As filed with the Securities and Exchange Commission
on July 30, 1996
Registration No. 2-97817; 811-4305
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
Post-Effective Amendment No. 45 [X]
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
Amendment No. 47 [X]
(Check appropriate box or boxes)
------------------------
NATIONS FUND TRUST
(Exact Name of Registrant as specified in Charter)
111 Center Street
Little Rock, Arkansas 72201
(Address of Principal Executive Offices, including Zip Code)
--------------------------
Registrant's Telephone Number, including Area Code: (800) 321-7854
Richard H. Blank, Jr.
c/o Stephens Inc.
111 Center Street
Little Rock, Arkansas 72201
(Name and Address of Agent for Service)
With copies to:
Robert M. Kurucza, Esq. Carl Frischling, Esq.
Marco E. Adelfio, Esq. Kramer, Levin, Naftalis
Morrison & Foerster LLP & Frankel
2000 Pennsylvania Ave., N.W. 919 3rd Avenue
Suite 5500 New York, New York 10022
Washington, D.C. 20006
It is proposed that this filing will become effective (check appropriate box):
[ ] Immediately upon filing pursuant [ ] on (date), pursuant
to Rule 485(b), or to Rule 485(b), or
[ ] 60 days after filing pursuant [ ] on (date) pursuant
to Rule 485(a), or to Rule 485(a).
[X] 75 days after filing pursuant to [ ] on (date) pursuant to
paragraph (a)(2) paragraph (a)(2) of rule 485
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for
a previously filed post-effective amendment.
No filing fee is required under the Securities Act of 1933 because an indefinite
number of shares of beneficial interest in the Registrant, without par value,
has previously been registered pursuant to Rule 24f-2 under the Investment
Company Act of 1940, as amended. The Registrant filed on May 24, 1996, the
notice required by Rule 24f-2 for its fiscal period ended March 31, 1996.
<PAGE>
EXPLANATORY NOTE
This Post-Effective Amendment No. 45 to the Registration Statement of
Nations Fund Trust (the "Trust") is being provided to add a new portfolio to the
Trust.
<PAGE>
NATIONS FUND TRUST
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
Part A
Item No. Prospectus
<S> <C>
1. Cover Page ................................Cover Page
2. Synopsis ..................................Expenses Summary
3. Condensed Financial
Information ...............................Financial Highlights; How
Performance Is Shown
4. General Description of
Registrant ................................Cover Page; Objectives; How
Objectives Are Pursued; Organization And
History
5. Management of the Fund .....................How The Funds Are Managed
6. Capital Stock and Other
Securities .................................How To Buy Shares; How The
Funds Value Their Shares; How Dividends
And Distributions Are Made; Tax
Information
7. Purchase of Securities Being
Offered ....................................Cover Page; How To Buy Shares
8. Redemption or Repurchase ...................How To Redeem Shares; How To
Exchange Shares
9. Legal Proceedings ..........................Organization And History
Part B
Item No.
10. Cover Page..................................Cover Page
11. Table of Contents...........................Table of Contents
12. General Information and
History.....................................Introduction
13. Investment Objectives and
Policies....................................Additional Information on Fund
Investments
<PAGE>
14. Management of the Registrant................Trustees And Officers
15. Control Persons and Principal
Holders of Securities.......................Miscellaneous--Certain Record
Holders
16. Investment Advisory and Other Services......Investment Advisory, Administration,
Custody, Transfer Agency,
Shareholder Servicing,
Shareholder Administration And
Distribution Agreements
17. Brokerage Allocation .......................Fund Transactions and Brokerage--
General Brokerage Policy
18. Capital Stock and Other
Securities..................................Description Of Shares;
Investment Advisory, Administration,
Custody, Transfer Agency,
Shareholder Servicing And
Distribution Agreements
19. Purchase, Redemption and Pricing
of Securities Being Offered.................Net Asset Value -- Purchases
And Redemptions; Distributor
20. Tax Status..................................Additional Information Concerning
Taxes
21. Underwriters................................Investment Advisory, Administration
Custody, Transfer Agency,
Shareholder Servicing,
Shareholder Administration And
Distribution Agreements
22. Calculation of Performance Data.............Additional Information on
Performance
23. Financial Statements........................Independent Accountant and
Reports
</TABLE>
Part C
Item No. Other Information
Information required to be included in Part
C is set forth under the appropriate Item,
so numbered, in Part C of this Document
<PAGE>
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor
may offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws
of any such State.
PRELIMINARY PROSPECTUS SUBJECT TO COMPLETION DATED AUGUST , 1996
Prospectus
PRIMARY A SHARES
OCTOBER , 1996
This Prospectus describes NATIONS MANAGED SMALLCAP
INDEX FUND (the "Fund") of Nations Fund Trust, an
open-end management investment company in the
Nations Fund Family ("Nations Fund" or "Nations Fund
Family"). This Prospectus describes one class of
shares of the Fund -- Primary A Shares.
This Prospectus sets forth concisely the information
about the Fund that a prospective purchaser of
Primary A Shares should consider before investing.
Investors should read this Prospectus and retain it
for future reference. Additional information about
Nations Fund Trust is contained in a separate
Statement of Additional Information (the "SAI") that
has been filed with the Securities and Exchange
Commission (the "SEC") and is available upon request
without charge by writing or calling Nations Fund at
its address or telephone number shown below. The
SAI, dated October , 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
SmallCap
Index Fund
For Fund information call:
1-800-626-2275
Nations Fund
c/o Stephens Inc.
One NationsBank Plaza
33rd Floor
Charlotte, NC 28255
(Nations Fund Logo appears here)
<PAGE>
Table Of Contents
About The Fund
Prospectus Summary 3
Expenses Summary 4
Objective 5
How 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 10
How To Redeem Shares 10
How To Exchange Shares 11
How The Fund Values Its Shares 11
How Dividends And Distributions Are Made;
Tax Information 11
Appendix A -- Portfolio Securities 12
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT
CONTAINED IN THIS PROSPECTUS, OR IN THE FUND'S SAI
INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH
THE OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY
NATIONS FUND OR ITS DISTRIBUTOR. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFERING BY NATIONS FUND OR
BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH
OFFERING MAY NOT LAWFULLY BE MADE.
2
<PAGE>
About The Fund
Prospectus Summary
(Bullet) TYPE OF COMPANY: Open-end management investment company.
(Bullet) INVESTMENT OBJECTIVE AND POLICIES: Nations Managed SmallCap 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 SmallCap 600 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 SmallCap 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
SmallCap
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>
<CAPTION>
<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
SmallCap
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 SmallCap 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 SmallCap 600 Index.
How The Objective Is Pursued
NATIONS MANAGED SMALLCAP 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 SmallCap 600 Index (the "S&P 600 Index" or the "Index")
(1). The S&P 600 Index is a market value weighted index consisting of 600
domestic stocks which capture the economic and industry characteristics of small
stock performance. Most of these stocks are listed on either the New York,
American or NASDAQ stock exchanges.
The Adviser believes that a managed equity index portfolio can provide investors
with positive incremental performance relative to the S&P 600 Index while
minimizing the downside risk of underperforming the index over time.
From the initial S&P 600 Index stock universe 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 approximately 450-500 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, substantially all of the Fund's assets, and, in any
event at least 65% of its total assets, will be invested in common stocks which
are included in the S&P 600 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 SmallCap 600 Index is composed of 600 domestic stocks,
which are chosen by S&P based on, among other things, market size, liquidity and
industry group representation. The S&P SmallCap 600 Index is designed to be a
benchmark of small capitalization stock performance. The inclusion of a stock in
the S&P 600 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
(1) "Standard & Poor's 600" is a registered service mark of Standard & Poor's
Corporation ("S&P").
5
<PAGE>
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 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.
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 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
transac-
7
<PAGE>
tions, 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, Nations
Managed Index Fund and Nations Managed SmallCap Index Fund. He has been
Portfolio Manager for Nations Managed SmallCap 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
8
<PAGE>
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.
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 SmallCap 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 October , 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 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 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.
10
<PAGE>
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 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, 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
11
<PAGE>
prior to the dividend declaration and such shares continue to be eligible for
dividends through and including the day before the redemption order is executed.
The net asset value of Primary 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.
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
12
<PAGE>
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 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.
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
13
<PAGE>
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: 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.
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>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor
may offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws
of any such State.
PRELIMINARY PROSPECTUS SUBJECT TO COMPLETION DATED AUGUST , 1996
Prospectus
PRIMARY B SHARES
OCTOBER , 1996
This Prospectus describes NATIONS MANAGED SMALLCAP
INDEX FUND (the "Fund") of Nations Fund Trust, an
open-end management investment company in the
Nations Fund Family ("Nations Fund" or "Nations Fund
Family"). This Prospectus describes one class of
shares of the Fund -- Primary B Shares.
This Prospectus sets forth concisely the information
about the Fund that a prospective purchaser of
Primary B Shares should consider before investing.
Investors should read this Prospectus and retain it
for future reference. Additional information about
Nations Fund Trust is contained in a separate
Statement of Additional Information (the "SAI") that
has been filed with the Securities and Exchange
Commission (the "SEC") and is available upon request
without charge by writing or calling Nations Fund at
its address or telephone number shown below. The
SAI, dated October , 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
SmallCap
Index Fund
For Fund information call:
1-800-626-2275
Nations Fund
c/o Stephens Inc.
One NationsBank Plaza
33rd Floor
Charlotte, NC 28255
(Nations Fund Logo appears here)
<PAGE>
Table Of Contents
About The Fund
Prospectus Summary 3
Expenses Summary 4
Objective 5
How 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 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 SmallCap 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 SmallCap 600 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 SmallCap 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>
Nations
Managed
SmallCap
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) 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>
Nations
Managed
SmallCap
Index
Fund
<S> <C>
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 SmallCap 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 SmallCap 600 Index.
How The Objective Is Pursued
NATIONS MANAGED SMALLCAP 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 SmallCap 600 Index (the "S&P 600 Index" or the "Index")
(1). The S&P 600 Index is a market value weighted index consisting of 600
domestic stocks which capture the economic and industry characteristics of small
stock performance. Most of these stocks are listed on either the New York,
American or NASDAQ stock exchanges.
The Adviser believes that a managed equity index portfolio can provide investors
with positive incremental performance relative to the S&P 600 Index while
minimizing the downside risk of underperforming the index over time.
From the initial S&P 600 Index stock universe 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 approximately 450-500 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, substantially all of the Fund's assets, and, in any
event at least 65% of its total assets, will be invested in common stocks which
are included in the S&P 600 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 SmallCap 600 Index is composed of 600 domestic stocks,
which are chosen by S&P based on, among other things, market size, liquidity and
industry group representation. The S&P SmallCap 600 Index is designed to be a
benchmark of small capitalization stock performance. The inclusion of a stock in
the S&P 600 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
(1) "Standard & Poor's 600" is a registered service mark of Standard & Poor's
Corporation ("S&P").
5
<PAGE>
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 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 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 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 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.
7
<PAGE>
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, Nations
Managed Index Fund and Nations Managed SmallCap Index Fund. He has been
Portfolio Manager for Nations Managed SmallCap 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 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 Institutions 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.
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, 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 SmallCap 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 October , 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.
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. 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.
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.
14
<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.
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.
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>
PRELIMINARY PROSPECTUS SUBJECT TO COMPLETION DATED AUGUST , 1996
Prospectus
INVESTOR A SHARES
OCTOBER , 1996
This Prospectus describes NATIONS MANAGED SMALLCAP Nations
INDEX FUND (the "Fund") of Nations Fund Trust, an Managed
open-end management investment company in the SmallCap
Nations Fund Family ("Nations Fund" or "Nations Index Fund
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
October , 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 1-800-321-7854
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 (Nations Fund logo
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY appears here)
STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor
may offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws
of any such State.
GIPAC
<PAGE>
Table Of Contents
About The Prospectus Summary 3
Fund 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 11
About Your How To Buy Shares 12
Investment How To Redeem Shares 14
How To Exchange Shares 15
Shareholder Servicing And Distribution Plan 16
How The Fund Values Its Shares 17
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>
<PAGE>
About The Fund
Prospectus Summary
(Bullet) TYPE OF COMPANY: Open-end management investment company.
(Bullet) INVESTMENT OBJECTIVE AND POLICIES: Nations Managed SmallCap 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 SmallCap 600 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 SmallCap 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>
<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
SmallCap
SHAREHOLDER TRANSACTION EXPENSES Index Fund
Maximum Sales Load Imposed on Purchases (as a percentage of offering price) None
Maximum Deferred Sales Charge (as a percentage of the lower of the original purchase price
or redemption proceeds) None
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
<TABLE>
<S> <C>
Management Fees (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
SmallCap
Index Fund
1 Year $ 10
3 Years $ 32
</TABLE>
The purpose of the foregoing table is to assist an investor in understanding the
various shareholder transaction and operating expenses that an investor in
Investor A Shares will bear either directly or indirectly. The figures in the
above table are based on estimates for the fiscal year 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.
4
<PAGE>
<PAGE>
THE FOREGOING SHOULD NOT BE CONSIDERED TO BE AN ACTUAL REPRESENTATION OF PAST OR
FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES AND RATES OF RETURN MAY BE
GREATER OR LESS THAN THOSE SHOWN.
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 SmallCap 600 Index.
How The Objective Is Pursued
NATIONS MANAGED SMALLCAP 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 SmallCap 600 Index (the "S&P 600 Index" or the
"Index")1. The S&P 600 Index is a market value weighted index consisting of 600
domestic stocks which capture the economic and industry characteristics of small
stock performance. Most of these stocks are listed on either the New York,
American or NASDAQ stock exchanges.
The Adviser believes that a managed equity index portfolio can provide investors
with positive incremental performance relative to the S&P 600 Index while
minimizing the downside risk of underperforming the index over time.
From the initial S&P 600 Index stock universe 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 approximately 450-500 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, substantially all of the Fund's assets, and, in any
event at least 65% of its total assets, will be invested in common stocks which
are included in the S&P 600 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 defen-
(1) "Standard & Poor's 600" is a registered service mark of Standard & Poor's
Corporation ("S&P").
5
<PAGE>
<PAGE>
sive 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 SmallCap 600 Index is composed of 600 domestic stocks,
which are chosen by S&P based on, among other things, market size, liquidity and
industry group representation. The S&P SmallCap 600 Index is designed to be a
benchmark of small capitalization stock performance. The inclusion of a stock in
the S&P 600 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
6
<PAGE>
<PAGE>
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.
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
7
<PAGE>
<PAGE>
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 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,
8
<PAGE>
<PAGE>
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, Nations
Managed Index Fund and Nations Managed SmallCap Index Fund. He has been
Portfolio Manager for Nations Managed SmallCap 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
9
<PAGE>
<PAGE>
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 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.
10
<PAGE>
<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 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 A
Shares of Nations Managed SmallCap 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 October , 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>
<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.
12
<PAGE>
<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 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.
13
<PAGE>
<PAGE>
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.
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.
14
<PAGE>
<PAGE>
How To Exchange Shares
GENERAL: The exchange feature enables a shareholder of a fund of Nations Fund to
acquire shares of the same class that are offered by any other fund of Nations
Fund when the shareholder believes that a shift between funds is an appropriate
investment decision. A qualifying exchange is based on the next calculated net
asset value per share of each fund after the exchange order is received.
For shareholders who maintain an account directly with the Fund, exchange
requests should be communicated to the Fund by calling Investor Services at
1-800-982-2271 or in writing. For shareholders who purchased their shares
through an Agent, exchange requests should be communicated to the Agent, who is
responsible for transmitting the request to Stephens or to the Transfer Agent.
The Fund and each of the other funds of Nations Fund may limit the number of
times this exchange feature may be exercised by a shareholder within a specified
period of time. Also, the exchange feature may be terminated or revised at any
time by Nations Fund upon such notice as may be required by applicable
regulatory agencies (presently 60 days for termination or material revision),
absent unusual circumstances.
The current prospectus for each fund of Nations Fund describes its investment
objective and policies, and shareholders should obtain a copy and examine it
carefully before investing. Exchanges are subject to the minimum investment
requirement and any other conditions imposed by each fund. In the case of any
shareholder holding a share certificate or certificates, no exchanges may be
made until all applicable share certificates have been received by the Transfer
Agent and deposited in the shareholder's account. An exchange will be treated
for Federal income tax purposes the same as a redemption of shares, on which the
shareholder may realize a capital gain or loss. And, the ability to deduct
capital losses on an exchange may be limited in situations where there is an
exchange of shares within 90 days after the shares are purchased.
The Investor A Shares exchanged must have a current value of at least $1,000
(except for exchanges through the Automatic Exchange Feature, which is described
below). Nations Fund reserves the right to reject any exchange request. Only
shares that may legally be sold in the state of the shareholder's residence may
be acquired in an exchange. Only shares of a class that is accepting investments
generally may be acquired in an exchange. During periods of significant economic
or market change, telephone exchanges may be difficult to complete. In such
event, shareholders should consider communicating their exchange requests by
mail.
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.
15
<PAGE>
<PAGE>
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 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
own-
16
<PAGE>
<PAGE>
ers 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: 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-
17
<PAGE>
<PAGE>
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 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 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
18
<PAGE>
<PAGE>
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 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
19
<PAGE>
<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
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: 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,
20
<PAGE>
<PAGE>
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 purchase.
<PAGE>
PRELIMINARY PROSPECTUS SUBJECT TO COMPLETION DATED AUGUST , 1996
Prospectus
INVESTOR C SHARES
OCTOBER , 1996
This Prospectus describes NATIONS MANAGED SMALLCAP
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
October , 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
SmallCap
Index Fund
For Fund information call:
1-800-321-7854
Nations Fund
c/o Stephens Inc.
One NationsBank Plaza
33rd Floor
Charlotte, NC 28255
Language appears on left-side of page rotated and reads as follows:
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor
may offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws
of any such State.
<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>
About The Fund
Prospectus Summary
(Bullet) TYPE OF COMPANY: Open-end management investment company.
(Bullet) INVESTMENT OBJECTIVE AND POLICIES: Nations Managed SmallCap 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 SmallCap 600 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 SmallCap 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>
Nations
Managed
SmallCap
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) .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>
Nations
Managed
SmallCap
Index Fund
<S> <C>
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>
Nations
Managed
Index Fund
<S> <C>
1 Year $ 15
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
4
<PAGE>
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," "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 SmallCap 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 SmallCap 600 Index.
How The Objective Is Pursued
NATIONS MANAGED SMALLCAP 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 SmallCap 600 Index (the "S&P 600 Index" or the
"Index")1. The S&P 600 Index is a market value weighted index consisting of 600
domestic stocks which capture the economic and industry characteristics of small
stock performance. Most of these stocks are listed on either the New York,
American or NASDAQ stock exchanges.
The Adviser believes that a managed equity index portfolio can provide investors
with positive incremental performance relative to the S&P 600 Index while
minimizing the downside risk of underperforming the index over time.
From the initial S&P 600 Index stock universe 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 approximately 450-500 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
(1) "Standard & Poor's 600" 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, substantially all of the Fund's assets, and, in any
event at least 65% of its total assets, will be invested in common stocks which
are included in the S&P 600 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 SmallCap 600 Index is composed of 600 domestic stocks,
which are chosen by S&P based on, among other things, market size, liquidity and
industry group representation. The S&P SmallCap 600 Index is designed to be a
benchmark of small capitalization stock performance. The inclusion of a stock in
the S&P 600 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
6
<PAGE>
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 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, Nations
Managed Index Fund and Nations Managed SmallCap Index Fund. He has been
Portfolio Manager for Nations Managed SmallCap 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
9
<PAGE>
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-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
10
<PAGE>
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 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 SmallCap 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 October , 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 (net of any applicable CDSC) as
necessary to
14
<PAGE>
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 acquired in an exchange. Only shares of a class that
is accepting investments generally may be
15
<PAGE>
acquired in an exchange. An investor may telephone an exchange request by
calling his/her Agent which is responsible for transmitting such request to
Stephens or to the Transfer Agent.
During periods of significant economic or market change, telephone exchanges may
be difficult to complete. In such event, shares may be exchanged by mailing the
request directly to the Agent through which the original shares were purchased.
An investor should consult his/her Agent or Stephens for further information
regarding exchanges.
Shareholder Servicing And Distribution
Plans
Pursuant to Rule 12b-1 under the 1940 Act, the Trustees have approved a
Distribution Plan with respect to Investor C Shares of the Fund. Pursuant to the
Distribution Plan, the Fund may compensate or reimburse Stephens for any
activities or expenses primarily intended to result in the sale of the Fund's
Investor C Shares. Payments under the Investor C Distribution Plan will be
calculated daily and paid monthly at a rate or rates set from time to time by
the Trustees, provided that the annual rate may not exceed 0.75% of the average
daily net asset value of the Fund's Investor C Shares.
The fees payable under the Distribution Plan are used (i) to compensate Selling
Agents for providing sales support assistance relating to Investor C Shares,
(ii) to pay for promotional activities intended to result in the sale of
Investor C Shares such as the preparation, printing and distribution of
prospectuses to other than current shareholders, and (iii) to compensate Selling
Agents for providing sales support services with respect to their Customers who
are, from time to time, beneficial and record holders of Investor C Shares.
Currently, substantially all fees paid pursuant to the Distribution Plan are
paid to compensate Selling Agents for providing the services described in (i)
and (iii) above, with any remaining amounts being used by Stephens to partially
defray other expenses incurred by Stephens in distributing Investor C Shares.
Fees received by Stephens pursuant to the Distribution Plan will not be used to
pay any interest expenses, carrying charges or other financing costs (except to
the extent permitted by the SEC) and will not be used to pay any general and
administrative expenses of Stephens.
Nations Fund and Stephens may suspend or reduce payments under the Distribution
Plan at any time, and payments are subject to the continuation of the
Distribution Plan described above and the terms of the Sales Support Agreement
between Selling Agents and Stephens. See the SAI for more details on the
Distribution Plan.
The Trustees also have approved a shareholder servicing plan ("Servicing Plan")
for the Fund which permits the Fund to compensate Servicing Agents for services
provided to their Customers that own Investor C Shares. Payments under the
Servicing Plan are calculated daily and paid monthly at a rate or rates set from
time to time by the Fund, provided that the annual rate may not exceed 0.25% of
the average daily net asset value of the Fund's Investor C Shares.
The fees payable under the Servicing Plan are used primarily to compensate or
reimburse Servicing Agents for shareholder services provided, and related
expenses incurred, by such Servicing Agents. The shareholder services provided
by Servicing Agents may include: (i) aggregating and processing purchase and
redemption requests for Investor C Shares from Customers and transmitting net
purchase and redemption orders to Stephens or the Transfer Agent; (ii) providing
Customers with a service that invests the assets of their accounts in Investor C
Shares pursuant to specific or preauthorized instructions; (iii) processing
dividend and distribution payments from the Fund on behalf of
16
<PAGE>
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.
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,
20
<PAGE>
among other instruments, certain U.S. Treasury obligations, U.S. Government
obligations, bank instruments, commercial instruments, repurchase agreements and
municipal securities. Such instruments are described in this Appendix A.
OTHER INVESTMENT COMPANIES: The Fund may invest in securities issued by other
investment companies to the extent that such investments are consistent with the
Fund's investment objective and policies and permissible under the 1940 Act. As
a shareholder of another investment company, the Fund would bear, along with
other shareholders, its pro rata portion of the other investment company's
expenses, including advisory fees. These expenses would be in addition to the
advisory and other expenses that the Fund bears directly in connection with its
own operations.
REPURCHASE AGREEMENTS: A repurchase agreement involves the purchase of a
security by the Fund and a simultaneous agreement (generally with a bank or
broker/dealer) to repurchase that security from the Fund at a specified price
and date or upon demand. This technique offers a method of earning income on
idle cash. A risk associated with repurchase agreements is the failure of the
seller to repurchase the securities as agreed, which may cause the Fund to
suffer a loss if the market value of such securities declines before they can be
liquidated on the open market. Repurchase agreements with a duration of more
than seven days are considered illiquid securities and are subject to the limit
stated above. The Fund may enter into repurchase agreements jointly with other
investment portfolios of Nations Fund.
SECURITIES LENDING: To increase return on portfolio securities, the Fund may
lend its portfolio securities to broker/dealers and other institutional
investors pursuant to agreements requiring that the loans be continuously
secured by collateral equal at all times in value to at least the market value
of the securities loaned. There is a risk of delay in receiving collateral or in
recovering the securities loaned or even a loss of rights in the collateral
should the borrower of the securities fail financially. However, loans are made
only to borrowers deemed by the Adviser to be credit worthy and when, in its
judgment, the income to be earned from the loan justifies the attendant risks.
The aggregate of all outstanding loans of the Fund may not exceed 30% of the
value of its total assets.
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>
NATIONS FUND TRUST
Statement of Additional Information
Nations Managed SmallCap Index Fund
Investor Shares and Primary Shares
October __, 1996
This Statement of Additional Information ("SAI") provides supplementary
information pertaining to the classes of shares representing interests in the
above-listed investment portfolio of Nations Fund Trust (the "Fund"). This SAI
is not a prospectus, and should be read only in conjunction with the current
prospectuses for the Fund related to the class or series of shares in which one
is interested, dated October __, 1996 (each, a "Prospectus"). All terms used in
this SAI that are defined in the Prospectuses will have the same meanings
assigned in the Prospectuses. Copies of the Prospectuses may be obtained by
writing Nations Fund, c/o Stephens Inc., One NationsBank Plaza, 33rd Floor,
Charlotte, North Carolina 28255, or by calling Nations Fund at 1-800-626-2275.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
INTRODUCTION......................................................................................................1
FUND TRANSACTIONS AND BROKERAGE...................................................................................1
ADDITIONAL INFORMATION ON FUND INVESTMENTS........................................................................5
Commercial Instruments.........................................................................................5
Repurchase Agreements..........................................................................................6
Reverse Repurchase Agreements..................................................................................6
Lending Securities.............................................................................................6
American Depository Receipts...................................................................................7
Futures, Options And Other Derivative Instruments..............................................................7
When-Issued Purchases And Forward Commitments.................................................................11
Real Estate Investment Trusts.................................................................................12
Guaranteed Investment Contracts...............................................................................13
Variable- And Floating- Rate Instruments......................................................................13
Variable- And Floating-Rate Government Securities.............................................................14
Dollar Roll Transactions......................................................................................14
Foreign Currency Transactions.................................................................................15
Interest Rate Transactions....................................................................................15
Illiquid Securities...........................................................................................16
Other Securities..............................................................................................17
Additional Investment Limitations.............................................................................17
NET ASSET VALUE..................................................................................................19
Exchange Privilege............................................................................................20
DESCRIPTION OF SHARES............................................................................................21
Dividends and Distributions...................................................................................22
ADDITIONAL INFORMATION CONCERNING TAXES..........................................................................23
Federal Taxes - In General....................................................................................23
Federal Excise Tax on Regulated Investment Companies..........................................................25
Distributions.................................................................................................26
Sale or Redemption of Shares..................................................................................28
Foreign Shareholders..........................................................................................29
Special Tax Considerations Pertaining to the Fund.............................................................30
TRUSTEES AND OFFICERS............................................................................................31
Compensation Table............................................................................................34
Nations Fund Retirement Plan..................................................................................36
i
<PAGE>
Nations Fund Deferred Compensation Plan.......................................................................36
Shareholder and Trustee Liability.............................................................................37
INVESTMENT ADVISORY, ADMINISTRATION, CUSTODY, TRANSFER AGENCY, SHAREHOLDER SERVICING AND DISTRIBUTION SERVICES
AGREEMENTS.......................................................................................................37
Investment Adviser............................................................................................37
Administrator and Co-Administrator............................................................................39
Custodian and Transfer Agent..................................................................................41
Shareholder Administration Plan (Primary B Shares Only).......................................................41
Distribution Plans and Shareholder Servicing Arrangements for Investor Shares.................................42
DISTRIBUTOR......................................................................................................46
INDEPENDENT ACCOUNTANTS AND REPORTS..............................................................................47
COUNSEL..........................................................................................................47
ADDITIONAL INFORMATION ON PERFORMANCE............................................................................47
Yield Calculations............................................................................................47
Total Return Calculations.....................................................................................49
MISCELLANEOUS....................................................................................................51
Certain Record Holders........................................................................................51
SCHEDULE A......................................................................................................A-1
SCHEDULE B......................................................................................................B-1
</TABLE>
<PAGE>
INTRODUCTION
Nations Fund Trust (the "Trust") was organized on May 6, 1985 under the
name "MarketMaster Trust," and in March 1992 changed its name to "Nations Fund,"
and in September 1992 changed its name to "Nations Fund Trust." NationsBanc
Advisors, Inc. ("NBAI") is the investment adviser to the Fund. TradeStreet
Investment Associates, Inc. ("TradeStreet") is the sub-investment adviser. As
used herein the "Adviser" shall mean NBAI and/or TradeStreet as the context may
require.
Nations Fund Trust currently consists of thirty-two different investment
portfolios. This SAI pertains to the Primary A , Primary B, Investor A and
Investor C Shares of Nations Managed Index Fund ("Managed Index Fund" or the
"Fund"). The Primary A Shares and Primary B Shares of the Fund are sometimes
collectively referred to as "Primary Shares." The Investor A Shares and Investor
C Shares of the Fund are sometimes collectively referred to as "Investor
Shares."
Much of the information contained in this SAI expands upon subjects
discussed in the Prospectuses. No investment in Primary Shares or Investor
Shares should be made without first reading the related Prospectuses.
FUND TRANSACTIONS AND BROKERAGE
Subject to the general supervision of the Board of Trustees, the Adviser
is responsible for, makes decisions with respect to, and places orders for all
purchases and sales of portfolio securities for the Fund.
Transactions on U.S. stock exchanges involve the payment of negotiated
brokerage commissions. On exchanges on which commissions are negotiated, the
cost of transactions may vary among different brokers. Transactions on foreign
stock exchanges involve payment of brokerage commissions which are generally
fixed.
Transactions in both foreign and domestic over-the-counter markets are
generally principal transactions with dealers, and the costs of such
transactions involve dealer spreads rather than brokerage commissions. With
respect to over-the-counter transactions, the Trust, where possible, will deal
directly with dealers who make a market in the securities involved except in
those circumstances in which better prices and execution are available
elsewhere.
Securities purchased and sold by the Fund are generally traded in the
over-the-counter market on a net basis (i.e., without commission) through
dealers, or otherwise involve transactions directly with the issuer of an
instrument. The cost of securities purchased from underwriters includes an
underwriting commission or concession, and the prices at which securities are
purchased from and sold to dealers include a dealer's mark-up or mark-down.
1
<PAGE>
The Fund may participate, if and when practicable, in bidding for the
purchase of portfolio securities directly from an issuer in order to take
advantage of the lower purchase price available to members of a bidding group.
The Fund will engage in this practice, however, only when the Adviser, in its
sole discretion, believes such practice to be otherwise in the Fund's interests.
In executing portfolio transactions and selecting brokers or dealers, the
Adviser will seek to obtain the best overall terms available for the Fund. In
assessing the best overall terms available for any transaction, the Adviser
shall consider factors deemed relevant, including the breadth of the market in
the security, the price of the security, the financial condition and execution
capability of the broker or dealer, and the reasonableness of the commission, if
any, both for the specific transaction and on a continuing basis. The Adviser
may cause the Fund to pay a broker/dealer which furnishes brokerage and research
services a higher commission than that which might be charged by another
broker/dealer for effecting the same transaction, provided that the Adviser
determines in good faith that such commission is reasonable in relation to the
value of the brokerage and research services provided by such broker/dealer,
viewed in terms of either the particular transaction or the overall
responsibilities of the Adviser. Such brokerage and research services might
consist of reports and statistics relating to specific companies or industries,
general summaries of groups of stocks or bonds and their comparative earnings
and yields, or broad overviews of the stock, bond, and government securities
markets and the economy.
Supplementary research information so received is in addition to, and not
in lieu of, services required to be performed by the Adviser and does not reduce
the advisory fees payable by the Fund. The Board of Trustees will periodically
review the commissions paid by the Fund to consider whether the commissions paid
over representative periods of time appear to be reasonable in relation to the
benefits inuring to the Fund. It is possible that certain of the supplementary
research or other services received will primarily benefit one or more other
investment companies or other accounts for which investment discretion is
exercised. Conversely, the Fund may be the primary beneficiary of the research
or services received as a result of portfolio transactions effected for such
other account or investment company.
Under Section 28(e) of the Securities Exchange Act of 1934, an adviser
shall not be "deemed to have acted unlawfully or to have breached its fiduciary
duty" solely because under certain circumstances it has caused the account to
pay a higher commission than the lowest available. To obtain the benefit of
Section 28(e), an adviser must make a good faith determination that the
commissions paid are "reasonable in relation to the value of the brokerage and
research services provided . . . viewed in terms of either that particular
transaction or its overall responsibilities with respect to the accounts as to
which it exercises investment discretion and that the services provided by a
broker provide an adviser with lawful and appropriate assistance in the
performance of its investment decision-making responsibilities." Accordingly,
the price to the Fund in any transaction may be less favorable than that
available from another broker/dealer if the difference is reasonably justified
by other aspects of the portfolio execution services offered.
Broker/dealers utilized by the Adviser may furnish statistical, research
and other information or services which are deemed by the Adviser to be
beneficial to the Fund's investment programs.
2
<PAGE>
Research services received from brokers supplement the Adviser's own research
and may include the following types of information: statistical and background
information on industry groups and individual companies; forecasts and
interpretations with respect to U.S. and foreign economies, securities, markets,
specific industry groups and individual companies; information on political
developments; portfolio management strategies; performance information on
securities and information concerning prices of securities; and information
supplied by specialized services to the Adviser and to the Trust's Trustees with
respect to the performance, investment activities and fees and expenses of other
mutual funds. Such information may be communicated electronically, orally or in
written form. Research services may also include the providing of equipment used
to communicate research information, the arranging of meetings with management
of companies and the providing of access to consultants who supply research
information.
The outside research assistance is useful to the Adviser since the brokers
utilized by the Adviser as a group tend to follow a broader universe of
securities and other matters than the staff of the Adviser can follow. In
addition, this research provides the Adviser with a diverse perspective on
financial markets. Research services which are provided to the Adviser by
brokers are available for the benefit of all accounts managed or advised by the
Adviser. In some cases, the research services are available only from the broker
providing such services. In other cases, the research services may be obtainable
from alternative sources in return for cash payments. It is the opinion of the
Adviser that because the broker research supplements rather than replaces its
research, the receipt of such research does not tend to decrease its expenses,
but tends to improve the quality of its investment advice. However, to the
extent that the Adviser would have purchased any such research services had such
services not been provided by brokers, the expenses of such services to the
Adviser could be considered to have been reduced accordingly. Certain research
services furnished by broker/dealers may be useful to the Adviser with clients
other than the Fund. Similarly, any research services received by the Adviser
through the placement of portfolio transactions of other clients may be of value
to the Adviser in fulfilling its obligations to the Fund. It is the opinion of
the Adviser that this material is beneficial in supplementing its research and
analysis; and, therefore, it may benefit the Trust by improving the quality of
the Adviser's investment advice. The advisory fees paid by the Trust are not
reduced because the Adviser receives such services.
Some broker/dealers may indicate that the provision of research services
is dependent upon the generation of certain specified levels of commissions and
underwriting concessions by the Adviser's clients, including the Fund.
The Trust will not execute portfolio transactions through, or purchase or
sell portfolio securities from or to the distributor, the Adviser, the
administrator, or the co-administrator, or their affiliates acting as principal
(including repurchase and reverse repurchase agreements), except to the extent
permitted by the Securities and Exchange Commission (the "SEC"). In addition,
the Trust will not give preference to correspondents of NationsBank, N.A.
("NationsBank") or its affiliates with respect to such transactions or
securities. (However, the Adviser is authorized to allocate purchase and sale
orders for portfolio securities to certain financial institutions, including, in
the case of agency transactions, financial institutions which are affiliated
with NationsBank or its affiliates, and to take into account the sale of Fund
shares if the
4
<PAGE>
Adviser believes that the quality of the transaction and the commission are
comparable to what they would be with other qualified brokerage firms.) In
addition, the Fund will not purchase securities during the existence of any
underwriting or selling group relating thereto of which the distributor, the
Adviser, administrator, or the co-administrator, or any of their affiliates, is
a member, except to the extent permitted by the SEC. Under certain
circumstances, the Fund may be at a disadvantage because of these limitations in
comparison with other investment companies which have similar investment
objectives but are not subject to such limitations.
Under the 1940 Act, persons affiliated with the Trust are prohibited from
dealing with the Trust as a principal in the purchase and sale of securities
unless an exemptive order allowing such transactions is obtained from the SEC.
The Fund may purchase securities from underwriting syndicates of which
NationsBank or any of its affiliates is a member under certain conditions, in
accordance with the provisions of a rule adopted under the 1940 Act and any
restrictions imposed by the Board of Governors of the Federal Reserve System.
NationsBank has agreed to maintain its policy and practice of conducting
its trust department independently of its commercial department. In making
investment recommendations for the Fund, trust department personnel will not
inquire or take into consideration whether the issuer of securities proposed for
purchase or sale for the Fund's accounts are customers of the commercial
department. In dealing with commercial customers, the commercial department will
not inquire or take into consideration whether securities of those customers are
held by the Trust.
Investment decisions for the Fund are made independently from those for
the Trust's other investment portfolios, other investment companies, and
accounts advised or managed by the Adviser. Such other investment portfolios,
investment companies, and accounts may also invest in the same securities as the
Fund. When a purchase or sale of the same security is made at substantially the
same time on behalf of one or more of the Fund and another investment portfolio,
investment company, or account, the transaction will be averaged as to price and
available investments allocated as to amount, in a manner which the Adviser
believes to be equitable to the Fund and such other investment portfolio,
investment company or account. In some instances, this investment procedure may
adversely affect the price paid or received by the Fund or the size of the
position obtained or sold by the Fund. To the extent permitted by law, the
Adviser may aggregate the securities to be sold or purchased for the Fund with
those to be sold or purchased for other investment portfolios, investment
companies, or accounts in executing transactions.
The portfolio turnover rates described in the Prospectuses are calculated
by dividing the lesser of purchases or sales of portfolio securities for the
year by the monthly average value of the portfolio securities. The calculation
excludes all securities whose maturities at the time of acquisition were one
year or less. Fund turnover may vary greatly from year to year as well as within
a particular year, and may also be affected by the cash requirements for
redemptions of shares and by requirements which enable the Fund to receive
certain favorable tax treatment. Fund turnover will not be a limiting factor in
making portfolio decisions.
4
<PAGE>
ADDITIONAL INFORMATION ON FUND INVESTMENTS
Commercial Instruments
Commercial Instruments consist of short-term U.S. dollar-denominated
obligations issued by domestic corporations or by foreign corporations and
foreign commercial banks.
Investments by 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 as previously
described.
Variable-rate master demand notes are unsecured instruments that permit
the indebtedness thereunder to vary and provide for periodic adjustments in the
interest rate. While some of these notes are not rated by credit rating
agencies, issuers of variable-rate master demand notes must satisfy the Adviser
that criteria similar to the following are met: (a) if rated by at least two
Nationally Recognized Statistical Rating Organizations ("NRSROs"), the
instruments are rated in the highest rating category for short-term obligations
given by such organizations, or if only rated by one such organization, are
rated in the highest rating category for short-term debt obligations given by
such organization; or (b) if not rated are (i) comparable in priority and
security to a class of short-term instruments of the same issuer that has such
rating(s), or (ii) of comparable quality to such instruments as determined by
the Board of Trustees on the advice of the Adviser. Variable-rate instruments
acquired by the Fund will be rated at a level consistent with the Fund's
investment objective and policies of high quality as determined by a major
rating agency or, if not rated, will be of comparable quality as determined by
the Adviser. Substantial holdings of variable-rate instruments could reduce
portfolio liquidity.
Variable- and floating- rate instruments are unsecured instruments that
permit the indebtedness thereunder to vary. While there may be no active
secondary market with respect to a particular variable or floating-rate
instrument purchased by the Fund, the Fund may, from time to time as specified
in the instrument, demand payment of the principal or may resell the instrument
to a third party. The absence of an active secondary market, however, could make
it difficult for the Fund to dispose of an instrument if the issuer defaulted on
its payment obligation or during periods when the Fund is not entitled to
exercise its demand rights, and the Fund could, for these or other reasons,
suffer a loss. The instruments are not typically rated by credit rating
agencies, but issuers of variable- and floating-rate instruments must satisfy
similar criteria to that set forth above for issuers of commercial paper. The
Fund may invest in variable- and floating-rate instruments only when the Adviser
deems the investment to involve minimal credit risk. If such instruments are not
rated, the Adviser will consider the earning power, cash flows, and other
liquidity ratios of the issuers of such instruments and will continuously
monitor their financial status to meet payment on demand. In determining average
weighted portfolio maturity, an instrument will be deemed to have a maturity
equal to the longer of the period remaining to the next interest rate adjustment
or the demand notice period specified in the instrument.
5
<PAGE>
Repurchase Agreements
The repurchase price under the repurchase agreements described in the
Prospectuses generally equals the price paid by the Fund plus interest
negotiated on the basis of current short-term rates (which may be more or less
than the rate on the securities underlying the repurchase agreement). Securities
subject to repurchase agreements will be held by the Trust's custodian, or a
sub-custodian, in a segregated account or in the Federal Reserve/Treasury
book-entry system. Repurchase agreements are considered to be loans by the Trust
under the 1940 Act.
Reverse Repurchase Agreements
At the time 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. Reverse repurchase agreements are
speculative techniques involving leverage, and are subject to asset coverage
requirements if the Fund do not establish and maintain a segregated account (as
described above). In addition, some or all of the proceeds received by the Fund
from the sale of a portfolio instrument may be applied to the purchase of a
repurchase agreement. To the extent the proceeds are used in this fashion and a
common broker/dealer is the counterparty on both the reverse repurchase
agreement and the repurchase agreement, the arrangement might be recharacterized
as a swap transaction. Under the requirements of the 1940 Act, the Fund is
required to maintain an asset coverage (including the proceeds of the
borrowings) of at least 300% of all borrowings. Depending on market conditions,
the Fund's asset coverage and other factors at the time of a reverse repurchase,
the Fund may not establish a segregated account when the Adviser believes it is
not in the best interests of the Fund to do so. In this case, such reverse
repurchase agreements will be considered borrowings subject to the asset
coverage described above.
Lending Securities
When the Fund lends its securities, it continues to receive interest or
dividends on the securities loaned and may simultaneously earn interest on the
investment of the cash loan collateral which will be invested in readily
marketable, high quality, short-term obligations. Although any voting rights, or
rights to consent, that may be attendant to securities on loan, pass to the
borrower, such loans may be called at any time. Securities on loan that have
voting rights will be called so that they may be voted by the Fund if a material
event affecting the investment is to occur.
6
<PAGE>
American Depository Receipts
The Fund may invest in American Depository Receipts ("ADRs"), which are
receipts issued by an American bank or trust company evidencing ownership of
underlying securities issued by a foreign issuer. ADRs may be listed on a
national securities exchange or may trade in the over-the-counter market. The
prices of ADRs are denominated in U.S. dollars; the underlying security may be
denominated in a foreign currency. The underlying security may be subject to
foreign government taxes which would reduce the yield on such securities.
Investments in such securities also involve certain inherent risks, including
those set forth in the Prospectuses for the Fund under "Appendix A -- Foreign
Securities."
Futures, Options and Other Derivative Instruments
The Fund may purchase put and call options which are traded on a national
securities exchange in an amount not exceeding 5% of its net assets. Such
options may relate to particular securities or to various stock or bond indices.
Purchasing options is a specialized investment technique which entails a
substantial risk of a complete loss of the amount paid as premiums to the writer
of the option.
Futures Contracts and Related Options. In addition, the Adviser may
determine that it would be in the interest of the Fund to purchase or sell
futures contracts, or options thereon, as a hedge against changes resulting from
market conditions in the value of the securities held by the Fund, or of
securities which one of them intends to purchase. For example, the Fund may
enter into transactions involving a stock or bond index futures contract, which
is a bilateral agreement pursuant to which two parties agree to take or make
delivery of an amount of cash equal to a specified dollar amount times the
difference between the index value (which assigns relative values to the common
stocks or bonds included in the index) at the close of the last trading day of
the contract and the price at which the futures contract is originally struck.
No physical delivery of the underlying stocks or bonds in the index is made.
During the coming fiscal year, the Fund intends to limit its transactions in
futures contracts and options thereon so that: (i) no more than 5% of the Fund's
total assets would be committed to initial margin deposits or premiums on such
contracts and (ii) immediately after entering into such contracts, no more than
30% of the Fund's total assets would be represented by such contracts.
Options Trading. Call options written by the Fund give the holder the
right to buy the underlying securities from the Fund at a fixed exercise price
up to a stated expiration date or, in the case of certain options, on such date.
Put options give the holder the right to sell the underlying securities to the
Fund during the term of the option at a fixed exercise price up to a stated
expiration date or, in the case of certain options, on such date. Call options
are "covered" by the Fund, for example, when it owns the underlying securities
and put options are "covered" by the Fund, for example, when it has established
a segregated account of cash, cash equivalents or securities which can be
liquidated promptly to satisfy any obligation of the Fund to purchase the
underlying securities. The Fund also may write combinations of puts and calls on
the same underlying security.
7
<PAGE>
The Fund will receive a premium from writing a put or call option, which
increases the gross income of the Fund in the event the option expires
unexercised or is closed out at a profit. The amount of the premium will
reflect, among other things, the relationship of the exercise price to the
market price and volatility of the underlying security, the remaining term of
the option, supply and demand and interest rates. By writing a call option, the
Fund limits its opportunity to profit from any increase in the market value of
the underlying security above the exercise price of the option. By writing a put
option, the Fund assumes the risk that it may be required to purchase the
underlying security for an exercise price higher than its then current market
value, resulting in a potential capital loss unless the security subsequently
appreciates in value.
The Fund may terminate an option that it has written prior to its
expiration by entering into a closing purchase transaction in which the Fund
purchases an option having the same terms as the option written. It is possible,
however, that illiquidity in the options markets may make it difficult from time
to time for the Fund to close out its written option positions.
The Fund also may purchase put or call options in anticipation of changes
in interest rates which may adversely affect the value of its portfolio or the
prices of securities that the Fund wants to purchase at a later date. The
premium paid for a put or call option plus any transaction costs will reduce the
benefit, if any, realized by the Fund upon exercise of the option and, unless
the price of the underlying security changes sufficiently, the option may expire
without value.
The Fund may write and purchase options on securities both for hedging
purposes and in an effort to increase current income. Options on securities that
are written or purchased by the Fund will be traded on U.S. and foreign
exchanges and over-the-counter.
The staff of the SEC has taken the position that purchased
over-the-counter options and assets used to cover written over-the-counter
options are illiquid and, therefore, together with other illiquid securities,
cannot exceed applicable limitations on the amount of the Fund's assets that may
be invested in illiquid securities. The Adviser intends to limit the Fund's
writing of over-the-counter options in accordance with the following procedure.
The Fund intends to write over-the-counter options only with primary U.S.
Government securities dealers recognized by the Federal Reserve Bank of New
York. Also, the contracts which the Fund has in place with such primary dealers
will provide that the Fund has the absolute right to repurchase an option it
writes at any time at a price which represents the fair market value, as
determined in good faith through negotiation between the parties, but which in
no event will exceed a price determined pursuant to a formula in the contract.
Although the specific formula may vary between contracts with different primary
dealers, the formula will generally be based on a multiple of the premium
received by the Fund for writing the option, plus the amount, if any, of the
option's intrinsic value (i.e., the amount that the option is in-the-money). The
formula also may include a factor to account for the difference between the
price of the security and the strike price of the option if the option is
written out-of-the-money. The Fund will treat all or a part of the formula price
as illiquid for purposes of the applicable SEC test regarding illiquid
securities.
As stated in the related Prospectuses, the Fund may purchase put and call
options listed on a national securities exchange. This is a highly specialized
activity which entails greater than
8
<PAGE>
ordinary investment risks. Regardless of how much the market price of the
underlying security increases or decreases, the option buyer's risk is limited
to the amount of the original investment for the purchase of the option.
However, options may be more volatile than the underlying securities, and
therefore, on a percentage basis, an investment in options may be subject to
greater fluctuation than an investment in the underlying securities. A listed
call option gives the purchaser of the option the right to buy from a clearing
corporation, and a writer has the obligation to sell to the clearing
corporation, the underlying security at the stated exercise price at any time
prior to the expiration of the option, regardless of the market price of the
security. The premium paid to the writer is in consideration for undertaking the
obligations under the option contract. A listed put option gives the purchaser
the right to sell to a clearing corporation the underlying security at the
stated exercise price at any time prior to the expiration date of the option,
regardless of the market price of the security. Put and call options purchased
by the Fund will be valued at the last sale price or, in the absence of such a
price, at the mean between bid and asked prices.
The Fund's obligation to sell a security subject to a covered call option
written by it, or to purchase a security subject to a secured put option written
by it, may be terminated prior to the expiration date of the option by the Fund
executing a closing purchase transaction, which is effected by purchasing on an
exchange an option of the same series (i.e., same underlying security, exercise
price, and expiration date) as the option previously written. Such a purchase
does not result in the ownership of an option. A closing purchase transaction
will ordinarily be effected to realize a profit on an outstanding option, to
prevent an underlying security from being called, to permit the sale of the
underlying security, or to permit the writing of a new option containing
different terms on such underlying security. The cost of such a liquidation
purchase plus transaction costs may be greater than the premium received upon
the original option, in which event the Fund will have incurred a loss in the
transaction. An option position may be closed out only on an exchange which
provides a secondary market for an option of the same series. There is no
assurance that a liquid secondary market on an exchange will exist for any
particular option. A covered call option writer, unable to effect a closing
purchase transaction, will not be able to sell the underlying security until the
option expires or the underlying security is delivered upon exercise with the
result that the writer in such circumstances will be subject to the risk of
market decline in the underlying security during such period. The Fund will
write an option on a particular security only if the Adviser believes that a
liquid secondary market will exist on an exchange for options of the same series
which will permit the Fund to make a closing purchase transaction in order to
close out its position.
When the Fund writes a covered call option, an amount equal to the net
premium (the premium less the commission) received by the Fund is included in
the liability section of the Fund's statement of assets and liabilities as a
deferred credit. The amount of the deferred credit will be subsequently
marked-to-market to reflect the current value of the option written. The current
value of the traded option is the last sale price or, in the absence of a sale,
the average of the closing bid and asked prices. If an option expires on the
stipulated expiration date or if the Fund enters into a closing purchase
transaction, it will realize a gain (or loss if the cost of a closing purchase
transaction exceeds the net premium received when the option is sold), and the
deferred credit related to such option will be eliminated. Any gain on a covered
call option may be offset by a decline in the market price of the underlying
security during the option period. If a
9
<PAGE>
covered call option is exercised, the Fund may deliver the underlying security
held by it or purchase the underlying security in the open market. In either
event, the proceeds of the sale will be increased by the net premium originally
received, and the Fund will realize a gain or loss. If a secured put option is
exercised, the amount paid by the Fund involved for the underlying security will
be partially offset by the amount of the premium previously paid to the Fund.
Premiums from expired options written by the Fund and net gains from closing
purchase transactions are treated as short-term capital gains for Federal income
tax purposes, and losses on closing purchase transactions are short-term capital
losses.
Futures Contracts. A futures contract is a bilateral agreement providing
for the purchase and sale of a specified type and amount of a financial
instrument, or, in the case of futures contracts on indices of securities, for
the making and acceptance of a cash settlement, at a stated time in the future
for a fixed price. By its terms, a futures contract provides for a specified
settlement date on which, in the case of the majority of interest rate futures
contracts, the fixed income securities underlying a contract are delivered by
the seller and paid for by the purchaser, or on which, in the case of a stock
index futures contract, an amount equal to a dollar amount multiplied by the
difference between the value of a stock index at the close of the last trading
day of the contract and the value of such index at the time the futures contract
was originally entered into is settled between the purchaser and seller in cash.
The purchase or sale of a futures contract differs from the purchase or sale of
a security in that no purchase price is paid or received at the time the
contract is entered into. Instead, an amount of cash or cash equivalents, the
value of which may vary but is generally equal to 2% or less of the value of the
contract, must be deposited with the broker as initial deposit or "margin."
Subsequent payments to and from the broker, referred to as "variation margin,"
are made on a daily basis as the value of the index underlying the futures
contract fluctuates, making positions in the futures contract more or less
valuable, a process known as "marking to the market."
At any time prior to the expiration of a futures contract, a trader may
elect to close out the Fund's position by taking an opposite position, subject
to the availability of a secondary market, which will operate to terminate the
initial position. At that time, a final determination of variation margin is
made and any loss experienced by a party is required to be paid to the exchange
clearing corporation, while any profit due to a party must be delivered to it.
Futures contracts differ from options in that they are bilateral
agreements, with both the purchaser and the seller equally obligated to complete
the transaction. Futures contracts call for settlement only on the expiration
date, and cannot be "exercised" at any other time during their term.
Options on Futures Contracts. An option on a futures contract gives the
purchaser (the "holder") the right, but not the obligation, to enter into a
"long" position in the underlying futures contract (i.e., a purchase of such
futures contract) in the case of an option to purchase (a "call" option), or a
"short" position in the underlying futures contract (i.e., a sale of such
futures contract) in the case of an option to sell (a "put" option), at a fixed
price (the "strike price") up to a stated expiration date. The holder pays a
non-refundable purchase price for the option, known as the "premium." The
maximum amount of risk the purchase of the option assumes is equal to
10
<PAGE>
the premium plus related transaction costs, although this entire amount may be
lost. Upon exercise of the option by the holder, the exchange clearing
corporation establishes a corresponding long position in the case of a put
option. In the event that an option is exercised, the parties will be subject to
all the risks associated with the trading of futures contracts, such as payment
of variation margin deposits. In addition, the writer of an option on a futures
contract, unlike the holder, is subject to initial and variation margin
requirements on the option position.
An option, whether based on a futures contract, a stock index or an equity
security, becomes worthless to the holder when it expires. A position in an
option may be terminated by the purchaser or seller prior to expiration by
effecting a closing purchase or sale transaction subject to the availability of
a secondary market, which is the purchase or sale of an option of the same
series (i.e., the same exercise price and expiration date) as the option
previously purchased or sold. The difference between the premiums paid and
received represents the party's profit or loss on the transaction.
The use of futures contracts and options does involve certain transaction
costs and risks. The Fund's ability effectively to hedge all or a portion of its
portfolio through transactions in futures, options on futures or options on
stock indices depends on the degree to which movements in the value of the
securities or index underlying such hedging instrument correlate with movements
in the value of the relevant portion of the Fund's holdings. The trading of
futures and options on indices involves the additional risk of imperfect
correlation between movements in the futures or option price and the value of
the underlying index. While the Fund will establish a future or option position
only if there appears to be a liquid secondary market therefor, there can be no
assurance that such a market will exist for any particular futures or option
contract at any specific time. In such event, it may not be possible to close
out a position held by the Fund, which could require the Fund to purchase or
sell the instrument underlying the position, make or receive a cash settlement,
or meet ongoing variation margin requirements. Investments in futures contracts
on fixed income securities and related indices involve the risk that if the
Adviser's investment judgment concerning the general direction of interest rates
is incorrect, the Fund's overall performance may be poorer than if it had not
entered into any such contract. Income earned from transactions in futures
contracts and options thereon would be treated in part as a short-term, and in
part as a long-term, capital gain and, if not offset by net realized capital
losses, generally would be subject to Federal income tax.
When-Issued Purchases and Forward Commitments
The Fund may agree to purchase securities on a when-issued basis or enter
into a forward commitment to purchase securities. When the Fund engages in these
transactions, its custodian will set aside cash, U.S. government securities or
other high quality debt obligations equal to the amount of the commitment in a
separate account. Normally, the custodian will set aside portfolio securities to
satisfy a purchase commitment, and in such a case the Fund may be required
subsequently to place additional assets in the separate account in order to
ensure that the value of the account remains equal to the amount of the Fund's
commitment. Because the Fund will set aside cash or liquid assets to satisfy its
purchase commitments in the manner described, the Fund's liquidity and ability
to manage its portfolio might be adversely affected in the event its
11
<PAGE>
commitments to purchase when-issued securities ever exceeded 25% of the value of
its assets. In the case of a forward commitment to sell portfolio securities,
the Fund's custodian will hold the portfolio securities themselves in a
segregated account while the commitment is outstanding.
The Fund will make commitments to purchase securities on a when-issued
basis or to purchase or sell securities on a forward commitment basis only with
the intention of completing the transaction and actually purchasing or selling
the securities. If deemed advisable as a matter of investment strategy, however,
the Fund may dispose of or renegotiate a commitment after it is entered into,
and may sell securities it has committed to purchase before those securities are
delivered to the Fund on the settlement date. In these cases the Fund may
realize a capital gain or loss.
When the Fund engages in when-issued and forward commitment transactions,
it relies on the other party to consummate the trade. Failure of such party to
do so may result in the Fund's incurring a loss or missing an opportunity to
obtain a price considered to be advantageous.
The value of the securities underlying a when-issued purchase or a forward
commitment to purchase securities, and any subsequent fluctuations in their
value, is taken into account when determining the net asset value of the Fund
starting on the date the Fund agrees to purchase the securities. The Fund does
not earn dividends on the securities it has committed to purchase until they are
paid for and delivered on the settlement date. When the Fund makes a forward
commitment to sell securities it owns, the proceeds to be received upon
settlement are included in the Fund's assets. Fluctuations in the value of the
underlying securities are not reflected in the Fund's net asset value as long as
the commitment remains in effect.
Real Estate Investment Trusts
A real estate investment trust ("REIT") is a managed portfolio of real
estate investments which may include office buildings, apartment complexes,
hotels and shopping malls. An Equity REIT holds equity positions in real estate,
and it seeks to provide its shareholders with income from the leasing of its
properties, and with capital gains from any sales of properties. A Mortgage REIT
specializes in lending money to developers of properties, and passes any
interest income it may earn to its shareholders.
REITs may be affected by changes in the value of the underlying property
owned or financed by the REIT, while Mortgage REITs also may be affected by the
quality of credit extended. Both Equity and Mortgage REITs are dependent upon
management skill and may not be diversified. REITs also may be subject to heavy
cash flow dependency, defaults by borrowers, self-liquidation, and the
possibility of failing to qualify for tax-free pass-through of income under the
Internal Revenue Code of 1986, as amended.
Guaranteed Investment Contracts
Guaranteed Investment Contracts ("GICs") are issued by highly rated U.S.
insurance companies. Pursuant to such contracts, the Fund makes cash
contributions to a deposit fund of
12
<PAGE>
the insurance company's general or separate accounts. The insurance company then
credits to the Fund on a monthly basis guaranteed interest. The insurance
company may assess periodic charges against a GIC for expense and service costs
allocable to it, and the charges will be deducted from the value of the deposit
fund. The purchase price paid for a GIC becomes part of the general assets of
the issuer, and the contract is paid from the general assets of the issuer.
The 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, the Fund may not receive the principal amount of a GIC
from the insurance company on seven days' notice or less.
Therefore, GICs are considered to be illiquid investments.
Variable- and Floating- Rate Instruments
The Fund may purchase variable-rate and floating-rate obligations as
described in the Prospectuses. If such instrument is not rated, the Adviser will
consider the earning power, cash flows, and other liquidity ratios of the
issuers and guarantors of such obligations and, if the obligation is subject to
a demand feature, will monitor their financial status to meet payment on demand.
In determining average weighted portfolio maturity, a variable-rate demand
instrument issued or guaranteed by the U.S. Government or an agency or
instrumentality thereof will be deemed to have a maturity equal to the period
remaining until the obligations next interest rate adjustment. Other
variable-rate obligations will be deemed to have a maturity equal to the longer
of the period remaining to the next interest rate adjustment or the time the
Fund can recover payment of principal as specified in the instrument.
The variable- and floating-rate demand instruments that the Fund may
purchase include participations in Municipal Securities purchased from and owned
by financial institutions, primarily banks. Participation interests provide the
Fund with a specified undivided interest (up to 100%) in the underlying
obligation and the right to demand payment of the unpaid principal balance plus
accrued interest on the participation interest from the institution upon a
specified number of days' notice, not to exceed 30 days. Each participation
interest is backed by an irrevocable letter of credit or guarantee of a bank
that the Adviser has determined meets the prescribed quality standards for the
Fund. The bank typically retains fees out of the interest paid on the obligation
for servicing the obligation, providing the letter of credit, and issuing the
repurchase commitment.
Variable- and Floating-Rate Government Securities
Government securities that have variable or floating interest rates or
demand or put features may be deemed to have remaining maturities shorter than
their nominal maturities for purposes of determining the Fund's average weighted
maturity. The remaining maturities of such obligations will be determined as
follows: (i) a government security with a variable or floating-rate of interest
will be deemed to have a maturity equal to the period remaining until the next
readjustment of the interest rate; (ii) a government security with a demand or
put feature that entitles the holder to
13
<PAGE>
receive the principal amount of the underlying security at the time of or
sometime after the holder gives notice of demand or exercise of the put will be
deemed to have a maturity equal to the period remaining until the principal
amount can be recovered through demand or exercise of the put; and (iii) a
government security with both a variable or floating rate of interest as
described in clause (i) and a demand or put feature as described in clause (ii)
will be deemed to have a maturity equal to the shorter of the period remaining
until the next readjustment of the interest rate or the period remaining until
the principal amount can be recovered through demand.
Dollar Roll Transactions
The Fund may enter into "dollar roll" transactions, which consist of the
sale by the Fund to a bank or broker/dealer (the "counterparty") of GNMA
certificates or other mortgage-backed or asset-backed securities, together with
a commitment to purchase from the counterparty similar, but not identical,
securities at a future date, at the same price. The counterparty receives all
principal and interest payments, including prepayments, made on the security
while it is the holder. The Fund receives a fee from the counterparty as
consideration for entering into the commitment to purchase. Dollar rolls may be
renewed over a period of several months with a different repurchase price and a
cash settlement made at each renewal without physical delivery of securities.
Moreover, the transaction may be preceded by a firm commitment agreement
pursuant to which the Fund agrees to buy a security on a future date.
If the broker/dealer to whom the Fund sells the security becomes
insolvent, the Fund's right to purchase or repurchase the security may be
restricted; the value of the security may change adversely over the term of the
dollar roll; the security that the Fund is required to repurchase may be worth
less than the security that the Fund originally held, and the return earned by
the Fund with the proceeds of a dollar roll may not exceed transaction costs.
The entry into dollar rolls involves potential risks of loss that are
different from those related to the securities underlying the transactions. For
example, if the counterparty becomes insolvent, the Fund's right to purchase
from the counterparty might be restricted. Additionally, the value of such
securities may change adversely before the Fund is able to purchase them.
Similarly, the Fund may be required to purchase securities in connection with a
dollar roll at a higher price than may otherwise be available on the open
market. Since, as noted above, the counterparty is required to deliver a
similar, but not identical security to the Fund, the security that the Fund is
required to buy under the dollar roll may be worth less than an identical
security. Finally, there can be no assurance that the Fund's use of the cash
that it receives from a dollar roll will provide a return that exceeds borrowing
costs.
Foreign Currency Transactions
The Fund may enter into foreign currency exchange transactions to convert
foreign currencies to and from the United States 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.
14
<PAGE>
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. Forward foreign currency exchange
contracts establish an exchange rate at a future date. These contracts are
transferable in the interbank market conducted directly between currency traders
(usually large commercial banks) and their customers. A forward foreign currency
exchange contract generally has no deposit requirement, and is traded at a net
price without commission. The Fund maintains with its custodian a segregated
account of high grade liquid assets in an amount at least equal to its
obligations under each forward foreign currency exchange contract. Neither spot
transactions nor forward foreign currency exchange contracts eliminate
fluctuations in the prices of the Fund's portfolio securities or in foreign
exchange rates, or prevent loss if the prices of these securities should
decline.
The Fund also may purchase and write options on such futures contracts.
These investments will be used only to hedge against anticipated future changes
in interest rates which otherwise might either adversely affect the value of the
portfolio securities of the Fund or adversely affect the prices of securities
which the Fund intends to purchase at a later date. Should interest rates move
in an unexpected manner, the Fund may not achieve the anticipated benefits of
futures contracts or options on futures contracts or may realize a loss.
Foreign currency hedging transactions are an attempt to protect 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. The precise matching of the forward
contract amount and the value of the securities involved will not generally be
possible because the future value of these securities in foreign currencies will
change as a consequence of market movements in the value of those securities
between the date the forward contract is entered into and date it matures.
Interest Rate Transactions
Among the strategic transactions into which the Fund may enter are
interest rate swaps and the purchase or sale of related caps and floors. The
Fund expects to enter into these transactions primarily to preserve a return or
spread on a particular investment or portion of its portfolio, to protect
against currency fluctuations, as a duration management technique or to protect
against any increase in the price of securities the Fund anticipate purchasing
at a later date. The Fund intends to use these transactions as hedges and not as
speculative investments and will not sell interest rate caps or floors where it
does not own securities or other instruments providing the income stream the
Fund may be obligated to pay. Interest rate swaps involve the exchange by the
Fund with another party of their respective commitments to pay or receive
interest, e.g., an exchange of floating-rate payments for fixed rate payments
with respect to a notional amount of principal. A currency swap is an agreement
to exchange cash flows on a notional amount of two or more currencies based on
the relative value differential among them and an index swap is an agreement to
swap cash flows on a notional amount based on changes in the values of the
15
<PAGE>
reference indices. The purchase of a cap entitles the purchaser to receive
payments on a notional principal amount from the party selling such floor to the
extent that a specified index falls below a predetermined interest rate or
amount.
The Fund will usually enter into swaps on a net basis, i.e., the two
payment streams are netted out in a cash settlement on the payment date or dates
specified in the instrument, with the Fund receiving or paying, as the case may
be, only the net amount of the two payments. Inasmuch as these swaps, caps, and
floors are entered into for good faith hedging purposes, the Adviser and the
Fund believe such obligations do not constitute senior securities under the 1940
Act and, accordingly, will not treat them as being subject to its borrowing
restrictions. The Fund will not enter into any swap, cap, or floor transaction
unless, at the time of entering into such transaction, the unsecured long-term
debt of the counterparty, combined with any credit enhancements, is rated at
least "A" by S&P or Moody's or has an equivalent rating from an NRSRO or is
determined to be of equivalent credit quality by the Adviser. If there is a
default by the counterparty, the Fund may have contractual remedies pursuant to
the agreements related to the transaction. The swap market has grown
substantially in recent years with a large number of banks and investment
banking firms acting both as principals and as agents utilizing standardized
swap documentation. As a result, the swap market has become relatively liquid.
Caps and floors are more recent innovations for which standardized documentation
has not yet been fully developed and, accordingly, they are less liquid than
swaps.
With respect to swaps, the Fund will accrue the net amount of the excess,
if any, of its obligations over its entitlements with respect to each swap on a
daily basis and will segregate an amount of cash or liquid high grade securities
having a value equal to the accrued excess. Caps and floors require segregation
of assets with a value equal to the Fund's net obligation, if any.
Illiquid Securities
The Fund may invest up to 15% of its net assets in securities that are
considered illiquid because of the absence of a readily available market or due
to legal or contractual restrictions. Certain restricted securities that are not
registered for sale to the general public but that can be resold to
institutional investors may not be considered illiquid, provided that a dealer
or institutional trading market exists. The institutional trading market is
relatively new, and liquidity of the Fund's investments could be impaired if
trading does not develop or declines.
Other Securities
For additional information regarding options and futures, see "Schedule
A." For additional information regarding mortgage-backed securities, see
"Schedule B."
Additional Investment Limitations
In addition to the investment limitations disclosed in the Prospectuses,
the Fund is subject to the investment limitations enumerated in this subsection
which may be changed with respect to the
16
<PAGE>
Fund only by a vote of the holders of a majority of the Fund's outstanding
shares (as defined in this SAI).
The Fund may not:
1. Borrow money or issue senior securities as defined in the 1940 Act
except that (a) the Fund may borrow money from banks for temporary
purposes in amounts up to one-third of the value of the Fund's
total assets at the time of borrowing, provided that borrowings in
excess of 5% of the value of the Fund's total assets will be
repaid prior to the purchase of portfolio securities by the Fund,
(b) the Fund may enter into commitments to purchase securities in
accordance with the Fund's investment program, including delayed
delivery and when-issued securities, which commitments may be
considered the issuance of senior securities, and (c) the Fund may
issue multiple classes of shares in accordance with SEC
regulations or exemptions under the 1940 Act. The purchase or sale
of futures contracts and related options shall not be considered
to involve the borrowing of money or issuance of senior
securities.
2. Purchase any securities on margin (except for such short-term
credits as are necessary for the clearance of purchases and sales
of portfolio securities) or sell any securities short (except
against the box). (For purposes of this restriction, the deposit
or payment by the Fund of initial or maintenance margin in
connection with futures contracts and related options and options
on securities is not considered to be the purchase of a security
on margin.)
3. Underwrite securities issued by any other person, except to the
extent that the purchase of securities and the later disposition
of such securities in accordance with the Fund's investment
program may be deemed an underwriting. This restriction shall not
limit the Fund's ability to invest in securities issued by other
registered investment companies.
4. Invest in real estate or real estate limited partnership interests
(the Fund may, however, purchase and sell securities secured by
real estate or interests therein or issued by issuers which invest
in real estate or interests therein). This restriction does not
apply to real estate limited partnerships listed on a national
stock exchange (e.g. the New York Stock Exchange).
5. Purchase or sell commodity contracts except that the Fund may, to
the extent appropriate under its investment policies, purchase
publicly traded securities of companies engaging in whole or in
part in such activities, may enter into futures contracts and
related options, may engage in transactions on a when issued or
forward commitment basis, and may enter into forward currency
contracts in accordance with its investment policies.
In addition, certain non-fundamental investment restrictions are
applicable, including the following:
17
<PAGE>
1. The Trust will not purchase or retain the securities of any issuer
if the officers or Trustees of the Trust, its advisers, or
managers owning beneficially more than one half of one percent of
the securities of each issuer together own beneficially more than
five percent of such securities.
2. The Fund will not purchase securities of unseasoned issuers,
including their predecessors, that have been in operation for less
than three years, if by reason thereof the value of the Fund's
investment in such classes of securities would exceed 5% of the
Fund's total assets. For purposes of the above-described
investment limitation, issuers include predecessors, sponsors,
controlling persons, general partners, guarantors and originators
of underlying assets which have less than three years of
continuous operations of relevant business experience.
3. The Fund will not purchase puts, calls, straddles, spreads and any
combination thereof if by reason thereof the value of its
aggregate investment in such classes of securities will exceed 5%
of its total assets except that: (a) this restriction shall not
apply to standby commitments, (b) this restriction shall not apply
to the Fund's transactions in futures contracts and related
options, and (c) the Fund may obtain short-term credit as may be
necessary for the clearance of purchases and sales of portfolio
securities.
4. The Fund will not invest in warrants, valued at the lower of cost
or market, in excess of 5% of the value of the Fund's assets, and
no more than 2% of the value of the Fund's net assets may be
invested in warrants that are not listed on the New York or
American Stock Exchange (for purposes of this undertaking,
warrants acquired by the Fund in units or attached to securities
will be deemed to have no value).
5. The Fund will not purchase securities of companies for the purpose
of exercising control.
6. The Fund will not invest more than 15% of the value of its net
assets in illiquid securities, including repurchase agreements
with remaining maturities in excess of seven days, time deposits
with maturities in excess of seven days, restricted securities,
and other securities which are not readily marketable. For
purposes of this restriction, illiquid securities shall not
include securities which may be resold under Rule 144A under the
Securities Act of 1933 that the Board of Trustees, or its
delegate, determines to be liquid, based upon the trading markets
for the specific security.
7. The Fund will not mortgage, pledge or hypothecate any assets
except to secure permitted borrowings and then only in an amount
up to one-third of the value of the Fund's total assets at the
time of borrowing. For purposes of this limitation, collateral
arrangements with respect to the writing of options, futures
contracts, options on futures contracts, and collateral
arrangements with respect to initial and variation margin are not
considered to be a mortgage, pledge or hypothecation of assets.
18
<PAGE>
8. The Fund will not invest in securities of other investment
companies, except as they may be acquired as part of a merger,
consolidation or acquisition of assets and except to the extent
otherwise permitted by the 1940 Act.
9. The Fund will not purchase oil, gas or mineral leases or other
interests (the Fund may, however, purchase and sell the securities
of companies engaged in exploration, development, production,
refining, transporting and marketing of oil, gas or minerals).
In order to permit the sale of shares of the Trust in certain states, the
Trust may make commitments more restrictive than the investment policies and
limitations described above and in the Prospectuses. Should the Trust determine
that any such commitment is no longer in its best interest, it will revoke the
commitment by terminating sales of its shares to investors residing in the state
involved.
NET ASSET VALUE
Generally, a security listed or traded on an exchange is valued at its
last sales price on the exchange where the security is principally traded or,
lacking any sales on a particular day, the security is valued at the mean
between the closing bid and asked prices on that day. Each security traded in
the over-the-counter market (but not including securities reported on the NASDAQ
National Market System) is valued at the mean between the last bid and asked
prices based upon quotes furnished by market makers for such securities. Each
security reported on the NASDAQ National Market System is valued at the last
sales price on the valuation date.
Securities for which market quotations are not readily available are
valued at fair value as determined in good faith by or under the supervision of
the Trust's officers in a manner specifically authorized by the Board of
Trustees. Short-term obligations having 60 days or less to maturity are valued
at amortized cost, which approximates market value.
Generally, trading in foreign securities, as well as U.S. Government
securities, money market instruments and repurchase agreements, is substantially
completed each day at various times prior to the close of the New York Stock
Exchange (the "Exchange"). The values of such securities used in computing the
net asset value of the shares of the Fund is determined as of such times.
Foreign currency exchange rates are also generally determined prior to the close
of the Exchange. Occasionally, events affecting the value of such securities and
such exchange rates may occur between the times at which they are determined and
the close of the Exchange, which will not be reflected in the computation of net
asset value. If during such periods events occur which materially affect the
value of such securities, the securities will be valued at their fair market
value as determined in good faith by the Trustees.
--------------------------
The Trust may redeem shares involuntarily to reimburse the Fund for any
loss sustained by reason of the failure of a shareholder to make full payment
for Investor Shares purchased by the shareholder or to collect any charge
relating to a transaction effected for the benefit of a
19
<PAGE>
shareholder which is applicable to Investor Shares as provided in the related
Prospectuses from time to time. The Trust also may make payment for redemptions
in readily marketable securities or other property if it is appropriate to do so
in light of Nations Fund Trust's responsibilities under the 1940 Act.
Under the 1940 Act, the Fund may suspend the right of redemption or
postpone the date of payment for Investor Shares or Primary Shares during any
period when (a) trading on the Exchange is restricted by applicable rules and
regulations of the SEC; (b) the Exchange is closed for other than customary
weekend and holiday closings; (c) the SEC has by order permitted such
suspension; or (d) an emergency exists as determined by the SEC. (The Fund may
also suspend or postpone the recordation of the transfer of its shares upon the
occurrence of any of the foregoing conditions.)
Exchange Privilege
By use of the exchange privilege, the holder of Investor Shares and/or
Primary B Shares authorizes the transfer agent or the shareholder's financial
institution to rely on telephone instructions from any person representing
himself to be the investor and reasonably believed to be genuine. The transfer
agent's or a financial institution's records of such instructions are binding.
Exchanges are taxable transactions for Federal income tax purposes; therefore, a
shareholder will realize a capital gain or loss depending on whether the
Investor Shares and/or Primary B Shares being exchanged have a value which is
more or less than their adjusted cost basis.
The Fund and each of the other funds of Nations Fund may limit the number
of times the exchange privilege may be exercised by a shareholder within a
specified period of time. Also, the exchange privilege may be terminated or
revised at any time by the Trust upon such notice as may be required by
applicable regulatory agencies (presently sixty days for termination or material
revision), provided that the exchange privilege may be terminated or materially
revised without notice under certain unusual circumstances.
The current prospectuses for the Investor Shares and Primary B Shares of
the Fund describes the exchange privileges available to investors in such
Investor Shares and Primary B Shares, respectively.
Primary Shares of the Fund are offered and sold on a continuous basis by
the Distributor acting as agent. As stated in the Prospectuses for the Primary
Shares, Primary Shares are sold to bank trust departments and other financial
institutions (primarily to NationsBank and its affiliated and correspondent
banks) (collectively, "Institutions") acting on behalf of customers maintaining
a qualified trust account or relationship at the Institution.
DESCRIPTION OF SHARES
Nations Fund Trust is a Massachusetts business trust. The Trust's
Declaration of Trust authorizes the Board of Trustees to issue an unlimited
number of units of beneficial interest ("shares") and to classify or reclassify
any unissued shares of the Trust into one or more
20
<PAGE>
additional classes or series by setting or changing in any one or more respects
their respective preferences, conversion or other rights, voting powers,
restrictions, limitations as to dividends, qualifications, and terms and
conditions of redemption. Pursuant to such authority, the Board of Trustees has
authorized the issuance of thirty-two series of shares, one of which -- the
Managed Index Fund -- is described in this SAI. The Managed Index Fund only
issues Primary A Shares, Primary B Shares, Investor A Shares and Investor C
Shares.
Shares have no preemptive rights and only such conversion or exchange
rights as the Board of Trustees may grant in its discretion. When issued for
payment as described in the Prospectuses, the Trust's shares will be fully paid
and non-assessable. In the event of a liquidation or dissolution of the Trust or
the Fund, shareholders of the Fund are entitled to receive the assets available
for distribution belonging to the Fund, and a proportionate distribution, based
upon the relative asset values of the Trust's respective investment portfolios,
of any general assets of the Trust not belonging to any particular investment
portfolio which are available for distribution. Shareholders of the Fund are
entitled to participate, in proportion to the net asset value of the class or
series of shares held, in the net distributable assets of the Fund if it is
liquidated, based on the number of shares of the Fund that are held by such
shareholders.
As stated in the Prospectuses, shareholders of the Fund will vote in the
aggregate and not by class or series, except as otherwise expressly required by
law or when the Board of Trustees determines that the matter to be voted upon
affects only the interests of the holders of a particular class or series of
shares. In addition, shareholders of each investment portfolio of the Trust will
vote in the aggregate and not by portfolio, except as otherwise expressly
required by law or when the Board of Trustees determines that the matter to be
voted upon affects only the interests of shareholders of a particular portfolio.
Rule 18f-2 (the "Rule") under the 1940 Act provides that any matter required to
be submitted to the holders of the outstanding voting securities of an
investment company such as the Trust shall not be deemed to have been
effectively acted upon unless approved by the holders of a majority of the
outstanding shares of each investment portfolio affected by the matter. An
investment portfolio is affected by a matter unless it is clear that the
interests of each investment portfolio in the matter are substantially identical
or that the matter does not affect any interest of the investment portfolio.
Under the Rule, the approval of an investment advisory agreement or any change
in a fundamental investment policy would be effectively acted upon with respect
to an investment portfolio only if approved by a majority of the outstanding
shares of such investment portfolio. However, the Rule also provides that the
ratification of the appointment of independent public accountants, the approval
of principal underwriting contracts, and the election of Trustees may be
effectively acted upon by shareholders of the Trust voting together in the
aggregate without regard to a particular investment portfolio. Under the Trust's
Declaration of Trust, when the Board of Trustees determines that a matter to be
voted upon affects only the interests of the shareholders of one or more but not
all of the Trust's investment portfolios, only the shareholders of the
investment portfolio or portfolios so affected will be entitled to vote on the
matter.
The Trust's Declaration of Trust authorizes the Board of Trustees, without
shareholder approval (unless otherwise required by applicable law), to (a) sell
and convey the assets of the Fund to another management investment company for
consideration which may include securities
21
<PAGE>
issued by the purchaser and, in connection therewith, to cause all outstanding
shares of the Fund involved to be redeemed at a price which is equal to their
net asset value and which may be paid in cash or by distribution of the
securities or other consideration received from the sale and conveyance; (b)
sell and convert the Fund's assets into money and, in connection therewith, to
cause all outstanding shares of the Fund involved to be redeemed at their net
asset value; or (c) combine the assets belonging to the Fund with the assets
belonging to another investment portfolio of the Trust, if the Board of Trustees
reasonably determines that such combination will not have a material adverse
effect on shareholders of any investment portfolio participating in such
combination, and, in connection therewith, to cause all outstanding shares of
any such investment portfolio to be redeemed at their net asset value or
converted into shares of another class or series of the Trust's shares at net
asset value. In the event that shares are redeemed in cash at their net asset
value, a shareholder of the Fund may receive in payment for such shares an
amount that is more or less than his original investment due to changes in the
market prices of the Fund's portfolio securities. The exercise of such authority
by the Board of Trustees will be subject to the provisions of the 1940 Act.
Dividends and Distributions
With respect to the Fund, net investment income for dividend purposes
consist of (i) interest accrued and original issue discount earned on the Fund's
assets, (ii) plus the amortization of market discount and minus the amortization
of market premium on such assets, (iii) less accrued expenses directly
attributable to the Fund and the general expenses of Nations Fund prorated to
the Fund on the basis of its relative net assets and (iv) dividend or
distribution income on such assets.
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.
ADDITIONAL INFORMATION CONCERNING TAXES
The following summarizes certain additional tax considerations generally
affecting the Fund and its shareholders that are not described in the
Prospectuses. No attempt is made to present a detailed explanation of the tax
treatment of the Trust or its shareholders or possible legislative changes, and
the discussion here and in the Prospectuses is not intended as a substitute for
careful tax planning. Potential investors should consult their tax advisors with
specific reference to their own tax situation.
The Trust has received a private letter ruling from the Internal Revenue
Service to the effect that: (i) the differing fees imposed on Primary A, Primary
B, Investor A and Investor C Shares with respect to servicing, distribution and
administrative support services, and transfer agency arrangements; the differing
sales charges on purchases and redemptions of such shares does not result in the
Trust's dividends or distributions constituting "preferential dividends" under
the Internal Revenue Code of 1986, as amended (the "Code").
22
<PAGE>
Federal Taxes - In General
The Fund will be treated as a separate corporate entity under the Code and
intends to qualify as a regulated investment company. As a regulated investment
company, the Fund is not subject to federal income tax on the portion of its net
investment income (i.e., taxable interest, dividends and other taxable ordinary
income, net of expenses) and capital gain net income (i.e., the excess of
capital gains over capital losses) that it distributes to shareholders, provided
that it distributes at least 90% of its investment company taxable income (i.e.,
net investment income and the excess of its short-term capital gains over net
long-term capital losses) and at least 90% of its tax-exempt income (net of
expenses allocable thereto) for the taxable year (the "Distribution
Requirement"), and satisfies certain other requirements of the Code that are
described below. Distributions by the Fund made during the taxable year or,
under specified circumstances, within twelve months after the close of the
taxable year, will be considered distributions of income and gains of the
taxable year and can therefore satisfy the Distribution Requirement.
In addition to satisfying the Distribution Requirement; a regulated
investment company must (i) derive at least 90% of its gross income from
dividends, interest, certain payments with respect to securities loans, gains
from the sale or other disposition of stock or securities or foreign currencies
(to the extent such currency gains are directly related to the regulated
investment company's principal business of investing in stock or securities) and
other income (including but not limited to gains from options, futures or
forward contracts) derived with respect to its business of investing in such
stock, securities or currencies (the "Income Requirement"); and (ii) derive less
than 30% of its gross income (exclusive of certain gains on designated hedging
transactions that are offset by realized or unrealized losses on offsetting
positions) from the sale or other disposition of stock, securities or foreign
currencies (or options, futures or forward contracts thereon) held for less than
three months (the "Short-Short Gain Test"). However, foreign currency gains,
including those derived from options, futures and forwards, will not be
characterized as Short-Short Gain if they are directly related to the regulated
investment company's investments in stock or securities (or options or futures
thereon). Because of the Short-Short Gain Test, the Fund may have to limit the
sale of appreciated securities that it has held for less than three months.
However, the Short-Short Gain Test will not prevent the Fund from disposing of
investments at a loss, since the recognition of a loss before the expiration of
the three-month holding period is disregarded. Interest (including original
issue discount) received by the Fund at maturity or upon the disposition of a
security held for less than three months will not be treated as gross income
derived from the sale or other disposition of such security within the meaning
of the Short-Short Gain Test. However, income that is attributable to realized
market appreciation will be treated as gross income from the sale or other
disposition of securities for this purpose.
In general, gain or loss recognized by the Fund on the disposition of an
asset will be a capital gain or loss. However, gain recognized on the
disposition of a debt obligation (including tax-exempt obligations purchased
after April 30, 1993) purchased by the Fund at a market discount (generally, at
a price less than its principal amount) will be treated as ordinary income to
the extent of the portion of the market discount which accrued during the period
of time the Fund
23
<PAGE>
held the debt obligation. In addition, under the rules of Code Section 988, gain
or loss recognized on the disposition of a debt obligation denominated in a
foreign currency or an option with respect thereto (but only to the extent
attributable to changes in foreign currency exchange rates), and gain or loss
recognized on the disposition of a foreign currency forward contract, futures
contract, option or similar financial instrument, or of foreign currency itself,
will generally be treated as ordinary income or loss.
In general, for purposes of determining whether capital gain or loss
recognized by the Fund on the disposition of an asset is long-term or
short-term, the holding period of the asset may be affected if (i) the asset is
used to close a "short sale" (which includes for certain purposes the
acquisition of a put option) or is substantially identical to another asset so
used, (ii) the asset is otherwise held by the Fund as part of a "straddle"
(which term generally excludes a situation where the asset is stock and the Fund
grants a qualified covered call option (which, among other things, must not be
deep-in-the-money) with respect thereto) or (iii) the asset is stock and the
Fund grants an in-the-money qualified covered call option with respect thereto.
However, for purposes of the Short-Short Gain Test, the holding period of the
asset disposed of may be reduced only in the case of clause (i) above. In
addition, the Fund may be required to defer the recognition of a loss on the
disposition of an asset held as part of a straddle to the extent of any
unrecognized gain on the offsetting position.
Any gain recognized by the Fund on the lapse of, or any gain or loss
recognized by the Fund from a closing transaction with respect to, an option
written by the Fund will be treated as a short-term capital gain or loss. For
purposes of the Short-Short Gain Test, the holding period of an option written
by the Fund will commence on the date it is written and end on the date it
lapses or the date a closing transaction is entered into. Accordingly, the Fund
may be limited in its ability to write options which expire within three months
and to enter into closing transactions at a gain within three months of the
writing of options.
Treasury regulations permit a regulated investment company, in determining
its investment company taxable income and net capital gain (i.e., the excess of
net long-term capital gain over net short-term capital loss) for any taxable
year, to elect (unless it has made a taxable year election for excise tax
purposes as discussed below) to treat all or part of any net capital loss, any
net long-term capital loss or any net foreign currency loss incurred after
October 31 as if they had been incurred in the succeeding year.
In addition to satisfying the requirement described above, the Fund must
satisfy an asset diversification test in order to qualify as a regulated
investment company. Under this test, at the close of each quarter of the Fund's
taxable year, at least 50% of the value of the Fund's assets must consist of
cash and cash items, Government securities, securities of other regulated
investment companies, and securities of other issuers (as to which the Fund has
not invested more than 5% of the value of the Fund's total assets in securities
of such issuer and as to which the Fund does not hold more than 10% of the
outstanding voting securities of such issuer), and no more than 25% of the value
of its total assets may be invested in the securities of any one issuer (other
than U.S. Government securities and securities of other regulated investment
companies),
24
<PAGE>
or in two or more issuers which the Fund controls and which are engaged in the
same or similar trades or businesses.
If for any taxable year the Fund does not qualify for Federal tax
treatment as a regulated investment company, all of its taxable income
(including its net capital gain) will be subject to Federal income tax at
regular corporate rates without any deduction for distributions to its
shareholders. In such event, dividend distributions would be taxable as ordinary
income to the Fund's shareholders to the extent of the Fund's current and
accumulated earnings and profits.
Depending upon the extent of the Fund's activities in states and
localities in which its offices are maintained, in which its agents or
independent contractors are located, or in which it is otherwise deemed to be
conducting business, the Fund may be subject to the tax laws of such states or
localities. In addition, in those states and localities which have income tax
laws, the treatment of the Fund and its shareholders under such laws may differ
from their treatment under Federal income tax laws.
Federal Excise Tax on Regulated Investment Companies
A 4% non-deductible excise tax is imposed on a regulated investment
company that fails to distribute in each calendar year an amount equal to 98% of
ordinary taxable income for the calendar year and 98% of capital gain net income
for the one-year period ended on October 31 of such calendar year (or, at the
election of a regulated investment company having a taxable year ending November
30 or December 31, for its taxable year (a "taxable year election")). The
balance of such income must be distributed during the next calendar year. For
the foregoing purposes, a regulated investment company is treated as having
distributed any amount on which it is subject to income tax for any taxable year
ending in such calendar year.
For purposes of the excise tax, a regulated investment company may (1)
reduce its capital gain net income (but not below its net capital gain) by the
amount of any net ordinary loss for the calendar year and (2) exclude foreign
currency gains and losses incurred after October 31 of any year (or after the
end of its taxable year if it has made a taxable year election) in determining
the amount of ordinary taxable income for the current calendar year (and,
instead, include such gains and losses in determining ordinary taxable income
for the succeeding calendar year).
The Fund intends to make sufficient distributions or deemed distributions
of its ordinary taxable income and capital gain net income to avoid liability
for the excise tax. However, investors should note that the Fund may in certain
circumstances be required to liquidate Fund investments to make sufficient
distributions to avoid excise tax liability.
Distributions
The Fund anticipates distributing substantially all of its investment
company taxable income for each taxable year. Such distributions will be taxable
to shareholders as ordinary income and treated as dividends for federal income
tax purposes but they will qualify for the 70% dividends-received deduction for
corporate shareholders only to the extent discussed below.
25
<PAGE>
The Fund may either retain or distribute to shareholders its net capital
gain for each taxable year. The Fund currently intends to distribute any such
amounts. If net capital gain is distributed and designated as a capital gain
dividend, it will be taxable to shareholders as long-term capital gain,
regardless of the length of time the shareholder has held his/her shares or
whether such gain was recognized by the Fund prior to the date on which the
shareholder acquired his/her shares. Conversely, if the Fund elects to retain
its net capital gain, the Fund will be taxed thereon (except to the extent of
any available capital loss carryovers) at the applicable corporate tax rate. If
the Fund elects to retain its net capital gain, it is expected that the Fund
also will elect to have shareholders treated as if each received a distribution
of its pro rata share of such gain, with the result that each shareholder will
be required to report its pro rata share of such gain on its tax return as
long-term capital gain, will receive a refundable tax credit for its share of
tax paid by the Fund on the gain, and will increase the basis for its shares by
an amount equal to the deemed distribution less the tax credit.
Ordinary income dividends derived from the Fund's investment in the stock
of domestic corporations with respect to a taxable year will qualify for the 70%
dividends received deduction generally available to corporations (other than
corporations, such as "S" corporations, which are not eligible for the deduction
because of their special characteristics and other than for purposes of special
taxes such as the accumulated earnings tax and the personal holding company tax)
to the extent of the amount of qualifying dividends received by the Fund from
domestic corporations for the taxable year. A dividend received by the Fund
investing in the stock of domestic corporations will not be treated as a
qualifying dividend (1) if it has been received with respect to any share of
stock that the Fund has held for less than 46 days (91 days in the case of
certain preferred stock), excluding for this purpose under the rules of Code
Section 246(c)(3) and (4)(A) any day more than 45 days (or 90 days in the case
of certain preferred stock) after the date on which the stock becomes
ex-dividend and (ii) any period during which the Fund has an option to sell, is
under a contractual obligation to sell, has made and not closed a short sale of,
is the grantor of a deep-in-the money or otherwise nonqualified option to buy or
has otherwise diminished its risk of loss by holding other positions with
respect to, such (or substantially identical) stock; (2) to the extent that the
Fund is under an obligation (pursuant to a short sale or otherwise) to make
related payments with respect to positions in substantially similar or related
property; or (3) to the extent the stock on which the dividend is paid is
treated as debt financed under the rules of Code Section 246A. Moreover, the
dividends-received deduction for a corporate shareholder may be disallowed or
reduced (i) if the corporate shareholder fails to satisfy the foregoing
requirements with respect to its shares of the Fund or (ii) by application of
Code Section 246(b) which in general limits the dividends-received deduction to
70% of the shareholder's taxable income (determined without regard to the
dividends-received deduction and certain other items).
For purposes of the corporate alternative minimum tax (the "AMT") and the
environmental superfund tax the corporate dividends received deduction is not
itself an item of tax preference that must be added back to taxable income or is
otherwise disallowed in determining a corporation's alternative minimum taxable
income ("AMTI"). However, corporate shareholders
26
<PAGE>
will generally be required to take the full amount of any dividend received into
account (without a dividends-received deduction) in determining its adjusted
current earnings.
Investment income that may be received by the Fund from sources within
foreign countries may be subject to foreign taxes withheld at the source. The
United States has entered into tax treaties with many foreign countries which
entitle the Fund to a reduced rate of, or exemption from, taxes on such income.
It is impossible to determine the effective rate of foreign tax in advance since
the amount of the Fund's assets to be invested in various countries is not
known. If more than 50% of the value of the Fund's total assets at the close of
its taxable year consists of the stock or securities of foreign corporations,
the Fund may elect to "pass through" to the Fund's shareholders the amount of
foreign taxes paid by the Fund. If the Fund so elects, each shareholder would be
required to include in gross income, even though not actually received, its pro
rata share of the foreign taxes paid by the Fund, but would be treated as having
paid its pro rata share of such foreign taxes and would, therefore, be allowed
to either deduct such amount in computing taxable income or use such amount
(subject to various Code limitations) as a foreign tax credit against federal
income tax (but not both). For purposes of the foreign tax credit limitation
rules of the Code, each shareholder would treat as foreign source income its pro
rata share of such foreign taxes plus the portion of dividends received from the
Fund representing income derived from foreign sources. No deduction for foreign
taxes could be claimed by an individual shareholder who does not itemize
deductions.
Distributions by the Fund that do not constitute ordinary income
dividends, exempt-interest dividends or capital gain dividends will be treated
as a return of capital to the extent of (and in reduction of) the shareholder's
tax basis in his/her shares; any excess will be treated as gain from the sale of
his/her shares, as discussed below.
Prior to purchasing shares in the Fund, the impact of dividends or
distributions which are expected to be or have been, declared, but not paid,
should be carefully considered. Any dividend or distribution declared shortly
after a purchase of such shares prior to the record date will have the effect of
reducing the per share net asset value by the per share amount of the dividend
or distribution. All or a portion of such dividend or distribution, although in
effect a return of capital, may be subject to tax.
Distributions by the Fund will be treated in the manner described above
regardless of whether such distributions are paid in cash or reinvested in
additional shares of the Fund (or of another Fund). Shareholders receiving a
distribution in the form of additional shares will be treated as receiving a
distribution in an amount equal to the fair market value of the shares received,
determined as of the reinvestment date. In addition, if the net asset value at
the time a shareholder purchases shares of the Fund reflects undistributed net
investment income or recognized capital gain net income, or unrealized
appreciation in the value of the assets of the Fund, distributions of such
amounts will be taxable to the shareholder in the manner described above,
although such distributions economically constitute a return of capital to the
shareholder.
Ordinarily, shareholders are required to take distributions by the Fund
into account in the year in which the distributions are made. However,
distributions declared in October, November
27
<PAGE>
or December of any year and payable to shareholders of record on a specified
date in such a month will be deemed to have been received by the shareholders
(and made by the Fund) on December 31 of such calendar year if such
distributions are actually paid in January of the following year. Shareholders
will be advised annually as to the U.S. federal income tax consequences of
distributions made (or deemed made) during the year.
The Fund will be required in certain cases to withhold and remit to the
U.S. Treasury 31% of ordinary income dividends and capital gain dividends, and
the proceeds of redemption of shares, paid to any shareholder (1) who has
provided either an incorrect Taxpayer Identification Number or no Taxpayer
Identification Number at all, (2) who is subject to backup withholding by the
Internal Revenue Service for failure to report the receipt of interest or
dividend income properly, or (3) who has failed to certify to the Fund that it
is not subject to backup withholding or that it is a corporation or other
"exempt recipient."
Sale or Redemption of Shares
A shareholder will recognize gain or loss on the sale or redemption of
shares of the Fund in an amount equal to the difference between the proceeds of
the sale or redemption and the shareholder's adjusted tax basis in the shares.
All or a portion of any loss so recognized may be disallowed if the shareholder
purchases other shares of the Fund within 30 days before or after the sale or
redemption. In general, any gain or loss arising from (or treated as arising
from) the sale or redemption of shares of the Fund will be considered capital
gain or loss and will be long-term capital gain or loss if the shares were held
for longer than one year. However, any capital loss arising from the sale or
redemption of shares held for six months or less will be disallowed to the
extent of the amount of exempt-interest dividends received on such shares and
(to the extent not disallowed) will be treated as a long-term capital loss to
the extent of the amount of capital gain dividends received on such shares. For
this purpose, the special holding period rules of Code Section 246(c)(3) and (4)
(discussed above in connection with the dividends-received deduction for
corporations) generally will apply in determining the holding period of shares.
If a shareholder (i) incurs a sales load in acquiring shares of the Fund,
(ii) disposes of such shares less than 91 days after they are acquired and (iii)
subsequently acquires shares of the Fund or another fund at a reduced sales load
pursuant to a right to reinvest at such reduced sales load acquired in
connection with the acquisition of the shares disposed of, then the sales load
on the shares disposed of (to the extent of the reduction in the sales load on
the shares subsequently acquired) shall not be taken into account in determining
gain or loss on the shares disposed of, but shall be treated as incurred on the
acquisition of the shares subsequently acquired.
Foreign Shareholders
Taxation of a shareholder who, as to the United States, is a nonresident
alien individual, foreign trust or estate, foreign corporation, or foreign
partnership ("foreign shareholder"), depends on whether the income from the Fund
is "effectively connected" with a U.S. trade or business carried on by such
shareholder.
28
<PAGE>
If the income from the Fund is not effectively connected with a U.S. trade
or business carried on by a foreign shareholder, ordinary income dividends will
be subject to U.S. withholding tax at the rate of 30% (or lower applicable
treaty rate) upon the gross amount of the dividend. Furthermore, such a foreign
shareholder may be subject to U.S. withholding tax at the rate of 30% (or lower
applicable treaty rate) on the gross income resulting from the Fund's election
to treat any foreign taxes paid by its shareholders, but may not be allowed a
deduction against this gross income or a credit against this U.S. withholding
tax for the foreign shareholder's pro rata share of such foreign taxes which it
is treated as having paid. Such a foreign shareholder would generally be exempt
from U.S. federal income tax on gains realized on the sale of shares of the
Fund, capital gain dividends and exempt-interest dividends and amounts retained
by the Fund that are designated as undistributed capital gains.
If the income from the Fund is effectively connected with a U.S. trade or
business carried on by a foreign shareholder, then ordinary income dividends,
capital gain dividends and any gains realized upon the sale of shares of the
Fund will be subject to U.S. federal income tax at the rates applicable to U.S.
citizens, U.S. residents or domestic corporations.
In the case of foreign noncorporate shareholders, the Fund may be required
to withhold U.S. federal income tax at a rate of 31% on distributions that are
otherwise exempt from withholding tax (or taxable at a reduced treaty rate)
unless such shareholders furnish the Fund with proper notification of their
foreign status.
The tax consequences to a foreign shareholder entitled to claim the
benefits of an applicable tax treaty may be different from those described
herein. Foreign shareholders are urged to consult their own tax advisers with
respect to the particular tax consequences to them of an investment in the Fund,
including the applicability of foreign taxes.
Special Tax Considerations Pertaining to the Fund
With respect to the Fund, some investments may be subject to special rules
which govern the Federal income tax treatment of certain transactions
denominated in terms of a currency other than the U.S. dollar or determined by
reference to the value of one or more currencies other than the U.S. dollar. The
types of transactions covered by the special rules include the following: (1)
the acquisition of, or becoming the obligor under, a bond or other debt
instrument (including, to the extent provided in Treasury regulations, preferred
stock); (2) the accruing of certain trade receivables and payables; and (3) the
entering into or acquisition of any forward contract, futures contract, option,
and similar financial instrument. The disposition of a currency other than the
U.S. dollar by a U.S. taxpayer is also treated as a transaction subject to the
special currency rules. With respect to transactions covered by the special
rules, foreign currency gain or loss is calculated separately from any gain or
loss on the underlying transaction and is normally taxable as ordinary gain or
loss. The amount of any realized gain or loss on closing out a forward contract
will generally result in a realized capital gain or loss for tax purposes.
Under Code Section 1256, forward currency contracts held by the Fund at
the end of each fiscal year will be required to be "marked-to-market" for
Federal income tax purposes, that is,
29
<PAGE>
deemed to have been sold at market value. Sixty percent (60%) of any net
realized gain or loss from any actual sales will be treated as long-term gain or
loss, and the remainder will be treated as short-term capital gain or loss. Code
Section 988 may also apply to forward contracts. In accordance with Treasury
regulations, certain transactions subject to the special currency rules that are
part of a "section 988 hedging transaction" may be integrated and treated as a
single transaction for purposes of the Code and are not subject to the
marked-to-market or loss deferral rules under the Code. Gain or loss
attributable to the foreign currency component of transactions engaged in by the
Fund which are not subject to the special currency rules (such as foreign equity
investments other than certain preferred stocks) will be treated as capital gain
or loss and will not be segregated from the gain or loss on the underlying
transaction.
In the case of an overlap between Sections 1256 and 988, special
provisions determine the character and timing of any income, gain or loss. The
Fund will attempt to monitor Section 988 transactions to avoid an adverse tax
impact.
Investment returns received by the Fund may give rise to withholding and
other taxes imposed by foreign countries, generally at rates from 10% to 40%.
Tax conventions between certain countries and the U.S. may reduce or eliminate
such taxes. Foreign countries generally do not impose taxes on capital gains
with respect to investments by nonresident investors. To the extent the Fund
does pay foreign withholding or other foreign taxes on certain of its
investments, investors will be unable to take a deduction or receive a tax
credit with respect to such foreign taxes in computing their U.S. tax liability,
since investment by the Fund in foreign investments is limited.
The foregoing general discussion of U.S. federal income tax consequences
is based on the Code and the regulations issued thereunder as in effect on the
date of this SAI. Future legislative or administrative changes or court
decisions may significantly change the conclusions expressed herein, and any
such changes or decisions may have a retroactive effect with respect to the
transactions contemplated herein.
Rules of state and local taxation for ordinary income dividends,
exempt-interest dividends and capital gain dividends from regulated investment
companies often differ from the rules for U.S. federal income taxation described
above. Distributions of net investment income may be taxable to shareholders as
dividend income under state or local law even though a substantial portion of
such distributions may be derived from interest on U.S. Government obligations,
which, if realized directly, would be exempt from such taxes. Shareholders are
urged to consult their tax advisers as to the consequences of these and other
state and local tax rules affecting investment in the Fund.
TRUSTEES AND OFFICERS
The Trustees and executive officers of the Trust, their addresses, principal
occupations during the past five years, and other affiliations are as set forth
below. The address of each, unless otherwise
30
<PAGE>
indicated, is 111 Center Street, Little Rock, Arkansas 72201. Those Trustees who
are "interested persons" of the Trust (as defined in the 1940 Act) are indicated
by an asterisk (*).
<TABLE>
<CAPTION>
Position With Principal Occupation During
Name, Address and Age the Trust Past 5 Years and Current Directorships
- --------------------- --------------- --------------------------------------
<S> <C> <C>
Edmund L. Benson, III, 59 Trustee Director, President and Treasurer, Saunders &
Saunders & Benson, Inc. Benson, Inc. (insurance); Trustee, Nations
728 East Main Street Institutional Reserves, Director, Nations Fund, Inc.
Suite 400 and Nations Fund Portfolios, Inc.
Richmond, VA 23219
James Ermer, 53 Trustee Senior Vice President -- Finance, CSX Corporation
CSX Corporation (transportation and natural resources); Director,
One James Center National Mine Service; Director, Lawyers Title
901 East Cary Street Corporation; Trustee, Nations Institutional
Richmond, VA 23219 Reserves; Director, Nations Fund, Inc. and Nations
Fund Portfolios, Inc.
William H. Grigg, 63 Trustee Since April 1994, Chairman and Chief Executive
Duke Power Co. Officer; November 1991 to April 1994, Vice Chairman,
422 South Church Street Duke Power Co.; from April 1988 to November 1991,
PB04G Executive Vice President -- Customer Group, Duke
Charlotte, NC 28242-0001 Power Co., Director, Hatteras Income Securities,
Inc., Nations Government Income Term Trust 2003,
Inc., Nations Government Income Term Trust 2004,
Inc., Nations Balanced Target Maturity Fund, Inc.,
Nations Fund, Inc. and Nations Fund Portfolios,
Inc.; Trustee, Nations Institutional Reserves
Thomas F. Keller, 64 Trustee R.J. Reynolds Industries Professor of Business
Fuqua School of Business Administration and Dean, Fuqua School of Business,
Duke University Duke University; Director LADD Furniture, Inc.,
Durham, NC 27706 Director, Wendy's International Mentor Growth Fund
and Cambridge Trust; Director, Hatteras Income
Securities, Inc., Nations Government Income Term
Trust 2003, Inc., Nations Government Income Term
Trust 2004, Inc., Nations Balanced Target Maturity
Fund, Inc.; Nations Fund, Inc. and Nations Fund
Portfolios, Inc.; Trustee, Nations Institutional
Reserves
Carl E. Mundy, Jr., 60 Trustee Commandant, United States Marine Corps, from July
9308 Ludgate Drive 1991 to July 1995, Commanding General, Marine Forces
Alexandria, VA 23309 Atlantic, from June 1990 to June 1991; Director,
Nations Fund, Inc. and Nations Fund Portfolios,
Inc.; Trustee, Nations Institutional Reserves
A. Max Walker*, 74 President, Trustee and Financial consultant, formerly President, A. Max
6215 Riverwood Drive, N.W. Chairman of the Board Walker, Inc.; Director and Chairman of the Board,
</TABLE>
31
<PAGE>
<TABLE>
<CAPTION>
Position With Principal Occupation During
Name, Address and Age the Trust Past 5 Years and Current Directorships
- --------------------- --------------- --------------------------------------
<S> <C> <C>
Atlanta, GA 30328 Hatteras Income Securities, Inc., Nations Government
Income Term Trust 2003, Inc., Nations Government
Income Term Trust 2004, Inc., Nations Balanced
Target Maturity Fund, Inc.; Nations Fund, Inc. and
Nations Fund Portfolios, Inc.; President and
Chairman of the Board of Trustees, Nations
Institutional Reserves
Charles B. Walker, 57 Trustee Since 1989, Director, Executive Vice President,
Ethyl Corporation Chief Financial Officer and Treasurer, Ethyl
P.O. Box 2189 Corporation (chemicals, plastics and aluminum
330 South Fourth Street manufacturing); since 1994, Vice Chairman, Ethyl
Richmond, VA 23217 Corporation and Vice Chairman, Chief Financial
Officer and Treasurer, Albemarle Corporation;
Director, Nations Fund, Inc. and Nations Fund
Portfolios, Inc.; Trustee, Nations Institutional
Reserves
Thomas S. Word, Jr.*, 57 Trustee Partner, McGuire Woods Battle & Boothe (law);
McGuire, Woods, Battle & Boothe Director, Vaughan Bassett Furniture Company,
One James Center Director V-B/Williams Furniture Company, Inc.;
Richmond, VA 23219 Director, Nations Fund, Inc. and Nations Fund
Portfolios, Inc.; Trustee, Nations Institutional
Reserves
Richard H. Blank, Jr., 39 Secretary Since 1994, Vice President of Mutual Funds Services,
Stephens Inc. Stephens Inc. 1990 to 1994, Manager Mutual Fund
Services, Stephens Inc. 1983 to 1990, Associate in
Corporate Finance Department, Stephens Inc.
Michael W. Nolte, 35 Assistant Secretary Associate, Financial Services Group of Stephens Inc.
Stephens Inc.
Louise P. Newcomb, 43 Assistant Secretary Corporation Syndicate Associate, Stephens Inc.
Stephens Inc.
James E. Banks, 39 Assistant Secretary Since 1993 Attorney, Stephens Inc.; Associate
Stephens Inc. Corporate Counsel, Federated Investors; from 1991 to
1993, Staff Attorney, Securities and Exchange
Commission from 1988 to 1991.
Richard H. Rose, 40 Treasurer Since 1994, Vice President, Division Manager, The
the Shareholder Services Group, Inc. Shareholder Services Group, since 1988, Senior Vice
One Exchange Place President, The Boston Company Advisors, Inc.
Boston, MA 02109
Joseph C. Viselli, 32 Assistant Treasurer Assistant Vice President, The Boston Company
The Shareholder Services Group, Inc. Advisors, Inc since April 1992.
One Exchange Place
Boston, MA 02109
</TABLE>
32
<PAGE>
Compensation Table
<TABLE>
<CAPTION>
Aggregate
Compensation Total Compensation from
Name of Person from Registrant and Fund Nations Fund Nations Fund Deferred
Position (1) Registrant (2) Complex Paid to Trustees Retirement Plan Compensation Plan
------------ -- -------------- ------------------------ --------------- ---------------
<S> <C> <C> <C> <C>
Edmund L. Benson, III, $ 22,000 $ 36,500 N/A N/A
Trustee
James Ermer $ 22,000 $ 36,5000 N/A N/A
Trustee
William H.Grigg $ 22,000 $ 45,500 NA N/A
Trustee
Thomas F. Keller $ 24,000 $ 51,500 N/A N/A
Trustee
A. Max Walker $ 24,000 $ 51,500 N/A N/A
Chairman of the Board
Charles B. Walker $ 22,000 $36,500 N/A N/A
Trustee
Thomas S. Word $ 22,000 $ 36,500 N/A N/A
Trustee
Carl E. Mundy, Jr. $ 7,000 N/A N/A N/A
Trustee
</TABLE>
(1) All trustees receive reimbursements for expenses related to their attendance
at meetings of the Board of Trustees. Officers of the Trust receive no direct
remuneration in such capacity from the Trust.
(2) For current fiscal year and includes estimated future payments. Each Trustee
receives (i) an annual retainer of $1,000 ($3,000 for the Chairman of the
Board) plus $500 for each Fund of the Trust, plus (ii) a fee of $1,000 for
attendance at each "in-person" meeting of the Board of Trustees (or committee
thereof) and $500 for attendance at each other meeting of the Board of Trustees
(or Committee thereof).
(3) Messrs. Grigg, Keller and A.M. Walker receive compensation from eight
investment companies, including the Trust, that are deemed to be part of the
Nations Fund "fund complex," as that term is defined under Rule 14a-101 of the
Securities Exchange Act of 1934, as amended. Messrs. Benson, Ermer, C. Walker,
Mundy and Word receive compensation from four investment companies, including
the Trust, deemed to be part of the Nations Fund fund complex.
33
<PAGE>
Mr. Rose serves as Treasurer to certain other investment companies for which The
Shareholder Services Group, Inc. (the "Co-Administrator") or its affiliates
serve as sponsor, distributor, administrator and/or investment adviser.
Each Trustee of the Trust is also a Director of Nations Fund, Inc. and Nations
Fund Portfolios, Inc. and a trustee of Nations Institutional Reserves, each, a
registered investment company that is part of the Nations Fund family of funds.
Richard H. Blank, Jr., Richard H. Rose, Joseph C. Viselli, Michael W. Nolte,
Louise P. Newcomb and James E. Banks, Jr. also are officers of Nations Fund,
Inc., Nations Fund Portfolios, Inc. and Nations Institutional Reserves.
Each Trustee receives (i) an annual retainer of $1,000 ($3,000 for the Chairman
of the Board) plus $500 for each Fund of the Trust, plus (ii) a fee of $1,000
for attendance at each "in-person" meeting of the Board of Trustees (or
committee thereof) and $500 for attendance at each other meeting of the Board of
Trustees (or committee thereof). All Trustees receive reimbursements for
expenses related to their attendance at meetings of the Board of Trustees. Mr.
Mundy was not a Trustee of the Trust during the fiscal year ended November 30,
1995 and therefore received no compensation. Officers receive no direct
remuneration in such capacity from the Trust.
For the fiscal year ended November 30, 1995, such fees and expenses totaled
$136,647. No person who is an officer, director, or employee of NationsBank or
its affiliates serves as an officer, Trustee, or employee of the Trust. The
Trustees and officers of Nations Fund own less than 1% of the shares of the
Trust.
The Trust has adopted a Code of Ethics which, among other things, prohibits
each access person of the Trust from purchasing or selling securities when such
person knows or should have known that, at the time of the transaction, the
security (i) was being considered for purchase or sale by the Fund, or (ii) was
being purchased or sold by the Fund. For purposes of the Code of Ethics, an
access person means (i) a Trustee or officer of the Trust, (ii) any employee of
the Trust (or any company in a control relationship with the Trust) who, in the
course of his/her regular duties, obtains information about, or makes
recommendations with respect to, the purchase or sale of securities by the
Trust, and (iii) any natural person in a control relationship with the Trust who
obtains information concerning recommendations made to the Trust regarding the
purchase or sale of securities. Portfolio managers and other persons who assist
in the investment process are subject to additional restrictions, including a
requirement that they disgorge to the Trust any profits realized on short-term
trading (i.e., the purchase/sale or sale/purchase of securities within any
60-day period). The above restrictions do not apply to purchases or sales of
certain types of securities, including money market instruments and certain U.S.
Government securities. To facilitate enforcement, the Code of Ethics generally
requires that the Trust's access persons, other than its "disinterested"
Trustees, submit reports to the Trust's designated compliance person regarding
transactions involving securities which are eligible for purchase by the Fund.
34
<PAGE>
Nations Fund Retirement Plan
Under the terms of the Nations Fund Retirement Plan for Eligible Trustees
(the "Retirement Plan"), each trustee may be entitled to certain benefits upon
retirement from the Board of Trustees. Pursuant to the Retirement Plan, the
normal retirement date is the date on which the eligible trustee has attained
age 65 and has completed at least five years of continuous service with one or
more of the open-end investment companies ("Fund") advised by the Adviser. If a
trustee retires before reaching age 65, no benefits are payable. Each eligible
trustee is entitled to receive an annual benefit from the Fund commencing on the
first day of the calendar quarter coincident with or next following his date of
retirement equal to 5% of the aggregate trustee's fees payable by the Fund
during the calendar year in which the trustee's retirement occurs multiplied by
the number of years of service (not in excess of ten years of service) completed
with respect to any of the Fund. Such benefit is payable to each eligible
trustee in quarterly installments for a period of no more than five years. If an
eligible trustee dies after attaining age 65, the trustee's surviving spouse (if
any) will be entitled to receive 50% of the benefits that would have been paid
(or would have continued to have been paid) to the trustee if he had not died.
The Retirement Plan is unfunded. The benefits owed to each trustee are unsecured
and subject to the general creditors of the Fund. At present the Plan is not in
effect and therefore there are no fees to disclose.
Nations Fund Deferred Compensation Plan
Under the terms of the Nations Fund Deferred Compensation Plan for
Eligible Trustees (the "Deferred Compensation Plan"), each trustee may elect, on
an annual basis, to defer all or any portion of the annual board fees (including
the annual retainer and all attendance fees) payable to the trustee for that
calendar year. An application was submitted to and approved by the SEC to permit
deferring trustees to elect to tie the rate of return on fees deferred pursuant
to the Deferred Compensation Plan to one or more of certain investment
portfolios of certain Funds of Nations Fund Trust. Distributions from the
deferring trustees' deferral accounts will be paid in cash, in generally equal
quarterly installments over a period of five years beginning on the date the
deferring trustee's retirement benefits commence under the Retirement Plan. The
Board of Trustees, in its sole discretion, may accelerate or extend such
payments after a trustee's termination of service. If a deferring trustee dies
prior to the commencement of the distribution of amounts in his deferral
account, the balance of the deferral account will be distributed to his
designated beneficiary in a lump sum as soon as practicable after the trustee's
death. If a deferring trustee dies after the commencement of such distribution,
but prior to the complete distribution of his deferral account, the balance of
the amounts credited to his deferral account will be distributed to his
designated beneficiary over the remaining period during which such amounts were
distributable to the trustee. Amounts payable under the Deferred Compensation
Plan are not funded or secured in any way and deferring trustees have the status
of unsecured creditors of the Fund from which they are deferring compensation.
35
<PAGE>
Shareholder and Trustee Liability
Under Massachusetts law, shareholders of a business trust may, under
certain circumstances, be held personally liable as partners for the obligations
of the trust. However, the Trust's Declaration of Trust provides that
shareholders shall not be subject to any personal liability for the acts or
obligations of the Trust, and that every note, bond, contract, order, or other
undertaking made by the Trust shall contain a provision to the effect that the
shareholders are not personally liable thereunder. The Declaration of Trust
provides for indemnification out of the trust property of any shareholder held
personally liable solely by reason of his being or having been a shareholder and
not because of his acts or omissions or some other reason. The Declaration of
Trust also provides that the Trust shall, upon request, assume the defense of
any claim made against any shareholder for any act or obligation of the Trust
and shall satisfy any judgment thereon. Thus, the risk of a shareholder
incurring financial loss on account of shareholder liability is limited to
circumstances in which the Trust itself would be unable to meet its obligations.
The Declaration of Trust states further that no Trustee, officer, or agent
of the Trust shall be personally liable for or on account of any contract, debt,
tort, claim, damage, judgment, or decree arising out of or connected with the
administration or preservation of the trust estate or the conduct of any
business of the Trust; nor shall any Trustee be personally liable to any person
for any action or failure to act except by reason of his own bad faith, willful
misfeasance, gross negligence, or reckless disregard of his duties as Trustee.
The Declaration of Trust also provides that all persons having any claim against
the Trustees or the Trust shall look solely to the trust property for payment.
With the exceptions stated, the Declaration of Trust provides that a
Trustee is entitled to be indemnified against all liabilities and expenses
reasonably incurred by him in connection with the defense or disposition of any
proceeding in which he may be involved or with which he may be threatened by
reason of his being or having been a Trustee, and that the Trustees have the
power, but not the duty, to indemnify officers and employees of the Trust unless
any such person would not be entitled to indemnification had he or she been a
Trustee.
INVESTMENT ADVISORY, ADMINISTRATION, CUSTODY,
TRANSFER AGENCY, SHAREHOLDER
SHAREHOLDER SERVICING AND DISTRIBUTION SERVICES AGREEMENTS
Investment Adviser
NBAI serves as investment adviser to the Fund of the Trust, pursuant to an
Investment Advisory Agreement dated January 1, 1996. Effective upon the
inception of the Fund, TradeStreet began serving as sub-investment adviser to
the Fund, pursuant to a Sub-Advisory Agreement dated January 1, 1996.
NBAI also serves as the investment adviser to Nations Fund, Inc., Nations
Institutional Reserves and Nations Fund Portfolios, Inc., each a registered
investment company that is part of
36
<PAGE>
the Nations Fund Family. In addition, NBAI serves as the investment advisor to
Hatteras Income Securities, Inc., Nations Government Income Term Trust 2003,
Inc., Nations Government Income Term Trust 2004, Inc. and Managed Balanced
Target Maturity Fund, Inc., each a closed-end diversified management investment
company traded on the New York Stock Exchange. TradeStreet also serves as the
sub-investment adviser to all of the Funds of Nations Fund, Inc., except the
Nations International Equity Fund, and to Nations Institutional Reserves,
Hatteras Income Securities, Inc., Nations Government Income Term Trust 2003,
Inc., Nations Government Income Term Trust 2004, Inc. and Managed Balanced
Target Maturity Fund, Inc.
NBAI and TradeStreet are each wholly owned banking subsidiaries of
NationsBank, which in turn is a wholly owned banking subsidiary of NationsBank
Corporation, a bank holding company organized as a North Carolina corporation.
Since 1874, NationsBank and its predecessors have been managing money for
foundations, universities, corporations, institutions and individuals.
NationsBank and its affiliates manage over $50 billion, including over $9
billion in Nations Fund assets, $1.2 billion in tax-free assets, and $35 billion
in fixed income assets for individuals, institutions and corporations in both
the United States and abroad. It is a company dedicated to a goal of providing
responsible investment management and superior service. NationsBank is
recognized for its sound investment approaches, which place it among the
nation's foremost financial institutions. NationsBank and its affiliates
organization makes available a wide range of financial services to its over 6
million customers through over 1700 banking and investment centers.
Approximately 12 of NationsBank personnel are involved in stock and bond
research.
NationsBank restructured its investment management division as of January
1, 1996 by reorganizing the division into two separate, wholly owned advisory
subsidiaries, NBAI and TradeStreet. The restructuring resulted in the transfer
of the division's investment management and advisory functions to NBAI, and its
day to day investment company portfolio management functions to TradeStreet. The
investment professionals who performed investment company management functions
and who managed the companies portfolios as employees of NationsBank continue to
perform such services as employees of NBAI and TradeStreet, respectively. The
restructuring did not change the scope and nature of investment advisory
services provided to the Fund. The restructuring, and related Investment
Advisory Agreement and Sub-Advisory Agreement, were approved by the Board of
Trustees of the Trust at the October 12-13, 1995 Board Meeting.
The Investment Advisory Agreement for NBAI and Sub-Advisory Agreement for
TradeStreet each provides that in the absence of willful misfeasance, bad faith,
negligence or reckless disregard of obligations or duties thereunder on the part
of NBAI or Trade Street, respectively, or any of their respective officers,
directors, employees or agents, NBAI or TradeStreet shall not be subject to
liability to the Trust or to any shareholder of the Trust for any act or
omission in the course of, or connected with, rendering services thereunder or
for any losses that may be sustained in the purchase, holding or sale of any
security.
37
<PAGE>
The Investment Advisory Agreement shall become effective with respect to
the Fund if and when approved by the Trustees of the Trust, and if so approved,
shall thereafter continue from year to year, provided that such continuation of
the Agreement is specifically approved at least annually by (a) (i) the Trust's
Board of Trustees or (ii) the vote of "a majority of the outstanding voting
securities" of the Fund (as defined in Section 2(a)(42) of the 1940 Act), and
(b) the affirmative vote of a majority of the Trust's Trustees who are not
parties to such Agreement or "interested persons" (as defined in the 1940 Act)
of a party to such Agreement (other than as Trustees of the Trust), by votes
cast in person at a meeting specifically called for such purpose.
The Investment Advisory Agreement will terminate automatically in the
event of its assignment, and is terminable with respect to the Fund at any time
without penalty by the Trust (by vote of the Board of Trustees or by vote of a
majority of the outstanding voting securities of the Fund) or by NBAI on 60
days' written notice.
The Sub-Advisory Agreement shall become effective with respect to the Fund
as of its execution date and, unless sooner terminated, shall continue in full
force and effect for one year, and may be continued with respect to the Fund
thereafter, provided that the continuation of the Agreement is specifically
approved at least annually by (a) (i) the Trust's Board of Trustees or (ii) the
vote of "a majority of the outstanding voting securities" of the Fund (as
defined in Section 2(a)(42) of the 1940 Act), and (b) the affirmative vote of a
majority of the Trust's Trustees who are not parties to such Agreement or
"interested persons" (as defined in the 1940 Act) of a party to such Agreement
(other than as Trustees of the Trust), by votes cast in person at a meeting
specifically called for such purpose.
The Sub-Advisory Agreement will terminate automatically in the event of
its assignment, and is terminable with respect to the Fund at any time without
penalty by the Trust (by vote of the Board of Trustees or by vote of a majority
of the outstanding voting securities of the Fund), or by NBAI, or by TradeStreet
on 60 days' written notice.
For the services provided and expenses assumed pursuant to the Advisory
Agreement, NBAI is entitled to receive an advisory fee, computed daily and paid
monthly, at the annual rate of 0.05% 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 0.20% of the average daily net
assets of the Fund. NBAI and/or TradeStreet may waive (either voluntarily or
pursuant to applicable state limitations) advisory fees payable by the Fund.
Administrator and Co-Administrator
Since the Fund's inception, Stephens Inc. (the "Administrator) has been
serving as administrator of the Trust and First Data Investor Services Group,
Inc. ("First Data"), formerly The Shareholder Services Group, Inc., has been
serving as the co-administrator of the Trust (the "Co-Administrator").
38
<PAGE>
The Administrator and Co-Administrator serve under an administration
agreement ("Administration Agreement") and a co-administration agreement
("Co-Administration Agreement"), respectively, each of which was approved by the
Board of Trustees on August 4, 1993. The Administrator receives, as compensation
for its services rendered under the Administration Agreement and as agent for
the Co-Administrator for the services it provides under the Co-Administration
Agreement, an administrative fee, computed daily and paid monthly, at the annual
rate of 0.10% of the average daily net assets of the Fund.
Pursuant to the Administration Agreement, the Administrator has agreed to,
among other things, (i) maintain office facilities for the Fund, (ii) furnish
statistical and research data, data processing, clerical, and internal executive
and administrative services to the Trust, (iii) furnish corporate secretarial
services to the Trust, including coordinating the preparation and distribution
of materials for Board of Trustees meetings, (iv) coordinate the provision of
legal advice to the Trust with respect to regulatory matters, (v) coordinate the
preparation of reports to the Trust's shareholders and the SEC, including annual
and semi-annual reports, (vi) coordinate the provision of services to the Trust
by the Co-Administrator, the Transfer Agents and the Custodian, and (vii)
generally assist in all aspects of the Trust's operations. Additionally, the
Administrator is authorized to receive, as agent for the Co-Administrator, the
fees payable to the Co-Administrator by the Trust for its services rendered
under the Co-Administration Agreement. The Administrator bears all expenses
incurred in connection with the performance of its services.
Pursuant to the Co-Administration Agreement, the Co-Administrator has
agreed to, among other things, (i) provide accounting and bookkeeping services
for the Fund, (ii) compute the Fund's net asset value and net income, (iii)
accumulate information required for the Trust's reports to shareholders and the
SEC, (iv) prepare and file the Trust's federal and state tax returns, (v)
perform monthly compliance testing for the Trust, and (vi) prepare and furnish
the Trust monthly broker security transaction summaries and transaction listings
and performance information. The Co-Administrator bears all expenses incurred in
connection with the performance of its services.
The Administration Agreement and the Co-Administration Agreement may be
terminated by a vote of a majority of the Board of Trustees, or by the
Administrator or Co-Administrator, respectively, on 60 days' written notice
without penalty. The Administration Agreement and Co-Administration Agreement
are not assignable without the written consent of the other party. Furthermore,
the Administration Agreement and the Co-Administration Agreement provide that
the Administrator and Co-Administrator, respectively, shall not be liable to the
Fund or to its shareholders except in the case of the Administrator's or
Co-Administrator's, respectively, willful misfeasance, bad faith, gross
negligence or reckless disregard of duty.
As discussed under the caption "Expenses," the Administrator will be
required to reduce its fee from the Trust, in direct proportion to the fees
payable to the Adviser and the Administrator by the Trust, if the expenses of
the Trust exceed the applicable expense limitation of any state in which the
Fund's shares are registered or qualified for sale.
39
<PAGE>
Custodian and Transfer Agent
NationsBank of Texas, N.A., serves as custodian for the fund securities
and cash of the Fund. As custodian, NationsBank of Texas, N.A., maintains
custody of the Fund's securities, cash and other property, delivers securities
against payment upon sale and pays for securities against delivery upon
purchase, makes payments on behalf of the Fund for payments of dividends,
distributions and redemptions, endorses and collects on behalf of the Fund all
checks, and receives all dividends and other distributions made on securities
owned by the Fund. For such services, NationsBank of Texas, N.A., is entitled to
receive, in addition to out-of-pocket expenses, fees, payable monthly (i) at the
rate of 1.25% of 1% of the 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. NationsBank of Texas, N.A. is
a wholly owned subsidiary of NationsBank Corp.
First Data, which is located at One Exchange Place, Boston, Massachusetts
02109, acts as transfer agent for the Trust's shares. Under the transfer agency
agreements, the transfer agent maintains the shareholder account records for the
Trust, handles certain communications between shareholders and the Trust, and
distributes dividends and distributions payable by the Trust to shareholders,
and produces statements with respect to account activity for the Trust and its
shareholders for these services. The transfer agent receives a monthly fee
computed on the basis of the number of shareholder accounts that it maintains
for the Trust during the month and is reimbursed for out-of-pocket expenses.
NationsBank of Texas, N.A., 901 Main Street, Dallas, Texas 75201, serves as
sub-transfer agent for the Fund's Primary A and Primary B Shares.
Shareholder Administration Plan (Primary B Shares Only)
As stated in the Prospectus describing the Primary B Shares of the Fund,
the Trust has a Shareholder Administration Plan (the "Administration Plan") with
respect to such shares. Pursuant to the Administration Plan, the Trust may enter
into agreements ("Administration Agreements") with broker/dealers, banks and
other financial institutions that are dealers of record or holders of record or
which have a servicing relationship with the beneficial owners of the Fund's
Primary B Shares ("Servicing Agents"). The Administration Plan provides that
pursuant to the Administration Agreements, Servicing Agents shall provide the
shareholder support services as set forth therein to their customers who may
from time to time own of record or beneficially Primary B Shares in
consideration for the payment of up to 0.60% (on an annualized basis) of the net
asset value of such shares. Such services may include: (i) aggregating and
processing purchase, exchange and redemption requests for Primary B Shares from
Customers and transmitting promptly net purchase and redemption orders with the
Distributor or the transfer agents; (ii) providing Customers with a service that
invests the assets of their accounts in Primary B Shares pursuant to specific or
pre-authorized instructions; (iii) processing dividend and distribution payments
from the Trust on behalf of Customers; (iv) providing information periodically
to Customers showing their positions in Primary B Shares; (v) arranging for bank
wires; (vi) responding to Customer inquiries concerning their investment in
Primary B Shares; (vii) providing sub-accounting with respect to Primary B
Shares beneficially owned by Customers or the information necessary for
sub-accounting; (viii) if required by law, forwarding shareholder
40
<PAGE>
communications (such as proxies, shareholder reports annual and semi-annual
financial statements and dividend, distribution and tax notices) to Customers;
(ix) forwarding to Customers proxy statements and proxies containing any
proposals regarding an Administration Agreement; (x) employee benefit plan
recordkeeping, administration, custody and trustee services; (xi) general
shareholder liaison services and (xii) providing such other similar services as
may reasonably be requested to the extent permitted under applicable statutes,
rules, or regulations.
The Administration Plan also provides that in no event may the portion of
the shareholder administration fee that constitutes a "service fee," as the term
is defined in NASD Service Plan Rule, exceed 0.25% of the average daily net
asset value of the Primary B Shares of the Fund. In addition, to the extent any
portion of the fees payable under the Plan is deemed to be for services
primarily intended to result in the sale of Fund shares, such fees are deemed
approved and may be paid under the Administration Plan. Accordingly, the
Administration Plan has been approved and will be operated pursuant to Rule
12b-1 under the 1940 Act. Such plan shall continue in effect as long as the
Board of Trustees, including a majority of the Qualified Trustees, specifically
approves the plan at least annually.
Distribution Plans and Shareholder Servicing Arrangements for Investor Shares
Investor A Shares. The Trust has adopted a revised Amended and Restated
Shareholder Servicing and Distribution Plan (the "Investor A Plan") pursuant to
Rule 12b-1 under the 1940 Act with respect to the Investor A Shares of the Funds
of Nations Fund Trust. The Investor A Plan provides that the Fund may pay the
Distributor or banks, broker/dealers or other financial institutions that offer
shares of the Fund and that have entered into a Sales Support Agreement with the
Distributor ("Selling Agents") or a Shareholder Servicing Agreement with Nations
Fund Trust ("Servicing Agents"), up to 0.25% (on an annualized basis) of the
average daily net asset value of the Fund.
Such payments may be made to (i) the Distributor for reimbursements of
distribution-related expenses actually incurred by the Distributor, including,
but not limited to, expenses of organizing and conducting sales seminars,
printing of prospectuses and statements of additional information (and
supplements thereto) and reports for other than existing shareholders,
preparation and distribution of advertising material and sales literature and
costs of administering the Investor A Plan, or (ii) Selling Agents that have
entered into a Sales Support Agreement with the Distributor for providing sales
support assistance in connection with the sale of Investor A Shares. The sales
support assistance provided by a Selling Agent under a Sales Support Agreement
may include forwarding sales literature and advertising provided by Nations Fund
Trust or the Distributor to their customers and providing such other sales
support assistance as may be requested by the Distributor from time to time.
Payments under the Investor A Plan by the Fund also may be made to
Servicing Agents that have entered into a Shareholder Servicing Agreement with
Nations Fund Trust for providing shareholder support services to their Customers
which hold of record or beneficially Investor A Shares of the Fund. Such
shareholder support services provided by Servicing Agents to holders
41
<PAGE>
of Investor A Shares of the Fund may include (i) aggregating and processing
purchase and redemption requests for Investor A Shares from their Customers and
transmitting promptly net purchase and redemption orders to our distributor or
transfer agent; (ii) providing their Customers with a service that invests the
assets of their accounts in Investor A Shares pursuant to specific or
pre-authorized instructions; (iii) processing dividend and distribution payments
from Nations Fund Trust on behalf of their Customers; (iv) providing information
periodically to their Customers showing their positions in Investor A Shares;
(v) arranging for bank wires; (vi) responding to their Customers' inquiries
concerning their investment in Investor A Shares; (vii) providing subaccounting
with respect to Investor A Shares beneficially owned by their Customers or the
information to us necessary for subaccounting; (viii) if required by law,
forwarding shareholder communications from Nations Fund Trust (such as proxies,
shareholder reports, annual and semi-annual financial statements and dividend,
distribution and tax notices) to their Customers; (ix) forwarding to their
Customers proxy statements and proxies containing any proposals regarding the
Shareholder Servicing Agreement; (x) providing general shareholder liaison
services; and (xi) providing such other similar services as Nations Fund Trust
may reasonably request to the extent the Selling Agent is permitted to do so
under applicable statutes, rules or regulations.
Expenses incurred by the Distributor pursuant to the Investor A Plan in
any given year may exceed the sum of the fees received under the Investor A
Plan. Any such excess may be recovered by the Distributor in future years so
long as the Investor A Plan is in effect. If the Investor A Plan were terminated
or not continued, the Fund would not be contractually obligated to pay the
Distributor for any expenses not previously reimbursed by the Fund. Fees
received by the Distributor pursuant to the Investor A Plan will not be used to
pay any interest expenses, carrying charges or other financing costs (except to
the extent permitted by the SEC) and will not be used to pay any general and
administrative expenses of the Distributor.
Investor C Shares. As stated in the relevant Prospectuses, the Trustees of the
Trust have approved an Amended and Restated Distribution Plan (the "Investor C
Plan") in accordance with Rule 12b-1 under the 1940 Act for the Investor C
Shares of the Fund. Pursuant to the Investor C Plan, the Fund may pay the
Distributor for certain expenses that are incurred in connection with sales
support services. Payments under the Investor C Plan will be calculated daily
and paid monthly at a rate set from time to time by the Board of Trustees
provided that the annual rate may not exceed 0.75% of the average daily net
asset value of Investor C Shares of the Fund. Payments to the Distributor
pursuant to the Investor C Plan will be used (i) to compensate banks, other
financial institutions or a securities broker/dealer that have entered into a
Sales Support Agreement with the Distributor ("Selling Agents") for providing
sales support assistance relating to Investor C Shares covered by the Plan, (ii)
for promotional activities intended to result in the sale of Investor C Shares
covered by the Plan such as to pay for the preparation, printing and
distribution of prospectuses to other than current shareholders, and (iii) to
compensate Selling Agents for
42
<PAGE>
providing sales support services with respect to their Customers who are, from
time to time, beneficial and record holders of Investor C Shares covered by the
Plan. Currently, substantially all fees paid pursuant to the Investor C Plan are
paid to compensate Selling Agents for providing the services described in (i)
and (iii) above, with any remaining amounts being used by the Distributor to
partially defray other expenses incurred by the Distributor in distributing
Investor C Shares of the Fund. Fees received by the Distributor pursuant to the
Investor C Plan will not be used to pay any interest expenses, carrying charges
or other financing costs (except to the extent permitted by the SEC) and will
not be used to pay any general and administrative expenses of the Distributor.
Pursuant to the Investor C Plan, the Distributor may enter into Sales Support
Agreements with Selling Agents for providing sales support services to their
Customers who are the record or beneficial owners of Investor C Shares of the
Fund. Such Selling Agents will be compensated at the annual rate of up to 0.75%
of the average daily net asset value of the Investor C Shares of the Fund held
of record or beneficially by such Customers. The sales support services provided
by Selling Agents may include providing distribution assistance and promotional
activities intended to result in the sales of shares such as paying for the
preparation, printing and distribution of prospectuses to other than current
shareholders. Fees paid pursuant to the Investor C Plan are accrued daily and
paid monthly, and are charged as expenses of shares of the Fund as accrued.
Expenses incurred by the Distributor pursuant to the Investor C Plan in any
given year may exceed the sum of the fees received under the Investor C Plan and
payments received pursuant to contingent deferred sales charges. Any such excess
may be recovered by the Distributor in future years so long as the Investor C
Plan is in effect. If the Investor C Plan were terminated or not continued, the
Fund would not be contractually obligated to pay the Distributor for any
expenses not previously reimbursed by the Fund or recovered through contingent
deferred sales charges.
In addition, the Trustees have approved an Amended and Restated
Shareholder Servicing Plan with respect to Investor C Shares of the Fund (the
"Investor C Servicing Plan"). Pursuant to its Investor C Servicing Plan, the
Fund may pay banks, broker/dealers or other financial institutions that have
entered into a Shareholder Servicing Agreement with the Trust ("Servicing
Agents") for certain expenses that are incurred by the Servicing Agents in
connection with shareholder support services that are provided by the Servicing
Agents. Payments under the Fund's Investor C Servicing Plan will be calculated
daily and paid monthly at a rate set from time to time by the Board of Trustees,
provided that the annual rate may not exceed 0.25% of the average daily net
asset value of the Fund's Investor C Shares. The shareholder services provided
by the Servicing Agents may include (i) aggregating and processing purchase and
redemption requests for Investor C Shares covered by the Plan from Customers and
transmitting promptly net purchase and redemption orders to our distributor or
transfer agent; (ii) providing Customers with a service that invests the assets
of their accounts in Investor C Shares covered by the Plan pursuant to specific
or pre-authorized instructions; (iii) processing dividend and distribution
payments from the Trust on behalf of Customers; (iv) providing information
periodically to Customers showing their positions in Investor C Shares covered
by the Plan; (v) arranging for bank wires; (vi) responding to Customers'
inquiries concerning their investment in Investor Shares covered by the Plan;
(vii) providing subaccounting with respect to Investor C Shares covered by the
Plan beneficially owned by Customers or providing the information to us
necessary for subaccounting; (viii) if required by law, forwarding shareholder
communications from the
43
<PAGE>
Trust (such as proxies, shareholder reports, annual and semi-annual financial
statements and dividend, distribution and tax notices) to Customers; (ix)
forwarding to Customers proxy statements and proxies containing any proposals
regarding the Shareholder Servicing Agreement; (x) providing general shareholder
liaison services; and (xi) providing such other similar services as the Trust
may reasonably request to the extent the Servicing Agent is permitted to do so
under applicable statutes, rules or regulations.
Information Applicable to Investor Shares. The Investor A Plan, the Investor A
Servicing Plan, the Investor C Plan and the Investor C Servicing Plan (each a
"Plan" and collectively the "Plans") may only be used for the purposes specified
above and as stated in each such Plan. Compensation payable to Selling Agents or
Servicing Agents for shareholder support services under the Investor A Plan, the
Investor A Servicing Plan and the Investor C Servicing Plan is subject to, among
other things, the National Association of Securities Dealers, Inc. ("NASD")
Rules of Fair Practice governing receipt by NASD members of servicing fees from
registered investment companies (the "NASD Service Fee Rule"), which became
effective on July 7, 1993. Such compensation shall only be paid for services
determined to be permissible under the NASD Service Fee Rule.
Each Plan requires the officers of the Trust to provide the Board of Trustees
at least quarterly with a written report of the amounts expended pursuant to the
Plan and the purposes for which such expenditures were made. The Board of
Trustees reviews these reports in connection with their decisions with respect
to the Plans.
As required by Rule 12b-1 under the 1940 Act, the Investor A Plan and the
Primary B Administration Plan were approved by the Board of Trustees, including
a majority of the trustees who are not "interested persons" (as defined in the
1940 Act) of the Trust and who have no direct or indirect financial interest in
the operation of the Plan or in any agreements related to the Plan ("Qualified
Trustees") on January 18, 1996. The Investor C Plan and Investor C Servicing
Plan were so approved on April 14, 1996.
In approving the Plans in accordance with the requirements of Rule 12b-1, the
Trustees considered various factors and determined that there is a reasonable
likelihood that each Plan will benefit the respective Investor A and Investor C
Shares of the Fund and the holders of such shares.
All Plans shall continue in effect as long as such continuance is specifically
approved at least annually by the Board of Trustees, including a majority of
qualified Trustees.
The Investor A Plan and the Investor C Plan may be terminated with respect to
Investor A or Investor C Shares by vote of a majority of the Qualified Trustees,
or by vote of a majority of the holders of the Fund's outstanding voting
securities of the Investor A or Investor C Shares. Any change in such a Plan
that would increase materially the distribution expenses paid by the Investor A
or Investor C Shares, as appropriate, requires shareholder approval; otherwise,
each Plan may be amended by the trustees, including a majority of the Qualified
Trustees, by vote cast in person at a
44
<PAGE>
meeting called for the purpose of voting upon such amendment. The Investor A
Servicing Plan and the Investor C Servicing Plan may be terminated by a vote of
a majority of the Qualified Trustees. As long as a Plan is in effect, the
selection or nomination of the Qualified Trustees is committed to the discretion
of the Qualified Trustees.
Conflict of interest restrictions may apply to the receipt by Selling and/or
Servicing Agents of compensation from Nations Fund in connection with the
investment of fiduciary assets in Investor Shares. Selling and/or Servicing
Agents, including banks regulated by the Comptroller of the Currency, the
Federal Reserve Board, or the Federal Deposit Insurance Corporation, and
investment advisers and other money managers subject to the jurisdiction of the
SEC, the Department of Labor, or state securities commissions, are urged to
consult their legal advisers before investing such assets in Investor Shares.
DISTRIBUTOR
Since the inception of the Fund, Stephens Inc. (the "Distributor"), began
serving as the principal underwriter and distributor of the shares of the Fund.
At a meeting held on August 4, 1993, the Board of Trustees selected Stephens
Inc. as Distributor and approved a distribution agreement ("Distribution
Agreement") with the Distributor. Pursuant to the Distribution Agreement, the
Distributor, as agent, sells shares of the Fund on a continuous basis and
transmits purchase and redemption orders that its receives to the Trust or the
Transfer Agent. Additionally, the Distributor has agreed to use appropriate
efforts to solicit orders for the sale of shares and to undertake such
advertising and promotion as it believes appropriate in connection with such
solicitation. Pursuant to the Distribution Agreement, the Distributor, at its
own expense, finances those activities which are primarily intended to result in
the sale of shares of the Fund, including, but not limited to, advertising,
compensation of underwriters, dealers and sales personnel, the printing of
prospectuses to other than existing shareholders, and the printing and mailing
of sales literature. The Distributor, however, may be reimbursed for all or a
portion of such expenses to the extent permitted by a distribution plan adopted
by the Trust pursuant to Rule 12b-1 under the 1940 Act.
The Distribution Agreement will continue year to year as long as such
continuance is approved at least annually by (i) the Board of Trustees or a vote
of the majority (as defined in the 1940 Act) of the outstanding voting
securities of the Fund and (ii) a majority of the trustees who are not parties
to the Distribution Agreement or "interested persons" of any such party by a
vote cast in person at a meeting called for such purpose. The Distribution
Agreement is not assignable and is terminable with respect to the Fund, without
penalty, on 60 days' notice by the Board of Trustees, the vote of a majority (as
defined in the 1940 Act) of the outstanding voting securities of the Fund, or by
the Distributor.
45
<PAGE>
INDEPENDENT ACCOUNTANTS AND REPORTS
The Board of Trustees has selected Price Waterhouse LLP, with offices at
160 Federal Street, Boston, MA 02110, to serve as independent accountant to
Nations Fund Trust.
The Fund has not commenced operation as of the date of this SAI. As such,
the financial statements for the Fund are not yet available. The Annual Reports,
dated March 31, 1996 for the funds of Nations Fund Trust are, however,
incorporated by reference into this SAI. The Annual Report for the Fund, when
available, will be sent free of charge to all shareholders of record.
COUNSEL
Morrison & Foerster LLP, 2000 Pennsylvania Avenue, N.W., Suite 5500,
Washington, D.C. 20006-1812, is counsel to the Trust.
ADDITIONAL INFORMATION ON PERFORMANCE
From time to time, the yield and total return of the Fund's Investor
Shares and Primary Shares may be quoted in advertisements, shareholder reports,
and other communications to shareholders. Performance information is available
by calling 1-800-321-7854 with respect to Investor Shares and 1-800-621-2192
with respect to Primary Shares.
Yield Calculations
Yield is calculated separately for the Investor A, Primary A and Primary B
Shares of the Fund by dividing the net investment income per share for a
particular class or series of shares (as described below) earned during a 30-day
period by the maximum offering price per share on the last day of the period
(for Primary A and Primary B Shares, maximum offering price per share is the
same as the net asset value per share) and annualizing the result on a
semi-annual basis by adding one to the quotient, raising the sum to the power of
six, subtracting one from the result and then doubling the difference. For a
class or series of shares in the Fund, net investment income per share earned
during the period is based on the average daily number of shares outstanding
during the period entitled to receive dividends and includes dividends and
interest earned during the period minus expenses accrued for the period, net of
reimbursements. This calculation can be expressed as follows:
Yield = 2 [(a-b+ 1)6 - 1]
cd
Where: a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements).
46
<PAGE>
c = the average daily number of shares outstanding
during the period that were entitled to receive
dividends.
d = maximum offering price per share on the last day of
the period (again, for Primary A and Primary B Shares,
this is equivalent to net asset value per share).
For the purpose of determining net investment income earned during the
period (variable "a" in the formula), dividend income on equity securities held
by the Fund is recognized by accruing 1/360 of the stated dividend rate of the
security each day that the security is in the portfolio. The Fund calculates
interest earned on any debt obligations held in its portfolio by computing the
yield to maturity of each obligation held by it based on the market value of the
obligation (including actual accrued interest) at the close of business on the
last business day of each month, or, with respect to obligations purchased
during the month, the purchase price (plus actual accrued interest) and dividing
the result by 360 and multiplying the quotient by the market value of the
obligation (including actual accrued interest) in order to determine the
interest income on the obligation for each day of the subsequent month that the
obligation is in the portfolio. For purposes of this calculation, it is assumed
that each month contains 30 days. The maturity of an obligation with a call
provision is the next call date on which the obligation reasonably may be
expected to be called or, if none, the maturity date. With respect to debt
obligations purchased at a discount or premium, the formula generally calls for
amortization of the discount or premium. The amortization schedule will be
adjusted monthly to reflect changes in the market values of such debt
obligations.
Expenses accrued for the period (variable "b" in the formula) include
recurring fees charged by Nations Fund to shareholder accounts in proportion to
the length of the base period. Undeclared earned income will be subtracted from
the maximum offering price per share (which for Primary A and Primary B Shares
is net asset value per share) (variable "d" in the formula). Undeclared earned
income is the net investment income which, at the end of the base period, has
not been declared as a dividend, but is reasonably expected to be and is
declared as a dividend shortly thereafter. The Fund's maximum offering price per
share for purposes of the formula includes the maximum sales charge, if any,
imposed by the Fund, as reflected in the Fund's Prospectuses.
The Fund may provide additional yield calculations in communications
(other than advertisements) to the holders of Investor A Shares. These may be
calculated based on the Investor A Shares' net asset values per share (rather
than their maximum offering prices) on the last day of the period covered by the
yield computations. That is, some communications provided to the holders of
Investor A Shares may also include additional yield calculations prepared for
the holders of Primary A or Primary B Shares. Such additional quotations,
therefore, will not reflect the effect of the sales charges mentioned above.
47
<PAGE>
Total Return Calculations
The Fund computes its average annual total return for Investor A, Primary
A and Primary B Shares separately by determining the average annual compounded
rates of return during specified periods that equate the initial amount invested
to the ending redeemable value of such investment. This is done by dividing the
ending redeemable value of a hypothetical $1,000 initial payment by $1,000 and
raising the quotient to a power equal to one divided by the number of years (or
fractional portion thereof) covered by the computation and subtracting one from
the result. This calculation can be expressed as follows:
T = [(ERV)1/n - 1]
P
Where: T = average annual total return.
ERV = ending redeemable value at
the end of the period covered
by the computation of a
hypothetical $1,000 payment
made at the beginning of the
period.
P = hypothetical initial payment
of $1,000.
n = period covered by the computation,
expressed in terms of years.
The Fund compute its aggregate total returns for Investor A, Investor C,
Primary A and Primary B Shares separately by determining the aggregate rates of
return during specified periods that likewise equate the initial amount invested
to the ending redeemable value of such investment. The formula for calculating
aggregate total return is as follows:
T = [(ERV) - 1]
P
The calculations of average annual total return and aggregate total return
assume the reinvestment of all dividends and capital gain distributions on the
reinvestment dates during the period. The ending redeemable value (variable
"ERV" in each formula) is determined by assuming complete redemption of the
hypothetical investment and the deduction of all nonrecurring charges at the end
of the period covered by the computations. The Fund's average annual total
return and aggregate total return quotations for Primary A, Primary B, Investor
A and Investor C Shares reflect the deduction of the maximum sales charge
charged (if applicable) with respect to the applicable class of shares in
connection with the purchase of these shares. The Fund may also provide, in
conjunction with such quotations for Primary A and Investor A Shares, additional
quotations that do not reflect the maximum sales charge when the quotations are
being provided to investors who are subject to waiver of or reduction in the
sales charges described in the Investor Shares Prospectuses.
Since the Fund has not commenced operation, no information on average
annual total return or aggregate annual total return for any class of shares is
available.
48
<PAGE>
From time to time, the Fund may compare the performance and yield of a
class or series of shares to those of other mutual funds with similar investment
objectives and to other relevant indices or to rankings prepared by independent
services or other financial or industry publications that monitor the
performance of mutual funds. For example, the performance and yield of a class
of shares in the Fund may be compared to data prepared by Lipper Analytical
Services, Inc. The performance and yield of a class of shares in the Fund may
also be compared to the Standard & Poor's 500 Stock Index, an unmanaged index of
a group of common stocks, the Consumer Price Index, or the Dow Jones Industrial
Average, a recognized unmanaged index of common stocks of 30 industrial
companies listed on the Exchange. Performance and yield data as reported in
national financial publications such as Money Magazine, Forbes, Barron's, The
Wall Street Journal, and The New York Times, or in publications of a local or
regional nature, also may be used in comparing the performance of a class of
shares in the Fund.
The Fund may quote information obtained from the Investment Company
Institute in its advertising materials and sales literature.
Ibbotson Data. Ibbotson Associates of Chicago, Illinois, ("Ibbotson")
provides historical returns of the capital markets in the United States. The
Fund may compare the performance of its share classes or series to the long-term
performance of the U.S. capital markets in order to demonstrate general
long-term risk versus reward investment scenarios. Performance comparisons could
also include the value of a hypothetical investment in common stocks, long-term
bonds or treasuries.
The capital markets tracked by Ibbotson are common stocks, small
capitalization stocks, long-term corporate bonds, intermediate-term government
bonds, long-term government bonds, Treasury Bills, and the U.S. rate of
inflation. These capital markets are based on the returns of several different
indices. For common stocks, the S&P is used. For small capitalization stocks,
return is based on the return achieved by Dimensional Fund Advisors (DFA) Small
Company Fund. This fund is a market-value-weighted index of the ninth and tenth
deciles of the Exchange, plus stocks listed on the American Stock Exchange
(AMEX) and over-the-counter (OTC) with the same or less capitalization as the
upperbound of the Exchange ninth decile. At year-end 1995, the DFA Small Company
Fund contained approximately 2,663 stocks, with a weighted average market
capitalization of $165.75 million. The unweighted average market capitalization
was $82.97 million, while the median was $56.0 million.
MISCELLANEOUS
Certain Record Holders
As of the date of this SAI, NationsBank Corporation and its affiliates
owned of record more than 25% of the outstanding shares of the Trust acting as
agent, fiduciary, or custodian for its customers and may be deemed a controlling
person of the Trust under the 1940 Act.
49
<PAGE>
SCHEDULE A
ADDITIONAL INFORMATION CONCERNING
OPTIONS & FUTURES
As stated in the Prospectuses, the Fund may enter into futures contracts
and options for hedging purposes. Such transactions are described in this
Schedule. During the current fiscal year, the Fund intends to limit its
transactions in futures contracts and options so that not more than 5% of the
Fund's net assets are at risk. Furthermore, in no event would the Fund purchase
or sell futures contracts, or related options thereon, for hedging purposes if,
immediately thereafter, the aggregate initial margin that is required to be
posted by the Fund under the rules of the exchange on which the futures contract
(or futures option) is traded, plus any premiums paid by the Fund on its open
futures options positions, exceeds 5% of the Fund's total assets, after taking
into account any unrealized profits and unrealized losses on the Fund's open
contracts and excluding the amount that a futures option is "in-the-money" at
the time of purchase. (An option to buy a futures contract is "in-the-money" if
the value of the contract that is subject to the option exceeds the exercise
price; an option to sell a futures contract is "in-the-money" if the exercise
price exceeds the value of the contract that is subject of the option.)
I. Interest Rate Futures Contracts.
Use of Interest Rate Futures Contracts. Bond prices are established in
both the cash market and the futures market. In the cash market, bonds are
purchased and sold with payment for the full purchase price of the bond being
made in cash, generally within five business days after the trade. In the
futures market, only a contract is made to purchase or sell a bond in the future
for a set price on a certain date. Historically, the prices for bonds
established in the futures market have tended to move generally in the aggregate
in concert with the cash market prices and have maintained fairly predictable
relationships. Accordingly, the Fund may use interest rate futures as a defense,
or hedge, against anticipated interest rate changes and not for speculation. As
described below, this would include the use of futures contract sales to protect
against expected increases in interest rates and futures contract purchases to
offset the impact of interest rate declines.
The Fund presently could accomplish a similar result to that which it
hopes to achieve through the use of futures contracts by selling bonds with long
maturities and investing in bonds with short maturities when interest rates are
expected to increase, or conversely, selling short-term bonds and investing in
long-term bonds when interest rates are expected to decline. However, because of
the liquidity that is often available in the futures market the protection is
more likely to be achieved, perhaps at a lower cost and without changing the
rate of interest being earned by the Fund, through using futures contracts.
Description of Interest Rates Futures Contracts. An interest rate futures
contract sale would create an obligation by the Fund, as seller, to deliver the
specific type of financial instrument called for in the contract at a specific
future time for a specified price. A futures contract purchase would create an
obligation by the Fund, as purchaser, to take delivery of the specific type
A-1
<PAGE>
of financial instrument at a specific future time at a specific price. The
specific securities delivered or taken, respectively, at settlement date, would
not be determined until at or near that date. The determination would be in
accordance with the rules of the exchange on which the futures contract sale or
purchase was made.
Although interest rate futures contracts by their terms call for actual
delivery or acceptance of securities, in most cases the contracts are closed out
before the settlement date without the making or taking of delivery of
securities. Closing out a futures contract sale is effected by the Fund's
entering into a futures contract purchase for the same aggregate amount of the
specific type of financial instrument and the same delivery date. If the price
in the sale exceeds the price in the offsetting purchase, the Fund is paid the
difference and thus realizes a gain. If the offsetting purchase price exceeds
the sale price, the Fund pays the difference and realizes a loss. Similarly, the
closing out of a futures contract purchase is effected by the Fund's entering
into a futures contract sale. If the offsetting sale price exceeds the purchase
price, the Fund realizes a gain, and if the purchase price exceeds the
offsetting sale price, the Fund realizes a loss.
Interest rate futures contracts are traded in an auction environment on
the floors of several exchanges - principally, the Chicago Board of Trade, the
Chicago Mercantile Exchange and the New York Futures Exchange. The Fund would
deal only in standardized contracts on recognized changes. Each exchange
guarantees performance under contract provisions through a clearing corporation,
a nonprofit organization managed by the exchange membership.
A public market now exists in futures contracts covering various financial
instruments including long-term United States Treasury Bonds and Notes;
Government National Mortgage Association (GNMA) modified pass-through
mortgage-backed securities; three-month United States Treasury Bills; and
ninety-day commercial paper. The Fund may trade in any futures contract for
which there exists a public market, including, without limitation, the foregoing
instruments.
Examples of Futures Contract Sale. The Fund would engage in an interest
rate futures contract sale to maintain the income advantage from continued
holding of a long-term bond while endeavoring to avoid part or all of the loss
in market value that would otherwise accompany a decline in long-term securities
prices. Assume that the market value of a certain security in the Fund tends to
move in concert with the futures market prices of long-term United States
Treasury bonds ("Treasury Bonds"). The investment adviser ("Adviser") wishes to
fix the current market value of this portfolio security until some point in the
future. Assume the portfolio security has a market value of 100, and the Adviser
believes that, because of an anticipated rise in interest rates, the value will
decline to 95. The Fund might enter into futures contract sales of Treasury
bonds for an equivalent of 98. If the market value of the portfolio securities
does indeed decline from 100 to 95, the equivalent futures market price for the
Treasury bonds might also decline from 98 to 93.
In that case, the five-point loss in the market value of the portfolio
security would be offset by the five-point gain realized by closing out the
futures contract sale. Of course, the futures
A-2
<PAGE>
market price of Treasury bonds might well decline to more than 93 or to less
than 93 because of the imperfect correlation between cash and futures prices
mentioned below.
The Adviser could be wrong in its forecast of interest rates and the
equivalent futures market price could rise above 98. In this case, the market
value of the portfolio securities, including the portfolio security being
protected, would increase. The benefit of this increase would be reduced by the
loss realized on closing out the futures contract sale.
If interest rate levels did not change, the Fund in the above example
might incur a loss of 2 points (which might be reduced by an offsetting
transaction prior to the settlement date). In each transaction, transaction
expenses would also be incurred.
Examples of Future Contract Purchase. The Fund would engage in an interest
rate futures contract purchase when it is not fully invested in long-term bonds
but wishes to defer for a time the purchase of long-term bonds in light of the
availability of advantageous interim investments, e.g., shorter-term securities
whose yields are greater than those available on long-term bonds. The Fund's
basic motivation would be to maintain for a time the income advantage from
investing in the short-term securities; the Fund would be endeavoring at the
same time to eliminate the effect of all or part of an expected increase in
market price of the long-term bonds that the Fund may purchase.
For example, assume that the market price of a long-term bond that the
Fund may purchase, currently yielding 10%, tends to move in concert with futures
market prices of Treasury bonds. The Adviser wishes to fix the current market
price (and thus 10% yield) of the long-term bond until the time (four months
away in this example) when it may purchase the bond. Assume the long-term bond
has a market price of 100, and the Adviser believes that, because of an
anticipated fall in interest rates, the price will have risen to 105 (and the
yield will have dropped to about 9-1/2%) in four months. The Fund might enter
into futures contracts purchases of Treasury bonds for an equivalent price of
98. At the same time, the Fund would assign a pool of investments in short-term
securities that are either maturing in four months or earmarked for sale in four
months, for purchase of the long-term bond at an assumed market price of 100.
Assume these short-term securities are yielding 15%. If the market price of the
long-term bond does indeed rise from 100 to 105, the equivalent futures market
price for Treasury bonds might also rise from 98 to 103. In that case, the
5-point increase in the price that the Fund pays for the long-term bond would be
offset by the 5-point gain realized by closing out the futures contract
purchase.
The Adviser could be wrong in its forecast of interest rates; long-term
interest rates might rise to above 10%; and the equivalent futures market price
could fall below 98. If short-term rates at the same time fall to 10% or below,
it is possible that the Fund would continue with its purchase program for
long-term bonds. The market price of available long-term bonds would have
decreased. The benefit of this price decrease, and thus yield increase, will be
reduced by the loss realized on closing out the futures contract purchase.
If, however, short-term rates remained above available long-term rates, it
is possible that the Fund would discontinue its purchase program for long-term
bonds. The yield on short-term
A-3
<PAGE>
securities in the portfolio, including those originally in the pool assigned to
the particular long-term bond, would remain higher than yields on long-term
bonds. The benefit of this continued incremental income will be reduced by the
loss realized on closing out the futures contract purchase.
In each transaction, expenses also would be incurred.
II. Index Futures Contracts.
A stock or bond index assigns relative values to the stocks or bonds
included in the index, and the index fluctuates with changes in the market
values of the stocks or bonds included. Some stock index futures contracts are
based on broad market indices, such as the Standard & Poor's 500 or the Exchange
Composite Index. In contract, certain exchanges offer futures contracts on
narrower market indices, such as the Standard & Poor's 100, the Bond Buyer
Municipal Bond Index, an index composed of 40 term revenue and general
obligation bonds, or indices based on an industry or market segment, such as oil
and gas stocks. Futures contracts are traded on organized exchanges regulated by
the Commodity Futures Trading Commission. Transactions on such exchanges are
cleared through a clearing corporation, which guarantees the performance of the
parties to each contract.
The Fund will sell index futures contracts in order to offset a decrease
in market value of its portfolio securities that might otherwise result from a
market decline. The Fund may do so either to hedge the value of its portfolio as
a whole, or to protect against declines, occurring prior to sales of securities,
in the value of the securities to be sold. Conversely, the Fund will purchase
index futures contracts in anticipation of purchases of securities. In a
substantial majority of these transactions, the Fund will purchase such
securities upon termination of the long futures position, but a long futures
position may be terminated without a corresponding purchase of securities.
In addition, the Fund may utilize index futures contracts in anticipation
of changes in the composition of its portfolio holdings. For example, in the
event that the Fund expects to narrow the range of industry groups represented
in its holdings it may, prior to making purchases of the actual securities,
establish a long futures position based on a more restricted index, such as an
index comprised of securities of a particular industry group. The Fund also may
sell futures contracts in connection with this strategy, in order to protect
against the possibility that the value of the securities to be sold as part of
the restructuring of the portfolio will decline prior to the time of sale.
The following are examples of transactions in stock index futures (net of
commissions and premiums, if any).
A-4
<PAGE>
ANTICIPATORY PURCHASE HEDGE: Buy the Future
Hedge Objection: Protect Against Increasing Price
Portfolio Futures
-Day Hedge is Placed-
Anticipate Buying $62,500 Buying 1 Index Futures at 125
Equity Portfolio Value of Futures = $62,500/Contract
-Day Hedge is Lifted-
Buy Equity Portfolio with Sell 1 Index Futures at 130
Actual Cost = $65,000 Value of Futures = $65,000/Contract
Increase in Purchase Price =$2,500 Gain on Futures = $2,500
HEDGING A STOCK PORTFOLIO: Sell the Future
Hedge Objective: Protect Against Declining
Value of the Portfolio
Factors:
Value of Stock Portfolio = $1,000,000 Value of Futures Contract = 125 x $500 =
$62,500 Portfolio Beta Relative to the Index - 1.0
Portfolio Futures
-Day Hedge is Placed --
Anticipate Selling $1,000,000 Sell 16 Index Futures at 125
Equity Portfolio Value of Futures = $1,000,000
-Day Hedge is Lifted --
Equity Portfolio-Own Buy 16 Index Futures at 120
Stock with Value = $960,000 Value of Futures = $960,000
Loss in Portfolio Value = $40,000 Gain on Futures = $40,000
A-5
<PAGE>
If, however, the market moved in the opposite direction, that is, market
value decreased and the Fund had entered into an anticipatory purchase hedge, or
market value increased and the Fund had hedged its stock portfolio, the results
of the Fund's transactions in stock index futures would be as set forth below.
ANTICIPATORY PURCHASE HEDGE: Buy the Future
Hedge Objective: Protect Against Increasing Price
Portfolio Futures
-Day Hedge is Placed--
Anticipate Buying $62,500 Buying 1 Index Futures at 125
Equity Portfolio Value of Futures = $62,500/Contract
-Day Hedge is Lifted--
Buy Equity Portfolio with Sell 1 Index Futures at 120
Actual Cost - $60,000 Value of Futures = $60,000/Contract
Decrease in Purchase Price = $2,500 Loss on Futures = $2,500/Contract
HEDGING A STOCK PORTFOLIO: Sell the Future
Hedge Objective: Protect Against Declining
Value of the Portfolio
Factors:
Value of Stock Portfolio = $1,000,000 Value of Futures Contract = 125 x $500 =
$62,500 Portfolio Beta Relative to the Index = 1.0
Portfolio Futures
-Day Hedge is Placed --
Anticipate Selling $1,000,000 Sell 16 Index Futures at 125
Equity Portfolio Value of Futures = $1,000,000
-Day Hedge is Lifted --
Equity Portfolio-Own Buy 16 Index Futures at 130
Stock with Value = $1,040,000 Value of Futures = $1,040,000
Gain in Portfolio = $40,000 Loss of Futures = $40,000
A-6
<PAGE>
III. Margin Payments.
Unlike when the Fund purchases or sells a security, no price is paid or
received by the Fund upon the purchase or sale of a futures contract. Initially,
the Fund will be required to deposit with the broker or in a segregated account
with the Fund's Custodian an amount of cash or cash equivalents, the value, of
which may vary but is generally equal to 10% or less of the value of the
contract. This amount is known as initial margin. The nature of initial margin
in futures transactions is different from that of margin in security
transactions in that futures contract margin does not involve the borrowing of
Fund by the customer to finance the transactions. Rather, the initial margin is
in the nature of a performance bond or good faith deposit on the contract which
is returned to the Fund upon termination of the futures contract assuming all
contractual obligations have been satisfied. Subsequent payments, called
variation margin, to and from the broker, will be made on a daily basis as the
price of the underlying security or index fluctuates making the long and short
positions in the futures contract more or less valuable, a process known as
marking to the market. For example, when the Fund has purchased a futures
contract and the price of the contract has risen in response to a rise in the
underlying instruments, that position will have increased in value and the Fund
will be entitled to receive from the broker a variation margin payment equal to
that increase in value. Conversely, where the Fund has purchased a futures
contract and the price of the futures contract has declined in response to a
decrease in the underlying instruments, the position would be less valuable, and
the Fund would be required to make a variation margin payment to the broker. At
any time prior to expiration of the futures contract, the Adviser may elect to
close the position by taking an opposite position, subject to the availability
of a secondary market, which will operate to terminate the Fund's position in
the futures contract. A final determination of variation margin is then made,
additional cash is required to be paid by or released to the Fund, and the Fund
realizes a loss or gain.
IV. Risks of Transactions in Futures Contracts.
There are several risks in connection with the use of futures by the Fund
as a hedging device. One risk arises because of the imperfect correlation
between movements in the price of the future and movements in the price of the
securities which are the subject of the hedge. The price of the future may move
more than or less than the price of the securities being hedged. If the price of
the future moves less than the price of the securities which are the subject of
the hedge, the hedge will not be fully effective but, if the price of the
securities being hedged has moved in an unfavorable direction, the Fund would be
in a better position than if it had not hedged at all. If the price of the
securities being hedged has moved in a favorable direction, this advance will be
partially offset by the loss on the future. If the price of the future moves
more than the price of the hedged securities, the Fund involved will experience
either a loss or gain on the future which will not be completely offset by
movements in the price of the securities which are the subject of the hedge.
To compensate for the imperfect correlation of movements in the price of
securities being hedged and movements in the price of futures contracts, the
Fund may buy or sell futures contracts in a greater dollar amount than the
dollar amount of securities being hedged if the volatility over a particular
time period of the prices of such securities has been greater than the
A-7
<PAGE>
volatility over such time period of the future, or if otherwise deemed to be
appropriate by the Adviser. Conversely, the Fund may buy or sell fewer futures
contracts if the volatility over a particular time period of the prices of the
securities being hedged is less than the volatility over such time period of the
futures contract being used, or if otherwise deemed to be appropriate by the
Adviser. It also is possible that, where the Fund has sold futures to hedge its
portfolio against a decline in the market, the market may advance, and the value
of securities held by the Fund may decline. If this occurred, the Fund would
lose money on the future and also experience a decline in value in its portfolio
securities.
Where futures are purchased to hedge against a possible increase in the
price of securities before the Fund is able to invest its cash (or cash
equivalents) in securities (or options) in an orderly fashion, it is possible
that the market may decline instead; if the Fund then concludes not to invest in
securities or options at that time because of concern as to possible further
market decline or for other reasons, the Fund will realize a loss on the futures
contract that is not offset by a reduction in the price of securities purchased.
In instances involving the purchase of futures contracts by the Fund, an
amount of cash and cash equivalents, equal to the market value of the futures
contracts, will be deposited in a segregated account with the Fund's Custodian
and/or in a margin account with a broker to collateralize the position and
thereby insure that the use of such futures is unleveraged.
In addition to the possibility that there may be an imperfect correlation,
or no correlation at all, between movements in the futures and the securities
being hedged, the price of futures may not correlate perfectly with movement in
the cash market due to certain market distortions. Rather than meeting
additional margin deposit requirements, investors may close futures contracts
through off-setting transactions which could distort the normal relationship
between the cash and futures markets. Second, with respect to financial futures
contracts, the liquidity of the futures market depends on participants entering
into off-setting transactions rather than making or taking delivery. To the
extent participants decide to make or take delivery, liquidity in the futures
market could be reduced thus producing distortions. Third, from the point of
view of speculators, the deposit requirements in the futures market are less
onerous than margin requirements in the securities market. Therefore, increased
participation by speculators in the futures market may also cause temporary
price distortions. Due to the possibility of price distortion in the futures
market, and because of the imperfect correlation between the movements in the
cash market and movements in the price of futures, a correct forecast of general
market trends or interest rate movements by the Adviser still may not result in
a successful hedging transaction over a short time frame.
Positions in futures may be closed out only on an exchange or board of
trade which provides a secondary market for such futures. Although the Fund
intend to purchase or sell futures only on exchanges or boards of trade where
there appear to be active secondary markets, there is no assurance that a liquid
secondary market on any exchange or board of trade will exist for any particular
contract or at any particular time. In such event, it may not be possible to
close a futures investment position, and in the event of adverse price
movements, the Fund would continue to be required to make daily cash payments of
variation margin. However, in the event
A-8
<PAGE>
futures contracts have been used to hedge portfolio securities, such securities
will not be sold until the futures contract can be terminated. In such
circumstances, an increase in the price of the securities, if any, may partially
or completely offset losses on the futures contract. However, as described
above, there is no guarantee that the price of the securities will in fact
correlate with the price movements in the futures contract and thus provide an
offset on a futures contract.
Further, it should be noted that the liquidity of a secondary market in a
futures contract may be adversely affected by "daily price fluctuation limits"
established by commodity exchanges which limit the amount of fluctuation in a
futures contract price during a single trading day. Once the daily limit has
been reached in the contract, no trades may be entered into at a price beyond
the limit, thus preventing the liquidation of open futures positions.
Successful use of futures by the Fund also is subject to the Adviser's
ability to predict correctly movements in the direction of the market. For
example, if the Fund has hedged against the possibility of a decline in the
market adversely affecting securities held in its portfolio and securities
prices increase instead, the Fund will lose part or all of the benefit to the
increased value of its securities which it has hedged because it will have
offsetting losses in its futures positions. In addition, in such situations, if
the Fund has insufficient cash, it may have to sell securities to meet daily
variation margin requirements. Such sales of securities may be, but will not
necessarily be, at increased prices which reflect the rising market. The Fund
may have to sell securities at a time when it may be disadvantageous to do so.
V. Options on Futures Contracts.
The Fund may purchase options on the futures contracts described above. A
futures option gives the holder, in return for the premium paid, the right to
buy (call) from or sell (put) to the writer of the option a futures contract at
a specified price at any time during the period of the option. Upon exercise,
the writer of the option is obligated to pay the difference between the cash
value of the futures contract and the exercise price. Like the buyer or seller
of a futures contract, the holder, or writer, of an option has the right to
terminate its position prior to the scheduled expiration of the option by
selling, or purchasing, an option of the same series, at which time the person
entering into the closing transaction will realize a gain or loss.
Investments in futures options involve some of the same considerations
that are involved in connection with investments in futures contracts (for
example, the existence of a liquid secondary market). In addition, the purchase
of an option also entails the risk that changes in the value of the underlying
futures contract will not be fully reflected in the value of the option
purchased. Depending on the pricing of the option compared to either the futures
contract upon which it is based, or upon the price of the securities being
hedged, an option may or may not be less risky than ownership of the futures
contract or such securities. In general, the market prices of options can be
expected to be more volatile than the market prices on the underlying futures
contract. Compared to the purchase or sale of futures contracts, however, the
purchase of call or put options on futures contracts may frequently involve less
potential risk to the Fund because the maximum amount at risk is the premium
paid for the options (plus transaction costs). Although
A-9
<PAGE>
permitted by its fundamental investment policies, the Fund do not currently
intend to write future options, and will not do so in the future absent any
necessary regulatory approvals.
VI. Accounting and Tax Treatment.
Accounting for futures contracts and options will be in accordance with
generally accepted accounting principles.
Generally, futures contracts and options on futures contracts held by the
Fund at the close of the Fund's taxable year will be treated for Federal income
tax purposes as sold for their fair market value on the last business day of
such year, a process known as "marking-to-market." Forty percent (40%) of any
gains or loss resulting from such constructive sale will be treated as
short-term capital gain or loss and sixty percent (60%) of such gain or loss
will be treated as long-term capital gain or loss without regard to the length
of time the Fund holds the futures contract or option (the "40%-60% rule"). The
amount of any capital gain or loss actually realized by the Fund in a subsequent
sale or other disposition of those futures contracts will be adjusted to reflect
any capital gain or loss taken into account by the Fund in a prior year as a
result of the constructive sale of the contracts and options. With respect to
futures contracts to sell or options which will be regarded as parts of a "mixed
straddle" because their values fluctuate inversely to the values of specific
securities held by the Fund, losses as to such contracts to sell or options will
be subject to certain loss deferral rules which limit the amount of loss
currently deductible on either part of the straddle to the amount thereof which
exceeds the unrecognized gain (if any) with respect to the other part of the
straddle, and to certain wash sales regulations. Under short sales rules, which
also will be applicable, the holding period of the securities forming part of
the straddle will (if they have not been held for the long-term holding period)
be deemed not to begin prior to termination of the straddle. With respect to
certain futures contracts and options, deductions for interest and carrying
charges will not be allowed. Notwithstanding the rules described above, with
respect to futures contracts to sell which are properly identified as such and
certain options, the Fund may make an election which will except (in whole or in
part) those identified futures contracts or options from being treated for
Federal income tax purposes as sold on the last business day of the Fund's
taxable year, but gains and losses will be subject to such short sales, wash
sales, loss deferral rules and the requirement to capitalize interest and
carrying charges. Under temporary regulations, the Fund would be allowed (in
lieu of the foregoing) to elect to either (1) offset gains or losses from
portions which are part of a mixed straddle by separately identifying each mixed
straddle to which such treatment applies, or (2) establish a mixed straddle
account for which gains and losses would be recognized and offset on a periodic
basis during the taxable year. Under either election, the 40%-60% rule will
apply to the net gain or loss attributable to the futures contracts, but in the
case of a mixed straddle account election, not more than 50% of any net gain may
be treated as long-term and not more than 40% of any net loss may be treated as
short-term.
Certain foreign currency contracts entered into by the Fund may be subject
to the "marking-to-market" process and the 40%-60% rule in a manner similar to
that described in the preceding paragraph for futures contracts and options on
futures contracts. To receive such Federal income tax treatment, a foreign
currency contract must meet the following conditions: (1) the contract
A-10
<PAGE>
must require delivery of a foreign currency of a type in which regulated futures
contracts are traded or upon which the settlement value of the contract depends;
(2) the contract must be entered into at arm's length at a price determined by
reference to the price in the interbank market; and (3) the contract must be
traded in the interbank market. The Treasury Department has broad authority to
issue regulations under the provisions respecting foreign currency contracts.
Other foreign currency contracts entered into by the Fund may result in the
creation of one or more straddles for Federal income tax purposes, in which case
certain loss deferral, short sales, and wash sales rules and the requirement to
capitalize interest and carrying charges may apply.
As described more full in the section of the SAI entitled "Additional
Information Concerning Taxes," in order to qualify as a regulated investment
company under the Code the Fund must derive less than 30% of its gross income
from investments held for less than three months. With respect to futures
contracts and other financial instruments subject to the marking-to-market
rules, the Internal Revenue Service has ruled in private letter rulings that a
gain realized from such a futures contract or financial instrument will be
treated as being derived from a security held for three months or more
(regardless of the actual period for which the contract or instrument is held)
if the gain arises as a result of a constructive sale under the
marking-to-market rules, and will be treated as being derived from a security
held for less than three months only if the contract or instrument is terminated
(or transferred) during the taxable year (other than by reason of
marking-to-market) and less than three months have elapsed between the date the
contract or instrument is acquired and the termination date. In determining
whether the 30% test is met for a taxable year, increases and decreases in the
value of the Fund's futures contracts and other investments that qualify as part
of a "designated hedge," as defined in the Code, may be netted.
A-11
<PAGE>
SCHEDULE B
ADDITIONAL INFORMATION CONCERNING
MORTGAGE-BACKED SECURITIES
Mortgage-Backed Securities
Mortgage-backed securities represent an ownership interest in a pool of
residential mortgage loans. These securities are designed to provide monthly
payments of interest and principal to the investor. The mortgagor's monthly
payments to his/her lending institution are "passed-through" to an investor.
Most issuers or poolers provide guarantees of payments, regardless of whether or
not the mortgagor actually makes the payment. The guarantees made by issuers or
poolers are supported by various forms of credit, collateral, guarantees or
insurance, including individual loan, title, pool and hazard insurance purchased
by the issuer. There can be no assurance that the private issuers or poolers can
meet their obligations under the policies. Mortgage-backed securities issued by
private issuers or poolers, whether or not such securities are subject to
guarantees, may entail greater risk than securities directly or indirectly
guaranteed by the U.S. Government.
Interests in pools of mortgage-backed securities differ from other forms
of debt securities, which normally provide for periodic payment of interest in
fixed amounts with principal payments at maturity or specified call dates.
Instead, these securities provide a monthly payment which consists of both
interest and principal payments. In effect, these payments are a "pass-through"
of the monthly payments made by the individual borrowers on their residential
mortgage loans, net of any fees paid. Additional payments are caused by
repayments resulting from the sale of the underlying residential property,
refinancing or foreclosure net of fees or costs which may be incurred. Some
mortgage-backed securities are described as "modified pass-through." These
securities entitle the holders to receive all interest and principal payments
owed on the mortgages in the pool, net of certain fees, regardless of whether or
not the mortgagors actually make the payments.
Residential mortgage loans are pooled by the Federal Home Loan Mortgage
Corporation (FHLMC). FHLMC is a corporate instrumentality of the U.S. Government
and was created by Congress in 1970 for the purpose of increasing the
availability of mortgage credit for residential housing. Its stock is owned by
the twelve Federal Home Loan Banks. FHLMC issues Participation Certificates
("PC's"), which represent interests in mortgages from FHLMC's national
portfolio. FHLMC guarantees the timely payment of interest and ultimate
collection of principal.
The Federal National Mortgage Association (FNMA) is a Government sponsored
corporation owned entirely by private stockholders. It is subject to general
regulation by the Secretary of Housing and Urban Development. FNMA purchases
residential mortgages from a list of approved sellers/servicers which include
state and federally-chartered savings and loan associations, mutual savings
banks, commercial banks and credit unions and mortgage bankers.
B-1
<PAGE>
Pass-through securities issued by FNMA are guaranteed as to timely payment of
principal and interest by FNMA.
The principal Government guarantor of mortgage-backed securities is the
Government National Mortgage Association (GNMA). GNMA is a wholly-owned U.S.
Government corporation within the Department of Housing and Urban Development.
GNMA is authorized to guarantee, with the full faith and credit of the U.S.
Government, the timely payment of principal and interest on securities issued by
approved institutions and backed by pools of FHA-insured or VA-guaranteed
mortgages.
Commercial banks, savings and loan institutions, private mortgage
insurance companies, mortgage bankers and other secondary market issuers also
create pass-through pools of conventional residential mortgage loans. Pools
created by such non-governmental issuers generally offer a higher rate of
interest than Government and Government-related pools because there are no
direct or indirect Government guarantees of payments in the former pools.
However, timely payment of interest and principal of these pools is supported by
various forms of insurance or guarantees, including individual loan, title, pool
and hazard insurance purchased by the issuer. The insurance and guarantees are
issued by Governmental entities, private insurers, and the mortgage poolers.
There can be no assurance that the private insurers or mortgage poolers can meet
their obligations under the policies.
The Fund expects that Governmental or private entities may create mortgage
loan pools offering pass-through investments in addition to those described
above. The mortgages underlying these securities may be alternative mortgage
instruments, that is, mortgage instruments whose principal or interest payment
may vary or whose terms to maturity may be shorter than previously customary. As
new types of mortgage-backed securities are developed and offered to investors,
the Fund will, consistent with its investment objective and policies, consider
making investments in such new types of securities.
Underlying Mortgages
Pools consist of whole mortgage loans or participations in loans. The
majority of these loans are made to purchasers of 1-4 family homes. The terms
and characteristics of the mortgage instruments are generally uniform within a
pool but may vary among pools. For example, in addition to fixed-rate,
fixed-term mortgages, the Fund may purchase pools of variable-rate mortgages
(VRM), growing equity mortgages (GEM), graduated payment mortgages (GPM) and
other types where the principal and interest payment procedures vary. VRM's are
mortgages which reset the mortgage's interest rate periodically with changes in
open market interest rates. To the extent that the Fund is actually invested in
VRM's, the Fund's interest income will vary with changes in the applicable
interest rate on pools of VRM's. GPM and GEM pools maintain constant interest
rates, with varying levels of principal repayment over the life of the mortgage.
These different interest and principal payment procedures should not impact the
Fund's net asset value since the prices at which these securities are valued
will reflect the payment procedures.
B-2
<PAGE>
All poolers apply standards for qualification to local lending
institutions which originate mortgages for the pools. Poolers also establish
credit standards and underwriting criteria for individual mortgages included in
the pools. In addition, some mortgages included in pools are insured through
private mortgage insurance companies.
Average Life
The average life of pass-through pools varies with the maturities of the
underlying mortgage instruments. In addition, a pool's term may be shortened by
unscheduled or early payments of principal and interest on the underlying
mortgages. The occurrence of mortgage prepayments is affected by factors
including the level of interest rates, general economic conditions, the location
and age of the mortgage, and other social and demographic conditions.
As prepayment rates of individual pools vary widely, it is not possible to
accurately predict the average life of a particular pool. For pools of
fixed-rated 30-year mortgages, common industry practice is to assume that
prepayments will result in a 12-year average life. Pools of mortgages with other
maturities or different characteristics will have varying assumptions for
average life.
Returns on Mortgage-Backed Securities
Yields on mortgage-backed pass-through securities are typically quoted
based on the maturity of the underlying instruments and the associated average
life assumption. Actual prepayment experience may cause the yield to differ from
the assumed average life yield.
Reinvestment of prepayments may occur at higher or lower interest rates
than the original investment, thus affecting the yields of the Fund. The
compounding effect from reinvestments of monthly payments received by the Fund
will increase its yield to shareholders, compared to bonds that pay interest
semi-annually.
B-3
<PAGE>
NATIONS FUND TRUST
FILE NOS. 2-97817; 811-4305
PART C
OTHER INFORMATION
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements:
Included in Part A:
Per Share Income and Capital Changes
Included in Part B:
Audited Financial Statements for Nations Government Money Market, Nations
Tax Exempt, Nations Value, Nations Capital Growth, Nations Emerging Growth,
Nations Disciplined Equity, Nations Equity Index, Nations Managed Index,
Nations Balanced Assets, Nations Short-Intermediate Government, Nations
Short-Term Income, Nations Diversified Income, Nations Strategic Fixed
Income, Nations Short-Term Municipal Income, Nations Municipal Income,
Nations Intermediate Municipal Bond, Nations Florida Intermediate Municipal
Bond, Nations Georgia Intermediate Municipal Bond, Nations Maryland
Intermediate Municipal Bond, Nations North Carolina Intermediate Municipal
Bond, Nations South Carolina Intermediate Municipal Bond, Nations Tennessee
Intermediate Municipal Bond, Nations Texas Intermediate Municipal Bond,
Nations Virginia Intermediate Municipal Bond, Nations Florida Municipal
Bond, Nations Georgia Municipal Bond, Nations Maryland Municipal Bond,
Nations North Carolina Municipal Bond, Nations South Carolina Municipal
Bond, Nations Tennessee Municipal Bond, Nations Texas Municipal Bond Fund
and Nations Virginia Municipal Bond Funds:
Schedule of Investments for March 31, 1996 Statements of Assets
and Liabilities for March 31, 1996 Statements of Operations for
the fiscal period ended March 31, 1996
Statements of Changes in Net Assets for the fiscal period ended
March 31, 1996 and the year ended November 30, 1995 Schedule of
Capital Stock Activity for the fiscal period ended March 31, 1996
Notes to Financial Statements
Report of Independent Accountants, dated May 17, 1996
1
<PAGE>
Included in Part C:
Consent of Independent Accountants
(b) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number
<S> <C>
(1)(a) Declaration of Trust dated May 6, 1985, is incorporated by
reference to its Registration Statement, filed May 17, 1985.
(1)(b) Certificate pertaining to classification of shares dated May 17,
1985, is incorporated by reference to its Registration Statement,
filed May 17, 1985.
(1)(c) Amendment dated July 27, 1987 to Declaration of Trust is
incorporated by reference to Post-Effective Amendment No. 4 to
its Registration Statement filed January 29, 1988.
(1)(d) Amendment dated September 13, 1989 to Declaration of Trust is
incorporated by reference to Post-Effective Amendment No. 8 to
its Registration Statement filed March 16, 1990.
(1)(e) Certificate pertaining to classification of shares dated August 24, 1990, is incorporated by
Post-Effective Amendment No. 11, filed September 26, 1990.
(1)(f) Certificate and Amendment to Declaration of Trust dated November 26, 1990 is incorporated by
reference to Post-Effective Amendment No. 13, filed January 18, 1991.
(1)(g) Certificate pertaining to classification of shares dated July 18, 1991 is incorporated by
reference to Post-Effective Amendment No. 16, filed July 23, 1991.
(1)(h) Amendment dated March 26, 1992 to Declaration of Trust is
incorporated by reference to Post-Effective Amendment No. 19,
filed March 30, 1992.
(1)(i) Certificate relating to classification of shares is incorporated by reference to Amendment No. 19,
filed March 30, 1992.
(1)(j) Amendment to Declaration of Trust dated September 21, 1992, is incorporated by reference to
Post-Effective Amendment No. 23, filed December 23, 1992.
(1)(k) Certificate relating to the classification of shares and an
Amendment to the Declaration of Trust dated March 26, 1993, is
incorporated by reference to Post-Effective Amendment No. 27,
filed May 27, 1993.
2
<PAGE>
(1)(l) Certificate relating to the establishment of money market funds'
Investor C shares dated July 8, 1993, is incorporated by
reference to Post-Effective Amendment No. 29, filed September 30,
1993.
(1)(m) Certificate relating to the establishment of the Equity Index,
Short-Term Municipal Income, Florida Municipal Bond, Georgia
Municipal Bond, North Carolina Municipal Bond, South Carolina
Municipal Bond, Tennessee Municipal Bond, Texas Municipal Bond
and Virginia Municipal Bond Funds dated September 22, 1993, is
incorporated by reference to Post-Effective Amendment No. 29,
filed September 30, 1993.
(1)(n) Certificate relating to the establishment of the Special Equity
Fund is incorporated by reference to Post-Effective Amendment No.
30, filed December 1, 1993.
(1)(o) Certificate relating to the redesignation of Investor B Shares
and Investor C Shares of the non-money market funds to "Investor
C Shares" and "Investor N Shares," respectively, is incorporated
by reference by Post-Effective Amendment No. 32, filed March 29,
1994.
(1)(p) Certificate relating to the Classification of Shares of the Money
Market Fund and the Tax Exempt Fund creating "Investor D Shares,"
is incorporated by reference to Post-Effective Amendment No. 36,
filed January 31, 1995.
(1)(q) Classification of Shares relating to the renaming of Nations
Special Equity Fund is incorporated by reference to
Post-Effective Amendment No. 36, filed January 31, 1995.
(1)(r) Certificate relating to the establishment of Nations Tax-Managed
Equity Fund's Series of Shares is incorporated by reference to
Post-Effective Amendment No. 40, filed October 20, 1995.
(2)(a) Amended and Restated Code of Regulations as approved and adopted
by Registrant's Board of Trustees is incorporated by reference to
Pre-Effective Amendment No. 2, filed October 4, 1985.
(2)(b) Amendment to the Code of Regulations as approved and adopted by
Registrant's Board of Trustees on June 24, 1992, is incorporated
by reference to Post-Effective Amendment No. 22, filed July 30,
1992.
(3) None.
(4)(a) Specimen copies of share certificates, to be filed by amendment.
3
<PAGE>
(5)(a) Investment Advisory Agreement between NationsBanc Advisors, Inc.,
("NBAI") and the Registrant is incorporated by reference to
Post-Effective Amendment No. 41, filed January 29, 1996.
(5)(b) Sub-Advisory Agreement among NBAI, TradeStreet Investment
Associates, Inc. ("TradeStreet") and the Registrant is
incorporated by reference to Post-Effective Amendment No. 41,
filed January 29, 1996.
(6)(a) Distribution Agreement between Stephens Inc. and Registrant for all
classes of shares of Nations Fund Trust is incorporated by
reference to Post-Effective Amendment No. 37, filed
March 31, 1995.
(7) None.
(8)(a) Mutual Fund Custody Agreement between Registrant and NationsBank
of Texas, N.A. ("NationsBank Texas"), dated June 26, 1992,
relating to the Money Market Fund, Government Fund, Tax Exempt
Fund, Balanced Assets Fund, Short-Term Income Fund, Diversified
Income Fund, Capital Growth Fund, Emerging Growth Fund,
Adjustable Rate Government Fund, Strategic Fixed Income Fund,
Mortgage-Backed Securities Fund, North Carolina Municipal Bond
Fund, Florida Municipal Bond Fund and Texas Municipal Bond Fund,
is incorporated by reference to Post-Effective Amendment No. 23,
filed December 23, 1992.
(8)(b) Amendment No. 1 dated February 3, 1993, to the Mutual Fund
Custody Agreement dated June 26, 1992 between Registrant and
NationsBank Texas, relating to the addition of the Tennessee
Municipal Bond Fund and Intermediate Municipal Bond Fund, is
incorporated by reference to Post-Effective Amendment No. 26,
filed March 26, 1993.
(8)(b)(i) Amendment No. 2 to the Mutual Fund Custody Agreement between
Registrant and NationsBank Texas relating to the Equity Index
Fund, Short-Term Municipal Income Fund, Nations Florida
Intermediate Municipal Bond Fund, Nations Georgia Intermediate
Municipal Bond Fund, Nations Maryland Intermediate Municipal Bond
Fund, Nations North Carolina Intermediate Municipal Bond Fund,
Nations South Carolina Intermediate Municipal Bond Fund, Nations
Tennessee Intermediate Municipal Bond Fund, Nations Texas
Intermediate Municipal Bond Fund, Nations Virginia Intermediate
Municipal Bond Fund is incorporated by reference to
Post-Effective Amendment No. 32, filed March 29, 1994.
(8)(b)(ii) Form of Amendment No. 3 to the Mutual Fund Custody Agreement
between Registrant and NationsBank Texas relating to the Special
Equity Fund is incorporated by reference to Post-Effective
Amendment No. 31, filed January 31, 1994.
(8)(b)(iii) Form of Amendment No. 4 to the Mutual Fund Custody Agreement
between the Registrant and NationsBank Texas relating to Nations
Tax-Managed Equity Fund is
<PAGE>
4
incorporated by reference to Post-Effective Amendment No. 40,
filed October 20, 1995.
(8)(c) Form of Global Sub-Custody Agreement between Registrant, The
Chase Manhattan Bank and NationsBank Texas is incorporated by
reference to Post-Effective Amendment No. 31, filed January 31,
1994.
(9)(a) Administration Agreement between Stephens Inc. and Registrant is
incorporated by reference to Post-Effective Amendment No. 37,
filed March 31, 1995.
(9)(b) Co-Administration Agreement between The Boston Company Advisors,
Inc. and Registrant is incorporated by reference to Post-
Effective Amendment No. 37, filed March 31, 1995.
(9)(c) Shareholder Administration Agreement for Trust B Shares (now
known as Primary B Shares) is incorporated by reference to
Post-Effective Amendment No. 41, filed January 29, 1996.
(9)(d) Transfer Agency and Services Agreement dated June 1, 1995,
between Registrant and The Shareholder Services Group, Inc., to
be filed by amendment.
(9)(e) Transfer Agency Agreement between Registrant and NationsBank
Texas, dated April 25, 1992, relating to the Trust Shares (now
known as Primary Shares) of the Government, Tax Exempt, Money
Market, Income, Equity, Value, Managed Bond, Municipal Income,
Georgia Municipal Bond, Maryland Municipal Bond, South Carolina
Municipal Bond, Virginia Municipal Bond and Short-Intermediate
Government Funds, is incorporated by reference to Post-Effective
Amendment No. 22, filed April 6, 1992.
(9)(f) Amendment No. 1 dated September 28, 1992, to the Transfer Agency
Agreement between Registrant and NationsBank Texas, dated April
25, 1992, relating to the Trust Shares (now known as Primary
Shares) of the Capital Growth Fund Emerging Growth Fund, Balanced
Assets Fund, Short-Term Income Fund, Adjustable Rate Government
Fund, Diversified Income Fund, Strategic Fixed Income Fund,
Mortgage-Backed Securities Fund, Florida Municipal Bond Fund,
North Carolina Municipal Bond Fund and Texas Municipal Bond Fund,
is incorporated by reference to Post-Effective Amendment No. 26,
filed March 26, 1993.
(9)(g) Amendment No. 2 dated February 3, 1993, to the Transfer Agency
Agreement between Registrant and NationsBank Texas, dated April
25, 1992, relating to the Tennessee Municipal Bond Fund and
Municipal Income Fund, is incorporated by reference to
Post-Effective Amendment No. 26, filed March 26, 1993.
(9)(h) Amendment No. 3 to the Transfer Agency Agreement relating to the
Equity Index Fund, Florida Municipal Bond Fund, Georgia Municipal
Bond Fund, Maryland
5
<PAGE>
Municipal Bond Fund, North Carolina Municipal Bond Fund, South
Carolina Municipal Bond Fund, Tennessee Municipal Bond Fund,
Texas Municipal Bond Fund and Virginia Municipal Bond Fund, is
incorporated by reference to Post-Effective Amendment No. 29,
filed September 30, 1993.
(9)(h)(i) Amendment No. 4 to the Transfer Agency Agreement relating to
Nations Tax-Managed Equity Fund is incorporated by reference to
Post-Effective Amendment No. 40, filed October 20, 1995.
(9)(i) Cross Indemnification Agreement dated June 27, 1995, between the
Trust, Nations Fund, Inc. and Nations Fund Portfolios, Inc.
incorporated by reference to Post-Effective No. 39, filed
September 28, 1995.
(9)(j) Form of Shareholder Servicing Agreement relating to Primary B
Shares is incorporated by reference to Post-Effective Amendment
No. 27, filed May 27, 1993.
(9)(k) Shareholder Servicing Plan for Investor A Shares is incorporated
by reference to Post-Effective Amendment No. 32, filed March 29,
1994.
(9)(l) Forms of Shareholder Servicing Agreement for Investor A Shares
are incorporated by reference to Post-Effective Amendment No. 32,
filed March 29, 1994.
(9)(m) Shareholder Servicing Plan for Investor B Shares of the money
market funds and Investor C Shares (formerly Investor B Shares)
of the non-money market funds, is incorporated by reference to
Post-Effective Amendment No. 32, filed March 29, 1994.
(9)(n) Forms of Shareholder Servicing Agreement for Investor B Shares of
the money market funds and Investor C Shares (formerly Investor B
Shares) of the non-money market funds, are incorporated by
reference to Post-Effective Amendment No. 32, filed March 29,
1994.
(9)(o) Shareholder Servicing Plan for Investor C Shares of the money
market funds and Investor N Shares (formerly Investor C Shares)
of the non-money market funds, is incorporated by reference to
Post-Effective Amendment No. 32, filed March 29, 1994.
(9)(p) Forms of Shareholder Servicing Agreement for Investor C Shares of
the money market funds and Investor N Shares (formerly Investor C
Shares) of the non-money market funds are incorporated by
reference to Post-Effective Amendment No. 32, filed March 29,
1994.
(10) Opinion and Consent of Counsel is filed herewith.
(11) Consent of Independent Accountants (Price Waterhouse LLP) is
filed herewith.
6
<PAGE>
(12) N/A
(13) N/A
(14)(a) Prototype Individual Retirement Account Plan, is incorporated by
reference to Post-Effective Amendment No. 26, filed March 26,
1993.
(15)(a) Amended and Restated Shareholder Servicing and Distribution Plan
Pursuant to Rule 12b-1 for Investor A Shares is incorporated by
reference to Post-Effective Amendment No. 32, filed March 29,
1994.
(15)(b) Form of Sales Support Agreement for Investor A Shares is
incorporated by reference to Post-Effective Amendment No. 32,
filed March 29, 1994.
(15)(c) Amended and Restated Distribution Plan for Investor B Shares of
the money market funds and Investor C Shares (formerly Investor B
Shares) of the non-money market funds, is incorporated by
reference to Post-Effective Amendment No. 32, filed March 29,
1994.
(15)(d) Form of Sales Support Agreement for Investor B Shares of the
money market funds and Investor C Shares (formerly Investor B
Shares) of the non-money market funds is incorporated by
reference to Post-Effective Amendment No. 32, filed March 29,
1994.
(15)(e) Distribution Plan for Investor N Shares (formerly Investor C
Shares) of the non-money market funds is incorporated by
reference to Post-Effective Amendment No. 32, filed March 29,
1994.
(15)(f) Form of Sales Support Agreement for Investor N Shares (formerly
Investor C Shares) of the non-money market funds) is incorporated
by reference to Post-Effective Amendment No. 32, filed March 29,
1994.
(15)(g) Shareholder Administration Plan for Primary B Shares is
incorporated by reference to Post-Effective Amendment No. 41,
filed January 29, 1996.
(16)(a) Schedules for Computation of Primary A Shares is incorporated by
reference to Post-Effective Amendment No. 37, filed March 31,
1995.
(16)(b) Schedules for Computation of Primary B Shares shall be filed by
Amendment.
(16)(c) Schedules for Computation of Investor A Shares is incorporated by
reference to Post-Effective Amendment No. 37, filed March 31,
1995.
7
<PAGE>
(16)(d) Schedules for Computation of Investor C Shares (formerly Investor
B Shares) is incorporated by reference to Post-Effective
Amendment No. 37, filed March 31, 1995.
(16)(e) Schedules for Computation of Investor N Shares (formerly Investor
C Shares) is incorporated by reference to Post-Effective
Amendment No. 37, filed March 31, 1995.
(16)(f) Schedules for Computation of Investor D Shares to be filed by
amendment.
(17) N/A
(18) Revised Plan entered into by Registrant pursuant to Rule 18f-3
under the Investment Company Act of 1940 is incorporated by
reference to Post-Effective Amendment No. 44, filed July 25,
1996.
</TABLE>
Item 25. Persons Controlled By or Under Common Control with Registrant
Registrant is controlled by its Board of Trustees.
Item 26. Number of Holders of Securities
The following information is as of May 30, 1996.
<TABLE>
<CAPTION>
Number of
Title of Class Record Holders
<S> <C> <C>
Nations Government Money Market Fund - Investor A 205
- Investor B 40
- Investor C 32
- Investor D 1
- Primary A 3,213
- Primary B 62
Nations Tax Exempt Fund - Investor A 3,043
- Investor B 288
- Investor C 413
- Investor D 1
- Primary A 6,876
- Primary B 77
Nations Value Fund - Investor A 3,154
- Investor C 267
- Investor N 7,806
- Primary A 4,869
- Primary B 0
8
<PAGE>
Nations Capital Growth Fund - Investor A 1,556
- Investor C 233
- Investor N 4,226
- Primary A 3,009
- Primary B 0
Nations Emerging Growth Fund - Investor A 1,057
- Investor C 87
- Investor N 4,401
- Primary A 1,585
- Primary B 0
Nations Disciplined Equity Fund - Investor A 500
- Investor C 35
- Investor N 1,835
- Primary A 378
- Primary B 0
Nations Equity Index Fund - Primary A 332
- Primary B 0
- Investor A 54
Nations Balanced Assets Fund - Investor A 557
- Investor C 75
- Investor N 4,171
- Primary A 221
- Primary B 0
Nations Short-Intermediate - Investor A 1,378
Government Fund - Investor C 417
- Investor N 631
- Primary A 1,964
- Primary B 0
Nations Short-Term Income Fund - Investor A 151
- Investor C 133
- Investor N 491
- Primary A 1,235
- Primary B 0
9
<PAGE>
Nations Diversified Income Fund - Investor A 632
- Investor C 159
- Investor N 4,329
- Primary A 115
- Primary B 0
Nations Strategic Fixed Income - Investor A 330
Fund - Investor C 16
- Investor N 136
- Primary A 3,176
- Primary B 0
Nations Municipal Income Fund - Investor A 284
- Investor C 70
- Investor N 430
- Primary A 521
- Primary B 0
Nations Intermediate Municipal - Investor A 38
Bond Fund - Investor C 8
- Investor N 47
- Primary A 537
- Primary B 0
Nations Short-Term Municipal - Investor A 33
Income Fund - Investor C 17
- Investor N 162
- Primary A 551
- Primary B 0
Nations Florida Intermediate - Investor A 57
Municipal Bond Fund - Investor C 9
- Investor N 134
- Primary A 298
- Primary B 0
Nations Georgia Intermediate - Investor A 193
Municipal Bond Fund - Investor C 51
- Investor N 183
- Primary A 245
- Primary B 0
Nations Maryland Intermediate - Investor A 331
Municipal Bond Fund - Investor C 77
- Investor N 225
10
<PAGE>
- Primary A 357
- Primary B 0
Nations North Carolina Intermediate - Investor A 124
Municipal Bond Fund - Investor C 34
- Investor N 227
- Primary A 147
- Primary B 0
Nations South Carolina Intermediate - Investor A 181
Municipal Bond Fund - Investor C 116
- Investor N 221
- Primary A 237
- Primary B 0
Nations Tennessee Intermediate - Investor A 78
Municipal Bond Fund - Investor C 2
- Investor N 83
- Primary A 55
- Primary B 0
Nations Texas Intermediate - Investor A 22
Municipal Bond Fund - Investor C 3
- Investor N 103
- Primary A 190
- Primary B 0
Nations Virginia Intermediate - Investor A 942
Municipal Bond Fund - Investor C 140
- Investor N 423
- Primary A 761
- Primary B 0
Nations Virginia Municipal Bond - Investor A 24
Fund - Investor C 3
- Investor N 551
- Primary A 42
- Primary B 0
Nations Maryland Municipal Bond - Investor A 18
Fund - Investor C 2
- Investor N 369
- Primary A 33
- Primary B 0
11
<PAGE>
Nations North Carolina Municipal - Investor A 30
Bond Fund - Investor C 3
- Investor N 739
- Primary A 28
- Primary B 0
Nations South Carolina Municipal - Investor A 17
Bond Fund - Investor C 4
- Investor N 299
- Primary A 37
- Primary B 0
Nations Florida Municipal Bond Fund - Investor A 16
- Investor C 3
- Investor N 558
- Primary A 101
- Primary B 0
Nations Georgia Municipal Bond Fund - Investor A 11
- Investor C 3
- Investor N 345
- Primary A 33
- Primary B 0
Nations Tennessee Municipal Bond - Investor A 11
Fund - Investor C 3
- Investor N 169
- Primary A 14
- Primary B 0
Nations Texas Municipal Bond Fund - Investor A 17
- Investor C 3
- Investor N 316
- Primary A 41
- Primary B 0
</TABLE>
Item 27. Indemnification
Article IX, Section 9.3 of Registrant's Declaration of Trust,
incorporated by reference as Exhibit (1)(a) hereto, provides for the
indemnification of Registrant's trustees and employees. Indemnification
of Registrant's administrator, principal underwriter, custodian, and
transfer agent is provided for, respectively, in:
1. Administration Agreement with Stephens Inc.;
12
<PAGE>
2. Co-Administration Agreement with First Data Investors
Services Group, Inc.;
3. Distribution Agreement with Stephens Inc.;
4. Mutual Fund Custody Agreement with NationsBank Texas;
5. Transfer Agency Agreement with NationsBank Texas; and
6. Transfer Agency and Registrar Agreement with First Data
Investors Services Group, Inc.
The Registrant has entered into a Cross Indemnification Agreement
with Nations Fund, Inc. (the "Company") and Nations Fund Portfolios,
Inc.("Portfolios"), dated June 27, 1995. The Company and or Portfolios will
indemnify and hold harmless the Trust against any losses, claims, damages or
liabilities, to which the Trust may become subject, under the Securities Act of
1933 (the "Act") and the Investment Company Act of 1940 (the "1940 Act") insofar
as such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon an untrue statement or alleged untrue statement
of a material fact contained in any Prospectuses, any Preliminary Prospectuses,
the Registration Statements, any other Prospectuses relating to the securities,
or any amendments or supplements to the foregoing (hereinafter referred to
collectively as the "Offering Documents"), or arise out of or are based upon the
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in the Offering Documents in
reliance upon and in conformity with written information furnished to the
Primary By the Company and/or Portfolios expressly for use therein; and will
reimburse the Trust for any legal or other expenses reasonably incurred by the
Trust in connection with investigating or defending any such action or claim;
provided, however, that the Company and/or Portfolios shall not be liable in any
such case to the extent that any such loss, claim, damage, or liability arises
out of or is based upon an untrue statement or alleged untrue statement or
omission or alleged omission made in the Offering Documents in reliance upon and
in conformity with written information furnished to the Company and/or
Portfolios by the Trust expressly for use in the Offering Documents.
Promptly after receipt by an indemnified party above of notice of
the commencement of any action, such indemnified party shall, if a claim in
respect thereof is to be made against the indemnifying party under such
subsection, notify the indemnifying party in writing of the commencement
thereof; but the omission to so notify the indemnifying party shall not relieve
it from any liability which it may have to any indemnified party otherwise than
under such subsection. In case any such action shall be brought against any
indemnified party and it shall notify the indemnifying party of the commencement
thereof, the indemnifying party shall be entitled to participate therein and, to
the extent that it shall wish, to assume the defense thereof, with counsel
satisfactory to such indemnified party, and, after notice from the indemnifying
party to such indemnified party of its election so to assume the defense
thereof, the indemnifying party shall not be liable to such indemnified party
under such subsection for any legal expenses of other
13
<PAGE>
counsel or any other expenses, in each case subsequently incurred by such
indemnified party, in connection with the defense thereof other than reasonable
costs of investigation.
Registrant has obtained from a major insurance carrier a
directors' and officers' liability policy covering certain types of errors and
omissions. In no event will Registrant indemnify any of its trustees, officers,
employees, or agents against any liability to which such person would otherwise
be subject by reason of his/her willful misfeasance, bad faith, gross negligence
in the performance of his/her duties, or by reason of his reckless disregard of
the duties involved in the conduct of his/her office or arising under his/her
agreement with Registrant. Registrant will comply with Rule 484 under the
Securities Act of 1933 and Release No. 11330 under the 1940 Act, as amended, in
connection with any indemnification.
Insofar as indemnification for liability arising under the
Securities Act of 1933, as amended, may be permitted to trustees, officers, and
controlling persons of Registrant pursuant to the foregoing provisions, or
otherwise, Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by Registrant
of expenses incurred or paid by a trustee, officer, or controlling person of
Registrant in the successful defense of any action, suit, or proceeding) is
asserted by such trustee, officer, or controlling person in connection with the
securities being registered, Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
Item 28. Business and Other Connections of Investment Adviser
(a) To the knowledge of Registrant, none of the directors or officers
of NBAI, the adviser to the Registrant's portfolios, or TradeStreet, the
sub-investment adviser, except those set forth below, is or has been, at any
time during the past two calendar years, engaged in any other business,
profession, vocation or employment of a substantial nature, except that certain
directors and officers also hold various positions with, and engage in business
for, the company that owns all the outstanding stock (other than directors'
qualifying shares) of NBAI or TradeStreet, respectively, or other subsidiaries
of NationsBank Corporation.
(b) NBAI performs investment advisory services for the Registrant and
certain other customers. NBAI is a wholly owned subsidiary of NationsBank, N.A.
("NationsBank"), which in turn is a wholly owned banking subsidiary of
NationsBank Corporation. Information with respect to each director and officer
of the investment adviser is incorporated by reference to Form ADV filed by NBAI
with the Securities and Exchange Commission pursuant to the Investment Advisers
Act of 1940 (file no. 801-49874).
(c) TradeStreet performs sub-investment advisory services for the
Registrant and certain other customers. TradeStreet is a wholly owned subsidiary
of NationsBank, which in turn is a wholly owned banking subsidiary of
NationsBank Corporation. Information with respect to each director and officer
of the sub-investment adviser is incorporated by reference to Form filed
14
<PAGE>
by TradeStreet with the Securities and Exchange Commission pursuant to the
Investment Advisers Act of 1940 (file no. 801-50372).
Item 29. Principal Underwriter
(a) Stephens Inc., distributor for the Registrant, does not presently act
as investment adviser for any other registered investment companies, but does
act as principal underwriter for the Overland Express Funds, Inc., Stagecoach
Inc., Stagecoach Funds, Inc. and Stagecoach Trust and is the exclusive placement
agent for Master Investment Trust, Managed Series Investment Trust, Life &
Annuity Trust and Master Investment Portfolio, all of which are registered
open-end management investment companies, and has acted as principal underwriter
for the Liberty Term Trust, Inc., Nations Government Income Term Trust 2003,
Inc., Nations Government Income Term Trust 2004, Inc. and the Managed Balanced
Target Maturity Fund, Inc., closed-end management investment companies.
(b) Information with respect to each director and officer of the principal
underwriter is incorporated by reference to Form ADV filed by Stephens Inc. with
the Securities and Exchange Commission pursuant to the Investment Advisers Act
of 1940 (file #501-15510).
(c) Not applicable.
Item 30. Location of Accounts and Records
(1) NBAI, One NationsBank Plaza, Charlotte, North Carolina 28255 (records
relating to its function as Investment Adviser).
(2) TradeStreet, One NationsBank Plaza, Charlotte, North Carolina 28255
(records relating to its function as sub-adviser).
(3) Stephens Inc., 111 Center Street, Little Rock, Arkansas 72201 (records
relating to its function as Distributor).
(4) Stephens Inc., 111 Center Street, Little Rock, Arkansas 72201 (records
relating to its function as Administrator).
(5) The First Data Investors Services Group, Inc., One Exchange Place,
Boston, Massachusetts 02109 (records relating to its function as
Co-Administrator and Transfer Agent).
(6) NationsBank Texas, 1401 Elm Street, Dallas, Texas 75202 (records
relating to its function as Sub-Transfer Agent and Custodian).
15
<PAGE>
Item 31. Management Services
Inapplicable.
Item 32. Undertakings
(a) Registrant undertakes to call a meeting for the purpose of voting
upon the question or removal of a trustee or trustees when
requested in writing to do so by the holders of at least 10% of a
Fund's outstanding shares of beneficial interest and in connection
with such meeting to comply with the provisions of Section 16(c)
of the 1940 Act, as amended, relating to shareholder
communications.
(b) Registrant undertakes to furnish each person to whom a prospectus
is delivered with a copy of the Registrant's most recent annual
report to shareholder upon request and without charge.
16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, Registrant has duly caused this Amendment to its
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Little Rock, State of Arkansas on the 29rd day
of July, 1996.
NATIONS FUND TRUST
By: *
A. Max Walker
President and Chairman
of the Board of Trustees
By: /s/ Richard H. Blank, Jr.
Richard H. Blank, Jr.
*Attorney-in-Fact
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to the Registration Statement has been signed below by
the following persons in the capacities and on the date indicated:
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
<S> <C> <C>
* President and Chairman July 29, 1996
- ----------------------------------
(A. Max Walker) of the Board of Trustees
(Principal Executive Officer)
* Treasurer July 29, 1996
- ----------------------------------
(Richard H. Rose) Vice President
(Principal Financial and
Accounting Officer)
* Trustee July 29, 1996
- ----------------------------------
(Edmund L. Benson, III)
* Trustee July 29, 1996
- ----------------------------------
(James Ermer)
* Trustee July 29, 1996
- ----------------------------------
(William H. Grigg)
* Trustee July 29, 1996
- ----------------------------------
(Thomas F. Keller)
* Trustee July 29, 1996
- ----------------------------------
(Carl E. Mundy, Jr.)
* Trustee July 29, 1996
- ----------------------------------
(Charles B. Walker)
* Trustee July 29, 1996
- ----------------------------------
(Thomas S. Word)
/s/ Richard H. Blank, Jr.
Richard H. Blank, Jr.
*Attorney-in-Fact
</TABLE>
<PAGE>
EXHIBIT INDEX
Exhibit Page
Number Description Number
EX-99.B10 OPIN COUNS
EX-99.B11 OTH CONSNT
EX-99.B10
[MORRISON & FOERSTER LLP LETTERHEAD]
July 29, 1996
Nations Fund Trust
111 Center Street
Little Rock, Arkansas 72201
Re: Units of Beneficial Interest in the
Funds of the Nations Fund Trust
Gentlemen:
We refer to Post-Effective Amendment No. 45 and Amendment No. 47
to the Registration Statement on Form N-1A (SEC File No. 2-97817; 811-4305) (the
"Registration Statement") of Nations Fund Trust (the "Trust") relating to the
registration of an indefinite number of units of Beneficial Interest in Funds of
the Trust (collectively, the "Shares").
We have been requested by the Trust to furnish this opinion as
Exhibit 10 to the Registration Statement.
We have examined such records, documents, instruments,
certificates of public officials and of the Trust, made such inquiries of the
Trust, and examined such questions of law as we have deemed necessary for the
purpose of rendering the opinion set forth herein. We have assumed the
genuineness of all signatures and the authenticity of all items submitted to us
as originals and the conformity with originals of all items submitted to us as
copies.
Based upon and subject to the foregoing, we are of the opinion
that:
The issuance and sale of the Shares by the Trust have been duly
and validly authorized by all appropriate action and, assuming delivery by sale
or in accord with the Trust's dividend reinvestment plan in accordance with the
description set forth in the Registration Statement, as amended, the Shares will
be validly issued, fully paid and nonassessable.
<PAGE>
Nations Fund Trust
July 22, 1996
Page 2
We consent to the inclusion of this opinion as an exhibit to the
Registration Statement.
In addition, we hereby consent to the use of our name and to the
reference to our firm under the caption "Counsel" in the Statements of
Additional Information, and the description of advice rendered by our firm under
the headings "How The Fund Is Managed" and "How The Funds Are Managed" in the
Prospectuses, which are included as part of the Registration Statement.
Very truly yours,
/S/ MORRISON & FOERSTER LLP
MORRISON & FOERSTER LLP
EX-99.B11
[PRICE WATERHOUSE LLP LETTERHEAD]
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Statement of
Additional Information constituting part of this Post-Effective Amendment No. 45
under the Securities Act of 1933 to the registration statement on Form N-1A (the
"Registration Statement") of our reports dated May 17, 1996, relating to the
financial statements and financial highlights appearing in the March 31, 1996
Annual Reports to Shareholders of Nations Fund Trust, which are also
incorporated by reference into the Registration Statement. We also consent to
the references to us under the heading "Other Service Providers" in the
Prospectuses and under the heading "Independent Accountant and Reports" in the
Statements of Additional Information.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
Boston, Massachusetts
July 29, 1996
