS PACIFIC GROWTH FUND
<TABLE>
<CAPTION>
PERIOD
ENDED
INVESTOR C SHARES 03/31/96*#
<S> <C>
Operating Performance:
Net asset value, beginning of period $ 10.00
Net investment income/(loss) (0.09)
Net realized and unrealized gain/(loss) on investments 0.29
Net increase/(decrease) in net asset value from operation (0.20)
Dividends from net investment income --
Distributions in excess of net investment income --
Distributions from net realized capital gains --
Distributions in excess of net realized capital gains --
Total dividends and distributions --
Net asset value, end of period $ 10.20
Total return++ 2.00%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 60
Ratio of operating expenses to average net assets 2.65%+
Ratio of net investment income/(loss) to average net assets (1.16)%+
Portfolio turnover rate 2.3%
Average commission rate paid (b) $ 0.0178
</TABLE>
* Nations Pacific Growth Fund Investor C Shares commenced operations on June
30, 1995.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
# Per share numbers have been calculated using the monthly average shares
method, which more appropriately presents the per share data for the period,
since the use of the undistributed income method did not accord with the
results of operations.
(b) Average commission rate paid per share of securities purchased and sold by
the Fund.
8
<PAGE>
FOR AN INVESTOR C SHARE OUTSTANDING THROUGHOUT THE PERIOD
NATIONS GLOBAL GOVERNMENT INCOME FUND
<TABLE>
<CAPTION>
PERIOD
ENDED
INVESTOR C SHARES 03/31/96*#
<S> <C>
Operating Performance:
Net asset value, beginning of period $ 10.00
Net investment income 0.33
Net realized and unrealized gain on investments 0.11
Net increase in net asset value from operations 0.44
Distributions:
Dividends from net investment income (0.31)
Distributions in excess of net investment income (0.02)
Distributions from net realized capital gains (0.04)
Total dividends and distributions (0.37)
Net asset value, end of period $ 10.07
Total return++ 4.40%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 9
Ratio of operating expenses to average net assets 2.16%+
Ratio of net investment income to average net assets 4.33%+
Portfolio turnover rate 213%
</TABLE>
* Nations Global Government Income Fund Investor C Shares commenced operations
on June 30, 1995.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
# Per share numbers have been calculated using the monthly average shares
method, which more appropriately represents the per share data for the
period, since the use of the undistributed income method did not accord with
the results of operations.
Objectives
NATIONS INTERNATIONAL EQUITY FUND: Nations International Equity Fund's
investment objective is to seek long-term capital growth by investing primarily
in equity securities of non-United States companies in Europe, Australia, the
Far East and other regions, including developing countries.
NATIONS EMERGING MARKETS FUND: Nations Emerging Markets Fund's investment
objective is to seek long-term capital growth by investing primarily in equity
securities of companies in emerging market countries, such as those in Latin
America, Eastern Europe, the Pacific Basin, the Far East, Africa and India.
NATIONS PACIFIC GROWTH FUND: Nations Pacific Growth Fund's investment objective
is to seek long-term capital growth by investing primarily in equity securities
of companies in the Pacific Basin and the Far East (excluding Japan).
NATIONS GLOBAL GOVERNMENT INCOME FUND: Nations Global Government Income Fund's
investment objective is to seek total return by investing primarily in high
quality debt securities issued by governments, banks and supranational entities
located throughout the world.
Although the Adviser will seek to achieve the investment objective of each Fund,
there is no assurance that it will be able to do so. No single Fund should be
considered, by itself, to provide a complete investment program for any
investor. The net asset value of the shares of the Funds will fluctuate based on
market conditions. Therefore, investors should not rely upon the Funds for
short-term financial needs, nor are the Funds meant to provide a vehicle for
participating in short-term swings in the stock market.
9
<PAGE>
How Objectives Are Pursued
NATIONS INTERNATIONAL EQUITY FUND: The Fund intends to diversify investments
broadly among countries and normally to invest in securities representing at
least three different countries. The Fund may invest in companies in the Far
East and Western Europe as well as Australia, Canada, and other areas (including
developing countries). Under unusual circumstances, however, the Fund may invest
substantially all of its assets in companies in one or two countries.
In seeking to achieve its objective, the Fund will invest at least 65% of its
assets in common stocks of established non-United States companies that the
Adviser believes have potential for growth of capital. The Fund may invest up to
35% of its assets in any other type of security including: convertible
securities; preferred stocks; bonds, notes and other debt securities (including
Eurodollar securities); and obligations of domestic or foreign governments and
their political subdivisions.
The Fund also may invest in American Depository Receipts ("ADRs"), Global
Depositary Receipts ("GDRs"), European Depository Receipts ("EDRs"), American
Depository Shares ("ADSs"), bonds, notes, other debt securities of foreign
issuers, securities of foreign investment funds or trusts and real estate
investment trust securities.
The Fund also may invest in certain specified derivative securities including:
exchange-traded options; over-the-counter options executed with primary dealers,
including long calls and puts and covered calls to enhance return and forward
foreign exchange contracts; and U.S. and foreign exchange-traded financial
futures approved by the Commodity Futures Trading Commission (the "CFTC") and
options thereon for market risk management. The Fund may lend its portfolio
securities to qualified institutional investors. The Fund may invest in
restricted, private placement and other illiquid securities, repurchase
agreements, and securities issued by other investment companies, consistent with
the Fund's investment objective and policies. See "Appendix A" for additional
information concerning the investment practices of the Fund.
NATIONS EMERGING MARKETS FUND: In seeking to achieve its objective, the Fund
will invest under normal market conditions at least 65% of its total assets in
equity securities of companies in emerging markets.
The Fund considers countries with emerging markets to include the following: (i)
countries with an emerging stock market as defined by the International Finance
Corporation; (ii) countries with low- to middle-income economies according to
the International Bank For Reconstruction and Development (more commonly
referred to as the World Bank); and (iii) countries listed in World Bank
publications as developing. The Adviser seeks to identify and invest in those
emerging markets that have a relatively low gross national product per capita,
compared to the world's major economies, and which exhibit potential for rapid
economic growth. The Adviser believes that investment in equity securities of
emerging market issuers offers significant potential for long-term capital
appreciation.
Emerging market countries include, but are not limited to: Argentina, Brazil,
Chile, China, the Czech Republic, Columbia, Ecuador, Greece, Hong Kong,
Indonesia, India, Malaysia, Mexico, the Philippines, Poland, Portugal, Peru,
Russia, Singapore, South Africa, Thailand, Taiwan and Turkey.
A company will be considered in a country, market or region if it conducts its
principal business activities in the country, market or region. A company will
be considered to conduct its principal business activities in a country, market
or region if it derives a significant portion (at least 50%) of its revenues or
profits from goods produced or sold, investments made, or services performed in
such country, market or region or has at least 50% of its assets situated in
such country, market or region.
10
<PAGE>
Equity securities of emerging market issuers may include common stocks,
preferred stocks (including convertible preferred stocks) and warrants; bonds,
notes and debentures convertible into common or preferred stock; equity
interests in foreign investment funds or trusts and real estate investment trust
securities. The Fund may invest in ADRs, GDRs, EDRs, and ADSs of such issuers.
The Fund also may invest in other types of instruments, including debt
obligations. Debt obligations acquired by the Fund will be rated investment
grade at the time of purchase by Moody's Investors Service, Inc. ("Moody's") or
Standard & Poor's Corporation ("S&P") or, if unrated, determined by the Adviser
to be comparable in quality to instruments so rated. Obligations with the lowest
investment grade rating (E.G., rated "Baa" by Moody's or "BBB" by S&P) have
speculative characteristics, and changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity to make principal
and interest payments than is the case with higher grade debt obligations. See
"Appendix B" for a description of these ratings designations.
The Fund is a diversified fund that intends, under normal market conditions, to
invest in at least three different countries, although it may, from time to
time, invest all of its assets in a single country. If the Fund invests all or a
significant portion of its assets at any time in a single country, events
occurring in such country are more likely to affect the Fund's investments. For
additional information concerning risk, see "Special Risk Considerations
Relevant to an Investment in the Funds," below. When allocating investments
among individual countries, the Adviser will consider various criteria, such as
the relative economic growth potential of the various economies and securities
markets, expected levels of inflation, government policies influencing business
conditions and the outlook for currency relationships.
The Fund also may invest in certain specified derivative securities, including:
exchange-traded options; over-the-counter options executed with primary dealers,
including long calls and puts and covered calls to enhance return and forward
foreign exchange contracts; and U.S. and foreign exchange-traded financial
futures approved by the CFTC and options thereon for market exposure risk
management. The Fund may lend its portfolio securities to qualified
institutional investors. The Fund may invest in restricted, private placement
and other illiquid securities, repurchase agreements, and securities issued by
other investment companies, consistent with the Fund's investment objective and
policies.
For defensive purposes, the Fund may temporarily invest substantially all of its
assets in U.S. financial markets or in U.S. dollar-denominated instruments. See
"Appendix A" for additional information concerning the investment practices of
the Fund.
NATIONS PACIFIC GROWTH FUND: The Fund seeks to achieve its objective by
investing primarily in securities of issuers in the regions known as the Pacific
Basin and the Far East. An issuer will be considered in a region if it conducts
its principal business activities in the region. An issuer will be considered to
conduct its principal business activities in a region if it derives a
significant portion (at least 50%) of its revenues or profits from goods
produced or sold, investments made, or services performed in such region or has
at least 50% of its assets situated in such region. The Pacific Basin and Far
East include Australia, Hong Kong, India, Indonesia, South Korea, Malaysia, New
Zealand, Pakistan, the People's Republic of China, the Philippines, Singapore,
Sri Lanka, Taiwan and Thailand and may include other markets that develop in the
region. The Fund will not invest in securities of issuers in Japan.
The Fund will focus on equity securities, but may also invest in debt
obligations. Such equity securities may include common stocks, preferred stocks
(including convertible preferred stocks) and warrants; bonds, notes and
debentures convertible into common or preferred stock; equity interests in
foreign investment funds or trusts and real estate investment trust securities.
Debt obligations acquired by the Fund will be rated investment grade at the time
of purchase by Moody's or S&P or, if unrated, determined by the Adviser to be
comparable in quality to instruments so rated. Obligations with the
low-
11
<PAGE>
est investment grade rating (E.G., rated "Baa" by Moody's or "BBB" by S&P) have
speculative characteristics, and changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity to make principal
and interest payments than is the case with higher grade debt obligations. See
"Appendix B" for a description of these ratings designations.
In seeking to achieve its objective, the Fund will invest under normal market
conditions at least 65% of its total assets in securities of issuers that
conduct their principal business activities in countries of the Pacific Basin
and Far East, except for Japan. Although the Fund may not invest in securities
issued by companies that conduct their principal business activities in Japan,
the Fund may invest in securities that are listed on a Japanese exchange.
The Fund is a diversified fund that intends, under normal market conditions, to
invest in at least three different countries, although it may, from time to
time, invest all of its assets in a single country. If the Fund invests all or a
significant portion of its assets at any time in a single country, events
occurring in such country are more likely to affect the Fund's investments. For
additional information concerning risk, see "Special Risk Considerations
Relevant to an Investment in the Funds," below. When allocating investments
among individual countries, the Adviser will consider various criteria, such as
the relative economic growth potential of the various economies and securities
markets, expected levels of inflation, government policies influencing business
conditions and the outlook for currency relationships.
The Fund may invest in ADRs, GDRs, EDRs and ADSs. The Fund also may invest in
certain specified derivative securities, including: exchange-traded options;
over-the-counter options executed with primary dealers, including long calls and
puts and covered calls to enhance return and forward foreign exchange contracts;
and U.S. and foreign exchange-traded financial futures approved by the CFTC and
options thereon for market exposure risk management. The Fund may lend its
portfolio securities to qualified institutional investors. The Fund may invest
in restricted, private placement and other illiquid securities, repurchase
agreements, and securities issued by other investment companies, consistent with
the Fund's investment objective and policies.
For defensive purposes, the Fund may temporarily invest substantially all of its
assets in U.S. financial markets or in U.S. dollar-denominated instruments. See
"Appendix A" for additional information concerning the investment practices of
the Fund.
NATIONS GLOBAL GOVERNMENT INCOME FUND: In seeking to achieve its investment
objective, the Fund will invest under normal market conditions at least 65% of
its total assets in debt securities issued or guaranteed by U.S. or foreign
governments (including states, provinces and municipalities) or their agencies,
instrumentalities or subdivisions ("Government Securities"). Except for
temporary defensive purposes, the Fund will concentrate its investments in
foreign Government Securities. Concentration in this context means the
investment of more than 25% of the Fund's total assets in such securities. The
Fund may invest in the debt securities of any type of issuer, including
corporations, banks and supranational entities.
The Fund, under normal market conditions, will invest in at least three
different countries. These countries may include the U.S., the countries of
Western Europe, Japan, Australia, New Zealand and Canada. If the Fund invests a
significant portion of its assets at any time in a single country, events
occurring in such country are more likely to affect the Fund's investments. For
additional information concerning risk, see "Special Risk Considerations
Relevant to an Investment in the Funds," below. Because the Fund intends to
invest a large portion of its assets in foreign Government Securities, the Fund
is a "non-diversified" investment company for purposes of the Investment Company
Act of 1940 (the "1940 Act"). The Fund may invest in securities of issuers
located in any region or country and that are denominated in any currency.
The Fund is managed in accordance with an overall global investment strategy
which means that Fund investments are allocated among securities denominated in
U.S. dollars and the
12
<PAGE>
currencies of a number of foreign countries. The Fund's exposure to various
countries and currencies will vary in accordance with the Adviser's assessment
of the relative yield and appreciation of such securities. Fundamental economic
strength, credit quality and interest rate trends are the principal factors
considered by the Adviser in determining whether to increase or decrease the
emphasis placed upon a particular country or particular type of security within
the Fund's investment portfolio.
Under normal market conditions, the Fund intends to invest primarily in
securities rated "A" or better at the time of purchase by Moody's or S&P and
unrated securities that, at the time of purchase will be determined to be of
comparable quality by the Adviser. The Fund also may invest in securities rated
"Baa" by Moody's or "BBB" by S&P, but does not, as a general matter, intend to
invest more than 10% of its total assets in such securities. Subsequent to its
purchase by the Fund, an issue of securities may cease to be rated or its rating
may be reduced below the minimum rating required for purchase by the Fund. The
Adviser will consider such event in determining whether the Fund should continue
to hold the obligation. In no event will the Fund hold more than 5% of its total
net assets in securities rated below investment grade. See "Appendix B" below
for a description of these rating designations. The Adviser expects that the
Fund's dollar-weighted average maturity will not be greater than 15 years under
normal market conditions.
Supranational entities are international organizations jointly operated by
multiple sovereign governments including, for example, the World Bank, the
European Coal and Steel Community, the Asian Development Bank, the European
Investment Bank and the Inter-American Development Bank. Supranational entities
generally have no taxing authority and are dependent upon their members for the
funds necessary to pay principal and interest on their debt obligations.
The Fund also may invest in money market instruments and certain specified
derivative securities, including: exchange-traded options; over-the-counter
options executed with primary dealers, including long calls and puts and covered
calls to enhance return and forward foreign exchange contracts; and U.S. and
foreign exchange-traded financial futures approved by the CFTC and options
thereon for market exposure risk management. The Fund may lend its portfolio
securities to qualified institutional investors. The Fund may invest in
restricted, private placement and other illiquid securities, repurchase
agreements, and securities issued by other investment companies, consistent with
the Fund's investment objective and policies.
For defensive purposes, the Fund may temporarily invest substantially all of its
assets in U.S. financial markets or in U.S. dollar-denominated instruments. See
"Appendix A" for additional information concerning the investment practices of
the Fund.
SPECIAL RISK CONSIDERATIONS RELEVANT TO AN INVESTMENT IN THE FUNDS: Investors
should understand and consider carefully the special risks involved in foreign
investing. In addition, each Fund presents unique risks of which investors
should be aware.
Investors in Nations International Equity Fund should be aware that the Fund
may, from time to time, invest up to 5% of its total assets in securities of
companies located in Eastern Europe. Economic and political reforms in this
region are still in their infancy. As a result, investment in such countries
would be highly speculative and could result in losses to the Fund and, thus, to
its shareholders.
Investors in the Nations Pacific Growth Fund should understand and consider
carefully the special risks involved in investing in the Pacific Basin and Far
East. Countries in the Pacific Basin and Far East are in various stages of
economic development, ranging from emerging markets to mature economies, but
each has unique risks. Most countries in this region are heavily dependent on
international trade, and some are especially vulnerable to recessions in other
countries. Many of these countries are also sensitive to world commodity prices.
Some countries that have experienced rapid growth may still have obsolete
financial systems, economic problems or archaic legal systems. In addition,
13
<PAGE>
many of these nations are experiencing political and social uncertainties.
The same is true, but even more so, for the emerging market countries in which
Nations Emerging Markets Fund invests. Although the Fund believes that its
investments present the possibility for significant growth over the long term,
they also entail significant risks. Many investments in emerging markets can be
considered speculative, and their prices can be much more volatile than in the
more developed nations of the world. This difference reflects the greater
uncertainties of investing in less established markets and economies. The
financial markets of emerging markets countries are generally less well
capitalized and thus securities of issuers based in such countries may be less
liquid.
Nations Global Government Income Fund's yield and share price will change based
on changes in domestic or foreign interest rates and in an issuer's
creditworthiness. In general, bond prices rise when interest rates fall, and
vice versa.
Moreover, for each of the Funds, investing in securities denominated in foreign
currencies and utilization of forward foreign currency exchange contracts and
other currency hedging techniques involve certain considerations comprising both
opportunities and risks not typically associated with investing in U.S.
dollar-denominated securities. Additionally, changes in the value of foreign
currencies can significantly affect a Fund's share price. General economic and
political factors in the various world markets also can impact a Fund's share
price.
The expenses to individual investors of investing directly in foreign securities
are very high relative to similar costs for investing in U.S. securities. While
the Funds offer a more efficient way for individual investors to participate in
foreign markets, their expenses, including custodial fees, are also higher than
the typical domestic equity mutual fund.
Risks unique to international investing include: (1) restrictions on foreign
investment and repatriation of capital; (2) fluctuations in currency exchange
rates; (3) costs of converting foreign currency into U.S. dollars and U.S.
dollars into foreign currencies; (4) greater price volatility and less
liquidity; (5) settlement practices, including delays, which may differ from
those customary in United States markets; (6) exposure to political and economic
risks, including the risk of nationalization, expropriation of assets and war;
(7) possible imposition of foreign taxes and exchange control and currency
restrictions; (8) lack of uniform accounting, auditing and financial reporting
standards; (9) less governmental supervision of securities markets, brokers and
issuers of securities; (10) less financial information available to investors;
and (11) difficulty in enforcing legal rights outside the United States. These
risks often are heightened for investments in emerging or developing countries.
PORTFOLIO TURNOVER: Generally, the Funds will purchase portfolio securities for
capital appreciation or investment income, or both, and not for short-term
trading profits. For the Funds' portfolio turnover rates, see "Financial
Highlights." If a Fund's portfolio turnover rate exceeds 100%, it may result in
higher costs to the Fund, including brokerage commissions or dealer mark-ups and
other transaction costs on the sale of securities and the reinvestment in other
securities. Portfolio turnover also can generate short-term capital gains tax
consequences.
INVESTMENT LIMITATIONS: Each Fund is subject to a number of investment
limitations. The following investment limitations are matters of fundamental
policy and may not be changed without the affirmative vote of the holders of a
majority of a Fund's outstanding shares. Other investment limitations that
cannot be changed without such a vote of shareholders are described in each
Fund's respective SAI.
14
<PAGE>
Each Fund may not:
1. Purchase any securities which would cause 25% or more of the value of a
Fund's total assets at the time of such purchase to be invested in the
securities of one or more issuers conducting their principal activities in the
same industry, provided that this limitation does not apply (a) with respect to
the Nations Global Government Income Fund, to investments in foreign Government
Securities; and (b) to investments in obligations issued or guaranteed by the
U.S. Government or its agencies and instrumentalities.
2. Make loans, except that a Fund may purchase and hold debt instruments
(whether such instruments are part of a public offering or privately placed),
may enter into repurchase agreements and may lend portfolio securities in
accordance with its investment policies.
Nations International Equity Fund, Nations Emerging Markets Fund and Nations
Pacific Growth Fund may not:
Purchase securities of any one issuer (other than securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities) if,
immediately after such purchase, more than 5% of the value of such Fund's total
assets would be invested in the securities of such issuer, except that up to 25%
of the value of 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.
Nations Global Government Income Fund may not:
Purchase securities of any one issuer (other than securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities) if,
immediately after such purchase, more than 25% of the value of such Fund's total
assets would be invested in the securities of one issuer, and with respect to
50% of such Fund's total assets, more than 5% of its assets would be invested in
the securities of one issuer.
The investment objective and policies of each Fund, unless otherwise specified,
may be changed without a vote of the Fund's shareholders. If the investment
objective or policies of a Fund change, shareholders should consider whether the
Fund remains an appropriate investment in light of their current positions and
needs.
In order to permit the sale of a Fund's shares in certain states, a Fund may
make commitments more restrictive than the investment policies and limitations
described in this Prospectus and the SAIs. Should a Fund determine that any such
commitment is no longer in the best interest of the Fund, it may consider
terminating sales of its shares in the states involved.
How Performance Is Shown
From time to time the Funds may advertise the total return and yield on a class
of shares. BOTH TOTAL RETURN AND YIELD FIGURES ARE BASED ON HISTORICAL DATA AND
ARE NOT INTENDED TO INDICATE FUTURE PERFORMANCE. The "total return" of a class
of shares of the Funds may be calculated on an average annual total return basis
or an aggregate total return basis. Average annual total return refers to the
average annual compounded rates of return on a class of shares over one-, five-,
and ten-year periods or the life of the Fund (as stated in the advertisement)
that would equate an initial amount invested at the beginning of a stated period
to the ending redeemable value of the investment (reflecting the deduction of
any applicable contingent deferred sales charge ("CDSC")), assuming the
reinvestment of all dividend and capital gain distributions. Aggregate total
return reflects the total percentage change in the value of the investment over
the measuring period, again assuming the reinvestment of all dividends and
capital gain distributions. Total return may also be presented for other periods
or may not reflect a deduction of any applicable CDSC.
15
<PAGE>
"Yield" is calculated by dividing the annualized net investment income per share
during a recent 30-day (or one month) period of a class of shares of a Fund by
the maximum public offering price per share on the last day of that period. The
yield on a class of shares does not reflect deduction of any applicable CDSC.
Investment performance, which will vary, is based on many factors, including
market conditions, the composition of the Funds' portfolios and the Funds'
operating expenses. Investment performance also often reflects the risks
associated with a Fund's investment objective and policies. These factors should
be considered when comparing the Funds' investment results to those of other
mutual funds and other investment vehicles. Since yields fluctuate, yield data
cannot necessarily be used to compare an investment in the Funds with bank
deposits, savings accounts, and similar investment alternatives which often
provide an agreed-upon or guaranteed fixed yield for a stated period of time.
In addition to Investor C Shares, the Funds offer Primary A, Primary B, Investor
A and Investor N Shares. Each class of shares may bear different sales charges,
shareholder servicing fees, loads and other expenses, which may cause the
performance of a class to differ from the performance of the other classes.
Total return and yield quotations will be computed separately for each class of
the Funds' shares. Any quotation of total return or yield not reflecting CDSCs
would be reduced if such sales charges were reflected. Any fees charged by a
selling agent and/or servicing agent directly to its customers' accounts in
connection with investments in the Funds will not be included in calculations of
total return or yield. Each Fund's annual report contains additional performance
information and is available upon request without charge from the Funds'
distributor or an investor's selling agent.
How The Funds Are Managed
The business and affairs of Nations Fund, Inc. and Nations Portfolios are
managed under the direction of their respective Boards of Directors. Nations
Fund, Inc.'s and Nations Portfolios' SAIs contain the names of and general
background information concerning each Director of Nations Fund, Inc. and
Nations Portfolios.
Nations Fund and the Adviser have adopted codes of ethics which contain policies
on personal securities transactions by "access persons," including portfolio
managers and investment analysts. These policies substantially comply in all
material respects with the recommendations set forth in the May 9, 1994 Report
of the Advisory Group on Personal Investing of the Investment Company Institute.
INVESTMENT ADVISER: NationsBanc Advisors, Inc. serves as investment adviser to
the Funds. NBAI is a wholly owned subsidiary of NationsBank, which in turn is a
wholly owned banking subsidiary of NationsBank Corporation, a bank holding
company organized as a North Carolina corporation. NBAI has its principal
offices at One NationsBank Plaza, Charlotte, North Carolina 28255.
Gartmore Global Partners, with principal offices at One NationsBank Plaza,
Charlotte, North Carolina 28255, serves as sub-investment adviser to the Funds
pursuant to sub-advisory agreements. Gartmore is a joint venture structured as a
general partnership between NB Partner Corp., a wholly owned subsidiary of
NationsBank, and Gartmore U.S. Limited an indirect, wholly owned subsidiary of
Gartmore Investment Management plc ("Gartmore plc"), a UK company which is the
holding company for a leading UK-based international fund management group of
companies. National Westminster Bank plc and affiliated entities (collectively,
"NatWest") own 100% of the equity of Gartmore plc.
Through April 10, 1996, sub-advisory services were provided to NBAI and the
Funds by Nations Gartmore Investment Management
16
<PAGE>
("Nations Gartmore"), the predecessor to Gartmore, pursuant to sub-advisory
agreements among NBAI, Nations Gartmore and Nations Fund, Inc. and Nations
Portfolios, respectively, on behalf of the Funds. Nations Gartmore was a joint
venture structured as a general partnership between NB Partner Corp. and
Gartmore U.S. Limited. On April 10, 1996, NatWest acquired a controlling
interest in Gartmore plc from Compagnie de Suez and affiliated entities
("Compagnie de Suez") through a direct purchase from Compagnie de Suez of its
indirect subsidiary Indosuez UK Asset Management Limited, which held 75% of
Gartmore plc's outstanding voting securities (the "Acquisition"). NatWest
acquired the remaining portion of Gartmore plc's shares held by public
shareholders through a tender offer. Gartmore is the successor entity resulting
from the Acquisition and change of control of Nations Gartmore.
On July 17, 1996, the shareholders of the Funds approved the new sub-advisory
arrangement with Gartmore and Sub-Advisory Agreements dated April 10, 1996 among
NBAI, Gartmore and Nations Fund, Inc. and Nations Portfolios, respectively.
There were no material changes in the personnel who provide services under the
new Sub-Advisory Agreements, and the Funds receive the same sub-advisory
services, provided in the same manner and at the same fee levels, as they
received under the Previous Sub-Advisory Agreements.
Subject to the general supervision of Nations Fund, Inc.'s and Nations
Portfolios' Boards of Directors, and in accordance with each Fund's investment
policies, the Adviser formulates guidelines and lists of approved investments
for each Fund, makes decisions with respect to and places orders for each Fund's
purchases and sales of portfolio securities and maintains records relating to
such purchases and sales. The Adviser is authorized to allocate purchase and
sale orders for portfolio securities to certain financial institutions,
including, in the case of agency transactions, financial institutions which are
affiliated with the Adviser or which have sold shares in the Funds, if the
Adviser believes that the quality of the transaction and the commission are
comparable to what they would be with other qualified brokerage firms. From time
to time, to the extent consistent with its investment objective, policies and
restrictions, each Fund may invest in securities of companies with which
NationsBank has a lending relationship. For the services provided and expenses
assumed pursuant to various Investment Advisory Agreements, NBAI is entitled to
receive advisory fees, computed daily and paid monthly, at the annual rates of:
0.90% of each of Nations International Equity Fund's and Nations Pacific Growth
Fund's average daily net assets; 1.10% of Nations Emerging Markets Fund's
average daily net assets, and 0.70% of Nations Global Government Income Fund's
average daily net assets.
For services provided and expenses assumed pursuant to a sub-advisory agreement,
Gartmore is entitled to receive from NBAI sub-advisory fees, computed daily and
paid monthly, at the annual rate of 0.70% of Nations International Equity Fund's
average daily net assets; 0.85% of Nations Emerging Markets Fund's average daily
net assets; 0.70% of Nations Pacific Growth Fund's average daily net assets; and
0.54% of Nations Global Government Income Fund's average daily net assets.
From time to time, NBAI (and/or Gartmore) 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 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 0.22% of the average daily net assets of Nations
International Equity Fund.
For the fiscal period from June 30, 1995 to December 31, 1995, after waivers,
Nations Portfolios paid NationsBank under a prior Investment Advisory Agreement
advisory fees at the indicated rates of the following Funds' average daily net
assets: Nations Emerging Markets Fund -- 0.25%; Nations Pacific Growth Fund --
0.20%; and Nations Global Government Income Fund -- 0.16%.
For the fiscal period from January 1, 1996 to March 31, 1996, after waivers,
Nations Fund, Inc. paid NBAI under the current Investment
17
<PAGE>
Advisory Agreement advisory fees at the rate of 0.22% of the average daily net
assets of Nations International Equity Fund.
For the fiscal period from January 1, 1996 to March 31, 1996, after waivers,
Nations Portfolios paid NBAI under the current Investment Advisory Agreement
advisory fees at the indicated rates of the following Funds' average daily net
assets: Nations Emerging Markets Fund -- 0.25%; Nations Pacific Growth
Fund -- 0.20%; and Nations Global Government Income Fund -- 0.16%.
For the fiscal period from June 1, 1995 to March 31, 1996, after waivers, NBAI
paid Gartmore or its predecessors sub-advisory fees at the rate of 0.67% of the
average daily net assets of Nations International Equity Fund. For the fiscal
period from January 1, 1996 to March 31, 1996, after waivers, NBAI paid Gartmore
or its predecessors sub-advisory fees at the indicated rates of the following
Funds' average daily net assets: Nations Emerging Markets Fund -- 0.85%; Nations
Pacific Growth Fund -- 0.70%; and Nations Global Government Income
Fund -- 0.54%.
Philip Ehrmann is Principal Portfolio Manager of Nations Emerging Markets Fund
and is the Head of the Gartmore Emerging Markets Team. He has been the Portfolio
Manager for the Fund since 1995. Prior to joining Gartmore in 1995, Mr. Ehrmann
was the Director of Emerging Markets for Invesco in London. He began his career
in 1981 as an institutional stockbroker with Rowe & Pitman Inc. and also spent a
brief period with Prudential Bache Securities as an institutional salesman
before joining Invesco in 1984. Mr. Ehrmann graduated from the London School of
Economics with a degree in Economics, Industry and Trade.
Mark Rimmer is Principal Portfolio Manager of the Nations Global Government
Income Fund and has been the Portfolio Manager since the Fund's inception. He
has been associated with Gartmore since 1990 as an International Fixed Income
Fund Manager. Previously, Mr. Rimmer managed multi-currency funds for
institutional clients at Gulf International Bank in Bahrain, and prior to that
he was a senior trader for Sumitomo Finance International, London. He graduated
from Cambridge University with a degree in Economics.
Seok Teoh is Principal Portfolio Manager of Nations Pacific Growth Fund and has
been the Portfolio Manager since the Fund's inception. She has been associated
with Gartmore since 1990 as the London based manager on its Far East Team.
Previously, Ms. Teoh managed Far East equities for Rothschild Asset Management
in Tokyo and in Singapore. She was also responsible for Singaporean and
Malaysian equity sales at Overseas Union Bank Securities in Singapore. Ms. Teoh,
who is a native of Singapore, is fluent in Mandarin and Cantonese and received
an Economics degree from the University of Durham.
Stephen Watson is Principal Portfolio Manager of Nations International Equity
Fund and has been the Portfolio Manager since February, 1995. He joined Gartmore
as a Global Fund Manager in 1993 and currently holds the position of Head of the
International and Global Portfolio Team. Previously, Mr. Watson was a director
and global fund manager with James Capel Fund Managers, London, as well as
Client Services Manager for international clients. From 1980 to 1987 he was
associated with Capel-Cure Myers in their Portfolio Management Division. He
began his career in 1976 when he joined the investment division at Samuel
Montagu. Mr. Watson is a member of the Securities Institute.
Morrison & Foerster LLP, counsel to Nations Fund and special counsel to
NationsBank, has advised Nations Fund and NationsBank that NationsBank and its
affiliates may perform the services contemplated by the various Investment
Advisory Agreements and this Prospectus without violation of the Glass-Steagall
Act. Such counsel has pointed out, however, that there are no controlling
judicial or administrative interpretations or decisions and that future judicial
or administrative interpretations of, or decisions relating to, present federal
or state statutes, including the Glass-Steagall Act, and regulations relating to
the permissible activities of banks and their subsidiaries or affiliates, as
well as future changes in federal or state statutes, including the
Glass-Steagall Act, and regulations and judicial or administrative decisions or
inter-
18
<PAGE>
pretations thereof, could prevent such entities from continuing to perform, in
whole or in part, such services. If any such entity were prohibited from
performing any of such services, it is expected that new agreements would be
proposed or entered into with another entity or entities qualified to perform
such services.
OTHER SERVICE PROVIDERS: Stephens Inc. ("Stephens"), with principal offices at
111 Center Street, Little Rock, Arkansas 72201, serves as the administrator of
Nations Fund pursuant to Administration Agreements. Pursuant to the terms of the
Administration Agreements, Stephens provides various administrative and
corporate secretarial services to the Funds, including providing general
oversight of other service providers, office space, utilities and various legal
and administrative services in connection with the satisfaction of various
regulatory requirements applicable to the Funds.
First Data Investor Services Group, Inc. ("First Data"), formerly The
Shareholder Services Group, Inc., a wholly owned subsidiary of First Data
Corporation, with principal offices at One Exchange Place, Boston, Massachusetts
02109, serves as the co-administrator of Nations Fund pursuant to
Co-Administration Agreements. Under the Co-Administration Agreements, First Data
provides various administrative and accounting services to the Funds including
performing the calculations necessary to determine the net asset value per share
and dividends of each class of the Funds, preparing tax returns and financial
statements and maintaining the portfolio records and certain of the general
accounting records for the Funds.
For the services rendered pursuant to the Administration and Co-Administration
Agreements, Stephens and First Data are entitled to receive a combined fee at
the annual rate of up to 0.10% of each Fund's average daily net assets.
For the fiscal period from June 1, 1995 to March 31, 1996, after waivers,
Nations Fund, Inc. paid its administrator combined fees at the rate of 0.10% of
the average daily net assets of Nations International Equity Fund.
For the fiscal period from June 30, 1995 to March 31, 1996, after waivers,
Nations Portfolios paid its administrator combined fees at the rate of 0.10% of
the average daily net assets of Nations Pacific Growth Fund, Nations Emerging
Markets Fund and Nations Global Government Fund.
NationsBank serves as sub-administrator for Nations Fund pursuant to a
Sub-Administration Agreement. Pursuant to the terms of the Sub-Administration
Agreement, NationsBank assists Stephens in supervising, coordinating and
monitoring various aspects of the Funds' administrative operations. For
providing such services, NationsBank shall be entitled to receive a monthly fee
from Stephens based on an annual rate of 0.01% of the Funds' average daily net
assets.
Shares of the Funds are sold on a continuous basis by Stephens, as the Funds'
sponsor and distributor. Stephens is a registered broker/dealer with principal
offices at 111 Center Street, Little Rock, Arkansas 72201. Nations Fund has
entered into distribution agreements with Stephens which provide that Stephens
has the exclusive right to distribute shares of the Funds. Stephens may pay
service fees or commissions to selling agents that assist customers in
purchasing Investor Shares of the Funds. See "Shareholder Servicing And
Distribution Plans."
Bank of New York (the "Custodian"), Avenue des Arts, 35 1040 Brussels, Belgium,
serves as custodian for the assets of the Funds.
First Data serves as transfer agent (the "Transfer Agent") for the Funds'
Investor C Shares. The Transfer Agent is located at One Exchange Place, Boston,
Massachusetts 02109.
Price Waterhouse LLP serves as independent accountant to Nations Fund. Its
address is 160 Federal Street, Boston, Massachusetts 02110.
EXPENSES: The accrued expenses of the Funds, as well as certain expenses
attributable to Investor C Shares, are deducted from accrued income before
dividends are declared. The Funds' expenses include, but are not limited to:
fees paid to the Adviser, NationsBank, Stephens and First Data; interest;
trustees' and directors' fees; federal and state securities registration and
qualification fees; brokerage fees and
commis-
19
<PAGE>
sions; cost of preparing and printing prospectuses for regulatory purposes and
for distribution to existing shareholders; charges of the Custodian and Transfer
Agent; certain insurance premiums; outside auditing and legal expenses; costs of
shareholder reports and shareholder meetings, other expenses which are not
expressly assumed by the Adviser, NationsBank, Stephens or First Data under
their respective agreements with Nations Fund; and any extraordinary expenses.
Investor C Shares may bear certain class specific retail transfer agency
expenses and also bear certain additional shareholder service and/or sales
support costs. Any general expenses of Nations Fund, Inc. and/or Nations
Portfolios that are not readily identifiable as belonging to a particular
investment portfolio are allocated among all portfolios in the proportion that
the assets of a portfolio bears to the assets of Nations Fund, Inc. and Nations
Portfolios or in such other manner as the relevant Board of Directors deems
appropriate.
Organization And History
The Funds are members of the Nations Fund Family, which consists of Nations Fund
Trust, Nations Fund, Inc., Nations Portfolios and Nations Institutional
Reserves. The Nations Fund Family currently has more than 43 distinct investment
portfolios and total assets in excess of $18 billion.
NATIONS FUND, INC.: Nations Fund, Inc. was incorporated in Maryland on December
13, 1983, but had no operations prior to December 15, 1986. Nations Fund, Inc.'s
fiscal year end is March 31; prior to 1996, Nations Fund, Inc.'s fiscal year end
was May 31. As of the date of this Prospectus, the authorized capital stock of
Nations Fund, Inc. consists of 270,000,000,000 shares of common stock, par value
of $.001 per share, which are divided into series or funds each of which
consists of separate classes of shares. This Prospectus relates only to the
Investor C Shares of Nations International Equity Fund of Nations Fund, Inc. To
obtain additional information regarding the Fund's other classes of shares which
may be available to you, contact your Agent (as defined below) or Nations Fund
at 1-800-321-7854.
Shares of each fund and class have equal rights with respect to voting, except
that the holders of shares of a particular fund or class will have the exclusive
right to vote on matters affecting only the rights of the holders of such fund
or class. In the event of dissolution or liquidation, holders of each class will
receive pro rata, subject to the rights of creditors, (a) the proceeds of the
sale of that portion of the assets allocated to that class held in the
respective fund of Nations Fund, Inc., less (b) the liabilities of Nations Fund,
Inc. attributable to the respective fund or class or allocated among the funds
or classes based on the respective liquidation value of each fund or class.
Shareholders of Nations Fund, Inc. do not have cumulative voting rights, and
therefore the holders of more than 50% of the outstanding shares of all funds
voting together for election of directors may elect all of the members of the
Board of Directors of Nations Fund, Inc. Meetings of shareholders may be called
upon the request of 10% or more of the outstanding shares of Nations Fund, Inc.
There are no preemptive rights applicable to any of Nations Fund, Inc.'s shares.
Nations Fund, Inc.'s shares, when issued, will be fully paid and non-assessable.
As of July 15, 1996, NationsBank and its affiliates possessed or shared power to
dispose of or vote with respect to more than 25% of the outstanding shares of
Nations Fund, Inc. and therefore could be considered to be a controlling person
of Nations Fund, Inc. for purposes of the 1940 Act. For more detailed
information concerning the percentage of each class or series over which
NationsBank and its affiliates possessed or shared power to dispose or vote as
of a certain date, see Nations Fund, Inc.'s SAI. It is anticipated that Nations
Fund, Inc. will not hold annual shareholder meetings on a regular basis
20
<PAGE>
unless required by the 1940 Act or Maryland law.
NATIONS PORTFOLIOS: Nations Portfolios was incorporated in Maryland on January
23, 1995. Nations Portfolios' fiscal year end is March 31. As of the date of
this Prospectus, the authorized capital stock of Nations Portfolios consists of
150,000,000,000 shares of common stock, par value of $.001 per share, which are
divided into series or funds each of which consists of separate classes of
shares. This Prospectus relates only to the Investor C Shares of Nations
Emerging Markets Fund, Nations Pacific Growth Fund and Nations Global Government
Income Fund of Nations Portfolios. To obtain additional information regarding
the Funds' other classes of shares which may be available to you, contact your
Selling Agent (as defined below) or Nations Fund at 1-800-321-7854.
Shares of a fund and class have equal rights with respect to voting, except that
the holders of shares of a fund or class will have the exclusive right to vote
on matters affecting only the rights of the holders of such fund or class. In
the event of dissolution or liquidation, holders of each class will receive pro
rata, subject to the rights of creditors, (a) the proceeds of the sale of that
portion of the assets allocated to that class held in the respective fund of
Nations Portfolios, less (b) the liabilities of Nations Portfolios attributable
to the respective fund or class allocated among the funds or classes based on
the respective liquidation value of each fund or class.
Shareholders of Nations Portfolios do not have cumulative voting rights, and
therefore the holders of more than 50% of the outstanding shares of all funds
voting together for election of directors may elect all of the members of the
Board of Directors of Nations Portfolios. Meetings of shareholders may be called
upon the request of 10% or more of the outstanding shares of Nations Portfolios.
There are no preemptive rights applicable to any of Nations Portfolios' shares.
Nations Portfolios' shares, when issued, will be fully paid and non-assessable.
As of July 15, 1996, NationsBank and its affiliates possessed or shared power to
dispose of or vote with respect to more than 25% of the outstanding shares of
Nations Portfolios and, therefore, could be considered to be a controlling
person of Nations Portfolios for purposes of the 1940 Act. For more detailed
information concerning the percentage of each class or series over which
NationsBank and its affiliates possessed or shared power to dispose or vote as
of a certain date, see Nations Portfolios' SAI. It is anticipated that Nations
Portfolios will not hold annual shareholder meetings on a regular basis unless
required by the 1940 Act or Maryland law.
Because this Prospectus combines disclosure on two separate investment
companies, there is a possibility that one investment company could become
liable for a misstatement, inaccuracy or incomplete disclosure in this
Prospectus concerning the other investment company. Nations Fund, Inc. and
Nations Portfolios have entered into an indemnification agreement that creates a
right of indemnification from the investment company responsible for any such
misstatement, inaccuracy or incomplete disclosure that may appear in this
Prospectus.
About Your Investment
How To Buy Shares
The Funds have established various procedures for purchasing Investor C Shares
in order to accommodate different investors. Purchase orders for Investor C
Shares may be placed through banks, broker/dealers or other financial
institutions (including certain affiliates of NationsBank) that have entered
into a shareholder servicing agreement ("Servicing Agreement") with Nations Fund
("Servicing Agents") and/or a sales support agreement ("Sales Sup-
21
<PAGE>
port Agreement") with Stephens ("Selling Agents").
There is a minimum initial investment of $1,000, except that the minimum initial
investment is:
(Bullet) $500 for IRA investors;
(Bullet) $250 for non-working spousal IRAs; and
(Bullet) $100 for investors participating on a monthly basis in the Systematic
Investment Plan described below.
There is no minimum investment amount for investments by 401(k) plans,
simplified employee pension plans ("SEPs"), salary reduction-simplified employee
pension plans ("SAR-SEPs") or salary reduction-Individual Retirement Account
("SAR-IRAs"). However, the assets of such plans must reach an asset value of
$1,000 ($500 for SEPs, SAR-SEPs and SAR-IRAs) within one year of the account
open date. If the assets of such plans do not reach the minimum asset size
within one year, Nations Fund reserves the right to redeem the shares held by
such plans on 60 days' written notice. The minimum subsequent investment is
$100, except for investments pursuant to the Systematic Investment Plan
described below.
Investor C Shares are purchased at net asset value per share. Purchases may be
effected on days on which the New York Stock Exchange (the "Exchange") is open
for business (a "Business Day").
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 Investor C Shares. Servicing Agents and Selling
Agents are sometimes referred to hereafter as "Agents." From time to time the
Agents, Stephens and Nations Fund may agree to voluntarily reduce the maximum
fees payable for sales support or shareholder services.
Nations Fund and Stephens reserve the right to reject any purchase order. The
issuance of Investor C Shares is recorded on the books of the Funds, and share
certificates are not issued unless expressly requested in writing. Certificates
are not issued for fractional shares.
EFFECTIVE TIME OF PURCHASES: Purchase orders for Investor C Shares of the Funds
which are received by Stephens or by the Transfer Agent before the close of
regular trading hours on the Exchange (currently 4:00 p.m., Eastern time) on any
Business Day are priced according to the net asset value determined on that day
but are not executed until 4:00 p.m., Eastern time, on the Business Day on which
immediately available funds in payment of the purchase price are received by the
Funds' Custodian. Such payment must be received no later than 4:00 p.m., Eastern
time, by the third Business Day following receipt of the order. If funds are not
received by such date, the order will not be accepted and notice thereof will be
given to the Agent placing the order. Payment for orders which are not received
or accepted will be returned after prompt inquiry to the sending Agent.
The Agents are responsible for transmitting orders for purchases of Investor C
Shares by their Customers, and delivering required funds, on a timely basis.
Stephens is responsible for transmitting orders it receives to Nations Fund.
SYSTEMATIC INVESTMENT PLAN: Under the Funds' Systematic Investment Plan ("SIP")
a shareholder may automatically purchase Investor C Shares. On a bi-monthly,
monthly or quarterly basis, a shareholder may direct cash to be transferred
automatically from his/her checking or savings account at any bank to his/her
Fund account. Transfers will occur on or about the 15th and/or 30th day of the
applicable month. The systematic investment amount may be in any amount from $25
to $100,000. For more information concerning the SIP, contact your Agent.
TELEPHONE TRANSACTIONS: Investors may effect purchases, redemptions (up to
$50,000) and exchanges by telephone. See "How To Redeem Shares" and "How To
Exchange Shares" below. If a shareholder desires to elect the telephone
transaction feature after opening an account, a signature guarantee will be
required. Shareholders should be aware that by using the telephone transaction
feature, such shareholders may be giving up a measure of security that they may
have if they were to authorize written requests only. A shareholder may bear the
risk of any
22
<PAGE>
resulting losses from a telephone transaction. Nations Fund will employ
reasonable procedures to confirm that instructions communicated by telephone are
genuine, and if Nations Fund and its service providers fail to employ such
measures, they may be liable for any losses due to unauthorized or fraudulent
instructions. Nations Fund requires a form of personal identification prior to
acting upon instructions received by telephone and provides written confirmation
to shareholders of each telephone share transaction. In addition, Nations Fund
reserves the right to record all telephone conversations.
How To Redeem Shares
Redemption orders should be transmitted by telephone or in writing through the
same Agent that transmitted the original purchase order. Redemption orders are
effected at the net asset value per share next determined after receipt of the
order by Stephens or by the Transfer Agent, less any applicable CDSC. The Agents
are responsible for transmitting redemption orders to Stephens or to the
Transfer Agent and for crediting their Customers' accounts with the redemption
proceeds on a timely basis. No charge for wiring redemption payments is imposed
by Nations Fund. Except for any CDSC which may be applicable upon redemption of
Investor C Shares, as described below, there is no redemption charge.
Redemption proceeds are normally wired to the redeeming Agent within three
Business Days after receipt of the order by Stephens or by the Transfer Agent.
However, redemption proceeds for shares purchased by check may not be remitted
until at least 15 days after the date of purchase to ensure that the check has
cleared; a certified check, however, is deemed to be cleared immediately.
Nations Fund may redeem a shareholder's Investor C Shares upon 60 days' written
notice if the balance in the shareholder's account drops below $500 as a result
of redemptions. Share balances also may be redeemed at the direction of an Agent
pursuant to arrangements between the Agent and its Customers. Nations Fund also
may redeem shares of the Funds involuntarily or make payment for redemption in
readily marketable securities or other property under certain circumstances in
accordance with the 1940 Act.
Prior to effecting a redemption of Investor C Shares represented by
certificates, the Transfer Agent must have received such certificates at its
principal office. All such certificates must be endorsed by the redeeming
shareholder or accompanied by a signed stock power, in each instance with the
signature guaranteed by a commercial bank or a member of a major stock exchange,
unless other arrangements satisfactory to Nations Fund have previously been
made. Nations Fund may require any additional information reasonably necessary
to evidence that a redemption has been duly authorized.
CONTINGENT DEFERRED SALES CHARGE: Subject to certain waivers, Investor C Shares
of the Funds that are redeemed within one year of the date of purchase will be
subject to a CDSC equal to 0.50% of the lesser of the net asset value or the
purchase price of the shares being redeemed. Investor C Shares purchased prior
to January 1, 1996 remain subject to the 1.00% CDSC. No CDSC is imposed on
increases in net asset value above the initial purchase price, including shares
acquired by reinvestment of distributions.
Solely for purposes of determining the period of time that has elapsed from the
purchase of any Investor C Shares, all purchases are deemed to have been made on
the trade date of the transaction. In determining whether a CDSC is applicable
to a redemption, the calculation will be made in the manner that results in the
lowest possible charge being assessed. In this regard, it will be assumed that
the redemption is first of shares held for the longest period of time or shares
acquired pursuant to reinvestment of dividends or distributions. The charge will
not be applied
23
<PAGE>
to dollar amounts representing an increase in the net asset value since the time
of purchase.
The CDSC will be waived on redemptions of Investor C Shares (i) following the
death or disability (as defined in the Internal Revenue Code of 1986, as amended
(the "Code")) of a shareholder (including a registered joint owner), (ii) in
connection with the following retirement plan distributions: (a) by qualified
plans, (except in cases of plan level terminations); (b) distributions from an
IRA following attainment of age 59 1/2; (c) a tax-free return of an excess
contribution to an IRA, and (d) distributions from a qualified retirement plan
that are not subject to the 10% additional Federal withdrawal tax pursuant to
Section 72(t)(2) of the Code, (iii) effected pursuant to Nations Fund's right to
liquidate a shareholder's account, including instances where the aggregate net
asset value of the Investor C shares held in the account is less than the
minimum account size, (iv) in connection with the combination of Nations Fund
with any other registered investment company by merger, acquisition of assets or
by any other transaction, and (v) effected pursuant to the Automatic Withdrawal
Plan discussed below, provided that such redemptions do not exceed, on an annual
basis, 12% of the net asset value of the Investor C Shares in the account.
Shareholders are responsible for providing evidence sufficient to establish that
they are eligible for any waiver of the CDSC. Nations Fund may terminate any
waiver of the CDSC by providing notice in the Funds' Prospectus, but any such
termination would affect only shares purchased after such termination.
Within 120 days after a redemption of Investor C Shares of a Fund, a shareholder
may reinvest any portion of the proceeds of such redemption in Investor C Shares
of the same Fund. The amount which may be so reinvested is limited to an amount
up to, but not exceeding, the redemption proceeds (or to the nearest full share
if fractional shares are not purchased). A shareholder exercising this privilege
would receive a pro rata credit for any CDSC paid in connection with the prior
redemption. A shareholder may not exercise this privilege with the proceeds of a
redemption of shares previously purchased through the reinvestment privilege. In
order to exercise this privilege, a written order for the purchase of Investor C
Shares must be received by the Transfer Agent or by Stephens within 120 days
after the redemption.
AUTOMATIC WITHDRAWAL PLAN: An Automatic Withdrawal Plan ("AWP") may be
established by a new or existing shareholder of the Funds if the value of the
Investor C Shares in his/her accounts within the Nations Fund Family (valued at
the net asset value at the time of the establishment of the AWP) equals $10,000
or more. Investor C Shares redeemed under the AWP will not be subject to a CDSC,
provided that the shares so redeemed do not exceed, on an annual basis, 12% of
the net asset value of the Investor C Shares in the account. Otherwise, any
applicable CDSC will be imposed on shares redeemed under the AWP. Shareholders
who elect to establish an AWP may receive a monthly, quarterly or annual check
or automatic transfer to a checking or savings account in a stated amount of not
less than $25 on or about the 10th or 25th day of the applicable month of
withdrawal. Investor C Shares will be redeemed (net of any applicable CDSC) as
necessary to meet withdrawal payments. Withdrawals will reduce principal and may
eventually deplete the shareholder's account. If a shareholder desires to
establish an AWP after opening an account, a signature guarantee will be
required. An AWP may be terminated by a shareholder on 30 days' written notice
to his/her Agent or by Nations Fund at any time.
24
<PAGE>
How To Exchange Shares
The exchange feature enables a shareholder of Investor C Shares of a Nations
Fund non-money market fund to acquire shares of the same class that are offered
by another non-money market fund of Nations Fund or Investor D Shares of any
Nations Fund money market fund when he or she believes that a shift between
funds is an appropriate investment decision. A qualifying exchange is based on
the next calculated net asset value per share of each fund after the exchange
order is received.
No CDSC will be imposed in connection with an exchange of Investor C Shares that
meets the requirements discussed in this section.
If a shareholder acquires Investor C Shares of a Nations Fund non-money market
fund or Investor D Shares of a Nations Fund money market fund through an
exchange, the CDSC applicable to the original shares purchased will be applied
to any redemption of the acquired shares. Additionally, when an investor
exchanges Investor C Shares of a Nations Fund non-money market fund for shares
of the same class of another non-money market fund or Investor D Shares of any
money market fund of Nations Fund, the remaining period of time (if any) that
the CDSC is in effect will be computed from the time of the initial purchase of
the previously held Investor C Shares.
AUTOMATIC EXCHANGE FEATURE: Under the Funds' Automatic Exchange Feature ("AEF")
a shareholder may automatically exchange at least $25 on a monthly or quarterly
basis. A shareholder may direct proceeds to be exchanged from one fund of
Nations Fund to another as allowed by the applicable exchange rules within the
prospectus. Exchanges will occur on or about the 15th or 30th day of the
applicable month. The shareholder must have an existing position in both funds
in order to establish the AEF. This feature may be established by directing a
request to the Transfer Agent by telephone or in writing. For additional
information, an investor should contact his/her Selling Agent.
GENERAL: The Funds and each of the other funds of Nations Fund may limit the
number of times this exchange feature may be exercised by a shareholder within a
specified period of time. Also, the exchange feature may be terminated or
revised at any time by Nations Fund upon such notice as may be required by
applicable regulatory agencies (presently 60 days for termination or material
revision), absent unusual circumstances.
The current prospectus for each fund of Nations Fund describes its investment
objective and policies, and shareholders should obtain a copy and examine it
carefully before investing. Exchanges are subject to the minimum investment
requirement and any other conditions imposed by each fund. In the case of any
shareholder holding a share certificate or certificates, no exchanges may be
made until all applicable share certificates have been received by the Transfer
Agent and deposited in the shareholder's account. An exchange will be treated
for Federal income tax purposes the same as a redemption of shares, on which the
shareholder may realize a capital gain or loss. However, the ability to deduct
capital losses on an exchange may be limited in situations where there is an
exchange of shares within 90 days after the shares are purchased.
The Investor C Shares exchanged must have a current value of at least $1,000
(except for exchange through the AEF). Nations Fund reserves the right to reject
any exchange request. Only shares that may legally be sold in the state of the
investor's residence may be acquired in an exchange. Only shares of a class that
is accepting investments generally may be acquired in an exchange. An investor
may telephone an exchange request by calling his/her Agent which is responsible
for transmitting such request to Stephens or to the Transfer Agent.
During periods of significant economic or market change, telephone exchanges may
be difficult to complete. In such event, shares may be exchanged by mailing the
request directly to the Agent through which the original shares were purchased.
An investor should consult his/her Agent or Stephens for further information
regarding exchanges.
25
<PAGE>
Shareholder Servicing And Distribution
Plans
Pursuant to Rule 12b-1 under the 1940 Act, the Directors have approved a
Distribution Plan with respect to Investor C Shares of the Funds. Pursuant to
the Distribution Plan, the Funds may compensate or reimburse Stephens for any
activities or expenses primarily intended to result in the sale of the Funds'
Investor C Shares. Payments under the Investor C Distribution Plan will be
calculated daily and paid monthly at a rate or rates set from time to time by
the Directors provided that the annual rate may not exceed 0.75% of the average
daily net asset value of the Funds' Investor C Shares.
The fees payable under the Distribution Plan are used (i) to compensate Selling
Agents for providing sales support assistance relating to Investor C Shares,
(ii) to pay for promotional activities intended to result in the sale of
Investor C Shares such as the preparation, printing and distribution of
prospectuses to other than current shareholders, and (iii) to compensate Selling
Agents for providing sales support services with respect to their Customers who
are, from time to time, beneficial and record holders of Investor C Shares.
Currently, substantially all fees paid pursuant to the Distribution Plan are
paid to compensate Selling Agents for providing the services described in (i)
and (iii) above, with any remaining amounts being used by Stephens to partially
defray other expenses incurred by Stephens in distributing Investor C Shares.
Fees received by Stephens pursuant to the Distribution Plan will not be used to
pay any interest expenses, carrying charges or other financing costs (except to
the extent permitted by the SEC) and will not be used to pay any general and
administrative expenses of Stephens.
Nations Fund and Stephens may suspend or reduce payments under the Distribution
Plan at any time, and payments are subject to the continuation of the
Distribution Plan described above and the terms of the Sales Support Agreement
between Selling Agents and Stephens. See the SAIs for more details on the
Distribution Plan.
The Directors also have approved a shareholder servicing plan ("Servicing Plan")
for the Funds which permits the Funds to compensate Servicing Agents for
services provided to their Customers that own Investor C Shares. Payments under
the Servicing Plan are calculated daily and paid monthly at a rate or rates set
from time to time by the Funds, provided that the annual rate may not exceed
0.25% of the average daily net asset value of the Funds' Investor C Shares.
The fees payable under the Servicing Plan are used primarily to compensate or
reimburse Servicing Agents for shareholder services provided, and related
expenses incurred, by such Servicing Agents. The shareholder services provided
by Servicing Agents may include: (i) aggregating and processing purchase and
redemption requests for Investor C Shares from Customers and transmitting net
purchase and redemption orders to Stephens or the Transfer Agent; (ii) providing
Customers with a service that invests the assets of their accounts in Investor C
Shares pursuant to specific or preauthorized instructions; (iii) processing
dividend and distribution payments from the Funds on behalf of Customers; (iv)
providing information periodically to Customers showing their positions in
Investor C Shares; (v) arranging for bank wires; and (vi) providing general
shareholder liaison services.
Nations Fund may suspend or reduce payments under the Servicing Plan at any
time, and payments are subject to the continuation of the Servicing Plan
described above and the terms of the Servicing Agreements. See the SAIs for more
details on the Servicing Plan.
Nations Fund understands that Agents may charge fees to their Customers who are
the owners of Investor Shares for various services provided in connection with a
Customer's account.
26
<PAGE>
These fees would be in addition to any amounts received by a Selling Agent under
its Sales Support Agreement with Stephens or by a Servicing Agent under its
Servicing Agreement with Nations Fund. The Sales Support Agreements and
Servicing Agreements require Agents to disclose to their Customers any
compensation payable to the Agent by Stephens or Nations Fund and any other
compensation payable by the Customers for various services provided in
connection with their accounts. Customers should read this Prospectus in light
of the terms governing their accounts with their Agents.
Stephens may, from time to time, at its expense or as an expense for which it
may be reimbursed under the Distribution Plan, pay a bonus or other
consideration or incentive to Agents who sell a minimum dollar amount of shares
of the Funds during a specified period of time. Stephens also may, from time to
time, pay additional consideration to Agents not to exceed 0.75% of the offering
price per share on all sales of Investor C Shares as an expense of Stephens or
for which Stephens may be reimbursed under the Distribution Plan or upon receipt
of a CDSC. Any such additional consideration or incentive program may be
terminated at any time by Stephens.
In addition, Stephens has established a non-cash compensation program, pursuant
to which broker/dealers or financial institutions that sell shares of the Funds
may earn additional compensation in the form of trips to sales seminars or
vacation destinations, tickets to sporting events, theater or other
entertainment, opportunities to participate in golf or other outings and gift
certificates for meals or merchandise. This non-cash compensation program may be
amended or terminated at any time by Stephens.
How The Funds Value Their Shares
The Funds calculate the net asset value of a share of each class by dividing the
total value of its assets, less liabilities, by the number of shares in the
class outstanding. Shares are valued as of the close of regular trading on the
Exchange (currently 4:00 p.m., Eastern time) on each Business Day. Currently,
the days on which the Exchange is closed (other than weekends) are: New Year's
Day, Presidents' Day, Good Friday, Memorial Day (observed), Independence Day,
Labor Day, Thanksgiving Day and Christmas Day.
Portfolio securities for which market quotations are readily available are
valued at market value. Short-term investments that will mature in 60 days or
less are valued at amortized cost, which approximates market value. All other
securities and assets are valued at their fair value following procedures
approved by the Directors.
How Dividends And Distributions Are
Made; Tax Information
DIVIDENDS AND DISTRIBUTIONS: Dividends from net investment income are declared
and paid each calendar quarter by Nations International Equity Fund, Nations
Emerging Markets Fund and Nations Pacific Growth Fund and are declared daily and
paid monthly by Nations Global Government Income Fund. Each Fund's net realized
capital gains (including net short-term capital gains) are distributed at least
annually. Investor C Shares of the Funds are eligible to receive dividends when
declared, provided, however, that the purchase order for such shares is received
at least one day prior to the dividend declaration and such shares continue to
be eligible for dividends through and including the day before the redemption
order is executed.
Distri-
27
<PAGE>
butions paid by the Funds with respect to one class of shares may be greater or
less than those paid with respect to another class of shares due to the
different expenses of the different classes.
The net asset value of Investor C Shares will be reduced by the amount of any
dividend or distribution. Certain Agents may provide for the reinvestment of
dividends in the form of additional Investor C Shares of the same class in the
same Fund. Dividends and distributions are paid in cash within five Business
Days of the end of the month or quarter to which the dividend relates. Dividends
and distributions payable to a shareholder are paid in cash within five Business
Days after a shareholder's complete redemption of his/her Investor C Shares.
TAX INFORMATION: Each Fund intends to qualify as a "regulated investment
company" under the Code. Such qualification relieves the Fund of liability for
Federal income tax on amounts distributed in accordance with the Code.
Each Fund intends to distribute substantially all of its investment company
taxable income and net tax-exempt income each taxable year. Distributions by a
Fund of its net investment income (including net foreign currency gains) and the
excess, if any, of its net short-term capital gain over its net long-term
capital loss are taxable as ordinary income to shareholders who are not
currently exempt from Federal income tax, whether such income is received in
cash or reinvested in additional shares. (Federal income tax for distributions
to an IRA are generally deferred under the Code.)
Corporate investors in the Funds may be eligible for the dividends-received
deduction on the dividends (excluding the net capital gains dividends) paid by
these Funds to the extent that a Fund's income is derived from dividends (which,
if received directly, would qualify for such deduction) received from domestic
corporations. In order to qualify for the dividends-received deduction, a
corporate shareholder must hold the Fund shares paying the dividends upon which
the deduction is based for at least 46 days.
Substantially all of the Funds' net realized long-term capital gains will be
distributed at least annually. The Funds will generally have no tax liability
with respect to such gains, and the distributions will be taxable to
shareholders who are not exempt from Federal income taxes as long-term capital
gains, regardless of how long the shareholders have held the Funds' shares and
whether such gains are received in cash or reinvested in additional shares.
Each year, shareholders will be notified as to the amount and Federal tax status
of all dividends and capital gains paid during the prior year. Such dividends
and capital gains may be subject to state and local taxes.
Dividends declared in October, November, or December of any year payable to
shareholders of record on a specified date in such months will be deemed to have
been received by shareholders and paid by the Funds on December 31 of such year
in the event such dividends are actually paid during January of the following
year.
Federal law requires Nations Fund to withhold 31% from any dividends (other than
exempt-interest dividends) paid by Nations Fund and/or redemptions (including
exchange redemptions) that occur in certain shareholder accounts if the
shareholder has not properly furnished a certified correct Taxpayer
Identification Number and has not certified that withholding does not apply, or
if the Internal Revenue Service has notified Nations Fund that the Taxpayer
Identification Number listed on a shareholder account is incorrect according to
its records, or that the shareholder is subject to backup withholding. Amounts
withheld are applied to the shareholder's Federal tax liability, and a refund
may be obtained from the Internal Revenue Service if withholding results in
overpayment of taxes. Federal law also requires the Funds to withhold 30% or the
applicable tax treaty rate from dividends paid to certain nonresident alien,
non-U.S. partnership and non-U.S. corporation shareholder accounts.
Portions of each Fund's investment income may be subject to foreign income taxes
withheld at their source. Tax conventions between certain countries and the
United States may reduce or eliminate such taxes. Generally, more than 50% of
the value of the total assets of each of those Funds will consist of securities
of foreign issuers, and therefore each of those Funds may elect to "pass
through" to its shareholders these foreign taxes, if any. In such event each
shareholder will
28
<PAGE>
be required to include his or her pro rata portion thereof in his or her gross
income, but will be able to deduct or (subject to various limitations) claim a
foreign tax credit against U.S. income tax for such amount.
The foregoing discussion is based on tax laws and regulations that were in
effect as of the date of this Prospectus and summarizes only some of the
important Federal tax considerations generally affecting the Funds and their
shareholders. It is not intended as a substitute for careful tax planning;
investors should consult their tax advisors with respect to their specific tax
situations as well as with respect to state and local taxes. Further tax
information is contained in the SAIs.
Appendix A -- Portfolio Securities
The following are summary descriptions of certain types of instruments in which
a Fund may invest. The "How Objectives Are Pursued" section of this Prospectus
identifies each Fund's permissible investments, and the SAIs contain more
information concerning such investments.
BANK INSTRUMENTS: Bank instruments consist mainly of certificates of deposit,
time deposits and bankers' acceptances. The Funds will limit their investments
in bank obligations so they do not exceed 25% of each Fund's total assets at the
time of purchase.
U.S. dollar-denominated obligations issued by foreign branches of domestic banks
("Eurodollar" obligations) and domestic branches of foreign banks ("Yankee
dollar" obligations), and other foreign obligations involve special investment
risks, including the possibility that liquidity could be impaired because of
future political and economic developments, the obligations may be less
marketable than comparable domestic obligations of domestic issuers, a foreign
jurisdiction might impose withholding taxes on interest income payable on such
obligations, deposits may be seized or nationalized, foreign governmental
restrictions such as exchange controls may be adopted which might adversely
affect the payment of principal of and interest on such obligations, the
selection of foreign obligations may be more difficult because there may be less
publicly available information concerning foreign issuers, there may be
difficulties in enforcing a judgment against a foreign issuer or the accounting,
auditing and financial reporting standards, practices and requirements
applicable to foreign issuers may differ from those applicable to domestic
issuers. In addition, foreign banks are not subject to examination by U.S.
Government agencies or instrumentalities.
BORROWINGS: When a Fund borrows money, the net asset value of a share may be
subject to greater fluctuation until the borrowing is paid off. The Funds may
borrow money from banks for temporary purposes in amounts of up to one-third of
their respective total assets, provided that borrowings in excess of 5% of the
value of the Funds' total assets must be repaid prior to the purchase of
portfolio securities. Pursuant to line of credit arrangements, Nations
International Equity Fund may borrow primarily for temporary or emergency
purposes, including the meeting of redemption requests that otherwise might
require the untimely disposition of securities. Under the requirements of the
1940 Act, the Funds are required to maintain an asset coverage (including the
proceeds of the borrowings) of at least 300% of all borrowings.
COMMERCIAL INSTRUMENTS: Commercial instruments consist of short-term U.S.
dollar-denominated obligations issued by domestic corporations or foreign
corporations and foreign commercial banks. Investments by 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
there-
29
<PAGE>
under to vary and provide for periodic adjustments in the interest rate, and
variable- and floating-rate instruments.
CONVERTIBLE SECURITIES, PREFERRED STOCK, AND WARRANTS: To the extent provided
under "How Objectives Are Pursued," the Funds may invest in debt securities
convertible into or exchangeable for equity securities, preferred stocks or
warrants. Preferred stocks are securities that represent an ownership interest
in a corporation providing the owner with claims on a company's earnings and
assets before common stock owners, but after bond or other debt security owners.
Warrants are options to buy a stated number of shares of common stock at a
specified price any time during the life of the warrants.
FIXED INCOME INVESTING: The performance of the fixed income debt component of a
Fund's portfolio depends primarily on interest rate changes, the average
weighted maturity of the portfolio and the quality of the securities held. The
debt component of a Fund's portfolio will tend to decrease in value when
interest rates rise and increase when interest rates fall. A Fund's share price
and yield depend, in part, on the maturity and quality of its debt instruments.
FOREIGN CURRENCY TRANSACTIONS: To the extent provided under "How Objectives Are
Pursued," the Funds may enter into foreign currency exchange transactions to
convert foreign currencies to and from the U.S. dollar. A Fund either enters
into these transactions on a spot (I.E., cash) basis at the spot rate prevailing
in the foreign currency exchange market, or uses forward contracts to purchase
or sell foreign currencies. A forward foreign currency exchange contract is an
obligation by a Fund to purchase or sell a specific currency at a future date,
which may be any fixed number of days from the date of the contract.
Foreign currency hedging transactions are an attempt to protect a Fund against
changes in foreign currency exchange rates between the trade and settlement
dates of specific securities transactions or changes in foreign currency
exchange rates that would adversely affect a portfolio position or an
anticipated portfolio position. Although these transactions tend to minimize the
risk of loss due to a decline in the value of the hedged currency, at the same
time they tend to limit any potential gain that might be realized should the
value of the hedged currency increase. Neither spot transactions nor forward
foreign currency exchange contracts eliminate fluctuations in the prices of a
Fund's portfolio securities or in foreign exchange rates, or prevent loss if the
prices of these securities should decline.
A Fund will generally enter into forward currency exchange contracts only under
two circumstances: (i) when the Fund enters into a contract for the purchase or
sale of a security denominated in a foreign currency, to "lock" in the U.S.
dollar price of the security; and (ii) when the Adviser believes that the
currency of a particular foreign country may experience a substantial movement
against another currency. Under certain circumstances, the Fund may commit a
substantial portion of its portfolio to the execution of these contracts. The
Adviser will consider the effects such a commitment would have on the investment
program of the Fund and the flexibility of the Fund to purchase additional
securities. Although forward contracts will be used primarily to protect the
Fund from adverse currency movements, they also involve the risk that
anticipated currency movements will not be accurately predicted. The Nations
International Equity Fund will generally not enter into a forward contract with
a term of greater than one year.
FOREIGN SECURITIES: Foreign securities include debt and equity obligations
(dollar- and non-dollar-denominated of foreign corporations and banks as well as
obligations of foreign governments and their political subdivisions (which will
be limited to direct government obligations and government-guaranteed
securities). Such investments may subject a Fund to special investment risks,
including future political and economic developments, the possible imposition of
withholding taxes on interest income, possible seizure or nationalization of
foreign deposits, the possible establishment of exchange controls, or the
adoption of other foreign governmental restrictions which might adversely affect
the payment of principal and interest on such obliga-
30
<PAGE>
tions. In addition, foreign issuers in general may be subject to different
accounting, auditing, reporting, and record keeping standards than those
applicable to domestic companies, and securities of foreign issuers may be less
liquid and their prices more volatile than those of comparable domestic issuers.
Investments in foreign securities may present additional risks, whether made
directly or indirectly, including the political or economic instability of the
issuer or the country of issue and the difficulty of predicting international
trade patterns. In addition, there may be less publicly available information
about a foreign company than about a U.S. company. Further, foreign securities
markets are generally not as developed or efficient as those in the U.S., and in
most foreign markets volume and liquidity are less than in the United States.
Fixed commissions on foreign securities exchanges are generally higher than the
negotiated commissions on U.S. exchanges, and there is generally less government
supervision and regulation of foreign securities exchanges, brokers, and
companies than in the United States. With respect to certain foreign countries,
there is a possibility of expropriation or confiscatory taxation, limitations on
the removal of funds or other assets, or diplomatic developments that could
affect investments within those countries. Because of these and other factors,
securities of foreign companies acquired by a Fund may be subject to greater
fluctuation in price than securities of domestic companies.
FUTURES, OPTIONS AND OTHER DERIVATIVE INSTRUMENTS: To the extent provided under
"How Objectives Are Pursued" the Funds may attempt to reduce the overall level
of investment risk of particular securities and attempt to protect a Fund
against adverse market movements by investing in futures, options and other
derivative instruments. These include the purchase and writing of options on
securities (including index options) and options on foreign currencies, and
investing in futures contracts for the purchase or sale of instruments based on
financial indices, including interest rate indices or indices of U.S. or foreign
government, equity or fixed-income securities ("futures contracts"), options on
futures contracts, forward contracts and swaps and swap-related products such as
interest rate swaps, currency swaps, caps, collars and floors.
The use of futures, options, forward contracts and swaps exposes a Fund to
additional investment risks and transaction costs. If the Adviser incorrectly
analyzes market conditions or does not employ the appropriate strategy with
respect to these instruments, a Fund could be left in a less favorable position.
Additional risks inherent in the use of futures, options, forward contracts and
swaps include: imperfect correlation between the price of futures, options and
forward contracts and movements in the prices of the securities or currencies
being hedged; the possible absence of a liquid secondary market for any
particular instrument at any time; and the possible need to defer closing out
certain hedged positions to avoid adverse tax consequences. A Fund may not
purchase put and call options which are traded on a national stock exchange in
an amount exceeding 5% of its net assets. Further information on the use of
futures, options and other derivative instruments, and the associated risks, is
contained in the SAIs.
ILLIQUID SECURITIES: Certain securities may be sold only pursuant to certain
legal restrictions, and may be difficult to sell. The Funds will not hold more
than 15% of the value of their respective net assets in securities that are
illiquid or such lower percentage as may be required by the states in which the
appropriate Fund sells its shares. Repurchase agreements, time deposits and
guaranteed investment contracts that do not provide for payment to a Fund within
seven days after notice and illiquid restricted securities are subject to the
limitation on illiquid securities.
If otherwise consistent with their investment objectives and policies, certain
Funds may purchase securities that are not registered under the Securities Act
of 1933, as amended (the "1933 Act") but which can be sold to "qualified
institutional buyers" in accordance with, or which were issued under Section
4(2) of the 1933 Act, Rule 144A under the 1933 Act. Any such security will not
be considered illiquid so long as it is determined by a Fund's Board of
Directors or the Adviser, acting under guidelines approved
31
<PAGE>
and monitored by the Fund's Board, after considering trading activity,
availability of reliable price information and other relevant information, that
an adequate trading market exists for that security. To the extent that, for a
period of time, qualified institutional 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 one year or less. Money market
instruments may include, among other instruments, certain U.S. Treasury
obligations, U.S. Government obligations, bank instruments, commercial
instruments, repurchase agreements and municipal securities. Such instruments
are described in this Appendix A.
OTHER INVESTMENT COMPANIES: Each Fund may invest in securities issued by other
investment companies to the extent that such investments are consistent with the
Fund's investment objective and policies and permissible under the 1940 Act. As
a shareholder of another investment company, a Fund would bear, along with other
shareholders, its pro rata portion of the other investment company's expenses,
including advisory fees. These expenses would be in addition to the advisory and
other expenses that a Fund bears directly in connection with its own operations.
REAL ESTATE INVESTMENT TRUSTS: A real estate investment trust ("REIT") is a
managed portfolio of real estate investments which may include office buildings,
apartment complexes, hotels and shopping malls. An Equity REIT holds equity
positions in real estate, and it seeks to provide its shareholders with income
from the leasing of its properties, and with capital gains from any sales of
properties. A Mortgage REIT specializes in lending money to developers of
properties, and passes any interest income it may earn to its shareholders.
REITs may be affected by changes in the value of the underlying property owned
or financed by the REIT, while Mortgage REITs also may be affected by the
quality of credit extended. Both Equity and Mortgage REITs are dependent upon
management skill and may not be diversified. REITs also may be subject to heavy
cash flow dependency, defaults by borrowers, self-liquidation, and the
possibility of failing to qualify for tax-free pass-through of income under the
Code.
REPURCHASE AGREEMENTS: A repurchase agreement involves the purchase of a
security by a Fund and a simultaneous agreement (generally with a bank or
broker/dealer) to repurchase that security from the Fund at a specified price
and date or upon demand. This technique offers a method of earning income on
idle cash. A risk
32
<PAGE>
associated with repurchase agreements is the failure of the seller to repurchase
the securities as agreed, which may cause a Fund to suffer a loss if the market
value of such securities declines before they can be liquidated on the open
market. Repurchase agreements with a duration of more than seven days are
considered illiquid securities and are subject to the limit stated above. A Fund
may enter into joint repurchase agreements jointly with other investment
portfolios of Nations Fund.
SECURITIES LENDING: To increase return on portfolio securities, the Funds may
lend their portfolio securities to broker/dealers and other institutional
investors pursuant to agreements requiring that the loans be continuously
secured by collateral equal at all times in value to at least the market value
of the securities loaned. There is a risk of delay in receiving collateral or in
recovering the securities loaned or even a loss of rights in the collateral
should the borrower of the securities fail financially. However, loans are made
only to borrowers deemed by the Adviser to be credit worthy and when, in its
judgment, the income to be earned from the loan justifies the attendant risks.
The aggregate of all outstanding loans of a Fund may not exceed 30% of the value
of its total assets.
STOCK INDEX, INTEREST RATE AND CURRENCY FUTURES CONTRACTS: The Funds may
purchase and sell futures contracts and related options with respect to non-U.S.
stock indices, non-U.S. interest rates and foreign currencies, that have been
approved by the CFTC for investment by U.S. investors, for the purpose of
hedging against changes in values of a Fund's securities or changes in the
prevailing levels of interest rates or currency exchange rates. The contracts
entail certain risks, including but not limited to the following: no assurance
that futures contracts transactions can be offset at favorable prices; possible
reduction of a Fund's total return due to the use of hedging; possible lack of
liquidity due to daily limits on price fluctuation; imperfect correlation
between the contracts and the securities or currencies being hedged; and
potential losses in excess of the amount invested in the futures contracts
themselves.
Trading on foreign commodity exchanges presents additional risks. Unlike trading
on domestic commodity exchanges, trading on foreign commodity exchanges is not
regulated by the CFTC and may be subject to greater risks than trading on
domestic exchanges. For example, some foreign exchanges are principal markets
for which no common clearing facility exists and a trader may look only to the
broker for performance of the contract. In addition, unless a Fund hedges
against fluctuations in the exchange rate between the U.S. dollar and the
currencies in which trading is done on foreign exchanges, any profits that such
Fund might realize could be eliminated by adverse changes in the exchange rate,
or the Fund could incur losses as a result of those changes.
U.S. GOVERNMENT OBLIGATIONS: U.S. Government obligations consist of marketable
securities and instruments issued or guaranteed by the U.S. Government or any of
its agencies, authorities or instrumentalities. Direct obligations are issued by
the U.S. Treasury and include all U.S. Treasury instruments. 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 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 Association; 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.
33
<PAGE>
WHEN-ISSUED, DELAYED DELIVERY AND FORWARD COMMITMENT SECURITIES: The purchase of
new issues of securities on a "when-issued," "delayed delivery" or "forward
commitment" basis occurs when the payment for and delivery of securities takes
place at a future date. Because actual payment for and delivery of such
securities generally take place 15 to 45 days after the purchase date,
purchasers of such securities bear the risk that interest rates on debt
securities at the time of delivery may be higher or lower than those contracted
for on the security purchased.
Appendix B -- Description Of Ratings
The following summarizes the highest six ratings used by S&P for corporate and
municipal bonds. The first four ratings denote investment grade securities.
AAA -- This is the highest rating assigned by S&P to a debt obligation and
indicates an extremely strong capacity to pay interest and repay principal.
AA -- Debt rated AA is considered to have a very strong capacity to pay
interest and repay principal and differs from AAA issues only in a small
degree.
A -- Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than debt in higher-rated
categories.
BBB -- Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than for those in
higher-rated categories.
BB, B -- Bonds rated BB and B are regarded, on balance, as predominantly
speculative with respect to capacity to pay interest and repay principal in
accordance with the terms of the obligation. BB represents the lowest
degree of speculation and B a higher degree of speculation. While such
bonds will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
To provide more detailed indications of credit quality, the AA, A and BBB
ratings may be modified by the addition of a plus or minus sign to show relative
standing within these major rating categories.
The following summarizes the highest six ratings used by Moody's for corporate
and municipal bonds. The first four ratings denote investment grade securities.
Aaa -- Bonds that are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to
as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to 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
34
<PAGE>
and interest are considered adequate, but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Baa -- Bonds that are rated Baa are considered medium grade obligations,
I.E., they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable
over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba -- Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may
be small.
Moody's applies numerical modifiers (1, 2 and 3) with respect to corporate bonds
rated Aa through B. The modifier 1 indicates that the bond being rated ranks in
the higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates that the bond ranks in the lower
end of its generic rating category. With regard to municipal bonds, those bonds
in the Aa, A and Baa groups which Moody's believes possess the strongest
investment attributes are designated by the symbols Aa1, A1 or Baa1,
respectively.
The following summarizes the highest four ratings used by Duff + Phelps Credit
Rating Co. ("D&P") for bonds, each of which denotes that the securities are
investment grade:
AAA -- Bonds that are rated AAA are of the highest credit quality. The risk
factors are considered to be negligible, being only slightly more than for
risk-free U.S. Treasury debt.
AA -- Bonds that are rated AA are of high credit quality. Protection
factors are strong. Risk is modest, but may vary slightly from time to time
because of economic conditions.
A -- Bonds that are rated A have protection factors which are average but
adequate. However, risk factors are more variable and greater in periods of
economic stress.
BBB -- Bonds that are rated BBB have below average protection factors but
still are considered sufficient for prudent investment. Considerable
variability in risk exists during economic cycles.
To provide more detailed indications of credit quality, the AA, A and BBB
ratings may be modified by the addition of a plus or minus sign to show relative
standing within these major categories.
The following summarizes the highest four ratings used by Fitch Investors
Service ("Fitch") for bonds, each of which denotes that the securities are
investment grade:
AAA -- Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
AA -- Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated AAA. Because bonds
rated in the AAA and AA categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is
generally rated F-1+.
A -- Bonds considered to be investment grade and of high credit quality.
The obligor's ability to pay interest and repay principal is considered to
be strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.
35
<PAGE>
BBB -- Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these
bonds, and therefore impair timely payment. The likelihood that the ratings
of these bonds will fall below investment grade is higher than for bonds
with higher ratings.
To provide more detailed indications of credit quality, the AA, A and BBB
ratings may be modified by the addition of a plus or minus sign to show relative
standing within these major rating categories.
The following summarizes the two highest ratings used by Moody's for short-term
municipal notes and variable-rate demand obligations:
MIG-1/VMIG-1 -- Obligations bearing these designations are of the best
quality, enjoying strong protection from established cash flows, superior
liquidity support or demonstrated broad-based access to the market for
refinancing.
MIG-2/VMIG-2 -- Obligations bearing these designations are of high quality,
with ample margins of protection although not so large as in the preceding
group.
The following summarizes the two highest ratings used by S&P for short-term
municipal notes:
SP-1 -- Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics are given
a "plus" (+) designation.
SP-2 -- Satisfactory capacity to pay principal and interest.
The three highest rating categories of D&P for short-term debt, each of which
denotes that the securities are investment grade, are D-1, D-2 and D-3. D&P
employs three designations, D-1+, D-1 and D-1-, within the highest rating
category. D-1+ indicates highest certainty of timely payment. Short-term
liquidity, including internal operating factors and/or access to alternative
sources of funds, is judged to be "outstanding, and safety is just below
risk-free U.S. Treasury short-term obligations." D-1 indicates very high
certainty of timely payment. Liquidity factors are excellent and supported by
good fundamental protection factors. Risk factors are considered to be minor.
D-1- indicates high certainty of timely payment. Liquidity factors are strong
and supported by good fundamental protection factors. Risk factors are very
small. D-2 indicates good certainty of timely payment. Liquidity factors and
company fundamentals are sound. Although ongoing funding needs may enlarge total
financing requirements, access to capital markets is good. Risk factors are
small. D-3 indicates satisfactory liquidity and other protection factors which
qualify the issue as investment grade. Risk factors are larger and subject to
more variation. Nevertheless, timely payment is expected.
The following summarizes the three highest rating categories used by Fitch for
short-term obligations, each of which denotes securities that are investment
grade:
F-1+ securities possess exceptionally strong credit quality. Issues
assigned this rating are regarded as having the strongest degree of
assurance for timely payment.
F-1 securities possess very strong credit quality. Issues assigned this
rating reflect an assurance of timely payment only slightly less in degree
than issues rated F-1+.
F-2 securities possess good credit quality. Issues carrying this rating
have a satisfactory degree of assurance for timely payment, but the margin
of safety is not as great as for issues assigned the F-1+ and F-1 ratings.
Commercial paper rated A-1 by S&P indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted A-1+. Capacity for timely payment on
commercial paper rated A-2 is satisfactory, but the relative degree of safety is
not as high as for issues designated A-1.
36
<PAGE>
The rating Prime-1 is the highest commercial paper rating assigned by Moody's.
Issuers rated Prime-1 (or related supporting institutions) are considered to
have a superior capacity for repayment of senior short-term promissory
obligations. Issuers rated Prime-2 (or related supporting institutions) are
considered to have a strong capacity for repayment of senior short-term
promissory obligations. This will normally be evidenced by many of the
characteristics of issuers rated Prime-1, but to a lesser degree. Earnings
trends and coverage ratios, while sound, will be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
For commercial paper, D&P uses the short-term debt ratings described above.
For commercial paper, Fitch uses the short-term debt ratings described above.
Thomson BankWatch, Inc. ("BankWatch") ratings are based upon a qualitative and
quantitative analysis of all segments of the organization including, where
applicable, holding company and operating subsidiaries. BankWatch ratings do not
constitute a recommendation to buy or sell securities of any of these companies.
Further, BankWatch does not suggest specific investment criteria for individual
clients.
BankWatch long-term ratings apply to specific issues of long-term debt and
preferred stock. The long-term ratings specifically assess the likelihood of
untimely payment of principal or interest over the term to maturity of the rated
instrument. The following are the four investment grade ratings used by
BankWatch for long-term debt:
AAA -- The highest category; indicates ability to repay principal and
interest on a timely basis is extremely high.
AA -- The second highest category; indicates a very strong ability to repay
principal and interest on a timely basis with limited incremental risk
versus issues rated in the highest category.
A -- The third highest category; indicates the ability to repay principal
and interest is strong. Issues rated "A" could be more vulnerable to
adverse developments (both internal and external) than obligations with
higher ratings.
BBB -- The lowest investment grade category; indicates an acceptable
capacity to repay principal and interest. Issues rated "BBB" are, however,
more vulnerable to adverse developments (both internal and external) than
obligations with higher ratings.
The BankWatch short-term ratings apply to commercial paper, other senior
short-term obligations and deposit obligations of the entities to which the
rating has been assigned. The BankWatch short-term ratings specifically assess
the likelihood of an untimely payment of principal or interest.
TBW-1 -- The highest category; indicates a very high likelihood that
principal and interest will be paid on a timely basis.
TBW-2 -- The second highest category; while the degree of safety regarding
timely repayment of principal and interest is strong, the relative degree
of safety is not as high as for issues rated "TBW-1".
TBW-3 -- The lowest investment grade category; indicates that while more
susceptible to adverse developments (both internal and external) than
obligations with higher ratings, capacity to service principal and interest
in a timely fashion is considered adequate.
TBW-4 -- The lowest rating category; this rating is regarded as
non-investment grade and therefore speculative.
The following summarizes the four highest long-term ratings used by IBCA:
AAA -- Obligations for which there is the lowest expectation of investment
risk. Capacity for timely repayment of principal and interest is
substantial such that adverse changes in business, economic or financial
37
<PAGE>
conditions are unlikely to increase investment risk significantly.
AA -- Obligations for which there is a very low expectation of investment
risk. Capacity for timely repayment of principal and interest is
substantial. Adverse changes in business, economic or financial conditions
may increase investment risk albeit not very significantly.
A -- Obligations for which there is a low expectation of investment risk.
Capacity for timely repayment of principal and interest is strong, although
adverse changes in business, economic or financial conditions may lead to
increased investment risk.
BBB -- Obligations for which there is currently a low expectation of
investment risk. Capacity for timely repayment of principal and interest is
adequate, although adverse changes in business, economic or financial
conditions are more likely to lead to increased investment risk than for
obligations in other categories.
A plus or minus sign may be appended to a rating below AAA to denote relative
status within major rating categories.
The following summarizes the two highest short-term debt ratings used by IBCA:
A1+ -- Where issues possess a particularly strong credit feature.
A1 -- Obligations supported by the highest capacity for timely repayment.
A2 -- Obligations supported by a good capacity for timely repayment.
38
<PAGE>
Prospectus
INVESTOR C SHARES
JULY 31, 1996
This Prospectus describes NATIONS MANAGED INDEX
FUND (the "Fund") of Nations Fund Trust, an
open-end management investment company in the
Nations Fund Family ("Nations Fund" or "Nations
Fund Family"). This Prospectus describes one class
of shares of the Fund -- Investor C Shares.
This Prospectus sets forth concisely the
information about the Fund that a prospective
purchaser of Investor C Shares should consider
before investing. Investors should read this
Prospectus and retain it for future reference.
Additional information about Nations Fund Trust is
contained in a separate Statement of Additional
Information (the "SAI") that has been filed with
the Securities and Exchange Commission (the "SEC")
and is available upon request without charge by
writing or calling Nations Fund at its address or
telephone number shown below. The SAI, dated July
31, 1996, is incorporated by reference in its
entirety into this Prospectus. NationsBanc
Advisors, Inc. ("NBAI") is the investment adviser
to the Fund. TradeStreet Investment Associates,
Inc. ("TradeStreet") is sub-investment adviser to
the Fund. As used herein the "Adviser" shall mean
NBAI and/or TradeStreet as the context may require.
SHARES OF NATIONS FUND ARE NOT DEPOSITS OR OTHER
OBLIGATIONS OF, OR ISSUED, ENDORSED OR GUARANTEED
BY, NATIONSBANK, N.A. ("NATIONSBANK") OR ANY OF ITS
AFFILIATES. SUCH SHARES ARE NOT INSURED BY THE U.S.
GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER
GOVERNMENT AGENCY. AN INVESTMENT IN THE FUND
INVOLVES CERTAIN RISKS, INCLUDING POSSIBLE LOSS OF
PRINCIPAL.
NATIONSBANK AND CERTAIN OF ITS AFFILIATES PROVIDE
CERTAIN OTHER SERVICES TO NATIONS FUND, FOR WHICH
THEY ARE COMPENSATED. STEPHENS INC., WHICH IS NOT
AFFILIATED WITH NATIONSBANK, IS THE SPONSOR AND
ADMINISTRATOR AND SERVES AS THE DISTRIBUTOR FOR
NATIONS FUND.
THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
Nations
Managed
Index Fund
For Fund information call:
1-800-321-7854
Nations Fund
c/o Stephens Inc.
One NationsBank Plaza
33rd Floor
Charlotte, NC 28255
(Nations Fund Logo appears here)
<PAGE>
Table Of Contents
About The Fund
Prospectus Summary 3
Expenses Summary 4
Objective 5
How The Objective Is Pursued 5
How Performance Is Shown 8
How The Fund Is Managed 8
Organization And History 11
About Your
Investment
How To Buy Shares 12
How To Redeem Shares 13
How To Exchange Shares 15
Shareholder Servicing And Distribution Plans 16
How The Fund Values Its Shares 17
How Dividends And Distributions are Made; Tax
Information 18
Appendix A -- Portfolio Securities 19
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT
CONTAINED IN THIS PROSPECTUS, OR IN THE FUND'S SAI
INCORPORATED HEREIN BY REFERENCE, IN CONNECTION
WITH THE OFFERING MADE BY THIS PROSPECTUS AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY NATIONS FUND OR ITS DISTRIBUTOR. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY
NATIONS FUND OR BY THE DISTRIBUTOR IN ANY
JURISDICTION IN WHICH SUCH OFFERING MAY NOT
LAWFULLY BE MADE.
2
<PAGE>
3
<PAGE>
About The Fund
Prospectus Summary
(Bullet) TYPE OF COMPANY: Open-end management investment company.
(Bullet) INVESTMENT OBJECTIVE AND POLICIES: Nations Managed Index Fund's
investment objective is to seek, over the long-term, to provide a total
return which (gross of fees and expenses) exceeds the total return of
the Standard & Poor's 500 Composite Stock Price Index.
(Bullet) When consistent with the Fund's objective, the Fund will
employ various techniques to manage capital gain
distributions.
(Bullet) INVESTMENT ADVISER: NationsBanc Advisors, Inc. serves as the investment
adviser to the Fund. NBAI provides investment advice to more than 43
investment company portfolios in the Nations Fund Family. TradeStreet
Investment Associates, Inc. provides sub-advisory services to the Fund.
See "How The Fund Is Managed."
(Bullet) DIVIDENDS AND DISTRIBUTIONS: Nations Managed Index Fund declares and
pays dividends from net investment income each calendar quarter. The
Fund's net realized capital gains, including net short-term capital
gains, are distributed at least annually.
(Bullet) RISK FACTORS: Although the Adviser seeks to achieve the investment
objective of the Fund, there is no assurance that it will be able to do
so. Investments in the Fund are not insured against loss of principal.
Investments by the Fund in common stocks and other equity securities
are subject to stock market risk, which is the risk that the value of
the stocks the Fund holds may decline over short or even extended
periods. Certain of the Fund's permissible investments may constitute
derivative securities. Certain types of derivative securities can,
under certain circumstances, significantly increase an investor's
exposure to market or other risks. For a discussion of these and other
factors, see "How Objective Is Pursued -- Risk Considerations" and
"Appendix A -- Portfolio Securities."
(Bullet) MINIMUM PURCHASE: $1,000 minimum initial investment per record holder
except that the minimum initial investment is: $500 for Individual
Retirement Account ("IRA") investors; $250 for non-working spousal
IRAs; and $100 for investors participating on a monthly basis in the
Systematic Investment Plan. There is no minimum investment amount for
investments by certain 401(k) and employee pension plans or salary
reduction -- Individual Retirement Accounts. The minimum subsequent
investment is $100, except for investments pursuant to the Systematic
Investment Plan. See "How To Buy Shares."
3
<PAGE>
Expenses Summary
Expenses are one of several factors to consider when investing in the Fund. The
following table summarizes shareholder transaction and operating expenses for
Investor C Shares of the Fund. The Example shows the cumulative expenses
attributable to a hypothetical $1,000 investment in the Fund over specified
periods.
INVESTOR C SHARES
<TABLE>
<CAPTION>
<S> <C>
Nations
Managed
SHAREHOLDER TRANSACTION EXPENSES Index Fund
Maximum Sales Load Imposed on Purchases (as a percentage of offering price) None
Maximum Deferred Sales Charge (as a percentage of the lower of the original purchase price
or redemption proceeds) .50%
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
<TABLE>
<S> <C>
Management Fees (After Fee Waivers) 0.30%
Rule 12b-1 Fees (After Fee Waivers) 0.25%
Shareholder Servicing Fees 0.25%
Other Expenses 0.20%
Total Operating Expenses (After Fee Waivers) 1.00%
</TABLE>
EXAMPLE:
You would pay the following expenses on a $1,000 investment in Investor C Shares
of the Fund, assuming (1) a 5% annual return and (2) redemption at the end of
each time period.
<TABLE>
<CAPTION>
<S> <C>
Nations
Managed
Index Fund
1 Year $ 10
3 Years $ 32
</TABLE>
You would pay the following expenses on a $1,000 investment in Investor C Shares
of the Fund, assuming a 5% annual return but no redemption.
<TABLE>
<CAPTION>
<S> <C>
Nations
Managed
Index Fund
1 Year $ 10
3 Years $ 32
</TABLE>
The purpose of the foregoing tables is to assist an investor in understanding
the various shareholder transaction and operating expenses that an investor in
Investor C Shares will bear either directly or indirectly. The figures in the
above table are based on estimates for the fiscal year and have been restated as
necessary to reflect anticipated fee waivers. There is no assurance that any fee
waivers and
4
<PAGE>
reimbursements will continue beyond the current fiscal year. If fee waivers
and/or reimbursements are discontinued, the amounts contained in the "Examples"
above may increase. For a more complete description of the Fund's operating
expenses, see "How The Fund Is Managed." For a more complete description of the
Rule 12b-1 and shareholder servicing fees payable by the Fund, see "Shareholder
Servicing And Distribution Plan."
Absent fee waivers, "Management Fees," "Rule 12b-1 Fees" and "Total Operating
Expenses" would be .50%, .75% and 1.20%, 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.
Objective
Nations Managed Index Fund's investment objective is to seek, over the
long-term, to provide a total return which (gross of fees and expenses) exceeds
the total return of the Standard & Poor's 500 Composite Stock Price Index.
How The Objective Is Pursued
NATIONS MANAGED INDEX FUND: In seeking to achieve its investment objective, the
Fund will invest in selected equity securities that are included in the Standard
& Poor's 500 Composite Stock Price Index (the "S&P 500 Index" or the "Index")1.
The S&P 500 Index is a value weighted index consisting of 500 common stocks
chosen for market size, liquidity and industry group representation.
The Adviser believes that a managed equity index portfolio can provide investors
with positive incremental performance relative to the S&P 500 Index while
minimizing the downside risk of underperforming the index over time.
The initial stock universe considered by the Adviser is the S&P 500 Index, the
Adviser ranks the attractiveness of each security according to a multifactor
valuation model. Both value and momentum factors are considered in the ranking
process. Value factors such as book value, earnings yield and cash flow measure
a stock's intrinsic worth versus its market price, while momentum
characteristics such as price momentum, earnings growth and earnings
acceleration measure a stock relative to others in the same industry. Each stock
is assigned a ranking from one to 10 (best to worst). The Adviser then screens
out the lower rated stocks resulting in a portfolio of 350 to 400 holdings that
capture the investment characteristics of the index.
The S&P 500 Index consists of 500 selected common stocks, most of which are
listed on the New York Stock Exchange. Different stocks have different
weightings in the Index, depending on the amount of stock outstanding and its
current price.
In addition, when consistent with the Fund's investment objective, the Fund will
employ various techniques to manage capital gain distributions. These techniques
include utilizing a share identification methodology whereby the Fund will
specifically identify each lot of shares of portfolio securities that it holds,
which will allow the Fund to sell first those specific shares with the highest
tax basis in order to reduce the amount of recognized capital gains as compared
with a sale of identical portfolio securities, if any, with a lower tax basis.
The Fund will sell first
(1) "Standard & Poor's 500" is a registered service mark of Standard & Poor's
Corporation ("S&P").
5
<PAGE>
those shares with the highest tax basis only when it is in the best interest of
the Fund to do so, and reserves the right to sell other shares when appropriate.
In addition, the Fund may, at times, sell portfolio securities in order to
realize capital losses. Such capital losses would be used to offset realized
capital gains thereby reducing capital gain distributions. Additionally, the
Adviser will, consistent with the multi-factor valuation model discussed above,
employ a low portfolio turnover strategy designed to defer the realization of
capital gains.
Under normal conditions, the Adviser will attempt to invest as much of the
Fund's assets as is practical and, in any event at least 65% of its total
assets, in common stocks which are included in the S&P 500 Index. The Fund is
expected, however, to maintain a position in high-quality short-term debt
securities and money market instruments to meet redemption requests. If the
Adviser believes that market conditions warrant a temporary defensive posture,
the Fund may invest without limitation in high-quality short-term debt
securities and money market instruments. These securities and money market
instruments may include domestic and foreign commercial paper, certificates of
deposit, bankers' acceptances and time deposits, U.S. Government securities and
repurchase agreements.
The Fund also may invest in certain specified derivative securities including:
exchange-traded options; over-the-counter options executed with primary dealers,
including long calls and puts and covered calls to enhance return; and U.S.
exchange-traded financial futures approved by the Commodity Futures Trading
Commission ("CFTC") and options thereon for market exposure risk management. The
Fund may lend its portfolio securities to qualified institutional investors. The
Fund also may invest in restricted, private placement and other illiquid
securities. In addition, the Fund may invest in securities issued by other
investment companies, consistent with the Fund's investment objective and
policies.
ABOUT THE INDEX: The S&P 500 Index is composed of 500 common stocks, which are
chosen by S&P on a statistical basis to be included in the Index. The inclusion
of a stock in the S&P 500 Index in no way implies that S&P believes the stock to
be an attractive investment. The Index is determined, composed and calculated by
S&P without regard to the Fund. S&P is neither a sponsor of, nor in any way
affiliated with the Fund, and S&P makes no representation or warranty, expressed
or implied, on the advisability of investing in the Fund or as to the ability of
the Index to track general stock market performance. S&P disclaims all
warranties of merchantability or fitness for a particular purpose or use with
respect to the Index or any data included therein.
PORTFOLIO TURNOVER: Generally, the Fund will purchase portfolio securities for
capital appreciation or investment income, or both, and not for short-term
trading profits. While it is not possible to predict exactly annual portfolio
turnover rates, it is expected that under normal market conditions, the annual
portfolio turnover rate for the Fund will not exceed 25%.
RISK CONSIDERATIONS: Although the Adviser will seek to achieve the investment
objective of the Fund, there is no assurance that it will be able to do so. No
single fund should be considered, by itself, to provide a complete investment
program for any investor. Investments in the Fund are not insured against loss
of principal.
Investments by the Fund in common stocks and other equity securities are subject
to stock market risk. The value of the stocks that the Fund holds, like the
broader stock market, may decline over short or even extended periods.
Certain of the Fund's permissible investments may constitute derivative
securities, which are securities whose value is derived, at least in part, from
an underlying index or reference rate. There are certain types of derivative
securities that can, under certain circumstances, significantly increase a
purchaser's exposure to market or other risks. The Adviser, however, only
purchases derivative securities in circumstances where it believes such
purchases are consistent with the Fund's investment objective and do not unduly
increase the Fund's exposure to market or other risks. For additional risk
information regarding the Fund's investments in particular
6
<PAGE>
instruments, see "Appendix A -- Portfolio Securities."
The techniques employed by the Adviser to seek to manage capital gain
distributions will generally only have the effect of deferring the realization
of capital gains. For example, to the extent that the capital gains recognized
on a sale of portfolio securities arise from the sale of specifically-identified
securities with higher tax bases, subsequent sales of the same portfolio
securities will be calculated by reference to the lower tax basis securities
that remain in the portfolio. Under this scenario, an investor who purchases
shares of the Fund after the first sale could receive capital gain distributions
that are higher than the distributions that would have been received if this
methodology had not been used. Therefore, certain investors actually could be
disadvantaged by the techniques employed by the Fund to seek to manage capital
gain distributions, depending on the timing of their purchase of Fund shares.
Even if there are no subsequent sales, upon a redemption or exchange of Fund
shares an investor will have to recognize gain to the extent that the net asset
value of Fund shares at such time exceeds such investor's tax basis in his or
her Fund shares.
The various techniques employed by the Fund to manage capital gain distributions
may result in the accumulation of substantial unrealized gains in the Fund's
portfolio. Moreover, the realization of capital gains is not entirely within the
Fund's control because it is at least partly dependent on shareholder purchase
and redemption activity. Capital gain distributions may vary considerably from
year-to-year.
INVESTMENT LIMITATIONS: The Fund is subject to a number of investment
limitations. The following investment limitations are matters of fundamental
policy and may not be changed without the affirmative vote of the holders of a
majority of the Fund's outstanding shares. Other investment limitations that
cannot be changed without such a vote of shareholders are described in the SAI.
The Fund may not:
1. Purchase any securities which would cause 25% or more of the value of the
Fund's total assets at the time of such purchase to be invested in the
securities of one or more issuers conducting their principal activities in the
same industry. (For purposes of this limitation, U.S. Government securities are
not considered members of any industry.)
2. Make loans, except that the Fund may purchase and hold debt instruments
(whether such instruments are part of a public offering or privately placed),
may enter into repurchase agreements and may lend portfolio securities in
accordance with its investment policies.
3. Purchase securities of any one issuer (other than securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities) if,
immediately after such purchase, more than 5% of the value of the Fund's total
assets would be invested in the securities of such issuer, except that up to 25%
of the value of the Fund's total assets may be invested without regard to these
limitations and with respect to 75% of the Fund's assets, the Fund will not hold
more than 10% of the voting securities of any issuer.
The investment objective and policies of the Fund, unless otherwise specified,
may be changed without a vote of the Fund's shareholders. If the investment
objective or policies of the Fund change, shareholders should consider whether
the Fund remains an appropriate investment in light of their then current
position and needs.
7
<PAGE>
In order to register the Fund's shares for sale in certain states, the Fund may
make commitments more restrictive than the investment policies and limitations
described in this Prospectus and the SAI. Should the Fund determine that any
such commitment is no longer in the best interests of the Fund, it may consider
terminating sales of its shares in the states involved.
How Performance Is Shown
From time to time the Fund may advertise the total return and yield on a class
of shares. BOTH TOTAL RETURN AND YIELD FIGURES ARE BASED ON HISTORICAL DATA AND
ARE NOT INTENDED TO INDICATE FUTURE PERFORMANCE. The "total return" of a class
of shares of the Fund may be calculated on an average annual total return basis
or an aggregate total return basis. Average annual total return refers to the
average annual compounded rates of return on a class of shares over one-, five-,
and ten-year periods or the life of the Fund (as stated in the advertisement)
that would equate an initial amount invested at the beginning of a stated period
to the ending redeemable value of the investment, assuming the reinvestment of
all dividend and capital gain distributions. Aggregate total return reflects the
total percentage change in the value of the investment over the measuring
period, again assuming the reinvestment of all dividends and capital gain
distributions. Total return may also be presented for other periods.
"Yield" is calculated by dividing the annualized net investment income per share
during a recent 30-day (or one month) period of a class of shares of the Fund by
the maximum public offering price per share on the last day of that period.
Investment performance, which will vary, is based on many factors, including
market conditions, the composition of the Fund's portfolio and the Fund's
operating expenses. Investment performance also often reflects the risks
associated with the Fund's investment objective and policies. These factors
should be considered when comparing the Fund's investment results to those of
other mutual funds and other investment vehicles. Since yields fluctuate, yield
data cannot necessarily be used to compare an investment in the Fund with bank
deposits, savings accounts, and similar investment alternatives which often
provide an agreed-upon or guaranteed fixed yield for a stated period of time.
In addition to Investor C Shares, the Fund offers Primary A, Primary B and
Investor A Shares. Each class of shares may bear different sales charges,
shareholder servicing fees and other expenses, which may cause the performance
of a class to differ from the performance of the other classes. Total return and
yield quotations will be computed separately for each class of the Fund's
shares. Any fees charged by a selling agent and/or servicing agent directly to
its customers' accounts in connection with investments in the Fund will not be
included in calculations of total return or yield. The Fund's annual report
contains additional performance information and is available upon request
without charge from the Fund's distributor or your selling agent.
How The Fund Is Managed
The business and affairs of Nations Fund Trust are managed under the direction
of its Board of Trustees. Nations Fund Trust's SAI contains the names of and
general background information concerning each Trustee of Nations Fund Trust.
Nations Fund and the Adviser have adopted codes of ethics which contain policies
on personal securities transactions by "access persons," including portfolio
managers and investment analysts. These policies substantially
8
<PAGE>
comply in all material respects with the recommendations set forth in the May 9,
1994 Report of the Advisory Group on Personal Investing of the Investment
Company Institute.
INVESTMENT ADVISER: NationsBanc Advisors, Inc. serves as investment adviser to
the Fund. NBAI is a wholly owned subsidiary of NationsBank, which in turn is a
wholly owned banking subsidiary of NationsBank Corporation, a bank holding
company organized as a North Carolina corporation. NBAI has its principal
offices at One NationsBank Plaza, Charlotte, North Carolina 28255.
TradeStreet Investment Associates, Inc., with principal offices at One
NationsBank Plaza, Charlotte, North Carolina 28255, serves as sub-investment
adviser to the Fund. TradeStreet is a wholly owned subsidiary of NationsBank.
TradeStreet provides investment management services to individuals, corporations
and institutions.
Subject to the general supervision of Nations Fund Trust's Board of Trustees,
and in accordance with the Fund's investment policies, the Adviser formulates
guidelines and lists of approved investments for the Fund, makes decisions with
respect to and places orders for the Fund's purchases and sales of portfolio
securities and maintains records relating to such purchases and sales. The
Adviser is authorized to allocate purchase and sale orders for portfolio
securities to certain financial institutions, including, in the case of agency
transactions, financial institutions which are affiliated with the Adviser or
which have sold shares in the Fund, if the Adviser believes that the quality of
the transaction and the commission are comparable to what they would be with
other qualified brokerage firms. From time to time, to the extent consistent
with its investment objective, policies and restrictions, the Fund may invest in
securities of companies with which NationsBank has a lending relationship. For
the services provided and expenses assumed pursuant to an Investment Advisory
Agreement, NBAI is entitled to receive an advisory fee, computed daily and paid
monthly, at the annual rate of 0.50% of the average daily net assets of the
Fund.
From time to time, NBAI (and/or TradeStreet) may waive or reimburse (either
voluntarily or pursuant to applicable state limitations) advisory fees and/or
expenses payable by the Fund.
For the services provided and the expenses assumed pursuant to a Sub-Advisory
Agreement, NBAI will pay TradeStreet sub-advisory fees, computed daily and paid
monthly, at the annual rate of 0.10% of the average daily net assets of the
Fund.
Greg W. Golden is a Structured Products Manager, Equity Management for
TradeStreet and is Portfolio Manager for Nations Equity Index Fund and Nations
Managed Index Fund. He has been Portfolio Manager for Nations Managed Index Fund
since its inception. Prior to assuming his position with TradeStreet in 1996, he
was Vice President and Structured Products Manager for the Investment Management
Group at NationsBank. He has worked in the investment community since 1990. His
past experience includes portfolio management, derivatives management and
quantitative analysis for the Investment Management Group at NationsBank and
Sovran Bank of Tennessee. Mr. Golden received a B.B.A. in Finance from Belmont
University. He is a Chartered Financial Analyst candidate and a member of the
Association for Investment Management and Research as well as the North Carolina
Society of Financial Analysts, Inc.
Morrison & Foerster LLP, counsel to Nations Fund and special counsel to
NationsBank, has advised Nations Fund and NationsBank that NationsBank and its
affiliates may perform the services contemplated by the Investment Advisory
Agreement and this Prospectus without violation of the Glass-Steagall Act. Such
counsel has pointed out, however, that there are no controlling judicial or
administrative interpretations or decisions and that future judicial or
administrative interpretations of, or decisions relating to, present federal or
state statutes, including the Glass-Steagall Act, and regulations relating to
the permissible activities of banks and their subsidiaries or affiliates, as
well as future changes in federal or state statutes, including the
Glass-Steagall Act, and regulations and judicial or administrative decisions or
inter-
9
<PAGE>
pretations thereof, could prevent such entities from continuing to perform, in
whole or in part, such services. If any such entity were prohibited from
performing any of such services, it is expected that new agreements would be
proposed or entered into with another entity or entities qualified to perform
such services.
OTHER SERVICE PROVIDERS: Stephens Inc. ("Stephens"), with principal offices at
111 Center Street, Little Rock, Arkansas 72201, serves as the administrator of
Nations Fund pursuant to an Administration Agreement. Pursuant to the terms of
the Administration Agreement, Stephens provides various administrative and
corporate secretarial services to the Fund, including providing general
oversight of other service providers, office space, utilities and various legal
and administrative services in connection with the satisfaction of various
regulatory requirements applicable to the Fund.
First Data Investor Services Group, Inc. ("First Data"), formerly The
Shareholder Services Group, Inc., a wholly owned subsidiary of First Data
Corporation, with principal offices at One Exchange Place, Boston, Massachusetts
02109, serves as the co-administrator of Nations Fund pursuant to a
Co-Administration Agreement. Under the Co-Administration Agreement, First Data
provides various administrative and accounting services to the Fund including
performing the calculations necessary to determine the net asset value per share
and dividends of each class of shares of the Fund, preparing tax returns and
financial statements and maintaining the portfolio records and certain of the
general accounting records for the Fund.
For the services rendered pursuant to the Administration and Co-Administration
Agreements, Stephens and First Data are entitled to receive a combined fee at an
annual rate of up to 0.10% of the Fund's average daily net assets.
NationsBank serves as sub-administrator for Nations Fund pursuant to a
Sub-Administration Agreement. Pursuant to the terms of the Sub-Administration
Agreement, NationsBank assists Stephens in supervising, coordinating and
monitoring various aspects of the Fund's administrative operations. For
providing such services NationsBank shall be entitled to receive a monthly fee
from Stephens based on an annual rate of 0.01% of the Fund's average daily net
assets.
Shares of the Fund are sold on a continuous basis by Stephens, as the Fund's
sponsor and distributor. Stephens is a registered broker/dealer with principal
offices at 111 Center Street, Little Rock, Arkansas 72201. Nations Fund has
entered into a distribution agreement with Stephens which provides that Stephens
has the exclusive right to distribute shares of the Fund. Stephens may pay
service fees or commissions to selling agents that assist customers in
purchasing Investor C Shares of the Fund. See "Shareholder Servicing And
Distribution Plan."
NationsBank of Texas, N.A. (the "Custodian") serves as custodian for the Fund.
The Custodian is located at 1401 Elm Street, Dallas, Texas 75202 and is a wholly
owned subsidiary of NationsBank Corporation. In return for providing custodial
services, the Custodian is entitled to receive, in addition to out-of-pocket
expenses, fees payable monthly (i) at the rate of 1.25% of 1% of the average
daily net assets of the Fund, (ii) $10.00 per repurchase collateral transaction
by the Fund, and (iii) $15.00 per purchase, sale and maturity transaction
involving the Fund.
First Data serves as transfer agent (the "Transfer Agent") for the Fund's
Investor C Shares. The Transfer Agent is located at One Exchange Place, Boston,
Massachusetts 02109.
Price Waterhouse LLP serves as independent accountant to Nations Fund. Its
address is 160 Federal Street, Boston, Massachusetts 02110.
EXPENSES: The accrued expenses of the Fund, as well as certain expenses
attributable to Investor C Shares, are deducted from accrued income before
dividends are declared. The Fund's expenses include, but are not limited to:
fees paid to the Adviser, NationsBank, Stephens and First Data; interest;
Trustees' fees; federal and state securities registration and qualification
fees; brokerage fees and commissions; costs of preparing and printing
prospectuses for regulatory purposes and for distribution to existing
shareholders; charges of the Custodian and Transfer Agent; certain insurance
premiums;
10
<PAGE>
outside auditing and legal expenses; costs of shareholder reports and
shareholder meetings; other expenses which are not expressly assumed by the
Adviser, NationsBank, Stephens or First Data under their respective agreements
with Nations Fund; and any extraordinary expenses. Investor C Shares bear
certain class specific retail transfer agency expenses and also bear certain
additional shareholder service and/or sales support costs. Any general expenses
of Nations Fund Trust that are not readily identifiable as belonging to a
particular investment portfolio are allocated among all portfolios in the
proportion that the assets of a portfolio bears to the assets of Nations Fund
Trust or in such other manner as the Board of Trustees deems appropriate.
Organization And History
The Fund is a member of the Nations Fund Family, which consists of Nations Fund
Trust, Nations Fund, Inc., Nations Fund Portfolios, Inc. and Nations
Institutional Reserves. The Nations Fund Family currently consists of more than
43 distinct investment portfolios and total assets in excess of $18 billion.
NATIONS FUND TRUST: Nations Fund Trust was organized as a Massachusetts business
trust on May 6, 1985. Nations Fund Trust's fiscal year end is March 31; prior to
1996, Nations Fund Trust's fiscal year end was November 30. The Fund currently
offers four classes of shares -- Primary A Shares, Primary B Shares, Investor A
Shares and Investor C Shares. This Prospectus relates only to the Investor C
Shares of Nations Managed Index Fund. To obtain additional information regarding
the Fund's other classes of shares which may be available to you, contact your
Agent (as defined below) or Nations Fund at 1-800-321-7854.
Each share of Nations Fund Trust is without par value, represents an equal
proportionate interest in the related fund with other shares of the same class,
and is entitled to such dividends and distributions out of the income earned on
the assets belonging to such fund as are declared in the discretion of Nations
Fund Trust's Board of Trustees. Nations Fund Trust's Declaration of Trust
authorizes the Board of Trustees to classify or reclassify any class of shares
into one or more series of shares.
Shareholders are entitled to one vote for each full share held and a
proportionate fractional vote for each fractional share held. Shareholders of
each fund of Nations Fund Trust will vote in the aggregate and not by fund, and
shareholders of each fund will vote in the aggregate and not by class except as
otherwise expressly required by law or when the Board of Trustees determines
that the matter to be voted on affects only the interests of shareholders of a
particular fund or class. See Nations Fund Trust's SAI for examples of when the
Investment Company Act of 1940 (the "1940 Act") requires voting by fund.
As of July 15, 1996, NationsBank and its affiliates possessed or shared power to
dispose or vote with respect to more than 25% of the outstanding shares of
certain classes of shares of Nations Fund Trust and therefore could be
considered to be a controlling person of these classes and series of Nations
Fund Trust for purposes of the 1940 Act. For more detailed information
concerning the percentage of each class or series of shares over which
NationsBank and its affiliates possessed or shared power to dispose or vote as
of a certain date, see Nations Fund Trust's SAI.
Nations Fund Trust does not presently intend to hold annual meetings except as
required by the 1940 Act. Shareholders will have the right to remove Trustees.
Nations Fund Trust's Code of Regulations provides that special meetings of
shareholders shall be called at the written request of the shareholders entitled
to vote at least 10% of the outstanding shares of Nations Fund Trust entitled to
be voted at such meeting.
11
<PAGE>
About Your Investment
How To Buy Shares
The Fund has established various procedures for purchasing Investor C Shares in
order to accommodate different investors. Purchase orders for Investor C Shares
may be placed through banks, broker/dealers or other financial institutions
(including certain affiliates of NationsBank) that have entered into a
shareholder servicing agreement ("Servicing Agreement") with Nations Fund
("Servicing Agents") and/or a Sales Support Agreement") with Stephens ("Selling
Agents").
There is a minimum initial investment of $1,000, except that the minimum initial
investment is:
(Bullet) $500 for "IRA" investors;
(Bullet) $250 for non-working spousal IRAs; and
(Bullet) $100 for investors participating on a monthly basis in the Systematic
Investment Plan described below.
There is no minimum investment amount for investments by 401(k) plans,
simplified employee pension plans ("SEPs"), salary reduction-simplified employee
pension plans ("SAR-SEPs") or salary reduction-Individual Retirement Account
("SAR-IRAs"). However, the assets of such plans must reach an asset value of
$1,000 ($500 for SEPs, SAR-SEPs and SAR-IRAs) within one year of the account
open date. If the assets of such plans do not reach the minimum asset size
within one year, Nations Fund reserves the right to redeem the shares held by
such plans on 60 days' written notice. The minimum subsequent investment is
$100, except for investments pursuant to the Systematic Investment Plan
described below.
Investor C Shares are purchased at net asset value per share. Purchases may be
effected on days on which the New York Stock Exchange (the "Exchange") is open
for business (a "Business Day").
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 Investor C Shares. Servicing Agents and Selling
Agents are sometimes referred to hereafter as "Agents." From time to time the
Agents, Stephens and Nations Fund may agree to voluntarily reduce the maximum
fees payable for sales support or shareholder services.
Nations Fund reserves the right to reject any purchase order. The issuance of
Investor C Shares is recorded on the books of the Fund, and share certificates
are not issued unless expressly requested in writing. Certificates are not
issued for fractional shares.
EFFECTIVE TIME OF PURCHASES: Purchase orders for Investor C Shares of the Fund
which are received by Stephens or by the Transfer Agent before the close of
regular trading hours on the Exchange (currently 4:00 p.m., Eastern time) on any
Business Day are priced according to the net asset value determined on that day
but are not executed until 4:00 p.m., Eastern time, on the Business Day on which
immediately available funds in payment of the purchase price are received by the
Fund's Custodian. Such payment must be received no later than 4:00 p.m., Eastern
time, by the third Business Day following receipt of the order. If funds are not
received by such date, the order will not be accepted and notice thereof will be
given to the Agent placing the order. Payment for orders which are not received
or accepted will be returned after prompt inquiry to the sending Agent.
The Agents are responsible for transmitting orders for purchases of Investor C
Shares by their Customers, and delivering required funds, on a timely basis.
Stephens is responsible for transmitting orders it receives to Nations Fund.
12
<PAGE>
SYSTEMATIC INVESTMENT PLAN: Under the Fund's Systematic Investment Plan ("SIP")
a shareholder may automatically purchase Investor C Shares. On a bi-monthly,
monthly or quarterly basis, a shareholder may direct cash to be transferred
automatically from his/her checking or savings account at any bank to his/her
Fund account. Transfers will occur on or about the 15th and/or 30th day of the
applicable month. The systematic investment amount may be in any amount from $25
to $100,000. For more information concerning the SIP, contact your Agent.
TELEPHONE TRANSACTIONS: Investors may effect purchases, redemptions (up to
$50,000) and exchanges by telephone. See "How To Redeem Shares" and "How To
Exchange Shares" below. If a shareholder desires to elect the telephone
transaction feature after opening an account, a signature guarantee will be
required. Shareholders should be aware that by using the telephone transaction
feature, such shareholders may be giving up a measure of security that they may
have if they were to authorize written requests only. A shareholder may bear the
risk of any resulting losses from a telephone transaction. Nations Fund will
employ reasonable procedures to confirm that instructions communicated by
telephone are genuine, and if Nations Fund and its service providers fail to
employ such measures, they may be liable for any losses due to unauthorized or
fraudulent instructions. Nations Fund requires a form of personal identification
prior to acting upon instructions received by telephone and provides written
confirmation to shareholders of each telephone share transaction. In addition,
Nations Fund reserves the right to record all telephone conversations.
How To Redeem Shares
Redemption orders should be transmitted by telephone or in writing through the
same Agent that transmitted the original purchase order. Redemption orders are
effected at the net asset value per share next determined after receipt of the
order by Stephens or by the Transfer Agent, less any applicable CDSC. The Agents
are responsible for transmitting redemption orders to Stephens or to the
Transfer Agent and for crediting their Customers' accounts with the redemption
proceeds on a timely basis. No charge for wiring redemption payments is imposed
by Nations Fund. Except for any CDSC which may be applicable upon redemption of
Investor C Shares, as described below, there is no redemption charge.
Redemption proceeds are normally wired to the redeeming Agent within three
Business Days after receipt of the order by Stephens or by the Transfer Agent.
However, redemption proceeds for shares purchased by check may not be remitted
until at least 15 days after the date of purchase to ensure that the check has
cleared; a certified check, however, is deemed to be cleared immediately.
Nations Fund may redeem a shareholder's Investor C Shares upon 60 days' written
notice if the balance in the shareholder's account drops below $500 as a result
of redemptions. Share balances also may be redeemed at the direction of an Agent
pursuant to arrangements between the Agent and its Customers. Nations Fund also
may redeem shares of the Fund involuntarily or make payment for redemption in
readily marketable securities or other property under certain circumstances in
accordance with the 1940 Act.
Prior to effecting a redemption of Investor C Shares represented by
certificates, the Transfer Agent must have received such certificates at its
principal office. All such certificates must be endorsed by the redeeming
shareholder or accompanied by a signed stock power, in each instance with the
signature guaranteed by a commercial bank or a member of a major stock exchange,
unless other arrangements satisfactory to Nations Fund have previously been
made. Nations Fund may require any additional
13
<PAGE>
information reasonably necessary to evidence that a redemption has been duly
authorized.
CONTINGENT DEFERRED SALES CHARGE: Subject to certain waivers, Investor C Shares
of the Fund that are redeemed within one year of the date of purchase may be
subject to a CDSC equal to 0.50% of the lesser of the net asset value or the
purchase price of the shares being redeemed. No CDSC is imposed on increases in
net asset value above the initial purchase price, including shares acquired by
reinvestment of distributions.
Solely for purposes of determining the period of time that has elapsed from the
purchase of any Investor C Shares, all purchases are deemed to have been made on
the trade date of the transaction. In determining whether a CDSC is applicable
to a redemption, the calculation will be made in the manner that results in the
lowest possible charge being assessed. In this regard, it will be assumed that
the redemption is first of shares held for the longest period of time or shares
acquired pursuant to reinvestment of dividends or distributions. The charge will
not be applied to dollar amounts representing an increase in the net asset value
since the time of purchase.
The CDSC will be waived on redemptions of Investor C Shares (i) following the
death or disability (as defined in the Internal Revenue Code of 1986, as amended
(the "Code")) of a shareholder (including a registered joint owner), (ii) in
connection with the following retirement plan distributions: (a) by qualified
plans, (except in cases of plan level terminations); (b) distributions from an
IRA following attainment of age 59 1/2; (c) a tax-free return of an excess
contribution to an IRA, and (d) distributions from a qualified retirement plan
that are not subject to the 10% additional Federal withdrawal tax pursuant to
Section 72(t)(2) of the Code, (iii) effected pursuant to Nations Fund's right to
liquidate a shareholder's account, including instances where the aggregate net
asset value of the Investor C shares held in the account is less than the
minimum account size, (iv) in connection with the combination of Nations Fund
with any other registered investment company by merger, acquisition of assets or
by any other transaction, and (v) effected pursuant to the Automatic Withdrawal
Plan discussed below, provided that such redemptions do not exceed, on an annual
basis, 12% of the net asset value of the Investor C Shares in the account.
Shareholders are responsible for providing evidence sufficient to establish that
they are eligible for any waiver of the CDSC. Nations Fund may terminate any
waiver of the CDSC by providing notice in the Funds' Prospectus, but any such
termination would affect only shares purchased after such termination.
Within 120 days after a redemption of Investor C Shares of a Fund, a shareholder
may reinvest any portion of the proceeds of such redemption in Investor C Shares
of the same Fund. The amount which may be so reinvested is limited to an amount
up to, but not exceeding, the redemption proceeds (or to the nearest full share
if fractional shares are not purchased). A shareholder exercising this privilege
would receive a pro rata credit for any CDSC paid in connection with the prior
redemption. A shareholder may not exercise this privilege with the proceeds of a
redemption of shares previously purchased through the reinvestment privilege. In
order to exercise this privilege, a written order for the purchase of Investor C
Shares must be received by the Transfer Agent or by Stephens within 120 days
after the redemption.
AUTOMATIC WITHDRAWAL PLAN: An Automatic Withdrawal Plan ("AWP") may be
established by a new or existing shareholder of the Fund if the value of the
Investor C Shares in his/her accounts within the Nations Fund Family (valued at
the net asset value at the time of the establishment of the AWP) equals $10,000
or more. Investor C Shares redeemed under the AWP will not be subject to a CDSC,
provided that the shares so redeemed do not exceed, on an annual basis, 12% of
the net asset value of the Investor C Shares in the account. Otherwise, any
applicable CDSC will be imposed on shares redeemed under the AWP. Shareholders
who elect to establish an AWP may receive a monthly, quarterly or annual check
or automatic transfer to a checking or savings account in a stated amount of not
less than $25 on or about the 10th or 25th day of the applicable month of
withdrawal. Investor C Shares will be redeemed
14
<PAGE>
(net of any applicable CDSC) as necessary to meet withdrawal payments.
Withdrawals will reduce principal and may eventually deplete the shareholder's
account. If a shareholder desires to establish an AWP after opening an account,
a signature guarantee will be required. An AWP may be terminated by a
shareholder on 30 days' written notice to his/her Agent or by Nations Fund at
any time.
How To Exchange Shares
The exchange feature enables a shareholder of Investor C Shares of a Nations
Fund non-money market fund to acquire shares of the same class that are offered
by another non-money market fund of Nations Fund or Investor D Shares of any
Nations Fund money market fund when he or she believes that a shift between
funds is an appropriate investment decision. A qualifying exchange is based on
the next calculated net asset value per share of each fund after the exchange
order is received.
No CDSC will be imposed in connection with an exchange of Investor C Shares that
meets the requirements discussed in this section.
If a shareholder acquired Investor C Shares of a Nations Fund non-money market
fund or Investor D Shares of a Nations Fund money market fund through an
exchange, the CDSC applicable to the original shares purchased will be applied
to any redemption of the acquired shares. Additionally, when an investor
exchanges Investor C Shares of a Nations Fund non-money market fund for shares
of the same class of another non-money market fund or Investor D Shares of any
money market fund of Nations Fund, the remaining period of time (if any) that
the CDSC is in effect will be computed from the time of the initial purchase of
the previously held Investor C Shares.
AUTOMATIC EXCHANGE FEATURE: Under the Funds' Automatic Exchange Feature ("AEF")
a shareholder may automatically exchange at least $25 on a monthly or quarterly
basis. A shareholder may direct proceeds to be exchanged from one Nations Fund
to another as allowed by the applicable exchange rules within the prospectus.
Exchanges will occur on or about the 15th or 30th day of the applicable month.
The shareholder must have an existing position in both Funds in order to
establish the AEF. This feature may be established by directing a request to the
Transfer Agent by telephone or in writing. For additional information, an
investor should contact his/her Selling Agent.
GENERAL: The Fund and each of the other funds of Nations Fund may limit the
number of times this exchange feature may be exercised by a shareholder within a
specified period of time. Also, the exchange feature may be terminated or
revised at any time by Nations Fund upon such notice as may be required by
applicable regulatory agencies (presently 60 days for termination or material
revision), absent unusual circumstances.
The current prospectus for each fund of Nations Fund describes its investment
objective and policies, and shareholders should obtain a copy and examine it
carefully before investing. Exchanges are subject to the minimum investment
requirement and any other conditions imposed by each fund. In the case of any
shareholder holding a share certificate or certificates, no exchanges may be
made until all applicable share certificates have been received by the Transfer
Agent and deposited in the shareholder's account. An exchange will be treated
for Federal income tax purposes the same as a redemption of shares, on which the
shareholder may realize a capital gain or loss. However, the ability to deduct
capital losses on an exchange may be limited in situations where there is an
exchange of shares within 90 days after the shares are purchased.
The Investor C Shares exchanged must have a current value of at least $1,000
(except for exchange through the AEF). Nations Fund reserves the right to reject
any exchange request. Only shares that may legally be sold in the state of the
investor's residence may be
15
<PAGE>
acquired in an exchange. Only shares of a class that is accepting investments
generally may be acquired in an exchange. An investor may telephone an exchange
request by calling his/her Agent which is responsible for transmitting such
request to Stephens or to the Transfer Agent.
During periods of significant economic or market change, telephone exchanges may
be difficult to complete. In such event, shares may be exchanged by mailing the
request directly to the Agent through which the original shares were purchased.
An investor should consult his/her Agent or Stephens for further information
regarding exchanges.
Shareholder Servicing And Distribution
Plans
Pursuant to Rule 12b-1 under the 1940 Act, the Trustees have approved a
Distribution Plan with respect to Investor C Shares of the Fund. Pursuant to the
Distribution Plan, the Fund may compensate or reimburse Stephens for any
activities or expenses primarily intended to result in the sale of the Fund's
Investor C Shares. Payments under the Investor C Distribution Plan will be
calculated daily and paid monthly at a rate or rates set from time to time by
the Trustees, provided that the annual rate may not exceed 0.75% of the average
daily net asset value of the Fund's Investor C Shares.
The fees payable under the Distribution Plan are used (i) to compensate Selling
Agents for providing sales support assistance relating to Investor C Shares,
(ii) to pay for promotional activities intended to result in the sale of
Investor C Shares such as the preparation, printing and distribution of
prospectuses to other than current shareholders, and (iii) to compensate Selling
Agents for providing sales support services with respect to their Customers who
are, from time to time, beneficial and record holders of Investor C Shares.
Currently, substantially all fees paid pursuant to the Distribution Plan are
paid to compensate Selling Agents for providing the services described in (i)
and (iii) above, with any remaining amounts being used by Stephens to partially
defray other expenses incurred by Stephens in distributing Investor C Shares.
Fees received by Stephens pursuant to the Distribution Plan will not be used to
pay any interest expenses, carrying charges or other financing costs (except to
the extent permitted by the SEC) and will not be used to pay any general and
administrative expenses of Stephens.
Nations Fund and Stephens may suspend or reduce payments under the Distribution
Plan at any time, and payments are subject to the continuation of the
Distribution Plan described above and the terms of the Sales Support Agreement
between Selling Agents and Stephens. See the SAI for more details on the
Distribution Plan.
The Trustees also have approved a shareholder servicing plan ("Servicing Plan")
for the Fund which permits the Fund to compensate Servicing Agents for services
provided to their Customers that own Investor C Shares. Payments under the
Servicing Plan are calculated daily and paid monthly at a rate or rates set from
time to time by the Fund, provided that the annual rate may not exceed 0.25% of
the average daily net asset value of the Fund's Investor C Shares.
The fees payable under the Servicing Plan are used primarily to compensate or
reimburse Servicing Agents for shareholder services provided, and related
expenses incurred, by such Servicing Agents. The shareholder services provided
by Servicing Agents may include: (i) aggregating and processing purchase and
redemption requests for Investor C Shares from Customers and transmitting net
purchase and redemption orders to Stephens or the Transfer Agent; (ii) providing
Customers with a service that invests the assets of their accounts in Investor C
16
<PAGE>
Shares pursuant to specific or preauthorized instructions; (iii) processing
dividend and distribution payments from the Fund on behalf of Customers; (iv)
providing information periodically to Customers showing their positions in
Investor C Shares; (v) arranging for bank wires; and (vi) providing general
shareholder liaison services.
Nations Fund may suspend or reduce payments under the Servicing Plan at any
time, and payments are subject to the continuation of the Servicing Plan
described above and the terms of the Servicing Agreements. See the SAI for more
details on the Servicing Plan.
Nations Fund understands that Agents may charge fees to their Customers who are
the owners of Investor C Shares for various services provided in connection with
Customers' accounts. These fees would be in addition to any amounts received by
a Selling Agent under its Sales Support Agreement with Stephens or by a
Servicing Agent under its Servicing Agreement with Nations Fund. The Sales
Support Agreements and Servicing Agreements require Agents to disclose to their
Customers any compensation payable to the Agent by Stephens or Nations Fund and
any other compensation payable by the Customers for various services provided in
connection with their accounts. Customers should read this Prospectus in light
of the terms governing their accounts with their Agents.
Stephens may, from time to time, at its expense or as an expense for which it
may be reimbursed under the Distribution Plan, pay a bonus or other
consideration or incentive to Agents who sell a minimum dollar amount of shares
of the Fund during a specified period of time. Stephens also may, from time to
time, pay additional consideration to Agents not to exceed 0.75% of the offering
price per share on all sales of Investor C Shares as an expense of Stephens or
for which Stephens may be reimbursed under the Distribution Plan or upon receipt
of a CDSC. Any such additional consideration or incentive program may be
terminated at any time by Stephens.
In addition, Stephens has established a non-cash compensation program, pursuant
to which broker/dealers or financial institutions that sell shares of the Fund
may earn additional compensation in the form of trips to sales seminars or
vacation destinations, tickets to sporting events, theater or other
entertainment, opportunities to participate in golf or other outings and gift
certificates for meals or merchandise. This non-cash compensation program may be
amended or terminated at any time by Stephens.
How The Fund Values Its Shares
The Fund calculates the net asset value of a share of each class by dividing the
total value of its assets, less liabilities, by the number of shares in the
class outstanding. Shares are valued as of the close of regular trading on the
Exchange (currently 4:00 p.m., Eastern time) on each Business Day. Currently,
the days on which the Exchange is closed (other than weekends) are: New Year's
Day, Presidents' Day, Good Friday, Memorial Day (observed), Independence Day,
Labor Day, Thanksgiving Day and Christmas Day.
Portfolio securities for which market quotations are readily available are
valued at market value. Short-term investments that will mature in 60 days or
less are valued at amortized cost, which approximates market value. All other
securities and assets are valued at their fair value following procedures
approved by the Trustees.
17
<PAGE>
How Dividends And Distributions Are
Made; Tax Information
DIVIDENDS AND DISTRIBUTIONS: Even though the Fund seeks to manage taxable
distributions, the Fund may be expected to earn and distribute taxable income
and may also be expected to realize and distribute capital gains from time to
time. Dividends from net investment income are declared and paid each calendar
quarter by the Fund. The Fund's net realized capital gains (including net
short-term capital gains) are distributed at least annually.
Investor C Shares of the Fund are eligible to receive dividends when declared,
provided however, that the purchase order for such shares is received at least
one day prior to the dividend declaration and such shares continue to be
eligible for dividends through and including the day before the redemption order
is executed.
The net asset value of Investor C Shares will be reduced by the amount of any
dividend or distribution. Certain Agents may provide for the reinvestment of
dividends in the form of additional Investor C Shares of the same class in the
same Fund. Dividends and distributions are paid in cash within five Business
Days of the end of the quarter to which the dividend relates. Dividends and
distributions payable to a shareholder are paid in cash within five Business
Days after a shareholder's complete redemption of his/her Investor C Shares.
TAX INFORMATION: The Fund intends to qualify as a "regulated investment company"
under the Code. Such qualification relieves the Fund of liability for Federal
income tax on amounts distributed in accordance with the Code.
The Fund intends to distribute substantially all of its investment company
taxable income and net tax-exempt income each taxable year. Distributions by the
Fund of its net investment income and the excess, if any, of its net short-term
capital gain over its net long-term capital loss are taxable as ordinary income
to shareholders who are not currently exempt from Federal income tax, whether
such income is received in cash or reinvested in additional shares.
Corporate investors in the Fund may be entitled to the dividends-received
deduction on all or a portion of the Fund's dividends.
Substantially all of the Fund's net realized long-term capital gains will be
distributed at least annually. The Fund will generally have no tax liability
with respect to such gains, and the distributions will be taxable to
shareholders who are not exempt from Federal income taxes as long-term capital
gains, regardless of how long the shareholders have held the Fund's shares and
whether such gains are received in cash or reinvested in additional shares.
Each year, shareholders will be notified as to the amount and Federal tax status
of all dividends and capital gains paid during the prior year. Such dividends
and capital gains may be subject to state and local taxes.
Dividends declared in October, November, or December of any year payable to
shareholders of record on a specified date in such months will be deemed to have
been received by shareholders and paid by the Fund on December 31 of such year
in the event such dividends are actually paid during January of the following
year.
Federal law requires Nations Fund to withhold 31% from any dividends (other than
exempt-interest dividends) paid by Nations Fund and/or redemptions (including
exchange redemptions) that occur in certain shareholder accounts if the
shareholder has not properly furnished a certified correct Taxpayer
Identification Number and has not certified that withholding does not apply, or
if the Internal Revenue Service has notified Nations Fund that the Taxpayer
Identification Number listed on a shareholder account is incorrect according to
its records, or that the shareholder is subject to backup withholding. Amounts
withheld are applied to the shareholder's Federal tax liability, and a refund
may
18
<PAGE>
be obtained from the Internal Revenue Service if withholding results in
overpayment of taxes. Federal law also requires the Fund to withhold 30% or the
applicable tax treaty rate from dividends paid to certain nonresident alien,
non-U.S. partnership and non-U.S. corporation shareholder accounts.
The foregoing discussion is based on tax laws and regulations which were in
effect as of the date of this Prospectus and summarizes only some of the
important Federal tax considerations generally affecting the Fund and its
shareholders. It is not intended as a substitute for careful tax planning;
investors should consult their tax advisors with respect to their specific tax
situations as well as with respect to state and local taxes. Further tax
information is contained in the SAI.
Appendix A -- Portfolio Securities
The following are summary descriptions of certain types of instruments in which
the Fund may invest. The "How Objective Is Pursued" section of the Prospectus
identifies the Fund's permissible investments, and the SAI contains more
information concerning such investments.
BANK INSTRUMENTS: Bank instruments consist mainly of certificates of deposit,
time deposits and bankers' acceptances. The Fund will limit its investments in
bank obligations so they do not exceed 25% of the Fund's total assets at the
time of purchase.
BORROWINGS: When the Fund borrows money, the net asset value of a share may be
subject to greater fluctuation until the borrowing is paid off. The Fund may
borrow money from banks for temporary purposes in amounts of up to one-third of
its total assets, provided that borrowings in excess of 5% of the value of the
Fund's total assets must be repaid prior to the purchase of portfolio
securities. Under the requirements of the 1940 Act, the Fund is required to
maintain an asset coverage (including the proceeds of the borrowings) of at
least 300% of all borrowings.
COMMERCIAL INSTRUMENTS: Commercial instruments consist of short-term U.S.
dollar-denominated obligations issued by domestic corporations or foreign
corporations and foreign commercial banks. Investments by the Fund in commercial
paper will consist of issues rated in a manner consistent with the Fund's
investment policies and objective. In addition, the Fund may acquire unrated
commercial paper and corporate bonds that are determined by the Adviser at the
time of purchase to be of comparable quality to rated instruments that may be
acquired by the Fund. Commercial instruments include variable-rate master demand
notes, which are unsecured instruments that permit the indebtedness thereunder
to vary and provide for periodic adjustments in the interest rate, and variable-
and floating-rate instruments.
CONVERTIBLE SECURITIES, PREFERRED STOCK, AND WARRANTS: The Fund may invest in
debt securities convertible into or exchangeable for equity securities,
preferred stocks or warrants. Preferred stocks are securities that represent an
ownership interest in a corporation providing the owner with claims on a
company's earnings and assets before common stock owners, but after bond or
other debt security owners. Warrants are options to buy a stated number of
shares of common stock at a specified price any time during the life of the
warrants.
FUTURES, OPTIONS AND OTHER DERIVATIVE INSTRUMENTS: The Fund may attempt to
reduce the overall level of investment risk of particular securities and attempt
to protect the Fund against adverse market movements by investing in futures,
options and other derivative instruments. These include the purchase and writing
of options on securities (including index options), and investing in futures
contracts for the purchase or sale of instruments based on financial indices,
including interest rate indices or indices of U.S. government,equity or fixed
income securities ("futures contracts"), options on futures contracts, forward
contracts and swaps and swap-related products such as inter-
19
<PAGE>
est rate swaps, currency swaps, caps, collars and floors.
The use of futures, options, forward contracts and swaps exposes the Fund to
additional investment risks and transaction costs. If the Adviser incorrectly
analyzes market conditions or does not employ the appropriate strategy with
respect to these instruments, the Fund could be left in a less favorable
position. Additional risks inherent in the use of futures, options, forward
contracts and swaps include: imperfect correlation between the price of futures,
options and forward contracts and movements in the prices of the securities or
currencies being hedged; the possible absence of a liquid secondary market for
any particular instrument at any time; and the possible need to defer closing
out certain hedged positions to avoid adverse tax consequences. The Fund may not
purchase put and call options which are traded on a national stock exchange in
an amount exceeding 5% of its net assets. Further information on the use of
futures, options and other derivative instruments, and the associated risks, is
contained in the SAI.
ILLIQUID SECURITIES: Certain securities may be sold only pursuant to certain
legal restrictions, and may be difficult to sell. The Fund will not hold more
than 15% of the value of its net assets in securities that are illiquid or such
lower percentage as may be required by the states in which the Fund sells its
shares. Repurchase agreements, time deposits and guaranteed investment contracts
that do not provide for payment to the Fund within seven days after notice, and
illiquid restricted securities are subject to the limitation on illiquid
securities.
If otherwise consistent with its investment objective and policies, the Fund may
purchase securities that are not registered under the Securities Act of 1933, as
amended (the "1933 Act") but which can be sold to "qualified institutional
buyers" in accordance with Rule 144A 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 the Fund's Board of Trustees or the
Adviser, acting under guidelines approved and monitored by the Fund's Board,
after considering trading activity, availability of reliable price information
and other relevant information that an adequate trading market exists for that
security. To the extent that, for a period of time, qualified institutional 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.
MONEY MARKET INSTRUMENTS: The term "money market instruments" refers to
instruments with remaining maturities of one year or less. Money market
instruments may include, among other instruments, certain U.S. Treasury
obligations, U.S. Government obligations, bank instruments, commercial
instruments, repurchase agreements and municipal securities. Such instruments
are described in this Appendix A.
OTHER INVESTMENT COMPANIES: The Fund may invest in securities issued by other
investment companies to the extent that such investments are consistent with the
Fund's investment objective and policies and permissible under the 1940 Act. As
a shareholder of another investment company, the Fund would bear, along with
other shareholders, its pro rata portion of the other investment company's
expenses, including advisory fees. These expenses would be in addition to the
advisory and other expenses that the Fund bears directly in connection with its
own operations.
REPURCHASE AGREEMENTS: A repurchase agreement involves the purchase of a
security by the Fund and a simultaneous agreement (generally with a bank or
broker/dealer) to repurchase that security from the Fund at a specified price
and date or upon demand. This technique offers a method of earning income on
idle cash. A risk associated with repurchase agreements is the failure of the
seller to repurchase the securities as agreed, which may cause the Fund to
suffer a loss if the market value of such securities declines before they can be
liquidated on the open market. Repurchase agreements with a duration of more
than seven days are considered illiquid securities and are subject to the limit
stated above. The Fund may enter into repurchase agreements jointly with other
investment portfolios of Nations Fund.
20
<PAGE>
SECURITIES LENDING: To increase return on portfolio securities, the Fund may
lend its portfolio securities to broker/dealers and other institutional
investors pursuant to agreements requiring that the loans be continuously
secured by collateral equal at all times in value to at least the market value
of the securities loaned. There is a risk of delay in receiving collateral or in
recovering the securities loaned or even a loss of rights in the collateral
should the borrower of the securities fail financially. However, loans are made
only to borrowers deemed by the Adviser to be credit worthy and when, in its
judgment, the income to be earned from the loan justifies the attendant risks.
The aggregate of all outstanding loans of the Fund may not exceed 30% of the
value of its total assets.
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 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 Association; 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.
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.
21
<PAGE>
Prospectus
INVESTOR N SHARES
JULY 31, 1996
This Prospectus describes NATIONS VALUE FUND,
NATIONS EQUITY INCOME FUND, NATIONS BALANCED ASSETS
FUND, NATIONS CAPITAL GROWTH FUND, NATIONS EMERGING
GROWTH FUND AND NATIONS DISCIPLINED EQUITY FUND
(the "Funds") of Nations Fund Trust and Nations
Fund, Inc., each an open-end management investment
company in the Nations Fund Family ("Nations Fund"
or "Nations Fund Family"). This Prospectus
describes one class of shares of the
Funds -- Investor N Shares.
This Prospectus sets forth concisely the
information about the Funds that a prospective
purchaser of Investor N Shares should consider
before investing. Investors should read this
Prospectus and retain it for future reference.
Additional information about Nations Fund Trust and
Nations Fund, Inc. is contained in separate
Statements of Additional Information (the "SAIs"),
that have been filed with the Securities and
Exchange Commission (the "SEC") and are available
upon request without charge by writing or calling
Nations Fund at its address or telephone number
shown below. The SAIs for Nations Fund Trust and
Nations Fund, Inc., each dated July 31, 1996, are
incorporated by reference in their entirety into
this Prospectus. NationsBanc Advisors, Inc.
("NBAI") is the investment adviser to the Funds.
TradeStreet Investment Associates, Inc.
("TradeStreet") is sub-investment adviser to the
Funds. As used herein the "Adviser" shall mean NBAI
and/or TradeStreet as the context may require.
SHARES OF NATIONS FUND ARE NOT DEPOSITS OR OTHER
OBLIGATIONS OF, OR ISSUED, ENDORSED OR GUARANTEED
BY, NATIONSBANK, N.A. ("NATIONSBANK") OR ANY OF ITS
AFFILIATES. SUCH SHARES ARE NOT INSURED BY THE U.S.
GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER
GOVERNMENT AGENCY. AN INVESTMENT IN THE FUNDS
INVOLVES CERTAIN RISKS, INCLUDING POSSIBLE LOSS OF
PRINCIPAL.
NATIONSBANK AND CERTAIN OF ITS AFFILIATES PROVIDE
CERTAIN OTHER SERVICES TO NATIONS FUND, FOR WHICH
THEY ARE COMPENSATED. STEPHENS INC., WHICH IS NOT
AFFILIATED WITH NATIONSBANK, IS THE SPONSOR AND
ADMINISTRATOR AND SERVES AS THE DISTRIBUTOR FOR
NATIONS FUND.
THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
GROWTH AND INCOME FUNDS:
Nations Value Fund
Nations Equity Income Fund
Nations Balanced
Assets Fund
GROWTH FUNDS:
Nations Capital Growth Fund
Nations Emerging
Growth Fund
Nations Disciplined
Equity Fund
For Fund information call:
1-800-321-7854
Nations Fund
c/o Stephens Inc.
One NationsBank Plaza
33rd Floor
Charlotte, NC 28255
(Nations Fund Logo appears here)
NSI-96144-796
<PAGE>
Table Of Contents
About The Funds
Prospectus Summary 3
Expenses Summary 4
Financial Highlights 6
Objectives 11
How Objectives Are Pursued 12
How Performance Is Shown 18
How The Funds Are Managed 19
Organization And History 23
About Your Investment
How To Buy Shares 25
Shareholder Servicing And Distribution Plans 26
How To Redeem Shares 28
How To Exchange Shares 30
How The Funds Value Their Shares 31
How Dividends And Distributions Are Made; Tax
Information 31
Appendix A -- Portfolio Securities 32
Appendix B -- Description Of Ratings 40
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT
CONTAINED IN THIS PROSPECTUS, OR IN THE
FUNDS' SAIS INCORPORATED HEREIN BY REFERENCE, IN
CONNECTION WITH THE OFFERING MADE BY THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY NATIONS FUND OR ITS
DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFERING BY NATIONS FUND OR BY THE DISTRIBUTOR IN
ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT
LAWFULLY BE MADE.
2
<PAGE>
About The Funds
Prospectus Summary
(Bullet) TYPE OF COMPANIES: Open-end management investment companies.
(Bullet) INVESTMENT OBJECTIVES AND POLICIES:
(Bullet) Nations Value Fund's investment objective is to seek growth of
capital by investing in companies that are believed to be
undervalued.
(Bullet) Nations Equity Income Fund's investment objective is
to seek current income and growth of capital by
investing primarily in companies with above average
dividend yields.
(Bullet) Nations Balanced Assets Fund's investment
objective is to seek total return by
investing in equity and fixed income
securities.
(Bullet) Nations Capital Growth Fund's investment objective
is to seek growth of capital by investing in
companies that are believed to have
superior earnings growth potential.
(Bullet) Nations Emerging Growth Fund's investment
objective is to seek capital appreciation by
investing in emerging growth companies that are
believed to have superior long-term earnings growth
prospects.
(Bullet) Nations Disciplined Equity Fund's investment
objective is to seek growth of capital by
investing in companies that are expected to
produce significant increases in earnings per
share.
(Bullet) INVESTMENT ADVISER: NationsBanc Advisors, Inc. serves as the investment
adviser to the Funds. NBAI provides investment advice to more than 43
investment company portfolios in the Nations Fund Family. TradeStreet
Investment Associates, Inc. provides sub-advisory services to the
Funds. See "How The Funds Are Managed."
(Bullet) DIVIDENDS AND DISTRIBUTIONS: The Funds declare and pay dividends from
net investment income each calendar quarter. Each Fund's net realized
capital gains, including net short-term capital gains are distributed
at least annually.
(Bullet) RISK FACTORS: Although the Adviser seeks to achieve the investment
objective of each Fund, there is no assurance that it will be able to
do so. Investments in a Fund are not insured against loss of principal.
Investments by a Fund in common stocks and other equity securities are
subject to stock market risk, which is the risk that the value of the
stocks the Fund holds may decline over short or even extended periods.
Investments by a Fund in debt securities are subject to interest rate
risk, which is the risk that increases in market interest rates will
adversely affect a Fund's investments in debt securities. The value of
a Fund's investments in debt securities, including U.S. Government
Obligations (as defined below), will tend to decrease when interest
rates rise and increase when interest rates fall. In general,
longer-term debt instruments tend to fluctuate in value more than
shorter-term debt instruments in response to interest rate movements.
In addition, debt securities which are not backed by the United States
Government are subject to credit risk, which is the risk that the
issuer may not be able to pay principal and/or interest when due.
Certain of the Funds' investments constitute derivative securities.
Certain types of derivative securities can, under certain
circumstances, significantly increase an investor's exposure to market
or other risks. For a discus-
3
<PAGE>
sion of these and other factors, see "How Objectives Are
Pursued -- Risk Considerations" and "Appendix A -- Portfolio
Securities."
(Bullet) MINIMUM PURCHASE: $1,000 minimum initial investment per record holder
except that the minimum initial investment is: $500 for Individual
Retirement Account ("IRA") investors; $250 for non-working spousal
IRAs; and $100 for investors participating on a monthly basis in the
Systematic Investment Plan. There is no minimum investment amount for
investments by certain 401(k) and employee pension plans or salary
reduction -- Individual Retirement Accounts. Minimum subsequent
investment is $100, except for investments pursuant to the systematic
investment plan. See "How To Buy Shares."
Expenses Summary
Expenses are one of several factors to consider when investing in the Funds. The
following table summarizes shareholder transaction and operating expenses for
Investor N Shares of the Funds. The Examples show the cumulative expenses
attributable to a hypothetical $1,000 investment in the Funds over specified
periods.
INVESTOR N SHARES
<TABLE>
<CAPTION>
Nations Nations
Nations Equity Balanced Nations Nations
Value Income Assets Capital Growth Emerging Growth
Fund Fund Fund Fund Fund
SHAREHOLDER TRANSACTION EXPENSES
<S> <C> <C> <C> <C> <C>
Sales Load Imposed on Purchases None None None None None
Deferred Sales Charge (as a percentage of
the lower of the original purchase price
or redemption proceeds)1 None None None None None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees .75% .70% .75% .75% .75%
Rule 12b-1 Fees (After fee waivers) .50% .50% .50% .75% .75%
Shareholder Servicing Fees .25% .25% .25% .25% .25%
Other Expenses .21% .20% .25% .21% .24%
Total Operating Expenses (After fee
waivers) 1.71%2 1.65%2 1.75%2 1.96% 1.99%
Nations
Disciplined
Equity
Fund
SHAREHOLDER TRANSACTION EXPENSES
Sales Load Imposed on Purchases None
Deferred Sales Charge (as a percentage of
the lower of the original purchase price
or redemption proceeds)1 None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees .75%
Rule 12b-1 Fees (After fee waivers) .75%
Shareholder Servicing Fees .25%
Other Expenses .27%
Total Operating Expenses (After fee
waivers) 2.02%
</TABLE>
1 Investor N Shares purchased prior to January 1, 1996 will continue to be
subject to the Deferred Sales Charge applicable at the time of purchase. See
"How To Redeem Shares -- Contingent Deferred Sales Charge."
4
<PAGE>
EXAMPLES:
An investment of $1,000 would incur the following expenses, assuming (1) a 5%
annual return and (2) redemption at the end of each time period.
<TABLE>
<CAPTION>
Nations Nations Nations
Nations Equity Balanced Capital
Value Income Assets Growth
Fund Fund Fund Fund
<S> <C> <C> <C> <C>
1 Year $ 17 $ 17 $ 18 $ 20
3 Years $ 54 $ 52 $ 55 $ 62
5 Years $ 93 $ 90 $ 95 $ 106
10 Years $ 202 $ 195 $ 206 $ 229
Nations Nations
Emerging Disciplined
Growth Equity
Fund Fund
1 Year $ 20 $ 21
3 Years $ 62 $ 63
5 Years $ 107 $ 109
10 Years $ 232 $ 235
</TABLE>
The purpose of the foregoing table is to assist an investor in understanding the
various shareholder transaction and operating expenses that an investor in the
Funds will bear either directly or indirectly. The figures contained in the
above tables are based on amounts incurred during each Fund's most recent fiscal
year and have been adjusted as necessary to reflect current service provider
fees. The "Other Expenses" figures in the above table are based on estimates for
the current fiscal year. There is no assurance that any fee waivers and/or
expense reimbursements will continue beyond the current fiscal year. If fee
waivers and/or expense reimbursements are discontinued, the amounts contained in
the "Examples" above may increase. Long-term shareholders of the Funds could pay
more in sales charges than the economic equivalent of the maximum front-end
sales charges applicable to mutual funds sold by members of the National
Association of Securities Dealers, Inc. For more complete descriptions of the
Funds' operating expenses, see "How The Funds Are Managed." Absent fee waivers,
"Rule 12b-1 Fees" and "Total Operating Expenses" would have been as follows:
Nations Value Fund -- .75% and 1.96%, respectively; Nations Equity Income
Fund -- .75% and 1.90%, respectively; and Nations Balanced Assets Fund -- .75%
and 2.00%, respectively.
THE FOREGOING SHOULD NOT BE CONSIDERED TO BE AN ACTUAL REPRESENTATION OF PAST OR
FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES AND RATES OF RETURN MAY BE
GREATER OR LESS THAN THOSE SHOWN.
5
<PAGE>
Financial Highlights
The audited financial information on the following pages has been derived from
the financial statements of Nations Fund Trust and Nations Fund, Inc. Price
Waterhouse LLP is the independent accountant to Nations Fund Trust and Nations
Fund, Inc. The reports of Price Waterhouse LLP for the most recent fiscal years
of Nations Fund Trust and Nations Fund, Inc. accompany the financial statements
for such periods and are incorporated by reference in the SAIs, which are
available upon request. For more information see "Organization And History."
Shareholders of the Funds will receive unaudited semi-annual reports describing
the Funds' investment operations and annual financial statements audited by the
Funds' independent accountant.
FOR AN INVESTOR N SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS VALUE FUND
<TABLE>
<CAPTION>
PERIOD YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
INVESTOR N SHARES 03/31/96(a) 11/30/95 11/30/94 11/30/93*
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 16.15 $ 12.94 $ 13.71 $ 13.08
Net investment income 0.03 0.17 0.15 0.11
Net realized and unrealized gain/(loss) on investments 1.05 3.89 (0.22) 0.63
Net increase/(decrease) in net asset value from operations 1.08 4.06 (0.07) 0.74
Distributions:
Dividends from net investment income (0.06) (0.18) (0.16) (0.11)
Distributions from net realized capital gains (0.62) (0.67) (0.54) --
Total dividends and distributions (0.68) (0.85) (0.70) (0.11)
Net asset value, end of period $ 16.55 $ 16.15 $ 12.94 $ 13.71
Total return++ 6.90% 33.55% (0.69)% 5.65%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 88,861 $ 83,699 $ 42,530 $ 10,449
Ratio of operating expenses to average net assets 1.71%+ 1.69% 1.68% 1.71%+
Ratio of net investment income to average net assets 0.55%+ 1.15% 1.10% 1.23%+
Portfolio turnover rate 12% 63% 75% 64%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 1.71%+ 1.69% 1.68% 1.72%+
Net investment income per share without waivers and/or
expense reimbursements $ 0.03 $ 0.17 $ 0.15 $ 0.11
Average commission rate paid (b) $ 0.0648 N/A N/A N/A
</TABLE>
* Nations Value Fund Investor N Shares commenced operations on June 7, 1993.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
(b) Average commission rate paid per share of securities purchased and sold by
the Fund.
6
<PAGE>
FOR AN INVESTOR N SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
NATIONS EQUITY INCOME FUND
PERIOD YEAR PERIOD
ENDED ENDED ENDED
INVESTOR N SHARES 03/31/96(a) 05/31/95 05/31/94*
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 11.77 $ 11.40 $ 11.98
Net investment income 0.22 0.34 0.37
Net realized and unrealized gain on investments 1.76 1.11 0.22
Net increase in net asset value resulting from operations 1.98 1.45 0.59
Distributions:
Dividends from net investment income (0.28) (0.35) (0.36)
Distributions from net realized capital gains (0.37) (0.73) (0.81)
Total dividends and distributions (0.65) (1.08) (1.17)
Net asset value, end of period $ 13.10 $ 11.77 $ 11.40
Total return++ 17.21% 14.03% 4.84%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 104,026 $ 75,371 $ 46,043
Ratio of operating expenses to average net assets 1.65%+ 1.67% 1.69%+
Ratio of net investment income to average net assets 2.09%+ 3.00% 2.66%+
Portfolio turnover rate 59% 158% 116%
Ratio of operating expenses to average net assets without waivers
and/or expense reimbursements 1.65%+ 1.68% 1.70%+
Net investment income per share without waivers and/or expense
reimbursements $ 0.22 $ 0.34 $ 0.37
Average commission rate paid (b) $ 0.0287 N/A N/A
</TABLE>
* Nations Equity Income Investor N Shares commenced operations on June 7, 1993.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
May 31.
(b) Average commission rate paid per share of securities purchased and sold by
the Fund.
7
<PAGE>
FOR AN INVESTOR N SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
NATIONS BALANCED ASSETS FUND
PERIOD YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
INVESTOR N SHARES 03/31/96(a) 11/30/95 11/30/94 11/30/93*
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 12.63 $ 10.40 $ 10.85 $ 10.61
Net investment income 0.09 0.28 0.17 0.14
Net realized and unrealized gain/(loss) on investments 0.45 2.22 (0.44) 0.23
Net increase/(decrease) in net asset value from operations 0.54 2.50 (0.27) 0.37
Distributions:
Dividends from net investment income (0.14) (0.25) (0.18) (0.13)
Distributions from net realized capital gains (1.41) (0.02) -- --
Total dividends and distributions (1.55) (0.27) (0.18) (0.13)
Net asset value, end of period $ 11.62 $ 12.63 $ 10.40 $ 10.85
Total return++ 4.69% 24.35% (2.51)% 3.45%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 65,764 $ 65,275 $ 52,905 $ 27,982
Ratio of operating expenses to average net assets 1.75%+ 1.74% 1.73% 1.65%+
Ratio of net investment income to average net assets 2.16%+ 2.50% 1.56% 2.07%+
Portfolio turnover rate 83% 174% 156% 50%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 1.75%+ 1.74% 1.74% 1.72%+
Net investment income per share without waivers and/or
expense reimbursements $ 0.09 $ 0.28 $ 0.17 $ 0.14
Average commission rate paid (b) $ 0.0598 N/A N/A N/A
</TABLE>
* Nations Balanced Assets Fund Investor N Shares commenced operations on June
7, 1993.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
(b) Average commission rate paid per share of securities purchased and sold by
the Fund.
8
<PAGE>
FOR AN INVESTOR N SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS CAPITAL GROWTH FUND
<TABLE>
<CAPTION>
PERIOD YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
INVESTOR N SHARES 03/31/96(a) 11/30/95 11/30/94 11/30/93*
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 14.15 $ 11.17 $ 11.05 $ 10.55
Net investment income/(loss) (0.02) (0.03) (0.01) (0.01)
Net realized and unrealized gain on investments 0.37 3.27 0.13 0.53
Net increase in net asset value from operations 0.35 3.24 0.12 0.52
Distributions:
Dividends from net investment income -- -- -- (0.02)
Distributions from net realized capital gains (1.19) (0.26) (0.00)(b) --
Total dividends and distributions (1.19) (0.26) (0.00)(b) (0.02)
Net asset value, end of period $ 13.31 $ 14.15 $ 11.17 $ 11.05
Total return++ 2.77% 29.80% 1.12% 4.95%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 41,045 $ 40,868 $ 23,591 $ 9,511
Ratio of operating expenses to average net assets 1.96%+ 1.98% 1.90% 1.80%+
Ratio of net investment income/(loss) to average net assets (0.62)%+ (0.29)% (0.15)% (0.16)%+
Portfolio turnover rate 25% 80% 56% 81%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 1.96%+ 1.98% 1.91% 1.89%+
Net investment income/(loss) per share without waivers
and/or expense reimbursements $ (0.02) $ (0.03) $ (0.01) $ (0.02)
Average commission rate paid (c) $ 0.0632 N/A N/A N/A
</TABLE>
* Nations Capital Growth Fund Investor N Shares commenced operations on June 7,
1993.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
(b) Amount represents less than $0.01 per share.
(c) Average commission rate paid per share of securities purchased and sold by
the Fund.
9
<PAGE>
FOR AN INVESTOR N SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS EMERGING GROWTH FUND
<TABLE>
<CAPTION>
PERIOD YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
INVESTOR N SHARES 03/31/96#(a) 11/30/95 11/30/94# 11/30/93*
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 13.93 $ 11.24 $ 10.82 $ 9.88
Net investment income/(loss) (0.05) (0.07) (0.14) (0.02)
Net realized and unrealized gain on investments 1.23 3.16 0.70 0.96
Net increase in net asset value from operations 1.18 3.09 0.56 0.94
Distributions:
Distributions from net realized capital gains (1.50) (0.40) (0.14) --
Total dividends and distributions (1.50) (0.40) (0.14) --
Net asset value, end of period $ 13.61 $ 13.93 $ 11.24 $ 10.82
Total return++ 9.52% 28.75% 5.17% 9.51%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 34,989 $ 32,349 $ 15,909 $ 3,594
Ratio of operating expenses to average net assets 1.99%+ 1.98% 2.01% 1.80%+
Ratio of net investment income/(loss) to average net assets (1.06)%+ (0.92)% (1.29)% (1.15)%+
Portfolio turnover rate 39% 139% 129% 159%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 1.99%+ 1.98% 2.01% 2.01%+
Net investment income/(loss) per share without waivers
and/or expense reimbursements (0.05) $ (0.07) $ (0.09) $ (0.03)
Average commission rate paid (b) $ 0.0599 N/A N/A N/A
</TABLE>
* Nations Emerging Growth Fund Investor N Shares commenced operations on June
7, 1993.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
# Per share numbers have been calculated using the monthly average share
method, which more appropriately presents the per share data for the period
since the use of the undistributed income method did not accord with the
results of operations.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
(b) Average commission rate paid per share of securities purchased and sold by
the Fund.
10
<PAGE>
FOR AN INVESTOR N SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS DISCIPLINED EQUITY FUND
<TABLE>
<CAPTION>
PERIOD YEAR PERIOD
ENDED ENDED ENDED
INVESTOR N SHARES 03/31/96(a) 11/30/95 11/30/94*
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 16.89 $ 13.02 $ 12.77
Net investment income/(loss) (0.01) 0.03 (0.02)
Net realized and unrealized gain/(loss) on investments 0.35 3.87 0.28
Net increase/(decrease) in net asset value from operations 0.34 3.90 0.26
Distributions:
Dividends from net investment income -- (0.03) (0.01)
Distributions from net realized capital gains (0.23) -- --
Return of capital -- -- (0.00)(b)
Total dividends and distributions (0.23) (0.03) (0.01)
Net asset value, end of period $ 17.00 $ 16.89 $ 13.02
Total return++ 2.08% 29.94% 2.02%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 18,412 $ 16,874 $ 177
Ratio of operating expenses to average net assets 2.02%+ 2.30% 2.09%+
Ratio of net investment income/(loss) to average net assets (0.18)%+ (0.15)% (0.84)%+
Portfolio turnover rate 47% 124% 177%
Ratio of operating expenses to average net assets without waivers and/or
expense reimbursements 2.02%+ 2.30% 2.52%+
Net investment income/(loss) per share without waivers and/or expense
reimbursements (0.01) $ 0.03 $ (0.03)
Average commission rate paid (c) $ 0.0627 N/A N/A
</TABLE>
* Nations Disciplined Equity Fund Investor N Shares commenced operations on May
20, 1994.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
(b) Amount represents less than $0.01 per share.
(c) Average commission rate paid per share of securities purchased and sold by
the Fund.
Objectives
GROWTH AND INCOME FUNDS:
NATIONS VALUE FUND: Nations Value Fund's investment objective is to seek growth
of capital by investing in companies that are believed to be undervalued.
NATIONS EQUITY INCOME FUND: Nations Equity Income Fund's investment objective is
to seek current income and growth of capital by investing primarily in companies
with above average dividend yields.
NATIONS BALANCED ASSETS FUND: Nations Balanced Assets Fund's investment
objective is to seek total return by investing in equity and fixed income
securities.
11
<PAGE>
GROWTH FUNDS:
NATIONS CAPITAL GROWTH FUND: Nations Capital Growth Fund's investment objective
is to seek growth of capital by investing in companies that are believed to have
superior earnings growth potential.
NATIONS EMERGING GROWTH FUND: Nations Emerging Growth Fund's investment
objective is to seek capital appreciation by investing in emerging growth
companies that are believed to have superior long-term earnings growth
prospects.
NATIONS DISCIPLINED EQUITY FUND: Nations Disciplined Equity Fund's investment
objective is to seek growth of capital by investing in companies that are
expected to produce significant increases in earnings per share.
How Objectives Are Pursued
GROWTH AND INCOME FUNDS:
NATIONS VALUE FUND: The Fund invests in stocks drawn from a broad universe of
companies monitored by the Adviser. The Adviser closely monitors these
companies, rating them for quality and projecting their future earnings and
dividends as well as other factors. To qualify for purchase, an issuer would
normally have a market capitalization of $500 million or more and have an
average daily trading volume of at least $3 million. These requirements are
generally considered by the Adviser to be adequate to support normal purchase
and sale activity without materially affecting prevailing market prices of the
issuer's shares. The Adviser also analyzes key financial ratios that measure the
growth, profitability, and leverage of such issuers that it believes will help
maintain a portfolio of above-average quality.
Stocks are selected from this universe based on the Adviser's judgment of their
total return potential. The Adviser buys stocks that it believes are undervalued
relative to the overall stock market. The principal factor considered by the
Adviser in making these determinations is the ratio of a stock's price to
earnings relative to corresponding ratios of other stocks in the same industry
or economic sector. The Adviser believes that companies with lower price-to-
earnings ratios are more likely to provide better opportunities for capital
appreciation. This "value" approach generally produces a dividend yield greater
than the market average. The Adviser will attempt to temper risk by broad
diversification among economic sectors and industries. Through this strategy,
the Fund pursues above-average returns while seeking to avoid above-average
risks.
The Fund invests under normal market conditions at least 65% of its total assets
in common stocks. In addition to common stocks, the Fund also may invest in
preferred stocks, securities convertible into common stock, and other types of
securities having common stock characteristics (such as rights and warrants to
purchase equity securities). Although the Fund invests primarily in
publicly-traded common stocks of companies incorporated in the United States,
the Fund may invest up to 20% of its assets in foreign securities. The Fund also
may hold up to 20% of its total assets in obligations issued or guaranteed as to
payment of principal and interest by the U.S. Government, its agencies or
instrumentalities ("U.S. Government Obligations"), and investment grade
securities of domestic companies. Obligations with the lowest investment grade
rating (E.G. rated "BBB" by Standard & Poor's Corporation ("S&P") or "Baa" by
Moody's Investor's Service, Inc. ("Moody's")) have speculative characteristics,
and changes in economic conditions or other circumstances are more likely to
lead to a weakened capacity to make principal and interest payments than is the
case with higher grade debt obligations. Subsequent to its purchase by the Fund,
an issue of securities may cease to be rated or its rating may be reduced below
the minimum rating required for purchase by the Fund. The Adviser will consider
such an event in
12
<PAGE>
determining whether the Fund should continue to hold the obligation. Unrated
obligations may be acquired by the Fund if they are determined by the Adviser to
be of comparable quality at the time of purchase to rated obligations that may
be acquired.
The Fund also may invest in various money market instruments and repurchase
agreements. The Fund may invest without limitation in such instruments pending
investment, to meet anticipated redemption requests, or as a temporary defensive
measure if market conditions warrant.
NATIONS EQUITY INCOME FUND: The investment program of the Fund is based on
several premises. First, dividends are normally a more stable and predictable
source of return than capital appreciation. While the price of a company's stock
generally increases or decreases in response to short-term earnings and market
fluctuations, its dividends are generally less volatile. Second, diversifying
equity holdings in a manner that includes every major economic sector
contributes to reduced volatility, without a commensurate reduction in expected
investment return. Finally, investing in dividend paying stocks in all the
economic sectors can provide greater income than the Standard & Poor's 500
Composite Stock Price Index ("S&P 500 Index") with less volatility.
Collectively, these traits may be combined in such a fashion as to produce
returns in excess of the market (S&P 500 Index) on a comparable risk basis.
New purchases for the Fund will generally be made in equity securities that:
(Bullet) are income producing;
(Bullet) appear undervalued relative to the S&P 500 Index on a risk adjusted
basis; and
(Bullet) have favorable trends in personal stock ownership by the underlying
company's officers and/or directors.
To achieve its objective, the Fund, under normal circumstances, will invest at
least 65% of its assets in income-producing common stocks, including securities
convertible into or ultimately exchangeable for common stock (I.E., convertible
bonds or convertible preferred stock), whose prospects for dividend growth and
capital appreciation are considered favorable by the Adviser. The securities
held by the Fund generally will be listed on a national exchange or, if not so
listed, will usually have an established over-the-counter market.
In order to further enhance its income, the Fund also may invest its assets in
fixed income securities (corporate and government bonds of various maturities),
preferred stocks and warrants. The Fund may invest in debt securities that are
considered investment grade (E.G. securities rated in one of the top four
investment categories by S&P or Moody's, or if not rated, are of equivalent
investment quality as determined by the Adviser). Obligations rated in the
lowest of the top four investment grade rating categories (E.G., rated "BBB" by
S&P) have speculative characteristics and changes in economic conditions or
other circumstances are more likely to lead to a weakened capacity to make
principal and interest payments than is the case with higher grade debt
obligations. The Fund also may invest up to 5% of its assets in debt securities
that are rated below investment grade (E.G. rated "BB" by S&P), or if not rated,
are of equivalent investment quality as determined by the Adviser. Non-
investment grade debt securities are sometimes referred to as "high yield bonds"
or "junk bonds." They tend to have speculative characteristics, generally
involve more risk of principal and income than higher rated securities, and have
yields and market values that tend to fluctuate more than higher quality
securities. The Fund will invest in such high-yield debt securities only when
the Adviser believes that the issue presents minimal credit risk. For a
description of corporate debt ratings, see "Appendix B." Although the Fund
invests primarily in securities of U.S. issuers, the Fund may invest up to 20%
of its total assets in foreign securities. The Fund will treat foreign
securities as illiquid unless there is an active and substantial secondary
market for such securities.
The Fund may invest in various money market instruments and repurchase
agreements. The Fund may invest without limitation in such instruments pending
investment, to meet anticipated redemption requests, or as a temporary defensive
measure if market conditions warrant.
13
<PAGE>
NATIONS BALANCED ASSETS FUND: In pursuing the Fund's objective, the Adviser will
allocate the Fund's assets based upon its judgment of the relative valuation and
the expected returns of the three major asset classes in which the Fund
principally invests: common stocks, fixed income securities and cash
equivalents. In assessing relative value and expected returns, the Adviser will
evaluate current economic and financial market conditions (both domestically and
internationally), current interest rate trends, earnings and dividend prospects
for common stocks, and overall financial market stability. These asset classes
are actively managed in an effort to maximize total return. In general, the
Adviser believes that common stocks offer the best opportunity for long-term
capital appreciation.
The Fund invests in common and preferred stocks of U.S. corporations and of
foreign issuers, as well as securities convertible into common stocks, and other
types of securities having common stock characteristics (such as rights and
warrants to purchase equity securities) that meet the Adviser's stringent
criteria. Fundamental research and valuation analysis are emphasized in the
stock selection process. Stock holdings are typically those of seasoned,
financially strong companies with favorable industry positioning.
Under normal circumstances, at least 25% of the total value of the Fund's assets
will be invested in fixed income securities. The Fund may invest in government,
corporate and municipal debt securities, as well as mortgage-backed and asset-
backed securities. Most obligations acquired by the Fund will be issued by
companies or governmental entities located within the United States. Debt
obligations acquired by the Fund will be rated investment grade at the time of
purchase by S&P, Moody's, Duff & Phelps Credit Rating Co. ("D&P"), Fitch
Investors Service, Inc. ("Fitch"), IBCA Limited or its affiliate IBCA Inc.
(collectively "IBCA"), or Thomson BankWatch, Inc. ("BankWatch") or, if unrated,
determined by the Adviser to be comparable in quality to instruments so rated.
Obligations with the lowest investment grade rating (E.G. rated "BBB" by S&P or
"Baa" by Moody's) have speculative characteristics, and changes in economic
conditions or other circumstances are more likely to lead to a weakened capacity
to make principal and interest payments than is the case with higher grade debt
obligations. See "Appendix B" for a description of these ratings designations.
Subsequent to its purchase by the Fund, an issue of securities may cease to be
rated or its rating may be reduced below the minimum rating required for
purchase by the Fund. The Adviser will consider such an event in determining
whether the Fund should continue to hold the obligation. Unrated obligations may
be acquired by the Fund if they are determined by NationsBank to be of
comparable quality at the time of purchase to rated obligations that may be
acquired.
Although the Fund invests primarily in securities of U.S. issuers, the Fund may
invest up to 25% of its total assets in foreign securities.
The Fund also may invest in various money market instruments and repurchase
agreements. The Fund may invest without limitation in such instruments pending
investment, to meet anticipated redemption requests, or as a temporary defensive
measure if market conditions warrant.
GROWTH FUNDS:
NATIONS CAPITAL GROWTH FUND: The investment philosophy of the Fund is based on
the belief that companies with superior growth characteristics selling at
reasonable prices will, over time, outperform the market. Therefore, the Fund
will generally seek to invest in larger capitalization, high-quality companies
which possess above average earnings growth potential.
The Fund's equity investments will generally be made in companies which share
some of the following characteristics:
(Bullet) above average earnings growth relative to the S&P 500 Index;
(Bullet) established operating histories, strong balance sheets and favorable
financial characteristics; and
(Bullet) above-average return on equity relative to the S&P 500 Index.
14
<PAGE>
In addition, the Fund's investment program enables it to invest in the following
types of companies:
(Bullet) companies that generate or apply new technologies, new and improved
distribution techniques, or new services, such as those in the business
equipment, electronics, specialty merchandising and health service
industries;
(Bullet) companies that own or develop natural resources, such as energy
exploration companies;
(Bullet) companies that may benefit from changing consumer demands and
lifestyles, such as financial service organizations and
telecommunication companies;
(Bullet) foreign companies, including those in countries with more rapid
economic growth than the U.S.;
(Bullet) companies whose earnings growth is projected at a pace in excess of the
average company (I.E., growth companies); and
(Bullet) companies whose earnings are temporarily depressed and are currently
out of favor with most investors.
Through intensive research, visits to many companies each year, and efficient
response to changing market conditions, the Adviser seeks to make the most of
the Fund's flexible charter.
Under normal market conditions, the Fund invests at least 65% of its total
assets in common stocks. In addition to common stocks, the Fund also may invest
in preferred stocks, securities convertible into common stocks and other types
of securities having common stock characteristics (such as rights and warrants
to purchase equity securities). Although the Fund invests primarily in publicly
traded common stocks of companies incorporated in the United States, the Fund
may invest up to 20% of its total assets in foreign securities.
The Fund also may invest in various money market instruments and repurchase
agreements. The Fund may invest without limitation in such instruments pending
investment, to meet anticipated redemption requests, or as a temporary defensive
measure if market conditions warrant.
NATIONS EMERGING GROWTH FUND: The Fund will invest in common stocks and
securities convertible into common stocks selected from a universe of emerging
growth companies monitored by the Adviser. Most of the companies will have
revenues between $50 million and $1.5 billion and a debt ratio of less than 50%
of capitalization. The universe focuses on companies with above average earnings
growth rates and profit margins, yet the portfolio may include positions of
special situation companies whose growth is expected to accelerate. These
companies are believed to offer significant opportunities for capital
appreciation and the Adviser will attempt to identify these opportunities before
their potential is recognized by investors in general.
In selecting industries and companies for investment, the Adviser will consider
overall growth prospects, financial condition, competitive position, technology,
research and development, innovative products, marketing expertise,
productivity, labor costs, raw material costs and sources, profit margins,
return on investment, structural changes in local economies, capital resources,
the degree of governmental regulation or deregulation, management and other
factors.
Under normal market conditions, the Fund invests at least 65% of its total
assets in common stocks. The Fund also may invest in various money market
instruments and repurchase agreements. The Fund may invest without limitation in
such instruments pending investment, to meet anticipated redemption requests, or
as a temporary defensive measure if market conditions warrant.
The volatility of emerging growth stocks is higher than that of larger
companies. Many of these stocks trade over the counter and may not have
widespread interest among institutional investors. These securities may have
larger potential for gains but also carry more risk if unexpected company
developments adversely affect the stock prices. To help reduce risk, the Fund is
diversified and typically invests in 75 to 100 companies which represent a broad
range of industries and sectors, both in the United States and abroad. Although
the Fund invests primarily in securities of U.S. issuers, the Fund may invest up
to 20% of its total assets in foreign securities.
15
<PAGE>
NATIONS DISCIPLINED EQUITY FUND: The investment philosophy of the Fund is based
on the premise that companies with positive earnings trends also should
experience positive trends in their share price. Based on this philosophy, the
Fund invests primarily in the common stocks of companies that the Adviser
believes are likely to experience significant increases in earnings. By pursuing
this investment philosophy, the Fund seeks to provide investors with long-term
capital appreciation which exceeds that of the S&P 500 Index.
In selecting stocks for purchase by the Fund, the Adviser utilizes quantitative
analysis supported by fundamental research. This approach seeks to identify
companies that have experienced positive historical earnings trends, as
evidenced by earnings forecasts issued by investment banks, broker/dealers and
other investment professionals. The Adviser believes that companies experiencing
such earnings trends have the potential to generate significant increases in per
share earnings. The Adviser also believes that companies with increasing
earnings should experience positive trends in their stock price. Although the
Fund seeks to invest in companies with increasing earnings, the Fund's
investment objective focuses on long-term capital appreciation; income is not an
objective of the Fund.
Under normal market conditions, the Fund invests at least 65% of its total
assets in common stocks of domestic issuers. With respect to the remainder of
the Fund's assets, the Fund may invest in a broad range of equity and debt
instruments, including preferred stocks, securities (debt and preferred stock)
convertible into common stock, warrants and rights to purchase common stocks,
options, U.S. government and corporate debt securities and various money market
instruments. The Fund will invest primarily in medium- and large-sized companies
(I.E. companies with market capitalizations of $500 million or greater) that are
determined to have favorable price/earnings ratios. The Fund also may invest in
securities issued by companies with market capitalizations of less than $500
million. The volatility of small-capitalization stocks is typically greater than
that of larger companies. To help reduce risk, the Fund will invest in the
securities of companies representing a broad range of industries and economic
sectors.
The Fund's investments in debt securities, including convertible securities,
will be limited to securities rated investment grade (E.G. securities rated in
one of the top four investment categories by a nationally recognized statistical
rating organization or, if not rated, are of equivalent quality as determined by
the Adviser). Obligations rated in the lowest of the top four investment grade
rating categories have speculative characteristics and changes in economic
conditions or other circumstances are more likely to lead to a weakened capacity
to make principal and interest payments than is the case with higher grade debt
obligations.
The Fund may invest up to 20% of its total assets in foreign securities. For
temporary defensive purposes if market conditions warrant, the Fund may invest
without limitation in preferred stocks, investment grade debt instruments, money
market instruments and repurchase agreements.
GENERAL: Each Fund may invest in certain specified derivative securities,
including: exchange-traded options; over-the-counter options executed with
primary dealers, including long calls and puts and covered calls to enhance
return; and U.S. and foreign exchange-traded financial futures approved by the
Commodity Futures Trading Commission ("CFTC") and options thereon for market
exposure risk management. Nations Balanced Assets Fund also may engage in dollar
roll transactions. Each Fund may lend its portfolio securities to qualified
institutional investors and may invest in restricted, private placement and
other illiquid securities and securities issued by other investment companies,
consistent with the Fund's investment objective and policies. Each Fund may
invest in real estate investment trust securities.
For more information concerning these and other instruments in which the Funds
may invest and their investment practices, see "Appendix A."
PORTFOLIO TURNOVER: Generally, the Funds will purchase portfolio securities for
capital
apprecia-
16
<PAGE>
tion or investment income, or both, and not for short-term trading profits. If a
Fund's annual portfolio turnover rate exceeds 100%, it may result in higher
brokerage costs and possible tax consequences for the Fund and its shareholders.
For the Funds' portfolio turnover rates, see "Financial Highlights."
RISK CONSIDERATIONS: Although the Adviser will seek to achieve the investment
objective of each Fund, there is no assurance that it will be able to do so. No
single Fund should be considered, by itself, to provide a complete investment
program for any investor. The net asset value of the shares of the Funds will
fluctuate based on market conditions. Therefore, investors should not rely upon
the Funds for short-term financial needs, nor are the Funds meant to provide a
vehicle for participating in short-term swings in the stock market. Investments
in a Fund are not insured against loss of principal.
Investments by a Fund in common stocks and other equity securities are subject
to stock market risks. The value of the stocks that the Fund holds, like the
broader stock market, may decline over short or even extended periods. The value
of a Fund's investments in debt securities, including U.S. Government
Obligations, will tend to decrease when interest rates rise and increase when
interest rates fall. In general, longer-term debt instruments tend to fluctuate
in value more than short-term debt instruments in response to interest rate
movements. In addition, debt securities that are not backed by the United States
Government are subject to credit risk, which is the risk that the issuer may not
be able to pay principal and/or interest when due.
Certain of the Funds' investments constitute derivative securities, which are
securities whose value is derived, at least in part, from an underlying index or
reference rate. There are certain types of derivative securities that can, under
certain circumstances, significantly increase a purchaser's exposure to market
or other risks. The Adviser, however, only purchases derivative securities in
circumstances where it believes such purchases are consistent with such Funds'
investment objective and do not unduly increase the Fund's exposure to market or
other risks. For additional risk information regarding the Funds' investments in
particular instruments, see "Appendix A -- Portfolio Securities."
INVESTMENT LIMITATIONS: Each Fund is subject to a number of investment
limitations. The following investment limitations are matters of fundamental
policy and may not be changed without the affirmative vote of the holders of a
majority of the Fund's outstanding shares. Other investment limitations that
cannot be changed without such a vote of shareholders are described in the SAIs.
Each Fund may not:
1. Purchase any securities which would cause 25% or more of the value of the
Fund's total assets at the time of such purchase to be invested in the
securities of one or more issuers conducting their principal activities in the
same industry. (For purposes of this limitation, U.S. Government securities and
tax-exempt securities issued by state or municipal governments and their
political subdivisions are not considered members of any industry.)
2. Make loans, except that a Fund may purchase and hold debt instruments
(whether such instruments are part of a public offering or privately placed),
may enter into repurchase agreements and may lend portfolio securities in
accordance with its investment policies.
3. Purchase securities of any one issuer (other than securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities) if,
immediately after such purchase, more than 5% of the value of such Fund's total
assets would be invested in the securities of such issuer, except that up to 25%
of the value of the Fund's total assets may be invested without regard to these
limitations and with respect to 75% of such Fund's assets, such Fund will not
hold more than 10% of the voting securities of any issuer.
The investment objective and policies of each Fund, unless otherwise specified,
may be changed without a vote of the Fund's shareholders. If the investment
objective or policies of a Fund change, shareholders should consider whether the
Fund remains an appropriate investment in light of their then current positions
and needs.
17
<PAGE>
In order to register a Fund's shares for sale in certain states, a Fund may make
commitments more restrictive than the investment policies and limitations
described in this Prospectus and the SAIs. Should a Fund determine that any such
commitment is no longer in the best interest of the Fund, it may consider
terminating sales of its shares in the states involved.
How Performance Is Shown
From time to time the Funds may advertise the total return and yield on a class
of shares. BOTH TOTAL RETURN AND YIELD FIGURES ARE BASED ON HISTORICAL DATA AND
ARE NOT INTENDED TO INDICATE FUTURE PERFORMANCE. The "total return" of a class
of shares of the Funds may be calculated on an average total return basis or an
aggregate total return basis. Average annual total return refers to the average
annual compounded rates of return over one-, five-, and ten-year periods or the
life of a Fund (as stated in the advertisement) that would equate an initial
amount invested at the beginning of a stated period to the ending redeemable
value of the investment (reflecting the deduction of any applicable contingent
deferred sales charge ("CDSC")), and assuming the reinvestment of all dividend
and capital gain distributions. Aggregate total return reflects the total
percentage change in the value of the investment over the measuring period again
assuming the reinvestment of all dividends and capital gain distributions. Total
return may also be presented for other periods or may not reflect a deduction of
the CDSC.
"Yield" is calculated by dividing the annualized net investment income per share
during a recent 30-day (or one month) period of a class of shares of a Fund by
the maximum public offering price per share on the last day of that period. The
yield on a class of shares does not reflect deduction of any applicable CDSC.
Investment performance, which will vary, is based on many factors, including
market conditions, the composition of the Funds' portfolios and the Funds'
operating expenses. Investment performance also often reflects the risks
associated with the Funds' investment objective and policies. These factors
should be considered when comparing the Funds' investment results to those of
other mutual funds and other investment vehicles. Since yields fluctuate, yield
data cannot necessarily be used to compare an investment in the Funds with bank
deposits, savings accounts, and similar investment alternatives which often
provide an agreed-upon or guaranteed fixed yield for a stated period of time.
In addition to Investor N Shares, the Funds offer Primary A, Primary B, Investor
A and Investor C Shares. Each class of shares may bear different sales charges,
shareholder servicing fees, loads and other expenses, which may cause the
performance of a class to differ from the performance of the other classes.
Total return and yield quotations will be computed separately for each class of
the Funds' shares. Any quotation of total return or yield not reflecting CDSCs
would be reduced if such sales charges were reflected.
Any fees charged by a selling agent and/or servicing agent directly to its
customers' accounts in connection with investments in the Funds will not be
included in calculations of total return or yield. The Funds' annual report
contains additional performance information and is available upon request
without charge from the Funds' distributor or an investors' agent.
18
<PAGE>
How The Funds Are Managed
The business and affairs of Nations Fund Trust and Nations Fund, Inc. are
managed under the direction of their Board of Trustees and Board of Directors,
respectively. Nations Fund Trust's SAI contains the names of and general
background information concerning each Trustee of Nations Fund Trust. Nations
Fund, Inc.'s SAI contains the names of and general background information
concerning each Director of Nations Fund, Inc.
Nations Fund and the Adviser have adopted codes of ethics which contain policies
on personal securities transactions by "access persons," including portfolio
managers and investment analysts. These policies substantially comply in all
material respects with the recommendations set forth in the May 9, 1994 Report
of the Advisory Group on Personal Investing of the Investment Company Institute.
INVESTMENT ADVISER: NationsBanc Advisors, Inc., through its investment
management division, serves as investment adviser to the Funds. NBAI is an
indirect wholly owned subsidiary of NationsBank, which in turn is a wholly owned
banking subsidiary of NationsBank Corporation, a bank holding company organized
as a North Carolina corporation. NBAI has its principal offices at One
NationsBank Plaza, Charlotte, North Carolina 28255.
TradeStreet Investment Associates, Inc. with principal offices at One
NationsBank Plaza, Charlotte, North Carolina 28255, serves as sub-investment
adviser to the Funds. TradeStreet is a wholly owned subsidiary of NationsBank.
TradeStreet provides investment management services to individuals, corporations
and institutions.
Subject to the general supervision of Nations Fund Trust's Board of Trustees and
Nations Fund, Inc.'s Board of Directors, and in accordance with each Fund's
investment policies, the Adviser formulates guidelines and lists of approved
investments for each Fund, makes decisions with respect to and places orders for
each Fund's purchases and sales of portfolio securities and maintains records
relating to such purchases and sales. The Adviser is authorized to allocate
purchase and sale orders for portfolio securities to certain financial
institutions, including, in the case of agency transactions, financial
institutions which are affiliated with the Adviser or which have sold shares in
such Funds, if the Adviser believes that the quality of the transaction and the
commission are comparable to what they would be with other qualified brokerage
firms. From time to time, to the extent consistent with its investment
objective, policies and restrictions, each Fund may invest in securities of
companies with which NationsBank has a lending relationship. For the services
provided and expenses assumed pursuant to various Investment Advisory
Agreements, NBAI is entitled to receive advisory fees, computed daily and paid
monthly, at the annual rates of: 0.75% of the average daily net assets of each
of Nations Capital Growth Fund, Nations Emerging Growth Fund, Nations
Disciplined Equity Fund, Nations Value Fund and Nations Balanced Assets Fund;
and 0.75% of the first $100 million of Nations Equity Income Fund's average
daily net assets, plus 0.70% of the Fund's average daily net assets in excess of
$100 million and up to $250 million, plus 0.60% of the Fund's average daily net
assets in excess of $250 million.
For the services provided and expenses assumed pursuant to sub-advisory
agreements, NBAI will pay TradeStreet sub-advisory fees, computed daily and paid
monthly, at the annual rates of: 0.20% of Nations Equity Income Fund's average
daily net assets and 0.25% of Nations Value Fund's, Nations Balanced Assets
Fund's, Nations Capital Growth Fund's, Nations Emerging Growth Fund's and
Nations Disciplined Equity Fund's average daily net assets.
From time to time, NationsBank (and/or TradeStreet) may waive or reimburse
(either voluntarily or pursuant to applicable state limitations) advisory fees
and/or expenses payable by a Fund.
19
<PAGE>
For the fiscal period from December 1, 1995 to December 31, 1995, after waivers,
Nations Fund Trust paid NationsBank under a prior Investment Advisory Agreement
advisory fees at the indicated rates of the following Funds' average daily net
assets: Nations Value Fund -- 0.75%; Nations Capital Growth Fund -- 0.75%;
Nations Emerging Growth Fund -- 0.75%; Nations Disciplined Equity Fund -- 0.75%;
and Nations Balanced Assets Fund -- 0.75%.
For the fiscal period from June 1, 1995 to December 31, 1995, after waivers,
Nations Fund, Inc. paid NationsBank under a prior Investment Advisory Agreement
advisory fees at the rate of 0.67% of the average daily net assets of Nations
Equity Income Fund.
For the fiscal period from January 1, 1996 to March 31, 1996, after waivers,
Nations Fund Trust paid NBAI under the current Investment Advisory Agreement
advisory fees at the indicated rates of the following Funds' average daily net
assets: Nations Value Fund -- 0.75%; Nations Capital Growth Fund -- 0.75%;
Nations Emerging Growth Fund -- 0.75%; Nations Disciplined Equity Fund -- 0.75%;
and Nations Balanced Assets Fund -- 0.75%.
For the fiscal period from January 1, 1996 to March 31, 1996, after waivers,
Nations Fund, Inc. paid NBAI under the current Investment Advisory Agreement
advisory fees at the rate of 0.67% of the average daily net assets of Nations
Equity Income Fund.
For the fiscal period from January 1, 1996 to March 31, 1996, after waivers,
NBAI paid TradeStreet under the current Sub-Advisory Agreement sub-advisory fees
at the indicated rates of the following Funds' average daily net assets: Nations
Value Fund -- 0.25%; Nations Capital Growth Fund -- 0.25%; Nations Emerging
Growth Fund -- 0.25%; Nations Disciplined Equity Fund -- 0.25%; Nations Balanced
Assets Fund -- 0.25%; and Nations Equity Income Fund -- .20%.
Sharon M. Herrmann, CFA, is a Director of Equity Management for TradeStreet and
Senior Portfolio Manager for Nations Value Fund. Ms. Herrmann has been Portfolio
Manager of the Nations Value Fund since 1989. Prior to assuming her position
with TradeStreet she was Senior Vice President and Portfolio Manager for the
Investment Management Group at NationsBank. Ms. Herrmann has worked for the
Investment Management Group at NationsBank since 1981 where her responsibilities
included fund management and institutional portfolio management. She attended
Virginia Wesleyan College. Ms. Herrmann holds the Chartered Financial Analyst
designation and is a member of the Association for Investment Management and
Research as well as the North Carolina Society of Financial Analysts, Inc.
Philip J. Sanders, CFA, is a Senior Product Manager, Equity Management for
TradeStreet and Senior Portfolio Manager for Nations Capital Growth Fund. Mr.
Sanders has been Portfolio Manager for Nations Capital Growth Fund since 1995.
Prior to assuming his position with TradeStreet, he was Senior Vice President
and Senior Portfolio Manager for the Investment Management Group at NationsBank.
Mr. Sanders has worked in the financial investment community since 1981. His
past experience includes portfolio management, equity research and financial
analysis for the Investment Management Group at NationsBank and Duke Power
Company. Mr. Sanders received a B.A. in Economics from the University of
Michigan and an M.B.A. from University of North Carolina at Charlotte. He holds
the Chartered Financial Analyst designation and is a member of the Association
for Investment Management and Research as well as the North Carolina Society of
Financial Analysts, Inc.
Julie L. Hale, CFA, is a Senior Product Manager, Equity Management for
TradeStreet and Senior Portfolio Manager for Nations Balanced Assets Fund. Ms.
Hale has been Portfolio Manager for the Nations Balanced Assets Fund since 1995.
Prior to assuming her position with TradeStreet, she was Vice President and
Senior Portfolio Manager for the Investment Management Group at NationsBank. She
has worked in the investment community since 1981. Her past experience includes
research analysis and portfolio management for Mercantile Safe Deposit and
Trust, and National City Bank. Ms. Hale received a B.S. in Business and Finance
from
20
<PAGE>
Mount St. Mary's College and an M.B.A. from Kent State University. She holds the
Chartered Financial Analyst designation and is a member of the Association for
Investment Management and Research as well as the North Carolina Society of
Security Analysts, Inc. She is also a member of the National Association for
Petroleum Investment Analysts and the World Affairs Council of Washington, D.C.
Edward E. (Jack) Smiley, Jr., CFA, is a Senior Product Manager, Equity
Management for TradeStreet and Senior Portfolio Manager for Nations Emerging
Growth Fund. Mr. Smiley has been the Portfolio Manager for Nations Emerging
Growth Fund since 1992. Prior to assuming his position at TradeStreet, he was
Senior Vice President and Senior Portfolio Manager for the Investment Management
Group at NationsBank. He has worked in the investment community since 1968. His
past experience includes management consulting and portfolio management for
Interfirst Investment Management, Merrill Lynch and Dean Witter. Mr. Smiley
received a B.B.A. in Management from Southern Methodist University. He holds the
Chartered Financial Analyst designation and is a member of the Association for
Investment Management and Research as well as the Dallas Association of
Investment Analysts.
Jeffery C. Moser, CFA, is a Senior Product Manager, Equity Development for
TradeStreet and Senior Portfolio Management for Nations Disciplined Equity Fund.
Mr. Moser has been the Portfolio Manager for Nations Disciplined Equity Fund
since 1995. Prior to assuming his position at TradeStreet, he was Senior Vice
President and Senior Portfolio Manager for the Investment Management Group at
NationsBank. Mr. Moser has worked for the Investment Management Group at
NationsBank since 1983 where his responsibilities included institutional
portfolio management and equity analysis. Mr. Moser graduated Phi Beta Kappa
with a B.S. in Mathematics from Wake Forest University. He holds the Chartered
Financial Analyst designation and is a member of the Association for Investment
Management and Research as well as the North Carolina Society of Financial
Analysts, Inc.
Eric S. Williams, CFA, is a Senior Product Manager, Equity Management for
TradeStreet and Senior Portfolio Manager for Nations Equity Income Fund. Mr.
Williams has been Portfolio Manager for Nations Equity Income Fund since 1991.
Prior to assuming his position at TradeStreet, he was Senior Vice President and
Senior Portfolio Manager for the Investment Management Group at NationsBank. He
has worked in the investment community since 1980. His past experience includes
fund analysis and portfolio management for National Bank of Detroit. Mr.
Williams received a B.S. in Accounting from East Carolina University, Summa Cum
Laude and an M.B.A. from Indiana University. He holds the Chartered Financial
Analyst designation, is on the Advisory Board of Indiana University's Investment
Management Academy, and is a member of the Association for Investment Management
and Research as well as the North Carolina Society of Financial Analysts, Inc.
Morrison & Foerster LLP, counsel to Nations Fund and special counsel to
NationsBank has advised Nations Fund and NationsBank that NationsBank and its
affiliates may perform the services contemplated by the various Investment
Advisory Agreements, and this Prospectus without violation of the Glass-Steagall
Act. Such counsel has pointed out, however, that there are no controlling
judicial or administrative interpretations or decisions and that future judicial
or administrative interpretations of, or decisions relating to, present federal
or state statutes, including the Glass-Steagall Act, and regulations relating to
the permissible activities of banks and their subsidiaries or affiliates, as
well as future changes in federal or state statutes, including the
Glass-Steagall Act, and regulations and judicial or administrative decisions or
interpretations thereof, could prevent such entities from continuing to perform,
in whole or in part, such services. If any such entity were prohibited from
performing any of such services, it is expected that new agreements would be
proposed or entered into with another entity or entities qualified to perform
such services.
OTHER SERVICE PROVIDERS: Stephens Inc. ("Stephens"), with principal offices at
111 Center Street, Little Rock, Arkansas 72201,
21
<PAGE>
serves as the administrator of Nations Fund pursuant to Administration
Agreements. Pursuant to the terms of the Administration Agreements, Stephens
provides various administrative and corporate secretarial services to the Funds,
including providing general oversight of other service providers, office space,
utilities and various legal and administrative services in connection with the
satisfaction of various regulatory requirements applicable to the Funds.
First Data Investor Services Group, Inc. ("First Data"), formerly The
Shareholder Services Group, Inc., a wholly owned subsidiary of First Data
Corporation, with principal offices at One Exchange Place, Boston, Massachusetts
02109, serves as the co-administrator of Nations Fund pursuant to
Co-Administration Agreements. Under the Co-Administration Agreements, First Data
provides various administrative and accounting services to the Funds including
performing the calculations necessary to determine the net asset value per share
and dividends of each class of shares of the Funds, preparing tax returns and
financial statements and maintaining the portfolio records and certain of the
general accounting records for the Funds.
For the services rendered pursuant to the Administration and Co-Administration
Agreements, Stephens and First Data are entitled to receive a combined fee at
the annual rate of up to 0.10% of each Fund's average daily net assets.
For the fiscal period from December 1, 1995 to March 31, 1996, after waivers,
Nations Fund Trust paid its administrators combined fees at the indicated rates
of the following Funds' average daily net assets: Nations Value Fund, Nations
Capital Growth Fund, Nations Emerging Growth Fund, Nations Disciplined Equity
Fund, and Nations Balanced Assets Fund.
For the fiscal period from June 1, 1995 to March 31, 1996, after waivers,
Nations Fund, Inc. paid its administrator combined fees at the indicated rates
of the following Funds' average daily net assets: Nations Equity Income
Fund -- 0.10%.
NationsBank serves as sub-administrator for Nations Fund pursuant to a
Sub-Administration Agreement. Pursuant to the terms of the Sub-Administration
Agreement, NationsBank assists Stephens in supervising, coordinating and
monitoring various aspects of the Funds' administrative operations. For
providing such services, NationsBank shall be entitled to receive a monthly fee
from Stephens based on an annual rate of 0.01% of the Funds' average daily net
assets.
Shares of the Funds are sold on a continuous basis by Stephens, as the Funds'
sponsor and distributor. Stephens is a registered broker/dealer with principal
offices at 111 Center Street, Little Rock, Arkansas 72201. Nations Fund has
entered into distribution agreements with Stephens which provide that Stephens
has the exclusive right to distribute shares of the Funds. Stephens may pay, out
of its own resources, service fees or commissions to selling agents which assist
customers in purchasing Investor N Shares of the Funds. See "Shareholder
Servicing and Distribution Plans."
NationsBank of Texas, N.A. ("NationsBank of Texas" or the "Custodian") serves as
custodian for the assets of each Fund. NationsBank of Texas is located at 1401
Elm Street, Dallas, Texas 75202, and is a wholly owned subsidiary of NationsBank
Corporation. In return for providing custodial services, NationsBank of Texas is
entitled to receive, in addition to out-of-pocket expenses, fees payable monthly
(i) at the rate of 1.25% of 1% of the average daily net assets of each Fund for
which it serves as custodian, (ii) $10.00 per repurchase collateral transaction
by such Funds, and (iii) $15.00 per purchase, sale and maturity transaction
involving such Funds.
First Data serves as transfer agent (the "Transfer Agent") for the Funds'
Investor N Shares. The Transfer Agent is located at One Exchange Place, Boston,
Massachusetts 02109.
Price Waterhouse LLP serves as independent accountants to Nations Fund. Its
address is 160 Federal Street, Boston, Massachusetts 02110.
EXPENSES: The accrued expenses of the Funds, as well as certain expenses
attributable to Investor N Shares, are deducted from accrued income before
dividends are declared. These Fund expenses include, but are not limited to:
fees paid to the Adviser, NationsBank, Stephens and
22
<PAGE>
First Data; interest; trustees' and directors' fees; federal and state
securities registration and qualification fees; brokerage fees and commissions;
costs of preparing and printing prospectuses for regulatory purposes and for
distribution to existing shareholders; charges of the Custodian and Transfer
Agent; certain insurance premiums; outside auditing and legal expenses; costs of
shareholder reports and shareholder meetings; other expenses which are not
expressly assumed by the Adviser, NationsBank, Stephens or First Data under
their respective agreements with Nations Fund; and any extraordinary expenses.
Investor N Shares may bear certain class specific retail transfer agency
expenses and also bear certain additional shareholder service and sales support
costs. Any general expenses of Nations Fund Trust and/or Nations Fund, Inc. that
are not readily identifiable as belonging to a particular investment portfolio
are allocated among all portfolios in the proportion that the assets of a
portfolio bears to the assets of Nations Fund Trust and Nations Fund, Inc. or in
such other manner as the Board of Trustees or Board of Directors deems
appropriate.
Organization And History
The Funds are members of the Nations Fund Family, which consists of Nations Fund
Trust, Nations Fund, Inc., Nations Fund Portfolios, Inc. and Nations
Institutional Reserves. The Nations Fund Family currently has more than 43
distinct investment portfolios and total assets in excess of $18 billion.
NATIONS FUND TRUST: Nations Fund Trust was organized as a Massachusetts business
trust on May 6, 1985. Nations Fund Trust's fiscal year end is March 31; prior to
1996, Nations Fund Trust's fiscal year end was November 30. The Funds currently
offer five classes of shares -- Primary A Shares, Primary B Shares, Investor A
Shares, Investor C Shares and Investor N Shares. This Prospectus relates only to
the Investor N Shares of the following funds of Nations Fund Trust: Nations
Capital Growth Fund, Nations Emerging Growth Fund, Nations Disciplined Equity
Fund, Nations Value Fund and Nations Balanced Assets Fund. To obtain additional
information regarding the Funds' other classes of shares which may be available
to you, contact your Agent (as defined below) or Nations Fund at 1-800-321-7854.
Each share in Nations Fund Trust is without par value, represents an equal
proportionate interest in the related fund with other shares of the same class,
and is entitled to such dividends and distributions out of the income earned on
the assets belonging to such fund as are declared in the discretion of Nations
Fund Trust's Board of Trustees. Nations Fund Trust's Declaration of Trust
authorizes the Board of Trustees to classify or reclassify any class of shares
into one or more series of shares.
Shareholders are entitled to one vote for each full share held and a
proportionate fractional vote for each fractional share held. Shareholders of
each fund of Nations Fund Trust will vote in the aggregate and not by fund, and
shareholders of each fund will vote in the aggregate and not by class except as
otherwise expressly required by law or when the Board of Trustees determines
that the matter to be voted on affects only the interests of shareholders of a
particular fund or class. See the related SAI for examples of when the
Investment Company Act of 1940 (the "1940 Act") requires voting by fund.
As of July 15, 1996, NationsBank and its affiliates possessed or shared power to
dispose or vote with respect to more than 25% of the outstanding shares of
Nations Fund Trust and therefore could be considered to be a controlling person
of Nations Fund Trust for purposes of the 1940 Act. For more detailed
information concerning the percentage of each class or series of shares over
which NationsBank and its affiliates 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
23
<PAGE>
1940 Act. Shareholders will have the right to remove Trustees. Nations Fund
Trust's Code of Regulations provides that special meetings of shareholders shall
be called at the written request of the shareholders entitled to vote at least
10% of the outstanding shares of Nations Fund Trust entitled to be voted at such
meeting.
NATIONS FUND, INC.: Nations Fund, Inc. was incorporated in Maryland on December
13, 1983, but had no operations prior to December 15, 1986. Nations Fund, Inc.'s
fiscal year end is March 31; prior to 1996, Nations Fund, Inc.'s fiscal year end
was May 31. As of the date of this Prospectus, the authorized capital stock of
Nations Fund, Inc. consists of 270,000,000,000 shares of common stock, par value
of $.001 per share, which are divided into series or funds each of which
consists of separate classes of shares. This Prospectus relates only to the
Investor N Shares of Nations Equity Income Fund of Nations Fund, Inc. To obtain
additional information regarding the Fund's other classes of shares which may be
available to you, contact your Agent (as defined below) or Nations Fund at
1-800-321-7854.
Shares of each fund and class have equal rights with respect to voting, except
that the holders of shares of a particular fund or class will have the exclusive
right to vote on matters affecting only the rights of the holders of such fund
or class. In the event of dissolution or liquidation, holders of each class will
receive pro rata, subject to the rights of creditors, (a) the proceeds of the
sale of that portion of the assets allocated to that class held in the
respective fund of Nations Fund, Inc., less (b) the liabilities of Nations Fund,
Inc. attributable to the respective fund or class or allocated among the funds
or classes based on the respective liquidation value of each fund or class.
Shareholders of Nations Fund, Inc. do not have cumulative voting rights, and
therefore the holders of more than 50% of the outstanding shares of all funds
voting together for election of directors may elect all of the members of the
Board of Directors of Nations Fund, Inc. Meetings of shareholders may be called
upon the request of 10% or more of the outstanding shares of Nations Fund, Inc.
There are no preemptive rights applicable to any of Nations Fund, Inc.'s shares.
Nations Fund, Inc.'s shares, when issued, will be fully paid and non-assessable.
As of July 15, 1996, NationsBank and its affiliates possessed or shared power to
dispose of or vote with respect to more than 25% of the outstanding shares of
Nations Fund, Inc. and therefore could be considered to be a controlling person
of Nations Fund, Inc. for purposes of the 1940 Act. For more detailed
information concerning the percentage of each class or series over which
NationsBank and its affiliates possessed or shared power to dispose or vote as
of a certain date, see the SAI of Nations Fund, Inc. It is anticipated that
Nations Fund, Inc. will not hold annual shareholder meetings on a regular basis
unless required by the 1940 Act or Maryland law.
Because this Prospectus combines disclosure on two separate investment
companies, there is a possibility that one investment company could become
liable for a misstatement, inaccuracy or incomplete disclosure in this
Prospectus concerning the other investment company, Nations Fund Trust and
Nations Fund, Inc. have entered into an indemnification agreement that creates a
right of indemnification from the investment company responsible for any such
misstatement, inaccuracy or incomplete disclosure that may appear in this
Prospectus.
24
<PAGE>
About Your Investment
How To Buy Shares
The Funds have established various procedures for purchasing Investor N Shares
in order to accommodate different investors. Purchase orders may be placed
through banks, broker/dealers or other financial institutions (including certain
affiliates of NationsBank) that have entered into a shareholder servicing
agreement ("Servicing Agreement") with NationsBank ("Servicing Agents") sales
support agreement ("Sales Support Agreement") with Stephens ("Selling Agents").
There is a minimum initial investment of $1,000, except that the minimum initial
investment is:
(Bullet) $500 for IRA investors;
(Bullet) $250 for non-working spousal IRAs; and
(Bullet) $100 for investors participating on a monthly basis in the Systematic
Investment Plan described below.
There is no minimum investment amount for investments by 401(k) plans,
simplified employee pension plans ("SEPs"), salary reduction-simplified employee
pension plans ("SAR-SEPs") or salary reduction-Individual Retirement Accounts
("SAR-IRAs"). However, the assets of such plans must reach an asset value of
$1,000 ($500 for SEPs, SAR-SEPs and SAR-IRAs) within one year of the account
open date. If the assets of such plans do not reach the minimum asset size
within one year, Nations Fund reserves the right to redeem the shares held by
such plans on 60 days' written notice. The minimum subsequent investment is
$100, except for investments pursuant to the Systematic Investment Plan
described below.
Investor N Shares are purchased at net asset value per share without the
imposition of a sales charge. Purchases may be effected on days on which the New
York Stock Exchange (the "Exchange") is open for business (a "Business Day").
The Servicing Agents will provide various shareholder services for, and the
Selling Agents will provide sales support assistance to, their respective
customers ("Customers") who own Investor N Shares. Servicing Agents and Selling
Agents are sometimes referred to hereafter as "Agents." From time to time the
Agents, Stephens and Nations Fund may agree to voluntarily reduce the maximum
fees payable for sales support or shareholder services.
Nations Fund and Stephens reserve the right to reject any purchase order. The
issuance of Investor N Shares is recorded on the books of the Funds, and share
certificates are not issued unless expressly requested in writing. Certificates
are not issued for fractional shares.
EFFECTIVE TIME OF PURCHASES: Purchase orders for Investor N Shares of the Funds
which are received by Stephens or by the Transfer Agent before the close of
regular trading hours on the Exchange (currently 4:00 p.m., Eastern time) on any
Business Day are priced according to the net asset value determined on that day
but are not executed until 4:00 p.m., Eastern time, on the Business Day on which
immediately available funds in payment of the purchase price are received by the
Funds' Custodian. Such payment must be received no later than 4:00 p.m., Eastern
time, by the third Business Day following receipt of the order. If funds are not
received by such date, the order will not be accepted and notice thereof will be
given to the Agent placing the order. Payment for orders which are not received
or accepted will be returned after prompt inquiry to the sending Agent.
The Agents are responsible for transmitting orders for purchases of Investor N
Shares by their Customers, and delivering required funds, on a timely basis.
Stephens is responsible for transmitting orders it receives to Nations Fund.
25
<PAGE>
SYSTEMATIC INVESTMENT PLAN: Under the Funds' Systematic Investment Plan ("SIP")
a shareholder may automatically purchase Investor N Shares. On a bi-monthly,
monthly or quarterly basis, shareholders may direct cash to be transferred
automatically from their checking or savings account at any bank to their Fund
account. Transfers will occur on or about the 15th and/or 30th day of the
applicable month. The systematic investment amount may be in any amount from $25
to $100,000. For more information concerning the SIP, contact your Agent.
REINSTATEMENT PRIVILEGE: Within 120 days after a redemption of Investor N Shares
of a Fund, a shareholder may reinstate any portion of the proceeds of such
redemption in Investor N Shares of the same Fund at the net asset value next
determined after a reinstatement request is received by the Transfer Agent,
together with the proceeds. A shareholder exercising this privilege would
receive a pro-rata credit for any CDSC paid in connection with the redemption. A
shareholder may not exercise this privilege with the proceeds of a redemption of
shares purchased through the reinstatement privilege.
TELEPHONE TRANSACTIONS: Investors may effect purchases, redemptions (up to
$50,000) and exchanges by telephone. See "How To Redeem Shares" and "How To
Exchange Shares" below. If a shareholder desires the telephone transaction
feature after opening an account, a signature guarantee will be required.
Shareholders should be aware that by using the telephone transaction feature,
such shareholders may be giving up a measure of security that they may have if
they were to request such transactions in writing. A shareholder may bear the
risk of any resulting losses from a telephone transaction. Nations Fund will
employ reasonable procedures to confirm that instructions communicated by
telephone are genuine, and if Nations Fund and its service providers fail to
employ such measures, they may be liable for any losses due to unauthorized or
fraudulent instructions. Nations Fund requires a form of personal identification
prior to acting upon instructions received by telephone and provides written
confirmation to shareholders of each telephone share transaction. In addition,
Nations Fund reserves the right to record all telephone conversations.
Shareholder Servicing And
Distribution Plans
SHAREHOLDER SERVICING PLAN: The Funds' shareholder servicing plan ("Servicing
Plan") permits the Funds to compensate Servicing Agents for services provided to
their Customers that own Investor N Shares. Payments under the Servicing Plan
are calculated daily and paid monthly at a rate or rates set from time to time
by the Funds, provided that the annual rate may not exceed 0.25% of the average
daily net asset value of the Investor N Shares.
The fees payable under the Servicing Plan are used primarily to compensate or
reimburse Servicing Agents for shareholder services provided, and related
expenses incurred, by such Servicing Agents. The shareholder services provided
by Servicing Agents may include: (i) aggregating and processing purchase and
redemption requests for Investor N Shares from Customers
and transmitting net purchase and redemption orders to Stephens or the Transfer
Agent; (ii) providing Customers with a service that invests the assets of their
accounts in Investor N Shares pursuant to specific or preauthorized
instructions; (iii) processing dividend and distribution payments from the Funds
on behalf of Customers; (iv) providing information periodically to Customers
showing their positions in Investor N Shares; (v) arranging for bank wires; and
(vi) providing general shareholder liaison services.
Nations Fund may suspend or reduce payments under the Servicing Plan at any
time, and
pay-
26
<PAGE>
ments are subject to the continuation of the Servicing Plan described above and
the terms of the Servicing Agreements. See the SAIs for more details on the
Servicing Plan.
DISTRIBUTION PLAN: Pursuant to Rule 12b-1 under the 1940 Act, the Trustees and
Directors have approved a Distribution Plan with respect to Investor N Shares of
the Funds. Pursuant to the Distribution Plan, the Funds may compensate or
reimburse Stephens for any activities or expenses primarily intended to result
in the sale of the Funds' Investor N Shares. Payments under the Distribution
Plan will be calculated daily and paid monthly at a rate or rates set from time
to time by the Trustees and Directors provided that the annual rate may not
exceed 0.75% of the average daily net asset value of the Funds' Investor N
Shares.
The fees payable under the Distribution Plan are used primarily to compensate or
reimburse Stephens for distribution services provided by it, and related
expenses incurred, including payments by Stephens to compensate or reimburse
Selling Agents for sales support services provided, and related expenses
incurred, by such Selling Agents. Payments under the Distribution Plan may be
made with respect to the following expenses: the cost of preparing, printing and
distributing prospectuses, sales literature and advertising materials,
commissions, incentive compensation or other compensation to, and expenses of,
account executives or other employees of Stephens or the Selling Agents;
overhead and other office expenses; opportunity costs relating to the foregoing;
and any other costs and expenses relating to distribution or sales support
activities. The overhead and other office expenses referenced above may include,
without limitation, (i) the expenses of operating Stephens' or the Selling
Agents' offices in connection with the sale of Fund shares, including rent, the
salaries and employee benefit costs of administrative, operations and support
personnel, utility costs, communications costs and the costs of stationery and
supplies, (ii) the costs of client sales seminars and travel related to
distribution and sales support activities, and (iii) other expenses relating to
distribution and sales support activities.
Nations Fund and Stephens may suspend or reduce payments under the Distribution
Plan at any time, and payments are subject to the continuation of the
Distribution Plan described above and the terms of the Sales Support Agreements
between Selling Agents and Stephens. See the SAIs for more details on the
Distribution Plan.
Nations Fund understands that Agents may charge fees to their Customers who are
the owners of Investor N Shares for various services provided in connection with
a Customer's account. These fees would be in addition to any amounts received by
a Selling Agent under its Sales Support Agreement with Stephens or by a
Servicing Agent under its Servicing Agreement with Nations Fund. The Sales
Support Agreements and Servicing Agreements require Agents to disclose to their
Customers any compensation payable to the Agent by Stephens or Nations Fund and
any other compensation payable by the Customers for various services provided in
connection with their accounts. Customers should read this Prospectus in light
of the terms governing their accounts with their Agents.
27
<PAGE>
How To Redeem Shares
Redemption orders should be transmitted by telephone or in writing through the
same Agent that transmitted the original purchase order. Redemption orders are
effected at the net asset value per share next determined after receipt of the
order by Stephens or by the Transfer Agent, less any applicable CDSC. The Agents
are responsible for transmitting redemption orders to Stephens or to the
Transfer Agent and for crediting their Customers' accounts with the redemption
proceeds on a timely basis. No charge for wiring redemption payments is imposed
by Nations Fund. Except for any CDSC which may be applicable upon redemption of
Investor N Shares, as described below, there is no redemption charge.
Redemption proceeds are normally wired to the redeeming Agent within three
Business Days after receipt of the order by Stephens or by the Transfer Agent.
However, redemption proceeds for shares purchased by check may not be remitted
until at least 15 days after the date of purchase to ensure that the check has
cleared; a certified check, however, is deemed to be cleared immediately.
Nations Fund may redeem a shareholder's Investor N Shares upon 60 days' written
notice if the balance in the shareholder's account drops below $500 as a result
of redemptions. Share balances also may be redeemed at the direction of an Agent
pursuant to arrangements between the Agent and its Customers. Nations Fund also
may redeem shares of the Funds involuntarily or make payment for redemption in
readily marketable securities or other property under certain circumstances in
accordance with the 1940 Act.
Prior to effecting a redemption of Investor N Shares represented by
certificates, the Transfer Agent must have received such certificates at its
principal office. All such certificates must be endorsed by the redeeming
shareholder or accompanied by a signed stock power, in each instance with the
signature guaranteed by a commercial bank or a member of a major stock exchange,
unless other arrangements satisfactory to Nations Fund have previously been
made. Nations Fund may require any additional information reasonably necessary
to evidence that a redemption has been duly authorized.
CONTINGENT DEFERRED SALES CHARGE: Subject to certain waivers specified below,
Investor N Shares purchased prior to January 1, 1996, may be subject a CDSC if
such shares are redeemed within six years of the date of purchase. No CDSC is
imposed on increases in net asset value above the initial purchase price,
including shares acquired by reinvestment of distributions. Subject to the
exclusions described below, the amount of the CDSC is determined as a percentage
of the lesser of the net asset value or the purchase price of the shares being
redeemed. The amount of the CDSC will depend on the number of years since you
invested, according to the following table:
<TABLE>
<CAPTION>
Contingent Deferred
Sales Charge as a
Percentage of Dollar
Year Since Purchase Made Amount Subject to Charge
<S> <C>
First 5.0%
Second 4.0%
Third 3.0%
Fourth 2.0%
Fifth 2.0%
Sixth 1.0%
Seventh and thereafter None
</TABLE>
In determining whether a CDSC is payable on any redemption, the Funds will first
redeem shares not subject to any charge, and then shares held longest during the
six year period. This will result in you paying the lowest possible CDSC. Solely
for purposes of determining the number of years from the date of purchase of
shares, all purchases are deemed to have been made on the trade date of the
transaction.
The CDSC will be waived on redemptions of Investor N Shares (i) following the
death or disability (as defined in the Internal Revenue Code
28
<PAGE>
of 1986, as amended (the "Code")) of a shareholder (including a registered joint
owner), (ii) in connection with the following retirement plan distributions: (a)
lump-sum or other distributions from a qualified corporate or self-employed
retirement plan following retirement (or in the case of a "key employee" of a
"top heavy" plan, following attainment of age 59 1/2); (b) distributions from an
IRA or Custodial Account under Section 403(b)(7) of the Code following
attainment of age 59 1/2; (c) a tax-free return of an excess contribution to an
IRA; and (d) distributions from a qualified retirement plan that are not subject
to the 10% additional Federal withdrawal tax pursuant to Section 72(t)(2) of the
Code, (iii) effected pursuant to Nations Fund's right to liquidate a
shareholder's account, including instances where the aggregate net asset value
of the Investor N shares held in the account is less than the minimum account
size, (iv) in connection with the combination of Nations Fund with any other
registered investment company by a merger, acquisition of assets or by any other
transaction, and (v) effected pursuant to the Automatic Withdrawal Plan
discussed below, provided that such redemptions do not exceed, on an annual
basis, 12% of the net asset value of the Investor N Shares in the account. In
addition, the CDSC will be waived on Investor N Shares purchased before
September 30, 1994 by current or retired employees of NationsBank and its
affiliates or by current or former Trustees or Directors of Nations Fund or
other management companies managed by NationsBank. Shareholders are responsible
for providing evidence sufficient to establish that they are eligible for any
waiver of the CDSC.
Stephens may, from time to time, at its expense or as an expense for which it
may be reimbursed under the plan adopted pursuant to Rule 12b-1 under the 1940
Act, pay a bonus or other consideration or incentive to Selling 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
Selling Agents not to exceed 0.75% of the offering price per share on all sales
of Investor N Shares as an expense of Stephens or for which Stephens may be
reimbursed under the plan adopted pursuant to Rule 12b-1 or upon receipt of a
CDSC. Any such additional consideration or incentive program may be terminated
at any time by Stephens.
In addition, Stephens has established a non-cash compensation program, pursuant
to which broker/dealers or financial institutions that sell shares of the Funds
may earn additional compensation in the form of trips to sales seminars or
vacation destinations, tickets to sporting events, theater or other
entertainment, opportunities to participate in golf or other outings and gift
certificates for meals or merchandise. This non-cash compensation program may be
amended or terminated at any time by Stephens.
AUTOMATIC WITHDRAWAL PLAN: An Automatic Withdrawal Plan ("AWP") may be
established by a new or existing shareholder of the Funds if the value of the
Investor N Shares in his/her accounts within the Nations Fund Family (valued at
the net asset value at the time of the establishment of the AWP) equals $10,000
or more. Investor N Shares redeemed under the AWP will not be subject to a CDSC,
provided that the shares so redeemed do not exceed, on an annual basis, 12% of
the net asset value of the Investor N Shares in the account. Otherwise, any
applicable CDSC will be imposed on shares redeemed under the AWP. Shareholders
who elect to establish an AWP may receive a monthly, quarterly or annual check
or automatic transfer to a checking or savings account in a stated amount of not
less than $25 on or about the 10th or 25th day of the applicable month of
withdrawal. Investor N Shares will be redeemed (net of any applicable CDSC) as
necessary to meet withdrawal payments. Withdrawals will reduce principal and may
eventually deplete the shareholder's account. If a shareholder desires to
establish an AWP after opening an account, a signature guarantee will be
required. An AWP may be terminated by a shareholder on 30 days' written notice
to his/her Selling Agent or by Nations Fund at any time.
29
<PAGE>
How To Exchange Shares
The exchange feature enables a shareholder to exchange funds as specified below
when the shareholder believes that a shift between funds is an appropriate
investment decision. The exchange feature enables a shareholder of Investor N
Shares of a fund offered by Nations Fund to acquire shares of the same class
that are offered by any other fund of Nations Fund (except Nations Short-Term
Income Fund and Nations Short-Term Municipal Income Fund), Investor A Shares of
the Nations Short-Term Income Fund or Nations Short-Term Municipal Income Fund,
or Investor C Shares of a Nations Fund money market fund. A qualifying exchange
is based on the next calculated net asset value per share of each fund after the
exchange order is received.
No CDSC will be imposed in connection with an exchange of Investor N Shares that
meets the requirements discussed in this section. If a shareholder acquires
Investor N Shares of another fund through an exchange, any CDSC schedule
applicable (CDSCs may apply to shares purchased prior to January 1, 1996) to the
original shares purchased will be applied to any redemption of the acquired
shares. If a shareholder exchanges Investor N Shares of a fund for Investor C
Shares of a money market fund or Investor A Shares of Nations Short-Term Income
Fund or Nations Short-Term Municipal Income Fund, the acquired shares will
remain subject to the CDSC schedule applicable to the Investor N Shares
exchanged. The holding period (for purposes of determining the applicable rate
of the CDSC) does not accrue while the shares owned are Investor C Shares of a
Nations Fund money market fund or Investor A Shares of Nations Short-Term Income
Fund or Nations Short-Term Municipal Income Fund. As a result, the CDSC that is
ultimately charged upon a redemption is based upon the total holding period of
Investor N Shares of a fund that charges a CDSC.
The current prospectus for each fund of Nations Fund describes its investment
objective and policies, and shareholders should obtain a copy and examine it
carefully before investing. Exchanges are subject to the minimum investment
requirement and any other conditions imposed by each fund. In the case of any
shareholder holding a share certificate or certificates, no exchanges may be
made until all applicable share certificates have been received by the Transfer
Agent and deposited in the shareholder's account. An exchange will be treated
for Federal income tax purposes the same as a redemption of shares, on which the
shareholder may realize a capital gain or loss. However, the ability to deduct
capital losses on an exchange may be limited in situations where there is an
exchange of shares within 90 days after the shares are purchased.
The Investor N Shares exchanged must have a current value of at least $1,000.
Nations Fund reserves the right to reject any exchange request. Only shares that
may legally be sold in the state of the investor's residence may be acquired in
an exchange. Only shares of a class that is accepting investments generally may
be acquired in an exchange. An investor may telephone an exchange request by
calling the investor's Selling Agent which is responsible for transmitting such
request to Stephens or to the Transfer Agent.
During periods of significant economic or market change, telephone exchanges may
be difficult to complete. In such event, shares may be exchanged by mailing the
request directly to the Selling Agent through which the original shares were
purchased. An investor should consult his/her Selling Agent or Stephens for
further information regarding exchanges.
30
<PAGE>
How The Funds Value Their Shares
The Funds calculate the net asset value of a share of each class by dividing the
total value of its assets, less liabilities, by the number of shares in the
class outstanding. Shares are valued as of the close of regular trading on the
Exchange (currently 4:00 p.m., Eastern time) on each Business Day. Currently,
the days on which the Exchange is closed (other than weekends) are: New Year's
Day, Presidents' Day, Good Friday, Memorial Day (observed), Independence Day,
Labor Day, Thanksgiving Day and Christmas Day. Portfolio securities for which
market quotations are readily available are valued at market value. Short-term
investments that will mature in 60 days or less are valued at amortized cost,
which approximates market value. All other securities and assets are valued at
their fair value following procedures approved by the Trustees or Directors.
How Dividends And Distributions Are
Made; Tax Information
DIVIDENDS AND DISTRIBUTIONS: The Funds distribute any net investment income each
calendar quarter and any net realized capital gains (including net short-term
capital gains) at least annually. Distributions from capital gains are made
after applying any available capital loss carryovers. Distributions paid by the
Funds with respect to one class of shares may be greater or less than those paid
with respect to another class of shares due to the different expenses of the
different classes.
The net asset value of Investor N Shares will be reduced by the amount of any
dividend or distribution. Certain Selling Agents may provide for the
reinvestment of dividends in the form of additional Investor N Shares of the
same Fund. Dividends and distributions are paid in cash within five Business
Days of the end of the quarter to which the dividend relates. Dividends and
distributions payable to a shareholder are paid in cash within five Business
Days after a shareholder's complete redemption of his/her Investor N Shares.
TAX INFORMATION: Each Fund intends to qualify as a "regulated investment
company" under the Code. Such qualification relieves the Funds of liability for
Federal income taxes on amounts distributed in accordance with the Code.
Each Fund intends to distribute substantially all of its investment company
taxable income and net tax-exempt income each taxable year. Distributions by a
Fund of its net investment income (including net foreign currency gains) and the
excess, if any, of its net short-term capital gain over its net long-term
capital loss are taxable as ordinary income to shareholders who are not
currently exempt from Federal income taxes, whether such income is received in
cash or reinvested in additional shares. (Federal income taxes for distributions
to an IRA are generally deferred under the Code.)
Corporate investors in the Funds may be entitled to the dividends received
deduction on all or a portion of such Funds' dividends paid by these Funds to
the extent that a Fund's income is derived from dividends (which, if received
directly, would qualify for such deduction) received from domestic corporations.
In order to qualify for the dividends-received deduction, a corporate
shareholder must hold the fund shares paying the dividends upon which the
deduction is based for at least 46 days.
Substantially all of the Funds' net realized long-term capital gains will be
distributed at least annually. The Funds will generally have no tax liability
with respect to such gains, and the distributions will be taxable to
shareholders who
31
<PAGE>
are not exempt from Federal income taxes as long-term capital gains, regardless
of how long the shareholders have held the Funds' shares and whether such gains
are received in cash or reinvested in additional shares.
Each year, shareholders will be notified as to the amount and Federal tax status
of all dividends and capital gains paid during the prior year. Such dividends
and capital gains may be subject to state and local taxes.
Dividends declared in October, November, or December of any year payable to
shareholders of record on a specified date in such months will be deemed to have
been received by shareholders and paid by the Funds on December 31 of such year
in the event such dividends are actually paid during January of the following
year.
Federal law requires Nations Fund to withhold 31% from any dividends (other than
exempt-interest dividends) paid by Nations Fund and/or redemptions (including
exchange redemptions) that occur in certain shareholder accounts if the
shareholder has not properly furnished a certified correct Taxpayer
Identification Number and has not certified that withholding does not apply, or
if the Internal Revenue Service has notified Nations Fund that the Taxpayer
Identification Number listed on a shareholder account is incorrect according to
its records, or that the shareholder is subject to backup withholding. Amounts
withheld are applied to the shareholder's Federal tax liability, and a refund
may be obtained from the Internal Revenue Service if withholding results in
overpayment of taxes. Federal law also requires the Funds to withhold 30% or the
applicable tax treaty rate from dividends paid to certain nonresident alien,
non-U.S. partnership and non-U.S. corporation shareholder accounts.
The foregoing discussion is based on tax laws and regulations which were in
effect as of the date of this Prospectus and summarizes only some of the
important Federal tax considerations generally affecting the Funds and their
shareholders. It is not intended as a substitute for careful tax planning;
investors should consult their tax advisors with respect to their specific tax
situations as well as with respect to state and local taxes. Further tax
information is contained in the SAIs.
Appendix A -- Portfolio Securities
The following are summary descriptions of certain types of instruments in which
a Fund may invest. The "How Objectives Are Pursued" section of the Prospectus
identifies each Fund's permissible investments, and the SAIs contain more
information concerning such investments.
ASSET-BACKED SECURITIES: Asset-backed securities arise through the grouping by
governmental, government-related, and private organizations of loans,
receivables, or other assets originated by various lenders. Asset-backed
securities consist of both mortgage- and non-mortgage-backed securities.
Interests in pools of these assets 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.
32
<PAGE>
Non-mortgage asset-backed securities include interests in pools of receivables,
such as motor vehicle installment purchase obligations and credit card
receivables. Such securities are generally issued as pass-through certificates,
which represent undivided fractional ownership interests in the underlying pools
of assets. Such securities also may be debt instruments, which are also known as
collateralized obligations and are generally issued as the debt of a special
purpose entity organized solely for the purpose of owning such assets and
issuing such debt.
BANK INSTRUMENTS: Bank instruments consist mainly of certificates of deposit,
time deposits and bankers' acceptances. The Funds will limit their investments
in bank obligations so they do not exceed 25% of each Fund's total assets at the
time of purchase.
U.S. dollar-denominated obligations issued by foreign branches of domestic banks
("Eurodollar" obligations) and domestic branches of foreign banks ("Yankee
dollar" obligations) and other foreign obligations involve special investment
risks, including the possibility that liquidity could be impaired because of
future political and economic developments, the obligations may be less
marketable than comparable domestic obligations of domestic issuers, a foreign
jurisdiction might impose withholding taxes on interest income payable on such
obligations, deposits may be seized or nationalized, foreign governmental
restrictions such as exchange controls may be adopted which might adversely
affect the payment of principal of and interest on such obligations, the
selection of foreign obligations may be more difficult because there may be less
publicly available information concerning foreign issuers, there may be
difficulties in enforcing a judgment against a foreign issuer or the accounting,
auditing and financial reporting standards, practices and requirements
applicable to foreign issuers may differ from those applicable to domestic
issuers. In addition, foreign banks are not subject to examination by U.S.
Government agencies or instrumentalities.
BORROWINGS: When a Fund borrows money, the net asset value of a share may be
subject to greater fluctuation until the borrowing is paid off. The Funds may
borrow money from banks for temporary purposes in amounts of up to one-third of
their respective total assets, provided that borrowings in excess of 5% of the
value of the Funds' total assets must be repaid prior to the purchase of
portfolio securities. 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 and dollar roll transactions may be considered to
be borrowings. When a Fund invests in a reverse repurchase agreement, it sells a
portfolio security to another party, such as a bank or broker/dealer, in return
for cash, and agrees to buy the security back at a future date and price.
Reverse repurchase agreements may be used to provide cash to satisfy unusually
heavy redemption requests without having to sell portfolio securities, or for
other temporary or emergency purposes. Generally, the effect of such a
transaction is that the Funds can recover all or most of the cash invested in
the portfolio securities involved during the term of the reverse repurchase
agreement, while they will be able to keep the interest income associated with
those portfolio securities. Such transactions are only advantageous if the
interest cost to the Funds of the reverse repurchase transaction is less than
the cost of obtaining the cash otherwise.
At the time a Fund enters into a reverse repurchase agreement, it may establish
a segregated account with its custodian bank in which it will maintain cash,
U.S. Government securities or other liquid high grade debt obligations equal in
value to its obligations in respect of reverse repurchase agreements. Reverse
repurchase agreements involve the risk that the market value of the securities
the Funds are obligated to repurchase under the agreement may decline below the
repurchase price. In the event the buyer of securities under a reverse
repurchase agreement files for bankruptcy or becomes insolvent, the Funds' use
of proceeds of the agreement may be restricted pending a determination by the
other party, or its trustee or receiver, whether to enforce the Funds'
obligation to repurchase the securities. In addition, there is a
33
<PAGE>
risk of delay in receiving collateral or securities or in repurchasing the
securities covered by the reverse repurchase agreement or even of a loss of
rights in the collateral or securities in the event the buyer of the securities
under the reverse repurchase agreement files for bankruptcy or becomes
insolvent. The Fund only enters into reverse repurchase agreements (and
repurchase agreements) with counterparties that are deemed by the Adviser to be
credit worthy. Reverse repurchase agreements are speculative techniques
involving leverage, and are subject to asset coverage requirements if the Funds
do not establish and maintain a segregated account as described above. Under the
requirements of the 1940 Act, the Funds are required to maintain an asset
coverage (including the proceeds of the borrowings) of at least 300% of all
borrowings. Depending on market conditions, the Funds' asset coverage and other
factors at the time of a reverse repurchase, the Funds may not establish a
segregated account when the Adviser believes it is not in the best interests of
the Funds to do so. In this case, such reverse repurchase agreements will be
considered borrowings subject to the asset coverage described above.
Dollar roll transactions consist of the sale by a Fund of mortgage-backed or
other asset-backed securities, together with a commitment to purchase similar,
but not identical, securities at a future date, at the same price. In addition,
a Fund is paid a fee as consideration for entering into the commitment to
purchase. If the broker/dealer to whom a Fund sells the security becomes
insolvent, the Fund's right to purchase or repurchase the security may be
restricted; the value of the security may change adversely over the term of the
dollar roll; the security that the Fund is required to repurchase may be worth
less than the security that the Fund originally held, and the return earned by
the Fund with the proceeds of a dollar roll may not exceed transaction costs.
COMMERCIAL INSTRUMENTS: Commercial instruments consist of short-term U.S.
dollar-denominated obligations issued by domestic corporations or foreign
corporations and foreign commercial banks. Investments by a Fund in commercial
paper will consist of issues rated in a manner consistent with such Fund's
investment policies and objective. In addition, a Fund may acquire unrated
commercial paper and corporate bonds that are determined by the Adviser at the
time of purchase to be of comparable quality to rated instruments that may be
acquired by a Fund. Commercial instruments include variable-rate master demand
notes, which are unsecured instruments that permit the indebtedness thereunder
to vary and provide for periodic adjustments in the interest rate, and variable-
and floating-rate instruments.
CONVERTIBLE SECURITIES, PREFERRED STOCK, AND WARRANTS: Certain of the Funds may
invest in debt securities convertible into or exchangeable for equity
securities, preferred stocks or warrants. Preferred stocks are securities that
represent an ownership interest in a corporation providing the owner with claims
on a company's earnings and assets before common stock owners, but after bond or
other debt security owners. Warrants are options to buy a stated number of
shares of common stock at a specified price any time during the life of the
warrants.
FIXED INCOME INVESTING: The performance of the fixed income debt component of a
Fund's portfolio depends primarily on interest rate changes, the average
weighted maturity of the portfolio and the quality of the securities held. The
debt component of a Fund's portfolio will tend to decrease in value when
interest rates rise and increase when interest rates fall. A Fund's share price
and yield depend, in part, on the maturity and quality of its debt instruments.
FOREIGN CURRENCY TRANSACTIONS: Certain of the Funds may enter into foreign
currency exchange transactions to convert foreign currencies to and from the
U.S. Dollar. A Fund either enters into these transactions on a spot (I.E., cash)
basis at the spot rate prevailing in the foreign currency exchange market, or
uses forward contracts to purchase or sell foreign currencies. A forward foreign
currency exchange contract is an obligation by a Fund to purchase or sell a
specific currency at a future date, which may be any fixed number of days from
the date of the contract.
34
<PAGE>
Foreign currency hedging transactions are an attempt to protect a Fund against
changes in foreign currency exchange rates between the trade and settlement
dates of specific securities transactions or changes in foreign currency
exchange rates that would adversely affect a portfolio position or an
anticipated portfolio position. Although these transactions tend to minimize the
risk of loss due to a decline in the value of the hedged currency, at the same
time they tend to limit any potential gain that might be realized should the
value of the hedged currency increase. Neither spot transactions nor forward
foreign currency exchange contracts eliminate fluctuations in the prices of a
Fund's portfolio securities or in foreign exchange rates, or prevent loss if the
prices of these securities should decline.
A Fund will generally enter into forward currency exchange contracts only under
two circumstances: (i) when such Fund enters into a contract for the purchase or
sale of a security denominated in a foreign currency, to "lock" in the U.S.
dollar price of the security; and (ii) when the Adviser believes that the
currency of a particular foreign country may experience a substantial movement
against another currency. Under certain circumstances, a Fund may commit a
substantial portion of its portfolio to the executive of these contracts. The
Adviser will consider the effects such a commitment would have on the investment
program of such Fund and the flexibility of such Fund to purchase additional
securities. Although forward contracts will be used primarily to protect a Fund
from adverse currency movements, they also involve the risk that anticipated
currency movements will not be accurately predicted.
FOREIGN SECURITIES: Foreign securities include debt and equity obligations
(dollar- and non-dollar-denominated) of foreign corporations and banks as well
as obligations of foreign governments and their political subdivisions (which
will be limited to direct government obligations and government-guaranteed
securities). Such investments may subject a Fund to special investment risks,
including future political and economic developments, the possible imposition of
withholding taxes on interest income, possible seizure or nationalization of
foreign deposits, the possible establishment of exchange controls, or the
adoption of other foreign governmental restrictions which might adversely affect
the payment of principal and interest on such obligations. In addition, foreign
issuers in general may be subject to different accounting, auditing, reporting,
and record keeping standards than those applicable to domestic companies, and
securities of foreign issuers may be less liquid and their prices more volatile
than those of comparable domestic issuers.
Investments in foreign securities may present additional risks, whether made
directly or indirectly, including the political or economic instability of the
issuer or the country of issue and the difficulty of predicting international
trade patterns. In addition, there may be less publicly available information
about a foreign company than about a U.S. company. Further, foreign securities
markets are generally not as developed or efficient as those in the U.S., and in
most foreign markets volume and liquidity are less than in the United States.
Fixed commissions on foreign securities exchanges are generally higher than the
negotiated commissions on U.S. exchanges, and there is generally less government
supervision and regulation of foreign securities exchanges, brokers, and
companies than in the United States. With respect to certain foreign countries,
there is a possibility of expropriation or confiscatory taxation, limitations on
the removal of funds or other assets, or diplomatic developments that could
affect investments within those countries. Because of these and other factors,
securities of foreign companies acquired by a Fund may be subject to greater
fluctuation in price than securities of domestic companies.
FUTURES, OPTIONS AND OTHER DERIVATIVE INSTRUMENTS: Certain of the Funds may
attempt to reduce the overall level of investment risk of particular securities
and attempt to protect a Fund against adverse market movements by investing in
futures, options and other derivative instruments. These include the purchase
and writing of options on securities (including index options) and options on
foreign currencies, and investing in futures contracts for the
pur-
35
<PAGE>
chase or sale of instruments based on financial indices, including interest rate
indices or indices of U.S. or foreign government, equity or fixed income
securities ("futures contracts"), options on futures contracts, forward
contracts and swaps and swap-related products such as interest rate swaps,
currency swaps, caps, collars and floors.
The use of futures, options, forward contracts and swaps exposes a Fund to
additional investment risks and transaction costs. If the Adviser incorrectly
analyzes market conditions or does not employ the appropriate strategy with
respect to these instruments, a Fund could be left in a less favorable position.
Additional risks inherent in the use of futures, options, forward contracts and
swaps include: imperfect correlation between the price of futures, options and
forward contracts and movements in the prices of the securities or currencies
being hedged; the possible absence of a liquid secondary market for any
particular instrument at any time; and the possible need to defer closing out
certain hedged positions to avoid adverse tax consequences. A Fund may not
purchase put and call options which are traded on a national stock exchange in
an amount exceeding 5% of its net assets. Further information on the use of
futures, options and other derivative instruments, and the associated risks, is
contained in the SAI.
ILLIQUID SECURITIES: Certain securities may be sold only pursuant to certain
legal restrictions, and may be difficult to sell. The Funds will not hold more
than 15% of the value of their respective net assets in securities that are
illiquid or such lower percentage as may be required by the states in which the
appropriate Fund sells its shares. Repurchase agreements, time deposits and
guaranteed investment contracts that do not provide for payment to a Fund within
seven days after notice, and illiquid restricted securities, are subject to the
limitation on illiquid securities.
If otherwise consistent with their investment objectives and policies, certain
Funds may purchase securities which are not registered under the Securities Act
of 1933, as amended (the "1933 Act") but which can be sold to "qualified
institutional buyers" in accordance with Rule 144A 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 the Fund's Board, after considering trading activity, availability
of reliable price information and other relevant information, that an adequate
trading market exists for that security. To the extent that, for a period of
time, qualified institutional 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
antic-
36
<PAGE>
ipated purchasing at a later date rather than for speculative purposes. A Fund
will not sell interest rate caps or floors that it does not own.
LOWER-RATED DEBT SECURITIES: Nations Equity Income Fund may invest in
lower-rated debt securities. Lower rated, high-yielding securities are those
rated "Ba" or "B" by Moody's or "BB" or "B" by S&P which are commonly referred
to as "junk bonds." These bonds provide poor protection for payment of principal
and interest. Lower-quality bonds involve greater risk of default or price
changes due to changes in the issuer's creditworthiness than securities assigned
a higher quality rating. These securities are considered to have speculative
characteristics and indicate an aggressive approach to income investing.
The market for lower-rated securities may be thinner and less active than that
for higher quality securities, which can adversely affect the price at which
these securities can be sold. If market quotations are not available, these
lower-rated securities will be valued in accordance with procedures established
by the Funds' Boards, including the use of outside pricing services. Adverse
publicity and changing investor perceptions may affect the ability of outside
pricing services used by a Fund to value its portfolio securities, and a Fund's
ability to dispose of these lower-rated bonds.
MONEY MARKET INSTRUMENTS: The term "money market instruments" refers to
instruments with remaining maturities of one year or less. Money market
instruments may include, among other instruments, certain U.S. Treasury
Obligations, U.S. Government Obligations, bank instruments, commercial
instruments, repurchase agreements and municipal securities. Such instruments
are described in this Appendix A.
MUNICIPAL SECURITIES: The two principal classifications of municipal securities
are "general obligation" securities and "revenue" securities. General obligation
securities are secured by the issuer's pledge of its full faith, credit, and
taxing power for the payment of principal and interest. Revenue securities are
payable only from the revenues derived from a particular facility or class of
facilities or, in some cases, from the proceeds of a special excise tax or other
specific revenue source such as the user of the facility being financed. Private
activity bonds held by a Fund are in most cases revenue securities and are not
payable from the unrestricted revenues of the issuer. Consequently, the credit
quality of private activity bonds is usually directly related to the credit
standing of the corporate user of the facility involved.
Municipal securities may include "moral obligation" bonds, which are normally
issued by special purpose public authorities. If the issuer of moral obligation
bonds is unable to meet its debt service obligations from current revenues, it
may draw on a reserve fund, the restoration of which is a moral commitment but
not a legal obligation of the state or municipality which created the issuer.
Municipal securities may include variable- or floating-rate instruments issued
by industrial development authorities and other governmental entities. While
there may not be an active secondary market with respect to a particular
instrument purchased by a Fund, a Fund may demand payment of the principal and
accrued interest on the instrument or may resell it to a third party as
specified in the instruments. The absence of an active secondary market,
however, could make it difficult for a Fund to dispose of the instrument if the
issuer defaulted on its payment obligation or during periods the Fund is not
entitled to exercise its demand rights, and the Fund could, for these or other
reasons, suffer a loss.
Some of these instruments may be unrated, but unrated instruments purchased by a
Fund will be determined by the Adviser to be of comparable quality at the time
of purchase to instruments rated "high quality" by any major rating service.
Where necessary to ensure that an instrument is of comparable "high quality," a
Fund will require that an issuer's obligation to pay the principal of the note
may be backed by an unconditional bank letter or line of credit, guarantee, or
commitment to lend.
Municipal securities may include participations in privately arranged loans to
municipal borrowers, some of which may be referred to as "municipal leases," and
units of participation in trusts holding pools of tax-exempt leases. Such loans
in
37
<PAGE>
most cases are not backed by the taxing authority of the issuers and may have
limited marketability or may be marketable only by virtue of a provision
requiring repayment following demand by the lender. Such loans made by a Fund
may have a demand provision permitting the Fund to require payment within seven
days. Participations in such loans, however, may not have such a demand
provision and may not be otherwise marketable. To the extent these securities
are illiquid, they will be subject to each Fund's limitation on investments in
illiquid securities. As it deems appropriate, the Adviser will establish
procedures to monitor the credit standing of each such municipal borrower,
including its ability to meet contractual payment obligations.
Municipal participation interests may be purchased from financial institutions,
and give the purchaser an undivided interest in one or more underlying municipal
security. To the extent that municipal participation interests are considered to
be "illiquid securities," such instruments are subject to each Fund's limitation
on the purchase of illiquid securities.
In addition, certain of the Funds may acquire "stand-by commitments" from banks
or broker/dealers with respect to municipal securities held in their portfolios.
Under a stand-by commitment, a dealer would agree to purchase at a Fund's option
specified Municipal Securities at a specified price. A Fund will acquire
stand-by commitments solely to facilitate portfolio liquidity and do not intend
to exercise their rights thereunder for trading purposes.
Although the Funds do not presently intend to do so on a regular basis, a Fund
may invest more than 25% of its total assets in municipal securities the
interest on which is paid solely from revenues of similar projects if such
investment is deemed necessary or appropriate by the Adviser. To the extent that
more than 25% of a Fund's total assets are invested in Municipal Securities that
are payable from the revenues of similar projects, a Fund will be subject to the
peculiar risks presented by such projects to a greater extent than it would be
if its assets were not so concentrated.
OTHER INVESTMENT COMPANIES: Each Fund may invest in securities issued by other
investment companies to the extent that such investments are consistent with the
Fund's investment objective and policies and permissible under the 1940 Act. As
a shareholder of another investment company, a Fund would bear, along with other
shareholders, its pro rata portion of the other investment company's expenses,
including advisory fees. These expenses would be in addition to the advisory and
other expenses that a Fund bears directly in connection with its own operations.
REAL ESTATE INVESTMENT TRUSTS: A real estate investment trust ("REIT") is a
managed portfolio of real estate investments which may include office buildings,
apartment complexes, hotels and shopping malls. An Equity REIT holds equity
positions in real estate, and it seeks to provide its shareholders with income
from the leasing of its properties, and with capital gains from any sales of
properties. A Mortgage REIT specializes in lending money to developers of
properties, and passes any interest income it may earn to its shareholders.
REITs may be affected by changes in the value of the underlying property owned
or financed by the REIT, while Mortgage REITs also may be affected by the
quality of credit extended. Both Equity and Mortgage REITs are dependent upon
management skill and may not be diversified. REITs also may be subject to heavy
cash flow dependency, defaults by borrowers, self-liquidation, and the
possibility of failing to qualify for tax-free pass-through of income under the
Code.
REPURCHASE AGREEMENTS: A repurchase agreement involves the purchase of a
security by a Fund and a simultaneous agreement (generally with a bank or
broker/dealer) to repurchase that security from the Fund at a specified price
and date or upon demand. This technique offers a method of earning income on
idle cash. A risk associated with repurchase agreements is the failure of the
seller to repurchase the securities as agreed, which may cause a Fund to suffer
a loss if the market value of such securities declines before they can be
liquidated on the open market. Repurchase agreements with a duration of more
than seven days are considered
38
<PAGE>
illiquid securities and are subject to the limit stated above. A Fund may enter
into joint repurchase agreements jointly with other investment portfolios of
Nations Fund.
SECURITIES LENDING: To increase return on portfolio securities, the Funds may
lend their portfolio securities to broker/dealers and other institutional
investors pursuant to agreements requiring that the loans be continuously
secured by collateral equal at all times in value to at least the market value
of the securities loaned. There is a risk of delay in receiving collateral or in
recovering the securities loaned or even a loss of rights in the collateral
should the borrower of the securities fail financially. However, loans are made
only to borrowers deemed by the Adviser to be credit worthy and when, in its
judgment, the income to be earned from the loan justifies the attendant risks.
The aggregate of all outstanding loans of a Fund may not exceed 30% of the value
of its total assets.
STOCK INDEX, INTEREST RATE AND CURRENCY FUTURES CONTRACTS: Certain of the Funds
may purchase and sell futures contracts and related options with respect to
non-U.S. stock indices, non-U.S. interest rates and foreign currencies, that
have been approved by the CFTC for investment by U.S. investors, for the purpose
of hedging against changes in values of a Fund's securities or changes in the
prevailing levels of interest rates or currency exchange rates. The contracts
entail certain risks, including but not limited to the following: no assurance
that futures contracts transactions can be offset at favorable prices; possible
reduction of a Fund's total return due to the use of hedging; possible lack of
liquidity due to daily limits on price fluctuation; imperfect correlation
between the contracts and the securities or currencies being hedged; and
potential losses in excess of the amount invested in the futures contracts
themselves.
Trading on foreign commodity exchanges presents additional risks. Unlike trading
on domestic commodity exchanges, trading on foreign commodity exchanges is not
regulated by the CFTC and may be subject to greater risks than trading on
domestic exchanges. For example, some foreign exchanges are principal markets
for which no common clearing facility exists and a trader may look only to the
broker for performance of the contract. In addition, unless a Fund hedges
against fluctuations in the exchange rate between the U.S. dollar and the
currencies in which trading is done on foreign exchanges, any profits that such
Fund might realize could be eliminated by adverse changes in the exchange rate,
or the Fund could incur losses as a result of those changes.
U.S. GOVERNMENT OBLIGATIONS: U.S. Government Obligations consist of marketable
securities and instruments issued or guaranteed by the U.S. Government or any of
its agencies, authorities or instrumentalities. Direct obligations are issued by
the U.S. Treasury and include all U.S. Treasury instruments. 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 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 Association; 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.
WHEN-ISSUED, DELAYED DELIVERY AND FORWARD COMMITMENT SECURITIES: The purchase of
new issues of securities on a "when-issued," "delayed delivery" or "forward
commitment"
39
<PAGE>
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 six ratings used by S&P for corporate and
municipal bonds. The first four ratings denote investment grade securities.
AAA -- This is the highest rating assigned by S&P to a debt obligation and
indicates an extremely strong capacity to pay interest and repay principal.
AA -- Debt rated AA is considered to have a very strong capacity to pay
interest and repay principal and differs from AAA issues only in a small
degree.
A -- Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than debt in higher-rated
categories.
BBB -- Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than for those in
higher-rated categories.
BB, B -- Bonds rated BB and B are regarded, on balance, as predominantly
speculative with respect to capacity to pay interest and repay principal in
accordance with the terms of the obligation. BB represents the lowest
degree of speculation and B a higher degree of speculation. While such
bonds will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
To provide more detailed indications of credit quality, the AA, A and BBB
ratings may be modified by the addition of a plus or minus sign to show relative
standing within these major rating categories.
The following summarizes the highest six ratings used by Moody's for corporate
and municipal bonds. The first four ratings denote investment grade securities.
Aaa -- Bonds that are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to
as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such
issues.
Aa -- Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there may
be other elements present which make the long-term risks appear somewhat
larger than in Aaa securities.
A -- Bonds that are rated A possess many favorable investment attributes
and are to be considered upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
40
<PAGE>
Baa -- Bonds that are rated Baa are considered medium grade obligations,
I.E., they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable
over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba -- Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may
be small.
Moody's applies numerical modifiers (1, 2 and 3) with respect to corporate bonds
rated Aa through B. The modifier 1 indicates that the bond being rated ranks in
the higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates that the bond ranks in the lower
end of its generic rating category. With regard to municipal bonds, those bonds
in the Aa, A and Baa groups which Moody's believes possess the strongest
investment attributes are designated by the symbols Aa1, A1 or Baa1,
respectively.
The following summarizes the highest four ratings used by D&P for bonds, each of
which denotes that the securities are investment grade:
AAA -- Bonds that are rated AAA are of the highest credit quality. The risk
factors are considered to be negligible, being only slightly more than for
risk-free U.S. Treasury debt.
AA -- Bonds that are rated AA are of high credit quality. Protection
factors are strong. Risk is modest, but may vary slightly from time to time
because of economic conditions.
A -- Bonds that are rated A have protection factors which are average but
adequate. However, risk factors are more variable and greater in periods of
economic stress.
BBB -- Bonds that are rated BBB have below average protection factors but
still are considered sufficient for prudent investment. Considerable
variability in risk exists during economic cycles.
To provide more detailed indications of credit quality, the AA, A and BBB
ratings may be modified by the addition of a plus or minus sign to show relative
standing within these major categories.
The following summarizes the highest four ratings used by Fitch for bonds, each
of which denotes that the securities are investment grade:
AAA -- Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
AA -- Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated AAA. Because bonds
rated in the AAA and AA categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is
generally rated F-1+.
A -- Bonds considered to be investment grade and of high credit quality.
The obligor's ability to pay interest and repay principal is considered to
be strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.
BBB -- Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
41
<PAGE>
circumstances, however, are more likely to have adverse impact on these
bonds, and therefore impair timely payment. The likelihood that the ratings
of these bonds will fall below investment grade is higher than for bonds
with higher ratings.
To provide more detailed indications of credit quality, the AA, A and BBB
ratings may be modified by the addition of a plus or minus sign to show relative
standing within these major rating categories.
The following summarizes the two highest ratings used by Moody's for short-term
municipal notes and variable rate demand obligations:
MIG-1/VMIG-1 -- Obligations bearing these designations are of the best
quality, enjoying strong protection from established cash flows, superior
liquidity support or demonstrated broad-based access to the market for
refinancing.
MIG-2/VMIG-2 -- Obligations bearing these designations are of high quality,
with ample margins of protection although not so large as in the preceding
group.
The following summarizes the two highest ratings used by S&P for short-term
municipal notes:
SP-1 -- Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics are given
a "plus" (+) designation.
SP-2 -- Satisfactory capacity to pay principal and interest.
The three highest rating categories of D&P for short-term debt, each of which
denotes that the securities are investment grade, are D-1, D-2 and D-3. D&P
employs three designations, D-1+, D-1 and D-1-, within the highest rating
category. D-1+ indicates highest certainty of timely payment. Short-term
liquidity, including internal operating factors and/or access to alternative
sources of funds, is judged to be "outstanding, and safety is just below
risk-free U.S. Treasury short-term obligations." D-1 indicates very high
certainty of timely payment. Liquidity factors are excellent and supported by
good fundamental protection factors. Risk factors are considered to be minor.
D-1- indicates high certainty of timely payment. Liquidity factors are strong
and supported by good fundamental protection factors. Risk factors are very
small. D-2 indicates good certainty of timely payment. Liquidity factors and
company fundamentals are sound. Although ongoing funding needs may enlarge total
financing requirements, access to capital markets is good. Risk factors are
small. D-3 indicates satisfactory liquidity and other protection factors which
qualify the issue as investment grade. Risk factors are larger and subject to
more variation. Nevertheless, timely payment is expected.
The following summarizes the two highest rating categories used by Fitch for
short-term obligations, each of which denotes securities that are investment
grade:
F-1+ securities possess exceptionally strong credit quality. Issues
assigned this rating are regarded as having the strongest degree of
assurance for timely payment.
F-1 securities possess very strong credit quality. Issues assigned this
rating reflect an assurance of timely payment only slightly less in degree
than issues rated F-1+.
F-2 securities possess good credit quality. Issues carrying this rating
have a satisfactory degree of assurance for timely payment, but the margin
of safety is not as great as for issues assigned the F-1+ and F-1 ratings.
Commercial paper rated A-1 by S&P indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted A-1+. Capacity for timely payment on
commercial paper rated A-2 is satisfactory, but the relative degree of safety is
not as high as for issues designated A-1.
The rating Prime-1 is the highest commercial paper rating assigned by Moody's.
Issuers rated Prime-1 (or related supporting institutions) are considered to
have a superior capacity for repayment of senior short-term promissory
obliga-
42
<PAGE>
tions. Issuers rated Prime-2 (or related supporting institutions) are considered
to have a strong capacity for repayment of senior short-term promissory
obligations. This will normally be evidenced by many of the characteristics of
issuers rated Prime-1, but to a lesser degree. Earnings trends and coverage
ratios, while sound, will be more subject to variation. Capitalization
characteristics, while still appropriate, may be more affected by external
conditions. Ample alternate liquidity is maintained.
For commercial paper, D&P uses the short-term debt ratings described above.
For commercial paper, Fitch uses the short-term debt ratings described above.
BankWatch ratings are based upon a qualitative and quantitative analysis of all
segments of the organization including, where applicable, holding company and
operating subsidiaries. BankWatch ratings do not constitute a recommendation to
buy or sell securities of any of these companies. Further, BankWatch does not
suggest specific investment criteria for individual clients.
BankWatch long-term ratings apply to specific issues of long-term debt and
preferred stock. The long-term ratings specifically assess the likelihood of
untimely payment of principal or interest over the term to maturity of the rated
instrument. The following are the four investment grade ratings used by
BankWatch for long-term debt:
AAA -- The highest category; indicates ability to repay principal and
interest on a timely basis is extremely high.
AA -- The second highest category; indicates a very strong ability to repay
principal and interest on a timely basis with limited incremental risk
versus issues rated in the highest category.
A -- The third highest category; indicates the ability to repay principal
and interest is strong. Issues rated "A" could be more vulnerable to
adverse developments (both internal and external) than obligations with
higher ratings.
BBB -- The lowest investment grade category; indicates an acceptable
capacity to repay principal and interest. Issues rated "BBB" are, however,
more vulnerable to adverse developments (both internal and external) than
obligations with higher ratings.
The BankWatch short-term ratings apply to commercial paper, other senior
short-term obligations and deposit obligations of the entities to which the
rating has been assigned. The BankWatch short-term ratings specifically assess
the likelihood of an untimely payment of principal or interest.
TBW-1 -- The highest category; indicates a very high likelihood that
principal and interest will be paid on a timely basis.
TBW-2 -- The second highest category; while the degree of safety regarding
timely repayment of principal and interest is strong, the relative degree
of safety is not as high as for issues rated "TBW-1".
TBW-3 -- The lowest investment grade category; indicates that while more
susceptible to adverse developments (both internal and external) than
obligations with higher ratings, capacity to service principal and interest
in a timely fashion is considered adequate.
TBW-4 -- The lowest rating category; this rating is regarded as
non-investment grade and therefore speculative.
The following summarizes the three highest long-term ratings used by IBCA:
AAA -- Obligations for which there is the lowest expectation of investment
risk. Capacity for timely repayment of principal and interest is
substantial such that adverse changes in business, economic or financial
conditions are unlikely to increase investment risk significantly.
AA -- Obligations for which there is a very low expectation of investment
risk. Capacity for timely repayment of principal and interest is
substantial. Adverse changes in business, economic or financial conditions
may
43
<PAGE>
increase investment risk albeit not very significantly.
A -- Obligations for which there is a low expectation of investment risk.
Capacity for timely repayment of principal and interest is strong, although
adverse changes in business, economic or financial conditions may lead to
increased investment risk.
BBB -- Obligations for which there is currently a low expectation of
investment risk. Capacity for timely repayment of principal and interest is
adequate, although adverse changes in business, economic or financial
conditions are more likely to lead to increased investment risk than for
obligations in other categories.
A plus or minus sign may be appended to a rating below AAA to denote relative
status within major rating categories.
The following summarizes the two highest short-term debt ratings used by IBCA:
A1+ -- Where issues possess a particularly strong credit feature.
A1 -- Obligations supported by the highest capacity for timely repayment.
A2 -- Obligations supported by a good capacity for timely repayment.
44
<PAGE>
Prospectus
INVESTOR N SHARES
JULY 31, 1996
This Prospectus describes NATIONS SHORT-TERM INCOME
FUND, NATIONS SHORT-INTERMEDIATE GOVERNMENT FUND,
NATIONS GOVERNMENT SECURITIES FUND, NATIONS
STRATEGIC FIXED INCOME FUND AND NATIONS DIVERSIFIED
INCOME FUND (the "Funds") of Nations Fund Trust and
Nations Fund, Inc., each an open-end management
investment company in the Nations Fund Family
("Nations Fund" or "Nations Fund Family"). This
Prospectus describes one class of shares of the
Funds -- Investor N Shares.
This Prospectus sets forth concisely the
information about the Funds that a prospective
purchaser of Investor N Shares should consider
before investing. Investors should read this
Prospectus and retain it for future reference.
Additional information about Nations Fund Trust and
Nations Fund, Inc. is contained in separate
Statements of Additional Information (the "SAIs"),
that have been filed with the Securities and
Exchange Commission (the "SEC") and are available
upon request without charge by writing or calling
Nations Fund at its address or telephone number
shown below. The SAIs for Nations Fund Trust and
Nations Fund, Inc., each dated July 31, 1996, are
incorporated by reference in their entirety into
this Prospectus. NationsBanc Advisors, Inc.
("NBAI") is the investment adviser to the Funds.
TradeStreet Investment Associates, Inc.
("TradeStreet") is sub-investment adviser to the
Funds. As used herein the "Adviser" shall mean NBAI
and/or TradeStreet as the context may require.
SHARES OF NATIONS FUND ARE NOT DEPOSITS OR OTHER
OBLIGATIONS OF, OR ISSUED, ENDORSED OR GUARANTEED
BY, NATIONSBANK, N.A. ("NATIONSBANK") OR ANY OF ITS
AFFILIATES. SUCH SHARES ARE NOT INSURED BY THE U.S.
GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER
GOVERNMENT AGENCY. AN INVESTMENT IN THE FUNDS
INVOLVES CERTAIN RISKS, INCLUDING POSSIBLE LOSS OF
PRINCIPAL.
NATIONSBANK AND CERTAIN OF ITS AFFILIATES PROVIDE
CERTAIN OTHER SERVICES TO NATIONS FUND, FOR WHICH
THEY ARE COMPENSATED. STEPHENS INC., WHICH IS NOT
AFFILIATED WITH NATIONSBANK, IS THE SPONSOR AND
ADMINISTRATOR AND SERVES AS THE DISTRIBUTOR FOR
NATIONS FUND.
THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
Nations
Short-Term
Income Fund
Nations Short-Intermediate
Government Fund
Nations Government
Securities Fund
Nations
Strategic Fixed
Income Fund
Nations Diversified
Income Fund
For Fund information call:
1-800-321-7854
Nations Fund
c/o Stephens Inc.
One NationsBank Plaza
33rd Floor
Charlotte, NC 28255
(Nations Fund Logo appears here)
NSI-96145-796
<PAGE>
Table Of Contents
About The Funds
Prospectus Summary 3
Expenses Summary 5
Financial Highlights 7
Objectives 11
How Objectives Are Pursued 12
How Performance Is Shown 16
How The Funds Are Managed 17
Organization And History 21
About Your Investment
How To Buy Shares 23
How To Redeem Shares 24
How To Exchange Shares 27
Shareholder Servicing And Distribution Plans 28
How The Funds Value Their Shares 29
How Dividends And Distributions Are Made;
Tax Information 29
Appendix A -- Portfolio Securities 30
Appendix B -- Description Of Ratings 40
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT
CONTAINED IN THIS PROSPECTUS, OR IN THE FUNDS'
SAI INCORPORATED HEREIN BY REFERENCE, IN
CONNECTION WITH THE OFFERING MADE BY
THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY NATIONS FUND OR
ITS DISTRIBUTOR. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFERING BY NATIONS FUND OR BY THE
DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH
OFFERING MAY NOT LAWFULLY BE MADE.
2
<PAGE>
About The Funds
Prospectus Summary
(Bullet) TYPE OF COMPANIES: Open-end management investment companies.
(Bullet) INVESTMENT OBJECTIVES AND POLICIES:
(Bullet) Nations Short-Term Income Fund's investment objective is to
seek high current income consistent with minimal fluctuation
of principal. The Fund invests in investment grade debt
securities.
(Bullet) Nations Short-Intermediate Government Fund's
investment objective is to seek high current income
consistent with modest fluctuation of principal. The
Fund invests primarily in securities issued or
guaranteed by the U.S. Government, its agencies or
instrumentalities.
(Bullet) Nations Government Securities Fund's
investment objective is to seek high current
income consistent with moderate fluctuation
of principal. The Fund invests primarily in
intermediate-term securities issued or
guaranteed by the U.S. Government, its
agencies or instrumentalities.
(Bullet) Nations Strategic Fixed Income Fund's investment
objective is to seek total return by investing in
investment grade fixed income securities.
(Bullet) Nations Diversified Income Fund's investment
objective is to seek total return with an emphasis on
current income by investing in a diversified
portfolio of fixed income securities.
(Bullet) INVESTMENT ADVISER: NationsBanc Advisors, Inc. serves as the investment
adviser to the Funds. NBAI provides investment advice to more than 43
investment company portfolios in the Nations Fund Family. TradeStreet
Investment Associates, Inc. provides sub-advisory services to the
Funds. See "How The Funds Are Managed."
(Bullet) DIVIDENDS AND DISTRIBUTIONS: The Funds declare dividends daily and pay
them monthly. Each Fund's net realized capital gains, including net
short-term capital gains are distributed at least annually.
(Bullet) RISK FACTORS: Although the Adviser seeks to achieve the investment
objective of each Fund, there is no assurance that it will be able to
do so. Investments in a Fund are not insured against loss of principal.
Investments by a Fund in debt securities are subject to interest rate
risk, which is the risk that increases in market interest rates will
adversely affect a Fund's investments in debt securities. The value of
a Fund's investments in debt securities, including U.S. Government
Obligations (as defined below), will tend to decrease when interest
rates rise and increase when interest rates fall. In general,
longer-term debt instruments tend to fluctuate in value more than
shorter-term debt instruments in response to interest rate movements.
In addition, debt securities which are not backed by the United States
Government are subject to credit risk, which is the risk that the
issuer may not be able to pay principal and/or interest when due.
Certain of the Funds' investments constitute derivative securities.
Certain types of derivative securities can, under certain
circumstances, significantly increase an investor's exposure to market
or other risks. For a discussion of these and other factors, see "How
Objectives Are Pursued -- Risk Considerations" and "Appendix
A -- Portfolio Securities."
3
<PAGE>
(Bullet) MINIMUM PURCHASE: $1,000 minimum initial investment per record holder
except that the minimum initial investment is: $500 for Individual
Retirement Account ("IRA") Investors; $250 for non-working spousal
IRAs; and $100 for investors participating on a monthly basis in the
Systematic Investment Plan. There is no minimum investment amount for
investments by certain 401(k) and employee pension plans or salary
reduction-Individual Retirement Accounts. See "How To Buy Shares."
4
<PAGE>
Expenses Summary
Expenses are one of several factors to consider when investing in the Funds. The
following table summarizes shareholder transaction and operating expenses for
Investor N Shares of the Funds. The Examples show the cumulative expenses
attributable to a hypothetical $1,000 investment in the Funds over specified
periods.
INVESTOR N SHARES
<TABLE>
<CAPTION>
Nations
Short- Nations
Nations Intermediate Government Nations
Short-Term Government Securities Strategic Fixed
SHAREHOLDER TRANSACTION EXPENSES Income Fund Fund Fund Income Fund
<S> <C> <C> <C> <C>
Sales Load Imposed on Purchases None None None None
Deferred Sales Charge (as a percentage of the
lower of the original purchase price or
redemption proceeds)1 None None None None
Nations
Diversified
SHAREHOLDER TRANSACTION EXPENSES Income Fund
Sales Load Imposed on Purchases None
Deferred Sales Charge (as a percentage of the
lower of the original purchase price or
redemption proceeds)1 None
</TABLE>
ANNUAL FUND OPERATING
EXPENSES
(as a percentage of average net assets)
<TABLE>
<S> <C> <C> <C> <C>
Management Fees (After Fee Waivers) .30% .40% .50% .50%
Rule 12b-1 Fees (After Fee Waivers) .10% .35% .40% .40%
Shareholder Servicing Fees .25% .25% .25% .25%
Other Expenses .25% .23% .30% .22%
Total Operating Expenses (After Fee Waivers) .90% 1.23% 1.45% 1.37%
Management Fees (After Fee Waivers) .50%
Rule 12b-1 Fees (After Fee Waivers) .50%
Shareholder Servicing Fees .25%
Other Expenses .27%
Total Operating Expenses (After Fee Waivers) 1.52%
</TABLE>
1 Investor N Shares purchased prior to January 1, 1996 will continue to be
subject to the Deferred Sales Charge applicable at the time of purchase. See
"How To Redeem Shares -- Contingent Deferred Sales Charge."
EXAMPLES:
An investment of $1,000 would incur the following expenses, assuming (1) a 5%
annual return and (2) redemption at the end of each time period.
<TABLE>
<CAPTION>
Nations
Short- Nations
Nations Intermediate Nations Strategic
Short-Term Government Government Fixed
Income Fund Fund Securities Fund Income Fund
<S> <C> <C> <C> <C>
1 Year $ 9 $ 13 $ 15 $ 14
3 Years $ 29 $ 39 $ 46 $ 43
5 Years $ 50 $ 68 $ 79 $ 75
10 Years $ 111 $ 149 $ 174 $ 165
Nations
Diversified
Income Fund
1 Year $ 15
3 Years $ 48
5 Years $ 83
10 Years $ 181
</TABLE>
5
<PAGE>
The purpose of the foregoing table is to assist an investor in understanding the
various shareholder transaction and operating expenses that an investor in the
Funds will bear either directly or indirectly. Certain figures contained in the
above table are based on amounts incurred during the Funds' most recent fiscal
year and have been adjusted as necessary to reflect current service provider
fees. There is no assurance that any fee waivers and reimbursements will
continue beyond the current fiscal year. If fee waivers and/or reimbursements
are discontinued, the amounts contained in the "Examples" above may increase.
Long-term shareholders of the Funds could pay more in sales charges than the
economic equivalent of the maximum front-end sales charges applicable to mutual
funds sold by members of the National Association of Securities Dealers, Inc.
For more complete descriptions of the Funds' operating expenses, see "How The
Funds Are Managed." Absent fee waivers, "Management Fees," "Rule 12b-1 Fees" and
"Total Operating Expenses" for the following Funds would have been as follows:
Nations Short-Term Income Fund -- .60%, .75% and 1.85%, respectively; Nations
Short-Intermediate Government Fund -- .60%, .75%, and 1.83%, respectively;
Nations Government Securities Fund -- .64%, .75% and 1.94%, respectively;
Nations Strategic Fixed Income Fund -- .60%, .75% and 1.82%, respectively; and
Nations Diversified Income Fund -- .60%, .75% and 1.87%, respectively.
THE FOREGOING SHOULD NOT BE CONSIDERED TO BE AN ACTUAL REPRESENTATION OF PAST OR
FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES AND RATES OF RETURN MAY BE
GREATER OR LESS THAN THOSE SHOWN.
6
<PAGE>
Financial Highlights
The audited financial information on the following pages has been derived from
the financial statements of Nations Fund Trust and Nations Fund, Inc. Price
Waterhouse LLP is the independent accountant to Nations Fund Trust and Nations
Fund, Inc. The reports of Price Waterhouse LLP for the most recent fiscal year
of Nations Fund Trust and Nations Fund, Inc. accompany the financial statements
for such periods and are incorporated by reference in the SAIs, which are
available upon request. For more information see "Organization And History."
Shareholders of the Funds will receive unaudited semi-annual reports describing
The Funds' investment operations and annual financial statements audited by the
Funds' independent accountant.
FOR AN INVESTOR N SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
NATIONS SHORT-TERM INCOME FUND
PERIOD YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
INVESTOR N SHARES 03/31/96(b)# 11/30/95# 11/30/94# 11/30/93*
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 9.84 $ 9.48 $ 10.01 $ 9.94
Net investment income 0.19 0.57 0.47 0.22
Net realized and unrealized gain/(loss) on investments (0.08) 0.36 (0.51) 0.07
Net increase/(decrease) in net asset value from operations 0.11 0.93 (0.04) 0.29
Distributions:
Dividends from net investment income (0.19) (0.57) (0.45) (0.22)
Distributions in excess of net investment income -- -- (0.02) --
Distributions from capital -- -- (0.02) --
Total dividends and distributions (0.19) (0.57) (0.49) (0.22)
Net asset value, end of period $ 9.76 $ 9.84 $ 9.48 $ 10.01
Total return++ 1.08% 10.10% (0.46)% 2.96%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 7,339 $ 8,873 $ 16,550 $ 39,861
Ratio of operating expenses to average net assets 0.90%+ 0.91% 0.85% 0.72%+
Ratio of net investment income to average net assets 5.72%+ 5.97% 4.88% 4.92%+
Portfolio turnover rate 73% 224% 293% 121%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 1.23%+ 1.21% 1.17% 1.14%+
Net investment income per share without waivers and/or
expense reimbursements $ 0.18 $ 0.54 $ 0.44 $ 0.21
</TABLE>
* Nations Short-Term Income Fund Investor N Shares commenced operations on
June 7, 1993.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
# Per share numbers have been calculated using the monthly average share
method, which more appropriately presents the per share data for the period
since the use of the undistributed income method did not accord with the
results of operations.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
7
<PAGE>
FOR AN INVESTOR N SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS SHORT-INTERMEDIATE GOVERNMENT FUND
<TABLE>
<CAPTION>
PERIOD YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
INVESTOR N SHARES 03/31/96(b)# 11/30/95# 11/30/94 11/30/93*
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 4.14 $ 3.93 $ 4.28 $ 4.26
Net investment income 0.07 0.21 0.20 0.09
Net realized and unrealized gain/(loss) on investments (0.07) 0.21 (0.33) 0.02
Net increase/(decrease) in net asset value from
operations 0.00 0.42 (0.13) 0.11
Distributions:
Dividends from net investment income (0.07) (0.21) (0.20) (0.09)
Distributions in excess of net investment income (0.00)(a) (0.00)(a) (0.00)(a) --
Distributions from net realized capital gains -- -- (0.02) --
Total dividends and distributions (0.07) (0.21) (0.22) (0.09)
Net asset value, end of period $ 4.07 $ 4.14 $ 3.93 $ 4.28
Total return++ (0.13)% 11.02% (2.81)% 2.65%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 13,789 $ 14,893 $ 10,974 $ 8,847
Ratio of operating expenses to average net assets 1.23%+ 1.20% 1.19% 1.15%+
Ratio of net investment income to average net assets 4.72%+ 5.28% 5.16% 4.80%+
Portfolio turnover rate 189% 328% 133% 92%
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 1.46%+ 1.40% 1.40% 1.39%+
Net investment income per share without waivers and/or
expense reimbursements $ 0.06 $ 0.20 $ 0.19 $ 0.09
</TABLE>
* Nations Short-Intermediate Government Fund Investor N Shares commenced
operations on June 7, 1993.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
# Per share numbers have been calculated using the monthly average share
method, which more appropriately represents the per share data for the period
since use of the undistributed income method did not accord with the results
of operations.
(a) Value represents less than $0.01.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
8
<PAGE>
FOR AN INVESTOR N SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS GOVERNMENT SECURITIES FUND
<TABLE>
<CAPTION>
PERIOD YEAR PERIOD
ENDED ENDED ENDED
INVESTOR N SHARES 03/31/96(b)# 05/31/95# 05/31/94*
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 9.86 $ 9.80 $ 10.49
Net investment income 0.47 0.58 0.54
Net realized and unrealized gain/(loss) on investments (0.19) 0.06 (0.64)
Net increase/(decrease) in net asset value from operations 0.28 0.64 (0.10)
Distributions:
Dividends from net investment income (0.45) (0.54) (0.49)
Dividends in excess of net investment income (0.02) -- (0.01)
Distributions from net realized capital gains -- -- --
Distributions in excess of net realized capital gains -- -- (0.05)
Distributions from capital -- (0.04) (0.04)
Total dividends and distributions (0.47) (0.58) (0.59)
Net asset value, end of period $ 9.67 $ 9.86 $ 9.80
Total return++ 2.85% 6.86% (1.09)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 50,958 $ 56,155 $ 56,313
Ratio of operating expenses to average net assets 1.45%+ 1.41% 1.38%+
Ratio of net investment income to average net assets 5.71%+ 6.04% 5.43%+
Portfolio turnover rate 199% 413% 56%
Ratio of operating expenses to average net assets without waivers
and/or expense reimbursements 1.60%+ 1.59% 1.59%+
Net investment income per share without waivers and/or expense
reimbursements $ 0.46 $ 0.56 $ 0.52
</TABLE>
* Nations Government Securities Fund Investor N Shares commenced operations on
June 7, 1993.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
# Per Share numbers have been calculated using the monthly average shares
method, which more appropriately presents the per share data for the period
since the use of the undistributed income method did not accord with the
results of operations.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
May 31.
9
<PAGE>
FOR AN INVESTOR N SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS STRATEGIC FIXED INCOME FUND
<TABLE>
<CAPTION>
PERIOD YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
INVESTOR N SHARES 03/31/96(a) 11/30/95 11/30/94 11/30/93*
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 10.22 $ 9.32 $ 10.55 $ 10.39
Net investment income 0.16 0.53 0.47 0.21
Net realized and unrealized gain/(loss) on investments (0.29) 0.90 (0.89) 0.17
Net increase/(decrease) in net asset value from operations (0.13) 1.43 (0.42) 0.38
Distributions:
Dividends from net investment income (0.16) (0.53) (0.45) (0.21)
Distributions in excess of net investment income -- -- (0.02) --
Distributions from net realized capital gains -- -- (0.34) (0.01)
Total dividends and distributions (0.16) (0.53) (0.81) (0.22)
Net asset value, end of period $ 9.93 $ 10.22 $ 9.32 $ 10.55
Total return++ (1.26)% 15.70% (4.21)% 3.64%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 2,496 $ 2,578 $ 2,145 $ 1,620
Ratio of operating expenses to average net assets 1.37%+ 1.36% 1.33% 1.26%+
Ratio of net investment income to average net assets 4.84%+ 5.40% 4.78% 4.75%+
Portfolio turnover rate 133% 228% 307% 161%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 1.48%+ 1.46% 1.41% 1.42%+
Net investment income per share without waivers and/or
expense reimbursements $ 0.16 $ 0.52 $ 0.46 $ 0.21
</TABLE>
* Nations Strategic Fixed Income Fund Investor N Shares commenced operations on
June 7, 1993.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
10
<PAGE>
FOR AN INVESTOR N SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS DIVERSIFIED INCOME FUND
<TABLE>
<CAPTION>
PERIOD YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
INVESTOR N SHARES 03/31/96(b) 11/30/95 11/30/94# 11/30/93#*
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 10.82 $ 9.67 $ 10.88 $ 10.59
Net investment income 0.21 0.66 0.67 0.30
Net realized and unrealized gain/(loss) on investments (0.40) 1.15 (1.06) 0.29
Net increase/(decrease) in net asset value from operations (0.19) 1.81 (0.39) 0.59
Distributions:
Dividends from net investment income (0.21) (0.66) (0.67) (0.30)
Distributions in excess of net investment income -- -- (0.00)(a) --
Distributions from net realized capital gains -- -- (0.15) --
Total dividends and distributions (0.21) (0.66) (0.82) (0.30)
Net asset value, end of period $ 10.42 $ 10.82 $ 9.67 $ 10.88
Total return++ (1.83)% 19.22% (3.77)% 5.58%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 84,692 $ 90,887 $ 55,058 $ 24,630
Ratio of operating expenses to average net assets 1.52%+ 1.55% 1.49% 1.30%+
Ratio of net investment income to average net assets 5.74%+ 6.28% 6.56% 6.27%+
Portfolio turnover rate 69% 96% 144% 86%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 1.62%+ 1.68% 1.70% 1.70%+
Net investment income per share without waivers and/or
expense reimbursements $ 0.21 $ 0.65 $ 0.65 $ 0.27
</TABLE>
* Nations Diversified Income Fund Investor N Shares commenced operations on
June 7, 1993.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
# Per share numbers have been calculated using the monthly average share
method, which more appropriately presents the per share data for the period
since the use of the undistributed income method did not accord with the
results of operations.
(a) Amount represents less than $0.01.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
Objectives
NATIONS SHORT-TERM INCOME FUND: Nations Short-Term Income Fund's investment
objective is to seek high current income consistent with minimal fluctuation of
principal. The Fund invests in investment grade debt securities.
NATIONS SHORT-INTERMEDIATE GOVERNMENT FUND: Nations Short-Intermediate
Government Fund's investment objective is to seek high current income consistent
with modest fluctuation of principal. The Fund invests primarily in securities
issued or guaranteed by the U.S. Government, its agencies or instrumentalities.
NATIONS GOVERNMENT SECURITIES FUND: Nations Government Securities Fund's
investment objective is to seek high current income consistent with moderate
fluctuation of principal. The Fund invests primarily in intermediate-
11
<PAGE>
term securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities.
NATIONS STRATEGIC FIXED INCOME FUND: Nations Strategic Fixed Income Fund's
investment objective is to seek total return by investing in investment grade
fixed income securities.
NATIONS DIVERSIFIED INCOME FUND: Nations Diversified Income Fund's investment
objective is to seek total return with an emphasis on current income by
investing in a diversified portfolio of fixed income securities.
How Objectives Are Pursued
NATIONS SHORT-TERM INCOME FUND: In pursuing its investment objective, the Fund
will, under normal market conditions, invest at least 65% of the total value of
its assets in investment grade debt obligations. It is expected that the average
dollar-weighted maturity and duration of the Fund's portfolio will not exceed
three years.
The Fund may invest in corporate convertible and non-convertible debt
obligations, including bonds, notes and debentures rated investment grade by one
of the following six nationally recognized statistical rating organizations,
Duff & Phelps Credit Rating Co. ("D&P"), Fitch Investors Service, Inc.
("Fitch"), Standard & Poor's Corporation ("S&P"), Moody's Investors Service,
Inc. ("Moody's"), IBCA Limited or its affiliate, IBCA Inc. (collectively,
"IBCA") or Thomson BankWatch, Inc. ("BankWatch") (collectively, "NRSROs"), or,
if not so rated, determined by the Adviser to be of comparable quality to
instruments so rated; dollar-denominated debt obligations of foreign issuers,
including foreign corporations and foreign governments and mortgage-related
securities of governmental issuers or of private issuers, including mortgage
pass-through certificates, collateralized mortgage obligations or "CMOs", real
estate investment trust securities or mortgage-backed bonds; other asset-backed
and municipal securities rated by one of the six NRSROs, or, if not so rated,
determined by the Adviser to be of comparable quality to instruments so rated.
The Fund also may invest in obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities ("U.S. Government Obligations").
Most obligations acquired by the Fund will be issued by companies or
governmental entities located within the United States. The Fund may invest up
to 25% of its assets in foreign securities.
As noted above, the Fund will invest in investment grade debt obligations.
Obligations rated in the lowest of the top four investment grade rating
categories (E.G. rated "BBB" by S&P or "Baa" by Moody's) have speculative
characteristics, and changes in economic conditions or other circumstances are
more likely to lead to a weakened capacity to make principal and interest
payments than is the case with higher grade debt obligations. Subsequent to its
purchase by the Fund, an issue of securities may cease to be rated or its rating
may be reduced below the minimum rating required for purchase by the Fund. The
Adviser will consider such an event in determining whether the Fund should
continue to hold the obligation. See "Appendix B" below for a description of
these rating designations.
The Fund also may invest in "high quality" money market instruments (I.E., those
within the two highest rating categories or unrated instruments determined by
the Adviser to be of comparable quality), repurchase agreements and cash. Such
obligations may include those issued by foreign banks and foreign branches of
U.S. banks. These investments may be in such proportions as, in the Adviser's
opinion, prevailing market or economic circumstances warrant.
NATIONS SHORT-INTERMEDIATE GOVERNMENT FUND: In pursuing its investment
objective, Nations Short-Intermediate Government Fund invests substantially all
of its assets in U.S. Government Obligations and repurchase agreements relating
to such obligations. Under normal market conditions, it is expected that the
average
12
<PAGE>
dollar-weighted maturity of the Fund's portfolio will be between three and five
years and the duration will not exceed five years. U.S. Government Obligations
have historically involved little risk of loss of principal if held to maturity.
However, due to fluctuations in interest rates, the market value of such
securities may vary during the period a shareholder owns shares of the Fund. The
value of the Fund's portfolio generally will vary inversely with changes in
prevailing interest rates.
The Fund also may invest in corporate convertible and non-convertible debt
obligations, including bonds, notes and debentures rated investment grade at the
time of purchase by one of the six NRSROs, or if not so rated, determined by the
Adviser to be of comparable quality to instruments so rated; dollar-denominated
debt obligations of foreign issuers, including foreign corporations and foreign
governments; mortgage-backed securities of governmental issuers or of private
issuers, including mortgage pass-through certificates, CMOs, real estate
investment trust securities or mortgage-backed bonds; other asset-backed and
municipal securities rated by one of the six NRSROs, or if not so rated,
determined by the Adviser to be of comparable quality.
The Fund also may invest in "high quality" money market instruments (I.E., those
within the two highest rating categories or unrated instruments deemed by the
Adviser to be of comparable quality), repurchase agreements and cash. Such
obligations may include those issued by foreign banks and foreign branches of
U.S. banks. These investments may be in such proportion as, in the Adviser's
opinion, prevailing market or economic circumstances warrant.
NATIONS GOVERNMENT SECURITIES FUND: In pursuing its investment objective,
Nations Government Securities Fund invests at least 65% of its assets in U.S.
Government Obligations. Under normal market conditions, it is expected that the
average dollar-weighted maturity of the Fund's portfolio will be between three
and 10 years and the Fund's duration is expected to be in a range of 3.5 to six
years.
The Fund also may invest in corporate convertible and non-convertible debt
obligations, including bonds, notes and debentures rated investment grade at the
time of purchase by one of the six NRSROs, or if not so rated, determined by the
Adviser to be of comparable quality to instruments so rated; dollar-denominated
debt obligations of foreign issuers, including foreign corporations and foreign
governments; mortgage-backed securities of governmental issuers or of private
issuers, including mortgage pass-through certificates, CMOs, real estate
investment trust securities or mortgage-backed bonds; other asset-backed and
municipal securities rated by one of the six NRSROs, or if not so rated,
determined by the Adviser to be of comparable quality.
The Fund also may invest in "high quality" money market instruments (I.E., those
within the two highest rating categories or unrated instruments deemed by the
Adviser to be of comparable quality), repurchase agreements and cash. Such
obligations may include those issued by foreign banks and foreign branches of
U.S. banks. These investments may be in such proportion as, in the Adviser's
opinion, prevailing market or economic circumstances warrant.
NATIONS STRATEGIC FIXED INCOME FUND: In pursuing its investment objective, the
Fund will, under normal market conditions, invest at least 65% of the total
value of its assets in investment grade fixed income securities. It is expected
that the average dollar-weighted maturity of the Fund's portfolio will be ten
years or less and under no circumstances will it exceed 15 years.
The Fund may invest in corporate convertible and non-convertible debt
obligations, including bonds, notes and debentures rated investment grade at the
time of purchase by one of the six NRSROs, or if not so rated, determined by the
Adviser to be of comparable quality to instruments so rated; U.S. Government
Obligations; dollar-denominated debt obligations of foreign issuers, including
foreign corporations and foreign governments; mortgage-backed securities of
governmental issuers or of private issuers, including mortgage pass-through
certificates, CMOs, real estate investment trust securities or mortgage-backed
bonds; other asset-backed and
13
<PAGE>
municipal securities rated by one of the six NRSROs, or if not so rated,
determined by the Adviser to be of comparable quality. The Fund also may invest
in dividend-paying preferred and common stock.
Most obligations acquired by the Fund will be issued by companies or
governmental entities located within the United States. The Fund may invest up
to 25% of its assets in foreign securities.
The Fund will invest in investment grade debt obligations. Obligations rated in
the lowest of the top four investment grade rating categories (E.G. rated "BBB"
by S&P or "Baa" by Moody's) have speculative characteristics, and changes in
economic conditions or other circumstances are more likely to lead to a weakened
capacity to make principal and interest payments than is the case with higher
grade debt obligations. Subsequent to its purchase by the Fund, an issue of
securities may cease to be rated or its rating may be reduced below the minimum
rating required for purchase by the Fund. The Adviser will consider such an
event in determining whether the Fund should continue to hold the obligation.
See "Appendix B" below for a description of these rating designations.
The Fund also may invest in "high quality" money market instruments (I.E., those
within the two highest rating categories or unrated instruments determined by
the Adviser to be of comparable quality), repurchase agreements and cash. Such
obligations may include those issued by foreign banks and foreign branches of
U.S. banks. These investments may be in such proportions as, in the Adviser's
opinion, prevailing market or economic circumstances warrant.
NATIONS DIVERSIFIED INCOME FUND: In pursuing its investment objective, the Fund
will, under normal market conditions, invest at least 65% of the total value of
its assets in investment grade debt obligations. It is expected that the average
dollar-weighted maturity of the Fund's portfolio will be greater than five
years.
The Fund may invest in corporate convertible and non-convertible debt
obligations such as fixed- and variable-rate bonds; U.S. Government Obligations;
dollar-denominated and non-dollar-denominated debt obligations of foreign
issuers, including foreign corporations and foreign governments; mortgage-backed
securities of governmental issuers or of private issuers, including mortgage
pass-through certificates, CMOs, real estate investment trust securities or
mortgage-backed bonds; other asset-backed and municipal securities rated by one
of the six NRSROs, or if not so rated, determined by the Adviser to be of
comparable quality. The Fund also may invest in dividend-paying convertible and
non-convertible preferred and common stocks.
Most obligations acquired by the Fund will be issued by companies or
governmental entities located within the United States. The Fund may invest up
to 25% of its assets in foreign securities.
Obligations rated in the lowest of the top four investment grade rating
categories (E.G. rated "BBB" by S&P or "Baa" by Moody's) have speculative
characteristics, and changes in economic conditions or other circumstances are
more likely to lead to a weakened capacity to make principal and interest
payments than is the case with higher grade debt obligations.
Up to 35% of the total value of the Fund's assets may be invested in
lower-quality fixed income securities rated "B" or better by Moody's or S&P, or
if not so rated, determined by the Adviser to be of comparable quality.
Securities which are rated "B" generally lack characteristics of the desirable
investment, and assurance of interest and principal payment over any long period
of time may be limited. Non-investment grade debt securities are sometimes
referred to as "high yield bonds" or "junk bonds." They tend to have speculative
characteristics, generally involve more risk of principal and income than higher
rated securities, and have yields and market values that tend to fluctuate more
than higher quality securities.
Subsequent to its purchase by the Fund, an issue of securities may cease to be
rated or its rating may be reduced below the minimum rating required for
purchase by the Fund. The Adviser will consider such an event in determining
whether the Fund should continue to hold the
14
<PAGE>
obligation. See "Appendix B" below for a description of these rating
designations.
The Fund may hold or invest in "high quality" money market instruments (I.E.,
those within the two highest rating categories or unrated instruments deemed by
the Adviser to be of comparable quality), repurchase aggreements and cash. Such
obligations may include those issued by foreign banks and foreign branches of
U.S. banks. These investments may be in such proportions as, in the Adviser's
opinion, prevailing market or economic circumstances warrant.
GENERAL: Each of the Funds may invest in certain specified derivative
securities, including: interest rate swaps, caps and floors for hedging
purposes; exchange-traded options; over-the-counter options executed with
primary dealers, including long calls and puts and covered calls to enhance
return; and U.S. and foreign exchange-traded financial futures and options
thereon approved by the Commodity Futures Trading Commission ("CFTC") for market
exposure risk-management. Each of the Funds also may lend its portfolio
securities to qualified institutional investors and may invest in restricted,
private placement and other illiquid securities. Each of the Funds may engage in
reverse repurchase agreements and in dollar roll transactions. Additionally,
each Fund may purchase securities issued by other investment companies,
consistent with the Fund's investment objective and policies.
Certain securities that have variable or floating interest rates or demand, put
or prepayment features may be deemed to have remaining maturities shorter than
their nominal maturities for purposes of determining the average weighted
maturity of the Funds.
For more information concerning these and other instruments in which the Funds
may invest their investment practices, see "Appendix A".
Although changes in the value of securities subsequent to their acquisition are
reflected in the net asset value of the Funds' shares, such changes will not
affect the income received by the Funds from such securities. However, since
available yields vary over time, no specific level of income can ever be
assured. The dividends paid by the Funds will increase or decrease in relation
to the income received by the Funds from their investments, which will in any
case be reduced by the Funds' expenses before being distributed to the Funds'
shareholders.
PORTFOLIO TURNOVER: Generally, the Funds will purchase portfolio securities for
capital appreciation or investment income, or both, and not for short-term
trading profits. If a Fund's annual portfolio turnover rate exceeds 100%, it may
result in higher brokerage costs and possible tax consequences for the Fund and
its shareholders. For the Funds' portfolio turnover rates, see "Financial
Highlights."
RISK CONSIDERATIONS: Although the Adviser will seek to achieve the Funds'
investment objectives, there is no assurance that it will be able to do so. No
single Fund should be considered, by itself, to provide a complete investment
program for any investor. Investments in a Fund are not insured against loss of
principal.
The value of a Fund's investments in debt securities, including U.S. Government
Obligations, will tend to decrease when interest rates rise and increase when
interest rates fall. In general, longer-term debt instruments tend to fluctuate
in value more than shorter-term debt instruments in response to interest rate
movements. In addition, debt securities that are not backed by the United States
Government are subject to credit risk, which is the risk that the issuer may not
be able to pay principal and/or interest when due.
Investments by a Fund in common stocks and other equity securities are subject
to stock market risks. The value of the stocks that the Fund holds, like the
broader stock market, may decline over short or even extended periods.
Certain of the Funds' investments constitute derivative securities, which are
securities whose value is derived, at least in part, from an underlying index or
reference rate. There are certain types of derivative securities that can, under
certain circumstances, significantly increase a purchaser's exposure to market
or other risks. The Adviser, however, only purchases derivative securities in
circumstances where it believes
15
<PAGE>
such purchases are consistent with such Fund's investment objective and do not
unduly increase the Fund's exposure to market or other risks. For additional
risk information regarding the Funds' investments in particular instruments, see
"Appendix A -- Portfolio Securities."
INVESTMENT LIMITATIONS: Each Fund is subject to a number of investment
limitations. The following investment limitations are matters of fundamental
policy and may not be changed without the affirmative vote of the holders of a
majority of the Fund's outstanding shares. Other investment limitations that
cannot be changed without such a vote of shareholders are described in the SAIs.
Each Fund may not:
1. Purchase any securities which would cause 25% or more of the value of the
Fund's total assets at the time of such purchase to be invested in the
securities of one or more issuers conducting their principal activities in the
same industry, provided that this limitation does not apply to investments in
obligations issued or guaranteed by the U.S. Government or its agencies and
instrumentalities.
2. Make loans, except that a Fund may purchase and hold debt instruments
(whether such instruments are part of a public offering or privately placed),
may enter into repurchase agreements and may lend portfolio securities in
accordance with its investment policies.
3. Each Fund may not:
Purchase securities of any one issuer (other than securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities) if,
immediately after such purchase, more than 5% of the value of such Fund's total
assets would be invested in the securities of such issuer, except that up to 25%
of the value of the Fund's total assets may be invested without regard to these
limitations and with respect to 75% of such Fund's assets, such Fund will not
hold more than 10% of the voting securities of any issuer.
The investment objective and policies of each Fund, unless otherwise specified,
may be changed without a vote of the Fund's shareholders. If the investment
objective or policies of a Fund change, shareholders should consider whether the
Fund remains an appropriate investment in light of their then current position
and needs.
In order to register a Fund's shares for sale in certain states, a Fund may make
commitments more restrictive than the investment policies and limitations
described in this Prospectus and the SAIs. Should a Fund determine that any such
commitment is no longer in the best interest of the Fund, it may consider
terminating sales of its shares in the states involved.
How Performance Is Shown
From time to time the Funds may advertise the total return and yield on a class
of shares. TOTAL RETURN AND YIELD FIGURES ARE BASED ON HISTORICAL DATA AND ARE
NOT INTENDED TO INDICATE FUTURE PERFORMANCE. The "total return" of a class of
shares of the Funds may be calculated on an average annual total return basis or
an aggregate total return basis. Average annual total return refers to the
average annual compounded rates of return over one-, five-, and ten-year periods
or the life of the Fund (as stated in the advertisement) that would equate an
initial amount invested at the beginning of a stated period to the ending
redeemable value of the investment (reflecting the deduction of any applicable
contingent deferred sales charge ("CDSC")), assuming the reinvestment of all
dividend and capital gain distributions. Aggregate total return reflects the
total percentage change in the value of the investment over the measuring period
again assuming the reinvestment of all dividends and capital gain distributions.
Total return may also be presented for other periods or may not reflect a
deduction of any applicable CDSC.
16
<PAGE>
"Yield" is calculated by dividing the annualized net investment income per share
during a recent 30-day (or one month) period of a class of shares by the maximum
public offering price per share on the last day of that period. The yield on a
class of shares does not reflect the deduction of any applicable CDSC.
Investment performance, which will vary, is based on many factors, including
market conditions, the composition of the Funds' portfolios and the Funds'
operating expenses. Investment performance also often reflects the risks
associated with the Fund's investment objective and policies. These factors
should be considered when comparing a Fund's investment results to those of
other mutual funds and other investment vehicles. Since yields fluctuate, yield
data cannot necessarily be used to compare an investment in the Funds with bank
deposits, savings accounts, and similar investment alternatives which often
provide an agreed-upon or guaranteed fixed yield for a stated period of time.
In addition to Investor N Shares, the Funds offer Primary A, Primary B, Investor
A and Investor C Shares. Each class of shares may bear different sales charges,
shareholder servicing fees, loads and other expenses, which may cause the
performance of a class to differ from the performance of the other classes.
Total return and yield quotations will be computed separately for each class of
the Funds' shares. Any fees charged by a selling agent and/or servicing agent
directly to its customers' accounts in connection with investments in the Funds
will not be included in calculations of total return or yield. The Funds' annual
report contains additional performance information and is available upon request
without charge from the Funds' distributor or an investor's agent.
How The Funds Are Managed
The business and affairs of each of Nations Fund Trust and Nations Fund, Inc.
are managed under the direction of its Board of Trustees and Board of Directors,
respectively. Nations Fund Trust's SAI contains the names of and general
background information concerning each Trustee of Nations Fund Trust. Nations
Fund, Inc.'s SAI contains the names of and general background information
concerning each Director of Nations Fund, Inc.
Nations Fund and the Adviser have adopted codes of ethics which contain policies
on personal securities transactions by "access persons," including portfolio
managers and investment analysts. These policies substantially comply in all
material respects with the recommendations set forth in the May 9, 1994 Report
of the Advisory Group on Personal Investing of the Investment Company Institute.
INVESTMENT ADVISER: NationsBanc Advisors, Inc., through its investment
management division, serves as investment adviser to the Funds. NBAI is a wholly
owned subsidiary of NationsBank, which in turn is a wholly owned banking
subsidiary of NationsBank Corporation, a bank holding company organized as a
North Carolina corporation. NBAI has its principal offices at One NationsBank
Plaza, Charlotte, North Carolina 28255.
TradeStreet Investment Associates, Inc. with principal offices at One
NationsBank Plaza, Charlotte, North Carolina 28255, serves as sub-investment
adviser to the Funds. TradeStreet is a wholly owned subsidiary of NationsBank.
TradeStreet provides investment management services to individuals, corporations
and institutions.
Subject to the general supervision of Nations Fund Trust's Board of Trustees and
Nations Fund, Inc.'s Board of Directors, and in accordance with each Fund's
investment policies, the Adviser formulates guidelines and lists of approved
investments for each Fund, makes decisions with respect to and places orders for
each Fund's purchases and sales of portfolio securities and maintains records
relating to such purchases and sales. The Adviser is authorized to allocate
purchase and sale orders for portfolio
17
<PAGE>
securities to certain financial institutions, including, in the case of agency
transactions, financial institutions which are affiliated with the Adviser or
which have sold shares in such Funds, if the Adviser believes that the quality
of the transaction and the commission are comparable to what they would be with
other qualified brokerage firms. From time to time, to the extent consistent
with its investment objective, policies and restrictions, each Fund may invest
in securities of companies with which NationsBank has a lending relationship.
For the services provided and expenses assumed pursuant to various Investment
Advisory Agreements, NBAI is entitled to receive advisory fees, computed daily
and paid monthly, at the annual rate of: 0.60% of the average daily net assets
of each of Nations Short-Term Income Fund, Nations Diversified Income Fund,
Nations Stategic Fixed Income Fund and Nations Short-Intermediate Government
Fund; 0.65% of the first $100 million of Nations Government Securities Fund's
average daily net assets, plus 0.55% of the Fund's average daily net assets in
excess of $100 million and up to $250 million, plus 0.50% of the Fund's average
daily net assets in excess of $250 million.
For the services provided and expenses assumed pursuant to sub-advisory
agreements, NBAI will pay TradeStreet sub-advisory fees, computed daily and paid
monthly, at the annual rate of 0.15% of Nations Short-Intermediate Government
Fund's, Nations Government Securities Fund's, Nations Short-Term Income Fund's,
Nations Strategic Fixed Income Fund's and Nations Diversified Income Fund's
average daily net assets.
From time to time, NBAI (and/or TradeStreet) may waive or reimburse (either
voluntarily or pursuant to applicable state limitations) advisory fees and/or
expenses payable by a Fund.
For the fiscal period from December 1, 1995 to December 31, 1995, after waivers,
Nations Fund Trust paid NationsBank under a prior Investment Advisory Agreement
advisory fees at the indicated rates of the following Funds' average daily net
assets: Nations Short-Intermediate Government Fund -- 0.37%; Nations Short-Term
Income Fund -- 0.27%; Nations Diversified Income Fund -- 0.50%; and Nations
Strategic Fixed Income Fund -- 0.50%.
For the fiscal period from June 1, 1995 to December 31, 1995, after waivers,
Nations Fund, Inc. paid NationsBank under a prior Investment Advisory Agreement
advisory fees at the rate of 0.48% of the average daily net assets of Nations
Government Securities Fund.
For the fiscal period from January 1, 1996 to March 31, 1996, after waivers,
Nations Fund Trust paid NBAI under the current Investment Advisory Agreement
advisory fees at the indicated rates of the following Funds' average daily net
assets: Nations Short-Intermediate Government Fund -- 0.37%; Nations Short-Term
Income Fund -- 0.27%; Nations Diversified Income Fund -- 0.50%; and Nations
Strategic Fixed Income Fund -- 0.50%.
For the fiscal period from January 1, 1996 to March 31, 1996, after waivers,
Nations Fund, Inc. paid NBAI under the current Investment Advisory Agreement
advisory fees at the rate of 0.48% of the average daily net assets of Nations
Government Securities Fund.
For the fiscal period from January 1, 1996 to March 31, 1996, after waivers,
NBAI paid TradeStreet under the current Sub-Advisory Agreement sub-advisory fees
at the rate of 0.15% of the average daily net assets of Nations Short-
Intermediate Government Fund, Nations Short-Term Income Fund, Nations
Diversified Income Fund, Nations Strategic Fixed Income Fund, and Nations
Government Securities Fund.
David M. Hetherington, CFA, is a Managing Director of Fixed Income Management.
Mr. Hetherington is responsible for overseeing all fixed income product
management and is Senior Portfolio Manager for Nations Short-Term Income Fund.
Mr. Hetherington has been Portfolio Manager for the Nations Short-Term Income
Fund since 1995. Prior to assuming his position with TradeStreet, he was Senior
Vice President and Director of Fixed Income for the Investment Management Group
at NationsBank. Mr. Hetherington has worked in the investment community since
1975. His past experience includes working as a portfolio manager, a trust
investment officer and a securities
18
<PAGE>
analyst for First Citizens Bank and Deposit Guarantee as well as working as an
Economist for the U.S. Department of Labor in the Bureau of Labor Statistics.
Mr. Hetherington received a B.A. in Economics from Duke University. He holds the
Chartered Financial Analyst designation and is a member of the Association for
Investment Management and Research.
Mark S. Ahnrud, CFA, is a Director of Fixed Income Management for TradeStreet
and Senior Portfolio Manager for Nations Diversified Income Fund. Mr. Ahnrud has
been Portfolio Manager for Nations Diversified Income Fund since 1992. Prior to
assuming his position with TradeStreet, he was Senior Vice President and Senior
Portfolio Manager for the Investment Management Group at NationsBank. Mr. Ahnrud
has worked for the Investment Management Group at NationsBank since 1985 where
his responsibilities initially included institutional investment management
sales and later involved high yield credit analysis. Mr. Ahnrud received a dual
B.S. in Finance and Investments from Babson College and an M.B.A. from Duke
University, Fuqua School of Business. He holds the Chartered Financial Analyst
designation and is a member of the Association for Investment Management and
Research as well as the North Carolina Society of Financial Analysts, Inc.
Gregory H. Cobb is a Senior Product Manager, Fixed Income Management for
TradeStreet and Senior Portfolio Manager for Nations Strategic Fixed Income
Fund. Mr. Cobb has been Portfolio Manager for Nations Strategic Fixed Income
Fund since 1995. Prior to assuming his position with TradeStreet, he was Vice
President and Senior Portfolio Manager for the Investment Management Group at
NationsBank. Mr. Cobb has worked in the investment community since 1987. His
past experience includes portfolio management of intermediate duration and
insurance products for Trust Company Bank and Barnett Bank Trust Company, Inc.
Mr. Cobb received a B.A. in Economics from the University of North Carolina at
Chapel Hill.
John S. Swaim is a Senior Product Manager, Fixed Income Management for
TradeStreet and Senior Portfolio Manager for Nations Short-Intermediate
Government Fund and Nations Government Securities Fund. Mr. Swaim has been
Portfolio Manager for the Funds since 1995. Prior to assuming his position with
TradeStreet, he was Vice President and Senior Portfolio Manager for the
Investment Management Group at NationsBank. Mr. Swaim has worked in the
investment community since 1986. His past experience includes derivative
products manager for the NationsBank Texas Corporate Investment Division
portfolio. Mr. Swaim received a B.S. from University of North Texas and an
M.B.A. from University of Texas at Arlington.
Morrison & Foerster LLP, counsel to Nations Fund and special counsel to
NationsBank has advised NationsBank and Nations Fund that NationsBank and its
affiliates may perform the services contemplated by the various Investment
Advisory Agreements and this Prospectus without violation of the Glass-Steagall
Act. Such counsel has pointed out, however, that there are no controlling
judicial or administrative interpretations or decisions and that future judicial
or administrative interpretations of, or decisions relating to, present federal
or state statutes, including the Glass-Steagall Act, and regulations relating to
the permissible activities of banks and their subsidiaries or affiliates, as
well as future changes in federal or state statutes, including the
Glass-Steagall Act, and regulations and judicial or administrative decisions or
interpretations thereof, could prevent such entities from continuing to perform,
in whole or in part, such services. If any such entity were prohibited from
performing any of such services, it is expected that new agreements would be
proposed or entered into with another entity or entities qualified to perform
such services.
OTHER SERVICE PROVIDERS: Stephens Inc. ("Stephens"), with principal offices at
111 Center Street, Little Rock, Arkansas 72201, serves as the administrator of
the Funds pursuant to Administration Agreements. Pursuant to the terms of the
Administration Agreements, Stephens provides various administrative and
corporate secretarial services to the Funds, including providing general
oversight of other service providers, office space, utilities and various legal
and administrative services in connec-
19
<PAGE>
tion with the satisfaction of various regulatory requirements applicable to the
Funds.
First Data Investor Services Group, Inc. ("First Data"), formerly The
Shareholder Services Group, Inc., a wholly owned subsidiary of First Data
Corporation, with principal offices at One Exchange Place, Boston, Massachusetts
02109, serves as the co-administrator of the Funds pursuant to a
Co-Administration Agreement. Under the Co-Administration Agreement, First Data
provides various administrative and accounting services to the Funds including
performing the calculations necessary to determine the net asset value per share
and dividends of each class of shares of the Funds, preparing tax returns and
financial statements and maintaining the portfolio records and certain of the
general accounting records for the Funds.
For the services rendered pursuant to the Administration and Co-Administration
Agreements, Stephens and First Data are entitled to receive a combined fee at
the annual rate of up to 0.10% of each Fund's average daily net assets.
For the fiscal period from December 1, 1995 to March 31, 1996, after waivers,
Nations Fund Trust paid its administrators combined fees at the rate of 0.10% of
the average daily net assets of Nations Short-Intermediate Government Fund,
Nations Short-Term Income Fund, Nations Diversified Income Fund, Nations
Strategic Fixed Income Fund.
For the fiscal period from June 1, 1995 to March 31, 1996, after waivers,
Nations Fund, Inc. paid its administrator combined fees at the rate of 0.10% of
the average daily net assets of Nations Government Securities Fund.
NationsBank serves as sub-administrator for Nations Fund pursuant to a
Sub-Administration Agreement. Pursuant to the terms of the Sub-Administration
Agreement, NationsBank assists Stephens in supervising, coordinating and
monitoring various aspects of the Funds' administrative operations. For
providing such services, NationsBank shall be entitled to receive a monthly fee
from Stephens based on an annual rate of .01% of the Funds' average daily net
assets.
Shares of the Funds are sold on a continuous basis by Stephens, as the Funds'
sponsor and distributor. Stephens is a registered broker/dealer with principal
offices at 111 Center Street, Little Rock, Arkansas 72201. Nations Fund has
entered into a distribution agreement with Stephens which provides that Stephens
has the exclusive right to distribute shares of the Funds. Stephens may pay
service fees or commissions to selling agents that assist customers in
purchasing Investor N Shares of the Funds. See "Shareholder Servicing And
Distribution Plans."
NationsBank of Texas N.A., ("NationsBank of Texas" or the "Custodian") serves as
the Funds' custodian. NationsBank of Texas is located at 1401 Elm Street,
Dallas, Texas 75202 and is a wholly owned subsidiary of NationsBank Corporation.
In return for providing custodial services, NationsBank of Texas is entitled to
receive, in addition to out-of-pocket expenses, fees payable monthly (i) at the
rate of 1.25% of 1% of the average daily net assets of the Funds, (ii) $10.00
per repurchase collateral transaction by the Funds, and (iii) $15.00 per
purchase, sale and maturity transaction involving the Funds.
First Data serves as transfer agent (the "Transfer Agent") for the Funds'
Investor N Shares. The Transfer Agent is located at One Exchange Place, Boston,
Massachusetts 02109.
Price Waterhouse LLP serves as independent accountants to Nations Fund. Its
address is 160 Federal Street, Boston, Massachusetts 02110.
EXPENSES: The accrued expenses of the Funds, as well as certain expenses
attributable to Investor N Shares, are deducted from accrued income before
dividends are declared. The Funds' expenses include, but are not limited to:
fees paid to the Adviser, NationsBank, Stephens and First Data; interest;
trustees' and directors' fees; federal and state securities registration and
qualification fees; brokerage fees and commissions; costs of preparing and
printing prospectuses for regulatory purposes and for distribution to existing
shareholders; charges of the Custodian and Transfer Agent; certain insurance
premiums; outside auditing and legal expenses; costs of shareholder reports and
shareholder meetings; other expenses which are not expressly assumed by the
Adviser, NationsBank, Stephens or First Data under their respective agreements
with Nations Fund; and any
20
<PAGE>
extraordinary expenses. Investor N Shares may bear certain class specific retail
transfer agency expenses and also bear certain additional shareholder service
and sales support costs. Any general expenses of Nations Fund Trust and/or
Nations Fund, Inc. that are not readily identifiable as belonging to a
particular investment portfolio are allocated among all portfolios in the
proportion that the assets of a portfolio bear to the assets of Nations Fund
Trust or Nations Fund, Inc. or in such other manner as the Board of Trustees or
the Boards of Directors deems appropriate.
Organization And History
The Funds are members of the Nations Fund Family, which consists of Nations Fund
Trust, Nations Fund, Inc., Nations Fund Portfolios, Inc. and Nations
Institutional Reserves. The Nations Fund Family currently has more than 43
distinct investment portfolios and total assets in excess of $18 billion.
NATIONS FUND TRUST: Nations Fund Trust was organized as a Massachusetts business
trust on May 6, 1985. Nations Fund Trust's fiscal year end is March 31; prior to
1996, Nations Fund Trust's fiscal year end was November 30. The Funds currently
offer five classes of shares -- Primary A Shares, Primary B Shares, Investor A
Shares, Investor C Shares and Investor N Shares. This Prospectus relates only to
the Investor N Shares of Nations Short-Term Income Fund, Nations Diversified
Income Fund, Nations Strategic Fixed Income Fund and Nations Short-Intermediate
Government Fund of Nations Fund Trust. To obtain additional information
regarding the Funds' other classes of shares which may be available to you,
contact your Agent (as defined below) or Nations Fund at 1-800-321-7854.
Each share of Nations Fund Trust is without par value, represents an equal
proportionate interest in the related fund with other shares of the same class,
and is entitled to such dividends and distributions out of the income earned on
the assets belonging to such fund as are declared in the discretion of Nations
Fund Trust's Board of Trustees. Nations Fund Trust's Declaration of Trust
authorizes the Board of Trustees to classify or reclassify any class of shares
into one or more series of shares.
Shareholders are entitled to one vote for each full share held and a
proportionate fractional vote for each fractional share held. Shareholders of
each fund of Nations Fund Trust will vote in the aggregate and not by fund, and
shareholders of each fund will vote in the aggregate and not by class except as
otherwise expressly required by law or when the Board of Trustees determines
that the matter to be voted on affects only the interests of shareholders of a
particular fund or class. See the related SAI for examples of when the
Investment Company Act of 1940 (the "1940 Act") requires voting by fund.
As of July 15, 1996, NationsBank and its affiliates possessed or shared power to
dispose or vote with respect to more than 25% of the outstanding shares of
Nations Fund Trust and therefore could be considered to be a controlling person
of Nations Fund Trust for purposes of the 1940 Act. For more detailed
information concerning the percentage of each class or series of shares over
which NationsBank and its affiliates possessed or shared power to dispose or
vote as of a certain date, see Nations Fund Trust's SAI.
Nations Fund Trust does not presently intend to hold annual meetings except as
required by the 1940 Act. Shareholders will have the right to remove Trustees.
Nations Fund Trust's Code of Regulations provides that special meetings of
shareholders shall be called at the written request of the shareholders entitled
to vote at least 10% of the outstanding shares of Nations Fund Trust entitled to
be voted at such meeting.
NATIONS FUND, INC.: Nations Fund, Inc. was incorporated in Maryland on December
13, 1983, but had no operations prior to December 15, 1986. Nations Fund, Inc.'s
fiscal year end is March 31; prior to 1996, Nations Fund, Inc.'s fiscal year end
was May 31. As of the date of this
21
<PAGE>
Prospectus, the authorized capital stock of Nations Fund, Inc. consists of
270,000,000,000 shares of common stock, par value of $.001 per share, which are
divided into series or funds each of which consists of separate classes of
shares. This Prospectus relates only to the Investor N Shares of Nations
Government Securities Fund of Nations Fund, Inc. To obtain additional
information regarding the Fund's other classes of shares which may be available
to you, contact your Agent (as defined below) or Nations Fund at 1-800-321-7854.
Shares of each fund and class have equal rights with respect to voting, except
that the holders of shares of a particular fund or class will have the exclusive
right to vote on matters affecting only the rights of the holders of such fund
or class. In the event of dissolution or liquidation, holders of each class will
receive pro rata, subject to the rights of creditors, (a) the proceeds of the
sale of that portion of the assets allocated to that class held in the
respective fund of Nations Fund, Inc., less (b) the liabilities of Nations Fund,
Inc. attributable to the respective fund or class or allocated among the funds
or classes based on the respective liquidation value of each fund or class.
Shareholders of Nations Fund, Inc. do not have cumulative voting rights, and
therefore the holders of more than 50% of the outstanding shares of all funds
voting together for election of directors may elect all of the members of the
Board of Directors of Nations Fund, Inc. Meetings of shareholders may be called
upon the request of 10% or more of the outstanding shares of Nations Fund, Inc.
There are no preemptive rights applicable to any of Nations Fund, Inc.'s shares.
Nations Fund, Inc.'s shares, when issued, will be fully paid and non-assessable.
As of July 15, 1996, NationsBank and its affiliates possessed or shared power to
dispose of or vote with respect to more than 25% of the outstanding shares of
Nations Fund, Inc. and therefore could be considered to be a controlling person
of Nations Fund, Inc. for purposes of the 1940 Act. For more detailed
information concerning the percentage of each class or series over which
NationsBank and its affiliates possessed or shared power to dispose or vote as
of a certain date, see the Nations Fund, Inc. SAI. It is anticipated that
Nations Fund, Inc. will not hold annual shareholder meetings on a regular basis
unless required by the 1940 Act or Maryland law.
Because this Prospectus combines disclosure on two separate investment
companies, there is a possibility that one investment company could become
liable for a misstatement, inaccuracy or incomplete disclosure in this
Prospectus concerning the other investment company. Nations Fund Trust and
Nations Fund, Inc. have entered into an indemnification agreement that creates a
right of indemnification from the investment company responsible for any such
misstatement, inaccuracy or incomplete disclosure that may appear in this
Prospectus.
PENDING LEGAL PROCEEDINGS: A purported class action lawsuit against, among
others, Nations Government Securities Fund and Nations Short-Intermediate
Government Fund was filed by Lawrence Bergelt on May 21, 1996. The complaint was
amended and consolidated on July 11, 1996 in the United States District Court
for the Middle District of Florida, Tampa Division by Mr. Bergelt and others in
an action against the two funds, NationsBank Corporation and certain of its
affiliates, Dean Witter Distributors and certain of its affiliates, and Stephens
Inc. (Case No. 94-995-Civ.-T-23E). As relevant to Nations Government Securities
Fund and Nations Short-Intermediate Government Fund, plaintiffs allege that,
among other things, defendants violated the Securities Exchange Act of 1934 and
various state securities fraud statutes by employing a scheme to defraud
plaintiffs into purchasing shares of the funds and making untrue statements of
material fact and omitting to state material facts in connection with sales of
shares of the funds. Plaintiffs further allege that, among other things,
defendants concealed the risks associated with such funds by blurring the
distinctions between banks and non-bank subsidiaries and by obscuring the
differences between traditional, federally insured bank products and uninsured,
non-depository products.
22
<PAGE>
About Your Investment
How To Buy Shares
The Funds have established various procedures for purchasing Investor N Shares
in order to accommodate different investors. Purchase orders may be placed
through banks, broker/dealers or other financial institutions (including certain
affiliates of NationsBank) that have entered into 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 reserves the right to redeem the shares held by
such plans on 60 days' written notice. The minimum subsequent investment is
$100, except for investments pursuant to the Systematic Investment Plan
described below.
Investor N Shares are purchased at net asset value per share without the
imposition of a sales charge. Purchases may be effected on days on which the New
York Stock Exchange (the "Exchange") is open for business (a "Business Day").
The Servicing Agents will provide various shareholder services for, and the
Selling Agents will provide sales support assistance to, their respective
customers ("Customers") who own Investor N Shares. Servicing Agents and Selling
Agents are sometimes referred to hereafter as "Agents." From time to time the
Agents, Stephens and Nations Fund may agree to voluntarily reduce the maximum
fees payable for sales support or shareholder services.
Nations Fund and Stephens reserve the right to reject any purchase order. The
issuance of Investor N Shares is recorded on the books of the Funds, and share
certificates are not issued unless expressly requested in writing. Certificates
are not issued for fractional shares.
EFFECTIVE TIME OF PURCHASES: Purchase orders for Investor N Shares of the Funds
which are received by Stephens or by the Transfer Agent before the close of
regular trading hours on the Exchange (currently 4:00 p.m., Eastern time) on any
Business Day are priced according to the net asset value determined on that day
but are not executed until 4:00 p.m., Eastern time, on the Business Day on which
immediately available funds in payment of the purchase price are received by the
Funds' Custodian. Such payment must be received no later than 4:00 p.m., Eastern
time, by the third Business Day following receipt of the order. If funds are not
received by such date, the order will not be accepted and notice thereof will be
given to the Agent placing the order. Payment for orders which are not received
or accepted will be returned after prompt inquiry to the sending Agent.
The Agents are responsible for transmitting orders for purchases of Investor N
Shares by their Customers, and delivering required funds,
23
<PAGE>
on a timely basis. Stephens is responsible for transmitting orders it receives
to Nations Fund.
SYSTEMATIC INVESTMENT PLAN: Under the Funds' Systematic Investment Plan ("SIP")
shareholders may automatically purchase Investor N Shares. On a bi-monthly or
quarterly basis, shareholders may direct cash to be transferred automatically
from their checking or savings account at any bank which is a member of the
Automated Clearing House to their Fund account. Transfers will occur on or about
the 15th and/or 30th day of the applicable month. The systematic investment
amount may be in any amount from $25 to $100,000. For more information
concerning the SIP, contact your Agent.
REINSTATEMENT PRIVILEGE: Within 120 days after a redemption of Investor N Shares
of a Fund, a shareholder may reinstate any portion of the proceeds of such
redemption in Investor N Shares of the same Fund at the net asset value next
determined after a reinstatement request is received by the Transfer Agent,
together with the proceeds. A shareholder exercising this privilege would
receive a pro-rata credit for any CDSC paid in connection with the redemption. A
shareholder may not exercise this privilege with the proceeds of a redemption of
shares previously purchased through the reinstatement privilege.
TELEPHONE TRANSACTIONS: Investors may effect purchases, redemptions (up to
$50,000) and exchanges by telephone. See "How To Redeem Shares" and "How To
Exchange Shares" below. If a shareholder desires to elect the telephone
transaction feature after opening an account, a signature guarantee will be
required. Shareholders should be aware that by using the telephone transaction
feature, such shareholders may be giving up a measure of security that they may
have if they were to authorize written requests only. A shareholder may bear the
risk of any resulting losses from a telephone transaction. Nations Fund will
employ reasonable procedures to confirm that instructions communicated by
telephone are genuine, and if Nations Fund and its service providers fail to
employ such measures, they may be liable for any losses due to unauthorized or
fraudulent instructions. Nations Fund requires a form of personal identification
prior to acting upon instructions received by telephone and provides written
confirmation to shareholders of each telephone share transaction. In addition,
Nations Fund reserves the right to record all telephone conversations.
How To Redeem Shares
Redemption orders should be transmitted by telephone or in writing through the
same Agent that transmitted the original purchase order. Redemption orders are
effected at the net asset value per share next determined after receipt of the
order by Stephens or by the Transfer Agent. The Agents are responsible for
transmitting redemption orders to Stephens or to the Transfer Agent and for
crediting a Customers' accounts with the redemption proceeds on a timely basis.
Except for any CDSC which may be applicable upon the redemption of Investor N
Shares, as described below, there is no redemption charge. No charge for wiring
redemption payments is imposed by Nations Fund.
Redemption proceeds are normally wired to the redeeming Agent within three
Business Days after receipt of the order by Stephens or by the Transfer Agent.
However, redemption proceeds for shares purchased by check may not be remitted
until at least 15 days after the date of purchase to ensure that the check has
cleared; a certified check, however, is deemed to be cleared immediately.
Nations Fund may redeem a shareholder's Investor N Shares upon 60 days' written
notice if the balance in the shareholder's account drops below $500 as a result
of redemptions. Share balances also may be redeemed at the direction of an Agent
pursuant to arrangements between the Agent and its Customers. Nations Fund also
may
24
<PAGE>
redeem shares of the Funds involuntarily or make payment for redemption in
readily marketable securities or other property under certain circumstances in
accordance with the 1940 Act.
Prior to effecting a redemption of Investor N Shares represented by
certificates, the Transfer Agent must have received such certificates at its
principal office. All such certificates must be endorsed by the redeeming
shareholder or accompanied by a signed stock power, in each instance with the
signature guaranteed by a commercial bank or a member of a major stock exchange,
unless other arrangements satisfactory to Nations Fund have previously been
made. Nations Fund may require any additional information reasonably necessary
to evidence that a redemption has been duly authorized.
CONTINGENT DEFERRED SALES CHARGE: Subject to certain waivers specified below,
Investor N Shares purchased prior to January 1, 1996 may be subject to a CSDC if
such shares of each such Fund (other than Nations Short-Term Income Fund) are
redeemed within six years of the date of purchase. No CDSC is imposed on
increases in net asset value above the initial purchase price, including shares
acquired by reinvestment of distributions. Subject to the exclusions described
below, the amount of the CDSC is determined as a percentage of the lesser of the
net asset value or the purchase price of the shares being redeemed. The amount
of the CDSC on shares of Nations Diversified Income Fund, Nations Strategic
Fixed Income Fund and Nations Government Securities Fund will depend on the
number of years since you invested, according to the following table:
<TABLE>
<CAPTION>
Contingent Deferred
Sales Charge as a
Percentage of Dollar
Year Since Purchase Amount Subject to Charge
<S> <C>
First 5.0%
Second 4.0%
Third 3.0%
Fourth 2.0%
Fifth 2.0%
Sixth 1.0%
Seventh and thereafter None
</TABLE>
NATIONS SHORT-INTERMEDIATE GOVERNMENT FUND
The amount of CDSC on shares of Nations Short-Intermediate Government Fund will
depend on the number of years since you invested, according to the following
table:
<TABLE>
<CAPTION>
Contingent Deferred
Sales Charge as a
Percentage of Dollar
Year Since Purchase Made Amount Subject to Charge
<S> <C>
First 4.0%
Second 3.0%
Third 3.0%
Fourth 2.0%
Fifth 2.0%
Sixth 1.0%
Seventh and thereafter None
</TABLE>
In determining whether a CDSC is payable on any redemption, the Fund will first
redeem shares not subject to any charge, and then shares held the longest during
the six year period. This will result in you paying the lowest possible CDSC.
Solely for purposes of determining the number of years from the date of purchase
of shares, all purchases are deemed to have been made on the trade date of the
transaction.
The CDSC will be waived on redemptions of Investor N Shares (i) following the
death or disability (as defined in the Internal Revenue Code of 1986, as amended
(the "Code")) of a shareholder (including a registered joint owner), (ii) in
connection with the following retirement plan distributions: (a) lump-sum or
other distributions from a qualified corporate or self-employed retirement plan
following retirement (or in the case of a "key employee" of a "top heavy" plan,
following attainment of age 59 1/2); (b) distributions from an IRA or Custodial
Account under Section 403(b)(7) of the Code following attainment of age 59 1/2;
(c) a tax-free return of an excess contribution to an IRA; and (d) distributions
from a qualified retirement plan that are not subject to the 10% additional
Federal with-
25
<PAGE>
drawal tax pursuant to Section 72(t)(2) of the Code, (iii) effected pursuant to
Nations Fund's right to liquidate a shareholder's account, including instances
where the aggregate net asset value of the Investor N Shares held in the account
is less than the minimum account size, (iv) in connection with the combination
of Nations Fund with any other registered investment company by a merger,
acquisition of assets or by any other transaction, and (v) effected pursuant to
the Automatic Withdrawal Plan discussed below, provided that such redemptions do
not exceed, on an annual basis, 12% of the net asset value of the Investor N
Shares in the account. In addition, the CDSC will be waived on Investor N Shares
purchased before September 30, 1994 by current or retired employees of
NationsBank and its affiliates or by current or former Trustees or Directors of
Nations Fund or other management companies managed by NationsBank. Shareholders
are responsible for providing evidence sufficient to establish that they are
eligible for any waiver of the CDSC.
Stephens may, from time to time, at its expense or as an expense for which it
may be reimbursed under the plan adopted pursuant to Rule 12b-1 under the 1940
Act, pay a bonus or other consideration or incentive to Selling 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
Selling Agents not to exceed 0.75% of the offering price per share on all sales
of Investor N Shares as an expense of Stephens or for which Stephens may be
reimbursed under the plan adopted pursuant to Rule 12b-1 or upon receipt of a
CDSC. Any such additional consideration or incentive program may be terminated
at any time by Stephens.
In addition, Stephens has established a non-cash compensation program, pursuant
to which broker/dealers or financial institutions that sell shares of the Funds
may earn additional compensation in the form of trips to sales seminars or
vacation destinations, tickets to sporting events, theater or other
entertainment, opportunities to participate in golf or other outings and gift
certificates for meals or merchandise. This non-cash compensation program may be
amended or terminated at any time by Stephens.
Within 120 days after a redemption of Investor N Shares of a Fund, a shareholder
may reinvest any portion of the proceeds of such redemption in Investor N Shares
of the same Fund. The amount which may be so reinvested is limited to an amount
up to, but not exceeding, the redemption proceeds (or to the nearest full share
if fractional shares are not purchased). A shareholder exercising this privilege
would receive a pro rata credit for any CDSC paid in connection with the prior
redemption. A shareholder may not exercise this privilege with the proceeds of a
redemption of shares previously purchased through the reinvestment privilege. In
order to exercise this privilege, a written order for the purchase of Investor N
Shares must be received by the Transfer Agent or by Stephens within 120 days
after the redemption.
AUTOMATIC WITHDRAWAL PLAN: An Automatic Withdrawal Plan ("AWP") may be
established by a new or existing shareholder of the Funds if the value of the
Investor N Shares in his/her accounts within the Nations Fund Family (valued at
the net asset value at the time of the establishment of the AWP) equals $10,000
or more. Investor N Shares redeemed under the AWP will not be subject to a CDSC,
provided that the shares so redeemed do not exceed, on an annual basis, 12% of
the net asset value of the Investor N Shares in the account. Otherwise, any
applicable CDSC will be imposed on shares redeemed under the AWP. Shareholders
who elect to establish an AWP may receive a monthly, quarterly or annual check
or automatic transfer to a checking or savings account in a stated amount of not
less than $25 on or about the 10th or 25th day of the applicable month of
withdrawal. Investor N Shares will be redeemed (net of any applicable CDSC) as
necessary to meet withdrawal payments. Withdrawals may reduce principal and will
eventually deplete the shareholder's account. If a shareholder desires to
establish an AWP after opening an account, a signature guarantee will be
required. AWPs may be terminated by shareholders on 30 days' written notice to
their Selling Agent or by Nations Fund at any time.
26
<PAGE>
How To Exchange Shares
The exchange feature enables a shareholder to exchange funds as specified below
when the shareholder believes that a shift between funds is an appropriate
investment decision. The exchange feature enables a shareholder of Investor N
Shares of a fund offered by Nations Fund to acquire shares of the same class
that are offered by any other fund of Nations Fund (except Nations Short-Term
Income Fund and Nations Short-Term Municipal Income Fund), Investor A Shares of
the Nations Short-Term Income Fund or Nations Short-Term Municipal Income Fund,
or Investor C Shares of a Nations Fund money market fund. Additionally, the
exchange feature enables a shareholder of Investor N Shares of Nations
Short-Term Income Fund to exchange such shares for Investor N Shares of Nations
Short-Term Municipal Income Fund. A qualifying exchange is based on the next
calculated net asset value per share of each fund after the exchange order is
received.
No CDSC will be imposed in connection with an exchange of Investor N Shares that
meets the requirements discussed in this section. If a shareholder acquires
Investor N Shares of another fund through an exchange, any CDSC schedule
applicable (CDSCs may apply to shares purchased prior to January 1, 1996) to the
original shares purchased will be applied to any redemption of the acquired
shares. If a shareholder exchanges Investor N Shares of a fund for Investor C
Shares of a money market fund or Investor A Shares of Nations Short-Term Income
Fund or Nations Short-Term Municipal Income Fund, the acquired shares will
remain subject to the CDSC schedule applicable to the Investor N Shares
exchanged. The holding period (for purposes of determining the applicable rate
of the CDSC) does not accrue while the shares owned are Investor C Shares of a
Nations Fund money market fund or Investor A Shares of Nations Short-Term Income
Fund or Nations Short-Term Municipal Income Fund. As a result, the CDSC that is
ultimately charged upon a redemption is based upon the total holding period of
Investor N Shares of a fund that charges a CDSC.
The current prospectus for each fund of Nations Fund describes its investment
objective and policies, and shareholders should obtain a copy and examine it
carefully before investing. Exchanges are subject to the minimum investment
requirement and any other conditions imposed by each fund. In the case of any
shareholder holding a share certificate or certificates, no exchanges may be
made until all applicable share certificates have been received by the Transfer
Agent and deposited in the shareholder's account. An exchange will be treated
for Federal income tax purposes the same as a redemption of shares, on which the
shareholder may realize a capital gain or loss. However, the ability to deduct
capital losses on an exchange may be limited in situations where there is an
exchange of shares within 90 days after the shares are purchased.
The Investor N Shares exchanged must have a current value of at least $1,000.
Nations Fund reserves the right to reject any exchange request. Only shares that
may legally be sold in the state of the investor's residence may be acquired in
an exchange. Only shares of a class that is accepting investments generally may
be acquired in an exchange. An investor may telephone an exchange request by
calling the investor's Selling Agent which is responsible for transmitting such
request to Stephens or to the Transfer Agent.
During periods of significant economic or market change, telephone exchanges may
be difficult to complete. In such event, shares may be exchanged by mailing the
request directly to the Selling Agent through which the original shares were
purchased. An investor should consult his/her Selling Agent or Stephens for
further information regarding exchanges.
27
<PAGE>
Shareholder Servicing And Distribution
Plans
SHAREHOLDER SERVICING PLAN: The Funds' shareholder servicing plan ("Servicing
Plan") permits the Funds to compensate Servicing Agents for services provided to
their Customers that own Investor N Shares. Payments under the Servicing Plan
are calculated daily and paid monthly at a rate or rates set from time to time
by the Funds, provided that the annual rate may not exceed 0.25% of the average
daily net asset value of the Investor N Shares.
The fees payable under the Servicing Plan are used primarily to compensate or
reimburse Servicing Agents for shareholder services provided, and related
expenses incurred, by such Servicing Agents. The shareholder services provided
by Servicing Agents may include: (i) aggregating and processing purchase and
redemption requests for Investor N Shares from Customers and transmitting net
purchase and redemption orders to Stephens or the Transfer Agent; (ii) providing
Customers with a service that invests the assets of their accounts in Investor N
Shares pursuant to specific or preauthorized instructions; (iii) processing
dividend and distribution payments from the Funds on behalf of Customers; (iv)
providing information periodically to Customers showing their positions in
Investor N Shares; (v) arranging for bank wires; and (vi) providing general
shareholder liaison services.
Nations Fund may suspend or reduce payments under the Servicing Plan at any
time, and payments are subject to the continuation of the Servicing Plan
described above and the terms of the Servicing Agreements. See the relevant SAI
for more details on the Servicing Plan.
DISTRIBUTION PLAN: Pursuant to Rule 12b-1 under the 1940 Act, the Trustees of
Nations Fund Trust and the Directors of Nations Fund, Inc. have approved a
Distribution Plan with respect to Investor N Shares of the Funds. Pursuant to
the Distribution Plan, the Funds may compensate or reimburse Stephens for any
activities or expenses primarily intended to result in the sale of the Funds'
Investor N Shares. Payments under the Distribution Plan will be calculated daily
and paid monthly at a rate or rates set from time to time by the Trustees or
Directors provided that the annual rate may not exceed 0.75% of the average
daily net asset value of the Funds' Investor N Shares.
The fees payable under the Distribution Plan are used primarily to compensate or
reimburse Stephens for distribution services provided by it, and related
expenses incurred, including payments by Stephens to compensate or reimburse
Selling Agents for sales support services provided, and related expenses
incurred, by such Selling Agents. Payments under the Distribution Plan may be
made with respect to the following expenses: the cost of preparing, printing and
distributing prospectuses, sales literature and advertising materials;
commissions, incentive compensation or other compensation to, and expenses of,
account executives or other employees of Stephens or Selling Agents; overhead
and other office expenses; opportunity costs relating to the foregoing; and any
other costs and expenses relating to distribution or sales support activities.
The overhead and other office expenses referenced above may include, without
limitation, (i) the expenses of operating Stephens' or the Selling Agents'
offices in connection with the sale of Fund shares, including rent, the salaries
and employee benefit costs of administrative, operations and support personnel,
utility costs, communications costs and the costs of stationery and supplies,
(ii) the costs of client sales seminars and travel related to distribution and
sales support activities, and (iii) other expenses relating to distribution and
sales support activities.
Nations Fund and Stephens may suspend or reduce payments under the Distribution
Plan at any time, and payments are subject to the continuation of the
Distribution Plan described
28
<PAGE>
above and the terms of the Sales Support Agreement between Selling Agents and
Stephens. See the SAIs for more details on the Distribution Plan.
Nations Fund understands that Agents may charge fees to their Customers who own
Investor N Shares for various services provided in connection with a Customer's
account. These fees would be in addition to any amounts received by a Selling
Agent under its Sales Support Agreement with Stephens or by a Servicing Agent
under its Servicing Agreement with Nations Fund. The Sales Support Agreements
and Servicing Agreements require Agents to disclose to their Customers any
compensation payable to the Agent by Stephens or Nations Fund and any other
compensation payable by the Customers for various services provided in
connection with their accounts. Customers should read this Prospectus in light
of the terms governing their accounts with their Agents.
How The Funds Value Their Shares
The Funds calculate the net asset value of a share of each class by dividing the
total value of its assets, less liabilities, by the number of shares in the
class outstanding. Shares are valued as of the close of regular trading on the
Exchange (currently 4:00 p.m., Eastern time) on each Business Day. Currently,
the days on which the Exchange is closed (other than weekends) are: New Year's
Day, Presidents' Day, Good Friday, Memorial Day (observed), Independence Day,
Labor Day, Thanksgiving Day and Christmas Day.
Portfolio securities for which market quotations are readily available are
valued at market value. Short-term investments that will mature in 60 days or
less are valued at amortized cost, which approximates market value. All other
securities and assets are valued at their fair value following procedures
approved by the Trustees or Directors.
How Dividends And Distributions Are
Made; Tax Information
DIVIDENDS AND DISTRIBUTIONS: Dividends from net investment income are declared
daily and paid monthly by the Funds. The Funds' net realized capital gains
(including net short-term capital gains) are distributed at least annually.
Distributions from capital gains are made after applying any available capital
loss carryovers. Distributions paid by the Funds with respect to one class of
shares may be greater or less than those paid with respect to another class of
shares due to the different expenses of the different classes.
The net asset value of Investor N Shares will be reduced by the amount of any
dividend or distribution. Certain Selling Agents may provide for the
reinvestment of dividends in the form of additional Investor N Shares of the
same Fund. Dividends and distributions are paid in cash within five Business
Days of the end of the month to which the dividend relates. Dividends and
distributions payable to a shareholder are paid in cash within five Business
Days after a shareholder's complete redemption of his/her Investor N Shares.
TAX INFORMATION: Each Fund intends to qualify as a "regulated investment
company" under the Code. Such qualification relieves the Funds of liability for
Federal income tax on amounts distributed in accordance with the Code.
Each Fund intends to distribute substantially all of its investment company
taxable income and
29
<PAGE>
net tax-exempt income each taxable year. Distributions by a Fund of its net
investment income (including net foreign currency gain) and the excess, if any,
of its net short-term capital gain over its net long-term capital loss are
taxable as ordinary income to shareholders who are not exempt from Federal
income tax, whether such income is received in cash or reinvested in additional
shares. (Federal income tax for distributions to an IRA are generally deferred
under the Code.) Corporate investors may be entitled to the dividends received
deduction on a portion of the dividends paid by those Funds investing in the
stock of domestic corporation.
Substantially all of the Funds' net realized long-term capital gains will be
distributed at least annually. The Funds will generally have no tax liability
with respect to such gains, and the distributions will be taxable to
shareholders who are not exempt from Federal income tax as long-term capital
gains, regardless of how long the shareholders have held the Funds' shares and
whether such gains are received in cash or reinvested in additional shares.
Each year, shareholders will be notified as to the amount and Federal tax status
of all dividends and capital gains paid during the prior year. Such dividends
and capital gains may be subject to state and local taxes.
Dividends declared in October, November, or December of any year payable to
shareholders of record on a specified date in such months will be deemed to have
been received by shareholders and paid by the Funds on December 31 of such year
in the event such dividends are actually paid during January of the following
year.
Federal law requires Nations Fund to withhold 31% from any dividends (other than
exempt-interest dividends) paid by Nations Fund and/or redemptions (including
exchange redemptions) that occur in certain shareholder accounts if the
shareholder has not properly furnished a certified correct Taxpayer
Identification Number and has not certified that withholding does not apply, or
if the Internal Revenue Service has notified Nations Fund that the Taxpayer
Identification Number listed on a shareholder account is incorrect according to
its records, or that the shareholder is subject to backup withholding. Amounts
withheld are applied to the shareholder's Federal tax liability, and a refund
may be obtained from the Internal Revenue Service if withholding results in
overpayment of taxes. Federal law also requires the Funds to withhold 30% or the
applicable tax treaty rate from dividends paid to certain nonresident alien,
non-U.S. partnership and non-U.S. corporation shareholder accounts.
The foregoing discussion is based on tax laws and regulations which were in
effect as of the date of this Prospectus and summarizes only some of the
important Federal tax considerations generally affecting the Funds and their
shareholders. It is not intended as a substitute for careful tax planning;
investors should consult their tax advisors with respect to their specific tax
situations as well as with respect to state and local taxes. Further tax
information is contained in the SAIs.
Appendix A -- Portfolio Securities
The following are summary descriptions of certain types of instruments in which
a Fund may invest. The "How Objectives Are Pursued" section of this Prospectus
identifies each Fund's permissible investments, and the SAIs contain more
information concerning such investments.
ASSET-BACKED SECURITIES: Asset-backed securities arise through the grouping by
governmental, government-related, and private organizations of loans,
receivables, or other assets originated by various lenders. Asset-backed
securities consist of both mortgage and non-mortgage-backed securities.
Interests in pools of these assets may differ from other forms of debt
30
<PAGE>
securities, which normally provide for periodic payment of interest in fixed
amounts with principal paid at maturity or specified call dates. Conversely,
asset-backed securities provide periodic payments which may consist of both
interest and principal payments.
The life of an asset-backed security varies depending upon rate of the
prepayment of the underlying debt instruments. The rate of such
prepayments will be a function of current market interest rates and other
economic and demographic factors. For example, falling interest rates generally
result in an increase in the rate of prepayments of mortgage loans while rising
interest rates generally decrease the rate of prepayments. An acceleration in
prepayments in response to sharply falling interest rates will shorten the
security's average maturity and limit the potential appreciation in the
security's value relative to a conventional debt security. Consequently,
asset-backed securities may not be as effective in locking in high, long-term
yields. Conversely, in periods of sharply rising rates, prepayments are
generally slow, increasing the security's average life and its potential for
price depreciation.
MORTGAGE-BACKED SECURITIES: Mortgage-backed securities represent an ownership
interest in a pool of mortgage loans.
Mortgage pass-through securities may represent participation interests in pools
of residential mortgage loans originated by U.S. governmental or private lenders
and guaranteed, to the extent provided in such securities, by the U.S.
Government or one of its agencies, authorities or instrumentalities. Such
securities, which are ownership interests in the underlying mortgage loans,
differ from conventional debt securities, which provide for periodic payment of
interest in fixed amounts (usually semi-annually) and principal payments at
maturity or on specified call dates. Mortgage pass-through securities provide
for monthly payments that are a "pass-through" of the monthly interest and
principal payments (including any prepayments) made by the individual borrowers
on the pooled mortgage loans, net of any fees paid to the guarantor of such
securities and the servicer of the underlying mortgage loans.
The guaranteed mortgage pass-through securities in which a Fund may invest may
include those issued or guaranteed by the Government National Mortgage
Association, the Federal National Mortgage Association and the Federal Home Loan
Mortgage Corporation. Such Certificates are mortgage-backed securities which
represent a partial ownership interest in a pool of mortgage loans issued by
lenders such as mortgage bankers, commercial banks and savings and loan
associations. Such mortgage loans may have fixed or adjustable rates of
interest.
The average life of a mortgage-backed security is likely to be substantially
less than the original maturity of the mortgage pools underlying the
securities. Prepayments of principal by mortgagors and mortgage foreclosures
will usually result in the return of the greater part of principal invested far
in advance of the maturity of the mortgages in the pool.
The yield which will be earned on mortgage-backed securities may vary from their
coupon rates for the following reasons: (i) Certificates may be issued at a
premium or discount, rather than at par; (ii) Certificates may trade in the
secondary market at a premium or discount after issuance; (iii) interest is
earned and compounded monthly which has the effect of raising the effective
yield earned on the Certificates; and (iv) the actual yield of each Certificate
is affected by the prepayment of mortgages included in the mortgage pool
underlying the Certificates and the rate at which principal so prepaid is
reinvested. In addition, prepayment of mortgages included in the mortgage pool
underlying a GNMA Certificate purchased at a premium may result in a loss to the
Fund.
Mortgage-backed securities issued by private issuers, whether or not such
obligations are subject to guarantees by the private issuer, may entail greater
risk than obligations directly or indirectly guaranteed by the U.S. Government.
Collateralized mortgage obligations or "CMOs," are debt obligations
collateralized by mortgage loans or mortgage pass-through securities (collateral
collectively hereinafter referred to as "Mortgage Assets"). Multi-class
pass-through securities are interests in a trust composed of
31
<PAGE>
Mortgage Assets and all references herein to CMOs will include multi-class
pass-through securities. Payments of principal of and interest on the Mortgage
Assets, and any reinvestment income thereon, provide the funds to pay debt
service on the CMOs or make scheduled distribution on the multi-class
pass-through securities.
Moreover, principal prepayments on the Mortgage Assets may cause the CMOs to be
retired substantially earlier than their stated maturities or final distribution
dates, resulting in a loss of all or part of the premium if any has been paid.
Interest is paid or accrues on all classes of the CMOs on a monthly, quarterly
or semiannual basis.
The principal and interest payments on the Mortgage Assets may be allocated
among the various classes of CMOs in several ways. Typically, payments of
principal, including any prepayments, on the underlying mortgages are applied to
the classes in the order of their respective stated maturities or final
distribution dates, so that no payment of principal is made on CMOs of a class
until all CMOs of other classes having earlier stated maturities or final
distribution dates have been paid in full.
Stripped mortgage-backed securities ("SMBS") are derivative multi-class mortgage
securities. A Fund will only invest in SMBS that are obligations backed by the
full faith and credit of the U.S. Government. SMBS are usually structured with
two classes that receive different proportions of the interest and principal
distributions from a pool of mortgage assets. A Fund will only invest in SMBS
whose mortgage assets are U.S. Government Obligations.
A common type of SMBS will be structured so that one class receives some of the
interest and most of the principal from the Mortgage Assets, while the other
class receives most of the interest and the remainder of the principal. If the
underlying Mortgage Assets experience greater than anticipated prepayments of
principal, a Fund may fail to fully recoup its initial investment in these
securities. The market value of any class which consists primarily or entirely
of principal payments generally is unusually volatile in response to changes in
interest rates.
The average life of mortgage-backed securities varies with the maturities of the
underlying mortgage instruments. The average life is likely to be substantially
less than the original maturity of the mortgage pools underlying the securities
as the result of mortgage prepayments, mortgage refinancings, or foreclosures.
The rate of mortgage prepayments, and hence the average life of the
certificates, will be a function of the level of interest rates, general
economic conditions, the location and age of the mortgage and other social and
demographic conditions. Such prepayments are passed through to the registered
holder with the regular monthly payments of principal and interest and have the
effect of reducing future payments. Estimated average life will be determined by
the Adviser and used for the purpose of determining the average weighted
maturity and duration of the Funds. For additional information concerning
mortgage-backed securities, see the related SAI.
NON-MORTGAGE ASSET-BACKED SECURITIES: Non-mortgage asset-backed securities
include interests in pools of receivables, such as motor vehicle installment
purchase obligations and credit card receivables. Such securities are generally
issued as pass- through certificates, which represent undivided fractional
ownership interests in the underlying pools of assets. Such securities also may
be debt instruments, which are also known as collateralized obligations and are
generally issued as the debt of a special purpose entity organized solely for
the purpose of owning such assets and issuing such debt. Such securities also
may include instruments issued by certain trusts, partnerships or other special
purpose issuers, including pass-through certificates representing participations
in, or debt instruments backed by, the securities and other assets owned by such
issuers.
Non-mortgage backed securities are not issued or guaranteed by the U.S.
Government or its agencies or instrumentalities; however, the payment of
principal and interest on such obligations may be guaranteed up to certain
amounts and for a certain time period by a letter of credit issued by a
financial institution (such as a bank or insurance company) unaffiliated with
the issuers of such securities.
32
<PAGE>
The purchase of non-mortgage-backed securities raises considerations peculiar to
the financing of the instruments underlying such securities. For example, most
organizations that issue asset backed securities relating to motor vehicle
installment purchase obligations perfect their interests in their respective
obligations only by filing a financing statement and by having the servicer of
the obligations, which is usually the originator, take custody thereof. In such
circumstances, if the servicer were to sell the same obligations to another
party, in violation of its duty not to do so, there is a risk that such party
could acquire an interest in the obligations superior to that of the holders of
the asset-backed securities. Also, although most such obligations grant a
security interest in the motor vehicle being financed, in most states the
security interest in a motor vehicle must be noted on the certificate of title
to perfect such security interest against competing claims of other parties. Due
to the larger number of vehicles involved, however, the certificate of title to
each vehicle financed, pursuant to the obligations underlying the asset-backed
securities, usually is not amended to reflect the assignment of the seller's
security interest for the benefit of the holders of the asset-backed securities.
Therefore, there is the possibility that recoveries on repossessed collateral
may not, in some cases, be available to support payments on those securities. In
addition, various state and Federal laws give the motor vehicle owner the right
to assert against the holder of the owner's obligation certain defenses such
owner would have against the seller of the motor vehicle. The assertion of such
defenses could reduce payments on the related asset-backed securities. Insofar
as credit card receivables are concerned, credit card holders are entitled to
the protection of a number of state and Federal consumer credit laws, many of
which give such holders the right to set off certain amounts against balances
owed on the credit card, thereby reducing the amounts paid on such receivables.
In addition, unlike most other asset-backed securities, credit card receivables
are unsecured obligations of the card holder.
BANK INSTRUMENTS: Bank instruments consist mainly of certificates of deposit,
time deposits and bankers' acceptances. Each Fund will limit its investments in
bank obligations so they do not exceed 25% of its total assets at the time of
purchase.
U.S. dollar-denominated obligations issued by foreign branches of domestic banks
("Eurodollar" obligations) and domestic branches of foreign banks ("Yankee
dollar" obligations) and other foreign obligations involve special investment
risks, including the possibility that liquidity could be impaired because of
future political and economic developments, the obligations may be less
marketable than comparable domestic obligations of domestic issuers, a foreign
jurisdiction might impose withholding taxes on interest income payable on such
obligations, deposits may be seized or nationalized, foreign governmental
restrictions such as exchange controls may be adopted which might adversely
affect the payment of principal of and interest on such obligations, the
selection of foreign obligations may be more difficult because there may be less
publicly available information concerning foreign issuers, there may be
difficulties in enforcing a judgment against a foreign issuer or the accounting,
auditing and financial reporting standards, practices and requirements
applicable to foreign issuers may differ from those applicable to domestic
issuers. In addition, foreign banks are not subject to examination by U.S.
Government agencies or instrumentalities.
BORROWINGS: When a Fund borrows money, the net asset value of a share may be
subject to greater fluctuation until the borrowing is paid off. The Funds may
borrow money from banks for temporary purposes in amounts of up to one-third of
their respective total assets, provided that borrowings in excess of 5% of the
value of the Funds' total assets must be repaid prior to the purchase of
portfolio securities. 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 and dollar roll transactions may be considered to
be borrowings. When a Fund invests in a reverse repurchase agreement, it sells a
portfolio security to another party, such as a bank or broker/dealer,
33
<PAGE>
in return for cash, and agrees to buy the security back at a future date and
price. Reverse repurchase agreements may be used to provide cash to satisfy
unusually heavy redemption requests without having to sell portfolio securities,
or for other temporary or emergency purposes. Generally, the effect of such a
transaction is that the Funds can recover all or most of the cash invested in
the portfolio securities involved during the term of the reverse repurchase
agreement, while they will be able to keep the interest income associated with
those portfolio securities. Such transactions are only advantageous if the
interest cost to the Funds of the reverse repurchase transaction is less than
the cost of obtaining the cash otherwise.
At the time a Fund enters into a reverse repurchase agreement, it may establish
a segregated account with its custodian bank in which it will maintain cash,
U.S. Government Securities or other liquid high grade debt obligations equal in
value to its obligations in respect of reverse repurchase agreements. Reverse
repurchase agreements involve the risk that the market value of the securities a
Fund is obligated to repurchase under the agreement may decline below the
repurchase price. In the event the buyer of securities under a reverse
repurchase agreement files for bankruptcy or becomes insolvent, the Fund's use
of proceeds of the agreement may be restricted pending a determination by the
other party, or its trustee or receiver, whether to enforce the Fund's
obligation to repurchase the securities. In addition, there is a risk of delay
in receiving collateral or securities or in repurchasing the securities covered
by the reverse repurchase agreement or even of a loss of rights in the
collateral or securities in the event the buyer of the securities under the
reverse repurchase agreement files for bankruptcy or becomes insolvent. The Fund
only enters into reverse repurchase agreements (and repurchase agreements) with
counterparties that are deemed by the Adviser to be credit worthy. Reverse
repurchase agreements are speculative techniques involving leverage, and are
subject to asset coverage requirements if the Funds do not establish and
maintain a segregated account (as described above). Under the requirements of
the 1940 Act, the Funds are required to maintain an asset coverage (including
the proceeds of the borrowings) of at least 300% of all borrowings. Depending on
market conditions, the Fund's asset coverage and other factors at the time of a
reverse repurchase, the Funds may not establish a segregated account when the
Adviser believes it is not in the best interests of the Funds to do so. In this
case, such reverse repurchase agreements will be considered borrowings subject
to the asset coverage described above.
Dollar roll transactions consist of the sale by a Fund of mortgage-backed or
other asset-backed securities, together with a commitment to purchase similar,
but not identical, securities at a future date, at the same price. In addition,
a Fund is paid a fee as consideration for entering into the commitment to
purchase. If the broker/dealer to whom a Fund sells the security becomes
insolvent, the Fund's right to purchase or repurchase the security may be
restricted; the value of the security may change adversely over the term of the
dollar roll; the security that the Fund is required to repurchase may be worth
less than the security that the Fund originally held, and the return earned by
the Fund with the proceeds of a dollar roll may not exceed transaction costs.
COMMERCIAL INSTRUMENTS: Commercial instruments consist of short-term U.S.
dollar-denominated obligations issued by domestic corporations or foreign
corporations and foreign commercial banks.
Investments by a Fund in commercial paper will consist of issues rated in a
manner consistent with such Fund's investment policies and objectives. In
addition, a Fund may acquire unrated commercial paper and corporate bonds that
are determined by the Adviser at the time of purchase to be of comparable
quality to rated instruments that may be acquired by a Fund. Commercial
instruments include variable rate master demand notes, which are unsecured
instruments that permit the indebtedness thereunder to vary and provide for
periodic adjustments in the interest rate, and variable- and floating-rate
instruments.
CONVERTIBLE SECURITIES, PREFERRED STOCK, AND WARRANTS: Certain of the Funds may
34
<PAGE>
invest in debt securities convertible into or exchangeable for equity
securities, preferred stocks or warrants. Preferred stocks are securities that
represent an ownership interest in a corporation providing the owner with claims
on a company's earnings and assets before common stock owners, but after bond or
other debt security owners. Warrants are options to buy a stated number of
shares of common stock at a specified price any time during the life of the
warrants.
FIXED INCOME INVESTING: The performance of the fixed income debt component of a
Fund's portfolio depends primarily on interest rate changes, the average
weighted maturity of the portfolio and the quality of the securities held. The
debt component of a Fund's portfolio will tend to decrease in value when
interest rates rise and increase when interest rates fall. A Fund's share price
and yield depend, in part, on the maturity and quality of its debt instruments.
FOREIGN CURRENCY TRANSACTIONS: Certain of the Funds may enter into foreign
currency exchange transactions to convert foreign currencies to and from the
U.S. dollar. A Fund either enters into these transactions on a spot (I.E., cash)
basis at the spot rate prevailing in the foreign currency exchange market, or
uses forward contracts to purchase or sell foreign currencies. A forward foreign
currency exchange contract is an obligation by a Fund to purchase or sell a
specific currency at a future date, which may be any fixed number of days from
the date of the contract.
Foreign currency hedging transactions are an attempt to protect a Fund against
changes in foreign currency exchange rates between the trade and settlement
dates of specific securities transactions or changes in foreign currency
exchange rates that would adversely affect a portfolio position or an
anticipated portfolio position. Although these transactions tend to minimize the
risk of loss due to a decline in the value of the hedged currency, at the same
time they tend to limit any potential gain that might be realized should the
value of the hedged currency increase. Neither spot transactions nor forward
foreign currency exchange contracts eliminate fluctuations in the prices of a
Fund's portfolio securities or in foreign exchange rates, or prevent loss if the
prices of these securities should decline.
A Fund will generally enter into forward currency exchange contracts only under
two circumstances: (i) when such Fund enters into a contract for the purchase or
sale of a security denominated in a foreign currency, to "lock" in the U.S.
dollar price of the security; and (ii) when the Adviser believes that the
currency of a particular foreign country may experience a substantial movement
against another currency. Under certain circumstances, a Fund may commit a
substantial portion of its portfolio to the execution of these contracts. The
Adviser will consider the effects such a commitment would have on the investment
program of such Fund and the flexibility of such Fund to purchase additional
securities. Although forward contracts will be used primarily to protect a Fund
from adverse currency movements, they also involve the risk that anticipated
currency movements will not be accurately predicted. The Funds will generally
not enter into forward contracts with terms of greater than one year.
FOREIGN SECURITIES: Foreign securities include debt and equity obligations
(dollar- and non-dollar-denominated) of foreign corporations and banks as well
as obligations of foreign governments and their political subdivisions (which
will be limited to direct government obligations and government-guaranteed
securities). Such investments may subject a Fund to special investment risks,
including future political and economic developments, the possible imposition of
withholding taxes on interest income, possible seizure or nationalization of
foreign deposits, the possible establishment of exchange controls, or the
adoption of other foreign governmental restrictions which might adversely affect
the payment of principal and interest on such obligations. In addition, foreign
issuers in general may be subject to different accounting, auditing, reporting,
and record keeping standards than those applicable to domestic companies, and
securities of foreign issuers may be less liquid and their prices more volatile
than those of comparable domestic issuers.
Investments in foreign securities may present additional risks, whether made
directly or indi-
35
<PAGE>
rectly, including the political or economic instability of the issuer or the
country of issue and the difficulty of predicting international trade patterns.
In addition, there may be less publicly available information about a foreign
company than about a U.S. company. Further, foreign securities markets are
generally not as developed or efficient as those in the U.S., and in most
foreign markets volume and liquidity are less than in the United States. Fixed
commissions on foreign securities exchanges are generally higher than the
negotiated commissions on U.S. exchanges, and there is generally less government
supervision and regulation of foreign securities exchanges, brokers, and
companies than in the United States. With respect to certain foreign countries,
there is a possibility of expropriation or confiscatory taxation, limitations on
the removal of funds or other assets, or diplomatic developments that could
affect investments within those countries. Because of these and other factors,
securities of foreign companies acquired by a Fund may be subject to greater
fluctuation in price than securities of domestic companies.
FUTURES, OPTIONS AND OTHER DERIVATIVE INSTRUMENTS: Certain of the Funds may
attempt to reduce the overall level of investment risk of particular securities
and attempt to protect such Funds against adverse market movements by investing
in futures, options and other derivative instruments. These include the purchase
and writing of options on securities (including index options) and options on
foreign currencies, and investing in futures contracts for the purchase or sale
of instruments based on financial indices, including interest rate indices or
indices of U.S. or foreign government, equity or fixed income securities
("futures contracts"), options on futures contracts, forward contracts and swaps
and swap-related products such as equity swap contracts, interest rate swaps,
currency swaps, caps, collars and floors.
The use of futures, options, forward contracts and swaps exposes a Fund to
additional investment risks and transaction costs. If the Adviser incorrectly
analyzes market conditions or does not employ the appropriate strategy with
respect to these instruments, a Fund could be left in a less favorable position.
Additional risks inherent in the use of futures, options, forward contracts and
swaps include: imperfect correlation between the price of futures, options and
forward contracts and movements in the prices of the securities or currencies
being hedged; the possible absence of a liquid secondary market for any
particular instrument at any time; and the possible need to defer closing out
certain hedged positions to avoid adverse tax consequences. A Fund may not
purchase put and call options which are traded on a national stock exchange in
an amount exceeding 5% of its net assets. Further information on the use of
futures, options and other derivative instruments, and the associated risks, is
contained in the SAIs.
ILLIQUID SECURITIES: Certain securities may be sold only pursuant to certain
legal restrictions, and may be difficult to sell. The Funds will not hold more
than 15% of the value of their respective net assets in securities that are
illiquid or such lower percentage as may be required by the states in which the
appropriate Fund sells its shares. Repurchase agreements, time deposits and
guaranteed investment contracts that do not provide for payment to a Fund within
seven days after notice, and illiquid restricted securities are subject to the
limitation on illiquid securities.
If otherwise consistent with their investment objectives and policies, certain
Funds may purchase securities that are not registered under the Securities Act
of 1933, as amended (the "1933 Act") but which can be sold to "qualified
institutional buyers" in accordance with Rule 144A 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
36
<PAGE>
holding such securities may increase during such period.
INTEREST RATE TRANSACTIONS: In order to attempt to protect the value of their
portfolios from interest rate fluctuations, certain of the Funds may enter into
various hedging transactions, such as interest rate swaps and the purchase or
sale of interest rate caps and floors. Interest rate swaps involve the exchange
by a Fund with another party of their respective commitments to pay or receive
interest, E.G., an exchange of floating-rate payments for fixed-rate payments. A
Fund will enter into a swap transaction on a net basis, I.E., the payment
obligations of the Fund and the counterparty will be netted out with the Fund
receiving or paying, as the case may be, only the net amount of the two payment
obligations. A Fund will segregate, on a daily basis, cash or liquid high
quality debt securities with a value at least equal to the Fund's net
obligations, if any, under a swap agreement.
The purchase of an interest rate cap entitles the purchaser, to the extent that
a specified index exceeds a predetermined interest rate, to receive payments of
interest on a notional principal amount from the party selling such interest
rate cap. The purchase of an interest rate floor entitles the purchaser to
receive payments of interest on a notional principal amount from the party
selling such interest rate floor. The Adviser expects to enter into these
transactions on behalf of a Fund primarily to preserve a return or spread on a
particular investment or portion of its portfolio or to protect against any
increase in the price of securities the Fund anticipated purchasing at a later
date rather than for speculative purposes. A Fund will not sell interest rate
caps or floors that it does not own.
LOWER-RATED DEBT SECURITIES: Nations Diversified Income Fund may invest in
lower-rated debt securities. Lower rated, high-yielding securities are those
rated "Ba" or "B" by Moody's or "BB" or "B" by S&P which are commonly referred
to as "junk bonds." These bonds provide poor protection for payment of principal
and interest. Lower-quality bonds involve greater risk of default or price
changes due to changes in the issuer's creditworthiness than securities assigned
a higher quality rating. These securities are considered to have speculative
characteristics and indicate an aggressive approach to income investing. Each
Fund that may invest in lower-rated debt securities intends to limit their
investments in lower-quality debt securities to 35% of assets.
The market for lower-rated securities may be thinner and less active than that
for higher quality securities, which can adversely affect the price at which
these securities can be sold. If market quotations are not available, these
lower-rated securities will be valued in accordance with procedures established
by the Funds' Boards, including the use of outside pricing services. Adverse
publicity and changing investor perceptions may affect the ability of outside
pricing services used by a Fund to value its portfolio securities, and a Fund's
ability to dispose of these lower-rated bonds.
The market prices of lower-rated securities may fluctuate more than higher-rated
securities and may decline significantly in periods of general economic
difficulty which may follow periods of rising interest rates. During an economic
downturn or a prolonged period of rising interest rates, the ability of issuers
of lower quality debt to service their payment obligations, meet projected
goals, or obtain additional financing may be impaired.
Since the risk of default is higher for lower-rated securities, the Adviser will
try to minimize the risks inherent in investing in lower-rated debt securities
by engaging in credit analysis, diversification, and attention to current
developments and trends affecting interest rates and economic conditions. The
Adviser will attempt to identify those issuers of high-yielding securities whose
financial condition is adequate to meet future obligations, have improved, or
are expected to improve in the future.
Unrated securities are not necessarily of lower quality than rated securities,
but they may not be attractive to as many buyers. Each Fund's policies regarding
lower-rated debt securities is not fundamental and may be changed at any time
without shareholder approval.
37
<PAGE>
MONEY MARKET INSTRUMENTS: The term "money market instruments" refers to
instruments with remaining maturities of one year or less. Money market
instruments may include, among other instruments, certain U.S. Treasury
Obligations, U.S. Government Obligations, bank instruments, commercial
instruments, repurchase agreements and municipal securities. Such instruments
are described in this Appendix A.
MUNICIPAL SECURITIES: The two principal classifications of municipal securities
are "general obligation" securities and "revenue" securities. General obligation
securities are secured by the issuer's pledge of its full faith, credit, and
taxing power for the payment of principal and interest. Revenue securities are
payable only from the revenues derived from a particular facility or class of
facilities or, in some cases, from the proceeds of a special excise tax or other
specific revenue source such as the user of the facility being financed. Private
activity bonds held by a Fund are in most cases revenue securities and are not
payable from the unrestricted revenues of the issuer. Consequently, the credit
quality of private activity bonds is usually directly related to the credit
standing of the corporate user of the facility involved.
Municipal securities may include "moral obligation" bonds, which are normally
issued by special purpose public authorities. If the issuer of moral obligation
bonds is unable to meet its debt service obligations from current revenues, it
may draw on a reserve fund, the restoration of which is a moral commitment but
not a legal obligation of the state or municipality which created the issuer.
Municipal securities may include variable- or floating-rate instruments issued
by industrial development authorities and other governmental entities. While
there may not be an active secondary market with respect to a particular
instrument purchased by a Fund, a Fund may demand payment of the principal and
accrued interest on the instrument or may resell it to a third party as
specified in the instruments. The absence of an active secondary market,
however, could make it difficult for a Fund to dispose of the instrument if the
issuer defaulted on its payment obligation or during periods the Fund is not
entitled to exercise its demand rights, and the Fund could, for these or other
reasons, suffer a loss. Some of these instruments may be unrated, but unrated
instruments purchased by a Fund will be determined by the Adviser to be of
comparable quality at the time of purchase to instruments rated "high quality"
by any major rating service. Where necessary to ensure that an instrument is of
comparable "high quality," a Fund will require that an issuer's obligation to
pay the principal of the note may be backed by an unconditional bank letter or
line of credit, guarantee, or commitment to lend.
Municipal securities may include participations in privately arranged loans to
municipal borrowers, some of which may be referred to as "municipal leases," and
units of participation in trusts holding pools of tax exempt leases. Such loans
in most cases are not backed by the taxing authority of the issuers and may have
limited marketability or may be marketable only by virtue of a provision
requiring repayment following demand by the lender. Such loans made by a Fund
may have a demand provision permitting the Fund to require payment within seven
days. Participations in such loans, however, may not have such a demand
provision and may not be otherwise marketable. To the extent these securities
are illiquid, they will be subject to each Fund's limitation on investments in
illiquid securities. As it deems appropriate, the Adviser will establish
procedures to monitor the credit standing of each such municipal borrower,
including its ability to meet contractual payment obligations.
Municipal participation interests may be purchased from financial institutions,
and give the purchaser an undivided interest in one or more underlying municipal
securities. To the extent that municipal participation interests are considered
to be "illiquid securities," such instruments are subject to each Fund's
limitation on the purchase of illiquid securities.
In addition, certain of the Funds may acquire "stand-by commitments" from banks
or broker/dealers with respect to municipal securities held in their portfolios.
Under a stand-by commitment, a dealer would agree to purchase at a Fund's option
specified municipal securities at a specified price. The Funds will acquire
stand-by
38
<PAGE>
commitments solely to facilitate portfolio liquidity and do not intend to
exercise their rights thereunder for trading purposes.
Although the Funds do not presently intend to do so on a regular basis, each may
invest more than 25% of its total assets in municipal securities the interest on
which is paid solely from revenues of similar projects if such investment is
deemed necessary or appropriate by the Adviser. To the extent that more than 25%
of a Fund's total assets are invested in Municipal Securities that are payable
from the revenues of similar projects, a Fund will be subject to the peculiar
risks presented by such projects to a greater extent than it would be if its
assets were not so concentrated.
OTHER INVESTMENT COMPANIES: Each Fund may invest in securities issued by other
investment companies to the extent that such investments are consistent with the
Fund's investment objective and policies and permissible under the 1940 Act. As
a shareholder of another investment company, a Fund would bear, along with other
shareholders, its pro rata portion of the other investment company's expenses,
including advisory fees. These expenses would be in addition to the advisory and
other expenses that a Fund bears directly in connection with its own operations.
REPURCHASE AGREEMENTS: A repurchase agreement involves the purchase of a
security by a Fund and a simultaneous agreement (generally with a bank or
broker/dealer) to repurchase that security from the Fund at a specified price
and date or upon demand. This technique offers a method of earning income on
idle cash. A risk associated with repurchase agreements is the failure of the
seller to repurchase the securities as agreed, which may cause a Fund to suffer
a loss if the market value of such securities declines before they can be
liquidated on the open market. Repurchase agreements with a duration of more
than seven days are considered illiquid securities and are subject to the limit
stated above. A Fund may enter into joint repurchase agreements jointly with
other investment portfolios of Nations Fund.
SECURITIES LENDING: To increase return on portfolio securities, the Funds may
lend their portfolio securities to broker/dealers and other institutional
investors pursuant to agreements requiring that the loans be continuously
secured by collateral equal at all times in value to at least the market value
of the securities loaned. There is a risk of delay in receiving collateral or in
recovering the securities loaned or even a loss of rights in the collateral
should the borrower of the securities fail financially. However, loans are made
only to borrowers deemed by the Adviser to be credit worthy and when, in its
judgment, the income to be earned from the loan justifies the attendant risks.
The aggregate of all outstanding loans of a Fund may not exceed 30% of the value
of its total assets.
STOCK INDEX, INTEREST RATE AND CURRENCY FUTURES CONTRACTS: The Funds may
purchase and sell futures contracts and related options with respect to non-U.S.
stock indices, non-U.S. interest rates and foreign currencies, that have been
approved by the CFTC for investment by U.S. investors, for the purpose of
hedging against changes in values of a Fund's securities or changes in the
prevailing levels of interest rates or currency exchange rates. The contracts
entail certain risks, including but not limited to the following: no assurance
that futures contracts transactions can be offset at favorable prices; possible
reduction of a Fund's total return due to the use of hedging; possible lack of
liquidity due to daily limits on price fluctuation; imperfect correlation
between the contracts and the securities or currencies being hedged; and
potential losses in excess of the amount invested in the futures contracts
themselves.
Trading on foreign commodity exchanges presents additional risks. Unlike trading
on domestic commodity exchanges, trading on foreign commodity exchanges is not
regulated by the CFTC and may be subject to greater risks than trading on
domestic exchanges. For example, some foreign exchanges are principal markets
for which no common clearing facility exists and a trader may look only to the
broker for performance of the contract. In addition, unless a Fund hedges
against fluctuations in the exchange rate between the U.S. dollar and the
39
<PAGE>
currencies in which trading is done on foreign exchanges, any profits that such
Fund might realize could be eliminated by adverse changes in the exchange rate,
or the Fund could incur losses as a result of those changes.
U.S. GOVERNMENT OBLIGATIONS: U.S. Government Obligations consist of marketable
securities and instruments issued or guaranteed by the U.S. Government or any of
its agencies, authorities or instrumentalities. Direct obligations are issued by
the U.S. Treasury and include all U.S. Treasury instruments. 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 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 Association; 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 banks and corporations
may carry variable or floating rates of interest. Such instruments bear interest
rates which are not fixed, but which vary with changes in specified market rates
or indices, such as a Federal Reserve composite index. A variable-rate demand
instrument is an obligation with a variable or floating interest rate and an
unconditional right of demand on the part of the holder to receive payment of
unpaid principal and accrued interest. An instrument with a demand period
exceeding seven days may be considered illiquid if there is no secondary market
for such security.
WHEN-ISSUED, DELAYED DELIVERY AND FORWARD COMMITMENT SECURITIES: The purchase of
new issues of securities on a "when-issued," "delayed delivery" or "forward
commitment" basis occurs when the payment for and delivery of securities 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 six ratings used by S&P for corporate and
municipal bonds. The first four ratings denote investment grade securities.
AAA -- This is the highest rating assigned by S&P to a debt obligation and
indicates an extremely strong capacity to pay interest and repay principal.
AA -- Debt rated AA is considered to have a very strong capacity to pay
interest and repay principal and differs from AAA issues only in a small
degree.
A -- Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes
in circumstances and eco-
40
<PAGE>
nomic conditions than debt in higher-rated categories.
BBB -- Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than for those in
higher-rated categories.
BB, B -- Bonds rated BB and B are regarded, on balance, as predominantly
speculative with respect to capacity to pay interest and repay principal in
accordance with the terms of the obligation. BB represents the lowest
degree of speculation and B a higher degree of speculation. While such
bonds will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
To provide more detailed indications of credit quality, the AA, A and BBB
ratings may be modified by the addition of a plus or minus sign to show relative
standing within these major rating categories.
The following summarizes the highest six ratings used by Moody's for corporate
and municipal bonds. The first four ratings denote investment grade securities.
Aaa -- Bonds that are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to
as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such
issues.
Aa -- Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there may
be other elements present which make the long-term risks appear somewhat
larger than in Aaa securities.
A -- Bonds that are rated A possess many favorable investment attributes
and are to be considered upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
Baa -- Bonds that are rated Baa are considered medium grade obligations,
I.E., they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable
over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba -- Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may
be small.
Moody's applies numerical modifiers (1, 2 and 3) with respect to corporate bonds
rated Aa through B. The modifier 1 indicates that the bond being rated ranks in
the higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates that the bond ranks in the lower
end of its generic rating category. With regard to municipal bonds, those bonds
in the Aa, A and Baa groups which Moody's believes possess the
41
<PAGE>
strongest investment attributes are designated by the symbols Aa1, A1 or Baa1,
respectively.
The following summarizes the highest four ratings used by D&P for bonds, each of
which denotes that the securities are investment grade:
AAA -- Bonds that are rated AAA are of the highest credit quality. The risk
factors are considered to be negligible, being only slightly more than for
risk-free U.S. Treasury debt.
AA -- Bonds that are rated AA are of high credit quality. Protection
factors are strong. Risk is modest, but may vary slightly from time to time
because of economic conditions.
A -- Bonds that are rated A have protection factors which are average but
adequate. However, risk factors are more variable and greater in periods of
economic stress.
BBB -- Bonds that are rated BBB have below average protection factors but
still are considered sufficient for prudent investment. Considerable
variability in risk exists during economic cycles.
To provide more detailed indications of credit quality, the AA, A and BBB
ratings may be modified by the addition of a plus or minus sign to show relative
standing within these major categories.
The following summarizes the highest four ratings used by Fitch for bonds, each
of which denotes that the securities are investment grade:
AAA -- Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
AA -- Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated AAA. Because bonds
rated in the AAA and AA categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is
generally rated F-1+.
A -- Bonds considered to be investment grade and of high credit quality.
The obligor's ability to pay interest and repay principal is considered to
be strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.
BBB -- Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these
bonds, and therefore impair timely payment. The likelihood that the ratings
of these bonds will fall below investment grade is higher than for bonds
with higher ratings.
To provide more detailed indications of credit quality, the AA, A and BBB
ratings may be modified by the addition of a plus or minus sign to show relative
standing within these major rating categories.
The following summarizes the two highest ratings used by Moody's for short-term
municipal notes and variable-rate demand obligations:
MIG-1/VMIG-1 -- Obligations bearing these designations are of the best
quality, enjoying strong protection from established cash flows, superior
liquidity support or demonstrated broad-based access to the market for
refinancing.
MIG-2/VMIG-2 -- Obligations bearing these designations are of high quality,
with ample margins of protection although not so large as in the preceding
group.
The following summarizes the two highest ratings used by S&P for short-term
municipal notes:
SP-1 -- Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics are given
a "plus" (+) designation.
42
<PAGE>
SP-2 -- Satisfactory capacity to pay principal and interest.
The three highest rating categories of D&P for short-term debt, each of which
denotes that the securities are investment grade, are D-1, D-2 and D-3. D&P
employs three designations, D-1+, D-1 and D-1-, within the highest rating
category. D-1+ indicates highest certainty of timely payment. Short-term
liquidity, including internal operating factors and/or access to alternative
sources of funds, is judged to be "outstanding, and safety is just below
risk-free U.S. Treasury short-term obligations." D-1 indicates very high
certainty of timely payment. Liquidity factors are excellent and supported by
good fundamental protection factors. Risk factors are considered to be minor.
D-1- indicates high certainty of timely payment. Liquidity factors are strong
and supported by good fundamental protection factors. Risk factors are very
small. D-2 indicates good certainty of timely payment. Liquidity factors and
company fundamentals are sound. Although ongoing funding needs may enlarge total
financing requirements, access to capital markets is good. Risk factors are
small. D-3 indicates satisfactory liquidity and other protection factors which
qualify the issue as investment grade. Risk factors are larger and subject to
more variation. Nevertheless, timely payment is expected.
The following summarizes the two highest rating categories used by Fitch for
short-term obligations, each of which denotes securities that are investment
grade:
F-1+ securities possess exceptionally strong credit quality. Issues
assigned this rating are regarded as having the strongest degree of
assurance for timely payment.
F-1 securities possess very strong credit quality. Issues assigned this
rating reflect an assurance of timely payment only slightly less in degree
than issues rated F-1+.
F-2 securities possess good credit quality. Issues carrying this rating
have a satisfactory degree of assurance for timely payment, but the margin
of safety is not as great as for issues assigned the F-1+ and F-1 ratings.
Commercial paper rated A-1 by S&P indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted A-1+. Capacity for timely payment on
commercial paper rated A-2 is satisfactory, but the relative degree of safety is
not as high as for issues designated A-1.
The rating Prime-1 is the highest commercial paper rating assigned by Moody's.
Issuers rated Prime-1 (or related supporting institutions) are considered to
have a superior capacity for repayment of senior short-term promissory
obligations. Issuers rated Prime-2 (or related supporting institutions) are
considered to have a strong capacity for repayment of senior short-term
promissory obligations. This will normally be evidenced by many of the
characteristics of issuers rated Prime-1, but to a lesser degree. Earnings
trends and coverage ratios, while sound, will be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
For commercial paper, D&P uses the short-term debt ratings described above.
For commercial paper, Fitch uses the short-term debt ratings described above.
BankWatch ratings are based upon a qualitative and quantitative analysis of all
segments of the organization including, where applicable, holding company and
operating subsidiaries. BankWatch ratings do not constitute a recommendation to
buy or sell securities of any of these companies. Further, BankWatch does not
suggest specific investment criteria for individual clients.
BankWatch long-term ratings apply to specific issues of long-term debt and
preferred stock. The long-term ratings specifically assess the likelihood of
untimely payment of principal or interest over the term to maturity of the rated
instrument. The following are the four investment grade ratings used by
BankWatch for long-term debt:
43
<PAGE>
AAA -- The highest category; indicates ability to repay principal and
interest on a timely basis is extremely high.
AA -- The second highest category; indicates a very strong ability to repay
principal and interest on a timely basis with limited incremental risk
versus issues rated in the highest category.
A -- The third highest category; indicates the ability to repay principal
and interest is strong. Issues rated "A" could be more vulnerable to
adverse developments (both internal and external) than obligations with
higher ratings.
BBB -- The lowest investment grade category; indicates an acceptable
capacity to repay principal and interest. Issues rated "BBB" are, however,
more vulnerable to adverse developments (both internal and external) than
obligations with higher ratings.
The BankWatch short-term ratings apply to commercial paper, other senior
short-term obligations and deposit obligations of the entities to which the
rating has been assigned. The BankWatch short-term ratings specifically assess
the likelihood of an untimely payment of principal or interest.
TBW-1 -- The highest category; indicates a very high likelihood that
principal and interest will be paid on a timely basis.
TBW-2 -- The second highest category; while the degree of safety regarding
timely repayment of principal and interest is strong, the relative degree
of safety is not as high as for issues rated "TBW-1".
TBW-3 -- The lowest investment grade category; indicates that while more
susceptible to adverse developments (both internal and external) than
obligations with higher ratings, capacity to service principal and interest
in a timely fashion is considered adequate.
TBW-4 -- The lowest rating category; this rating is regarded as
non-investment grade and therefore speculative.
The following summarizes the three highest long-term ratings used by IBCA:
AAA -- Obligations for which there is the lowest expectation of investment
risk. Capacity for timely repayment of principal and interest is
substantial such that adverse changes in business, economic or financial
conditions are unlikely to increase investment risk significantly.
AA -- Obligations for which there is a very low expectation of investment
risk. Capacity for timely repayment of principal and interest is
substantial. Adverse changes in business, economic or financial conditions
may increase investment risk albeit not very significantly.
A -- Obligations for which there is a low expectation of investment risk.
Capacity for timely repayment of principal and interest is strong, although
adverse changes in business, economic or financial conditions may lead to
increased investment risk.
BBB -- Obligations for which there is currently a low expectation of
investment risk. Capacity for timely repayment of principal and interest is
adequate, although adverse changes in business, economic or financial
conditions are more likely to lead to increased investment risk than for
obligations in other categories.
A plus or minus sign may be appended to a rating below AAA to denote relative
status within major rating categories.
The following summarizes the two highest short-term debt ratings used by IBCA:
A1+ -- Where issues possess a particularly strong credit feature.
A1 -- Obligations supported by the highest capacity for timely repayment.
A2 -- Obligations supported by a good capacity for timely repayment.
44
<PAGE>
Prospectus
INVESTOR N SHARES
JULY 31, 1996
This Prospectus describes the investment portfolios
listed in the column to the right (each a "Fund"
and collectively the "Tax-Exempt Funds") of Nations
Fund Trust, an open-end management investment
company in the Nations Fund Family ("Nations Fund"
or "Nations Fund Family"). This Prospectus
describes one class of shares of each Tax-Exempt
Fund -- Investor N Shares.
This Prospectus sets forth concisely the
information about the Funds that a prospective
purchaser of Investor N Shares should consider
before investing. Investors should read this
Prospectus and retain it for future reference.
Additional information about Nations Fund Trust is
contained in a separate Statement of Additional
Information (the "SAI"), that has been filed with
the Securities and Exchange Commission (the "SEC")
and is available upon request without charge by
writing or calling Nations Fund at its address or
telephone number shown below. The SAI bears the
same date as this Prospectus and is incorporated by
reference in its entirety into this Prospectus.
NationsBanc Advisors, Inc. ("NBAI") is the
investment adviser to the Funds. TradeStreet
Investment Associates, Inc. ("TradeStreet") is sub-
investment adviser to the Funds. As used herein the
"Adviser" shall mean NBAI and/or TradeStreet as the
context may require.
SHARES OF NATIONS FUND ARE NOT DEPOSITS OR OTHER
OBLIGATIONS OF, OR ISSUED, ENDORSED OR GUARANTEED
BY, NATIONSBANK, N.A. ("NATIONSBANK") OR ANY OF ITS
AFFILIATES. SUCH SHARES ARE NOT INSURED BY THE U.S.
GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER
GOVERNMENT AGENCY. AN INVESTMENT IN THE FUNDS
INVOLVES CERTAIN RISKS, INCLUDING POSSIBLE LOSS OF
PRINCIPAL.
NATIONSBANK AND CERTAIN OF ITS AFFILIATES PROVIDE
CERTAIN OTHER SERVICES TO NATIONS FUND, FOR WHICH
THEY ARE COMPENSATED. STEPHENS INC., WHICH IS NOT
AFFILIATED WITH NATIONSBANK, IS THE SPONSOR AND
ADMINISTRATOR AND SERVES AS THE DISTRIBUTOR FOR
NATIONS FUND.
THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
TAX-EXEMPT FUNDS
Nations Short-Term Municipal Income Fund
Nations Intermediate Municipal Bond Fund
Nations Municipal Income Fund
Nations Florida Intermediate Municipal Bond Fund
Nations Florida Municipal Bond Fund
Nations Georgia Intermediate Municipal Bond Fund
Nations Georgia Municipal Bond Fund
Nations Maryland Intermediate Municipal Bond Fund
Nations Maryland Municipal Bond Fund
Nations North Carolina Intermediate Municipal Bond Fund
Nations North Carolina Municipal Bond Fund
Nations South Carolina Intermediate Municipal Bond Fund
Nations South Carolina Municipal Bond Fund
Nations Tennessee Intermediate Municipal Bond Fund
Nations Tennessee Municipal Bond Fund
Nations Texas Intermediate Municipal Bond Fund
Nations Texas Municipal Bond Fund
Nations Virginia Intermediate Municipal Bond Fund
Nations Virginia Municipal Bond Fund
For Fund information call:
1-800-321-7854
Nations Fund
c/o Stephens Inc.
One NationsBank Plaza
33rd Floor
Charlotte, NC 28255
(Nations Fund Logo appears here)
NSI-96146-796
<PAGE>
Table Of Contents
About The Funds
Prospectus Summary 3
Expenses Summary 6
Financial Highlights 11
Objectives 29
How Objectives Are Pursued 31
How Performance Is Shown 35
How The Funds Are Managed 36
Organization And History 40
About Your Investment
How To Buy Shares 41
How To Redeem Shares 42
How To Exchange Shares 44
Shareholder Servicing And Distribution Plans 45
How The Funds Value Their Shares 46
How Dividends And Distributions Are Made;
Tax Information 47
Appendix A -- Portfolio Securities 49
Appendix B -- Description Of Ratings 55
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT
CONTAINED IN THIS PROSPECTUS, OR IN THE FUNDS'
SAI INCORPORATED HEREIN BY REFERENCE, IN
CONNECTION WITH THE OFFERING MADE BY
THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY NATIONS FUND OR
ITS DISTRIBUTOR. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFERING BY NATIONS FUND OR BY THE
DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH
OFFERING MAY NOT LAWFULLY BE MADE.
2
<PAGE>
About The Funds
Prospectus Summary
(BULLET) TYPE OF COMPANY: Open-end management investment company.
(BULLET) INVESTMENT OBJECTIVES AND POLICIES:
(Bullet) Nations Municipal Income Fund's investment objective is to seek high
current income exempt from Federal income tax with the potential for
principal fluctuation associated with investments in long-term
municipal securities. The Fund invests in investment grade, long-term
municipal securities.
(Bullet) Nations Short-Term Municipal Income Fund's investment objective is to
seek high current income exempt from Federal income tax consistent
with minimal fluctuation of principal. The Fund invests in investment
grade, short-term municipal securities.
(Bullet) Nations Intermediate Municipal Bond Fund's investment objective is to
seek high current income exempt from Federal income tax consistent
with moderate fluctuation of principal. The Fund invests in
investment grade, intermediate-term municipal securities.
(Bullet) Nations Florida Intermediate Municipal Bond Fund's investment
objective is to seek high current income exempt from Federal income
and the Florida state intangibles taxes consistent with moderate
fluctuation of principal. The Fund invests in investment grade,
intermediate-term municipal securities.
(Bullet) Nations Florida Municipal Bond Fund's investment objective is to seek
high current income exempt from Federal income and the Florida state
intangibles taxes with the potential for principal fluctuation
associated with investments in long-term municipal securities. The
Fund invests in investment grade, long-term municipal securities.
(Bullet) Nations Georgia Intermediate Municipal Bond Fund's investment
objective is to seek high current income exempt from Federal and
Georgia state income taxes consistent with moderate fluctuation of
principal. The Fund invests in investment grade, intermediate-term
municipal securities.
(Bullet) Nations Georgia Municipal Bond Fund's investment objective is to seek
high current income exempt from Federal and Georgia state income
taxes with the potential for principal fluctuation associated with
investments in long-term municipal securities. The Fund invests in
investment grade, long-term municipal securities.
(Bullet) Nations Maryland Intermediate Municipal Bond Fund's investment
objective is to seek high current income exempt from Federal and
Maryland state income taxes consistent with moderate fluctuation of
principal. The Fund invests in investment grade, intermediate-term
municipal securities.
(Bullet) Nations Maryland Municipal Bond Fund's investment objective is to
seek high current income exempt from Federal and Maryland state
income taxes with the potential for principal fluctuation associated
with investments in long-term municipal securities. The Fund invests
in investment grade, long-term municipal securities.
3
<PAGE>
(Bullet) Nations North Carolina Intermediate Municipal Bond Fund's investment
objective is to seek high current income exempt from Federal and
North Carolina state income taxes consistent with moderate
fluctuation of principal. The Fund invests in investment grade,
intermediate-term municipal securities.
(Bullet) Nations North Carolina Municipal Bond Fund's investment objective is
to seek high current income exempt from Federal and North Carolina
state income taxes with the potential for principal fluctuation
associated with investments in long-term municipal securities. The
Fund invests in investment grade, long-term municipal securities.
(Bullet) Nations South Carolina Intermediate Municipal Bond Fund's investment
objective is to seek high current income exempt from Federal and
South Carolina state income taxes consistent with moderate
fluctuation of principal. The Fund invests in investment grade,
intermediate-term municipal securities.
(Bullet) Nations South Carolina Municipal Bond Fund's investment objective is
to seek high current income exempt from Federal and South Carolina
state income taxes with the potential for principal fluctuation
associated with investments in long-term municipal securities. The
Fund invests in investment grade, long-term municipal securities.
(Bullet) Nations Tennessee Intermediate Municipal Bond Fund's investment
objective is to seek high current income exempt from Federal income
tax and the Tennessee Hall Income Tax on unearned income consistent
with moderate fluctuation of principal. The Fund invests in
investment grade, intermediate-term municipal securities.
(Bullet) Nations Tennessee Municipal Bond Fund's investment objective is to
seek high current income exempt from Federal income tax and the
Tennessee Hall Income Tax on unearned income with the potential for
principal fluctuation associated with investments in long-term
municipal securities. The Fund invests in investment grade, long-term
municipal securities.
(Bullet) Nations Texas Intermediate Municipal Bond Fund's investment objective
is to seek high current income exempt from Federal income tax
consistent with moderate fluctuation of principal. The Fund invests
in investment grade, intermediate-term municipal securities.
(Bullet) Nations Texas Municipal Bond Fund's investment objective is to seek
high current income exempt from Federal income tax with the potential
for principal fluctuation associated with investments in long-term
municipal securities. The Fund invests in investment grade, long-term
municipal securities.
(Bullet) Nations Virginia Intermediate Municipal Bond Fund's investment
objective is to seek high current income exempt from Federal and
Virginia state income taxes consistent with moderate fluctuation of
principal. The Fund invests in investment grade, intermediate-term
municipal securities.
(Bullet) Nations Virginia Municipal Bond Fund's investment objective is to
seek high current income exempt from Federal and Virginia state
income taxes with the potential for principal fluctuation associated
with investments in long-term municipal securities. The Fund invests
in investment grade, long-term municipal securities.
(BULLET) INVESTMENT ADVISER: NationsBanc Advisors, Inc. serves as the investment
adviser to the Funds. NBAI provides investment advice to more than 43
investment company portfolios in the Nations Fund Family. TradeStreet
Investment Associates, Inc. provides sub-advisory services to the
Funds. See "How The Funds Are Managed."
4
<PAGE>
(BULLET) DIVIDENDS AND DISTRIBUTIONS: The Funds declare dividends daily and pay
them monthly. Each Fund's net realized capital gains, including net
short-term capital gains, are distributed at least annually.
(BULLET) RISK FACTORS: Although the Adviser seeks to achieve the investment
objective of each Fund, there is no assurance that it will be able to
do so. Investments in a Fund are not insured against loss of principal.
Investments by a Fund in debt securities are subject to interest rate
risk, which is the risk that increases in market interest rates will
adversely affect a Fund's investments in debt securities. The value of
a Fund's investments in debt securities, including U.S. Government
obligations, will tend to decrease when interest rates rise and
increase when interest rates fall. In general, longer-term debt
instruments tend to fluctuate in value more than shorter-term debt
instruments in response to interest rate movements. In addition, debt
securities which are not backed by the United States Government are
subject to credit risk, which is the risk that the issuer may not be
able to pay principal and/or interest when due. Certain of the Funds'
investments constitute derivative securities. Certain types of
derivative securities can, under certain circumstances, significantly
increase an investor's exposure to market or other risks. Since the
State Intermediate Municipal Bond Funds and State Municipal Bond Funds
invest primarily in securities issued by entities located in a single
state, such Funds are more susceptible to changes in value due to
political or economic changes affecting such states or their
subdivisions. For a discussion of these and other factors, see "How
Objectives Are Pursued -- Risk Considerations" and "Appendix
A -- Portfolio Securities."
(BULLET) MINIMUM PURCHASE: $1,000 minimum initial investment per record holder.
$100 minimum subsequent investment (except for investments pursuant to
the Systematic Investment Plan). See "How To Buy Shares."
5
<PAGE>
Expenses Summary
Expenses are one of several factors to consider when investing in the Funds. The
following tables summarize shareholder transaction and operating expenses for
Investor N Shares of the Funds. The Examples show the cumulative expenses
attributable to a hypothetical $1,000 investment in the Funds over specified
periods.
INVESTOR N SHARES
<TABLE>
<CAPTION>
Nations
Nations Nations Florida Nations
Short-Term Intermediate Nations Intermediate Florida
SHAREHOLDER Municipal Municipal Municipal Municipal Municipal
TRANSACTION EXPENSES Income Fund Bond Fund Income Fund Bond Fund Bond Fund
<S> <C> <C> <C> <C> <C>
Sales Load Imposed on
Purchases None None None None None
Deferred Sales Charge
(as a percentage of
the lower of the
original purchase
price or redemption
proceeds)1 None None None None None
Nations
Georgia Nations
Intermediate Georgia
SHAREHOLDER Municipal Municipal
TRANSACTION EXPENSES Bond Fund Bond Fund
Sales Load Imposed on
Purchases None None
Deferred Sales Charge
(as a percentage of
the lower of the
original purchase
price or redemption
proceeds)1 None None
</TABLE>
<TABLE>
<CAPTION>
ANNUAL FUND
OPERATING
EXPENSES
(as a percentage of
average net assets)
<S> <C> <C> <C> <C> <C>
Management Fees (After
Fee Waivers)2 .30% .40% .40% .30% .40%
Rule 12b-1 Fees (After
Fee Waivers)2 .10% .25% .50% .25% .50%
Shareholder Servicing
Fees .25% .25% .25% .25% .25%
Other Expenses (After
Expense
Reimbursements) .10% .10% .20% .20% .20%
Total Operating
Expenses (After
Fee Waivers
and Expense
Reimbursements)2 .75% 1.00% 1.35% 1.00% 1.35%
ANNUAL FUND
OPERATING
EXPENSES
(as a percentage of
average net assets)
Management Fees (After
Fee Waivers)2 .30% .30%
Rule 12b-1 Fees (After
Fee Waivers)2 .25% .50%
Shareholder Servicing
Fees .25% .25%
Other Expenses (After
Expense
Reimbursements) .20% .30%
Total Operating
Expenses (After
Fee Waivers
and Expense
Reimbursements)2 1.00% 1.35%
</TABLE>
1 Investor N Shares purchased prior to January 1, 1996 will continue to be
subject to the Deferred Sales Charge, if any, applicable at the time of
purchase. See "How To Redeem Shares -- Contingent Deferred Sales Charge."
2 See page 10 for a discussion of the actual expenses absent such fee waivers.
6
<PAGE>
INVESTOR N SHARES
<TABLE>
<CAPTION>
Nations Nations
Maryland Nations North Carolina
Intermediate Maryland Intermediate
Municipal Municipal Municipal
SHAREHOLDER TRANSACTION EXPENSES Bond Fund Bond Fund Bond Fund
<S> <C> <C> <C>
Sales Load Imposed on Purchases None None None
Deferred Sales Charge (as a percentage of the lower of the original
purchase price or redemption proceeds)1 None None None
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
<TABLE>
<S> <C> <C> <C>
Management Fees (After Fee Waivers)2 .30% .30% .30%
Rule 12b-1 Fees (After Fee Waivers)2 .25% .50% .25%
Shareholder Servicing Fees .25% .25% .25%
Other Expenses (After Expense Reimbursements) .20% .30% .20%
Total Operating Expenses (After Fee Waivers and Expense Reimbursements)2 1.00% 1.35% 1.00%
</TABLE>
1 Investor N Shares purchased prior to January 1, 1996 will continue to be
subject to the Deferred Sales Charge, if any, applicable at the time of
purchase. See "How To Redeem Shares -- Contingent Deferred Sales Charge."
2 See page 10 for a discussion of the actual expenses absent such fee waivers.
<TABLE>
<CAPTION>
INVESTOR N SHARES
Nations
Nations South Carolina Nations
North Carolina Intermediate South Carolina
Municipal Municipal Municipal
SHAREHOLDER TRANSACTION EXPENSES Bond Fund Bond Fund Bond Fund
<S> <C> <C> <C>
Sales Load Imposed on Purchases None None None
Deferred Sales Charge (as a percentage of the lower of the original
purchase price or redemption proceeds)1 None None None
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
<TABLE>
<S> <C> <C> <C>
Management Fees (After Fee Waivers)2 .30% .30% .30%
Rule 12b-1 Fees (After Fee Waivers)2 .50% .25% .50%
Shareholder Servicing Fees .25% .25% .25%
Other Expenses (After Expense Reimbursements) .30% .20% .30%
Total Operating Expenses (After Fee Waivers and Expense Reimbursements)2 1.35% 1.00% 1.35%
</TABLE>
1 Investor N Shares purchased prior to January 1, 1996 will continue to be
subject to the Deferred Sales Charge, if any, applicable at the time of
purchase. See "How To Redeem Shares -- Contingent Deferred Sales Charge."
2 See page 10 for a discussion of the actual expenses absent such fee waivers.
7
<PAGE>
<TABLE>
<CAPTION>
INVESTOR N SHARES
Nations Nations
Tennessee Nations Texas
Intermediate Tennessee Intermediate
Municipal Municipal Municipal
SHAREHOLDER TRANSACTION EXPENSES Bond Fund Bond Fund Bond Fund
<S> <C> <C> <C>
Sales Load Imposed on Purchases None None None
Deferred Sales Charge (as a percentage of the lower of the original
purchase price or redemption proceeds)1 None None None
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
<TABLE>
<S> <C> <C> <C>
Management Fees (After Fee Waivers)2 .30% .30% .30%
Rule 12b-1 Fees (After Fee Waivers)2 .25% .50% .25%
Shareholder Servicing Fees .25% .25% .25%
Other Expenses (After Expense Reimbursements) .20% .30% .20%
Total Operating Expenses (After Fee Waivers and Expense Reimbursements)2 1.00% 1.35% 1.00%
</TABLE>
1 Investor N Shares purchased prior to January 1, 1996 will continue to be
subject to the Deferred Sales Charge, if any, applicable at the time of
purchase. See "How To Redeem Shares -- Contingent Deferred Sales Charge."
2 See page 10 for a discussion of the actual expenses absent such fee waivers.
<TABLE>
<CAPTION>
INVESTOR N SHARES
Nations
Nations Virginia Nations
Texas Intermediate Virginia
Municipal Municipal Municipal
SHAREHOLDER TRANSACTION EXPENSES Bond Fund Bond Fund Bond Fund
<S> <C> <C> <C>
Sales Load Imposed on Purchases None None None
Deferred Sales Charge (as a percentage of the lower of the original
purchase price or redemption proceeds)1 None None None
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
<TABLE>
<S> <C> <C> <C>
Management Fees (After Fee Waivers)2 .30% .30% .30%
Rule 12b-1 Fees (After Fee Waivers)2 .50% .25% .50%
Shareholder Servicing Fees .25% .25% .25%
Other Expenses (After Expense Reimbursements) .30% .20% .30%
Total Operating Expenses (After Fee Waivers and Expense Reimbursements)2 1.35% 1.00% 1.35%
</TABLE>
1 Investor N Shares purchased prior to January 1, 1996 will continue to be
subject to the Deferred Sales Charge, if any, applicable at the time of
purchase. See "How To Redeem Shares -- Contingent Deferred Sales Charge."
2 See page 10 for a discussion of the actual expenses absent such fee waivers.
8
<PAGE>
EXAMPLES: You would pay the following expenses on a $1,000 investment in
Investor N Shares of the indicated Fund, assuming (1) a 5% annual return and (2)
redemption at the end of each time period.
<TABLE>
<CAPTION>
Nations Nations
Nations Nations Florida Nations Georgia
Short-Term Intermediate Nations Intermediate Florida Intermediate
Municipal Municipal Municipal Municipal Municipal Municipal
Income Fund Bond Fund Income Fund Bond Fund Bond Fund Bond Fund
<S> <C> <C> <C> <C> <C> <C>
1 Year $ 8 $ 10 $ 14 $ 10 $ 14 $ 10
3 Years $ 24 $ 32 $ 43 $ 32 $ 43 $ 32
5 Years $ 42 $ 55 $ 74 $ 55 $ 74 $ 55
10 Years $ 93 $ 122 $ 162 $ 122 $ 162 $ 122
Nations
Nations Maryland
Georgia Intermediate
Municipal Municipal
Bond Fund Bond Fund
1 Year $ 14 $ 10
3 Years $ 43 $ 32
5 Years $ 74 $ 55
10 Years $ 162 $ 122
</TABLE>
<TABLE>
<CAPTION>
Nations Nations Nations
Nations North Carolina Nations South Carolina Nations Tennessee
Maryland Intermediate North Carolina Intermediate South Carolina Intermediate
Municipal Municipal Municipal Municipal Municipal Municipal
Bond Fund Bond Fund Bond Fund Bond Fund Bond Fund Bond Fund
<S> <C> <C> <C> <C> <C> <C>
1 Year $ 14 $ 10 $ 14 $ 10 $ 14 $ 10
3 Years $ 43 $ 32 $ 43 $ 32 $ 43 $ 32
5 Years $ 74 $ 55 $ 74 $ 55 $ 74 $ 55
10 Years $ 162 $ 122 $ 162 $ 122 $ 162 $ 122
Nations
Nations Texas
Tennessee Intermediate
Municipal Municipal
Bond Fund Bond Fund
1 Year $ 14 $ 10
3 Years $ 43 $ 32
5 Years $ 74 $ 55
10 Years $ 162 $ 122
</TABLE>
<TABLE>
<CAPTION>
Nations
Nations Virginia Nations
Texas Intermediate Virginia
Municipal Municipal Municipal
Bond Fund Bond Fund Bond Fund
<S> <C> <C> <C>
1 Year $ 14 $ 10 $ 14
3 Years $ 43 $ 32 $ 43
5 Years $ 74 $ 55 $ 74
10 Years $ 162 $ 122 $ 162
</TABLE>
9
<PAGE>
The purpose of the foregoing tables is to assist an investor in understanding
the various shareholder transaction and operating expenses that an investor in
Investor N Shares of the Funds will bear either directly or indirectly. The
figures in the above tables are based on amounts incurred during each Fund's
most recent fiscal year and have been adjusted as necessary to reflect current
service provider fees. There is no assurance that any fee waivers and
reimbursements will continue beyond the current fiscal year. If fee waivers
and/or reimbursements are discontinued, the amounts contained in the "Examples"
above may increase. Long-term shareholders of a Fund could pay more in sales
charges than the economic equivalent of the maximum front-end sales charges
applicable to mutual funds sold by members of the National Association of
Securities Dealers, Inc. For more complete descriptions of the Funds' operating
expenses, see "How The Funds Are Managed."
Absent fee waivers and expense reimbursements, "Management Fees," "Rule 12b-1
Fees," "Other Expenses" and "Total Operating Expenses" for Investor N Shares of
the indicated Fund would have been as follows: Nations Municipal Income
Fund -- .60%, .75%, .30% and 1.90%, respectively; Nations Short-Term Municipal
Income Fund -- .50%, .75%, .34% and 1.84%, respectively; Nations Intermediate
Municipal Bond Fund -- .50%, .75%, .33% and 1.83%, respectively; Nations Florida
Intermediate Municipal Bond Fund -- .50%, .75%, .36% and 1.86%, respectively;
Nations Florida Municipal Bond Fund -- .60%, .75%, .34% and 1.94%, respectively;
Nations Georgia Intermediate Municipal Bond Fund -- .50%, .75%, .33% and 1.83%,
respectively; Nations Georgia Municipal Bond Fund -- .60%, .75%, .50% and 2.10%,
respectively; Nations Maryland Intermediate Municipal Bond Fund -- .50%, .75%,
.30% and 1.80%, respectively; Nations Maryland Municipal Bond Fund -- .60%,
.75%, .48% and 2.08%, respectively; Nations North Carolina Intermediate Bond
Fund -- .50%, .75%, .37% and 1.87%, respectively; Nations North Carolina
Municipal Bond Fund -- .60%, .75%, .37% and 1.97%, respectively; Nations South
Carolina Intermediate Municipal Bond Fund -- .50%, .75%, .32% and 1.82%,
respectively; Nations South Carolina Municipal Bond Fund -- .60%, .75%, .50% and
2.10%, respectively; Nations Tennessee Intermediate Municipal Bond Fund -- .50%,
.75%, .43% and 1.93%, respectively; Nations Tennessee Municipal Bond
Fund -- .60%, .75%, .58% and 2.18%, respectively; Nations Texas Intermediate
Municipal Bond Fund -- .50%, .75%, .39% and 1.89%, respectively; Nations Texas
Municipal Bond Fund -- .60%, .75%, .48% and 2.08%, respectively; Nations
Virginia Intermediate Municipal Bond Fund -- .50%, .75%, .26% and 1.76%,
respectively; and Nations Virginia Municipal Bond Fund -- .60%, .75%, .44% and
2.04% respectively.
THE FOREGOING SHOULD NOT BE CONSIDERED TO BE AN ACTUAL REPRESENTATION OF PAST OR
FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES AND RATES OF RETURN MAY BE
GREATER OR LESS THAN THOSE SHOWN.
10
<PAGE>
Financial Highlights
The audited financial information on the following pages has been derived from
the financial statements of Nations Fund Trust. Price Waterhouse LLP is the
independent accountant to Nations Fund Trust. The reports of Price Waterhouse
LLP for the fiscal year ended November 30, 1995 accompany the financial
statements for such period and are incorporated by reference in the SAI, which
is available upon request. Shareholders of a Fund will receive unaudited
semi-annual reports describing the Fund's investment operations and annual
financial statements audited by the Funds' independent accountant.
FOR AN INVESTOR N SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS SHORT-TERM MUNICIPAL INCOME FUND
<TABLE>
<CAPTION>
PERIOD YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
INVESTOR N SHARES 03/31/96(b) 11/30/95 11/30/94 11/30/93*
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 10.03 $ 9.69 $ 9.96 $ 10.00
Net investment income 0.13 0.40 0.34 0.04
Net realized and unrealized gain/(loss) on investments (0.05) 0.34 (0.27) (0.04)
Net increase in net asset value from operations 0.08 0.74 0.07 --
Distributions:
Dividends from net investment income (0.13) (0.40) (0.34) (0.04)
Distributions from net realized capital gains -- -- (0.00)# --
Total dividends and distributions (0.13) (0.40) (0.34) (0.04)
Net asset value, end of period $ 9.98 $ 10.03 $ 9.69 $ 9.96
Total return++ 0.84% 7.78% 0.73% (0.02)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 13.859 $ 9,803 $ 13,421 $ 5,863
Ratio of operating expenses to average net assets 0.75%+(a) 0.80%(a) 0.69%(a) 0.44%+
Ratio of net investment income to average net assets 4.02%+ 4.03% 3.48% 2.81%+
Portfolio turnover rate 16% 82% 57% 45%
Ratio of operating expenses to average net assets
without waivers and/or expense reimburements 1.21%+ 1.28% 1.15% 1.39%+
Net investment income per share without waivers and/or
expense reimbursements $ 0.11 $ 0.35 $ 0.31 $ 0.04
</TABLE>
* Nations Short-Term Municipal Income Fund's Investor N Shares commenced
operations on October 12, 1993.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
# Amount represents less than $0.01 per share.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
11
<PAGE>
FOR AN INVESTOR N SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS INTERMEDIATE MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
PERIOD YEAR PERIOD
ENDED ENDED ENDED
INVESTOR N SHARES 03/31/96(b) 11/30/95 11/30/94*
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 10.17 $ 9.24 $ 10.13
Net investment income 0.14 0.43 0.39
Net realized and unrealized gain/(loss) on investments (0.14) 0.93 (0.88)
Net increase/(decrease) in net asset value from operations 0.00 1.36 (0.49)
Distributions:
Dividends from net investment income (0.14) (0.43) (0.39)
Distributions in excess of net investment income -- -- (0.00)#
Distributions from net realized capital gains -- -- (0.01)
Total dividends and distributions (0.14) (0.43) (0.40)
Net asset value, end of period $ 10.03 $ 10.17 $ 9.24
Total return++ 0.03% 15.02% (5.00)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 1,623 $ 1,352 $ 943
Ratio of operating expenses to average net assets 1.00%+(a) 0.95%(a) 0.85%+(a)
Ratio of net investment income to average net assets 4.25%+ 4.41% 4.09%+
Portfolio turnover rate 4% 31% 51%
Ratio of operating expenses to average net assets without waivers
and/or expense reimbursements 1.33%+ 1.34% 1.38%+
Net investment income per share without waivers and/or expense
reimbursements $ 0.13 $ 0.40 $ 0.34
</TABLE>
* Nations Intermediate Municipal Bond Fund's Investor N Shares commenced
operations on December 2, 1993.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
# Amount represents less than $0.01 per share.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
12
<PAGE>
FOR AN INVESTOR N SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS MUNICIPAL INCOME FUND
<TABLE>
<CAPTION>
PERIOD YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
INVESTOR N SHARES 03/31/96(b) 11/30/95 11/30/94 11/30/93*
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 11.08 $ 9.64 $ 11.33 $ 11.13
Net investment income 0.17 0.51 0.49 0.23
Net realized and unrealized gain/(loss) on investments (0.24) 1.44 (1.44) 0.20
Net increase/(decrease) in net asset value from operations (0.07) 1.95 (0.95) 0.43
Distributions:
Dividends from net investment income (0.17) (0.51) (0.49) (0.23)
Distributions in excess of net investment income -- -- (0.00)# --
Distributions from net realized capital gains -- -- (0.25) --
Total dividends and distributions (0.17) (0.51) (0.74) (0.23)
Net asset value, end of period $ 10.84 $ 11.08 $ 9.64 $ 11.33
Total return++ (0.66)% 20.65% (8.86)% 3.89%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 16,870 $ 18,165 $ 17,101 $ 15,133
Ratio of operating expenses to average net assets 1.35%+ 1.35% 1.36% 1.27%+
Ratio of operating expenses to average net assets including
interest expense --(a) --(a) 1.37% --
Ratio of net investment income to average net assets 4.60%+ 4.88% 4.67% 4.49%+
Portfolio turnover rate 4% 49% 63% 48%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 1.66%+ 1.63% 1.65% 1.59%+
Net investment income per share without waivers and/or expense
reimbursements $ 0.16 $ 0.48 $ 0.46 $ 0.22
</TABLE>
* Nations Municipal Income Fund's Investor N Shares commenced operations on
June 7, 1993.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
# Amount represents less than $0.01 per share.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
13
<PAGE>
FOR AN INVESTOR N SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS FLORIDA INTERMEDIATE MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
PERIOD YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
INVESTOR N SHARES 03/31/96(b) 11/30/95 11/30/94 11/30/93*
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 10.63 $ 9.61 $ 10.50 $ 10.32
Net investment income 0.15 0.43 0.40 0.18
Net realized and unrealized gain/(loss) on investments (0.17) 1.02 (0.88) 0.18
Net increase/(decrease) in net asset value from operations (0.02) 1.45 (0.48) 0.36
Distributions:
Dividends from net investment income (0.15) (0.43) (0.40) (0.18)
Distributions in excess of net investment income -- -- (0.00)# --
Distributions from net realized capital gains -- -- (0.01) --
Total dividends and distributions (0.15) (0.43) (0.41) (0.18)
Net asset value, end of period $ 10.46 $ 10.63 $ 9.61 $ 10.50
Total return++ (0.23)% 15.34% (4.73)% 3.53%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 4,001 $ 4,775 $ 4,691 $ 3,328
Ratio of operating expenses to average net assets 1.00%+(a) 1.05%(a) 1.05%(a) 0.94%+
Ratio of net investment income to average net assets 4.16%+ 4.20% 3.94% 3.78%+
Portfolio turnover rate 18% 27% 34% 15%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 1.36%+ 1.31% 1.26% 1.30%+
Net investment income per share without waivers and/or
expense reimbursements $ 0.13 $ 0.41 $ 0.38 $ 0.17
</TABLE>
* Nations Florida Intermediate Municipal Bond Fund's Investor N Shares
commenced operations on June 7, 1993.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
# Amount represents less than $0.01 per share.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
14
<PAGE>
FOR AN INVESTOR N SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS FLORIDA MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
PERIOD YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
INVESTOR N SHARES 03/31/96(b) 11/30/95 11/30/94 11/30/93*
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 9.76 $ 8.40 $ 9.73 $ 10.00
Net investment income 0.14 0.44 0.45 0.03
Net realized and unrealized gain/(loss) on investments (0.29) 1.36 (1.33) (0.27)
Net increase/(decrease) in net asset value from operations (0.15) 1.80 (0.88) (0.24)
Dividends from net investment income (0.14) (0.44) (0.45) (0.03)
Total dividends and distributions (0.14) (0.44) (0.45) (0.03)
Net asset value, end of period $ 9.47 $ 9.76 $ 8.40 $ 9.73
Total return++ (1.58)% 21.78% (9.37)% (2.35)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 23,947 $ 25,398 $ 19,868 $ 11,434
Ratio of operating expenses to average net assets 1.35%+(a) 1.14%(a) 0.96%(a) 0.68%+
Ratio of net investment income to average net assets 4.28%+ 4.69% 4.80% 3.29%+
Portfolio turnover rate 7% 13% 46% 0%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 1.71%+ 1.70% 1.66% 1.84%+
Net investment income per share without waivers and/or
expense reimbursements $ 0.13 $ 0.39 $ 0.38 $ 0.02
</TABLE>
* Nations Florida Municipal Bond Fund's Investor N Shares commenced operations
on October 22, 1993.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
15
<PAGE>
FOR AN INVESTOR N SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS GEORGIA INTERMEDIATE MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
PERIOD YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
INVESTOR N SHARES 03/31/96(b) 11/30/95 11/30/94 11/30/93*
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 10.81 $ 9.82 $ 10.82 $ 10.61
Net investment income 0.15 0.45 0.44 0.20
Net realized and unrealized gain/(loss) on investments (0.18) 0.99 (0.98) 0.21
Net increase/(decrease) in net asset value from operations (0.03) 1.44 (0.54) 0.41
Distributions:
Dividends from net investment income (0.15) (0.45) (0.44) (0.20)
Distributions in excess of net investment income -- -- (0.00)# --
Distributions from net realized capital gains -- -- (0.02) --
Total dividends and distributions (0.15) (0.45) (0.46) (0.20)
Net asset value, end of period $ 10.63 $ 10.81 $ 9.82 $ 10.82
Total return++ (0.29)% 14.85% (5.17)% 3.86%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 8,098 $ 8,160 $ 7,269 $ 4,506
Ratio of operating expenses to average net assets 1.00%+ 1.05% 1.04% 0.96%+
Ratio of operating expenses to average net assets including
interest expense --(a) --(a) 1.05% --
Ratio of net investment income to average net assets 4.17%+ 4.26% 4.24% 4.07%+
Portfolio turnover rate 3% 17% 22% 6%
Ratio of operating expenses to average net assets without
waivers and/or expense reimburements 1.33%+ 1.30% 1.25% 1.27%+
Net investment income per share without waivers and/or
expense reimbursements $ 0.14 $ 0.42 $ 0.42 $ 0.18
</TABLE>
* Nations Georgia Intermediate Municipal Bond Fund Investor N Shares commenced
operations on June 7, 1993.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
# Amount represents less than $0.01 per share.
(a) The effect of interest expense on the operating ratio was less than 0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
16
<PAGE>
FOR AN INVESTOR N SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS GEORGIA MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
PERIOD YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
INVESTOR N SHARES 03/31/96(b) 11/30/95 11/30/94 11/30/93*
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 9.72 $ 8.38 $ 9.81 $ 10.00
Net investment income 0.14 0.44 0.45 0.04
Net realized and unrealized gain/(loss) on investments (0.24) 1.34 (1.43) (0.19)
Net increase/(decrease) in net asset value from operations (0.10) 1.78 (0.98) (0.15)
Dividends from net investment income (0.14) (0.44) (0.45) (0.04)
Total dividends and distributions (0.14) (0.44) (0.45) (0.04)
Net asset value, end of period $ 9.48 $ 9.72 $ 8.38 $ 9.81
Total return++ (1.09)% 21.58% (10.28)% (1.49)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 12,254 $ 13,017 $ 9,500 $ 4,820
Ratio of operating expenses to average net assets 1.35%+(a) 1.15%(a) 0.96%(a) 0.70%+
Ratio of net investment income to average net assets 4.21%+ 4.67% 4.85% 3.63%+
Portfolio turnover rate 7% 26% 35% 30%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 1.89%+ 1.84% 1.79% 2.08%+
Net investment income per share without waivers and/or
expense reimbursements $ 0.12 $ 0.37 $ 0.38 $ 0.03
</TABLE>
* Nations Georgia Municipal Bond Fund Investor N Shares commenced operations
on October 21, 1993.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
(a) The effect of interest expense on the operating ratio was less than 0.01%.
(b) Fiscal year end March 31. Prior to this, the fiscal year end was November
30.
17
<PAGE>
FOR AN INVESTOR N SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS MARYLAND INTERMEDIATE MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
PERIOD YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
INVESTOR N SHARES 03/31/96(b) 11/30/95 11/30/94 11/30/93*
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 10.95 $ 10.00 $ 11.09 $ 10.94
Net investment income 0.15 0.45 0.45 0.21
Net realized and unrealized gain/(loss) on investments (0.15) 0.98 (0.99) 0.17
Net increase/(decrease) in net asset value from operations 0.00 1.43 (0.54) 0.38
Distributions:
Dividends from net investment income (0.15) (0.45) (0.45) (0.21)
Distributions from net realized capital gains -- (0.03) (0.10) (0.02)
Distributions in excess of net realized capital gains -- -- (0.00)# --
Total dividends and distributions (0.15) (0.48) (0.55) (0.23)
Net asset value, end of period $ 10.80 $ 10.95 $ 10.00 $ 11.09
Total return++ (0.01)% 14.59% (5.12)% 3.53%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 4,500 $ 4,485 $ 4,368 $ 3,234
Ratio of operating expenses to average net assets 1.00%+(a) 1.05%(a) 1.03%(a) 0.99%+
Ratio of net investment income to average net assets 4.12%+ 4.26% 4.23% 4.23%+
Portfolio turnover rate 4% 11% 22% 26%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 1.31%+ 1.30% 1.23% 1.23%+
Net investment income per share without waivers and/or
expense reimbursements $ 0.14 $ 0.42 $ 0.43 $ 0.20
</TABLE>
* Nations Maryland Intermediate Municipal Bond Fund Investor N Shares
commenced operations on June 8, 1993.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
# Amount represents less than $0.01 per share.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
18
<PAGE>
FOR AN INVESTOR N SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS MARYLAND MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
PERIOD YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
INVESTOR N SHARES 03/31/96(b) 11/30/95 11/30/94 11/30/93*
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 9.63 $ 8.37 $ 9.77 $ 10.00
Net investment income 0.13 0.41 0.44 0.04
Net realized and unrealized gain/(loss) on investments (0.24) 1.26 (1.40) (0.23)
Net increase/(decrease) in net asset value from operations (0.11) 1.67 (0.96) (0.19)
Total dividends and distribution (0.13) (0.41) (0.44) (0.04)
Dividends from net investment income (0.13) (0.41) (0.44) (0.04)
Net asset value, end of period $ 9.39 $ 9.36 $ 8.37 $ 9.77
Total return++ (1.19)% 20.33% (10.11)% (1.94)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) 9,662 $ 10,002 $ 4,819 $ 3,048
Ratio of operating expenses to average net assets 1.35%+ 1.15% 0.96%(a) 0.73%+
Ratio of net investment income to average net assets $ 3.97%+ 4.39% 4.73% 3.37%+
Portfolio turnover rate 7% 11% 39% 1%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 1.98%+ 2.01% 2.05% 2.36%+
Net investment income per share without waivers and/or
expense reimbursements $ 0.11 $ 0.33 $ 0.35 $ 0.02
</TABLE>
* Nations Maryland Municipal Bond Fund Investor N Shares commenced operations
on October 21, 1993.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
19
<PAGE>
FOR AN INVESTOR N SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS NORTH CAROLINA INTERMEDIATE MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
PERIOD YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
INVESTOR N SHARES 03/31/96(b) 11/30/95 11/30/94 11/30/93*
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 10.51 $ 9.53 $ 10.46 $ 10.31
Net investment income 0.14 0.40 0.39 0.18
Net realized and unrealized gain/(loss) on investments (0.15) 0.99 (0.88) 0.15
Net increase/(decrease) in net asset value from operations (0.01) 1.39 (0.49) 0.33
Distributions:
Dividends from net investment income (0.14) (0.40) (0.39) (0.18)
Distributions in excess of net investment income -- (0.00)# -- --
Distributions from net realized capital gains -- (0.01) (0.05) --
Total dividends and distributions (0.14) (0.41) (0.44) (0.18)
Net asset value, end of period $ 10.36 $ 10.51 $ 9.53 $ 10.46
Total return++ (0.12)% 14.84% (4.82)% 3.23%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 8,102 $ 7,848 $ 5,706 $ 3,822
Ratio of operating expenses to average net assets 1.00%+ 1.07%(a) 1.05%(a) 0.92%+
Ratio of net investment income to average net assets 3.97%+ 3.97% 3.88% 3.73%+
Portfolio turnover rate 3% 57% 37% 29%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 1.37%+ 1.34% 1.32% 1.35%+
Net investment income per share without waivers and/or
expense reimbursements $ 0.13 $ 0.38 $ 0.37 $ 0.17
</TABLE>
* Nations North Carolina Intermediate Municipal Bond Fund Investor N Shares
commenced operations on June 7, 1993.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
# Amount represents less than $0.01 per share.
(a) The effect of interest expense on the operating expenses ratio was less
than 0.01%.
(b) Fiscal year end change to March 31. Prior to this, the fiscal year end was
November 30.
20
<PAGE>
FOR AN INVESTOR N SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS NORTH CAROLINA MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
PERIOD YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
INVESTOR N SHARES 03/31/96(b) 11/30/95 11/30/94 11/30/93*
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 9.73 $ 8.36 $ 9.85 $ 10.00
Net investment income 0.13 0.43 0.45 0.04
Net realized and unrealized gain/(loss) on investments (0.24) 1.37 (1.49) (0.15)
Net increase/(decrease) in net asset value from operations (0.11) 1.80 (1.04) (0.11)
Dividends from net investment income (0.13) (0.43) (0.45) (0.04)
Total dividends and distributions (0.13) (0.43) (0.45) (0.04)
Net asset value, end of period $ 9.49 $ 9.73 $ 8.36 $ 9.85
Total return++ (1.12)% 21.96% (10.92)% (1.11)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 28,298 $ 30,048 $ 23,659 $ 11,395
Ratio of operating expenses to average net assets 1.35%+ 1.13%(a) 0.96%(a) 0.69%+
Ratio of net investment income to average net assets 4.11%+ 4.68% 4.78% 3.37%+
Portfolio turnover rate 22% 40% 29% 10%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 1.74%+ 1.71% 1.67% 1.81%+
Net investment income per share without waivers and/or
expense reimbursements $ 0.12 $ 0.38 $ 0.38 $ 0.03
</TABLE>
* Nations North Carolina Municipal Bond Fund Investor N Shares commenced
operations on October 21, 1993.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
(a) The effect of interest expense on the operating expenses ratio was less
than 0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
21
<PAGE>
FOR AN INVESTOR N SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS SOUTH CAROLINA INTERMEDIATE MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
PERIOD YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
INVESTOR N SHARES 03/31/96(b) 11/30/95 11/30/94 11/30/93*
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 10.69 $ 9.76 $ 10.61 $ 10.47
Net investment income 0.15 0.46 0.45 0.20
Net realized and unrealized gain/(loss) on investments (0.17) 0.93 (0.84) 0.14
Net increase/(decrease) in net asset value from
operations (0.02) 1.39 (0.39) 0.34
Distributions:
Dividends from net investment income (0.15) (0.46) (0.45) (0.20)
Distributions in excess of net investment income -- -- (0.00)# --
Distributions from net realized capital gains -- -- (0.01) --
Total dividends and distributions (0.15) (0.46) (0.46) (0.20)
Net asset value, end of period $ 10.52 $ 10.69 $ 9.76 $ 10.61
Total return++ (0.17)% 14.45% (3.85)% 3.23%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 6,968 $ 6,457 $ 5,740 $ 4,057
Ratio of operating expenses to average net assets 1.00%+(a) 1.05%(a) 1.04%(a) 0.95%+
Ratio of net investment income to average net assets 4.31%+ 4.42% 4.32% 4.18%+
Portfolio turnover rate 6% 11% 30% 11%
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 1.32%+ 1.25% 1.25% 1.25%+
Net investment income per share without waivers and/or
expense reimbusements $ 0.14 $ 0.44 $ 0.43 $ 0.19
</TABLE>
* Nations South Carolina Intermediate Municipal Bond Fund Investor N Shares
commenced operations on June 8, 1993.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
# Amount represents less than $0.01 per share.
(a) The effect of interest expense on the operating expenses ratio was less
than 0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
22
<PAGE>
FOR AN INVESTOR N SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS SOUTH CAROLINA MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
PERIOD YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
INVESTOR N SHARES 03/31/96(b) 11/30/95 11/30/94 11/30/93*
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 9.99 $ 8.65 $ 9.86 $ 10.00
Net investment income 0.14 0.45 0.45 0.04
Net realized and unrealized gain/(loss) on investments (0.22) 1.34 (1.21) (0.14)
Net increase/(decrease) in net asset value from
operations (0.08) 1.79 (0.76) (0.10)
Dividends from net investment income (0.14) (0.45) (0.45) (0.04)
Total dividends and distributions (0.14) (0.45) (0.45) (0.04)
Net asset value, end of period $ 9.77 $ 9.99 $ 8.65 $ 9.86
Total return++ (0.82)% 21.08% (7.97)% (1.00)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 12.991 $ 12,670 $ 8,263 $ 4,048
Ratio of operating expenses to average net assets 1.35%+(a) 1.15%(a) 0.96%(a) 0.70%+
Ratio of net investment income to average net assets 4.21%+ 4.69% 4.73% 3.56%+
Portfolio turnover rate 20% 13% 14% 8%
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 1.88%+ 1.83% 1.87% 2.23%+
Net investment income per share without waivers and/or
expense reimbursements $ 0.12 $ 0.39 $ 0.37 $ 0.02
</TABLE>
* Nations South Carolina Municipal Bond Fund Investor N Shares commenced
operations on October 21, 1993.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
(a) The effect of interest expense on the operating expenses ratio was less
than 0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
23
<PAGE>
FOR AN INVESTOR N SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS TENNESSEE INTERMEDIATE MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
PERIOD YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
INVESTOR N SHARES 03/31/96(b) 11/30/95 11/30/94 11/30/93*
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 10.23 $ 9.30 $ 10.18 $ 10.03
Net investment income 0.14 0.41 0.40 0.17
Net realized and unrealized gain/(loss) on investments (0.14) 0.93 (0.87) 0.15
Net increase/(decrease) in net asset value from operations 0.00 1.34 (0.47) 0.32
Distributions:
Dividends from net investment income (0.14) (0.41) (0.40) (0.17)
Distributions in excess of net investment income -- -- (0.00)# --
Distributions from net realized capital gains -- -- (0.01) --
Total dividends and distributions (0.14) (0.41) (0.41) (0.17)
Net asset value, end of period $ 10.09 $ 10.23 $ 9.30 $ 10.18
Total return++ (0.04)% 14.65% (4.72)% 3.32%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 3,528 $ 3,573 $ 3,368 $ 2,210
Ratio of operating expenses to average net assets 1.00%+ 1.07% 1.02% 0.77%+
Ratio of operating expenses to average net assets including
interest expense -- --(a) 1.03% --
Ratio of net investment income to average net assets 4.01%+ 4.15% 4.06% 3.81%+
Portfolio turnover rate 3% 34% 41% 16%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 1.52%+ 1.42% 1.39% 1.44%+
Net investment income per share without waivers and/or
expense reimbursements $ 0.12 $ 0.38 $ 0.37 $ 0.14
</TABLE>
* Nations Tennessee Intermediate Municipal Bond Fund Investor N Shares
commenced operations on June 10, 1993.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
# Amount represents less than $0.01 per share.
(a) The effect of interest expense on the operating expenses ratio was less
than 0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
24
<PAGE>
FOR AN INVESTOR N SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS TENNESSEE MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
PERIOD YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
INVESTOR N SHARES 03/31/96(b) 11/30/95 11/30/94 11/30/93*
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 9.87 $ 8.58 $ 9.80 $ 10.00
Net investment income 0.14 0.45 0.45 0.04
Net realized and unrealized gain/(loss) on investments (0.19) 1.29 (1.22) (0.20)
Net increase/(decrease) in net asset value from operations (0.05) 1.74 (0.77) (0.16)
Dividends from net investment income (0.14) (0.45) (0.45) (0.04)
Total dividends and distributions (0.14) (0.45) (0.45) (0.04)
Net asset value, end of period $ 9.68 $ 9.87 $ 8.58 $ 9.80
Total return++ (0.55)% 20.63% (8.10)% (1.61)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 6,761 $ 6,619 $ 5,504 $ 3,284
Ratio of operating expenses to average net assets 1.35%+ 1.15%(a) 0.96%(a) 0.77%+
Ratio of operating expenses to average net assets including
interest expense 1.36%+ -- -- --
Ratio of net investment income to average net assets 4.17%+ 4.74% 4.81% 3.71%+
Portfolio turnover rate 2% 45% 38% 3%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 2.22%+ 2.02% 1.95% 2.46%
Net investment income per share without waivers and/or
expense reimbursements $ 0.11 $ 0.37 $ 0.37 $ 0.02
</TABLE>
* Nations Tennessee Municipal Bond Fund Investor N Shares commenced operations
on October 21, 1993.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
(a) The effect of interest expense on the operating expenses ratio was less
than 0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
25
<PAGE>
FOR AN INVESTOR N SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS TEXAS INTERMEDIATE MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
PERIOD YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
INVESTOR N SHARES 03/31/96(b) 11/30/95 11/30/94 11/30/93*
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 10.36 $ 9.53 $ 10.35 $ 10.25
Net investment income 0.14 0.41 0.39 0.17
Net realized and unrealized gain/(loss) on investments (0.15) 0.83 (0.79) 0.10
Net increase/(decrease) in net asset value from operations (0.01) 1.24 (0.40) 0.27
Distributions:
Dividends from net investment income (0.14) (0.41) (0.39) (0.17)
Distributions in excess of net investment income -- -- (0.00)# --
Distributions from net realized capital gains -- -- (0.03) --
Total dividends and distributions (0.14) (0.41) (0.42) (0.17)
Net asset value, end of period $ 10.21 $ 10.36 $ 9.53 $ 10.35
Total return++ (0.12)% 13.27% (3.96)% 2.61%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 2,845 $ 3,136 $ 2,774 $ 1,330
Ratio of operating expenses to average net assets 1.00%+ 1.07%(a) 1.05%(a) 0.94%+
Ratio of net investment income to average net assets 4.02%+ 4.12% 3.90% 3.93%+
Portfolio turnover rate 11% 64% 61% 63%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 1.39%+ 1.33% 1.28% 1.32%+
Net investment income per share without waivers and/or
expense reimbursements $ 0.13 $ 0.39 $ 0.37 $ 0.16
</TABLE>
* Nations Texas Intermediate Municipal Bond Fund Investor N Shares commenced
operations on June 22, 1993.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
# Amount represents less than $0.01 per share.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
26
<PAGE>
FOR AN INVESTOR N SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS TEXAS MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
PERIOD YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
INVESTOR N SHARES 03/31/96(b) 11/30/95 11/30/94 11/30/93*
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 9.70 $ 8.39 $ 9.78 $ 10.00
Net investment income 0.13 0.43 0.44 0.04
Net realized and unrealized gain/(loss) on investments (0.21) 1.31 (1.39) (0.22)
Net increase/(decrease) in net asset value from operations (0.08) 1.74 (0.95) (0.18)
Dividends from net investment income (0.13) (0.43) (0.44) (0.04)
Total dividends and distributions (0.13) (0.43) (0.44) (0.04)
Net asset value, end of period $ 9.49 $ 9.70 $ 8.39 $ 9.78
Total return++ (0.80)% 21.19% (9.98)% (1.82)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 11,838 $ 12,587 $ 10,812 $ 6,154
Ratio of operating expenses to average net assets 1.35%+ 1.14%(a) 0.97%(a) 0.70%+
Ratio of net investment income to average net assets 4.17%+ 4.70% 4.77% 3.32%+
Portfolio turnover rate 6% 50% 107% 5%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 1.86%+ 1.80% 1.81% 2.05%+
Net investment income per share without waivers and/or
expense reimbursements $ 0.11 $ 0.37 $ 0.37 $ 0.03
</TABLE>
* Nations Texas Municipal Bond Fund Investor N Shares commenced operations on
October 21, 1993.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
(a) The effect of interest expense on the operating expenses ratio was less
than 0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
27
<PAGE>
FOR AN INVESTOR N SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS VIRGINIA INTERMEDIATE MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
PERIOD YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
INVESTOR N SHARES 03/31/96(b) 11/30/95 11/30/94 11/30/93*
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 10.83 $ 9.94 $ 10.99 $ 10.83
Net investment income 0.15 0.46 0.45 0.21
Net realized and unrealized gain/(loss) on investments (0.14) 0.89 (0.96) 0.16
Net increase/(decrease) in net asset value from operations 0.01 1.35 (0.51) 0.37
Distributions:
Dividends from net investment income (0.15) (0.46) (0.45) (0.21)
Distributions from net realized capital gains -- (0.00)# (0.09) --
Distributions in excess of net realized capital gains -- -- (0.00)# --
Total dividends and distributions (0.15) (0.46) (0.54) (0.21)
Net asset value, end of period $ 10.69 $ 10.83 $ 9.94 $ 10.99
Total return++ 0.10% 13.82% (4.82)% 3.48%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 11,926 $ 12,163 $ 9,690 $ 5,249
Ratio of operating expenses to average net assets 1.00%+(a) 1.06%(a) 1.11%(a) 1.07%+
Ratio of net investment income to average net assets 4.22%+ 4.37% 4.26% 4.30%+
Portfolio turnover rate 2% 22% 14% 26%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 1.26%+ 1.24% 1.23% 1.19%+
Net investment income per share without waivers and/or
expense reimbursements $ 0.14 $ 0.44 $ 0.43 $ 0.20
</TABLE>
* Nations Virginia Intermediate Municipal Bond Fund Investor N Shares
commenced operations on June 7, 1993.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
# Amount represents less than $0.01 per share.
(a) The effect of interest expense on the operating expenses ratio was less
than 0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
28
<PAGE>
FOR AN INVESTOR N SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS VIRGINIA MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
PERIOD YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
INVESTOR N SHARES 03/31/96(b) 11/30/95 11/30/94 11/30/93*
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 9.62 $ 8.29 $ 9.77 $ 10.00
Net investment income 0.14 0.44 0.44 0.04
Net realized and unrealized gain/(loss) on investments (0.24) 1.33 (1.48) (0.23)
Net increase/(decrease) in net asset value from operations (0.10) 1.77 (1.04) (0.19)
Dividends from net investment income (0.14) (0.44) (0.44) (0.04)
Total dividends and distributions (0.14) (0.44) (0.44) (0.04)
Net asset value, end of period $ 9.38 $ 9.62 $ 8.29 $ 9.77
Total return++ (1.09)% 21.72% (10.95)% (1.93)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 15,938 $ 16,489 $ 12,738 $ 6,580
Ratio of operating expenses to average net assets 1.35%+ 1.14%(a) 0.96%(a) 0.70%+
Ratio of operating expenses to average net assets including
interest expense 1.36%+ -- -- --
Ratio of net investment income to average net assets 4.31%+ 4.76% 4.77% 3.28%+
Portfolio turnover rate 8% 16% 61% 0%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 1.82%+ 1.79% 1.74% 1.90%+
Net investment income per share without waivers and/or
expense reimbursements $ 0.12 $ 0.39 $ 0.37 $ 0.03
</TABLE>
* Nations Virginia Municipal Bond Fund Investor N Shares commenced operations
on October 21, 1993.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
(a) The effect of interest expense on the operating expenses ratio was less
than 0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
Objectives
NATIONS MUNICIPAL INCOME FUND: The investment objective of Nations Municipal
Income Fund is to seek high current income exempt from Federal income tax with
the potential for principal fluctuation associated with investments in long-term
municipal securities. The Fund invests in investment grade, long-term municipal
securities.
NATIONS SHORT-TERM MUNICIPAL INCOME FUND: The investment objective of Nations
Short-Term Municipal Income Fund is to seek high current income exempt from
Federal income tax consistent with minimal fluctuation of principal. The Fund
invests in investment grade, short-term municipal securities.
NATIONS INTERMEDIATE MUNICIPAL BOND FUND: Nations Intermediate Municipal Bond
Fund's investment objective is to seek high current income exempt from Federal
income tax consistent with moderate fluctuation of principal. The Fund invests
in investment grade, intermediate-term municipal securities.
NATIONS FLORIDA INTERMEDIATE MUNICIPAL BOND FUND: Nations Florida Intermediate
Municipal Bond Fund's investment objective is to seek high current income exempt
from Federal income and the Florida state intangibles taxes consistent with
moderate fluctuation of principal. The Fund invests in investment grade,
intermediate-term municipal securities.
29
<PAGE>
NATIONS FLORIDA MUNICIPAL BOND FUND: Nations Florida Municipal Bond Fund's
investment objective is to seek high current income exempt from Federal income
and the Florida state intangibles taxes with the potential for principal
fluctuation associated with investments in long-term municipal securities. The
Fund invests in investment grade, long-term municipal securities.
NATIONS GEORGIA INTERMEDIATE MUNICIPAL BOND FUND: Nations Georgia Intermediate
Municipal Bond Fund's investment objective is to seek high current income exempt
from Federal and Georgia state income taxes consistent with moderate fluctuation
of principal. The Fund invests in investment grade, intermediate-term municipal
securities.
NATIONS GEORGIA MUNICIPAL BOND FUND: Nations Georgia Municipal Bond Fund's
investment objective is to seek high current income exempt from Federal and
Georgia state income taxes with the potential for principal fluctuation
associated with investments in long-term municipal securities. The Fund invests
in investment grade, long-term municipal securities.
NATIONS MARYLAND INTERMEDIATE MUNICIPAL BOND FUND: Nations Maryland Intermediate
Municipal Bond Fund's investment objective is to seek high current income exempt
from Federal and Maryland state income taxes consistent with moderate
fluctuation of principal. The Fund invests in investment grade, intermediate-
term municipal securities.
NATIONS MARYLAND MUNICIPAL BOND FUND: Nations Maryland Municipal Bond Fund's
investment objective is to seek high current income exempt from Federal and
Maryland state income taxes with the potential for principal fluctuation
associated with investments in long-term municipal securities. The Fund invests
in investment grade, long-term municipal securities.
NATIONS NORTH CAROLINA INTERMEDIATE MUNICIPAL BOND FUND: Nations North Carolina
Intermediate Municipal Bond Fund's investment objective is to seek high current
income exempt from Federal and North Carolina state income taxes consistent with
moderate fluctuation of principal. The Fund invests in investment grade,
intermediate-term municipal securities.
NATIONS NORTH CAROLINA MUNICIPAL BOND FUND: Nations North Carolina Municipal
Bond Fund's investment objective is to seek high current income exempt from
Federal and North Carolina state income taxes with the potential for principal
fluctuation associated with investments in long-term municipal securities. The
Fund invests in investment grade, long-term municipal securities.
NATIONS SOUTH CAROLINA INTERMEDIATE MUNICIPAL BOND FUND: Nations South Carolina
Intermediate Municipal Bond Fund's investment objective is to seek high current
income exempt from Federal and South Carolina state income taxes consistent with
moderate fluctuation of principal. The Fund invests in investment grade,
intermediate-term municipal securities.
NATIONS SOUTH CAROLINA MUNICIPAL BOND FUND: Nations South Carolina Municipal
Bond Fund's investment objective is to seek high current income exempt from
Federal and South Carolina state income taxes with the potential for principal
fluctuation associated with investments in long-term municipal securities. The
Fund invests in investment grade, long-term municipal securities.
NATIONS TENNESSEE INTERMEDIATE MUNICIPAL BOND FUND: Nations Tennessee
Intermediate Municipal Bond Fund's investment objective is to seek high current
income exempt from Federal income tax and the Tennessee Hall Income Tax on
unearned income consistent with moderate fluctuation of principal. The Fund
invests in investment grade, intermediate-term municipal securities.
NATIONS TENNESSEE MUNICIPAL BOND FUND: Nations Tennessee Municipal Bond Fund's
investment objective is to seek high current income exempt from Federal income
tax and the Tennessee Hall Income Tax on unearned income with the potential for
principal fluctuation associated with investments in long-term municipal
securities. The Fund invests in investment grade, long-term municipal
securities.
NATIONS TEXAS INTERMEDIATE MUNICIPAL BOND FUND: Nations Texas Intermediate
Municipal Bond Fund's investment objective is to seek high current income exempt
from Federal income tax consistent with moderate fluctuation of principal. The
Fund invests in invest-
30
<PAGE>
ment grade, intermediate-term municipal securities.
NATIONS TEXAS MUNICIPAL BOND FUND: Nations Texas Municipal Bond Fund's
investment objective is to seek high current income exempt from Federal income
tax with the potential for principal fluctuation associated with investments in
long-term municipal securities. The Fund invests in investment grade, long-term
municipal securities.
NATIONS VIRGINIA INTERMEDIATE MUNICIPAL BOND FUND: Nations Virginia Intermediate
Municipal Bond Fund's investment objective is to seek high current income exempt
from Federal and Virginia state income taxes consistent with moderate
fluctuation of principal. The Fund invests in investment grade, intermediate-
term municipal securities.
NATIONS VIRGINIA MUNICIPAL BOND FUND: Nations Virginia Municipal Bond Fund's
investment objective is to seek high current income exempt from Federal and
Virginia state income taxes with the potential for principal fluctuation
associated with investments in long-term municipal securities. The Fund invests
in investment grade, long-term municipal securities.
Nations Florida Intermediate Municipal Bond Fund, Nations Georgia Intermediate
Municipal Bond Fund, Nations Maryland Intermediate Municipal Bond Fund, Nations
North Carolina Intermediate Municipal Bond Fund, Nations South Carolina
Intermediate Municipal Bond Fund, Nations Tennessee Intermediate Municipal Bond
Fund, Nations Texas Intermediate Municipal Bond Fund and Nations Virginia
Intermediate Municipal Bond Fund, are sometimes collectively referred to as the
"State Intermediate Municipal Bond Funds," and Nations Florida Municipal Bond
Fund, Nations Georgia Municipal Bond Fund, Nations Maryland Municipal Bond Fund,
Nations North Carolina Municipal Bond Fund, Nations South Carolina Municipal
Bond Fund, Nations Tennessee Municipal Bond Fund, Nations Texas Municipal Bond
Fund and Nations Virginia Municipal Bond Fund are sometimes collectively
referred to as the "State Municipal Bond Funds."
How Objectives Are Pursued
NATIONS SHORT-TERM MUNICIPAL INCOME FUND, NATIONS INTERMEDIATE MUNICIPAL BOND
FUND AND NATIONS MUNICIPAL INCOME FUND: In pursuing their objectives, the Funds
will invest at least 80% of the total value of their assets in investment grade
obligations issued by or on behalf of states, territories, and possessions of
the United States, the District of Columbia, and their political subdivisions,
agencies, instrumentalities, and authorities, the interest on which, in the
opinion of counsel to the issuer or bond counsel, is exempt from Federal income
tax ("Municipal Securities"). To the extent consistent with the Funds'
investment approach described in this Prospectus, the Funds are managed to seek
capital appreciation and minimize capital losses due to interest rate movements.
Under normal market conditions, the average dollar-weighted maturity and
duration of each of the Funds' portfolios are expected to be as follows: Nations
Municipal Income Fund -- average dollar-weighted maturity greater than 10 years
and duration between 7.5 and 9.5 years; Nations Intermediate Municipal Bond
Fund -- average dollar-weighted maturity between three and 10 years and duration
between five and six years; Nations Short-Term Municipal Income Fund -- average
dollar-weighted maturity less than three years and duration between 1.25 and
2.75 years.
Municipal Securities will be rated investment grade at the time of purchase by
at least one of the following nationally recognized statistical rating
organizations: Standard & Poor's Corporation ("S&P"), Moody's Investors Service,
Inc. ("Moody's"), Duff & Phelps Credit Rating Co. ("D&P"), Fitch Investors
Service, Inc. ("Fitch"), IBCA Limited or its affiliate IBCA Inc. (collectively
"IBCA"), or Thomson BankWatch, Inc. ("BankWatch") (collectively, "NRSROs") or,
if
31
<PAGE>
unrated, determined by the Adviser to be of comparable quality at the time of
purchase to rated obligations that may be acquired by a Fund. Obligations rated
in the lowest of the top four investment grade rating categories (E.G. rated
"BBB" by S&P or "Baa" by Moody's) have speculative characteristics and changes
in economic conditions or other circumstances are more likely to lead to a
weakened capacity to make principal and interest payments than is the case with
higher grade debt obligations. Subsequent to its purchase by a Fund, an issue of
Municipal Securities may cease to be rated, or its rating may be reduced below
the minimum rating required for purchase by a Fund. The Adviser will consider
such an event in determining whether a Fund should continue to hold the
obligation. See "Appendix B" for a description of these rating designations.
During temporary defensive periods, the Funds may invest in short-term taxable
and non-taxable obligations in such proportions as, in the opinion of the
Adviser, prevailing market or economic conditions warrant. Taxable obligations
that may be acquired by a Fund include repurchase agreements and short-term debt
securities. Under normal market conditions, each Fund's investments in taxable
obligations and private activity bonds the interest on which may be treated as a
specific tax preference item under the Federal alternative minimum tax, will not
exceed 20% of its total assets at the time of purchase. The Funds may hold
uninvested cash reserves pending investment or during defensive periods.
STATE INTERMEDIATE MUNICIPAL BOND FUNDS AND STATE MUNICIPAL BOND FUNDS: Under
normal market conditions, at least 80% of the total value of the assets of the
State Intermediate Municipal Bond Funds and the State Municipal Bond Funds will
be invested in Municipal Securities, and substantially all of each Fund's assets
will be invested in debt instruments, issued by or on behalf of the pertinent
state and its political subdivisions, agencies, instrumentalities and
authorities.
Under normal market conditions, the average dollar-weighted maturity and
duration of each of the State Intermediate Municipal Bond Funds and State
Municipal Bond Funds are expected to be as follows: State Intermediate Municipal
Bond Funds -- average dollar-weighted maturity between three and 10 years and
duration between five and six years; State Municipal Bond Funds -- average
dollar-weighted maturity greater than 10 years and duration greater than 10
years.
Each of the State Intermediate Municipal Bond Funds and the State Municipal Bond
Funds operates as a non-diversified fund (except to the extent diversification
is required for Federal income tax purposes).
Dividends paid by each of these Funds which are derived from interest
attributable to tax-exempt obligations of the pertinent state and that state's
political subdivisions, agencies, instrumentalities and authorities, as well as
certain other governmental issuers such as Puerto Rico, will be exempt from
regular Federal income tax and (with the exception of Texas and Florida) the
income tax of the pertinent state. Texas and Florida do not impose a state
income tax; however, Florida imposes a state intangibles tax. Dividends derived
from interest on obligations of other governmental issuers will be exempt from
regular Federal income tax, but generally will be subject to state income tax
(with the exception of Texas and Florida). (See "How Dividends And Distributions
Are Made; Tax Information.") During normal market conditions and as a matter of
fundamental investment policy, each of these Funds will invest at least 80% of
its total assets in obligations the interest on which will be exempt from
regular Federal income tax and (with the exception of Texas and Florida) the
income tax of the pertinent state.
Municipal Securities acquired by the Funds will be rated investment grade at the
time of purchase by at least one NRSRO or, if unrated, determined by the Adviser
to be of comparable quality at the time of purchase to rated obligations that
may be acquired by the Funds. Obligations rated in the lowest of the top four
investment grade rating categories (E.G. rated "BBB" by S&P or "Baa" by Moody's)
have speculative characteristics, and changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity to make principal
32
<PAGE>
and interest payments than is the case with higher grade debt obligations.
Subsequent to its purchase by a Fund, an issue of Municipal Securities may cease
to be rated, or its rating may be reduced below the minimum rating required for
purchase by a Fund. The Adviser will consider such an event in determining
whether a Fund should continue to hold the obligation. See "Appendix B" below
for a description of these rating designations.
During temporary defensive periods, the Funds may invest in short-term taxable
and non-taxable obligations in such proportions as, in the opinion of the
Adviser, prevailing market or economic conditions warrant. Taxable obligations
that may be acquired by the Funds include repurchase agreements and short-term
debt securities. Under normal market conditions, each Fund's investments in
taxable obligations and private activity bonds, the interest on which may be
treated as a specific tax preference item under the Federal alternative minimum
tax, will not exceed 20% of its total assets at the time of purchase.
GENERAL: Each Fund may invest in certain specified derivative securities,
including: interest rate swaps, caps and floors for hedging purposes;
exchange-traded options; over-the-counter options executed with primary dealers,
including long calls and puts and covered calls to enhance return; and U.S. and
foreign exchange-traded financial futures and options thereon approved by the
Commodity Futures Trading Commission ("CFTC") for market exposure
risk-management. Each Fund also may lend its portfolio securities to qualified
institutional investors and may invest in restricted, private placement and
other illiquid securities. Additionally, each Fund may purchase securities
issued by other investment companies, consistent with the Fund's investment
objective and policies. The Funds also may invest in instruments issued by
certain trusts, partnerships or other special service issuers, including
pass-through certificates representing participations in, or debt instruments
backed by, the securities and other assets owned by such issuers.
Certain government securities that have variable or floating interest rates or
demand, put or prepayment features or paydown schedules may be deemed to have
remaining maturities shorter than their nominal maturities for purposes of
determining the average weighted maturity and duration of the Funds.
For more information concerning these and other investments in which the Funds
may invest and the Funds' investment practices, see "Appendix A."
PORTFOLIO TURNOVER: Generally, the Funds will purchase portfolio securities for
capital appreciation or investment income, or both, and not for short-term
trading profits. If a Fund's annual portfolio turnover rate exceeds 100%, it may
result in higher brokerage costs and possible tax consequences for the Fund and
its shareholders. For the Funds' portfolio turnover rates, see "Financial
Highlights."
RISK CONSIDERATIONS: Although the Adviser will seek to achieve the investment
objective of each Fund, there is no assurance that it will be able to do so. No
single Fund should be considered, by itself, to provide a complete investment
program for any investor. Investments in a Fund are not insured against loss of
principal.
The value of a Fund's investments in debt securities, including U.S. Government
Obligations, will tend to decrease when interest rates rise and increase when
interest rates fall. In general, longer-term debt instruments tend to fluctuate
in value more than shorter-term debt instruments in response to interest rate
movements. In addition, debt securities that are not backed by the United States
Government are subject to credit risk, which is the risk that the issuer may not
be able to pay principal and/or interest when due. Since each of the State
Intermediate Municipal Bond Funds and State Municipal Bond Funds invests
primarily in securities issued by entities located in a single state, such Funds
are more susceptible to changes in value due to political or economic changes
affecting that state or its subdivisions.
Certain of the Funds' investments constitute derivative securities, which are
securities whose value is derived, at least in part, from an underlying index or
reference rate. There are certain types of derivative securities that can, under
cer-
33
<PAGE>
tain circumstances, significantly increase a purchaser's exposure to market or
other risks. The Adviser, however, only purchases derivative securities in
circumstances where it believes such purchases are consistent with the Funds'
investment objective and do not unduly increase the Fund's exposure to market or
other risks. For additional risk information regarding the Funds' investments in
particular instruments, see "Appendix A -- Portfolio Securities."
INVESTMENT LIMITATIONS: Each Fund is subject to a number of investment
limitations. The following investment limitations are matters of fundamental
policy and may not be changed without the affirmative vote of the holders of a
majority of the Fund's outstanding shares. Other investment limitations that
cannot be changed without such a vote of shareholders are described in the SAI.
Each Fund may not:
1. Purchase any securities which would cause 25% or more of the value of the
Fund's total assets at the time of such purchase to be invested in the
securities of one or more issuers conducting their principal activities in the
same industry. (For purposes of this limitation, U.S. Government securities and
tax-exempt securities issued by state or municipal governments and their
political subdivisions are not considered members of any industry.)
2. Make loans, except that a Fund may purchase and hold debt instruments
(whether such instruments are part of a public offering or privately placed),
may enter into repurchase agreements and may lend portfolio securities in
accordance with its investment policies.
Nations Short-Term Municipal Income Fund, Nations Intermediate Municipal Bond
Fund and Nations Municipal Income Fund may not:
Purchase securities of any one issuer (other than securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities) if,
immediately after such purchase, more than 5% of the value of such Fund's
total assets would be invested in the securities of such issuer, except
that up to 25% of the value of the Fund's total assets may be invested
without regard to these limitations and with respect to 75% of such Fund's
assets, such Fund will not hold more than 10% of the voting securities of
any issuer.
The State Intermediate Municipal Bond Funds and the State Municipal Bond Funds
may not:
Purchase securities of any one issuer (other than securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities) if,
immediately after such purchase, more than 25% of the value of a Fund's
total assets would be invested in the securities of one issuer, and with
respect to 50% of such Fund's total assets, more than 5% of its assets
would be invested in the securities of one issuer.
As a matter of fundamental policy, except during defensive periods, the State
Intermediate Municipal Bond Funds and the State Municipal Bond Funds will invest
at least 80% of their respective total net assets in Municipal Securities the
interest on which is exempt from Federal income taxes and the pertinent state's
income taxes (with the exception of Texas and Florida). Similarly, as a matter
of fundamental policy, except during defensive periods, Nations Short-Term
Municipal Income Fund, Nations Intermediate Municipal Bond Fund and Nations
Municipal Income Fund will invest at least 80% of their respective total net
assets in Municipal Securities the interest on which is exempt from Federal
income taxes. For purposes of these fundamental policies, private activity bonds
are included in the term "Municipal Securities" only if the interest paid
thereon is exempt from Federal income tax and not treated as a specific tax
preference item under the Federal alternative minimum tax.
The investment objective and policies of each Fund, unless otherwise specified,
may be changed without a vote of the Fund's shareholders. If the investment
objective or policies of a Fund change, shareholders should consider whether the
Fund remains an appropriate investment in light of their then current position
and needs.
34
<PAGE>
In order to register a Fund's shares for sale in certain states, a Fund may make
commitments more restrictive than the investment policies and limitations
described in this Prospectus and the SAI. Should a Fund determine that any such
commitment is no longer in the best interest of the Fund, it may consider
terminating sales of its shares in the states involved.
How Performance Is Shown
From time to time the Funds may advertise the total return, yield and
tax-equivalent yield on a class of shares. TOTAL RETURN, YIELD AND TAX-
EQUIVALENT YIELD FIGURES ARE BASED ON HISTORICAL DATA AND ARE NOT INTENDED TO
INDICATE FUTURE PERFORMANCE. The "total return" of a class of shares of the
Funds may be calculated on an average total return basis or an aggregate total
return basis. Average annual total return refers to the average annual
compounded rates of return over one-, five-, and ten-year periods or the life of
the Fund (as stated in the advertisement) that would equate an initial amount
invested at the beginning of a stated period to the ending redeemable value of
the investment (reflecting the deduction of any applicable contingent deferred
sales charge ("CDSC")), assuming the reinvestment of all dividend and capital
gain distributions. Aggregate total return reflects the total percentage change
in the value of the investment over the measuring period again assuming the
reinvestment of all dividends and capital gain distributions. Total return may
also be presented for other periods or may not reflect the deduction of the
CDSC.
"Yield" is calculated by dividing the annualized net investment income per share
during a recent 30-day (or one month) period of a class of shares of a Fund by
the maximum public offering price per share on the last day of that period. The
yield on a class of shares does not reflect deduction of the CDSC. The
"tax-equivalent yield" of a class of shares of a Fund also may be quoted from
time to time, which shows the level of taxable yield needed to produce an
after-tax equivalent to the particular class's tax-free yield. This is done by
increasing such class's yield (calculated as above) by the amount necessary to
reflect the payment of Federal income tax at a stated tax rate. Investment
performance, which will vary, is based on many factors, including market
conditions, the composition of a Fund's portfolio and such Fund's operating
expenses. Investment performance also often reflects the risks associated with a
Fund's investment objective and policies. These factors should be considered
when comparing a Fund's investment results to those of other mutual funds and
other investment vehicles. Since yields fluctuate, yield data cannot necessarily
be used to compare an investment in the Funds with bank deposits, savings
accounts, and similar investment alternatives which often provide an agreed-upon
or guaranteed fixed yield for a stated period of time.
In addition to Investor N Shares, the Funds offer Primary A, Primary B, Investor
A and Investor C Shares. Each class of shares may bear different sales charges,
shareholder servicing fees, loads and other expenses, which may cause the
performance of a class to differ from the performance of the other classes.
Total return and yield quotations will be computed separately for each class of
a Fund's shares. Any quotation of total return or yield not reflecting CDSCs
would be reduced if such charges were reflected. Any fees charged by a selling
agent and/or servicing agent directly to its customers' accounts in connection
with investments in the Funds will not be included in calculations of total
return or yield. Each Fund's annual report contains additional performance
information and is available upon request without charge from the Funds'
distributor or an investor's Agent (as defined below).
35
<PAGE>
How The Funds Are Managed
The business and affairs of Nations Fund Trust are managed under the direction
of its Trustees. The SAI contains the names of and general background
information concerning the Trustees of Nations Fund Trust.
Nations Fund and the Adviser have adopted codes of ethics which contain policies
on personal securities transactions by "access persons," including portfolio
managers and investment analysts. These policies substantially comply in all
material respects with the recommendations set forth in the May 9, 1994 Report
of the Advisory Group on Personal Investing of the Investment Company Institute.
INVESTMENT ADVISER: NationsBanc Advisors, Inc. serves as investment adviser to
the Funds. NBAI is a wholly owned subsidiary of NationsBank, which in turn is a
wholly owned banking subsidiary of NationsBank Corporation, a bank holding
company organized as a North Carolina corporation. NBAI has its principal
offices at One NationsBank Plaza, Charlotte, North Carolina 28255.
TradeStreet Investment Associates, Inc., with principal offices at One
NationsBank Plaza, Charlotte, North Carolina 28255, serves as sub-investment
adviser to all of the Funds except for those Funds listed below, for which
Nations Gartmore serves as sub-investment adviser. TradeStreet is wholly owned
subsidiary of NationsBank. TradeStreet provides investment management services
to individuals, corporations and institutions.
Subject to the general supervision of the Funds' Trustees, and in accordance
with each Fund's investment policies, the Adviser formulates guidelines and
lists of approved investments for each Fund, makes decisions with respect to and
places orders for each Fund's purchases and sales of portfolio securities and
maintains records relating to such purchases and sales. The Adviser is
authorized to allocate purchase and sale orders for portfolio securities to
certain financial institutions, including, in the case of agency transactions,
financial institutions which are affiliated with the Adviser or which have sold
shares in the Funds, if the Adviser believes that the quality of the transaction
and the commission are comparable to what they would be with other qualified
brokerage firms. From time to time, to the extent consistent with their
investment objectives, policies and restrictions, the Funds may invest in
securities of companies with which NationsBank has a lending relationship. For
the services provided and expenses assumed pursuant to an Investment Advisory
Agreement, NBAI is entitled to receive advisory fees, computed daily and paid
monthly, at the following annual rates: 0.50% of each of the average daily net
assets of each of Nations Short-Term Municipal Income Fund, Nations Intermediate
Municipal Bond Fund and the State Intermediate Municipal Bond Funds; and 0.60%
of the average daily net assets of each of Nations Municipal Income Fund and the
State Municipal Bond Funds.
For the services provided and expenses assumed pursuant to a sub-advisory
agreement, NBAI will pay TradeStreet sub-advisory fees, computed daily and paid
monthly, at the annual rate of 0.07% of each Fund's average daily net assets.
From time to time, NBAI (and/or TradeStreet) may waive or reimburse (either
voluntarily or pursuant to applicable state limitations) advisory fees and/or
expenses payable by a Fund.
For the fiscal period from December 1, 1995 to December 31, 1995, after waivers,
Nations Fund Trust paid NationsBank under a prior Investment Advisory Agreement
advisory fees at the indicated rates of the following Funds' average daily net
assets: Nations Municipal Income Fund -- 0.30%; Nations Short-Term Municipal
Income Fund -- 0.06%; Nations Intermediate Municipal Bond Fund -- 0.17%; Nations
Florida Intermediate Municipal Bond Fund -- 0.14%; Nations Florida Municipal
Bond Fund -- 0.26%; Nations Georgia Intermediate Municipal Bond Fund -- 0.17%;
Nations Georgia Municipal Bond Fund -- 0.10%; Nations Maryland Intermediate
36
<PAGE>
Municipal Bond Fund -- 0.20%; Nations Maryland Municipal Bond Fund -- 0%;
Nations North Carolina Intermediate Municipal Bond Fund -- 0.13%; Nations North
Carolina Municipal Bond Fund -- 0.23%; Nations South Carolina Intermediate
Municipal Bond Fund -- 0.18%; Nations South Carolina Municipal Bond
Fund -- 0.10%; Nations Tennessee Intermediate Municipal Bond Fund -- 0%; Nations
Tennessee Municipal Bond Fund -- 0%; Nations Texas Intermediate Municipal Bond
Fund -- 0.11%; Nations Texas Municipal Bond Fund -- 0.12%; Nations Virginia
Intermediate Municipal Bond Fund -- 0.24%, and Nations Virginia Municipal Bond
Fund -- 0.16%.
For the fiscal period from January 1, 1996 to March 31, 1996, after waivers,
Nations Fund Trust paid NBAI under the current Investment Advisory Agreement
advisory fees at the indicated rates of the following Funds' average daily net
assets: Nations Municipal Income Fund -- 0.30%; Nations Short-Term Municipal
Income Fund -- 0.06%; Nations Intermediate Municipal Bond Fund -- 0.17%; Nations
Florida Intermediate Municipal Bond Fund -- 0.14%; Nations Florida Municipal
Bond Fund -- 0.26%; Nations Georgia Intermediate Municipal Bond Fund -- 0.17%;
Nations Georgia Municipal Bond Fund -- 0.10%; Nations Maryland Intermediate
Municipal Bond Fund -- 0.20%; Nations Maryland Municipal Bond Fund -- 0%;
Nations North Carolina Intermediate Municipal Bond Fund -- 0.13%; Nations North
Carolina Municipal Bond Fund -- 0.23%; Nations South Carolina Intermediate
Municipal Bond Fund -- 0.18%; Nations South Carolina Municipal Bond
Fund -- 0.10%; Nations Tennessee Intermediate Municipal Bond Fund -- 0%; Nations
Tennessee Municipal Bond Fund -- 0%; Nations Texas Intermediate Municipal Bond
Fund -- 0.11%; Nations Texas Municipal Bond Fund -- 0.12%; Nations Virginia
Intermediate Municipal Bond Fund -- 0.24%; and Nations Virginia Municipal Bond
Fund -- 0.16%.
For the fiscal period from January 1, 1996 to March 31, 1996, after waivers,
NBAI paid TradeStreet under the current Sub-Advisory Agreement sub-advisory fees
at the rate of 0.07% of the following Funds' average daily net assets: Nations
Municipal Income Fund, Nations Short-Term Municipal Income Fund, Nations
Intermediate Municipal Bond Fund, Nations Florida Intermediate Municipal Bond
Fund, Nations Florida Municipal Bond Fund, Nations Georgia Intermediate
Municipal Bond Fund, Nations Georgia Municipal Bond Fund, Nations Maryland
Intermediate Municipal Bond Fund, Nations Maryland Municipal Bond Fund, Nations
North Carolina Intermediate Municipal Bond Fund, Nations North Carolina
Municipal Bond Fund, Nations South Carolina Intermediate Municipal Bond Fund,
Nations South Carolina Municipal Bond Fund, Nations Tennessee Intermediate
Municipal Bond Fund, Nations Tennessee Municipal Bond Fund, Nations Texas
Intermediate Municipal Bond Fund, Nations Texas Municipal Bond Fund, Nations
Virginia Intermediate Municipal Bond Fund and Nations Virginia Municipal Bond
Fund.
Michele M. Poirier is a Senior Product Manager, Municipal Fixed Income
Management for TradeStreet and Senior Portfolio Manager for Nations Municipal
Income Fund, Nations Florida Intermediate Municipal Bond Fund, Nations Florida
Municipal Bond Fund, Nations Georgia Intermediate Municipal Bond Fund, Nations
Georgia Municipal Bond Fund, Nations South Carolina Intermediate Municipal Bond
Fund and Nations South Carolina Municipal Bond Fund. Ms. Poirier has been the
Portfolio Manager for Nations Municipal Income Fund, Nations Florida
Intermediate Municipal Bond Fund, Nations Georgia Intermediate Municipal Bond
Fund, and South Carolina Intermediate Municipal Bond Fund since 1992. She has
been Portfolio Manager for the other Funds since 1993. Prior to assuming her
position with TradeStreet, she was Senior Vice President and Senior Portfolio
Manager for the Investment Management Group at NationsBank. She has worked in
the investment community since 1974. Her past experience includes serving as
Director of Trading, Institutional Sales, and Municipal Trader for Financial
Service Corporation, Bankers Trust Company and The Robinson-Humphrey Company
respectively. Ms. Poirier received a B.B.A. in Marketing from Georgia State
University.
37
<PAGE>
Mathew M. Kiselak is a Product Man-
ager, Municipal Fixed Income Management for TradeStreet and Portfolio Manager
for Nations Short-Term Municipal Income Fund, Nations North Carolina
Intermediate Municipal Bond Fund, Nations North Carolina Municipal Bond Fund,
Nations Tennessee Intermediate Municipal Bond Fund, Nations Tennessee Municipal
Bond Fund, Nations Texas Intermediate Municipal Bond Fund and Nations Texas
Municipal Bond Fund. Mr. Kiselak has been the Portfolio Manager for Nations
North Carolina Intermediate Municipal Bond Fund and Nations North Carolina
Municipal Bond Fund since 1995. He has been Portfolio Manager for the other
Funds since 1994. Prior to assuming his position with TradeStreet, he was Vice
President and Portfolio Manager for the Investment Management Group at
NationsBank. He has worked in the investment community since 1987. His past
experience includes Portfolio Manager and Municipal Credit Analysis for Reich &
Tang Inc. Mr. Kiselak received a B.A. in Economics from Pace University.
John C. Kohl is a Director of Municipal Fixed Income Management for TradeStreet.
He is responsible for overseeing all municipal product management and is Senior
Portfolio Manager for Nations Intermediate Municipal Bond Fund, Nations Maryland
Intermediate Municipal Bond Fund, Nations Maryland Municipal Bond Fund, Nations
Virginia Intermediate Municipal Bond Fund and Nations Virginia Municipal Bond
Fund. Mr. Kohl has been Portfolio Manager for the Funds since 1994. Prior to
assuming his position with TradeStreet, he was Senior Vice President and Senior
Portfolio Manager for the Investment Management Group at NationsBank. Mr. Kohl
has worked in the investment community since 1979. His past experience includes
serving as Chief Investment Officer for London Pacific Life & Annuity, Team
Leader and Portfolio Manager for Harris Trust and Savings Bank, and Management
Consultant for asset-liability of Continental Bank. Mr. Kohl received a joint
B.A. in Economics and North American Studies from McGill University.
Morrison & Foerster LLP, counsel to Nations Fund and special counsel to
NationsBank, has advised Nations Fund and NationsBank that NationsBank and its
affiliates may perform the services contemplated by the Investment Advisory
Agreement and this Prospectus without violation of the Glass-Steagall Act. Such
counsel has pointed out, however, that there are no controlling judicial or
administrative interpretations or decisions and that future judicial or
administrative interpretations of, or decisions relating to, present federal or
state statutes, including the Glass-Steagall Act, and regulations relating to
the permissible activities of banks and their subsidiaries or affiliates, as
well as future changes in such statutes, regulations and judicial or
administrative decisions or interpretations, could prevent such entities from
continuing to perform, in whole or in part, such services. If any such entity
were prohibited from performing any such services, it is expected that new
agreement's would be proposed or entered into with another entity or entities
qualified to perform such services.
OTHER SERVICE PROVIDERS: Stephens Inc. ("Stephens"), with principal offices at
111 Center Street, Little Rock, Arkansas 72201, serves as the administrator of
the Funds pursuant to an Administration Agreement. Pursuant to the terms of the
Administration Agreement, Stephens provides various administrative and corporate
secretarial services to the Funds, including providing general oversight of
other service providers, office space, utilities and various legal and
administrative services in connection with the satisfaction of various
regulatory requirements applicable to the Funds.
First Data Investor Services Group, Inc. ("First Data"), formerly The
Shareholder Services Group, Inc., a wholly owned subsidiary of First Data
Corporation, with principal offices at One Exchange Place, Boston, Massachusetts
02109, serves as the co-administrator of the Funds pursuant to a
Co-Administration Agreement. Under the Co-Administration Agreement, First Data
provides various administrative and accounting services to the Funds, including
performing calculations necessary to determine net asset values and dividends,
preparing tax returns and financial statements and maintaining the portfolio
records and certain general accounting
38
<PAGE>
records for the Funds. For the services rendered pursuant to the Administration
and Co-Administration Agreements, Stephens and First Data are entitled to
receive a combined fee at the annual rate of up to 0.10% of each Fund's average
daily net assets.
For the fiscal period from December 1, 1995 to March 31, 1996, after waivers,
Nations Fund Trust paid its administrators combined fees at the rate of 0.10% of
each Fund's average daily net assets.
NationsBank serves as sub-administrator for Nations Fund pursuant to a
Sub-Administration Agreement. Pursuant to the terms of the Sub-Administration
Agreement, NationsBank assists Stephens in supervising, coordinating and
monitoring various aspects of the Funds' administrative operations. For
providing such services, NationsBank shall be entitled to receive a monthly fee
from Stephens based on an annual rate of 0.01% of the Funds' average daily net
assets.
Shares of each Fund are sold on a continuous basis by Stephens, as the Funds'
sponsor and distributor. Stephens is a registered broker/dealer with principal
offices at 111 Center Street, Little Rock, Arkansas 72201. Nations Fund has
entered into a distribution agreement with Stephens which provides that Stephens
has the exclusive right to distribute shares of the Funds. Stephens may pay
service fees or commissions to selling agents that assist customers in
purchasing Investor N Shares of the Funds. See "Shareholder Servicing And
Distribution Plans."
NationsBank of Texas, N.A. (the "Custodian") serves as custodian for the assets
of each Fund. The Custodian is located at 1401 Elm Street, Dallas, Texas 75202
and is a wholly owned subsidiary of NationsBank Corporation. In return for
providing custodial services, the Custodian is entitled to receive, in addition
to out-of-pocket expenses, fees payable monthly (i) at the rate of 1.25% of 1%
of the average daily net assets of each Fund, (ii) $10.00 per repurchase
collateral transaction by the Funds, and (iii) $15.00 per purchase, sale and
maturity transaction involving the Funds.
First Data serves as transfer agent (the "Transfer Agent") for the Funds'
Investor N Shares. The Transfer Agent is located at One Exchange Place, Boston,
Massachusetts 02109.
Price Waterhouse LLP serves as independent accountant to Nations Funds. Its
address is 160 Federal Street, Boston, Massachuetts 02110.
EXPENSES: The accrued expenses of a Fund, as well as certain expenses
attributable to Investor N Shares, are deducted from accrued income before
dividends are declared. Each Fund's expenses include, but are not limited to:
fees paid to the Adviser, NationsBank, Stephens and First Data; interest;
trustees' fees; federal and state securities registration and qualification
fees; brokerage fees and commissions; costs of preparing and printing
prospectuses for regulatory purposes and for distribution to existing
shareholders; charges of the Custodian and Transfer Agent; certain insurance
premiums; outside auditing and legal expenses; costs of shareholder reports and
shareholder meetings; other expenses which are not expressly assumed by the
Adviser, NationsBank, Stephens or First Data under their respective agreements
with Nations Fund; and any extraordinary expenses. Investor N Shares may bear
certain class specific retail transfer agency expenses and also bear certain
additional shareholder service and sales support costs. Any general expenses of
Nations Fund Trust that are not readily identifiable as belonging to a
particular investment portfolio are allocated among all portfolios in the
proportion that the assets of a portfolio bear to the assets of Nations Fund
Trust or in such other manner as the Board of Trustees deems appropriate.
39
<PAGE>
Organization And History
The Funds are members of the Nations Fund Family, which consists of Nations Fund
Trust, Nations Fund, Inc., Nations Fund Portfolios, Inc. and Nations
Institutional Reserves. The Nations Fund Family currently has more than 43
distinct investment portfolios and total assets in excess of $18 billion.
Nations Fund Trust was organized as a Massachusetts business trust on May 6,
1985. Nations Fund Trust's fiscal year end is March 31; prior to 1996, Nations
Fund Trust's fiscal year end was November 30. The Funds currently offer five
classes of shares -- Primary A Shares, Primary B Shares, Investor A Shares,
Investor C Shares and Investor N Shares. This Prospectus relates only to the
Investor N Shares of Nations Municipal Income Fund, Nations Short-Term Municipal
Income Fund, Nations Intermediate Municipal Bond Fund, the State Intermediate
Municipal Bond Funds and the State Municipal Bond Funds. To obtain additional
information regarding the Funds' other classes of shares which may be available
to you, contact your Agent (as defined below) or Nations Fund at 1-800-321-7854.
Each share of Nations Fund Trust is without par value, represents an equal
proportionate interest in the related fund with other shares of the same class,
and is entitled to such dividends and distributions out of the income earned on
the assets belonging to such fund as are declared in the discretion of Nations
Fund Trust's Board of Trustees. Nations Fund Trust's Declaration of Trust
authorizes the Board of Trustees to classify or reclassify any class of shares
into one or more series of shares.
Shareholders are entitled to one vote for each full share held and a
proportionate fractional vote for each fractional share held. Shareholders of
each fund of Nations Fund Trust will vote in the aggregate and not by fund, and
shareholders of each fund will vote in the aggregate and not by class except as
otherwise expressly required by law or when the Board of Trustees determines
that the matter to be voted on affects only the interests of shareholders of a
particular fund or class of shares. See the SAI for examples of instances where
the Investment Company Act of 1940 (the "1940 Act") requires voting by fund.
As of July 15, 1996, NationsBank and its affiliates possessed or shared power to
dispose or vote with respect to more than 25% of the outstanding shares of
Nations Fund Trust and therefore could be considered to be a controlling person
of Nations Fund Trust for purposes of the 1940 Act. For more detailed
information concerning the percentage of each class or series of shares over
which NationsBank and its affiliates possessed or shared power to dispose or
vote as of a certain date, see the SAI.
Nations Fund Trust does not presently intend to hold annual meetings except as
required by the 1940 Act. Shareholders will have the right to remove Trustees.
Nations Fund Trust's Code of Regulations provides that special meetings of
shareholders shall be called at the written request of the shareholders entitled
to vote at least 10% of the outstanding shares of Nations Fund Trust entitled to
be voted at such meeting.
40
<PAGE>
About Your Investment
How To Buy Shares
The Funds have established various procedures for purchasing Investor N Shares
in order to accommodate different types of investors. Purchase orders may be
placed through banks, broker/dealers or other financial institutions (including
certain affiliates of NationsBank) that have entered into 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.
The minimum subsequent investment is $100, except for investments pursuant to
the Systematic Investment Plan described below.
Investor N Shares are purchased at net asset value per share without the
imposition of a sales charge. Purchases may be effected on days on which the New
York Stock Exchange (the "Exchange") is open for business (a "Business Day").
The Servicing Agents will provide various shareholder services for, and the
Selling Agents will provide sales support assistance to, their respective
customers ("Customers") who own Investor N Shares. Selling Agents and Servicing
Agents are sometimes referred to hereafter as "Agents." From time to time the
Agents, Stephens and Nations Fund may agree to voluntarily reduce the maximum
fees payable for sales support or shareholder services.
Nations Fund and Stephens reserve the right to reject any purchase order. The
issuance of Investor N Shares is recorded on the books of the Funds and share
certificates are not issued unless expressly requested in writing. Certificates
are not issued for fractional shares.
EFFECTIVE TIME OF PURCHASES: Purchase orders for Investor N Shares in a Fund
which are received by Stephens or by the Transfer Agent before the close of
regular trading hours on the Exchange (currently 4:00 p.m., Eastern time) on any
Business Day are priced according to the net asset value determined on that day
but are not executed until 4:00 p.m., Eastern time, on the Business Day on which
immediately available funds in payment of the purchase price are received by the
Funds' Custodian. Such payment must be received no later than 4:00 p.m., Eastern
time, by the third Business Day following receipt of the order. If funds are not
received by such date, the order will not be accepted and notice thereof will be
given to the Agent placing the order. Payment for orders which are not received
or accepted will be returned after prompt inquiry to the sending Agent.
The Agents are responsible for transmitting orders for purchases of Investor N
Shares by their Customers, and delivering required funds, on a timely basis.
Stephens is responsible for transmitting orders it receives to Nations Fund.
SYSTEMATIC INVESTMENT PLAN: Under the Funds' Systematic Investment Plan ("SIP")
a shareholder may automatically purchase Investor N Shares. On a bi-monthly,
monthly or quarterly basis, shareholders may direct cash to be transferred
automatically from their checking or savings accounts at any bank to their Fund
accounts. Transfers will occur on and/or about the 15th or 30th day of the
applicable month. The systematic investment amount may be in any amount from $25
to $100,000. For more information concerning the SIP, contact your Agent.
TELEPHONE TRANSACTIONS: Investors may effect purchases, redemptions (up to
$50,000) and exchanges by telephone. See "How To Redeem Shares" and "How To
Exchange Shares" below. If a shareholder desires to elect the telephone
transaction feature after opening an account, a signature guarantee will be
required. Shareholders should be aware that by using the telephone
41
<PAGE>
transaction feature, such shareholders may be giving up a measure of security
that they may have if they were to authorize requests in writing only.
Shareholders may bear the risk of any resulting losses from a telephone
transaction. Nations Fund will employ reasonable procedures to confirm that
instructions communicated by telephone are genuine, and if Nations Fund and its
service providers fail to employ such measures, they may be liable for any
losses due to unauthorized or fraudulent instructions. Nations Fund requires a
form of personal identification prior to acting upon instructions received by
telephone and provides written confirmation to shareholders of each telephone
share transaction. In addition, Nations Fund reserves the right to record all
telephone conversations.
REINSTATEMENT PRIVILEGE: Within 120 days after a redemption of Investor N Shares
of a Fund, a shareholder may reinstate any portion of the proceeds of such
redemption in Investor N Shares of the same Fund at the net asset value next
determined after a reinstatement request is received by the Transfer Agent,
together with the proceeds. A shareholder exercising this privilege would
receive a pro-rata credit for any CDSC paid in connection with such redemption.
A shareholder may not exercise this privilege with the proceeds of a redemption
of shares previously purchased through the reinstatement privilege.
How To Redeem Shares
Redemption orders should be transmitted by telephone or in writing through the
same Agent that transmitted the original purchase order. Redemption orders are
effected at the net asset value per share next determined after receipt of the
order by Stephens or by the Transfer Agent, less any applicable CDSC. The Agents
are responsible for transmitting redemption orders to Stephens or to the
Transfer Agent and for crediting their Customers' accounts with the redemption
proceeds on a timely basis. No charge for wiring redemption payments is imposed
by Nations Fund. Except for any CDSC which may be applicable upon redemption of
Investor N Shares, as described below, there is no redemption charge.
Redemption proceeds are normally wired to the redeeming Agent within three
Business Days after receipt of the order by Stephens or by the Transfer Agent.
However, redemption proceeds for shares purchased by check may not be remitted
until at least 15 days after the date of purchase to ensure that the check has
cleared; a certified check, however, is deemed to be cleared immediately.
Nations Fund may redeem a shareholder's Investor N Shares upon 60 days' written
notice if the balance in the shareholder's account drops below $500 as a result
of redemptions. Share balances also may be redeemed at the direction of an Agent
pursuant to arrangements between the Agent and its Customers. Nations Fund also
may redeem shares of a Fund involuntarily or make payment for redemption in
readily marketable securities or other property under certain circumstances in
accordance with the 1940 Act.
Prior to effecting a redemption of Investor N Shares represented by
certificates, the Transfer Agent must have received such certificates at its
principal office. All such certificates must be endorsed by the redeeming
shareholder or accompanied by a signed stock power, in each instance with the
signature guaranteed by a commercial bank or a member of a major stock exchange,
unless other arrangements satisfactory to Nations Fund have previously been
made. Nations Fund may require any additional information reasonably necessary
to evidence that a redemption has been duly authorized.
CONTINGENT DEFERRED SALES CHARGE: Subject to certain waivers specified below,
Investor N
42
<PAGE>
Shares purchased prior to January 1, 1996 may be subject to a CDSC if Investor N
Shares of Nations Municipal Income Fund, Nations Intermediate Municipal Bond
Fund, the State Intermediate Municipal Bond Funds and the State Municipal Bond
Funds are redeemed within six years of the date of purchase. No CDSC is imposed
on increases in net asset value above the initial purchase price, including
shares acquired by reinvestment of distributions. Subject to the exclusions
described below, the amount of the CDSC is determined as a percentage of the
lesser of the net asset value or the purchase price of the shares being
redeemed. The amount of the CDSC will depend on the number of years since you
invested.
A CDSC is imposed at the following declining rates on Investor N Shares of
Nations Intermediate Municipal Bond Fund and the State Intermediate Municipal
Bond Funds:
<TABLE>
<CAPTION>
Contingent Deferred
Sales Charge as a Percentage
Year Since Purchase of the Dollar
Made Amount Subject to Charge
<S> <C>
First 4.0%
Second 3.0%
Third 3.0%
Fourth 2.0%
Fifth 2.0%
Sixth 1.0%
Seventh and thereafter None
</TABLE>
A CDSC is imposed at the following declining rates on Investor N Shares of
Nations Municipal Income Fund and the State Municipal Bond Funds:
<TABLE>
<CAPTION>
Contingent Deferred
Sales Charge as a Percentage
Year Since Purchase of the Dollar
Made Amount Subject to Charge
<S> <C>
First 5.0%
Second 4.0%
Third 3.0%
Fourth 2.0%
Fifth 2.0%
Sixth 1.0%
Seventh and thereafter None
</TABLE>
In determining whether a CDSC is payable on any redemption, a Fund will first
redeem shares not subject to any charge, and then shares held longest during the
six year period. This will result in you paying the lowest possible CDSC. Solely
for purposes of determining the number of years from the date of purchase of
shares, all purchases are deemed to have been made on the trade date of the
transaction.
The CDSC will be waived on redemptions of Investor N Shares (i) following the
death or disability (as defined in the Internal Revenue Code of 1986, as amended
(the "Code")) of a shareholder (including a registered joint owner), (ii)
effected pursuant to Nations Fund's right to liquidate a shareholder's account,
including instances where the aggregate net asset value of the Investor N shares
held in the account is less than the minimum account size, and (iii) effected
pursuant to the Automatic Withdrawal Plan discussed below, provided that such
redemptions do not exceed, on an annual basis, 12% of the net asset value of the
Investor N Shares in the account. In addition, the CDSC will be waived on
Investor N Shares purchased before September 30, 1994 by current or retired
employees of NationsBank and its affiliates or by current or former Trustees or
Directors of Nations Fund or other management companies managed by NationsBank.
Shareholders are responsible for
43
<PAGE>
providing evidence sufficient to establish that they are eligible for any waiver
of the CDSC.
Stephens may, from time to time, at its expense or as an expense for which it
may be reimbursed under the plan adopted pursuant to Rule 12b-1 under the 1940
Act, pay a bonus or other consideration or incentive to Selling Agents who sell
a minimum dollar amount of shares of a Fund during a specified period of time.
Stephens also may, from time to time, pay additional consideration to Selling
Agents not to exceed 0.75% of the offering price per share on all sales of
Investor N Shares as an expense of Stephens or for which Stephens may be
reimbursed under the plan adopted pursuant to Rule 12b-1 or upon receipt of a
CDSC. Any such additional consideration or incentive program may be terminated
at any time by Stephens.
In addition, Stephens has established a non-cash compensation program, pursuant
to which broker/dealers or financial institutions that sell shares of the Funds
may earn additional compensation in the form of trips to sales seminars or
vacation destinations, tickets to sporting events, theater or other
entertainment, opportunities to participate in golf or other outings and gift
certificates for meals or merchandise. This non-cash compensation program may be
amended or terminated at any time by Stephens.
AUTOMATIC WITHDRAWAL PLAN: An Automatic Withdrawal Plan ("AWP") may be
established by a new or existing shareholder of the Funds if the value of the
Investor N Shares in his/her accounts within the Nations Fund Family (valued at
the net asset value at the time of the establishment of the AWP) equals $10,000
or more. Investor N Shares redeemed under the AWP will not be subject to a CDSC,
provided that the shares so redeemed do not exceed, on an annual basis, 12% of
the net asset value of the Investor N Shares in the account. Otherwise, any
applicable CDSC will be imposed on shares redeemed under the AWP. Shareholders
who elect to establish an AWP may receive a monthly, quarterly or annual check
or automatic transfer to a checking or savings account in a stated amount of not
less than $25 on or about the 10th or 25th day of the applicable month of
withdrawal. Investor N Shares will be redeemed (net of any applicable CDSC) as
necessary to meet withdrawal payments. Withdrawals will reduce principal and may
eventually deplete the shareholder's account. If a shareholder desires to
establish an AWP after opening an account, a signature guarantee will be
required. AWPs may be terminated by shareholders on 30 days' written notice to
their Selling Agents or by Nations Fund at any time.
How To Exchange Shares
The exchange feature enables a shareholder to exchange funds as specified below
when the shareholder believes that a shift between funds is an appropriate
investment decision. The exchange feature enables a shareholder of Investor N
Shares of a fund offered by Nations Fund to acquire shares of the same class
that are offered by any other fund of Nations Fund (except Nations Short-Term
Income Fund and Nations Short-Term Municipal Income Fund), Investor A Shares of
the Nations Short-Term Income Fund or Nations Short-Term Municipal Income Fund,
or Investor C Shares of a Nations Fund money market fund. Additionally, the
exchange feature enables a shareholder of Investor N Shares of Nations
Short-Term Municipal Income Fund to exchange such shares for Investor N Shares
of Nations Short-Term Income Fund. A qualifying exchange is based on the next
calculated net asset value per share of each fund after the exchange order is
received.
No CDSC will be imposed in connection with an exchange of Investor N Shares that
meets the requirements discussed in this section. If a shareholder acquires
Investor N Shares of another fund through an exchange, any CDSC schedule
applicable (CDSCs may apply to shares purchased prior to January 1, 1996) to the
original shares purchased will be applied to any redemption of the acquired
shares. If a
share-
44
<PAGE>
holder exchanges Investor N Shares of a fund for Investor C Shares of a money
market fund or Investor A Shares of Nations Short-Term Income Fund or Nations
Short-Term Municipal Income Fund, the acquired shares will remain subject to the
CDSC schedule applicable to the Investor N Shares exchanged. The holding period
(for purposes of determining the applicable rate of the CDSC) does not accrue
while the shares owned are Investor C Shares of a Nations Fund money market fund
or Investor A Shares of Nations Short-Term Income Fund or Nations Short-Term
Municipal Income Fund. As a result, the CDSC that is ultimately charged upon a
redemption is based upon the total holding period of Investor N Shares of a fund
that charges a CDSC.
The current prospectus for each fund of Nations Fund describes its investment
objective and policies, and shareholders should obtain a copy and examine it
carefully before investing. Exchanges are subject to the minimum investment
requirement and any other conditions imposed by each fund. In the case of any
shareholder holding a share certificate or certificates, no exchanges may be
made until all applicable share certificates have been received by the Transfer
Agent and deposited in the shareholder's account. An exchange will be treated
for Federal income tax purposes the same as a redemption of shares, on which the
shareholder may realize a capital gain or loss. However, the ability to deduct
capital losses on an exchange may be limited in situations where there is an
exchange of shares within 90 days after the shares are purchased.
The Investor N Shares exchanged must have a current value of at least $1,000.
Nations Fund reserves the right to reject any exchange request. Only shares that
may legally be sold in the state of the investor's residence may be acquired in
an exchange. Only shares of a class that is accepting investments generally may
be acquired in an exchange. An investor may telephone an exchange request by
calling his/her Selling Agent which is responsible for transmitting such request
to Stephens or to the Transfer Agent.
During periods of significant economic or market change, telephone exchanges may
be difficult to complete. In such event, shares may be exchanged by mailing the
request directly to the Selling Agent through which the original shares were
purchased. An investor should consult his/her Selling Agent or Stephens for
further information regarding exchanges.
Shareholder Servicing And
Distribution Plans
SHAREHOLDER SERVICING PLAN: The Funds' shareholder servicing plan ("Servicing
Plan") permits each Fund to compensate Servicing Agents for services provided to
their Customers that own Investor N Shares. Payments under the Funds' Servicing
Plan are calculated daily and paid monthly at a rate or rates set from time to
time by the Funds, provided that the annual rate may not exceed 0.25% of the
average daily net asset value of the Investor N Shares.
The fees payable under the Servicing Plan are used primarily to compensate or
reimburse Servicing Agents for shareholder services provided, and related
expenses incurred, by such Servicing Agents. The shareholder services provided
by Servicing Agents may include: (i) aggregating and processing purchase and
redemption requests for Investor N Shares from Customers and transmitting net
purchase and redemption orders to Stephens or the Transfer Agent; (ii) providing
Customers with a service that invests the assets of their accounts in Investor N
Shares pursuant to specific or preauthorized instructions; (iii) processing
dividend and distribution payments from a Fund on behalf of Customers; (iv)
providing information periodically to Customers showing their positions in
Investor N Shares; (v) arranging for bank wires; and
45
<PAGE>
(vi) providing general shareholder liaison services.
Nations Fund may suspend or reduce payments under the Servicing Plan at any
time, and payments are subject to the continuation of the Funds' Servicing Plan
described above and the terms of the Servicing Agreement. See the SAI for more
details on the Servicing Plan.
DISTRIBUTION PLAN: Pursuant to Rule 12b-1 under the 1940 Act, the Trustees have
approved a Distribution Plan with respect to Investor N Shares of the Funds.
Pursuant to the Distribution Plan, a Fund may compensate or reimburse Stephens
for any activities or expenses primarily intended to result in the sale of the
Fund's Investor N Shares. Payments under the Funds' Distribution Plan will be
calculated daily and paid monthly at a rate or rates set from time to time by
the Trustees, provided that the annual rate may not exceed 0.75% of the average
daily net asset value of each Fund's Investor N Shares.
The fees payable under the Distribution Plan are used primarily to compensate or
reimburse Stephens for distribution services provided by it, and related
expenses incurred, including payments by Stephens to compensate or reimburse
Selling Agents for sales support services provided, and related expenses
incurred, by such Selling Agents. Payments under the Distribution Plan may be
made with respect to the following expenses: the cost of preparing, printing,
and distributing prospectuses, sales literature and advertising materials;
commissions, incentive compensation or other compensation to, and expenses of,
account executives or other employees of Stephens or Selling Agents; overhead
and other office expenses; opportunity costs relating to the foregoing; and any
other costs and expenses relating to distribution or sales support activities.
The overhead and other office expenses referenced above may include, without
limitation, (i) the expenses of operating Stephens' or the Selling Agents'
offices in connection with the sale of Fund shares, including rent, the salaries
and employee benefit costs of administrative, operations and support personnel,
utility costs, communications costs and the costs of stationery and supplies,
(ii) the costs of client sales seminars and travel related to distribution and
sales support activities, and (iii) other expenses relating to distribution and
sales support activities.
Nations Fund and Stephens may suspend or reduce payments under the Distribution
Plan at any time, and payments are subject to the continuation of the Funds'
Distribution Plan described above and the terms of the Sales Support Agreements
between Selling Agents and Stephens. See the relevant SAI for more details on
the Distribution Plan.
Nations Fund understands that Agents may charge fees to their Customers who own
Investor N Shares in connection with a Customer's account. These fees would be
in addition to any amounts received by a Selling Agent under its Sales Support
Agreement with Stephens or by a Servicing Agent under its Servicing Agreement
with Nations Fund. The Sales Support Agreements and Servicing Agreements require
Agents to disclose to their Customers any compensation payable to the Agent by
Stephens or Nations Fund and any other compensation payable by the Customers for
various services provided in connection with their accounts. Customers should
read this Prospectus in light of the terms governing their accounts with their
Agents.
How The Funds Value Their Shares
The Funds calculate the net asset value of a share of each class by dividing the
total value of its assets, less liabilities, by the number of shares in the
class outstanding. Shares are valued as of the close of regular trading on the
Exchange (currently 4:00 p.m., Eastern time) on each Business Day. Currently,
the days on which the Exchange is closed (other than weekends) are: New Year's
Day, Presidents' Day, Good Friday, Memorial Day (observed), Independence
46
<PAGE>
Day, Labor Day, Thanksgiving Day and Christmas Day.
Portfolio securities for which market quotations are readily available are
valued at market value. Short-term investments that will mature in 60 days or
less are valued at amortized cost, which approximates market value. All other
securities and assets are valued at their fair value following procedures
approved by the Trustees.
How Dividends And Distributions Are
Made; Tax Information
DIVIDENDS AND DISTRIBUTIONS: Dividends from net investment income are declared
daily and paid monthly by the Funds. Each Fund's net realized capital gains
(including net short-term capital gains) are distributed at least annually.
Distributions from capital gains are made after applying any available capital
loss carryovers. Distributions paid by the Funds with respect to one class of
shares may be greater or less than those paid with respect to another class of
shares due to the different expenses of the different classes.
The net asset value of Investor N Shares will be reduced by the amount of any
dividend or distribution. Certain Selling Agents may provide for the
reinvestment of dividends in the form of additional Investor N Shares of the
same Fund. Dividends and distributions are paid in cash within five Business
Days of the end of the month or quarter to which the dividend relates. Dividends
and distributions payable to a shareholder are paid in cash within five Business
Days after a shareholder's complete redemption of his/her Investor N Shares.
TAX INFORMATION: Each Fund intends to qualify as a "regulated investment
company" under the Code. Such qualification relieves a Fund of liability for
Federal income tax on amounts distributed in accordance with the Code.
As regulated investment companies, the Funds are permitted to pass through to
their shareholders tax-exempt income ("exempt-interest dividends") subject to
certain requirements which the Funds intend to satisfy. Distributions from
taxable income will be taxable as ordinary income to shareholders who are not
exempt from Federal income tax, whether such income is received in cash or
reinvested in additional shares. The policy of the Funds is to pay their
shareholders an amount equal to at least 90% of their exempt-interest income net
of certain deductions and of their investment company taxable income.
Exempt-interest dividends may be treated by shareholders as items of interest
excludable from their Federal gross income under Section 103(a) of the Code
unless, under the circumstances applicable to the particular shareholder, the
exclusion would be disallowed. (See the SAI under "Additional Information
Concerning Taxes.") Distributions from the Funds will not qualify for the
dividends-received deduction for corporate shareholders. Distributions of net
investment income by Nations Municipal Income Fund, Nations Short-Term Municipal
Income Fund and Nations Intermediate Municipal Bond Fund may be taxable to
investors under state or local law even though a substantial portion of such
distributions may be derived from interest on tax exempt obligations which, if
realized directly, would be exempt from such income taxes.
Substantially all of a Fund's net realized long-term capital gains will be
distributed at least annually. The Funds will generally have no tax liability
with respect to such gains, and the distributions will be taxable to
shareholders as long-term capital gains, regardless of how long the shareholders
have held the Fund's shares and whether such gains are received in cash or
reinvested in additional shares.
To the extent that dividends, if any, paid by the Funds to shareholders are
derived from taxable income or from long-term or short-term capital
47
<PAGE>
gains, such dividends will not be exempt from Federal income tax. Each year,
shareholders will be notified as to the amount and Federal tax status of all
dividends and capital gains paid during the prior year. Such dividends and
capital gains may be subject to state and local taxes.
Dividends declared in October, November, or December of any year payable to
shareholders of record on a specified date in such months will be deemed to have
been received by shareholders and paid by a Fund on December 31 of such year in
the event such dividends are actually paid during January of the following year.
Federal law requires Nations Fund to withhold 31% from any dividends (other than
exempt-interest dividends) paid by Nations Fund and/or redemptions (including
exchange redemptions) that occur in certain shareholder accounts if the
shareholder has not properly furnished a certified correct Taxpayer
Identification Number and has not certified that withholding does not apply, or
if the Internal Revenue Service has notified Nations Fund that the Taxpayer
Identification Number listed on a shareholder account is incorrect according to
its records, or that the shareholder is subject to backup withholding. Amounts
withheld are applied to the shareholder's Federal tax liability, and a refund
may be obtained from the Internal Revenue Service if withholding results in
overpayment of taxes. Federal law also requires the Funds to withhold 30% or the
applicable tax treaty rate from dividends paid to certain nonresident alien,
non-U.S. partnership and non-U.S. corporation shareholder accounts.
If any of the Funds should hold certain private activity bonds issued after
August 7, 1986, shareholders must include, as an item of tax preference, the
portion of dividends paid by the Fund that is attributable to interest on such
bonds in their Federal alternative minimum taxable income for purposes of
determining liability (if any) for the 28% alternative minimum tax applicable to
individuals and the 20% alternative minimum tax and the environmental tax
applicable to corporations. Corporate shareholders must also take all
exempt-interest dividends into account in determining certain adjustments for
Federal alternative minimum and environmental tax purposes. The environmental
tax applicable to corporations is imposed at the rate of 0.12% on the excess of
the corporation's modified Federal alternative minimum taxable income over
$2,000,000. Shareholders receiving Social Security benefits should note that all
exempt-interest dividends will be taken into account in determining the
taxability of such benefits.
With respect to the State Intermediate Municipal Bond Funds and the State
Municipal Bond Funds, it is anticipated that exempt-interest dividends derived
from tax-exempt interest paid on municipal obligations of the pertinent state
and that state's political subdivisions, agencies, instrumentalities, and
authorities, and certain other issuers, including Puerto Rico and Guam, will be
exempt from state income tax with respect to those states which impose a state
income tax. Florida and Texas do not impose income taxes, but Florida imposes a
tax upon intangible personal property which may apply to shares of Nations
Florida Intermediate Municipal Bond Fund and Nations Florida Municipal Bond Fund
held by residents of that state. Florida has issued a Technical Assistance
Advisement indicating that shares in such Funds will not be subject to Florida's
intangibles tax, subject to certain requirements which the Funds intend to
satisfy. See the SAI for further details about state tax treatment relevant to
shareholders of these Funds.
In addition to annual disclosures as to Federal tax consequences of dividends
and distributions, shareholders of the State Intermediate Municipal Bond Funds
and the State Municipal Bond Funds will also be advised as to the state tax
consequences of dividends and distributions made each year.
The foregoing discussion is based on tax laws and regulations which were in
effect as of the date of this Prospectus and summarizes only some of the
important tax considerations generally affecting the Funds and their
shareholders. It is not intended as a substitute for careful tax planning;
investors should consult their tax advisors with respect to their specific tax
situations. Further tax information is contained in the SAI.
48
<PAGE>
Appendix A -- Portfolio Securities
The following are summary descriptions of certain types of instruments in which
a Fund may invest. The "How Objectives Are Pursued" section of the Prospectus
identifies each Fund's permissible investments, and the SAI contains more
information concerning such investments.
BANK INSTRUMENTS: Bank instruments consist mainly of certificates of deposit,
time deposits and bankers' acceptances. Each Fund will limit its investments in
bank obligations so they do not exceed 25% of the Fund's total assets at the
time of purchase.
U.S. dollar-denominated obligations issued by foreign branches of domestic banks
("Eurodollar" obligations) and domestic branches of foreign banks ("Yankee
dollar" obligations) and other foreign obligations involve special investment
risks, including the possibility that liquidity could be impaired because of
future political and economic developments, the obligations may be less
marketable than comparable domestic obligations of domestic issuers, a foreign
jurisdiction might impose withholding taxes on interest income payable on such
obligations, deposits may be seized or nationalized, foreign governmental
restrictions such as exchange controls may be adopted which might adversely
affect the payment of principal of and interest on such obligations, the
selection of foreign obligations may be more difficult because there may be less
publicly available information concerning foreign issuers, there may be
difficulties in enforcing a judgment against a foreign issuer or the accounting,
auditing and financial reporting standards, practices and requirements
applicable to foreign issuers may differ from those applicable to domestic
issuers. In addition, foreign banks are not subject to examination by U.S.
Government agencies or instrumentalities.
BORROWINGS: When a Fund borrows money, the net asset value of a share may be
subject to greater fluctuation until the borrowing is paid off. The Funds may
borrow money from banks for temporary purposes in amounts of up to one-third of
their respective total assets, provided that borrowings in excess of 5% of the
value of the Funds' total assets must be repaid prior to the purchase of
portfolio securities. 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.
FIXED INCOME INVESTING: The performance of the fixed income debt component of a
Fund's portfolio depends primarily on interest rate changes, the average
weighted maturity of the portfolio and the quality of the securities held. The
debt component of a Fund's portfolio will tend to decrease in value when
interest rates rise and increase when interest rates fall. A Fund's share price
and yield depend, in part, on the maturity and quality of its debt instruments.
FUTURES, OPTIONS AND OTHER DERIVATIVE INSTRUMENTS: Certain of the Funds may
attempt to reduce the overall level of investment risk of particular securities
and attempt to protect a Fund against adverse market movements by investing in
futures, options and other derivative instruments. These include the purchase
and writing of options on securities (including index options) and options on
foreign currencies, and investing in futures contracts for the purchase or sale
of instruments based on financial indices, including interest rate indices or
indices of U.S. or foreign government, equity or fixed income securities
("futures contracts"), options on futures contracts, forward contracts and swaps
and swap-related products such as interest rate swaps, currency swaps, caps,
collars and floors.
The use of futures, options, forward contracts and swaps exposes a Fund to
additional investment risks and transaction costs. If the Adviser incorrectly
analyzes market conditions or does not employ the appropriate strategy with
respect to these instruments, a Fund could be left in a less favorable position.
Additional risks inherent in the use of futures, options, forward contracts and
swaps include: imperfect correlation
49
<PAGE>
between the price of futures, options and forward contracts and movements in the
prices of the securities or currencies being hedged; the possible absence of a
liquid secondary market for any particular instrument at any time; and the
possible need to defer closing out certain hedged positions to avoid adverse tax
consequences. A Fund may not purchase put and call options which are traded on a
national stock exchange in an amount exceeding 5% of its net assets. Further
information on the use of futures, options and other derivative instruments, and
the associated risks, is contained in the SAI.
ILLIQUID SECURITIES: Certain securities may be sold only pursuant to certain
legal restrictions, and may be difficult to sell. The Funds will not hold more
than 15% of the value of their respective net assets in securities that are
illiquid or such lower percentage as may be required by the states in which the
appropriate Fund sells its shares. Repurchase agreements, time deposits and
guaranteed investment contracts that do not provide for payment to a Fund within
seven days after notice, and illiquid restricted securities are subject to the
limitation on illiquid securities. In addition, interests in privately arranged
loans acquired by the State Intermediate Municipal Bond Funds and the State
Municipal Bond Funds may be subject to this limitation.
If otherwise consistent with their investment objectives and policies, certain
Funds may purchase securities that are not registered under the Securities Act
of 1933, as amended (the "1933 Act") but which can be sold to "qualified
institutional buyers" in accordance with Rule 144A 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
the Adviser, acting under guidelines approved and monitored by the Fund's Board,
after considering trading activity, availability of reliable price information
and other relevant information, that an adequate trading market exists for that
security. To the extent that, for a period of time, qualified institutional 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 one year or less. Money market
instruments may include, among other instruments, certain U.S. Treasury
obligations, U.S. Government obligations, bank instruments, commercial
instruments, repurchase agreements and municipal securities. Such instruments
are described in this Appendix A.
50
<PAGE>
MUNICIPAL SECURITIES: The two principal classifications of Municipal Securities
are "general obligation" securities and "revenue" securities. General obligation
securities are secured by the issuer's pledge of its full faith, credit, and
taxing power for the payment of principal and interest. Revenue securities are
payable only from the revenues derived from a particular facility or class of
facilities or, in some cases, from the proceeds of a special excise tax or other
specific revenue source such as the user of the facility being financed. Private
activity bonds held by a Fund are in most cases revenue securities and are not
payable from the unrestricted revenues of the issuer. Consequently, the credit
quality of private activity bonds is usually directly related to the credit
standing of the corporate user of the facility involved.
Municipal Securities may include "moral obligation" bonds, which are normally
issued by special purpose public authorities. If the issuer of moral obligation
bonds is unable to meet its debt service obligations from current revenues, it
may draw on a reserve fund, the restoration of which is a moral commitment but
not a legal obligation of the state or municipality which created the issuer.
Municipal Securities may include variable- or floating-rate instruments issued
by industrial development authorities and other governmental entities. While
there may not be an active secondary market with respect to a particular
instrument purchased by a Fund, a Fund may demand payment of the principal and
accrued interest on the instrument or may resell it to a third party as
specified in the instruments. The absence of an active secondary market,
however, could make it difficult for a Fund to dispose of the instrument if the
issuer defaulted on its payment obligation or during periods the Fund is not
entitled to exercise its demand rights, and the Fund could, for these or other
reasons, suffer a loss.
Some of these instruments may be unrated, but unrated instruments purchased by a
Fund will be determined by the Adviser to be of comparable quality at the time
of purchase to instruments rated "high quality" by any major rating service.
Where necessary to ensure that an instrument is of comparable "high quality," a
Fund will require that an issuer's obligation to pay the principal of the note
may be backed by an unconditional bank letter or line of credit, guarantee, or
commitment to lend.
Municipal Securities may include participations in privately arranged loans to
municipal borrowers, some of which may be referred to as "municipal leases."
Generally such loans are unrated, in which case they will be determined by the
Adviser to be of comparable quality at the time of purchase to rated instruments
that may be acquired by a Fund. Frequently, privately arranged loans have
variable interest rates and may be backed by a bank letter of credit. In other
cases, they may be unsecured or may be secured by assets not easily liquidated.
Moreover, such loans in most cases are not backed by the taxing authority of the
issuers and may have limited marketability or may be marketable only by virtue
of a provision requiring repayment following demand by the lender. Such loans
made by a Fund may have a demand provision permitting the Fund to require
payment within seven days. Participations in such loans, however, may not have
such a demand provision and may not be otherwise marketable. To the extent these
securities are illiquid, they will be subject to each Fund's limitation on
investments in illiquid securities. Recovery of an investment in any such loan
that is illiquid and payable on demand may depend on the ability of the
municipal borrower to meet an obligation for full repayment of principal and
payment of accrued interest within the demand period, normally seven days or
less (unless a Fund determines that a particular loan issue, unlike most such
loans, has a readily available market). As it deems appropriate, the Adviser
will establish procedures to monitor the credit standing of each such municipal
borrower, including its ability to meet contractual payment obligations.
Municipal Securities may include units of participation in trusts holding pools
of tax-exempt leases. Municipal participation interests may be purchased from
financial institutions, and give the purchaser an undivided interest in one or
more underlying municipal security. To the extent that municipal participation
interests are
51
<PAGE>
considered to be "illiquid securities," such instruments are subject to each
Fund's limitation on the purchase of illiquid securities. Municipal leases and
participating interests therein which may take the form of a lease or an
installment sales contract, are issued by state and local governments and
authorities to acquire a wide variety of equipment and facilities. Interest
payments on qualifying leases are exempt from Federal income tax.
In addition, certain of the Funds may acquire "stand-by commitments" from banks
or broker/dealers with respect to municipal securities held in their portfolios.
Under a stand-by commitment, a dealer would agree to purchase at a Fund's option
specified Municipal Securities at a specified price. A Fund will acquire
stand-by commitments solely to facilitate portfolio liquidity and do not intend
to exercise their rights thereunder for trading purposes.
Although the Funds do not presently intend to do so on a regular basis, each may
invest more than 25% of its total assets in Municipal Securities the interest on
which is paid solely from revenues of similar projects if such investment is
deemed necessary or appropriate by the Adviser. To the extent that more than 25%
of a Fund's total assets are invested in Municipal Securities that are payable
from the revenues of similar projects, a Fund will be subject to the peculiar
risks presented by such projects to a greater extent than it would be if its
assets were not so concentrated.
Since each of the Funds will invest primarily in securities issued by issuers
located in one state, each of these Funds is susceptible to changes in value due
to political and economic factors affecting that state's issuers. A comparable
municipal bond fund which is not concentrated in obligations issued by issuers
located in one state would be less susceptible to these risks. If any issuer of
securities held by one of these Funds is unable to meets its financial
obligations, that Fund's income, capital, and liquidity may be adversely
affected.
The fourth most populous state, Florida, rated "Aa" by Moody's and "AA" by both
S&P and Fitch, has been and continues to be a leading tourist and retiree
destination. Florida's growing population and manageable debt load are just two
of the factors that will help Florida remain a solid investment. Led by the
service, construction and trade sectors, job growth in Florida has rebounded
from the lows of 1991-1992 and is projected to be almost double the national
average for 1996. Tourism was back in 1995 after it had suffered in the prior
two years due to hurricane Andrew and a rash of violent crimes involving foreign
tourists.
The state of Georgia has one of the best debt structures in the country, hence
the "Aaa" by Moody's, and "AAA" rating by both S&P and Fitch. The population of
Georgia has been growing at twice the national rate for the past four years. Job
growth and economic expansion have been outstanding in recent years, as Georgia
prepares to host the 1996 Summer Olympic Games. Following the Olympics,
Georgia's economy should continue to expand, albeit at a slightly lower rate.
This is due in part to Georgia's competitive manufacturing base, and the diverse
service and transportation center of Atlanta.
Maryland is one of the wealthiest states in the U.S. and has been able to
maintain its "Aaa" rating by Moody's, and "AAA" rating by both Fitch and S&P,
despite the contraction of government and defense related industries. Maryland's
economic base is highly diversified with a lower than average dependence on
manufacturing. Slow growth in Maryland is expected to continue, as government
cutbacks and downsizing reduce the employment opportunities within the state.
Debt ratios are moderate and, with Maryland ranked fifth in per capita income,
it's no surprise that income taxes and highway use taxes provide the vast
majority of support for general obligation debt. As defense cutbacks continue,
Maryland's dependence on income taxes could depress growth within the state
below national levels.
North Carolina, rated "Aaa" by Moody's, and "AAA" by both S&P and Fitch, has
benefited from an inflow of people as well as businesses. This is due in part to
North Carolina's affordable housing, above-average growth in per capita income
and below-average cost of doing busi-
52
<PAGE>
ness. North Carolina's declining textile industry has begun to give way to the
high-tech and financial sectors, as evidenced by the title of "Banking Center of
the South." Consequently, high wage job growth has been expanding at a pace
greater than national averages and is expected to continue to do so for the
foreseeable future.
The dominance of the manufacturing sector has been both a positive and a
negative for South Carolina. On the positive side, the expansion of
manufacturing, specifically autos and related parts, has lessened the impact of
the naval base closure in Charleston and provided a much needed infusion of new
jobs. On the negative side, the cyclical nature of South Carolina's
manufacturing economy has kept per capita income below national levels and
considerably below regional levels. That said, South Carolina's low debt burden,
strong security arrangements and lack of credit extension have led to a "Aaa"
rating by Moody's, "AA+" rating by S&P and a "AAA" rating by Fitch, for the
state. Combine this with a conservative plan of finance, and South Carolina
looks to be in a very strong financial position, despite its reliance on the
manufacturing sector.
Tennessee's very low debt burden, nearly exclusive use of general obligation
debt and conservative financial policies all combine to give the state of
Tennessee a "Aaa" rating by Moody's, "AA+" rating by S&P, and a "AAA" rating by
Fitch. Tennessee's economy remains in a developing mode, as the state continues
to shift its growth in manufacturing output to autos (Tennessee ranks third in
the nation in automobile production) and related products from textiles.
Tennessee relies on sales tax revenues as a main source of funds. This could
prove to be a limiting factor were it not for Tennessee's strong pattern of job
growth and growing population.
Texas has proven its ability to adapt and rebound to a changing economic
environment, both within the state and abroad. Texas has also historically taken
a conservative approach to financial management, as is reflected in the state's
"Aa" rating by Moody's, "AA" rating by S&P, and "AA-" rating by Fitch. Although
Texas has consistently led the U.S. in employment growth, unemployment in Texas
is above the national average. This is due, in part, to the heavy migration into
the state (in 1994 Texas replaced New York as the second most populous state).
Look for economic conditions in Texas to improve further as Mexico comes out of
its economic dilemma.
The state of Virginia has earned its "Aaa" rating by Moody's and "AAA" rating by
S&P and Fitch, by having a low relative tax rate, high per capita income and
strong growth in service sector jobs. A very high share of Virginia's population
is college educated, so it's no surprise that Virginia has the highest per
capita income of any of the southern states. Virginia has also maintained a low
unemployment rate despite strong growth in the labor force. Although it has a
large exposure to defense and related industries, Virginia's prudent financial
management and low debt burden should help to insulate it from any government
cutbacks in those areas.
There can be no assurance that the economic conditions on which the above
ratings for a specific state are based will continue or that particular bond
issues may not be adversely affected by changes in economic or political
conditions. More detailed information about matters relating to each of the
Funds is contained in the SAI.
OTHER INVESTMENT COMPANIES: Each Fund may invest in securities issued by other
investment companies to the extent that such investments are consistent with the
Fund's investment objective and policies and permissible under the 1940 Act. As
a shareholder of another investment company, a Fund would bear, along with other
shareholders, its pro rata portion of the other investment company's expenses,
including advisory fees. These expenses would be in addition to the advisory and
other expenses that a Fund bears directly in connection with its own operations.
STOCK INDEX, INTEREST RATE AND CURRENCY FUTURES CONTRACTS: The Funds may
purchase and sell futures contracts and related options with respect to non-U.S.
stock indices, non-U.S. interest rates and foreign currencies, that have been
approved by the CFTC for investment by U.S. investors, for the purpose of
hedging
53
<PAGE>
against changes in values of a Fund's securities or changes in the prevailing
levels of interest rates or currency exchange rates. The contracts entail
certain risks, including but not limited to the following: no assurance that
futures contracts transactions can be offset at favorable prices; possible
reduction of a Fund's total return due to the use of hedging; possible lack of
liquidity due to daily limits on price fluctuation; imperfect correlation
between the contracts and the securities or currencies being hedged; and
potential losses in excess of the amount invested in the futures contracts
themselves.
Trading on foreign commodity exchanges presents additional risks. Unlike trading
on domestic commodity exchanges, trading on foreign commodity exchanges is not
regulated by the CFTC and may be subject to greater risks than trading on
domestic exchanges. For example, some foreign exchanges are principal markets
for which no common clearing facility exists and a trader may look only to the
broker for performance of the contract. In addition, unless a Fund hedges
against fluctuations in the exchange rate between the U.S. dollar and the
currencies in which trading is done on foreign exchanges, any profits that such
Fund might realize could be eliminated by adverse changes in the exchange rate,
or the Fund could incur losses as a result of those changes.
U.S. GOVERNMENT OBLIGATIONS: U.S. Government obligations consist of marketable
securities and instruments issued or guaranteed by the U.S. Government or any of
its agencies, authorities or instrumentalities. Direct obligations are issued by
the U.S. Treasury and include all U.S. Treasury instruments. 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 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 Association; 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 banks and corporations
may carry variable or floating rates of interest. Such instruments bear interest
rates which are not fixed, but which vary with changes in specified market rates
or indices, such as a Federal Reserve composite index. A variable-rate demand
instrument is an obligation with a variable or floating interest rate and an
unconditional right of demand on the part of the holder to receive payment of
unpaid principal and accrued interest. An instrument with a demand period
exceeding seven days may be considered illiquid if there is no secondary market
for such security.
WHEN-ISSUED, DELAYED DELIVERY AND FORWARD COMMITMENT SECURITIES: The purchase of
new issues of securities on a "when-issued," "delayed delivery" or "forward
commitment" basis occurs when the payment for and delivery of securities takes
place at a future date. Because actual payment for and delivery of such
securities generally take place 15 to 45 days after the purchase date,
purchasers of such securities bear the risk that interest rates on debt
securities at the time of delivery may be higher or lower than those contracted
for on the security purchased.
54
<PAGE>
Appendix B -- Description Of Ratings
The following summarizes the highest four ratings used by S&P for corporate and
municipal bonds, each of which denotes that the securities are investment grade.
AAA -- This is the highest rating assigned by S&P to a debt obligation and
indicates an extremely strong capacity to pay interest and repay principal.
AA -- Debt rated AA is considered to have a very strong capacity to pay
interest and repay principal and differs from AAA issues only in a small
degree.
A -- Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than debt in higher-rated
categories.
BBB -- Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than for those in
higher-rated categories.
To provide more detailed indications of credit quality, the AA, A and BBB
ratings may be modified by the addition of a plus or minus sign to show relative
standing within these major rating categories.
The following summarizes the highest four ratings used by Moody's for corporate
and municipal bonds, each of which denotes that the securities are investment
grade.
Aaa -- Bonds that are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to
as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such
issues.
Aa -- Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there may
be other elements present which make the long-term risks appear somewhat
larger than in Aaa securities.
A -- Bonds that are rated A possess many favorable investment attributes
and are to be considered upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
Baa -- Bonds that are rated Baa are considered medium grade obligations,
I.E., they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable
over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Moody's applies numerical modifiers (1, 2 and 3) with respect to corporate bonds
rated Aa through B. The modifier 1 indicates that the bond being rated ranks in
the higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates that the bond ranks in the lower
end of its generic rating category. With regard to municipal bonds, those bonds
in the Aa, A and Baa groups which Moody's believes possess the
55
<PAGE>
strongest investment attributes are designated by the symbols Aa1, A1 or Baa1,
respectively.
The following summarizes the highest four ratings used by D&P for bonds, each of
which denotes that the securities are investment grade:
AAA -- Bonds that are rated AAA are of the highest credit quality. The risk
factors are considered to be negligible, being only slightly more than for
risk-free U.S. Treasury debt.
AA -- Bonds that are rated AA are of high credit quality. Protection
factors are strong. Risk is modest, but may vary slightly from time to time
because of economic conditions.
A -- Bonds that are rated A have protection factors which are average but
adequate. However, risk factors are more variable and greater in periods of
economic stress.
BBB -- Bonds that are rated BBB have below average protection factors but
still are considered sufficient for prudent investment. Considerable
variability in risk exists during economic cycles.
To provide more detailed indications of credit quality, the AA, A and BBB
ratings may be modified by the addition of a plus or minus sign to show relative
standing within these major categories.
The following summarizes the highest four ratings used by Fitch for bonds, each
of which denotes that the securities are investment grade:
AAA -- Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
AA -- Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated AAA. Because bonds
rated in the AAA and AA categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is
generally rated F-1+.
A -- Bonds considered to be investment grade and of high credit quality.
The obligor's ability to pay interest and repay principal is considered to
be strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.
BBB -- Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these
bonds, and therefore impair timely payment. The likelihood that the ratings
of these bonds will fall below investment grade is higher than for bonds
with higher ratings.
To provide more detailed indications of credit quality, the AA, A and BBB
ratings may be modified by the addition of a plus or minus sign to show relative
standing within these major rating categories.
The following summarizes the two highest ratings used by Moody's for short-term
municipal notes and variable rate demand obligations:
MIG-1/VMIG-1 -- Obligations bearing these designations are of the best
quality, enjoying strong protection from established cash flows, superior
liquidity support or demonstrated broad-based access to the market for
refinancing.
MIG-2/VMIG-2 -- Obligations bearing these designations are of high quality,
with ample margins of protection although not so large as in the preceding
group.
The following summarizes the two highest ratings used by S&P for short-term
municipal notes:
SP-1 -- Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics are given
a "plus" (+) designation.
56
<PAGE>
SP-2 -- Satisfactory capacity to pay principal and interest.
The three highest rating categories of D&P for short-term debt, each of which
denotes that the securities are investment grade, are D-1, D-2 and D-3. D&P
employs three designations, D-1+, D-1 and D-1-, within the highest rating
category. D-1+ indicates highest certainty of timely payment. Short-term
liquidity, including internal operating factors and/or access to alternative
sources of funds, is judged to be "outstanding, and safety is just below
risk-free U.S. Treasury short-term obligations." D-1 indicates very high
certainty of timely payment. Liquidity factors are excellent and supported by
good fundamental protection factors. Risk factors are considered to be minor.
D-1- indicates high certainty of timely payment. Liquidity factors are strong
and supported by good fundamental protection factors. Risk factors are very
small. D-2 indicates good certainty of timely payment. Liquidity factors and
company fundamentals are sound. Although ongoing funding needs may enlarge total
financing requirements, access to capital markets is good. Risk factors are
small. D-3 indicates satisfactory liquidity and other protection factors which
qualify the issue as investment grade. Risk factors are larger and subject to
more variation. Nevertheless, timely payment is expected.
The following summarizes the two highest rating categories used by Fitch for
short-term obligations, each of which denotes securities that are investment
grade:
F-1+ securities possess exceptionally strong credit quality. Issues
assigned this rating are regarded as having the strongest degree of
assurance for timely payment.
F-1 securities possess very strong credit quality. Issues assigned this
rating reflect an assurance of timely payment only slightly less in degree
than issues rated F-1+.
F-2 securities possess good credit quality. Issues carrying this rating
have a satisfactory degree of assurance for timely payment, but the margin
of safety is not as great as for issues assigned the F-1+ and F-1 ratings.
Commercial paper rated A-1 by S&P indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted A-1+. Capacity for timely payment on
commercial paper rated A-2 is satisfactory, but the relative degree of safety is
not as high as for issues designated A-1.
The rating Prime-1 is the highest commercial paper rating assigned by Moody's.
Issuers rated Prime-1 (or related supporting institutions) are considered to
have a superior capacity for repayment of senior short-term promissory
obligations. Issuers rated Prime-2 (or related supporting institutions) are
considered to have a strong capacity for repayment of senior short-term
promissory obligations. This will normally be evidenced by many of the
characteristics of issuers rated Prime-1, but to a lesser degree. Earnings
trends and coverage ratios, while sound, will be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
For commercial paper, D&P uses the short-term debt ratings described above.
For commercial paper, Fitch uses the short-term debt ratings described above.
BankWatch ratings are based upon a qualitative and quantitative analysis of all
segments of the organization including, where applicable, holding company and
operating subsidiaries. BankWatch ratings do not constitute a recommendation to
buy or sell securities of any of these companies. Further, BankWatch does not
suggest specific investment criteria for individual clients.
BankWatch long-term ratings apply to specific issues of long-term debt and
preferred stock. The long-term ratings specifically assess the likelihood of
untimely payment of principal or interest over the term to maturity of the rated
instrument. The following are the four investment grade ratings used by
BankWatch for long-term debt:
57
<PAGE>
AAA -- The highest category; indicates ability to repay principal and
interest on a timely basis is extremely high.
AA -- The second highest category; indicates a very strong ability to repay
principal and interest on a timely basis with limited incremental risk
versus issues rated in the highest category.
A -- The third highest category; indicates the ability to repay principal
and interest is strong. Issues rated "A" could be more vulnerable to
adverse developments (both internal and external) than obligations with
higher ratings.
BBB -- The lowest investment grade category; indicates an acceptable
capacity to repay principal and interest. Issues rated "BBB" are, however,
more vulnerable to adverse developments (both internal and external) than
obligations with higher ratings.
The BankWatch short-term ratings apply to commercial paper, other senior
short-term obligations and deposit obligations of the entities to which the
rating has been assigned. The BankWatch short-term ratings specifically assess
the likelihood of an untimely payment of principal or interest.
TBW-1 -- The highest category; indicates a very high likelihood that
principal and interest will be paid on a timely basis.
TBW-2 -- The second highest category; while the degree of safety regarding
timely repayment of principal and interest is strong, the relative degree
of safety is not as high as for issues rated "TBW-1".
TBW-3 -- The lowest investment grade category; indicates that while more
susceptible to adverse developments (both internal and external) than
obligations with higher ratings, capacity to service principal and interest
in a timely fashion is considered adequate.
TBW-4 -- The lowest rating category; this rating is regarded as
non-investment grade and therefore speculative.
The following summarizes the four highest long-term ratings used by IBCA:
AAA -- Obligations for which there is the lowest expectation of investment
risk. Capacity for timely repayment of principal and interest is
substantial such that adverse changes in business, economic or financial
conditions are unlikely to increase investment risk significantly.
AA -- Obligations for which there is a very low expectation of investment
risk. Capacity for timely repayment of principal and interest is
substantial. Adverse changes in business, economic or financial conditions
may increase investment risk albeit not very significantly.
A -- Obligations for which there is a low expectation of investment risk.
Capacity for timely repayment of principal and interest is strong, although
adverse changes in business, economic or financial conditions may lead to
increased investment risk.
BBB -- Obligations for which there is currently a low expectation of
investment risk. Capacity for timely repayment of principal and interest is
adequate, although adverse changes in business, economic or financial
conditions are more likely to lead to increased investment risk than for
obligations in other categories.
A plus or minus sign may be appended to a rating below AAA to denote relative
status within major rating categories.
The following summarizes the 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.
A -- Obligations supported by a good capacity for timely repayment.
58
<PAGE>
Prospectus
INVESTOR D SHARES
JULY 31, 1996
This Prospectus describes the investment portfolios
(each a "Fund" and collectively, the "Money Market
Funds"), listed in the column to the right, of
Nations Fund Trust and Nations Fund, Inc., each an
open-end management investment company in the
Nations Fund Family ("Nations Fund" or "Nations
Fund Family"). This Prospectus describes one class
of shares of each Money Market Fund -- Investor D
Shares.
EACH MONEY MARKET FUND SEEKS TO MAINTAIN A NET
ASSET VALUE OF $1.00 PER SHARE.
INVESTMENTS IN THE 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 Investor D Shares should consider
before investing. Investors should read this
Prospectus and retain it for future reference.
Additional information about Nations Fund Trust and
Nations Fund, Inc. is contained in separate
Statements of Additional Information (the "SAIs"),
that have been filed with the Securities and
Exchange Commission (the "SEC") and are available
upon request without charge by writing or calling
Nations Fund at its address or telephone number
shown below. The SAIs bear the same date as this
Prospectus and are incorporated by reference in
their entirety into this Prospectus. NationsBanc
Advisors, Inc. ("NBAI") is the investment adviser
to the Funds. TradeStreet Investment Associates,
Inc. ("TradeStreet") is sub-investment adviser to
the Funds. As used herein the "Adviser" shall mean
NBAI and/or TradeStreet as the context may require.
SHARES OF NATIONS FUND ARE NOT DEPOSITS OR OTHER
OBLIGATIONS OF, OR ISSUED, ENDORSED OR GUARANTEED
BY, NATIONSBANK, N.A. ("NATIONSBANK") OR ANY OF ITS
AFFILIATES. SUCH SHARES ARE NOT INSURED BY THE U.S.
GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER
GOVERNMENT AGENCY. AN INVESTMENT IN THE FUNDS
INVOLVES CERTAIN RISKS, INCLUDING POSSIBLE LOSS OF
PRINCIPAL.
NATIONSBANK AND CERTAIN OF ITS AFFILIATES PROVIDE
CERTAIN OTHER SERVICES TO NATIONS FUND, FOR WHICH
THEY ARE COMPENSATED. STEPHENS INC., WHICH IS NOT
AFFILIATED WITH NATIONSBANK, IS THE SPONSOR AND
ADMINISTRATOR AND SERVES AS THE DISTRIBUTOR FOR
NATIONS FUND.
THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
Nations Prime
Fund
Nations Treasury
Fund
Nations Government
Money Market
Fund
Nations Tax
Exempt Fund
For Fund information call:
1-800-321-7854
Nations Fund
c/o Stephens Inc.
One NationsBank Plaza
33rd Floor
Charlotte, NC 28255
(Nations Fund logo
appears here)
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 21
How Dividends And Distributions Are Made; Tax
Information 22
Appendix A -- Portfolio Securities 23
Appendix B -- Description Of Ratings 30
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT
CONTAINED IN THIS PROSPECTUS, OR IN THE FUNDS' SAIS
INCORPORATED HEREIN BY REFERENCE, IN CONNECTION
WITH THE OFFERING MADE BY THIS PROSPECTUS AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY NATIONS FUND OR ITS DISTRIBUTOR. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFERING BY NATIONS FUND OR
BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE.
2
<PAGE>
About The Funds
Prospectus Summary
(Bullet) TYPE OF COMPANIES: Open-end management investment companies.
(Bullet) INVESTMENT OBJECTIVES AND POLICIES:
(Bullet) Nations Prime Fund's investment objective is to seek the
maximization of current income to the extent consistent with
the preservation of capital and the maintenance of liquidity.
(Bullet) Nations Treasury Fund's investment objective is the
maximization of current income to the extent
consistent with the preservation of capital and the
maintenance of liquidity.
(Bullet) Nations Government Money Market Fund's investment objective
is to seek as high a level of current income as is consistent
with liquidity and stability of principal.
(Bullet) Nations Tax Exempt Fund's investment objective is to seek as
high a level of current interest income exempt from Federal
income taxes as is consistent with liquidity and stability of
principal.
(Bullet) INVESTMENT ADVISER: NationsBanc Advisors, Inc. serves as the investment
adviser to the Funds. NBAI provides investment advice to more than 43
investment company portfolios in the Nations Fund Family. TradeStreet
Investment Associates, Inc. provides sub-advisory services to the
Funds. See "How The Funds Are Managed."
(Bullet) DIVIDENDS AND DISTRIBUTIONS: Nations Prime Fund, Nations Treasury Fund,
Nations Government Money Market Fund and Nations Tax Exempt Fund
declare dividends daily and pay them monthly. Each Fund's net realized
capital gains, including net short-term capital gains, are distributed
at least annually.
(Bullet) RISK FACTORS: Although the Adviser seeks to achieve the investment
objective of each Fund, there is no assurance that it will be able to
do so. Although each Fund seeks to maintain a stable net asset value of
$1.00 per share, there is no assurance that it will be able to do so.
Investments in a Fund are not insured against loss of principal. For a
discussion of these and other factors, see "How Objectives Are
Pursued -- Risk Considerations" and "Appendix A -- Portfolio
Securities."
(Bullet) MINIMUM PURCHASE: $1,000 minimum initial investment per record holder
except that the minimum initial investment is: $500 for Individual
Retirement Account ("IRA") investors; $250 for non-working spousal
IRAs; and $100 for investors participating on a monthly basis in the
Systematic Investment Plan. There is no minimum investment amount for
investments by certain 401(k) and employee pension plans or salary
reduction -- Individual Retirement Accounts. The minimum subsequent
investment is $100, except for investments pursuant to the Systematic
Investment Plan. Investor C Shares exchanged for Investor D Shares must
have a current value of at least $1,000. See "How To Buy Shares."
3
<PAGE>
Expenses Summary
Expenses are one of several factors to consider when investing in the Funds. The
following table summarizes shareholder transaction and operating expenses for
Investor D Shares of the Funds. The Examples show the cumulative expenses
attributable to a hypothetical $1,000 investment in the Funds over specified
periods.
INVESTOR D SHARES
<TABLE>
<CAPTION>
Nations
Nations Nations Treasury Government Money
SHAREHOLDER TRANSACTION EXPENSES Prime Fund Fund Market Fund
<S> <C> <C> <C>
Sales Load Imposed on Purchases None None None
Deferred Sales Charge .00%(1) .00%(1) .00%(1)
<CAPTION>
Nations
Tax Exempt
SHAREHOLDER TRANSACTION EXPENSES Fund
Sales Load Imposed on Purchases None
Deferred Sales Charge .00%(1)
</TABLE>
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Nations
Nations Nations Treasury Government Money
Prime Fund Fund Market Fund
<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%
</Table
</TABLE>
<TABLE>
<CAPTION>
Nations
Tax Exempt
Fund
<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 Investor D Shares
of the indicated Fund, assuming (1) a 5% annual return and (2) redemption at the
end of each time period.
<TABLE>
<CAPTION>
Nations
Nations Nations Government
Prime Treasury Money
Fund Fund Market Fund
<S> <C> <C> <C>
1 Year $ 8 $ 8 $ 8
3 Years $26 $26 $26
<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 Investor D Shares were not
offered during the Funds' most recent fiscal year, the "Other Expenses" figures
contained in the above table are based on estimated amounts for the Funds'
current fiscal year and reflect anticipated fee waivers and reimbursements.
There is no assurance that these fee waivers and reimbursements will continue
beyond the current fiscal year. If fee waivers and/or reimbursements are
discontinued, the amounts contained in the "Examples" above may increase. Long-
term shareholders in a Fund could pay more in sales charges than the economic
equivalent of the maxi-
<PAGE>
mum front-end sales charges applicable to mutual funds sold by members of the
National Association of Securities Dealers, Inc. For more complete descriptions
of the Funds' operating expenses, see "How The Funds Are Managed."
Absent fee waivers and expense reimbursements, "Rule 12b-1 Fees," "Other
Expenses" and "Total Operating Expenses" for Investor D 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 AN INVESTOR D SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS PRIME FUND
<TABLE>
<CAPTION>
PERIOD PERIOD
ENDED ENDED
INVESTOR D SHARES 03/31/96(a) 05/31/95*
<S> <C> <C>
Operating performance:
Net asset value, beginning of period $ 1.00 $ 1.00
Net investment income 0.0439 0.0173
Distributions from net investment income (0.0439) (0.0173)
Total dividends and distributions $ (0.0439) $ (0.0173)
Net asset value, end of period $ 1.00 $ 1.00
Total return++ 4.49% 1.74%
Ratios to average net assets/supplemental data:
Net assets, end of period (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 Investor D Shares commenced operations on February 9,
1995.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
May 31.
5
<PAGE>
FOR AN INVESTOR D SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS TREASURY FUND
<TABLE>
<CAPTION>
PERIOD PERIOD
ENDED ENDED
INVESTOR D SHARES 03/31/96(a) 05/31/95*
<S> <C> <C>
Operating performance:
Net asset value, beginning of period $ 1.00 $ 1.00
Net investment income 0.0404 0.0167
Distributions from net investment income (0.0404) (0.0167)
Distributions from net realized capital gains -- --
Total dividends and distributions (0.0404) (0.0167)
Net asset value, end of period $ 1.00 $ 1.00
Total return++ 4.09% 1.67%
Ratios to average net assets/supplemental data:
Net assets, end of period (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 Investor D Shares commenced operations on February 9,
1995.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
May 31.
6
<PAGE>
FOR AN INVESTOR D SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS GOVERNMENT MONEY MARKET FUND
<TABLE>
<CAPTION>
PERIOD PERIOD
ENDED ENDED
INVESTOR D SHARES 03/31/96(a) 11/30/95*
<S> <C> <C>
Operating performance:
Net asset value, beginning of period $ 1.00 $ 1.00
Net investment income 0.0157 0.0418
Distributions:
Dividends from net investment income (0.0157) (0.0418)
Total dividends and distributions (0.0157) (0.0418)
Net asset value, end of period $ 1.00 $ 1.00
Total return++ 1.58% 4.38%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 2 $ 2
Ratio of operating expenses to average net assets 0.71%+ 0.55%+
Ratio of net investment income to average net assets 4.79%+ 5.33%+
Ratio of operating expenses to average net assets without waivers and/or expense
reimbursements 1.00%+ 0.82%+
Net investment income per share without waivers and/or expense reimbursements $ 0.0147 $ 0.0397
</TABLE>
* Nations Government Money Market Fund Investor D Shares commenced operations
on February 10, 1995.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
NATIONS TAX EXEMPT FUND
<TABLE>
<CAPTION>
PERIOD PERIOD
ENDED ENDED
INVESTOR D SHARES 03/31/96(a) 11/30/95*
<S> <C> <C>
Operating performance:
Net asset value, beginning of period $ 1.00 $ 1.00
Net investment income 0.0090 0.0243
Distributions from net investment income (0.0090) (0.0243)
Total dividends and distributions (0.0090) (0.0243)
Net asset value, end of period $ 1.00 $ 1.00
Total return++ 0.91% 2.61%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 2 $ 2
Ratio of operating expenses to average net assets 0.69%+ 0.45%+
Ratio of net investment income to average net assets 2.96%+ 3.47%+
Ratio of operating expenses to average net assets without waivers and/or expense
reimbursements 0.97%+ 0.72%+
Net investment income per share without waivers and/or expense reimbursements $ 0.0081 $ 0.0225
</TABLE>
* Nations Tax Exempt Fund Investor D Shares commenced operations on February
10, 1995.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
7
<PAGE>
Objectives
Each Money Market Fund endeavors to achieve its investment objective by
investing in a diversified portfolio of high quality money market instruments
with maturities of 397 days or less from the date of purchase. Securities
subject to repurchase agreements may bear longer maturities.
NATIONS PRIME FUND: Nations Prime Fund's investment objective is to seek the
maximization of current income to the extent consistent with the preservation of
capital and the maintenance of liquidity.
NATIONS TREASURY FUND: Nations Treasury Fund's investment objective is the
maximization of current income to the extent consistent with the preservation of
capital and the maintenance of liquidity.
NATIONS GOVERNMENT MONEY MARKET FUND: Nations Government Money Market Fund's
investment objective is to seek as high a level of current income as is
consistent with liquidity and stability of principal.
NATIONS TAX EXEMPT FUND: Nations Tax Exempt Fund's investment objective is to
seek as high a level of current interest income exempt from Federal income taxes
as is consistent with liquidity and stability of principal.
How Objectives Are Pursued
NATIONS PRIME FUND: In pursuing its investment objective, the Fund may invest in
U.S. Treasury bills, notes and bonds and other instruments issued directly by
the U.S. Government ("U.S. Treasury Obligations"), other obligations issued or
guaranteed as to payment of principal and interest by the U.S. Government, its
agencies or instrumentalities (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
<PAGE>
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 Investor D Shares, the Funds offer Primary A, Primary B, Investor
A, Investor B and Investor C Shares. Each class of shares may bear different
sales charges, shareholder servicing fees, loads and other expenses, which may
cause the performance of a class to differ from the performance of the other
classes. Performance quotations will be computed separately for each class of
the Funds' shares. The Funds' annual report contains additional performance
information and is available upon request without charge from the Funds'
distributor or an investor's 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-
11
<PAGE>
ment analysts. These policies substantially comply in all material respects with
the recommendations set forth in the May 9, 1994 Report of the Advisory Group on
Personal Investing of the Investment Company Institute.
INVESTMENT ADVISER: NationsBanc Advisors, Inc. serves as investment adviser to
the Funds. NBAI is a wholly owned subsidiary of NationsBank, which in turn is a
wholly owned banking subsidiary of NationsBank Corporation, a bank holding
company organized as a North Carolina corporation. NBAI has its principal
offices at One NationsBank Plaza, Charlotte, North Carolina 28255.
TradeStreet Investment Associates, Inc., with principal offices at One
NationsBank Plaza, Charlotte, North Carolina 28255, serves as sub-investment
adviser to the Funds. TradeStreet is a wholly owned subsidiary of NationsBank.
TradeStreet provides investment management services to individuals, corporations
and institutions.
Subject to the general supervision of Nations Fund Trust's Board of Trustees and
Nations Fund, Inc.'s Board of Directors, and in accordance with each Fund's
investment policies, the Adviser formulates guidelines and lists of approved
investments for each Fund, makes decisions with respect to and places orders for
each Fund's purchases and sales of portfolio securities and maintains records
relating to such purchases and sales. With respect to Nations Tax Exempt Fund,
the Adviser is authorized to allocate purchase and sale orders for portfolio
securities to certain financial institutions, including, in the case of agency
transactions, financial institutions which are affiliated with the Adviser or
which have sold shares in such Fund, if the Adviser believes that the quality of
the transactions and the commission are comparable to what they would be with
other qualified brokerage firms. From time to time, to the extent consistent
with its investment objective, policies and restrictions, each Fund may invest
in securities of companies with which NationsBank has a lending relationship.
For the services provided and expenses assumed pursuant to various Investment
Advisory Agreements, NBAI is entitled to receive advisory fees, computed daily
and paid monthly, at the annual rates of: 0.25% of the first $250 million of the
combined average daily net assets of both Nations Prime Fund and Nations
Treasury Fund, plus 0.20% of the combined average daily net assets of such Funds
in excess of $250 million; and 0.40% of the average daily net assets of each of
Nations Government Money Market Fund and Nations Tax Exempt Fund.
For the services provided and expenses assumed pursuant to sub-advisory
agreements, NBAI will pay TradeStreet sub-advisory fees, computed daily and paid
monthly, at the annual rate of 0.055% of the average daily net assets of each
Fund.
From time to time, NBAI (and/or TradeStreet) may waive or reimburse (either
voluntarily or pursuant to applicable state limitations) advisory fees and/or
expenses payable by a Fund.
For the fiscal period from December 1, 1995 to December 31, 1995, after waivers,
Nations Fund Trust paid NationsBank under a prior Investment Advisory Agreement
advisory fees at the indicated rates of the following Funds' average daily net
assets: Nations Government Money Market Fund -- 0.12%; and Nations Tax Exempt
Fund -- 0.13%.
For the fiscal period from June 1, 1995 to December 31, 1995, after waivers,
Nations Fund, Inc. paid NationsBank under a prior Investment Advisory Agreement
advisory fees at the 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
12
<PAGE>
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
13
<PAGE>
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 Investor D Shares of the Funds. See "Shareholder Servicing And
Distribution Plans."
NationsBank of Texas, N.A., serves as each Fund's custodian (the "Custodian").
The Custodian is located at 1401 Elm Street, Dallas, Texas 75202 and is a wholly
owned subsidiary of NationsBank Corporation. In return for providing custodial
services, the Custodian is entitled to receive, in addition to out-of-pocket
expenses, fees payable monthly (i) at the rate of 1.25% of 1% of the average
daily net assets of each Fund, (ii) $10.00 per repurchase collateral transaction
by the Funds, and (iii) $15.00 per purchase, sale and maturity transaction
involving the Funds.
First Data serves as transfer agent (the "Transfer Agent") for each Fund's
Investor D Shares. The Transfer Agent is located at One Exchange Place, Boston,
Massachusetts 02109.
Price Waterhouse LLP serves as independent accountant to Nations Funds. Its
address is 160 Federal Street, Boston, Massachusetts 02110.
EXPENSES: The accrued expenses of each Fund, as well as certain expenses
attributable to Investor D Shares, are deducted from accrued income before
dividends are declared. The Funds' expenses include, but are not limited to:
fees paid to the Adviser, NationsBank, Stephens and First Data; interest;
Directors' or Trustees' fees; federal and state securities registration and
qualification fees; brokerage fees and commissions; costs of preparing and
printing prospectuses for regulatory purposes and for distribution to existing
shareholders; charges of the Custodian and Transfer Agent; certain insurance
premiums; outside auditing and legal expenses; costs of shareholder reports and
shareholder meetings; other expenses which are not expressly assumed by the
Adviser, NationsBank, Stephens or First Data under their respective agreements
with Nations Fund; and any extraordinary expenses. Investor D Shares may bear
certain class specific retail transfer agency expenses and also bear certain
additional shareholder service and distribution costs. Any general expenses of
Nations Fund Trust and/or of Nations Fund, Inc. that are not readily
identifiable as belonging to a particular investment portfolio are allocated
among all portfolios in the proportion that the assets of a portfolio bears to
the assets of Nations Fund Trust and/or of Nations Fund, Inc. or in such other
manner as the Board of Trustees or Board of Directors deems appropriate.
14
<PAGE>
Organization And History
The Funds are members of the Nations Fund Family, which consists of Nations Fund
Trust, Nations Fund, Inc., Nations Fund Portfolios, Inc. and Nations
Institutional Reserves. The Nations Fund Family currently has more than 43
distinct investment portfolios and total assets in excess of $18 billion.
NATIONS FUND TRUST: Nations Fund Trust was organized as a Massachusetts business
trust on May 6, 1985. Nations Fund Trust's fiscal year end is March 31; prior to
1996, Nations Fund Trust's fiscal year end was November 30. The Funds currently
offer six separate classes of shares -- Investor A, Investor B, Investor C,
Investor D, Primary A and Primary B Shares. This Prospectus relates only to the
Investor D Shares of Nations Government Money Market Fund and Nations Tax Exempt
Fund of Nations Fund Trust. To obtain additional information regarding the
Funds' other classes of shares which may be available to you, contact your Agent
(as defined below) or Nations Fund at 1-800-321-7854.
Each share of Nations Fund Trust is without par value, represents an equal
proportionate interest in the related fund with other shares of the same class,
and is entitled to such dividends and distributions out of the income earned on
the assets belonging to such fund as are declared in the discretion of Nations
Fund Trust's Board of Trustees. Nations Fund Trust's Declaration of Trust
authorizes the Board of Trustees to classify or reclassify any class of shares
into one or more series of shares.
Shareholders are entitled to one vote for each full share held and a
proportionate fractional vote for each fractional share held. Shareholders of
each fund of Nations Fund Trust will vote in the aggregate and not by fund and
shareholders of a fund will vote in the aggregate and not by class except as
otherwise expressly required by law or when the Board of Trustees determines
that the matter to be voted on affects only the interests of shareholders of a
particular fund or class. See the SAI for examples of instances where the 1940
Act requires voting by fund.
As of July 15, 1996, NationsBank and its affiliates possessed or shared power to
dispose or vote with respect to more than 25% of the outstanding shares of
Nations Fund Trust and therefore could be considered to be a controlling person
of Nations Fund Trust for purposes of the 1940 Act. For more detailed
information concerning the percentage of each class or series of shares over
which NationsBank and its affiliates possessed or shared power to dispose or
vote as of a certain date, see Nations Fund Trust's SAI.
Nations Fund Trust does not presently intend to hold annual meetings except as
required by the 1940 Act. Shareholders will have the right to remove trustees.
Nations Fund Trust's Code of Regulations provides that special meetings of
shareholders shall be called at the written request of the shareholders entitled
to vote at least 10% of the outstanding shares of Nations Fund Trust entitled to
be voted at such meeting.
NATIONS FUND, INC.: Nations Fund, Inc. was incorporated in Maryland on December
13, 1983, but had no operations prior to December 15, 1986. Nations Fund, Inc.'s
fiscal year end is March 31; prior to 1996, Nations Fund, Inc.'s fiscal year end
was May 31. As of the date of this Prospectus, the authorized capital stock of
Nations Fund, Inc. consists of 270,000,000,000 shares of common stock, par value
of $.001 per share, which are divided into series or portfolios, each of which
consists of separate classes of shares. This Prospectus relates only to the
Investor D Shares of Nations Prime Fund and Nations Treasury Fund of Nations
Fund, Inc. To 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
15
<PAGE>
the rights of the holders of such fund or class. In the event of dissolution or
liquidation, holders of each class will receive pro rata, subject to the rights
of creditors, (a) the proceeds of the sale of that portion of the assets
allocated to that class held in the respective fund of Nations Fund, Inc., less
(b) the liabilities of Nations Fund, Inc. attributable to the respective fund or
class or allocated among the funds or classes based on the respective
liquidation value of each fund or class.
Shareholders of Nations Fund, Inc. do not have cumulative voting rights, and
therefore the holders of more than 50% of the outstanding shares of all funds
voting together for election of Directors may elect all of the members of the
Board of Directors of Nations Fund, Inc. Meetings of shareholders may be called
upon the request of 10% or more of Nations Fund, Inc.'s outstanding shares.
There are no preemptive rights applicable to any of Nations Fund, Inc.'s shares.
Nations Fund, Inc.'s shares, when issued, will be fully paid and non-assessable.
As of July 15, 1996, NationsBank and its affiliates possessed or shared power to
dispose of or vote with respect to more than 25% of the outstanding shares of
Nations Fund, Inc. and therefore could be considered to be a controlling person
of Nations Fund, Inc. for purposes of the 1940 Act. For more detailed
information concerning the percentage of each class or series over which
NationsBank and its affiliates possessed or shared power to dispose or vote as
of a certain date, see Nations Fund, Inc.'s SAI. It is anticipated that Nations
Fund, Inc. will not hold annual shareholder meetings, except when required by
the 1940 Act or Maryland law.
Because this Prospectus combines disclosure on two separate investment
companies, there is a possibility that one investment company might become
liable for a misstatement, inaccuracy or incomplete disclosure in this
Prospectus concerning the other investment company. Nations Fund Trust and
Nations Fund, Inc. have entered into an indemnification agreement that creates a
right of indemnification from the investment company responsible for any such
misstatement, inaccuracy or incomplete disclosure that may appear in this
Prospectus.
About Your Investment
How To Buy Shares
The Funds have established various procedures for purchasing Investor D Shares
in order to accommodate different investors. Purchase orders may be placed
through banks, broker/dealers or other financial institutions (including certain
affiliates of NationsBank) that have entered into 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
16
<PAGE>
reserves the right to redeem the shares held by such plans on 60 days' written
notice. The minimum subsequent investment is $100, except for investments
pursuant to the Systematic Investment Plan described below.
Shares acquired through an exchange of Investor C Shares of a non-money market
fund must have a current value of at least $1,000. No sales load or exchange fee
is imposed upon the purchase of Investor D Shares of a Fund through an exchange.
Purchases may be effected only on days on which the Federal Reserve Bank of New
York is open for business (a "Business Day").
The Servicing Agents will provide various shareholder services for, and the
Selling Agents will provide sales support assistance to, their respective
customers ("Customers") who own Investor D Shares ("Servicing Agents"). Selling
Agents and Servicing Agents are sometimes referred to hereafter as "Agents."
From time to time the Agents, Stephens, and Nations Fund may agree to
voluntarily reduce the fees payable for shareholder services and sales support
services. See "Shareholder Servicing And Distribution Plans."
Nations Fund and Stephens reserve the right to reject any purchase order. The
issuance of Investor D Shares is recorded on the books of the Funds, and share
certificates are not issued unless expressly requested in writing. Certificates
are not issued for fractional shares.
EFFECTIVE TIME OF PURCHASES: Purchases will be effected only when federal funds
are available for investment on the Business Day the purchase order is received
by Stephens or by the Transfer Agent. A purchase order must be received by
Stephens or by the Transfer Agent by 3:00 p.m., Eastern time (12 noon, Eastern
time, with respect to Nations Tax Exempt Fund and Nations Government Money
Market Fund). Absent prior arrangement with Stephens or the Transfer Agent,
purchase orders received after such time on any given day will not be accepted;
notice thereof will be given to the 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. Investor D Shares are
purchased at the net asset value per share next determined after receipt of the
order by Stephens or by the Transfer Agent.
The 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.
17
<PAGE>
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 Investor D Shares upon 60 days' written
notice if the balance in the shareholder's account drops below $500 as a result
of redemptions. Share balances also may be redeemed at the direction of an Agent
pursuant to arrangements between the Agent and its Customers. Nations Fund also
may redeem shares of a Fund involuntarily or make payment for redemption in
readily marketable securities or other property under certain circumstances in
accordance with the 1940 Act.
Prior to effecting a redemption of Investor D Shares represented by
certificates, the Transfer Agent must have received such certificates at its
principal office. All such certificates must be endorsed by the redeeming
shareholder or accompanied by a signed stock power, in each instance with the
signature guaranteed by a commercial bank or a member of a major stock exchange,
unless other arrangements satisfactory to Nations Fund have previously been
made. Nations Fund may require any additional information reasonably necessary
to evidence that a redemption has been duly authorized.
CONTINGENT DEFERRED SALES CHARGE: Subject to certain waivers specified below,
Investor D Shares of a Fund that were purchased prior to January 1, 1996 will be
subject to a CDSC of 1.00% if redeemed within one year of the initial purchase
of the Investor C Shares exchanged for the Investor D Shares being redeemed.
Investor D Shares purchased after January 1, 1996 through an exchange from
Investor C Shares will be subject to a CDSC of .50% if redeemed within one year
of the initial purchase of the Investor C Shares exchanged. Investor D Shares
purchased directly are not subject to a CDSC. The CDSC is imposed on the lesser
of the net asset value of the Investor D Shares redeemed or the initial purchase
price of the Investor C Shares exchanged to acquire the Investor D Shares being
redeemed. No CDSC is imposed on increases in net asset value above the initial
purchase price of the exchanged Investor C Shares, including shares acquired by
reinvestment of distributions.
Solely for purposes of determining the period of time that has elapsed from the
initial purchase of any Investor C Shares, all purchases are deemed to have been
on the trade date of the transaction. In determining whether a CDSC is
applicable to a redemption, the calculation will be made in the manner that
results in the lowest possible charge being assessed. In this regard, it will be
assumed that the redemption is first of shares held for the longest period of
time or shares acquired pursuant to reinvestment of div-
18
<PAGE>
idends or distributions. The charge will not be applied to dollar amounts
representing an increase in the net asset value since the time of initial
purchase of Investor C Shares.
The CDSC will be waived on redemptions of Investor D Shares (i) following the
death or disability (as defined in the Internal Revenue Code of 1986 (the
"Code")) of a shareholder (including a registered joint owner), (ii) in
connection with the following retirement plan distributions: (a) by qualified
plans, (except in cases of plan level terminations), (b) distributions from an
IRA following attainment of age 59 1/2; (c) a tax-free return of an excess
contribution to an IRA, and (d) distributions from a qualified retirement plan
that are not subject to the 10% additional Federal withdrawal tax pursuant to
Section 72(t)(2) of the Code, (iii) effected pursuant to Nations Fund's right to
liquidate a shareholder's account, including instances where the aggregate net
asset value of the Investor D Shares held in the account is less than the
minimum account size, (iv) in connection with the combination of Nations Fund
with any other registered investment company by merger, acquisition of assets or
by any other transaction, and (v) effected pursuant to the Automatic Withdrawal
Plan discussed below, provided that such redemptions do not exceed, on an annual
basis, 12% of the net asset value of the Investor Shares in the account.
Shareholders are responsible for providing evidence sufficient to establish that
they are eligible for any waiver of the CDSC. Nations Fund may terminate any
waiver of the CDSC by providing notice in the Prospectus, but any such
termination would affect only shares purchased after such termination.
Within 120 days after a redemption of Investor D Shares of a Fund, a shareholder
may reinvest any portion of the proceeds of such redemption in Investor D Shares
of the same Fund. The amount which may be so reinvested is limited to an amount
up to, but not exceeding, the redemption proceeds (or to the nearest full share
if fractional shares are not purchased). A shareholder exercising this privilege
would receive a pro rata credit for any CDSC paid in connection with the prior
redemption. A shareholder may not exercise this privilege with the proceeds of a
redemption of shares previously purchased through the reinvestment privilege. In
order to exercise this privilege, a written order for the purchase of Investor A
Shares must be received by the Transfer Agent or by Stephens within 120 days
after the redemption.
AUTOMATIC WITHDRAWAL PLAN: An Automatic Withdrawal Plan ("AWP") may be
established by a shareholder of a Fund if the value of the Investor Shares in
his/her accounts within the Nations Fund Family (valued at the net asset value
at the time of the establishment of the AWP) equals $10,000 or more.
Shareholders who elect to establish an AWP may receive a monthly, quarterly or
annual check or automatic transfer to a checking or savings account in a stated
amount of not less than $25 on or about the 10th or 25th day of the applicable
month of withdrawal. Investor D Shares will be redeemed as necessary to meet
withdrawal payments. Withdrawals will reduce principal and may eventually
deplete the shareholder's account. If a shareholder desires to establish an AWP
after opening an account, a signature guarantee will be required. An AWP may be
terminated by a shareholder on 30 days' written notice to his/her Selling Agent
or by Nations Fund at any time.
How To Exchange Shares
The exchange feature enables a shareholder of Investor D Shares of a Money
Market Fund to exchange such shares for Investor C Shares of a Non-Money Market
Fund or Investor D Shares of another Money Market Fund when that shareholder
believes that a shift between funds is an appropriate investment decision. An
exchange of Investor D Shares for shares of another fund is made on the basis of
the next
19
<PAGE>
calculated net asset value per share of each fund after the exchange order is
received.
No CDSC will be imposed in connection with an exchange of Investor D Shares that
meets the requirements discussed in this section. If a shareholder acquires
shares in exchange for Investor D Shares of a Fund, the acquired shares will
remain subject to the CDSC applicable to the Investor C Shares exchanged to
acquire the subject Investor D Shares. In addition, the remaining period of time
(if any) that the CDSC will be in effect will be computed from the time of the
initial purchase of the previously held Investor C Shares.
The Funds and each of the other funds of Nations Fund may limit the number of
times this exchange feature may be exercised by a shareholder within a specified
period of time. Also, the exchange feature may be terminated or revised at any
time by Nations Fund upon such notice as may be required by applicable
regulatory agencies (presently 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.
Investor D Shares may be exchanged by directing a request directly to the Agent
through which the original Investor D Shares were purchased or in some cases
Stephens or the Transfer Agent. During periods of significant economic or market
change, telephone exchanges may be difficult to complete. In such event, shares
may be exchanged by mailing your request directly to the Agent through which the
original shares were purchased. Investors should consult their Agent or Stephens
for further information regarding exchanges. Your exchange feature may be
governed by your account agreement with your Agent.
Shareholder Servicing And
Distribution Plans
SHAREHOLDER SERVICING PLAN: The Funds' shareholder servicing plan ("Servicing
Plan") permits each Fund to compensate Servicing Agents for certain shareholder
support services that are provided by the Servicing Agents to their Customers
that own Investor D Shares. Payments under the Servicing Plan will be calculated
daily and paid monthly at a rate set from time to time by the Board of Trustees
or the Board of Directors, provided that the annual rate may not exceed 0.25% of
the average daily net asset value of a Fund's Investor D Shares. The shareholder
services provided by Servicing Agents may include general shareholder liaison
services; processing purchase, exchange and redemption requests from Customers
and placing orders with Stephens or the Transfer Agent; processing dividend and
distribution payments from a Fund on behalf of Customers; providing sales
information periodically to Customers,
20
<PAGE>
including information showing their positions in Investor D Shares; providing
sub-accounting with respect to Investor D Shares beneficially owned by Customers
or the information necessary for sub-accounting; responding to inquiries from
Customers concerning their investment in Investor D Shares; arranging for bank
wires; and providing such other similar services as may be reasonably requested.
Nations Fund may suspend or reduce payments under the Servicing Plan at any
time, and payments are subject to the continuation of the Funds' Servicing Plan
described above and the terms of the Servicing Agreements. See the SAIs for more
details on the Servicing Plan.
DISTRIBUTION PLAN: Pursuant to Rule 12b-1 under the 1940 Act, the Trustees and
Directors also have approved a Distribution Plan with respect to Investor D
Shares of the Funds. Pursuant to the Distribution Plan, each Fund may compensate
or reimburse Stephens for any activities or expenses primarily intended to
result in the sale of Investor D Shares. Payments under the Distribution Plan
will be calculated daily and paid monthly at a rate or rates set from time to
time by the Board of Trustees or Board of Directors provided that the annual
rate may not exceed 0.45% of the average daily net asset value of a Fund's
Investor D Shares. Payments to Stephens pursuant to the Distribution Plan will
be used primarily to compensate or reimburse Stephens for distribution services
provided by Stephens and related expenses incurred by Stephens, including
payments by Stephens to compensate or reimburse Selling Agents for sales support
services provided, and related expenses incurred by, such Selling Agents.
Nations Fund and Stephens may suspend or reduce payments under the Distribution
Plan at any time, and payments are subject to the continuation of the Funds'
Distribution Plan described above and the terms of the Sales Support Agreement
between Selling Agents and Stephens. See the SAIs for more details on the
Distribution Plan.
Nations Fund understands that Selling Agents and/or Servicing Agents may charge
fees to their Customers who are the owners of Investor D Shares for various
services provided in connection with a Customer's account. These fees would be
in addition to any amounts received by a Selling Agent under its Sales Support
Agreement with Stephens or by a Servicing Agent under its Shareholder Servicing
Agreement with Nations Fund. The Sales Support Agreements and Shareholder
Servicing Agreements require Agents to disclose to their Customers any
compensation payable to the Agents by Stephens or Nations Fund and any other
compensation payable by the Customers for various services provided in
connection with their accounts. Customers of Agents should read this Prospectus
in light of the terms governing their accounts with their Agents.
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.
21
<PAGE>
How Dividends And Distributions Are
Made; Tax Information
DIVIDENDS AND DISTRIBUTIONS: Dividends from net investment income of each Fund
are declared daily to shareholders at 3:00 p.m., Eastern time (12 noon, Eastern
time, with respect to Nations Tax Exempt Fund and Nations Government Money
Market Fund), on the day of declaration. Investor D Shares begin earning
dividends on the day the purchase order is executed and continue earning
dividends through and including the day before the redemption order is executed
(E.G., the settlement date). Dividends are paid within five Business Days after
the end of each month. Dividends are paid in the form of additional Investor D
Shares of the same Fund unless the Customer has elected prior to the date of
distribution to receive payment in cash. Such election, or any revocation
thereof, must be made in writing to the Funds' Transfer Agent and will become
effective with respect to dividends paid after its receipt. Your dividend
election may be governed by your account agreement with your Selling Agent.
Dividends are paid in cash within five Business Days after a shareholder's
complete redemption of his/her Investor D Shares in a Fund. To the extent that
there are any net short-term capital gains, they will be paid at least annually.
Each Fund's net investment income available for distribution to the holders of
Investor D Shares will be reduced by the amount of sales support and shareholder
servicing fees paid to Selling Agents and Servicing Agents, respectively. Each
Fund's net investment income available for distribution to the holders of
Investor D Shares will be reduced by the amount of retail transfer agency fees
allocated to Investor D Shares.
TAX INFORMATION: Each Fund intends to qualify as a "regulated investment
company" under the Code. Such qualification relieves a Fund of liability for
Federal income tax on amounts distributed in accordance with the Code.
Each Fund intends to distribute substantially all of its investment company
taxable income and net tax-exempt income each taxable year. Distributions by
Nations Prime Fund, Nations Treasury Fund and Nations Government Money Market
Fund will be taxable as ordinary income to shareholders who are not currently
exempt from Federal income tax, whether such income is received in cash or
reinvested in additional shares. (Federal income tax for distributions to an IRA
is generally deferred under the Code.) These distributions will not qualify for
the dividends received deduction for corporate shareholders.
Dividends received from Nations Treasury Fund and Nations Government Money
Market Fund may qualify as tax-exempt dividends for state income tax purposes in
some states. The Funds do not expect to realize any long-term capital gains, and
therefore, do not expect to distribute any capital gains dividends.
Each year, shareholders will be notified as to the amount and Federal tax status
of all dividends (and capital gains, if applicable) paid during the prior year.
Such dividends (and capital gains) may be subject to state and local taxes.
Dividends declared in October, November, or December of any year payable to
shareholders of record on a specified date in such months will be deemed to have
been received by shareholders and paid by the Fund on December 31 of such year
in the event such dividends are actually paid during January of the following
year.
Federal law requires Nations Fund to withhold 31% from any dividends (other than
exempt-interest dividends) paid by Nations Fund and/or redemptions (including
exchange redemptions) that occur in certain shareholder accounts if the
shareholder has not properly furnished a certified correct Taxpayer
Identification Number and has not certified that withholding does not apply, or
if the Internal Revenue Service has notified Nations Fund that the Taxpayer
Identification Number listed on a shareholder account
22
<PAGE>
is incorrect according to its records, or that the shareholder is subject to
backup withholding. Amounts withheld are applied to the shareholder's Federal
tax liability, and a refund may be obtained from the Internal Revenue Service if
withholding results in overpayment of taxes. Federal law also requires the Funds
to withhold 30% or the applicable tax treaty rate from dividends paid to certain
nonresident alien, non-U.S. partnership and non-U.S. corporation shareholder
accounts.
NATIONS TAX EXEMPT FUND: As a regulated investment company, Nations Tax Exempt
Fund is permitted to pass through to its shareholders tax-exempt income
("exempt-interest dividends") subject to certain requirements which the Fund
intends to satisfy. The Fund does not intend to earn investment company taxable
income or long-term capital gains; to the extent that it does earn taxable
income or realize long-term capital gains, distributions to shareholders from
such sources will be subject to Federal income tax. Exempt-interest dividends
may be treated by shareholders as items of interest excludable from their
federal gross income under Section 103(a) of the Code unless, under the
circumstances applicable to the particular shareholder, the exclusion would be
disallowed. (See Nations Fund Trust's SAI under "Additional Information
Concerning Taxes.") Distributions of net investment income by Nations Tax Exempt
Fund may be taxable to investors under state or local law even though a
substantial portion of such distributions may be derived from interest on
tax-exempt obligations which, if realized directly, would be exempt from such
income taxes.
If Nations Tax Exempt Fund should hold certain private activity bonds issued
after August 7, 1986, shareholders must include, as an item of tax preference,
the portion of dividends paid by the Fund that is attributable to interest on
such bonds in their Federal alternative minimum taxable income for purposes of
determining liability (if any) for the 28% alternative minimum tax applicable to
individuals and the 20% alternative minimum tax and the environmental tax
applicable to corporations. Corporate shareholders must also take all
exempt-interest dividends into account in determining certain adjustments for
Federal alternative minimum and environmental tax purposes. The environmental
tax applicable to corporations is imposed at the rate of 0.12% on the excess of
the corporation's modified Federal alternative minimum taxable income over
$2,000,000. Shareholders receiving Social Security benefits should note that all
exempt-interest dividends will be taken into account in determining the
taxability of such benefits. To the extent, if any, dividends paid to
shareholders are derived from taxable income or from long-term or short-term
capital gains, such dividends will not be exempt from Federal income tax and
also may be subject to state and local tax.
The foregoing discussion is based on tax laws and regulations that were in
effect as of the date of this Prospectus and summarizes only some of the
important Federal tax considerations generally affecting the Funds and their
shareholders. It is not intended as a substitute for careful tax planning;
investors should consult their tax advisors with respect to their specific tax
situations as well as with respect to state and local taxes. Further tax
information is contained in the SAIs.
Appendix A -- Portfolio Securities
The following are summary descriptions of certain types of instruments in which
a Fund may invest. The "How Objectives Are Pursued" section of this Prospectus
identifies each Fund's permissible investments, and the SAIs contain more
information concerning such investments.
ASSET-BACKED SECURITIES: Asset-backed securities arise through the grouping by
governmental, government-related, and private organizations of loans,
receivables, or other assets originated by various lenders. Asset-backed
securities consist of both mortgage- and non-
23
<PAGE>
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 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
24
<PAGE>
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 corporations or foreign
corporations and domestic and foreign commercial banks. The Nations Prime Fund
will limit purchases of commercial instruments to instruments that: (a) if rated
by at least two NRSROs, are rated in the highest rating category for short-term
debt obligations given by such organizations, or if only rated by one such
organization, are rated in the highest rating category for short-term debt
obligations given by such organization; or (b) if not rated, are (i) comparable
in priority and security to a class of short-term instruments of the same issuer
that has such rating(s), or (ii) of comparable quality to such instruments as
determined by Nations Fund, Inc.'s Board of Directors on the advice of the
Adviser.
Investments by a Fund in commercial paper will consist of issues rated in a
manner consistent with such Fund's investment policies and objective. In
addition, a Fund may acquire unrated commercial paper and corporate bonds that
are determined by the Adviser at the time of purchase to be of comparable
quality to rated instruments that may be acquired by a Fund. Commercial
instruments include variable-rate master demand notes, which are unsecured
instruments that permit the indebtedness thereunder to vary and provide for
periodic adjustments in the interest rate, and variable- and floating-rate
instruments.
25
<PAGE>
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' 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
26
<PAGE>
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 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 compara-
27
<PAGE>
ble 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 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
28
<PAGE>
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 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
29
<PAGE>
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.
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
30
<PAGE>
elements may be present which suggest a susceptibility to impairment
sometime in the future.
Moody's applies numerical modifiers (1, 2 and 3) with respect to corporate bonds
rated Aa and A. The modifier 1 indicates that the bond being rated ranks in the
higher end of its generic rating category; the modifier 2 indicates a mid-range
ranking; and the modifier 3 indicates that the bond ranks in the lower end of
its generic rating category. With regard to municipal bonds, those bonds in the
Aa and A groups which Moody's believes possess the strongest investment
attributes are designated by the symbols Aa1 and A1, respectively.
The following summarizes the highest three ratings used by D&P for bonds:
AAA -- Bonds that are rated AAA are of the highest credit quality. The risk
factors are considered to be negligible, being only slightly more than for
risk free U.S. Treasury debt.
AA -- Bonds that are rated AA are of high credit quality. Protection
factors are strong. Risk is modest, but may vary slightly from time to time
because of economic conditions.
A -- Bonds that are rated A have protection factors which are average but
adequate. However, risk factors are more variable and greater in periods of
economic stress.
To provide more detailed indications of credit quality, the AA and A ratings may
be modified by the addition of a plus or minus sign to show relative standing
within this major category.
The following summarizes the highest three ratings used by Fitch for bonds:
AAA -- Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
AA -- Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated AAA. Because bonds
rated in the AAA and AA categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is
generally rated F-1+.
A -- Bonds considered to be investment grade and of high credit quality.
The obligor's ability to pay interest and repay principal is considered to
be strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.
To provide more detailed indications of credit quality, the AA and A ratings may
be modified by the addition of a plus or minus sign to show relative standing
within this major rating category.
The following summarizes the 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 high-
31
<PAGE>
est certainty of timely payment. Short-term liquidity, including internal
operating factors and/or access to alternative sources of funds, is judged to be
"outstanding, and safety is just below risk-free U.S. Treasury short-term
obligations." D-1 indicates very high certainty of timely payment. Liquidity
factors are excellent and supported by good fundamental protection factors. Risk
factors are considered to be minor. D-1- indicates high certainty of timely
payment. Liquidity factors are strong and supported by good fundamental
protection factors. Risk factors are very small. D-2 indicates good certainty of
timely payment. Liquidity factors and company fundamentals are sound. Although
ongoing funding needs may enlarge total financing requirements, access to
capital markets is good. Risk factors are small.
The following summarizes the two highest rating categories used by Fitch for
short-term obligations:
F-1+ securities possess exceptionally strong credit quality. Issues
assigned this rating are regarded as having the strongest degree of
assurance for timely payment.
F-1 securities possess very strong credit quality. Issues assigned this
rating reflect an assurance of timely payment only slightly less in degree
than issues rated F-1+.
Commercial paper rated A-1 by S&P indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted A-1+. Capacity for timely payment on
commercial paper rated A-2 is satisfactory, but the relative degree of safety is
not as high as for issues designated A-1.
The rating Prime-1 is the highest commercial paper rating assigned by Moody's.
Issuers rated Prime-1 (or related supporting institutions) are considered to
have a superior capacity for repayment of senior short-term promissory
obligations. Issuers rated Prime-2 (or related supporting institutions) are
considered to have a strong capacity for repayment of senior short-term
promissory obligations. This will normally be evidenced by many of the
characteristics of issuers rated Prime-1, but to a lesser degree. Earnings
trends and coverage ratios, while sound, will be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
For commercial paper, D&P uses the short-term ratings described above.
For commercial paper, Fitch uses the short-term ratings described above.
BankWatch ratings are based upon a qualitative and quantitative analysis of all
segments of the organization including, where applicable, holding company and
operating subsidiaries. BankWatch ratings do not constitute a recommendation to
buy or sell securities of any of these companies. Further, BankWatch does not
suggest specific investment criteria for individual clients.
BankWatch long-term ratings apply to specific issues of long-term debt and
preferred stock. The long-term ratings specifically assess the likelihood of
untimely payment of principal or interest over the term to maturity of the rated
instrument. The following are the three highest investment grade ratings used by
BankWatch for long-term debt:
AAA -- The highest category; indicates ability to repay principal and
interest on a timely basis is 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
32
<PAGE>
the likelihood of an untimely payment of principal or interest.
TBW-1 -- The highest category; indicates a very high likelihood that
principal and interest will be paid on a timely basis.
TBW-2 -- The second highest category; while the degree of safety regarding
timely repayment of principal and interest is strong, the relative degree
of safety is not as high as for issues rated "TBW-1".
The following summarizes the three highest long-term ratings used by IBCA:
AAA -- Obligations for which there is the lowest expectation of investment
risk. Capacity for timely repayment of principal and interest is
substantial such that adverse changes in business, economic or financial
conditions are unlikely to increase investment risk significantly.
AA -- Obligations for which there is a very low expectation of investment
risk. Capacity for timely repayment of principal and interest is
substantial. Adverse changes in business, economic or financial conditions
may increase investment risk albeit not very significantly.
A -- Obligations for which there is a low expectation of investment risk.
Capacity for timely repayment of principal and interest is strong, although
adverse changes in business, economic or financial conditions may lead to
increased investment risk.
A plus or minus sign may be appended to a rating below AAA to denote relative
status within major rating categories.
The following summarizes the two highest short-term debt ratings used by IBCA:
A1+ -- Where issues possess a particularly strong credit feature.
A1 -- Obligations supported by the highest capacity for timely repayment.
A2 -- Obligations supported by a good capacity for timely repayment.
33
<PAGE>
NATIONS FUND TRUST
NATIONS FUND, INC.
NATIONS FUND PORTFOLIOS, INC.
SUPPLEMENT DATED JULY 31, 1996
TO PROSPECTUSES DATED JULY 31, 1996
The investment objective, as stated in the Prospectuses dated July 31,
1996, and listed below under the heading NEW STATEMENT OF INVESTMENT OBJECTIVE,
will become effective on or about September 15, 1996. Accordingly, until such
time, the PRIOR STATEMENT OF INVESTMENT OBJECTIVE, as set forth below, will
continue in effect.
1. NATIONS VALUE FUND.
(Bullet) PRIOR STATEMENT OF INVESTMENT OBJECTIVE: To seek
long-term capital growth with income a secondary consideration.
(Bullet) NEW STATEMENT OF INVESTMENT OBJECTIVE: To seek
growth of capital by investing in companies that are believed to be undervalued.
2. NATIONS EQUITY INCOME FUND.
(Bullet) PRIOR STATEMENT OF INVESTMENT OBJECTIVE: To provide
high current income through investments in equity securities (including
convertible securities) having a relatively high current yield. Secondarily,
equity securities will be selected which the Adviser believes have favorable
prospects for increasing dividend income and/or capital appreciation.
(Bullet) NEW STATEMENT OF INVESTMENT OBJECTIVE: To seek
current income and growth of capital by investing primarily in companies with
above average dividend yields.
3. NATIONS INTERNATIONAL EQUITY FUND.
(Bullet) PRIOR STATEMENT OF INVESTMENT OBJECTIVE: To seek
long-term growth of capital primarily by investing in marketable equity
securities of established, non-United States issuers.
(Bullet) NEW STATEMENT OF INVESTMENT OBJECTIVE: To seek
long-term capital growth by investing primarily in equity securities of
non-United States companies in Europe, Australia, the Far East and other
regions, including developing countries.
4. NATIONS EMERGING MARKETS FUND.
(Bullet) PRIOR STATEMENT OF INVESTMENT OBJECTIVE: To seek
long-term capital growth. It seeks to achieve this objective by investing
primarily in securities of companies that conduct their principal business
activities in emerging markets.
(Bullet) NEW STATEMENT OF INVESTMENT OBJECTIVE: To seek
long-term capital growth by investing primarily in equity securities of
companies in emerging market countries, such as those in Latin America, Eastern
Europe, the Pacific Basin, the Far East, Africa and India.
1
<PAGE>
5. NATIONS PACIFIC GROWTH FUND.
(Bullet) PRIOR STATEMENT OF INVESTMENT OBJECTIVE: To seek
long-term capital growth, with income a secondary consideration. It seeks to
achieve this objective by investing primarily in securities of issuers that
conduct their principal business activities in the Pacific Basin and the Far
East (excluding Japan).
(Bullet) NEW STATEMENT OF INVESTMENT OBJECTIVE: To seek
long-term capital growth by investing primarily in equity securities of
companies in the Pacific Basin and the Far East (excluding Japan).
6. NATIONS CAPITAL GROWTH FUND.
(Bullet) PRIOR STATEMENT OF INVESTMENT OBJECTIVE: To seek
long-term capital appreciation by investing primarily in common stocks issued by
companies that, in the judgment of the Adviser, have above average potential for
capital appreciation.
(Bullet) NEW STATEMENT OF INVESTMENT OBJECTIVE: To seek
growth of capital by investing in companies that are believed to have superior
earnings growth potential.
7. NATIONS EMERGING GROWTH FUND.
(Bullet) PRIOR STATEMENT OF INVESTMENT OBJECTIVE: To seek
capital appreciation by investing in equity securities of high quality emerging
growth companies that are expected to have earnings growth rates superior to
most publicly traded companies.
(Bullet) NEW STATEMENT OF INVESTMENT OBJECTIVE: To seek
capital appreciation by investing in emerging growth companies that are believed
to have superior long-term earnings growth prospects.
8. NATIONS DISCIPLINED EQUITY FUND.
(Bullet) PRIOR STATEMENT OF INVESTMENT OBJECTIVE: To seek
long-term capital appreciation.
(Bullet) NEW STATEMENT OF INVESTMENT OBJECTIVE: To seek
growth of capital by investing in companies that are expected to produce
significant increases in earnings per share.
9. NATIONS EQUITY INDEX FUND.
(Bullet) PRIOR STATEMENT OF INVESTMENT OBJECTIVE: To seek
investment results that correspond before fees and expenses, to the total return
(i.e., the combination of capital changes and income) of common stocks publicly
traded in the United States, as represented by the Standard & Poor's 500
Composite Stock Price Index.
(Bullet) NEW STATEMENT OF INVESTMENT OBJECTIVE: To seek
investment results that correspond, before fees and expenses, to the total
return of the Standard & Poor's 500 Composite Stock Price Index.
10. NATIONS BALANCED ASSETS FUND.
(Bullet) PRIOR STATEMENT OF INVESTMENT OBJECTIVE: To seek
total investment return through a combination of growth of capital and current
income consistent with the preservation of capital.
(Bullet) NEW STATEMENT OF INVESTMENT OBJECTIVE: To seek total
return by investing in equity and fixed income securities.
11. NATIONS SHORT-INTERMEDIATE GOVERNMENT FUND.
(Bullet) PRIOR STATEMENT OF INVESTMENT OBJECTIVE: To seek as
high a level of current income as is consistent with prudent investment risk.
2
<PAGE>
(Bullet) NEW STATEMENT OF INVESTMENT OBJECTIVE: To seek high
current income consistent with modest fluctuation of principal. The Fund invests
primarily in securities issued or guaranteed by the U.S. Government, its
agencies or instrumentalities.
12. NATIONS GOVERNMENT SECURITIES FUND.
(Bullet) PRIOR STATEMENT OF INVESTMENT OBJECTIVE: To provide
current income and preservation of capital. The Fund seeks to achieve its
objective by investing primarily in obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities.
(Bullet) NEW STATEMENT OF INVESTMENT OBJECTIVE: To seek high
current income consistent with moderate fluctuation of principal. The Fund
invests primarily in intermediate-term securities issued or guaranteed by the
U.S. Government, its agencies or instrumentalities.
13. NATIONS SHORT-TERM INCOME FUND.
(Bullet) PRIOR STATEMENT OF INVESTMENT OBJECTIVE: To seek as
high a level of current income as is consistent with prudent investment risk.
(Bullet) NEW STATEMENT OF INVESTMENT OBJECTIVE: To seek high
current income consistent with minimal fluctuation of principal. The Fund
invests in investment grade debt securities.
14. NATIONS DIVERSIFIED INCOME FUND.
(Bullet) PRIOR STATEMENT OF INVESTMENT OBJECTIVE: To seek as
high a level of current income as is consistent with prudent investment risk.
(Bullet) NEW STATEMENT OF INVESTMENT OBJECTIVE: To seek total
return with an emphasis on current income by investing in a diversified
portfolio of fixed income securities.
15. NATIONS STRATEGIC FIXED INCOME FUND.
(Bullet) PRIOR STATEMENT OF INVESTMENT OBJECTIVE: To maximize
total investment return through the active management of fixed income
securities.
(Bullet) NEW STATEMENT OF INVESTMENT OBJECTIVE: To seek total
return by investing in investment grade fixed income securities.
16. NATIONS GLOBAL GOVERNMENT INCOME FUND.
(Bullet) PRIOR STATEMENT OF INVESTMENT OBJECTIVE: To seek
current income. It seeks to achieve this objective by investing primarily in
debt securities issued by governments, banks and supranational entities located
throughout the world.
(Bullet) NEW STATEMENT OF INVESTMENT OBJECTIVE: To seek total
return by investing primarily in high quality debt securities issued by
governments, banks and supranational entities located throughout the world.
17. NATIONS MUNICIPAL INCOME FUND.
(Bullet) PRIOR STATEMENT OF INVESTMENT OBJECTIVE: To seek a
high level of current interest income that is exempt from Federal income taxes.
(Bullet) NEW STATEMENT OF INVESTMENT OBJECTIVE: To seek high
current income exempt from Federal income tax consistent with the potential for
principal fluctuation associated with investments in long-term municipal
securities. The Fund invests in investment grade, long-term municipal
securities.
3
<PAGE>
18. NATIONS SHORT-TERM MUNICIPAL INCOME FUND.
(Bullet) PRIOR STATEMENT OF INVESTMENT OBJECTIVE: To seek a
high level of current interest income that is exempt from Federal income taxes.
(Bullet) NEW STATEMENT OF INVESTMENT OBJECTIVE: To seek high
current income exempt from Federal income tax consistent with minimal
fluctuation of principal. The Fund invests in investment grade, short-term
municipal securities.
19. NATIONS INTERMEDIATE MUNICIPAL BOND FUND.
(Bullet) PRIOR STATEMENT OF INVESTMENT OBJECTIVE: To seek
higher than money market yields by investing primarily in intermediate-term,
investment grade Municipal Securities which make interest payments that are
exempt from Federal income taxes.
(Bullet) NEW STATEMENT OF INVESTMENT OBJECTIVE: To seek high
current income exempt from Federal income tax consistent with moderate
fluctuation of principal. The Fund invests in investment grade,
intermediate-term municipal securities.
20. NATIONS FLORIDA INTERMEDIATE MUNICIPAL BOND FUND.
(Bullet) PRIOR STATEMENT OF INVESTMENT OBJECTIVE: To seek a
high level of current interest income exempt from Federal income and the Florida
state intangibles tax, consistent with relative stability of principal.
(Bullet) NEW STATEMENT OF INVESTMENT OBJECTIVE: To seek high
current income exempt from Federal income and the Florida state intangibles
taxes consistent with moderate fluctuation of principal. The Fund invests in
investment grade, intermediate-term municipal securities.
21. NATIONS FLORIDA MUNICIPAL BOND FUND.
(Bullet) PRIOR STATEMENT OF INVESTMENT OBJECTIVE: To seek a
high level of current interest income exempt from Federal income and the Florida
state intangibles tax, consistent with relative stability of principal.
(Bullet) NEW STATEMENT OF INVESTMENT OBJECTIVE: To seek high
current income exempt from Federal income and the Florida state intangibles
taxes with the potential for principal fluctuation associated with investments
in long-term municipal securities. The Fund invests in investment grade,
long-term municipal securities.
22. NATIONS GEORGIA INTERMEDIATE MUNICIPAL BOND FUND.
(Bullet) PRIOR STATEMENT OF INVESTMENT OBJECTIVE: To seek a
high level of current interest income exempt from Federal and Georgia state
income taxes and state intangibles taxes, consistent with relative stability of
principal.
(Bullet) NEW STATEMENT OF INVESTMENT OBJECTIVE: To seek high
current income exempt from Federal and Georgia state income taxes consistent
with moderate fluctuation of principal. The Fund invests in investment grade,
intermediate-term municipal securities.
23. NATIONS GEORGIA MUNICIPAL BOND FUND.
(Bullet) PRIOR STATEMENT OF INVESTMENT OBJECTIVE: To seek a
high level of current interest income exempt from Federal and Georgia state
income taxes and state intangibles taxes, consistent with relative stability of
principal.
4
<PAGE>
(Bullet) NEW STATEMENT OF INVESTMENT OBJECTIVE: To seek high
current income exempt from Federal and Georgia state income taxes with the
potential for principal fluctuation associated with investments in long-term
municipal securities. The Fund invests in investment grade, long-term municipal
securities.
24. NATIONS MARYLAND INTERMEDIATE MUNICIPAL BOND FUND.
(Bullet) PRIOR STATEMENT OF INVESTMENT OBJECTIVE: To seek a
high level of current interest income exempt from both Federal and Maryland
state income taxes, consistent with relative stability of principal.
(Bullet) NEW STATEMENT OF INVESTMENT OBJECTIVE: To seek high
current income exempt from Federal and Maryland state income taxes consistent
with moderate fluctuation of principal. The Fund invests in investment grade,
intermediate-term municipal securities.
25. NATIONS MARYLAND MUNICIPAL BOND FUND.
(Bullet) PRIOR STATEMENT OF INVESTMENT OBJECTIVE: To seek a
high level of current interest income exempt from both Federal and Maryland
state income taxes, consistent with relative stability of principal.
(Bullet) NEW STATEMENT OF INVESTMENT OBJECTIVE: To seek high
current income exempt from Federal and Maryland state income taxes with the
potential for principal fluctuation associated with investments in long-term
municipal securities. The Fund invests in investment grade, long-term municipal
securities.
26. NATIONS NORTH CAROLINA INTERMEDIATE MUNICIPAL BOND FUND.
(Bullet) PRIOR STATEMENT OF INVESTMENT OBJECTIVE: To seek a
high level of current interest income exempt from Federal and North Carolina
state income taxes, consistent with the relative stability of principal.
(Bullet) NEW STATEMENT OF INVESTMENT OBJECTIVE: To seek high
current income exempt from Federal and North Carolina state income taxes
consistent with moderate fluctuation of principal. The Fund invests in
investment grade, intermediate-term municipal securities.
27. NATIONS NORTH CAROLINA MUNICIPAL BOND FUND.
(Bullet) PRIOR STATEMENT OF INVESTMENT OBJECTIVE: To seek a
high level of current interest income exempt from Federal and North Carolina
state income taxes, consistent with the relative stability of principal.
(Bullet) NEW STATEMENT OF INVESTMENT OBJECTIVE: To seek high
current income exempt from Federal and North Carolina state income taxes with
the potential for principal fluctuation associated with investments in long-term
municipal securities. The Fund invests in investment grade, long-term municipal
securities.
28. NATIONS SOUTH CAROLINA INTERMEDIATE MUNICIPAL BOND FUND.
(Bullet) PRIOR STATEMENT OF INVESTMENT OBJECTIVE: To seek a
high level of current interest income exempt from both Federal and South
Carolina state income taxes, consistent with relative stability of principal.
(Bullet) NEW STATEMENT OF INVESTMENT OBJECTIVE: To seek high
current income exempt from Federal and South Carolina state income taxes
consistent with moderate fluctuation of principal. The Fund invests in
investment grade, intermediate-term municipal securities.
29. NATIONS SOUTH CAROLINA MUNICIPAL BOND FUND.
(Bullet) PRIOR STATEMENT OF INVESTMENT OBJECTIVE: To seek a
high level of current interest income exempt from both Federal and South
Carolina state income taxes, consistent with relative stability of principal.
5
<PAGE>
(Bullet) NEW STATEMENT OF INVESTMENT OBJECTIVE: To seek high
current income exempt from Federal and South Carolina state income taxes with
the potential for principal fluctuation associated with investments in long-term
municipal securities. The Fund invests in investment grade, long-term municipal
securities.
30. NATIONS TENNESSEE INTERMEDIATE MUNICIPAL BOND FUND.
(Bullet) PRIOR STATEMENT OF INVESTMENT OBJECTIVE: To seek a
high level of current interest income exempt from both Federal and Tennessee
state income taxes, consistent with relative stability of principal.
(Bullet) NEW STATEMENT OF INVESTMENT OBJECTIVE: To seek high
current income exempt from Federal income tax and the Tennessee Hall Income Tax
on unearned income consistent with moderate fluctuation of principal. The Fund
invests in investment grade, intermediate-term municipal securities.
31. NATIONS TENNESSEE MUNICIPAL BOND FUND.
(Bullet) PRIOR STATEMENT OF INVESTMENT OBJECTIVE: To seek a
high level of current interest income exempt from both Federal and Tennessee
state income taxes, consistent with relative stability of principal.
(Bullet) NEW STATEMENT OF INVESTMENT OBJECTIVE: To seek high
current income exempt from Federal income tax and the Tennessee Hall Income Tax
on unearned income with the potential for principal fluctuation associated with
investments in long-term municipal securities. The Fund invests in investment
grade, long-term municipal securities.
32. NATIONS TEXAS INTERMEDIATE MUNICIPAL BOND FUND.
(Bullet) PRIOR STATEMENT OF INVESTMENT OBJECTIVE: To seek a
high level of current interest income exempt from Federal income tax, consistent
with the relative stability of principal.
(Bullet) NEW STATEMENT OF INVESTMENT OBJECTIVE: To seek high
current income exempt from Federal income tax consistent with moderate
fluctuation of principal. The Fund invests in investment grade,
intermediate-term municipal securities.
33. NATIONS TEXAS MUNICIPAL BOND FUND.
(Bullet) PRIOR STATEMENT OF INVESTMENT OBJECTIVE: To seek a
high level of current interest income exempt from Federal income tax, consistent
with the relative stability of principal.
(Bullet) NEW STATEMENT OF INVESTMENT OBJECTIVE: To seek high
current income exempt from Federal income tax with the potential for principal
fluctuation associated with investments in long-term municipal securities. The
Fund invests in investment grade, long-term municipal securities.
34. NATIONS VIRGINIA INTERMEDIATE MUNICIPAL BOND FUND.
(Bullet) PRIOR STATEMENT OF INVESTMENT OBJECTIVE: To seek a
high level of current interest income exempt from both Federal and Virginia
state income taxes, consistent with relative stability of principal.
(Bullet) NEW STATEMENT OF INVESTMENT OBJECTIVE: To seek high
current income exempt from Federal and Virginia state income taxes consistent
with moderate fluctuation of principal. The Fund invests in investment grade,
intermediate-term municipal securities.
35. NATIONS VIRGINIA MUNICIPAL BOND FUND.
(Bullet) PRIOR STATEMENT OF INVESTMENT OBJECTIVE: To seek a
high level of current interest income exempt from both Federal and Virginia
state income taxes, consistent with relative stability of principal.
6
<PAGE>
(Bullet) NEW STATEMENT OF INVESTMENT OBJECTIVE: To seek high
current income exempt from Federal and Virginia state income taxes with the
potential for principal fluctuation associated with investments in long-term
municipal securities. The Fund invests in investment grade, long-term municipal
securities.
7
