<PAGE>
As filed with the Securities and Exchange Commission
on May 16, 1997
Registration No. 2-97817; 811-4305
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
[X]
Post-Effective Amendment No. 48
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
Amendment No. 50 [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,
<PAGE>
1996, the notice required by Rule 24f-2 for its fiscal period ended March
31, 1996.
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EXPLANATORY NOTE
This Post-Effective Amendment No. 48 to the Registration Statement of
Nations Fund Trust (the "Trust") is being filed in order to add two new
portfolios to the Trust.
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<PAGE>
Prospectus
PRIMARY A SHARES
JULY 31, 1997
This Prospectus describes NATIONS MANAGED VALUE
INDEX FUND and NATIONS MANAGED SMALLCAP VALUE INDEX
FUND (the "Funds") of Nations Fund Trust, an
open-end management investment company in the
Nations Funds Family ("Nations Funds" or "Nations
Funds Family"). This Prospectus describes one class
of shares of the Funds -- Primary A Shares.
This Prospectus sets forth concisely the information
about the Funds 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 Funds
at its address or telephone number shown below. The
SAI, dated July 31, 1997, is incorporated by
reference in its entirety into this Prospectus.
NationsBanc Advisors, Inc. ("NBAI") is the
investment adviser to the Funds. TradeStreet
Investment Associates, Inc. ("TradeStreet") is
investment sub-adviser to the Funds. As used herein
the term "Adviser" shall mean NBAI and/or
TradeStreet as the context may require.
SHARES OF NATIONS FUNDS ARE NOT DEPOSITS OR OTHER
OBLIGATIONS OF, OR ISSUED, ENDORSED OR GUARANTEED
BY, NATIONSBANK, N.A. ("NATIONSBANK") OR ANY OF ITS
AFFILIATES. SUCH SHARES ARE NOT INSURED BY THE U.S.
GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER
GOVERNMENT AGENCY. AN INVESTMENT IN THE FUNDS
INVOLVES CERTAIN RISKS, INCLUDING POSSIBLE LOSS OF
PRINCIPAL.
NATIONSBANK AND CERTAIN OF ITS AFFILIATES PROVIDE
INVESTMENT ADVISORY AND CERTAIN OTHER SERVICES TO
NATIONS FUNDS, 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 FUNDS.
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 Value
Index Fund
Nations
Managed
SmallCap Value
Index Fund
For Fund information call:
1-800-626-2275
Nations Funds
c/o Stephens Inc.
One NationsBank Plaza
33rd Floor
Charlotte, NC 28255
NATIONS FUNDS
ATR-96699-1096
<PAGE>
Table Of Contents
About The Funds
Prospectus Summary 3
Expenses Summary 4
Objectives 5
How The Objectives Are Pursued 5
How Performance Is Shown 8
How The Funds Are Managed 8
Organization And History 10
About Your
Investment
How To Buy Shares 11
How To Redeem Shares 11
How To Exchange Shares 12
How The Funds Value Their Shares 12
How Dividends And Distributions Are Made;
Tax Information 13
Appendix A -- Portfolio Securities 14
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT
CONTAINED IN THIS PROSPECTUS, OR IN THE FUNDS' SAI
INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH
THE OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY
NATIONS FUNDS OR ITS DISTRIBUTOR. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFERING BY NATIONS FUNDS OR
BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH
OFFERING MAY NOT LAWFULLY BE MADE.
3
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About The Funds
Prospectus Summary
(Bullet) TYPE OF COMPANY: Open-end management investment company.
(Bullet) INVESTMENT OBJECTIVES AND POLICIES:
(BULLET) Nations Managed Value Index Fund's investment objective is to
seek, over the long-term, to provide a total return that (gross of
fees and expenses) exceeds the total return of the S&P 500/BARRA
Value Index.
(Bullet) Nations Managed SmallCap Value Index Fund's investment objective
is to seek, over the long-term, to provide a total return that
(gross of fees and expenses) exceeds the total return of the S&P
SmallCap 600/BARRA Value Index.
(Bullet) When consistent with the Funds' objectives, the Funds will employ
various techniques to manage capital gain distributions.
(Bullet) INVESTMENT ADVISER: NationsBanc Advisors, Inc. serves as the investment
adviser to the Funds. NBAI provides investment advice to more than 50
investment company portfolios in the Nations Funds Family. TradeStreet
Investment Associates, Inc. provides sub-advisory services to the
Funds. See "How The Funds Are Managed."
(Bullet) DIVIDENDS AND DISTRIBUTIONS: Nations Managed Value Index Fund and
Nations Managed SmallCap Value Index Fund declare and pay dividends
from net investment income each calendar quarter. Each Fund's net
realized capital gains, including net short-term capital gains, are
distributed at least annually.
(Bullet) RISK FACTORS: Although the Adviser seeks to achieve the investment
objective of the Funds, there is no assurance that it will be able to
do so. Investments in the Funds are not insured against loss of
principal. Investments by the Funds in common stocks and other equity
securities are subject to stock market risk, which is the risk that the
value of the stocks the Funds hold may decline over short or even
extended periods. Certain of the Funds' 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 Objectives Are Pursued -- Risk
Considerations" and "Appendix A -- Portfolio Securities."
(Bullet) MINIMUM PURCHASE: The minimum initial investment for each of the Funds
per record holder is $250,000. See "How To Buy Shares."
3
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Expenses Summary
Expenses are one of several factors to consider when investing in the Funds. The
following tables summarize shareholder transaction and operating expenses for
Primary A Shares of the Funds. The Examples show the cumulative expenses
attributable to a hypothetical $1,000 investment in Primary A Shares of the
indicated Fund over specified periods.
PRIMARY A SHARES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
<S> <C>
Nations
Managed Value
Index Fund
Sales Load Imposed on Purchases None
Deferred Sales Load None
<CAPTION>
Nations
Managed
SmallCap Value
Index Fund
Sales Load Imposed on Purchases None
Deferred Sales Load None
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
<TABLE>
<CAPTION>
Nations
Managed Value
Index Fund
Management Fees (After Fee Waivers) .30%
<S> <C>
All Other Expenses .20%
Total Operating Expenses (After Fee Waivers) .50%
Nations
Managed
SmallCap Value
Index Fund
<CAPTION>
Management Fees (After Fee Waivers) .30%
<S> <C>
All Other Expenses .20%
Total Operating Expenses (After Fee Waivers) .50%
</TABLE>
EXAMPLES:
You would pay the following expenses on a $1,000 investment in Primary A Shares
of the Funds, assuming (1) a 5% annual return and (2) redemption at the end of
each time period.
<TABLE>
<CAPTION>
<S> <C>
Nations
Managed Value
Index Fund
1 Year $5
3 Years $16
<CAPTION>
Nations
Managed
SmallCap Value
Index Fund
1 Year $5
3 Years $16
</TABLE>
The purpose of the foregoing tables is to assist an investor in understanding
the various shareholder transaction and operating expenses that an investor in
Primary A Shares will bear either directly or indirectly. The figures in the
above tables 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 Funds'
operating expenses, see "How The Funds Are Managed."
Absent fee waivers, "Management Fees" and "Total Operating Expenses" would be
.50% and .70%, respectively, for both Nations Managed Value Index Fund and
Nations Managed SmallCap Value Index Fund.
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
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Objectives
NATIONS MANAGED VALUE INDEX FUND: Nations Managed Value Index Fund's investment
objective is to seek, over the long-term, to provide a total return that (gross
of fees and expenses) exceeds the total return of the S&P 500/BARRA Value Index
(the "S&P/BARRA Value Index").
NATIONS MANAGED SMALLCAP VALUE INDEX FUND: Nations Managed SmallCap Value Index
Fund's investment objective is to seek, over the long-term, to provide a total
return that (gross of fees and expenses) exceeds the total return of the S&P
SmallCap 600/BARRA Value Index (the "S&P/BARRA SmallCap Value Index").
How The Objectives Are Pursued
NATIONS MANAGED VALUE INDEX FUND: In seeking to achieve its investment
objective, the Fund will invest in selected equity securities that are included
in the S&P/BARRA Value Index. The S&P/BARRA Value Index is a subset of the
Standard and Poor's 500 Composite Stock Price Index (the "S&P 500 Index")1. The
S&P 500 Index is a market capitalization weighted index consisting of 500 common
stocks chosen for market size, liquidity and industry group representation. The
S&P/BARRA Value Index is a market capitalization weighted index consisting of
approximately 340 common stocks selected from the S&P 500 Index on the basis of
a lower than average price-to-book ratio. Because of their lower than average
price-to-book ratios, stocks in the S&P/BARRA Value Index, on average, typically
exhibit higher yields than stocks in the S&P 500 Index. Historically, stocks in
the S&P/BARRA Value Index, on average, have exhibited less short-term volatility
than stocks in the S&P 500 Index.
S&P constructs the S&P/BARRA Value Index semi-annually by ranking all common
stocks included in the S&P 500 Index by their price-to-book ratios. The
resulting list is then divided in half by market capitalization. Stocks in the
half of the list that have lower price-to-book ratios are included in the
S&P/BARRA Value Index.
Unlike traditional index funds, the Fund has a "managed" overlay. The Adviser
believes that a managed equity value index portfolio can provide investors with
positive incremental performance relative to the S&P/BARRA Value Index while
reducing the downside risk of underperforming the S&P/BARRA Value Index over
time.
The initial stock universe considered by the Adviser is the S&P/BARRA Value
Index. The Adviser ranks the attractiveness of each security according to a
multi-factor valuation model. Although the universe consists exclusively of
value stocks, 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 are useful in determining a stock's value in relation to others in
the same industry. An earnings momentum model is also applied in the portfolio
construction process to serve as a validity check. Each stock is assigned a
ranking from 1 to 10 (best to worst). The Adviser then either underweighs or
eliminates the less attractive stocks and modestly emphasizes the most
attractive stocks resulting in a portfolio of 100 to 200 holdings that capture
the overall investment characteristics of the S&P/BARRA Value Index.
Under normal conditions, the Adviser will invest at least 80% of its total
assets in common stocks which are included in the S&P/BARRA Value 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 obligations
("U.S. Government Obligations") and repurchase agreements.
NATIONS MANAGED SMALLCAP VALUE INDEX FUND: In seeking to achieve its investment
objective, the Fund will invest in selected equity securities that are included
in the S&P/BARRA SmallCap Value Index. The S&P/BARRA SmallCap Value Index is a
subset of the Standard and Poor's SmallCap 600 Index (the "S&P 600 Index")2. The
S&P 600 Index is a market capitalization weighted index consisting of 600
domestic stocks which capture the economic and industry characteristics of small
stock performance. The S&P/BARRA SmallCap Value Index is a market capitalization
weighted index consisting of approximately 375 companies selected from the S&P
600 Index on the basis of price-to-book ratios. Those companies with lower
price-to-book ratios make up the S&P/BARRA SmallCap Value Index. The S&P/BARRA
SmallCap Value Index is also rebalanced semi-annually to reflect changes in the
S&P 600 Index. Most of these stocks are listed on either the New York, American
or NASDAQ stock exchanges.
(1) Standard & Poor's 500 Index is a registered service trademark of Standard &
Poor's Corporation ("S&P").
(2) S&P 600 Index is a registered service trademark of S&P.
5
<PAGE>
Unlike traditional index funds, the Fund has a "managed" overlay. The Adviser
believes that a managed equity index portfolio can provide investors with
positive incremental performance relative to the S&P/BARRA SmallCap Value Index
while reducing the downside risk of underperforming the S&P/BARRA SmallCap Value
Index over time.
The initial stock universe considered by the Adviser is the S&P/BARRA SmallCap
Value Index. The Adviser ranks the attractiveness of each security according to
a multi-factor valuation model. Although the universe consists exclusively of
value stocks, 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 are useful in determining a stock's value in relation to others in
the same industry. An earnings momentum model is also applied in the portfolio
construction process to serve as a validity check. Each stock is assigned a
ranking from 1 to 10 (best to worst). The Adviser then either underweighs or
eliminates the less attractive stocks and modestly emphasizes the most
attractive stocks resulting in a portfolio of 200 to 300 holdings that capture
the overall investment characteristics of the S&P/BARRA SmallCap Value Index.
Under normal conditions, the Adviser will invest at least 80% of its total
assets in common stocks which are included in the S&P/BARRA SmallCap Value
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
Obligations and repurchase agreements.
GENERAL: Each of the Funds 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. Each Fund may lend its portfolio securities to qualified
institutional investors. Each Fund also may invest in restricted, private
placement and other illiquid securities. In addition, the Funds may invest in
securities issued by other investment companies, consistent with the Fund's
investment objective and policies.
In addition, when consistent with the Fund's respective investment objective,
each of the Funds 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.
Equity mutual funds, like other investors in equity securities, incur
transaction (brokerage) costs in connection with the purchase and sale of
portfolio securities. For some funds, these costs can have a material negative
impact on performance. The Adviser to the Funds will attempt to minimize these
transaction costs by utilizing computerized exchanges called "crossing networks"
which allow institutions to execute trades at the midpoint of the bid/ask spread
and at a reduced commission rate.
ABOUT THE INDEXES: The S&P/BARRA Value Index and the S&P/BARRA SmallCap Value
Index (collectively, the "BARRA Value Indexes") are constructed by dividing the
stocks in the S&P 500 Index and the S&P 600 Index, respectively, according to a
single attribute: book-to-price ratios. The BARRA Value Indexes are
capitalization-weighted, meaning that each stock is weighted in the approximate
index in proportion to its market value. Additionally, book-to-price ratios tend
to be more stable over time than alternative measures such as price-to-earnings
ratios, historical earnings growth rates, or return on equity, This results in
indexes with relatively low turnover. Generally, the companies in the BARRA
Value Indexes also exhibit characteristics associated with "value" stocks: lower
price-to-earnings ratios, higher dividend yields, and lower historical and
predicted earnings growth than the S&P 500 Index or the S&P 600 Index,
respectively.
The S&P/BARRA Value Index and the S&P/BARRA SmallCap Value Index are relatively
concentrated. The S&P/BARRA Value Index tends to be more heavily concentrated in
the Energy, Utility, and Financial sectors than the S&P 500 Index. Additionally,
the S&P/BARRA SmallCap Value Index tends to be more heavily concentrated in the
Utility and Financial Sectors than the S&P 600 Index.
The inclusion of a stock in the S&P/BARRA Value Index or the S&P/BARRA SmallCap
Value Index in no way
6
<PAGE>
implies that S&P or BARRA believes the stock to be an attractive investment. The
BARRA Value Indexes are determined, composed and calculated by S&P and BARRA
without regard to the Funds. Neither S&P or BARRA is a sponsor of, or in any way
affiliated with, the Funds, and neither S&P or BARRA makes any representation or
warranty, expressed or implied, on the advisability of investing in the Funds or
as to the ability of the BARRA Value Indexes to track general stock market
performance. S&P and BARRA disclaim all warranties of merchantability or fitness
for a particular purpose or use with respect to the BARRA Value Indexes or any
data included therein.
PORTFOLIO TURNOVER: Generally, the Funds will purchase portfolio securities for
capital appreciation or investment income, or both, and not for short-term
trading profits. While it is not possible to predict exactly annual portfolio
turnover rates, it is expected that under normal market conditions, the annual
portfolio turnover rate for each Fund will not exceed 25%.
RISK CONSIDERATIONS: Although the Adviser will seek to achieve the investment
objective of each Fund, there is no assurance that it will be able to do so. No
single fund should be considered, by itself, to provide a complete investment
program for any investor. Investments in a Fund are not insured against loss of
principal.
Investments by a Fund in common stocks and other equity securities are subject
to stock market risk. The value of the stocks that the Funds hold, like the
broader stock market, may decline over short or even extended periods.
Certain of the Funds' 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 a Fund's investment objective and do not unduly
increase the Fund's exposure to market or other risks. For additional risk
information regarding the Funds' investments in particular instruments, see
"Appendix A -- Portfolio Securities."
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 a 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 Funds to manage capital gain
distributions may result in the accumulation of substantial unrealized gains in
the Funds' portfolios. Moreover, the realization of capital gains is not
entirely within a 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.
Furthermore, the U.S. Treasury has proposed legislation which would require
holders of substantially identical securities to determine their tax basis using
the average cost of all of their holdings in such securities. If enacted, the
legislation would prevent the Funds from specifically identifying each lot of
shares that they hold and from selling first those specific shares with the
highest tax basis. Thus, the legislation would restrict the Funds' ability to
manage capital gains.
INVESTMENT LIMITATIONS: Each Fund is subject to a number of investment
limitations. The following investment limitations are matters of fundamental
policy and may not be changed without the affirmative vote of the holders of a
majority of each Fund's outstanding shares. Other investment limitations that
cannot be changed without such a vote of shareholders are described in the SAI.
Each Fund may not:
1. Purchase any securities which would cause 25% or more of the value of the
Fund's total assets at the time of such purchase to be invested in the
securities of one or more issuers conducting their principal activities in the
same industry (for purposes of this limitation, U.S. Government securities are
not considered members of any industry.)
2. Make loans, except that a Fund may purchase and hold debt instruments
(whether such instruments are part of a public offering or privately placed),
may enter into repurchase agreements and may lend portfolio securities in
accordance with its investment policies.
3. Purchase securities of any one issuer (other than securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities) if,
immediately after such purchase, more than 5% of the value of such Fund's total
assets would be invested in the securities of such issuer, except that up to 25%
of the value of the Fund's total assets may be invested without regard to these
limitations and with respect to 75% of such Fund's assets,
7
<PAGE>
the Fund will not hold more than 10% of the voting securities of any issuer.
The investment objective and policies of each Fund, unless otherwise specified,
may be changed without a vote of the Fund's shareholders. If the investment
objective or policies of a Fund change, shareholders should consider whether the
Fund remains an appropriate investment in light of their current position and
needs.
How Performance Is Shown
From time to time the Funds may advertise the total return and yield on a class
of shares. TOTAL RETURN AND YIELD FIGURES ARE BASED ON HISTORICAL DATA AND ARE
NOT INTENDED TO INDICATE FUTURE PERFORMANCE. The "total return" of a class of
shares of a Fund may be calculated on an average annual total return basis or an
aggregate total return basis. Average annual total return refers to the average
annual compounded rates of return over one-, five-, and ten-year periods or the
life of a Fund (as stated in the advertisement) that would equate an initial
amount invested at the beginning of a stated period to the ending redeemable
value of the investment, assuming the reinvestment of all dividend and capital
gain distributions. Aggregate total return reflects the total percentage change
in the value of the investment over the measuring period again assuming the
reinvestment of all dividends and capital gain distributions. Total return may
also be presented for other periods.
"Yield" is calculated by dividing the annualized net investment income per share
during a recent 30-day (or one month) period of a class of shares of a Fund by
the maximum public offering price per share on the last day of that period.
Investment performance, which will vary, is based on many factors, including
market conditions, the composition of a Fund's portfolio and the Fund's
operating expenses. Investment performance also often reflects the risks
associated with such Fund's investment objective and policies. These factors
should be considered when comparing a Fund's investment results to those of
other mutual funds and other investment vehicles. Since yields fluctuate, yield
data cannot necessarily be used to compare an investment in a Fund with bank
deposits, savings accounts, and similar investment alternatives which often
provide an agreed-upon or guaranteed fixed yield for a stated period of time.
In addition to Primary A Shares, the Funds offer 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 a Fund's shares. Any
fees charged by an institution directly to its customers' accounts in connection
with investments in the Funds will not be included in calculations of total
return or yield. Each Fund's annual report contains additional performance
information and is available upon request without charge from the Funds'
distributor or your Institution, as defined below.
How The Funds Are 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 Funds and the Adviser have adopted codes of ethics which contain
policies on personal securities transactions by "access persons," including
portfolio managers and investment analysts. These policies substantially comply
in all material respects with the recommendations set forth in the May 9, 1994
Report of the Advisory Group on Personal Investing of the Investment Company
Institute.
INVESTMENT ADVISER: NationsBanc Advisors, Inc. serves as investment adviser to
the Funds. NBAI is a wholly owned subsidiary of NationsBank, which in turn is a
wholly owned banking subsidiary of NationsBank Corporation, a bank holding
company organized as a North Carolina corporation. NBAI has its principal
offices at One NationsBank Plaza, Charlotte, North Carolina 28255.
TradeStreet Investment Associates, Inc., with principal offices at One
NationsBank Plaza, Charlotte, North Carolina 28255, serves as investment
sub-adviser to the Funds. TradeStreet is a wholly owned subsidiary of
NationsBank. TradeStreet provides investment management services to individuals,
corporations and institutions. TradeStreet has employed the "managed index"
style since 1989 and currently manages more than $1.5 billion in this style on
behalf of its clients, including the Nations Managed Index Fund and Nations
Managed SmallCap Index Fund.
Subject to the general supervision of Nations Fund Trust's Board of Trustees,
and in accordance with each
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Fund's investment policies, the Adviser formulates guidelines and lists of
approved investments for each Fund, makes decisions with respect to and places
orders for each Fund's purchases and sales of portfolio securities and maintains
records relating to such purchases and sales. The Adviser is authorized to
allocate purchase and sale orders for portfolio securities to certain financial
institutions, including, in the case of agency transactions, financial
institutions which are affiliated with the Adviser or which have sold shares in
such Funds, if the Adviser believes that the quality of the transaction and the
commission are comparable to what they would be with other qualified brokerage
firms. From time to time, to the extent consistent with its investment
objective, policies and restrictions, each Fund may invest in securities of
companies with which NationsBank has a lending relationship. For the services
provided and expenses assumed pursuant to 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 each Fund.
From time to time, NBAI (and/or TradeStreet) may waive or reimburse (either
voluntarily or pursuant to applicable state limitations) advisory fees and/or
expenses payable by a Fund.
For the 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 each
Fund.
Jeffrey C. Moser, CFA, is a Senior Product Manager, Equity Management for
TradeStreet and Senior Portfolio Manager for Nations Managed Value Index Fund
and Nations Managed SmallCap Value Index Fund. Mr. Moser has been with
TradeStreet since 1996 and Portfolio Manager for Nations Managed Value Index
Fund and Nations Managed SmallCap Value Index Fund since the inception of the
Funds. He is also the Portfolio Manager for the Nations Disciplined Equity Fund.
Prior to assuming his position with TradeStreet, he was Senior Vice President
and Senior Portfolio Manager for the Investment Management Group at NationsBank.
Mr. Moser has worked for the Investment Management Group at NationsBank since
1983 where his responsibilities included institutional portfolio management and
equity analysis. Mr. Moser graduated Phi Beta Kappa with a B.S. in Mathematics
from Wake Forest University. He holds the Chartered Financial Analyst
designation and is a member of the Association for Investment Management and
Research as well as the North Carolina Society of Financial Analysts, Inc.
Morrison & Foerster LLP, counsel to Nations Funds and special counsel to
NationsBank, has advised Nations Funds 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 Funds pursuant to an Administration Agreement. Pursuant to the terms of
the Administration Agreement, Stephens provides various administrative and
corporate secretarial services to the Funds, including providing general
oversight of other service providers, office space, utilities and various legal
and administrative services in connection with the satisfaction of various
regulatory requirements applicable to the Funds.
First Data Investor Services Group, Inc. ("First Data"), formerly The
Shareholder Services Group, Inc., a wholly owned subsidiary of First Data
Corporation, with principal offices at One Exchange Place, Boston, Massachusetts
02109, serves as the co-administrator of Nations Funds pursuant to a
Co-Administration Agreement. Under the Co-Administration Agreement, First Data
provides various administrative and accounting services to the Funds including
performing the calculations necessary to determine net asset value per share and
dividends of each class of shares of the Funds, preparing tax returns and
financial statements and maintaining the portfolio records and certain of the
general accounting records for the Funds.
For the services rendered pursuant to the Administration and Co-Administration
Agreements, Stephens and First Data are entitled to receive a combined fee at an
annual rate of up to 0.10% of each Fund's average daily net assets.
NationsBank serves as sub-administrator for Nations Funds pursuant to a
Sub-Administration Agreement. Pursuant to the terms of the Sub-Administration
Agreement, NationsBank assists Stephens in supervising, coordinating and
monitoring various aspects of the Funds' administrative operations. For
providing such services, NationsBank shall be entitled to receive a monthly fee
from Stephens based on an annual rate of 0.01% of the Funds' average daily net
assets.
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Shares of the Funds are sold on a continuous basis by Stephens, as the Funds'
sponsor and distributor. Stephens is a registered broker/dealer with principal
offices at 111 Center Street, Little Rock, Arkansas 72201. Nations Funds has
entered into distribution agreements with Stephens which provide that Stephens
has the exclusive right to distribute shares of the Funds. Stephens may pay
service fees or commissions to Institutions which assist customers in purchasing
Primary A Shares of the Funds.
NationsBank of Texas, N.A. ("NationsBank of Texas" and, collectively with The
Bank of New York ("BONY"), called "Custodians") serves as Custodian for the
assets of all Nations Funds, except the international portfolios. NationsBank of
Texas, which also serves as the sub-transfer agent for each Fund's Primary A
Shares, is located at 1401 Elm Street, Dallas, Texas 75202, and is a
wholly-owned subsidiary of NationsBank Corporation. In return for providing
custodial services, NationsBank of Texas is entitled to receive, in addition to
out-of-pocket expenses, fees at the rate of (i) $300,000 per annum, to be paid
monthly in payments of $25,000 for custodian services for up to and including 50
Funds; and (ii) $6,000 per annum, to be paid in equal monthly payments, for
custodian services for each additional Fund above 50 Funds.
BONY has entered into an agreement with each of the Funds and NationsBank of
Texas, N.A., whereby BONY will serve as sub-custodian ("Sub-Custodian") for the
assets of all Nations Funds except the international portfolios, for which BONY
is already serving as Custodian.
BONY is located at 90 Washington Street, New York, New York 10286. In return for
providing sub-custodial services, BONY shall receive, in addition to out of
pocket expenses, fees at the rate of (i) 3/4 of one basis point per annum on the
aggregate net assets of all Nations' Non-Money Market Funds up to $10 billion;
and (ii) 1/2 of one basis point on the excess.
First Data serves as transfer agent (the "Transfer Agent") for the Funds'
Primary A Shares. The Transfer Agent is located at One Exchange Place, Boston,
Massachusetts 02109. NationsBank of Texas also serves as the sub-transfer agent
for each Fund's Primary A Shares and is entitled to receive an annual fee of
$251,000 from First Data for performing such services.
Price Waterhouse LLP serves as independent accountant to Nations Funds. Its
address is 160 Federal Street, Boston, Massachusetts 02110.
EXPENSES: The accrued expenses of each Fund are deducted from the Fund's total
accrued income before dividends are declared. These expenses include, but are
not limited to: fees paid to the Adviser, NationsBank, Stephens and First Data;
taxes; interest; 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 Funds; 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 Funds are members of the Nations Funds Family, which consists of Nations
Fund Trust, Nations Fund, Inc., Nations Fund Portfolios, Inc. and Nations
Institutional Reserves. The Nations Funds Family currently consists of more than
50 distinct investment portfolios and total assets in excess of $18 billion.
NATIONS FUND TRUST: Nations Fund Trust was organized as a Massachusetts business
trust on May 6, 1985. Nations Fund Trust's fiscal year end is March 31; prior to
1996, Nations Fund Trust's fiscal year end was November 30. The Funds currently
offer 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 Value Index Fund and Nations Managed SmallCap Value
Index Fund of Nations Fund Trust. To obtain additional information regarding the
Funds' other classes of shares which may be available to you, contact your
Institution (as defined below) or Nations Funds 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
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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, as amended (the "1940 Act") requires
voting by fund.
As of July 31, 1997, NationsBank and its affiliates possessed or shared power to
dispose or vote with respect to more than 25% of the outstanding shares of
certain classes of shares of Nations Fund Trust and therefore could be
considered to be a controlling person of these classes and series of Nations
Fund Trust for purposes of the 1940 Act. For more detailed information
concerning the percentage of each class or series of shares over which
NationsBank and its affiliates possessed or shared power to dispose or vote as
of a certain date, see Nations Fund Trust's SAI.
Nations Fund Trust does not presently intend to hold annual meetings except as
required by the 1940 Act. Shareholders will have the right to remove Trustees.
Nations Fund Trust's Code of Regulations provides that special meetings of
shareholders shall be called at the written request of the shareholders entitled
to vote at least 10% of the outstanding shares of Nations Fund Trust entitled to
be voted at such meeting.
About Your Investment
How To Buy Shares
There is a minimum initial investment for each record holder of $250,000 for
Nations Managed Value Index Fund and $250,000 for Nations Managed SmallCap Value
Index Fund; there are no minimum subsequent investments.
Primary A Shares of the Funds 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, endowments and to other funds in the Nations Funds Family.
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.
Nations Funds reserves the right to reject any purchase order. The issuance of
Primary A Shares is recorded on the books of the Funds, and share certificates
are not issued. It is the responsibility of Institutions, when applicable, to
record beneficial ownership of Primary A Shares and to reflect such ownership in
the account statements provided to their Customers.
EFFECTIVE TIME OF PURCHASES: Purchase orders for Primary A Shares of the Funds
which are received by Stephens or by the Transfer Agent or sub-transfer agent
before the close of regular trading hours on the Exchange (currently 4:00 p.m.,
Eastern time) on any Business Day are priced according to the net asset value
determined on that day but are not executed until 4:00 p.m., Eastern time, on
the Business Day on which immediately available funds in payment of the purchase
price are received by the Funds' Custodian. Such payment must be received no
later than 4:00 p.m., Eastern time, by the third Business Day following receipt
of the order. If funds are not received by such date, the order will not be
accepted and notice thereof will be given to the 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 Funds.
How To Redeem Shares
Nations Funds may redeem a shareholder's Primary A Shares if the balance in such
shareholder's account with a 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 mini-
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mum 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 such Fund to the extent
necessary to maintain the required minimum balance in such Institution account.
Nations Funds 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 Funds. No charge for wiring redemption
payments is imposed by Nations Funds, although Institutions may charge their
Customer accounts for these or other services provided in connection with the
redemption of Primary A Shares and may establish additional procedures.
Information concerning any charges or procedures is available from the
Institutions. Redemption orders are effected at the net asset value per share
next determined after acceptance of the order by Stephens or by the Transfer
Agent. Redemption proceeds are normally remitted in federal funds wired to the
redeeming Institution or investor within three Business Days following receipt
of the order.
How To Exchange Shares
The exchange feature enables a shareholder of Primary A Shares of a Fund to
acquire Primary A Shares of another fund when that shareholder believes that a
shift between funds is an appropriate investment decision. An exchange of
Primary A Shares for Primary A Shares of another fund is made on the basis of
the next calculated net asset value per share of each fund after the exchange
order is received.
The Funds and each of the other funds of Nations Funds 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 Funds 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 Funds 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 Funds 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 Funds Value Their Shares
The net asset value of a share of each class is calculated by dividing the total
value of its assets, less liabilities, by the number of shares in the class
outstanding. Shares of the Funds are valued as of the close of regular trading
on the Exchange (currently 4:00 p.m., Eastern time) on each NYSE Business Day.
Currently, the days on which the Exchange is closed (other than weekends) are:
New Year's Day, 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.
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How Dividends And Distributions Are Made;
Tax Information
DIVIDENDS AND DISTRIBUTIONS: Even though the Funds seek to manage taxable
distributions, the Funds 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 Funds. The Funds' net realized capital gains (including net
short-term capital gains) are distributed at least annually.
Primary A Shares of the Funds are eligible to receive dividends when declared,
provided, however, that the purchase order for such shares is received at least
one day prior to the dividend declaration and such shares continue to be
eligible for dividends through and including the day before the redemption order
is executed.
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 a Fund.
TAX INFORMATION: Each Fund intends to qualify as a separate "regulated
investment company" under the Internal Revenue Code of 1986, as amended (the
"Code"). Such qualification relieves a Fund of liability for Federal income tax
to the extent its earnings are distributed in accordance with the Code.
Each Fund intends to distribute substantially all of its investment company
taxable income and net tax-exempt income each taxable year. Such distributions
by a Fund of its net investment income (including net foreign currency gains)
and the excess, if any, of its net short-term capital gain over its net
long-term capital loss will be taxable as ordinary income to shareholders who
are not currently exempt from Federal income tax, whether such income is
received in cash or reinvested in additional shares.
Corporate shareholders may be entitled to the dividends-received deduction for
distributions from a 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 Funds, if
any, will be distributed at least annually to the Funds' shareholders. The Funds
will generally have no tax liability with respect to such gains, and the
distributions will be taxable to such shareholders who are not currently exempt
from Federal income tax as long-term capital gains, regardless of how long the
shareholders have held such Funds' shares and whether such gains are received in
cash or reinvested in additional shares.
Each year, shareholders will be notified as to the amount and Federal tax status
of all dividends and capital gains paid during the prior year. Such dividends
and capital gains may also be subject to state and local taxes.
Dividends declared in October, November or December of any year payable to
shareholders of record on a specified date in such months will be deemed to have
been received by shareholders and paid by a Fund on December 31 of such year in
the event such dividends are actually paid during January of the following year.
Federal law requires Nations Funds to withhold 31% from any dividends (other
than exempt-interest dividends) paid by Nations Funds 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 Funds 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, a 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 each 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 Funds and their
shareholders. It is not intended as a substitute for careful tax planning.
Accordingly, potential investors should consult their tax advisors with specific
reference to their own tax situations. Further tax information is contained in
the SAI.
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Appendix A -- Portfolio Securities
The following are summary descriptions of certain types of instruments in which
a Fund may invest. The "How Objectives Are Pursued" section of the Prospectus
identifies each Fund's permissible investments, and the SAI contains more
information concerning such investments.
BANK INSTRUMENTS: Bank instruments consist mainly of certificates of deposit,
time deposits and bankers' acceptances. The Funds will limit their investments
in bank obligations so they do not exceed 25% of each Fund's total assets at the
time of purchase.
BORROWINGS: When a Fund borrows money, the net asset value of a share may be
subject to greater fluctuation until the borrowing is paid off. The Funds may
borrow money from banks for temporary purposes in amounts of up to one-third of
their respective total assets, provided that borrowings in excess of 5% of the
value of the Fund's total assets must be repaid prior to the purchase of
portfolio securities. Under the requirements of the 1940 Act, the Funds are
required to maintain an asset coverage (including the proceeds of the
borrowings) of at least 300% of all borrowings.
COMMERCIAL INSTRUMENTS: Commercial instruments consist of short-term U.S.
dollar-denominated obligations issued by domestic corporations or foreign
corporations and foreign commercial banks. Investments by a Fund in commercial
paper will consist of issues rated in a manner consistent with such Fund's
investment policies and objective. In addition, a Fund may acquire unrated
commercial paper and corporate bonds that are determined by the Adviser at the
time of purchase to be of comparable quality to rated instruments that may be
acquired by a Fund. Commercial instruments include variable-rate master demand
notes, which are unsecured instruments that permit the indebtedness 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 Funds may invest in
debt securities convertible into or exchangeable for equity securities,
preferred stocks or warrants. Preferred stocks are securities that represent an
ownership interest in a corporation providing the owner with claims on a
company's earnings and assets before common stock owners, but after bond or
other debt security owners. Warrants are options to buy a stated number of
shares of common stock at a specified price any time during the life of the
warrants.
FUTURES, OPTIONS AND OTHER DERIVATIVE INSTRUMENTS: The Funds may attempt to
reduce the overall level of investment risk of particular securities and attempt
to protect a Fund against adverse market movements by investing in futures,
options and other derivative instruments. These include the purchase and writing
of options on securities (including index options), and 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 a Fund to
additional investment risks and transaction costs. If the Adviser incorrectly
analyzes market conditions or does not employ the appropriate strategy with
respect to these instruments, a Fund could be left in a less favorable position.
Additional risks inherent in the use of futures, options, forward contracts and
swaps include: imperfect correlation between the price of futures, options and
forward contracts and movements in the prices of the securities or currencies
being hedged; the possible absence of a liquid secondary market for any
particular instrument at any time; and the possible need to defer closing out
certain hedged positions to avoid adverse tax consequences. Further information
on the use of futures, options and other derivative instruments, and the
associated risks, is contained in the SAI.
ILLIQUID SECURITIES: Certain securities may be sold only pursuant to certain
legal restrictions, and may be difficult to sell. The Funds will not hold more
than 15% of the value of their respective net assets in securities that are
illiquid or such lower percentage as may be required by the states in which the
appropriate Fund sells its shares. Repurchase agreements, time deposits and
guaranteed investment contracts that do not provide for payment to a Fund within
seven days after notice, and illiquid restricted securities are subject to the
limitation on illiquid securities.
If otherwise consistent with its investment objective and policies, certain
Funds may purchase securities that are not registered under the Securities Act
of 1933, as amended (the "1933 Act") but which can be sold to "qualified
institutional buyers" in accordance with Rule 144A under the 1933 Act, or which
were issued under Section 4(2) of the 1933 Act. Any such security will not be
considered illiquid so long as it is determined by a Fund's Board of Trustees or
the Adviser, acting under guidelines approved and monitored by such Fund's
Board, after considering trading activity, availability of reliable price
information and other relevant information, that an adequate trading market
exists for that security. To the extent that, for a period of time, qualified
institutional or other buyers cease purchasing such restricted securities
pursuant to Rule 144A or otherwise, the level of illiquidity of a Fund holding
such securities may increase during such period.
MONEY MARKET INSTRUMENTS: The term "money market instruments" refers to
instruments with remaining maturities of one year or less. Money market
instru-
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ments may include, among other instruments, certain U.S. Treasury obligations,
U.S. Government obligations, bank instruments, commercial instruments,
repurchase agreements and municipal securities. Such instruments are described
in this Appendix A.
OTHER INVESTMENT COMPANIES: Each Fund may invest in securities issued by other
investment companies to the extent that such investments are consistent with the
Fund's investment objective and policies and permissible under the 1940 Act. As
a shareholder of another investment company, a Fund would bear, along with other
shareholders, its pro rata portion of the other investment company's expenses,
including advisory fees. These expenses would be in addition to the advisory and
other expenses that a Fund bears directly in connection with its own operations.
REPURCHASE AGREEMENTS: A repurchase agreement involves the purchase of a
security by a Fund and a simultaneous agreement (generally with a bank or
broker/dealer) to repurchase that security from the Fund at a specified price
and date or upon demand. This technique offers a method of earning income on
idle cash. A risk associated with repurchase agreements is the failure of the
seller to repurchase the securities as agreed, which may cause a Fund to suffer
a loss if the market value of such securities declines before they can be
liquidated on the open market. Repurchase agreements with a duration of more
than seven days are considered illiquid securities and are subject to the limit
stated above. A Fund may enter into repurchase agreements jointly with other
investment portfolios of Nations Funds.
SECURITIES LENDING: To increase return on portfolio securities, the Funds may
lend their portfolio securities to broker/dealers and other institutional
investors pursuant to agreements requiring that the loans be continuously
secured by collateral equal at all times in value to at least the market value
of the securities loaned. There is a risk of delay in receiving collateral or in
recovering the securities loaned or even a loss of rights in the collateral
should the borrower of the securities fail financially. However, loans are made
only to borrowers deemed by the Adviser to be credit worthy and when, in its
judgment, the income to be earned from the loan justifies the attendant risks.
The aggregate of all outstanding loans of a Fund may not exceed 30% of the value
of its total assets.
U.S. GOVERNMENT OBLIGATIONS: U.S. Government obligations consist of marketable
securities and instruments issued or guaranteed by the U.S. Government or any of
its agencies, authorities or instrumentalities. Direct obligations are issued by
the U.S. Treasury and include all U.S. Treasury instruments. U.S. Treasury
obligations differ only in their interest rates, maturities and time of
issuance. Obligations of U.S. Government agencies, authorities and
instrumentalities are issued by government-sponsored agencies and enterprises
acting under authority of Congress. Although obligations of federal agencies,
authorities and instrumentalities are not debts of the U.S. Treasury, some are
backed by the full faith and credit of the U.S. Treasury, such as direct
pass-through certificates of the Government National Mortgage Association; some
are supported by the right of the issuer to borrow from the U.S. Government,
such as obligations of Federal Home Loan Banks, and some are backed only by the
credit of the issuer itself, such as obligations of the Federal National
Mortgage Association. No assurance can be given that the U.S. Government would
provide financial support to government-sponsored instrumentalities if it is not
obligated to do so by law. The market value of U.S. Government obligations may
fluctuate due to fluctuations in market interest rates. As a general matter, the
value of debt instruments, including U.S. Government obligations, declines when
market interest rates increase and rises when market interest rates decrease.
Certain types of U.S. Government obligations are subject to fluctuations in
yield or value due to their structure or contract terms.
WHEN-ISSUED, DELAYED DELIVERY AND FORWARD COMMITMENT SECURITIES: The purchase of
new issues of securities on a "when-issued," "delayed delivery" or "forward
commitment" basis occurs when the payment for and delivery of securities takes
place at a future date. Because actual payment for and delivery of such
securities generally take place 15 to 45 days after the purchase date,
purchasers of such securities bear the risk that interest rates on debt
securities at the time of delivery may be higher or lower than those contracted
for on the security purchased.
15
<PAGE>
Prospectus
PRIMARY B SHARES
JULY 31, 1997
This Prospectus describes NATIONS MANAGED VALUE
INDEX FUND and NATIONS MANAGED SMALLCAP VALUE INDEX
FUND (the "Funds") of Nations Fund Trust, an
open-end management investment company in the
Nations Funds Family ("Nations Funds" or "Nations
Funds Family"). This Prospectus describes one class
of shares of the Funds -- Primary B Shares.
This Prospectus sets forth concisely the information
about the Funds that a prospective purchaser of
Primary B Shares should consider before investing.
Investors should read this Prospectus and retain it
for future reference. Additional information about
Nations Fund Trust 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 Funds
at its address or telephone number shown below. The
SAI, dated July 31, 1997, is incorporated by
reference in its entirety into this Prospectus.
NationsBanc Advisors, Inc. ("NBAI") is the
investment adviser to the Funds. TradeStreet
Investment Associates, Inc. ("TradeStreet") is
investment sub-adviser to the Funds. As used herein
the term "Adviser" shall mean NBAI and/or
TradeStreet as the context may require.
SHARES OF NATIONS FUNDS ARE NOT DEPOSITS OR OTHER
OBLIGATIONS OF, OR ISSUED, ENDORSED OR GUARANTEED
BY, NATIONSBANK, N.A. ("NATIONSBANK") OR ANY OF ITS
AFFILIATES. SUCH SHARES ARE NOT INSURED BY THE U.S.
GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER
GOVERNMENT AGENCY. AN INVESTMENT IN THE FUNDS
INVOLVES CERTAIN RISKS, INCLUDING POSSIBLE LOSS OF
PRINCIPAL.
NATIONSBANK AND CERTAIN OF ITS AFFILIATES PROVIDE
INVESTMENT ADVISORY AND CERTAIN OTHER SERVICES TO
NATIONS FUNDS, 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 FUNDS.
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 Value
Index Fund
Nations
Managed
SmallCap Value
Index Fund
For Fund information call:
1-800-626-2275
Nations Funds
c/o Stephens Inc.
One NationsBank Plaza
33rd Floor
Charlotte, NC 28255
NATIONS FUNDS
49671TR-96697-1096
<PAGE>
<PAGE>
Table Of Contents
About The Funds
Prospectus Summary 3
Expenses Summary 4
Objectives 5
How The Objectives Are Pursued 5
How Performance Is Shown 8
How The Funds Are Managed 8
Organization And History 10
About Your
Investment
How To Buy Shares 11
How To Redeem Shares 11
How To Exchange Shares 12
Shareholder Administration Arrangements 12
How the Funds Value Their Shares 13
How Dividends And Distributions Are Made; Tax
Information 13
Appendix A -- Portfolio Securities 14
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT
CONTAINED IN THIS PROSPECTUS, OR IN THE FUNDS' SAI
INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH
THE OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY
NATIONS FUNDS OR ITS DISTRIBUTOR. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFERING BY NATIONS FUNDS OR
BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH
OFFERING MAY NOT LAWFULLY BE MADE.
2
<PAGE>
<PAGE>
About The Funds
Prospectus Summary
(Bullet) TYPE OF COMPANY: Open-end management investment company.
(Bullet) INVESTMENT OBJECTIVES AND POLICIES:
(Bullet) Nations Managed Value Index Fund's investment objective is to
seek, over the long-term, to provide a total return that
(gross of fees and expenses) exceeds the total return of the
S&P 500/BARRA Value Index.
(Bullet) Nations Managed SmallCap Value Index Fund's investment
objective is to seek, over the long-term, to provide a
total return that (gross of fees and expenses) exceeds
the total return of the S&P SmallCap 600/BARRA Value
Index.
(Bullet) When consistent with the Funds' objectives, the Funds
will employ various techniques to manage capital gain
distributions.
(Bullet) INVESTMENT ADVISER: NationsBanc Advisors, Inc. serves as the investment
adviser to the Funds. NBAI provides investment advice to more than 50
investment company portfolios in the Nations Fund Family. TradeStreet
Investment Associates, Inc. provides sub-advisory services to the
Funds. See "How The Funds Are Managed."
(Bullet) DIVIDENDS AND DISTRIBUTIONS: Nations Managed Value Index Fund and
Nations Managed SmallCap Value Index Fund declare and pay dividends
from net investment income each calendar quarter. Each Fund's net
realized capital gains, including net short-term capital gains, are
distributed at least annually.
(Bullet) RISK FACTORS: Although the Adviser seeks to achieve the investment
objective of the Funds, there is no assurance that it will be able to
do so. Investments in the Funds are not insured against loss of
principal. Investments by the Funds in common stocks and other equity
securities are subject to stock market risk, which is the risk that the
value of the stocks the Funds hold may decline over short or even
extended periods. Certain of the Funds' 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 Objectives Are Pursued -- Risk
Considerations" and "Appendix A -- Portfolio Securities."
(Bullet) MINIMUM PURCHASE: The minimum initial investment for each of the Funds
per record holder is $1,000. See "How To Buy Shares."
3
<PAGE>
Expenses Summary
Expenses are one of several factors to consider when investing in the Funds. The
following tables summarize shareholder transaction and operating expenses for
Primary B Shares of the Funds. The Examples show the cumulative expenses
attributable to a hypothetical $1,000 investment in Primary B Shares of the
indicated Fund over specified periods.
PRIMARY B SHARES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
<S> <C>
Nations
Managed
Value
Index
Fund
Sales Load Imposed on Purchases None
Deferred Sales Load None
<CAPTION>
Nations
Managed
SmallCap
Value
Index
Fund
Sales Load Imposed on Purchases None
Deferred Sales Load None
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
<TABLE>
<S> <C>
Management Fees (After Fee Waivers) 0.30%
Other Expenses 0.70%
Total Operating Expenses (After Fee Waivers) 1.00%
<CAPTION>
Management Fees (After Fee Waivers) 0.30%
<S> <C>
Other Expenses 0.70%
Total Operating Expenses (After Fee Waivers) 1.00%
</TABLE>
EXAMPLES:
You would pay the following expenses on a $1,000 investment in Primary B Shares
of the Funds, assuming (1) a 5% annual return and (2) redemption at the end of
each time period.
<TABLE>
<CAPTION>
<S> <C>
Nations
Managed
Value
Index
Fund
1 Year $10
3 Years $32
<CAPTION>
Nations
Managed
SmallCap
Value
Index
Fund
1 Year $10
3 Years $32
</TABLE>
The purpose of the foregoing tables is to assist an investor in understanding
the various shareholder transaction and operating expenses that an investor in
Primary B Shares will bear either directly or indirectly. The "Other Expenses"
figures in the above tables 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 Funds' operating expenses, see "How The Funds Are Managed."
For a more complete description of the Shareholder Servicing Fees payable by the
Funds, see "Shareholder Administration Arrangements."
Absent fee waivers, "Management Fees" and "Total Operating Expenses" would be
.50% and 1.20%, respectively, for both Nations Managed Value Index Fund and
Nations Managed SmallCap Value Index Fund.
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>
Objectives
NATIONS MANAGED VALUE INDEX FUND: Nations Managed Value Index Fund's investment
objective is to seek, over the long-term, to provide a total return that (gross
of fees and expenses) exceeds the total return of the S&P 500/BARRA Value Index
(the "S&P/BARRA Value Index").
NATIONS MANAGED SMALLCAP VALUE INDEX FUND: Nations Managed SmallCap Value Index
Fund's investment objective is to seek, over the long-term, to provide a total
return that (gross of fees and expenses) exceeds the total return of the S&P
SmallCap 600/BARRA Value Index (the "S&P/BARRA SmallCap Value Index").
How The Objectives Are Pursued
NATIONS MANAGED VALUE INDEX FUND: In seeking to achieve its investment
objective, the Fund will invest in selected equity securities that are included
in the S&P/BARRA Value Index. The S&P/BARRA Value Index is a subset of the
Standard and Poor's 500 Composite Stock Price Index (the "S&P 500 Index")1. The
S&P 500 Index is a market capitalization weighted index consisting of 500 common
stocks chosen for market size, liquidity and industry group representation. The
S&P/BARRA Value Index is a market capitalization weighted index consisting of
approximately 340 common stocks selected from the S&P 500 Index on the basis of
a lower than average price-to-book ratio. Because of their lower than average
price-to-book ratios, stocks in the S&P/BARRA Value Index, on average, typically
exhibit higher yields than stocks in the S&P 500 Index. Historically, stocks in
the S&P/BARRA Value Index, on average, have exhibited less short-term volatility
than stocks in the S&P 500 Index.
S&P constructs the S&P/BARRA Value Index semi-annually by ranking all common
stocks included in the S&P 500 Index by their price-to-book ratios. The
resulting list is then divided in half by market capitalization. Stocks in the
half of the list that have lower price-to-book ratios are included in the
S&P/BARRA Value Index.
Unlike traditional index funds, the Fund has a "managed" overlay. The Adviser
believes that a managed equity value index portfolio can provide investors with
positive incremental performance relative to the S&P/BARRA Value Index while
reducing the downside risk of underperforming the S&P/BARRA Value Index over
time.
The initial stock universe considered by the Adviser is the S&P/BARRA Value
Index. The Adviser ranks the attractiveness of each security according to a
multi-factor valuation model. Although the universe consists exclusively of
value stocks, 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 are useful in determining a stock's value in relation to others in
the same industry. An earnings momentum model is also applied in the portfolio
construction process to serve as a validity check. Each stock is assigned a
ranking from 1 to 10 (best to worst). The Adviser then either underweighs or
eliminates the less attractive stocks and modestly emphasizes the most
attractive stocks resulting in a portfolio of 100 to 200 holdings that capture
the overall investment characteristics of the S&P/BARRA Value Index.
Under normal conditions, the Adviser will invest at least 80% of its total
assets in common stocks which are included in the S&P/BARRA Value 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 obligations
("U.S. Government Obligations") and repurchase agreements.
NATIONS MANAGED SMALLCAP VALUE INDEX FUND: In seeking to achieve its investment
objective, the Fund will invest in selected equity securities that are included
in the S&P/BARRA SmallCap Value Index. The S&P/BARRA SmallCap Value Index is a
subset of the Standard and Poor's SmallCap 600 Index (the "S&P 600 Index")2. The
S&P 600 Index is a market capitalization weighted index consisting of 600
domestic stocks which capture the economic and industry characteristics of small
stock performance. The S&P/BARRA SmallCap Value Index is a market capitalization
weighted index consisting of approximately 375 companies selected from the S&P
600 Index on the basis of price-to-book ratios. Those companies with lower
price-to-book ratios make up the S&P/BARRA SmallCap Value Index. The S&P/BARRA
SmallCap Value Index is also rebalanced semi-annually to reflect changes in the
S&P 600 Index. Most of these stocks are listed on either the New York, American
or NASDAQ stock exchanges.
(1) Standard & Poor's 500 Index is a registered service trademark of Standard &
Poor's Corporation ("S&P").
(2) S&P 600 Index is a registered service trademark of S&P.
5
<PAGE>
Unlike traditional index funds, the Fund has a "managed" overlay. The Adviser
believes that a managed equity index portfolio can provide investors with
positive incremental performance relative to the S&P/BARRA SmallCap Value Index
while reducing the downside risk of underperforming the S&P/BARRA SmallCap Value
Index over time.
The initial stock universe considered by the Adviser is the S&P/BARRA SmallCap
Value Index. The Adviser ranks the attractiveness of each security according to
a multi-factor valuation model. Although the universe consists exclusively of
value stocks, 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 are useful in determining a stock's value in relation to others in
the same industry. An earnings momentum model is also applied in the portfolio
construction process to serve as a validity check. Each stock is assigned a
ranking from 1 to 10 (best to worst). The Adviser then either underweighs or
eliminates the less attractive stocks and modestly emphasizes the most
attractive stocks resulting in a portfolio of 200 to 300 holdings that capture
the overall investment characteristics of the S&P/BARRA SmallCap Value Index.
Under normal conditions, the Adviser will invest at least 80% of its total
assets in common stocks which are included in the S&P/BARRA
SmallCap Value 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 Obligations and repurchase agreements.
GENERAL: Each of the Funds 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. Each Fund may lend its portfolio securities to qualified
institutional investors. Each Fund also may invest in restricted, private
placement and other illiquid securities. In addition, the Funds may invest in
securities issued by other investment companies, consistent with the Fund's
investment objective and policies.
In addition, when consistent with the Fund's respective investment objective,
each of the Funds 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.
Equity mutual funds, like other investors in equity securities, incur
transaction (brokerage) costs in connection with the purchase and sale of
portfolio securities. For some funds, these costs can have a material negative
impact on performance. The Adviser to the Funds will attempt to minimize these
transaction costs by utilizing computerized exchanges called "crossing networks"
which allow institutions to execute trades at the midpoint of the bid/ask spread
and at a reduced commission rate.
ABOUT THE INDEXES:
The S&P/BARRA Value Index and the S&P/BARRA SmallCap Value Index (collectively,
the "BARRA Value Indexes") are constructed by dividing the stocks in the S&P 500
Index and the S&P 600 Index, respectively, according to a single attribute:
book-to-price ratios. The BARRA Value Indexes are capitalization-weighted,
meaning that each stock is weighted in the approximate index in proportion to
its market value. Additionally, book-to-price ratios tend to be more stable over
time than alternative measures such as price-to-earnings ratios, historical
earnings growth rates, or return on equity. This results in indexes with
relatively low turnover. Generally, the companies in the BARRA Value Indexes
also exhibit characteristics associated with "value" stocks: lower
price-to-earnings ratios, higher dividend yields, and lower historical and
predicted earnings growth than the S&P 500 Index or the S&P 600 Index,
respectively.
The S&P/BARRA Value Index and the S&P/BARRA SmallCap Value Index are relatively
concentrated. The S&P/BARRA Value Index tends to be more heavily concentrated in
the Energy, Utility, and Financial sectors than the S&P 500 Index. Additionally,
the S&P/BARRA SmallCap Value Index tends to be more heavily concentrated in the
Utility and Financial Sectors than the S&P 600 Index.
6
<PAGE>
The inclusion of a stock in the S&P/BARRA Value Index or the S&P/BARRA SmallCap
Value Index in no way implies that S&P or BARRA believes the stock to be an
attractive investment. The BARRA Value Indexes are determined, composed and
calculated by S&P and BARRA without regard to the Funds. Neither S&P or BARRA is
a sponsor of, or in any way affiliated with, the Funds, and neither S&P or BARRA
makes any representation or warranty, expressed or implied, on the advisability
of investing in the Funds or as to the ability of the BARRA Value Indexes to
track general stock market performance. S&P and BARRA disclaim all warranties of
merchantability or fitness for a particular purpose or use with respect to the
BARRA Value Indexes or any data included therein.
PORTFOLIO TURNOVER: Generally, the Funds will purchase portfolio securities for
capital appreciation or investment income, or both, and not for short-term
trading profits. While it is not possible to predict exactly annual portfolio
turnover rates, it is expected that under normal market conditions, the annual
portfolio turnover rate for each Fund will not exceed 25%.
RISK CONSIDERATIONS: Although the Adviser will seek to achieve the investment
objective of each Fund, there is no assurance that it will be able to do so. No
single fund should be considered, by itself, to provide a complete investment
program for any investor. Investments in a Fund are not insured against loss of
principal.
Investments by a Fund in common stocks and other equity securities are subject
to stock market risk. The value of the stocks that the Funds hold, like the
broader stock market, may decline over short or even extended periods.
Certain of the Funds' 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 a Fund's investment objective and do not unduly
increase the Fund's exposure to market or other risks. For additional risk
information regarding the Funds' investments in particular instruments, see
"Appendix A -- Portfolio Securities."
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 a 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 Funds to manage capital gain
distributions may result in the accumulation of substantial unrealized gains in
the Funds' portfolios. Moreover, the realization of capital gains is not
entirely within a 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.
Furthermore, the U.S. Treasury has proposed legislation which would require
holders of substantially identical securities to determine their tax basis using
the average cost of all of their holdings in such securities. If enacted, the
legislation would prevent the Funds from specifically identifying each lot of
shares that they hold and from selling first those specific shares with the
highest tax basis. Thus, the legislation would restrict the Funds' ability to
manage capital gains.
INVESTMENT LIMITATIONS: Each Fund is subject to a number of investment
limitations. The following investment limitations are matters of fundamental
policy and may not be changed without the affirmative vote of the holders of a
majority of each Fund's outstanding shares. Other investment limitations that
cannot be changed without such a vote of shareholders are described in the SAI.
Each Fund may not:
1. Purchase any securities which would cause 25% or more of the value of the
Fund's total assets at the time of such purchase to be invested in the
securities of one or more issuers conducting their principal activities in the
same industry (for purposes of this limitation, U.S. Government securities are
not considered members of any industry.)
2. Make loans, except that a Fund may purchase and hold debt instruments
(whether such instruments are part of a public offering or privately placed),
may enter into repurchase agreements and may lend portfolio securities in
accordance with its investment policies.
3. Purchase securities of any one issuer (other than securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities) if,
immediately after such purchase, more than 5% of the value of such Fund's total
assets would be invested in the securities of such
7
<PAGE>
issuer, except that up to 25% of the value of the Fund's total assets may be
invested without regard to these limitations and with respect to 75% of such
Fund's assets, the Fund will not hold more than 10% of the voting securities of
any issuer.
The investment objective and policies of each Fund, unless otherwise specified,
may be changed without a vote of the Fund's shareholders. If the investment
objective or policies of a Fund change, shareholders should consider whether the
Fund remains an appropriate investment in light of their then current position
and needs.
How Performance Is Shown
From time to time the Funds may advertise the total return and yield on a class
of shares. TOTAL RETURN AND YIELD FIGURES ARE BASED ON HISTORICAL DATA AND ARE
NOT INTENDED TO INDICATE FUTURE PERFORMANCE. The "total return" of a class of
shares of a Fund may be calculated on an average annual total return basis or an
aggregate total return basis. Average annual total return refers to the average
annual compounded rates of return over one-, five-, and ten-year periods or the
life of a Fund (as stated in the advertisement) that would equate an initial
amount invested at the beginning of a stated period to the ending redeemable
value of the investment, assuming the reinvestment of all dividend and capital
gain distributions. Aggregate total return reflects the total percentage change
in the value of the investment over the measuring period again assuming the
reinvestment of all dividends and capital gain distributions. Total return may
also be presented for other periods.
"Yield" is calculated by dividing the annualized net investment income per share
during a recent 30-day (or one month) period of a class of shares of a Fund by
the maximum public offering price per share on the last day of that period.
Investment performance, which will vary, is based on many factors, including
market conditions, the composition of a Fund's portfolio and the Fund's
operating expenses. Investment performance also often reflects the risks
associated with such Fund's investment objective and policies. These factors
should be considered when comparing a Fund's investment results to those of
other mutual funds and other investment vehicles. Since yields fluctuate, yield
data cannot necessarily be used to compare an investment in a Fund with bank
deposits, savings accounts, and similar investment alternatives which often
provide an agreed-upon or guaranteed fixed yield for a stated period of time.
In addition to Primary B Shares, the Funds offer 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 a Fund's shares. Any
fees charged by an institution and/or servicing agent directly to its customers'
accounts in connection with investments in the Funds will not be included in
calculations of total return or yield. Each Fund's annual report contains
additional performance information and is available upon request without charge
from the Funds' distributor or your Institution, as defined below.
How The Funds Are 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 Funds and the Adviser have adopted codes of ethics which contain
policies on personal securities transactions by "access persons," including
portfolio managers and investment analysts. These policies substantially comply
in all material respects with the recommendations set forth in the May 9, 1994
Report of the Advisory Group on Personal Investing of the Investment Company
Institute.
INVESTMENT ADVISER: NationsBanc Advisors, Inc. serves as investment adviser to
the Funds. NBAI is a wholly owned subsidiary of NationsBank, which in turn is a
wholly owned banking subsidiary of NationsBank Corporation, a bank holding
company organized as a North Carolina corporation. NBAI has its principal
offices at One NationsBank Plaza, Charlotte, North Carolina 28255.
TradeStreet Investment Associates, Inc., with principal offices at One
NationsBank Plaza, Charlotte, North Carolina 28255, serves as investment
sub-adviser to the Funds. TradeStreet is a wholly owned subsidiary of
NationsBank. TradeStreet provides investment management services to individuals,
corporations and institutions. TradeStreet has employed the "managed index"
style since 1989 and currently manages more than $1.5 billion in this style on
behalf of its clients, including the Nations Managed Index Fund and Nations
Managed SmallCap Index Fund.
8
<PAGE>
Subject to the general supervision of Nations Fund Trust's Board of Trustees and
in accordance with each Fund's investment policies, the Adviser formulates
guidelines and lists of approved investments for each Fund, makes decisions with
respect to and places orders for each Fund's purchases and sales of portfolio
securities and maintains records relating to such purchases and sales. The
Adviser is authorized to allocate purchase and sale orders for portfolio
securities to certain financial institutions, including, in the case of agency
transactions, financial institutions which are affiliated with the Adviser or
which have sold shares in such Funds, if the Adviser believes that the quality
of the transaction and the commission are comparable to what they would be with
other qualified brokerage firms. From time to time, to the extent consistent
with its investment objective, policies and restrictions, each Fund may invest
in securities of companies with which NationsBank has a lending relationship.
For the services provided and expenses assumed pursuant to 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
each Fund.
From time to time, NBAI and/or TradeStreet may waive or reimburse (either
voluntarily or pursuant to applicable state limitations) advisory fees and/or
expenses payable by a Fund.
For the 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 each
Fund.
Jeffrey C. Moser, CFA, is a Senior Product Manager, Equity Management for
TradeStreet and Senior Portfolio Manager for Nations Managed Value Index Fund
and Nations Managed SmallCap Value Index Fund. Mr. Moser has been with
TradeStreet since 1996 and Portfolio Manager for Nations Managed Value Index
Fund and Nations Managed SmallCap Value Index Fund since the inception of the
Funds. He is also the Portfolio Manager for the Nations Disciplined Equity Fund.
Prior to assuming his position with TradeStreet, he was Senior Vice President
and Senior Portfolio Manager for the Investment Management Group at NationsBank.
Mr. Moser has worked for the Investment Management Group at NationsBank since
1983 where his responsibilities included institutional portfolio management and
equity analysis. Mr. Moser graduated Phi Beta Kappa with a B.S. in Mathematics
from Wake Forest University. He holds the Chartered Financial Analyst
designation and is a member of the Association for Investment Management and
Research as well as the North Carolina Society of Financial Analysts, Inc.
Morrison & Foerster LLP, counsel to Nations Funds and special counsel to
NationsBank, has advised NationsBank and Nations Funds 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 Funds pursuant to an Administration Agreement. Pursuant to the terms of
the Administration Agreement, Stephens provides various administrative and
corporate secretarial services to the Funds, including providing general
oversight of other service providers, office space, utilities and various legal
and administrative services in connection with the satisfaction of various
regulatory requirements applicable to the Funds.
First Data Investor Services Group, Inc. ("First Data"), formerly The
Shareholder Services Group, Inc., a wholly owned subsidiary of First Data
Corporation, with principal offices at One Exchange Place, Boston, Massachusetts
02109, serves as the co-administrator of Nations Funds pursuant to a
Co-Administration Agreement. Under the Co-Administration Agreement, First Data
provides various administrative and accounting services to the Funds including
performing the calculations necessary to determine the net asset value per share
and dividends of each class of shares of the Funds, preparing tax returns and
financial statements and maintaining the portfolio records and certain of the
general accounting records for the Funds.
For the services rendered pursuant to the Administration and Co-Administration
Agreements, Stephens and First Data are entitled to receive a combined fee at an
annual rate of up to 0.10% of each Fund's average daily net assets.
NationsBank serves as sub-administrator for Nations Funds pursuant to a
Sub-Administration Agreement. Pursuant to the terms of the Sub-Administration
Agreement, NationsBank assists Stephens in supervising, coordinating and
monitoring various aspects of the Funds' administrative operations. For
providing such services, NationsBank shall be entitled to receive a monthly fee
from Stephens based on an annual rate of 0.01% of the Funds' average daily net
assets.
Shares of the Funds are sold on a continuous basis by Stephens, as the Funds'
sponsor and distributor. Stephens is a registered broker/dealer with principal
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offices at 111 Center Street, Little Rock, Arkansas 72201. Nations Funds has
entered into distribution agreements with Stephens which provide that Stephens
has the exclusive right to distribute shares of the Funds. Stephens may pay
service fees or commissions to Institutions which assist customers in purchasing
Primary B Shares of the Funds.
NationsBank of Texas, N.A. ("NationsBank of Texas" and, collectively with The
Bank of New York ("BONY"), called "Custodians") serves as Custodian for the
assets of all Nations Funds, except the international portfolios. NationsBank of
Texas is located at 1401 Elm Street, Dallas, Texas 75202, and is a wholly-owned
subsidiary of NationsBank Corporation. In return for providing custodial
services, NationsBank of Texas is entitled to receive, in addition to
out-of-pocket expenses, fees at the rate of (i) $300,000 per annum, to be paid
monthly in payments of $25,000 for custodian services for up to and including 50
Funds; and (ii) $6,000 per annum, to be paid in equal monthly payments, for
custodian services for each additional Fund above 50 Funds.
BONY has entered into an agreement with each of the Funds and NationsBank of
Texas, N.A., whereby BONY will serve as sub-custodian ("Sub-Custodian") for the
assets of all Nations Funds except the international portfolios, for which BONY
is already serving as Custodian.
BONY is located at 90 Washington Street, New York, New York 10286. In return for
providing sub-custodial services, BONY shall receive, in addition to out of
pocket expenses, fees at the rate of (i) 3/4 of one basis point per annum on the
aggregate net assets of all Nations' Non-Money Market Funds up to $10 billion;
and (ii) 1/2 of one basis point on the excess.
First Data serves as transfer agent (the "Transfer Agent") for the Funds'
Shares. The Transfer Agent is located at One Exchange Place, Boston,
Massachusetts 02109. NationsBank of Texas also serves as the sub-transfer agent
for the Fund's Primary B Shares and is entitled to receive an annual fee of
$251,000 from First Data for performing such services.
Price Waterhouse LLP serves as independent accountant to Nations Funds. Its
address is 160 Federal Street, Boston, Massachusetts 02110.
EXPENSES: The accrued expenses of each Fund, as well as certain expenses
attributable to 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 Funds; 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 Funds are members of the Nations Funds 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
50 distinct investment portfolios and total assets in excess of $18 billion.
NATIONS FUND TRUST: Nations Fund Trust was organized as a Massachusetts business
trust on May 6, 1985. Nations Fund Trust's fiscal year end is March 31; prior to
1996, Nations Fund Trust's fiscal year end was November 30. The Funds currently
offer 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 Value Index Fund and Nations Managed SmallCap Value
Index Fund of Nations Fund Trust. To obtain additional information regarding the
Funds' other classes of shares which may be available to you, contact your
Institution (as defined below) or Nations Funds 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, as amended (the "1940 Act") requires voting by
fund.
As of July 31, 1997, 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
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1940 Act. For more detailed information concerning the percentage of each class
or series of shares over which NationsBank and its affiliates possessed or
shared power to dispose or vote as of a certain date, see Nations Fund Trust's
SAI.
Nations Fund Trust does not presently intend to hold annual meetings except as
required by the 1940 Act. Shareholders will have the right to remove Trustees.
Nations Fund Trust's Code of Regulations provides that special meetings of
shareholders shall be called at the written request of the shareholders entitled
to vote at least 10% of the outstanding shares of Nations Fund Trust entitled to
be voted at such meeting.
About Your Investment
How To Buy Shares
Primary 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 Funds 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 Funds may voluntarily reduce the maximum fees payable for
shareholder services.
Nations Funds reserves the right to reject any purchase order. The issuance of
Primary B Shares is recorded on the books of the Funds, and share certificates
are not issued. It is the responsibility of Institutions to record beneficial
ownership of Primary B Shares and to reflect such ownership in the account
statements provided to their Customers.
EFFECTIVE TIME OF PURCHASES: Purchase orders for Primary B Shares which are
received by Stephens or by the Transfer Agent or sub-transfer agent before the
close of regular trading hours on the Exchange (currently 4:00 p.m., Eastern
time) on any Business Day are priced according to the net asset value determined
on that day but are not executed until 4:00 p.m., Eastern time, on the Business
Day on which immediately available funds in payment of the purchase price are
received by the Funds' Custodian. Such payment must be received no later than
4:00 p.m., Eastern time, by the third Business Day following receipt of the
order. If funds are not received by such date, the order will not be accepted
and notice thereof will be given to the 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
Funds.
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 Funds. No charge for wiring redemption
payments is imposed by Nations Funds, 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 Funds may redeem a shareholder's Primary B Shares if the balance in such
shareholder's account
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drops below $500 as a result of redemptions, and the shareholder does not
increase his or her balance to at least $500 on 60 days' written notice. If a
shareholder has agreed with a particular Institution to maintain a minimum
balance in his or her account at the Institution, and the balance in such
Institution account falls below that minimum, the shareholder may be obliged to
redeem all or a part of his or her Primary B Shares in the Funds to the extent
necessary to maintain the required minimum balance in such Institution account.
Nations Funds also may redeem shares involuntarily or make payment for
redemption in readily marketable securities or other property under certain
circumstances in accordance with the 1940 Act.
How To Exchange Shares
The exchange feature enables a shareholder of Primary B Shares of a Fund to
acquire Primary B Shares of another fund when that shareholder believes that a
shift between Funds is an appropriate investment decision. An exchange of
Primary B Shares for Primary B Shares of another fund is made on the basis of
the next calculated net asset value per share of each fund after the exchange
order is received.
The Funds and each of the other funds of Nations Funds 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 Funds 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 Funds 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 Funds 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 Funds, provided that the
annual rate may not exceed 0.60% of the average daily net asset value of the
Primary B Shares beneficially owned by Customers with whom the Institutions have
a servicing relationship. Additionally, in no event may the portion of the
shareholder administration fee that constitutes a "service fee," as that term is
defined in Article III, Section 26(b)(9) of the Rules of Fair Practice of the
NASD, exceed 0.25% of the average daily net asset value of the Primary B Shares
of a Fund. Holders of Primary B Shares will bear all fees paid to Institutions
under the Administration Plan.
Such shareholder administration services supplement the services provided by
Stephens, First Data and the Transfer Agent to shareholders of record. The
shareholder administration services provided by Institutions may include: (i)
aggregating and processing purchase and redemption requests for Primary B Shares
from Customers and transmitting promptly net purchase and redemption orders to
Stephens or the Transfer Agent; (ii) providing Customers with a service that
invests the
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assets of their accounts in Primary B Shares pursuant to specific or
pre-authorized instructions; (iii) processing dividend and distribution payments
from the Funds on behalf of Customers; (iv) providing information periodically
to Customers showing their positions in Primary B Shares; (v) arranging for bank
wires; (vi) responding to Customers' inquiries concerning their investment in
Primary B Shares; (vii) providing sub-accounting with respect to Primary B
Shares beneficially owned by Customers or the information necessary for
sub-accounting; (viii) if required by law, forwarding shareholder communications
(such as proxies, shareholder reports, annual and semi-annual financial
statements and dividend, distribution and tax notices) to Customers; (ix)
forwarding to Customers proxy statements and proxies containing any proposals
regarding the Administration Agreement; (x) employee benefit plan recordkeeping,
administration, custody and trustee services; (xi) general shareholder liaison
services; and (xii) providing such other similar services as may be reasonably
requested.
Nations Funds 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 Funds. See the SAI for more details on the
Administration Plan.
The Administration Plan also provides that, to the extent any portion of the
fees payable under the Administration Plan is deemed to be for services
primarily intended to result in the sale of Fund shares, such fees are deemed
approved and may be paid under the Administration Plan. Accordingly, the
Administration Plan has been approved and will be operated pursuant to Rule
12b-1 under the 1940 Act.
Nations Funds 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 Funds. The
Administration Agreement requires an Institution to disclose to its Customers
any compensation payable to the Institution by Nations Funds 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 Funds in connection with the investment of fiduciary
assets in Primary B Shares. Institutions, including banks regulated by the
Comptroller of the Currency, the Federal Reserve Board, or the Federal Deposit
Insurance Corporation, and investment advisers and other money managers subject
to the jurisdiction of the SEC, the Department of Labor, or state securities
commissions, are urged to consult their legal advisers before investing such
assets in Primary B Shares.
How The Funds Value Their Shares
The net asset value of a share of each class is calculated by dividing the total
value of its assets, less liabilities, by the number of shares in the class
outstanding. Shares of the Funds are valued as of the close of regular trading
on the Exchange (currently 4:00 p.m., Eastern time) on each NYSE Business Day.
Currently, the days on which the Exchange is closed (other than weekends) are:
New Year's Day, President's Day, Good Friday, Memorial Day (observed),
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
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 Funds seek to manage taxable
distributions, the Funds 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 Funds. The Funds' net realized capital gains (including net
short-term capital gains) are distributed at least annually.
Primary B Shares of the Funds are eligible to receive dividends when declared,
provided however, that the purchase order for such shares is received at least
one day prior to the dividend declaration and such shares continue to be
eligible for dividends through and including the day before the redemption order
is executed.
The net asset value of Primary B Shares will be reduced by the amount of any
dividend or distribution. Dividends
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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 same Fund. Dividends and distributions payable to a shareholder
are paid in cash within five Business Days after a shareholder's complete
redemption of his or her Primary B Shares in a Fund. Each Fund's net investment
income available for distribution to the holders of Primary B Shares will be
reduced by the amount of shareholder servicing fees payable to Institutions
under the Servicing Agreements.
TAX INFORMATION: Each Fund intends to qualify as a separate "regulated
investment company" under the Internal Revenue Code of 1986, as amended (the
"Code"). Such qualification relieves a Fund of liability for Federal income tax
to the extent its earnings are distributed in accordance with the Code.
Each Fund intends to distribute substantially all of its investment company
taxable income and net tax-exempt income each taxable year. Such distributions
by a Fund of its net investment income (including net foreign currency gains)
and the excess, if any, of its net short-term capital gain over its net
long-term capital loss will be taxable as ordinary income to shareholders who
are not currently exempt from Federal income tax, whether such income is
received in cash or reinvested in additional shares.
Corporate shareholders may be entitled to the dividends received deduction for
distributions from a 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 Funds, if
any, will be distributed at least annually to the Funds' shareholders. The Funds
will generally have no tax liability with respect to such gains, and the
distributions will be taxable to such shareholders who are not currently exempt
from Federal income tax as long-term capital gains, regardless of how long the
shareholders have held such Funds' shares and whether such gains are received in
cash or reinvested in additional shares.
Each year, shareholders will be notified as to the amount and Federal tax status
of all dividends and capital gains paid during the prior year. Such dividends
and capital gains may also be subject to state and local taxes.
Dividends declared in October, November or December of any year payable to
shareholders of record on a specified date in such months will be deemed to have
been received by shareholders and paid by a Fund on December 31 of such year in
the event such dividends are actually paid during January of the following year.
Federal law requires Nations Funds to withhold 31% from any dividends (other
than exempt-interest dividends) paid by Nations Funds 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 Funds 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, a 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 each 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 Funds and their
shareholders. It is not intended as a substitute for careful tax planning.
Accordingly, potential investors should consult their tax advisors with specific
reference to their own tax situations. Further tax information is contained in
the SAI.
Appendix A -- Portfolio Securities
The following are summary descriptions of certain types of instruments in which
a Fund may invest. The "How Objectives Are Pursued" section of the Prospectus
identifies such 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 Funds will limit their investments
in bank obligations so they do not exceed 25% of each Fund's total assets at the
time of purchase.
BORROWINGS: When a Fund borrows money, the net asset value of a share may be
subject to greater fluctuation until the borrowing is paid off. The Funds may
borrow money from banks for temporary purposes in amounts of up to one-third of
their respective total assets, provided that borrowings in excess of 5% of the
value of the Fund's total assets must be repaid prior to
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the purchase of portfolio securities. Under the requirements of the 1940 Act,
the Funds are required to maintain an asset coverage (including the proceeds of
the borrowings) of at least 300% of all borrowings.
COMMERCIAL INSTRUMENTS: Commercial instruments consist of short-term U.S.
dollar-denominated obligations issued by domestic corporations or foreign
corporations and foreign commercial banks. Investments by a Fund in commercial
paper will consist of issues rated in a manner consistent with such Fund's
investment policies and objective. In addition, a Fund may acquire unrated
commercial paper and corporate bonds that are determined by the Adviser at the
time of purchase to be of comparable quality to rated instruments that may be
acquired by a Fund. Commercial instruments include variable-rate master demand
notes, which are unsecured instruments that permit the indebtedness thereunder
to vary and provide for periodic adjustments in the interest rate, and variable-
and floating-rate instruments.
CONVERTIBLE SECURITIES, PREFERRED STOCK, AND WARRANTS: The Funds may invest in
debt securities convertible into or exchangeable for equity securities,
preferred stocks or warrants. Preferred stocks are securities that represent an
ownership interest in a corporation providing the owner with claims on a
company's earnings and assets before common stock owners, but after bond or
other debt security owners. Warrants are options to buy a stated number of
shares of common stock at a specified price any time during the life of the
warrants.
FUTURES, OPTIONS AND OTHER DERIVATIVE INSTRUMENTS: The Funds may attempt to
reduce the overall level of investment risk of particular securities and attempt
to protect a Fund against adverse market movements by investing in futures,
options and other derivative instruments. These include the purchase and writing
of options on securities (including index options), and 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 a Fund to
additional investment risks and transaction costs. If the Adviser incorrectly
analyzes market conditions or does not employ the appropriate strategy with
respect to these instruments, a Fund could be left in a less favorable position.
Additional risks inherent in the use of futures, options, forward contracts and
swaps include: imperfect correlation between the price of futures, options and
forward contracts and movements in the prices of the securities or currencies
being hedged; the possible absence of a liquid secondary market for any
particular instrument at any time; and the possible need to defer closing out
certain hedged positions to avoid adverse tax consequences. Further information
on the use of futures, options and other derivative instruments, and the
associated risks, is contained in the SAI.
ILLIQUID SECURITIES: Certain securities may be sold only pursuant to certain
legal restrictions, and may be difficult to sell. The Funds will not knowingly
invest more than 15% of the value of their respective net assets in securities
that are illiquid or such lower percentage as may be required by the states in
which the appropriate Fund sells its shares. Repurchase agreements, time
deposits and guaranteed investment contracts that do not provide for payment to
a Fund within seven days after notice, and illiquid restricted securities are
subject to the limitation on illiquid securities.
If otherwise consistent with its investment objective and policies, certain
Funds may purchase securities which are not registered under the Securities Act
of 1933, as amended (the "1933 Act") but which can be sold to "qualified
institutional buyers" in accordance with Rule 144A 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 a Fund's Board of
Trustees or the Adviser, acting under guidelines approved and monitored by such
Fund's Board, after considering trading activity, availability of reliable price
information and other relevant information, that an adequate trading market
exists for that security. To the extent that, for a period of time, qualified
institutional or other buyers cease purchasing such restricted securities
pursuant to Rule 144A or otherwise, the level of illiquidity of a Fund holding
such securities may increase during such period.
MONEY MARKET INSTRUMENTS: The term "money market instruments" refers to
instruments with remaining maturities of one year or less. Money market
instruments may include, among other instruments, certain U.S. Treasury
obligations, U.S. Government obligations, bank instruments, commercial
instruments, repurchase agreements and municipal securities. Such instruments
are described in this Appendix A.
OTHER INVESTMENT COMPANIES: Each Fund may invest in securities issued by other
investment companies to the extent that such investments are consistent with the
Fund's investment objective and policies and permissible under the 1940 Act. As
a shareholder of another investment company, a Fund would bear, along with other
shareholders, its pro rata portion of the other investment company's expenses,
including advisory fees. These expenses would be in addition to the advisory and
other expenses that a Fund bears directly in connection with its own operations.
REPURCHASE AGREEMENTS: A repurchase agreement involves the purchase of a
security by a Fund and a simultaneous agreement (generally with a bank or
bro-
15
<PAGE>
ker/dealer) to repurchase that security from the Fund at a specified price and
date or upon demand. This technique offers a method of earning income on idle
cash. A risk associated with repurchase agreements is the failure of the seller
to repurchase the securities as agreed, which may cause a Fund to suffer a loss
if the market value of such securities declines before they can be liquidated on
the open market. Repurchase agreements with a duration of more than seven days
are considered illiquid securities and are subject to the limit stated above. A
Fund may enter into repurchase agreements jointly with other investment
portfolios of Nations Funds.
SECURITIES LENDING: To increase return on portfolio securities, the Funds may
lend their portfolio securities to broker/dealers and other institutional
investors pursuant to agreements requiring that the loans be continuously
secured by collateral equal at all times in value to at least the market value
of the securities loaned. There is a risk of delay in receiving collateral or in
recovering the securities loaned or even a loss of rights in the collateral
should the borrower of the securities fail financially. However, loans are made
only to borrowers deemed by the Adviser to be credit worthy and when, in its
judgment, the income to be earned from the loan justifies the attendant risks.
The aggregate of all outstanding loans of a Fund may not exceed 30% of the value
of its total assets.
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.
16
<PAGE>
Prospectus
INVESTOR A SHARES
JULY 31, 1997
This Prospectus describes NATIONS MANAGED VALUE
INDEX FUND and NATIONS MANAGED SMALLCAP VALUE INDEX
FUND (the "Funds") of Nations Fund Trust, an
open-end management investment company in the
Nations Funds Family ("Nations Funds" or "Nations
Funds Family"). This Prospectus describes one class
of shares of the Funds -- Investor A Shares.
This Prospectus sets forth concisely the
information about the Funds that 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 Funds at its address or
telephone number shown below. The SAI, dated July
31, 1997, is incorporated by reference in its
entirety into this Prospectus. NationsBanc
Advisors, Inc. ("NBAI") is the investment adviser
to the Funds. TradeStreet Investment Associates,
Inc. ("TradeStreet") is investment sub-adviser to
the Funds. As used herein the term "Adviser" shall
mean NBAI and/or TradeStreet as the context may
require.
SHARES OF NATIONS FUNDS ARE NOT DEPOSITS OR OTHER
OBLIGATIONS OF, OR ISSUED, ENDORSED OR GUARANTEED
BY, NATIONSBANK, N.A. ("NATIONSBANK") OR ANY OF ITS
AFFILIATES. SUCH SHARES ARE NOT INSURED BY THE U.S.
GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER
GOVERNMENT AGENCY. AN INVESTMENT IN THE FUNDS
INVOLVES CERTAIN RISKS, INCLUDING POSSIBLE LOSS OF
PRINCIPAL.
NATIONSBANK AND CERTAIN OF ITS AFFILIATES PROVIDE
INVESTMENT ADVISORY AND CERTAIN OTHER SERVICES TO
NATIONS FUNDS, 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 FUNDS.
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 Value
Index Fund
Nations
Managed
SmallCap Value
Index Fund
For Fund information call:
1-800-321-7854
Nations Funds
c/o Stephens Inc.
One NationsBank Plaza
33rd Floor
Charlotte, NC 28255
NATIONS FUNDS
NF-96698-1096
<PAGE>
Table Of Contents
About The Funds
Prospectus Summary 3
Expenses Summary 4
Objectives 5
How The Objectives Are Pursued 5
How Performance Is Shown 9
How The Funds Are Managed 10
Organization And History 12
About Your Investment
How To Buy Shares 13
How To Redeem Shares 15
How To Exchange Shares 16
Shareholder Servicing And Distribution Plan 17
How The Funds Value Their Shares 18
How Dividends And Distributions are Made; Tax
Information 19
Appendix A -- Portfolio Securities 20
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT
CONTAINED IN THIS PROSPECTUS, OR IN THE FUNDS' SAI
INCORPORATED HEREIN BY REFERENCE, IN CONNECTION
WITH THE OFFERING MADE BY THIS PROSPECTUS AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY NATIONS
FUNDS OR ITS DISTRIBUTOR. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFERING BY NATIONS FUNDS OR BY THE
DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH
OFFERING MAY NOT LAWFULLY BE MADE.
2
<PAGE>
About The Funds
Prospectus Summary
(Bullet) TYPE OF COMPANY: Open-end management investment company.
(Bullet) INVESTMENT OBJECTIVES AND POLICIES:
(Bullet) Nations Managed Value Index Fund's investment objective is to
seek, over the long-term, to provide a total return that
(gross of fees and expenses) exceeds the total return of the
S&P 500/BARRA Value Index.
(Bullet) Nations Managed SmallCap Value Index Fund's investment objective is
to seek, over the long-term, to provide a total return that (gross of
fees and expenses) exceeds the total return of the S&P SmallCap
600/BARRA Value Index.
(Bullet) When consistent with the Funds' objectives, the Funds will employ
various techniques to manage capital gain distributions.
(Bullet) INVESTMENT ADVISER: NationsBanc Advisors, Inc. serves as the investment
adviser to the Funds. NBAI provides investment advice to more than 50
investment company portfolios in the Nations Funds Family. TradeStreet
Investment Associates, Inc. provides sub-advisory services to the
Funds. See "How The Funds Are Managed."
(Bullet) DIVIDENDS AND DISTRIBUTIONS: Nations Managed Value Index Fund and
Nations Managed SmallCap Value Index Fund declare and pay dividends
from net investment income each calendar quarter. Each Fund's net
realized capital gains, including net short-term capital gains, are
distributed at least annually.
(Bullet) RISK FACTORS: Although the Adviser seeks to achieve the investment
objective of the Funds, there is no assurance that it will be able to
do so. Investments in the Funds are not insured against loss of
principal. Investments by the Funds in common stocks and other equity
securities are subject to stock market risk, which is the risk that the
value of the stocks the Funds hold may decline over short or even
extended periods. Certain of the Funds' 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 Objectives Are Pursued -- Risk
Considerations" and "Appendix A -- Portfolio Securities."
(Bullet) MINIMUM PURCHASE: $1,000 minimum initial investment for each of the
Funds per record holder except that the minimum initial investment is:
$500 for Individual Retirement Account ("IRA") investors; $250 for
non-working spousal IRAs; and $100 for investors participating on a
monthly basis in the Systematic Investment Plan. There is no minimum
investment amount for investments by certain 401(k) and employee
pension plans or salary reduction -- Individual Retirement Accounts.
The minimum subsequent investment is $100, except for investments
pursuant to the Systematic Investment Plan. See "How To Buy Shares."
3
<PAGE>
Expenses Summary
Expenses are one of several factors to consider when investing in the Funds. The
following tables summarize shareholder transaction and operating expenses for
Investor A Shares of the Funds. The Examples show the cumulative expenses
attributable to a hypothetical $1,000 investment in Investor A Shares of the
indicated Fund over specified periods.
INVESTOR A SHARES
<TABLE>
<CAPTION>
<S> <C> <C>
Nations Nations
Managed Managed
Value Index SmallCap
SHAREHOLDER TRANSACTION EXPENSES Fund Value Index Fund
Maximum Sales Load Imposed on Purchases (as a percentage of offering price) None None
Maximum Deferred Sales Charge (as a percentage of the lower of the original purchase price
or redemption proceeds) None None
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
<TABLE>
<S> <C> <C>
Management Fees (After Fee Waivers) .30% 0.30%
Rule 12b-1 Fees (including shareholder servicing fees) .25% 0.25%
Other Expenses .20% 0.20%
Total Operating Expenses (After Fee Waivers) .75% 0.75%
</TABLE>
EXAMPLES:
You would pay the following expenses on a $1,000 investment in Investor A Shares
of the Funds, assuming (1) a 5% annual return and (2) redemption at the end of
each time period.
<TABLE>
<CAPTION>
<S> <C> <C>
Nations Nations
Managed Managed
Value Index SmallCap
Fund Value Index Fund
1 Year $ 8 $ 8
3 Years $ 24 $ 24
</TABLE>
The purpose of the foregoing tables is to assist an investor in understanding
the various shareholder transaction and operating expenses that an investor in
Investor A Shares will bear either directly or indirectly. The figures in the
above tables 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 Funds'
operating expenses, see "How The Funds Are Managed." For a more complete
description of the Rule 12b-1 and shareholder servicing fees payable by the
Funds, see "Shareholder Servicing And Distribution Plan."
4
<PAGE>
Absent fee waivers, "Management Fees" and "Total Operating Expenses" would be
.50% and .95%, respectively, for both Nations Managed Value Index Fund and
Nations Managed SmallCap Value Index Fund.
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.
Objectives
NATIONS MANAGED VALUE INDEX FUND: Nations Managed Value Index Fund's investment
objective is to seek, over the long-term, to provide a total return that (gross
of fees and expenses) exceeds the total return of the S&P 500/BARRA Value Index
(the "S&P/BARRA Value Index").
NATIONS MANAGED SMALLCAP VALUE INDEX FUND: Nations Managed SmallCap Value Index
Fund's investment objective is to seek, over the long-term, to provide a total
return that (gross of fees and expenses) exceeds the total return of the S&P
SmallCap 600/BARRA Value Index (the "S&P/BARRA SmallCap Value Index").
How The Objectives Are Pursued
NATIONS MANAGED VALUE INDEX FUND: In seeking to achieve its investment
objective, the Fund will invest in selected equity securities that are included
in the S&P/BARRA Value Index. The S&P/BARRA Value Index is a subset of the
Standard and Poor's 500 Composite Stock Price Index (the "S&P 500 Index")1. The
S&P 500 Index is a market capitalization weighted index consisting of 500 common
stocks chosen for market size, liquidity and industry group representation. The
S&P/BARRA Value Index is a market capitalization weighted index consisting of
approximately 340 common stocks selected from the S&P 500 Index on the basis of
a higher than average price-to-book ratio. Because of their higher than average
price-to-book ratios, stocks in the S&P/BARRA Value Index, on average, typically
exhibit higher yields than stocks in the S&P 500 Index. Historically, stocks in
the S&P/BARRA Value Index, on average, have exhibited less short-term volatility
than stocks in the S&P 500 Index.
S&P constructs the S&P/BARRA Value Index semi-annually by ranking all common
stocks included in the S&P 500 Index by their price-to-book ratios. The
resulting list is then divided in half by market capitalization. Stocks in the
half of the list that have higher price-to-book ratios are included in the
S&P/BARRA Value Index.
Unlike traditional index funds, the Fund has a "managed" overlay. The Adviser
believes that a managed equity value index portfolio can provide investors with
positive incremental performance relative to the S&P/BARRA Value Index while
reducing the downside risk of underperforming the S&P/BARRA Value Index over
time.
The initial stock universe considered by the Adviser is the S&P/BARRA Value
Index. The Adviser ranks the attractiveness of each security according to a
multi-factor valuation model. Although the universe consists exclusively of
value stocks, 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 are useful in determining a stock's value in relation to
(1) Standard & Poor's 500 Index is a registered service trademark of Standard &
Poor's Corporation ("S&P").
5
<PAGE>
others in the same industry. An earnings momentum model is also applied in the
portfolio construction process to serve as a validity check. Each stock is
assigned a ranking from 1 to 10 (best to worst). The Adviser then either
underweighs or eliminates the less attractive stocks and modestly emphasizes
the most attractive stocks resulting in a portfolio of 100 to 200 holdings that
capture the overall investment characteristics of the S&P/BARRA Value Index.
Under normal conditions, the Adviser will invest at least 80% of its total
assets in common stocks which are included in the S&P/BARRA Value 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 obligations
("U.S. Government Obligations") and repurchase agreements.
NATIONS MANAGED SMALLCAP VALUE INDEX FUND: In seeking to achieve its investment
objective, the Fund will invest in selected equity securities that are included
in the S&P/BARRA SmallCap Value Index. The S&P/BARRA SmallCap Value Index is a
subset of the Standard and Poor's SmallCap 600 Index (the "S&P 600 Index")2. The
S&P 600 Index is a market capitalization weighted index consisting of 600
domestic stocks which capture the economic and industry characteristics of small
stock performance. The S&P/BARRA SmallCap Value Index is a market capitalization
weighted index consisting of approximately 375 companies selected from the S&P
600 Index on the basis of price-to-book ratios. Those companies with lower
price-to-book ratios make up the S&P/BARRA SmallCap Value Index. The S&P/BARRA
SmallCap Value Index is rebalanced semi-annually to reflect changes in the S&P
600 Index. Most of these stocks are listed on either the New York, American or
NASDAQ stock exchanges.
Unlike traditional index funds, the Fund has a "managed" overlay. The Adviser
believes that a managed equity index portfolio can provide investors with
positive incremental performance relative to the S&P/BARRA SmallCap Value Index
while reducing the downside risk of underperforming the S&P/BARRA SmallCap Value
Index over time.
The initial stock universe considered by the Adviser is the S&P/BARRA SmallCap
Value Index. The Adviser ranks the attractiveness of each security according to
a multi-factor valuation model. Although the universe consists exclusively of
value stocks, 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 are useful in determining a stock's value in relation to others in
the same industry. An earnings momentum model is also applied in the portfolio
construction process to serve as a validity check. Each stock is assigned a
ranking from 1 to 10 (best to worst). The Adviser then either underweighs or
eliminates the less attractive stocks and modestly emphasizes the most
attractive stocks resulting in a portfolio of 200 to 300 holdings that capture
the overall investment characteristics of the S&P/BARRA SmallCap Value Index.
Under normal conditions, the Adviser will invest at least 80% of its total
assets in common stocks which are included in the S&P/BARRA SmallCap Value
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' accept-
(2) S&P 600 Index is a registered service trademark of S&P.
6
<PAGE>
ances and time deposits, U.S. Government Obligations and repurchase agreements.
GENERAL: Each of the Funds 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. Each Fund may lend its portfolio securities to qualified
institutional investors. Each 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.
In addition, when consistent with the Fund's respective investment objective,
each of the Funds 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.
The inclusion of a stock in the S&P/BARRA Value Index or the S&P/BARRA SmallCap
Value Index in no way implies that S&P or BARRA believes the stock to be an
attractive investment. The indexes are determined, composed and calculated by
S&P and BARRA without regard to the Funds. Neither S&P or BARRA is a sponsor of,
or in any way affiliated with, the Funds, and neither S&P or BARRA makes any
representation or warranty, expressed or implied, on the advisability of
investing in the Funds or as to the ability of the Indexes to track general
stock market performance. S&P and BARRA disclaim all warranties of
merchantability or fitness for a particular purpose or use with respect to the
Indexes or any data included therein.
Equity mutual funds, like other investors in equity securities, incur
transaction (brokerage) costs in connection with the purchase and sale of
portfolio securities. For some funds, these costs can have a material negative
impact on performance. The Adviser to the Funds will attempt to minimize these
transaction costs by utilizing computerized exchanges called "crossing networks"
which allow institutions to execute trades at the midpoint of the bid/ask spread
and at a reduced commission rate.
ABOUT THE INDEXES: The S&P/BARRA Value Index and the S&P/BARRA SmallCap Value
Index (collectively, the "BARRA Value Indexes") are constructed by dividing the
stocks in the S&P 500 Index and the S&P 600 Index, respectively, according to a
single attribute: book-to-price ratios. The BARRA Value Indexes are
capitalization-weighted, meaning that each stock is weighted in the approximate
index in proportion to its market value. Additionally, book-to-price ratios tend
to be more stable over time than alternative measures such as price-to-earnings
ratios, historical earnings growth rates, or return on equity, This results in
indexes with relatively low turnover. Generally, the companies in the BARRA
Value Indexes also exhibit characteristics associated with "value" stocks: lower
price-to-earnings ratios, higher dividend yields, and lower historical and
predicted earnings growth than the S&P 500 Index or the S&P 600 Index,
respectively.
The S&P/BARRA Value Index and the S&P/BARRA SmallCap Value Index are relatively
concentrated. The S&P/BARRA Value Index tends to be more heavily concentrated in
the Energy, Utility, and Financial sectors than the S&P 500 Index. Additionally,
the S&P/BARRA SmallCap Value Index tends to be
7
<PAGE>
more heavily concentrated in the Utility and Financial Sectors than the S&P 600
Index.
The inclusion of a stock in the S&P/BARRA Value Index or the S&P/BARRA SmallCap
Value Index in no way implies that S&P or BARRA believes the stock to be an
attractive investment. The BARRA Value Indexes are determined, composed and
calculated by S&P and BARRA without regard to the Funds. Neither S&P or BARRA is
a sponsor of, or in any way affiliated with, the Funds, and neither S&P or BARRA
makes any representation or warranty, expressed or implied, on the advisability
of investing in the Funds or as to the ability of the BARRA Value Indexes to
track general stock market performance. S&P and BARRA disclaim all warranties of
merchantability or fitness for a particular purpose or use with respect to the
BARRA Value Indexes or any data included therein.
PORTFOLIO TURNOVER: Generally, the Funds will purchase portfolio securities for
capital appreciation or investment income, or both, and not for short-term
trading profits. While it is not possible to predict exactly annual portfolio
turnover rates, it is expected that under normal market conditions, the annual
portfolio turnover rate for each Fund will not exceed 25%.
RISK CONSIDERATIONS: Although the Adviser will seek to achieve the investment
objective of each Fund, there is no assurance that it will be able to do so. No
single fund should be considered, by itself, to provide a complete investment
program for any investor. Investments in a Fund are not insured against loss of
principal.
Investments by a Fund in common stocks and other equity securities are subject
to stock market risk. The value of the stocks that the Funds hold, like the
broader stock market, may decline over short or even extended periods.
Certain of the Funds' 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 a Fund's investment objective and do not unduly
increase the Fund's exposure to market or other risks. For additional risk
information regarding the Funds' investments in particular instruments, see
"Appendix A -- Portfolio Securities."
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 a 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 Funds to manage capital gain
distributions may result in the accumulation of substantial unrealized gains in
the Funds' portfolios. Moreover, the realization of capital gains is not
entirely within a 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.
Furthermore, the U.S. Treasury has proposed legislation which would require
holders of substantially identical securities to determine their tax basis using
the average cost of all of their holdings in such securities. If enacted, the
legislation would prevent the Funds from specificially identifying each lot of
shares that they hold and from selling first those specific shares with the
8
<PAGE>
highest tax basis. Thus, the legislation would restrict the Funds' ability to
manage capital gains.
INVESTMENT LIMITATIONS: Each Fund is subject to a number of investment
limitations. The following investment limitations are matters of fundamental
policy and may not be changed without the affirmative vote of the holders of a
majority of each Fund's outstanding shares. Other investment limitations that
cannot be changed without such a vote of shareholders are described in the SAI.
Each Fund may not:
1. Purchase any securities which would cause 25% or more of the value of the
Fund's total assets at the time of such purchase to be invested in the
securities of one or more issuers conducting their principal activities in the
same industry. (For purposes of this limitation, U.S. Government securities are
not considered members of any industry.)
2. Make loans, except that a Fund may purchase and hold debt instruments
(whether such instruments are part of a public offering or privately placed),
may enter into repurchase agreements and may lend portfolio securities in
accordance with its investment policies.
3. Purchase securities of any one issuer (other than securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities) if,
immediately after such purchase, more than 5% of the value of such Fund's total
assets would be invested in the securities of such issuer, except that up to 25%
of the value of the Fund's total assets may be invested without regard to these
limitations and with respect to 75% of such Fund's assets, the Fund will not
hold more than 10% of the voting securities of any issuer.
The investment objective and policies of each Fund, unless otherwise specified,
may be changed without a vote of the Fund's shareholders. If the investment
objective or policies of a Fund change, shareholders should consider whether the
Fund remains an appropriate investment in light of their then current position
and needs.
How Performance Is Shown
From time to time the Funds may advertise the total return and yield on a class
of shares. BOTH TOTAL RETURN AND YIELD FIGURES ARE BASED ON HISTORICAL DATA AND
ARE NOT INTENDED TO INDICATE FUTURE PERFORMANCE. The "total return" of a class
of shares of a Fund may be calculated on an average annual total return basis or
an aggregate total return basis. Average annual total return refers to the
average annual compounded rates of return on a class of shares over one-, five-,
and ten-year periods or the life of a Fund (as stated in the advertisement) that
would equate an initial amount invested at the beginning of a stated period to
the ending redeemable value of the investment, assuming the reinvestment of all
dividend and capital gain distributions. Aggregate total return reflects the
total percentage change in the value of the investment over the measuring
period, again assuming the reinvestment of all dividends and capital gain
distributions. Total return may also be presented for other periods.
"Yield" is calculated by dividing the annualized net investment income per share
during a recent 30-day (or one month) period of a class of shares of a Fund by
the maximum public offering price per share on the last day of that period.
Investment performance, which will vary, is based on many factors, including
market conditions, the composition of a Fund's portfolio and a Fund's operating
expenses. Investment performance also often reflects the risks associated with
such Fund's investment objective and policies. These factors should be
considered when comparing a Fund's investment results to those of other mutual
funds and other investment vehicles. Since yields fluctuate, yield data cannot
necessarily be used to compare an investment in a Fund with bank deposits,
savings accounts, and similar investment alternatives which often
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provide an agreed-upon or guaranteed fixed yield for a stated period of time.
In addition to Investor A Shares, the Funds offer Primary A, Primary B 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 Funds'
shares. Any fees charged by a selling agent and/or servicing agent directly to
its customers' accounts in connection with investments in the Funds will not be
included in calculations of total return or yield. Each Fund's annual report
contains additional performance information and is available upon request
without charge from the Funds' distributor or your Agent (as defined below).
How The Funds Are Managed
The business and affairs of Nations Fund Trust are managed under the direction
of its Board of Trustees. Nations Fund Trust's SAI contains the names of and
general background information concerning each Trustee of Nations Fund Trust.
Nations Funds and the Adviser have adopted codes of ethics which contain
policies on personal securities transactions by "access persons," including
portfolio managers and investment analysts. These policies substantially comply
in all material respects with the recommendations set forth in the May 9, 1994
Report of the Advisory Group on Personal Investing of the Investment Company
Institute.
INVESTMENT ADVISER: NationsBanc Advisors, Inc. serves as investment adviser to
the Funds. NBAI is a wholly owned subsidiary of NationsBank, which in turn is a
wholly owned banking subsidiary of NationsBank Corporation, a bank holding
company organized as a North Carolina corporation. NBAI has its principal
offices at One NationsBank Plaza, Charlotte, North Carolina 28255.
TradeStreet Investment Associates, Inc., with
principal offices at One NationsBank Plaza, Charlotte, North Carolina 28255,
serves as investment sub-adviser to the Funds. TradeStreet is a wholly owned
subsidiary of NationsBank. TradeStreet provides investment management services
to individuals, corporations and institutions. TradeStreet has employed the
"managed index" style since 1989 and currently manages more than $1.5 billion in
this style on behalf of its clients, including the Nations Managed Index Fund
and Nations Managed SmallCap Index Fund.
Subject to the general supervision of Nations Fund Trust's Board of Trustees,
and in accordance with each Fund's investment policies, the Adviser formulates
guidelines and lists of approved investments for each Fund, makes decisions with
respect to and places orders for each Fund's purchases and sales of portfolio
securities and maintains records relating to such purchases and sales. The
Adviser is authorized to allocate purchase and sale orders for portfolio
securities to certain financial institutions, including, in the case of agency
transactions, financial institutions which are affiliated with the Adviser or
which have sold shares in such Funds, if the Adviser believes that the quality
of the transaction and the commission are comparable to what they would be with
other qualified brokerage firms. From time to time, to the extent consistent
with its investment objective, policies and restrictions, each Fund may invest
in securities of companies with which NationsBank has a lending relationship.
For the services provided and expenses assumed pursuant to 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
each Fund.
From time to time, NBAI (and/or TradeStreet) may waive or reimburse (either
voluntarily or
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pursuant to applicable state limitations) advisory fees and/or expenses payable
by a 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 each
Fund.
Jeffrey C. Moser, CFA, is a Senior Product Manager, Equity Management for
TradeStreet and Senior Portfolio Manager for Nations Managed Value Index Fund
and Nations Managed SmallCap Value Index Fund. Mr. Moser has been with
TradeStreet since 1996 and Portfolio Manager for Nations Managed Value Index
Fund and Nations Managed SmallCap Value Index Fund since the inception of the
Funds. He is also the Portfolio Manager for the Nations Disciplined Equity Fund.
Prior to assuming his position with TradeStreet, he was Senior Vice President
and Senior Portfolio Manager for the Investment Management Group at NationsBank.
Mr. Moser has worked for the Investment Management Group at NationsBank since
1983 where his responsibilities included institutional portfolio management and
equity analysis. Mr. Moser graduated Phi Beta Kappa with a B.S. in Mathematics
from Wake Forest University. He holds the Chartered Financial Analyst
designation and is a member of the Association for Investment Management and
Research as well as the North Carolina Society of Financial Analysts, Inc.
Morrison & Foerster LLP, counsel to Nations Funds and special counsel to
NationsBank, has advised Nations Funds 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 Funds pursuant to an Administration Agreement. Pursuant to the terms of
the Administration Agreement, Stephens provides various administrative and
corporate secretarial services to the Funds, including providing general
oversight of other service providers, office space, utilities and various legal
and administrative services in connection with the satisfaction of various
regulatory requirements applicable to the Funds.
First Data Investor Services Group, Inc. ("First Data"), formerly The
Shareholder Services Group, Inc., a wholly owned subsidiary of First Data
Corporation, with principal offices at One Exchange Place, Boston, Massachusetts
02109, serves as the co-administrator of Nations Funds pursuant to a
Co-Administration Agreement. Under the Co-Administration Agreement, First Data
provides various administrative and accounting services to the Funds including
performing the calculations necessary to determine the net asset value per share
and dividends of each class of shares of the Funds, preparing tax returns and
financial statements and maintaining the portfolio records and certain of the
general accounting records for the Funds.
For the services rendered pursuant to the Administration and Co-Administration
Agreements, Stephens and First Data are entitled to receive a combined fee at an
annual rate of up to 0.10% of each Fund's average daily net assets.
NationsBank serves as sub-administrator for Nations Funds pursuant to a
Sub-Administration Agreement. Pursuant to the terms of the Sub-Administration
Agreement, NationsBank assists Stephens in supervising, coordinating and
monitoring various aspects of the Funds'
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administrative operations. For providing such services NationsBank shall be
entitled to receive a monthly fee from Stephens based on an annual rate of 0.01%
of the Funds' average daily net assets.
Shares of the Funds are sold on a continuous basis by Stephens, as the Funds'
sponsor and distributor. Stephens is a registered broker/dealer with principal
offices at 111 Center Street, Little Rock, Arkansas 72201. Nations Funds has
entered into a distribution agreement with Stephens which provides that Stephens
has the exclusive right to distribute shares of the Funds. Stephens may pay
service fees or commissions to selling agents that assist customers in
purchasing Investor A Shares of the Funds. See "Shareholder Servicing And
Distribution Plan."
NationsBank of Texas, N.A. ("NationsBank of Texas" and, collectively with The
Bank of New York ("BONY"), called "Custodians") serves as Custodian for the
assets of all Nations Funds, except the international portfolios. NationsBank of
Texas is located at 1401 Elm Street, Dallas, Texas 75202, and is a wholly-owned
subsidiary of NationsBank Corporation. In return for providing custodial
services, NationsBank of Texas is entitled to receive, in addition to
out-of-pocket expenses, fees at the rate of (i) $300,000 per annum, to be paid
monthly in payments of $25,000 for custodian services for up to and including 50
Funds; and (ii) $6,000 per annum, to be paid in equal monthly payments, for
custodian services for each additional Fund above 50 Funds.
BONY has entered into an agreement with each of the Funds and NationsBank of
Texas, N.A., whereby BONY will serve as sub-custodian ("Sub-Custodian") for the
assets of all Nations Funds except the international portfolios, for which BONY
is already serving as Custodian.
BONY is located at 90 Washington Street, New York, New York 10286. In return for
providing sub-custodial services, BONY shall receive, in addition to out of
pocket expenses, fees at the rate of (i) 3/4 of one basis point per annum on the
aggregate net assets of all Nations' Non-Money Market Funds up to $10 billion;
and (ii) 1/2 of one basis point on the excess.
First Data serves as transfer agent (the "Transfer Agent") for the Funds'
Investor A Shares. The Transfer Agent is located at One Exchange Place, Boston,
Massachusetts 02109.
Price Waterhouse LLP serves as independent accountant to Nations Funds. Its
address is 160 Federal Street, Boston, Massachusetts 02110.
EXPENSES: The accrued expenses of each Fund, as well as certain expenses
attributable to Investor A Shares, are deducted from accrued income before
dividends are declared. The Funds' expenses include, but are not limited to:
fees paid to the Adviser, NationsBank, Stephens and First Data; interest;
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 Funds; and any extraordinary expenses. Investor A Shares bear
certain class specific retail transfer agency expenses and also bear certain
additional shareholder service and/or sales support costs. Any general expenses
of Nations Fund Trust that are not readily identifiable as belonging to a
particular investment portfolio are allocated among all portfolios in the
proportion that the assets of a portfolio bears to the assets of Nations Fund
Trust or in such other manner as the Board of Trustees deems appropriate.
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Organization And History
The Funds are members of the Nations Funds Family, which consists of Nations
Fund Trust, Nations Fund, Inc., Nations Fund Portfolios, Inc. and Nations
Institutional Reserves. The Nations Funds Family currently consists of more than
50 distinct investment portfolios and total assets in excess of $18 billion.
NATIONS FUND TRUST: Nations Fund Trust was organized as a Massachusetts business
trust on May 6, 1985. Nations Fund Trust's fiscal year end is March 31; prior to
1996, Nations Fund Trust's fiscal year end was November 30. The Funds currently
offer 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 Value Index Fund and Nations Managed SmallCap Value
Index Fund. To obtain additional information regarding the Funds' other classes
of shares which may be available to you, contact your Agent (as defined below)
or Nations Funds 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, as amended (the "1940 Act") requires voting by
fund.
As of July 31, 1997, 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.
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About Your Investment
How To Buy Shares
The Funds have established various procedures for purchasing Investor A Shares
in order to accommodate different investors. Purchase orders for Investor A
Shares may be placed directly with a Fund or through banks, broker/dealers or
other financial institutions (including certain affiliates of NationsBank) that
have entered into a shareholder servicing agreement ("Servicing Agreement") with
Nations Funds ("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 Funds 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 each 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 Funds 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 Funds and Stephens reserve the right to reject any purchase order. The
issuance of Investor A Shares is recorded on the books of the Funds, and share
certificates are not issued unless expressly requested in writing. Certificates
are not issued for fractional shares.
OPENING AN ACCOUNT DIRECTLY WITH THE FUND: Investors may open a regular
(non-retirement) account directly with a Fund, either by mail or by wire.
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BY MAIL: Investors should complete a New Account Application and forward it,
along with a check made payable to the respective Fund, to:
Nations Funds
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 Funds
c/o Boston Safe Deposit & Trust
ABA #011001234
DDA #154202
Account Name ccccccccccccccccccccccccccccccccc
Account Number cccccccccccccccccccccccccccccccc
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 respective
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 Funds
which are received by Stephens or by the Transfer Agent or sub-transfer agent
before the close of regular trading hours on the Exchange (currently 4:00 p.m.,
Eastern time) on any Business Day are priced according to the net asset value
determined on that day but are not executed until 4:00 p.m., Eastern time, on
the Business Day on which immediately available funds in payment of the purchase
price are received by the Funds' Custodian. Such payment must be received no
later than 4:00 p.m., Eastern time, by the third Business Day following receipt
of the order. If funds are not received by such date, the order will not be
accepted and notice thereof will be given to the Agent placing the order.
Payment for orders which are not received or accepted will be returned after
prompt inquiry to the sending Agent.
The Agents are responsible for transmitting orders for purchases of Investor A
Shares by their customers ("Customers"), and delivering required funds, on a
timely basis. Stephens is responsible for transmitting orders it receives to
Nations Funds.
SYSTEMATIC INVESTMENT PLAN: Under the Funds' Systematic Investment Plan ("SIP")
a shareholder may automatically purchase Investor A Shares. On a bi-monthly,
monthly or quarterly basis, a shareholder may direct cash to be transferred
automatically from his/her checking or savings account at any bank which is a
member of the Automated Clearing House to his/her Fund account. Transfers will
occur on or about the 15th and/or 30th day of the applicable month. The
systematic investment amount may be in any amount from $25 to $100,000. For more
information concerning the SIP, contact your Agent or Investor Services.
TELEPHONE TRANSACTIONS: Investors may effect purchases, redemptions (up to
$50,000) and exchanges by telephone. See "How To Redeem Shares" and "How To
Exchange Shares" below. Shareholders should be aware that by using the telephone
transaction feature, such shareholders may be giving up a measure of security
that they may have if they were to authorize written requests only. A
shareholder may bear the risk of any resulting losses from a telephone
transaction. Nations Funds will employ reasonable procedures to confirm that
instructions communicated by telephone are genuine, and if Nations Funds and its
service providers fail to employ such measures, they may be liable for any
losses due to unauthorized or fraudulent instructions. Nations Funds 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 Funds reserves the right to record all
telephone conversations.
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How To Redeem Shares
For shareholders who open and maintain an account directly with a Fund,
redemption orders should be communicated to such Fund by calling Investor
Services at 1-800-982-2271 or in writing. (Shareholders must have established
telephone features on their account in order to effect telephone transactions.)
Redemption proceeds are normally sent by mail or wired within three Business
Days after receipt of the order by a 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 a 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 Funds. There is no
redemption charge.
Nations Funds 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 Funds also
may redeem shares of the Funds involuntarily or make payment for redemption in
readily marketable securities or other property under certain circumstances in
accordance with the 1940 Act.
Prior to effecting a redemption of Investor A Shares represented by
certificates, the Transfer Agent must have received such certificates at its
principal office. All such certificates must be endorsed by the redeeming
shareholder or accompanied by a signed stock power, in each instance with the
signature guaranteed by a commercial bank or a member of a major stock exchange,
unless other arrangements satisfactory to Nations Funds have previously been
made. Nations Funds 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 Funds if the value of the
Investor A Shares in his/her accounts within the Nations Funds 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 Funds at any time.
How To Exchange Shares
GENERAL: The exchange feature enables a shareholder of a fund of Nations Funds
to acquire shares of the same class that are offered by any other fund of
Nations Funds when the
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shareholder believes that a shift between funds is an appropriate investment
decision. A qualifying exchange is based on the next calculated net asset value
per share of each fund after the exchange order is received.
For shareholders who maintain an account directly with a Fund, exchange requests
should be communicated to such Fund by calling Investor Services at
1-800-982-2271 or in writing. For shareholders who purchased their shares
through an Agent, exchange requests should be communicated to the Agent, who is
responsible for transmitting the request to Stephens or to the Transfer Agent.
The Funds and each of the other funds of Nations Funds 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 Funds 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 Funds 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 Funds 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 Funds are offered without any Contingent Deferred Sales
Charge ("CDSC"). However, Investor A Shares of other funds within the Nations
Funds 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 Funds' Automatic Exchange Feature ("AEF")
a shareholder may automatically exchange at least $25 on a monthly or quarterly
basis. A shareholder may direct proceeds to be exchanged from one fund of
Nations Funds 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.
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Shareholder Servicing And Distribution
Plan
The Funds' Shareholder Servicing and Distribution Plan (the "Investor A Plan"),
adopted pursuant to Rule 12b-1 under the 1940 Act, permits the Funds to
compensate (i) Servicing Agents and Selling Agents for services provided to
their Customers that own Investor A Shares and (ii) Stephens for
distribution-related expenses incurred in connection with Investor A Shares.
Aggregate payments under the Investor A Plan are calculated daily and paid
monthly at a rate or rates set from time to time by the Funds, provided that the
annual rate may not exceed 0.25% of the average daily net asset value of the
Investor A Shares of the Funds.
The fees payable to Servicing Agents under the Investor A Plan are used
primarily to compensate or reimburse Servicing Agents for shareholder services
provided, and related expenses incurred, by such Servicing Agents. The
shareholder services provided by Servicing Agents may include: (i) aggregating
and processing purchase and redemption requests for Investor A Shares from
Customers and transmitting net purchase and redemption orders to Stephens or the
Transfer Agent; (ii) providing Customers with a service that invests the assets
of their accounts in Investor A Shares pursuant to specific or preauthorized
instructions; (iii) processing dividend and distribution payments from the Funds
on behalf of Customers; (iv) providing information periodically to Customers
showing their positions in Investor A Shares; (v) arranging for bank wires; and
(vi) providing general shareholder liaison services. The fees payable to Selling
Agents are used primarily to compensate or reimburse Selling Agents for
providing sales support assistance in connection with the sale of Investor A
Shares to Customers, which may include forwarding sales literature and
advertising provided by Nations Funds to Customers.
The fees under the Investor A Plan also may be used to reimburse Stephens for
distribution-related expenses actually incurred by Stephens, including, but not
limited to, expenses of organizing and conducting sales seminars, printing
prospectuses and statements of additional information (and supplements thereto)
and reports for other than existing shareholders, preparation and distribution
of advertising and sales literature and the costs of administering the Investor
A Plan.
Stephens may, from time to time, at its expense or as an expense for which it
may be reimbursed under the Investor A Plan, pay a bonus or other consideration
or incentive to Agents who sell a minimum dollar amount of shares of the Funds
during a specified period of time. Stephens also may, from time to time, pay
additional consideration to Agents not to exceed 1.00% of the offering price per
share on all sales of Investor A Shares as an expense of Stephens or for which
Stephens may be reimbursed under the Investor A Plan. Any such additional
consideration or incentive program may be terminated at any time by Stephens.
In addition, Stephens has established a non-cash compensation program, pursuant
to which broker/dealers or financial institutions that sell shares of the Funds
may earn additional compensation in the form of trips to sales seminars or
vacation destinations, tickets to sporting events, theater or other
entertainment, opportunities to participate in golf or other outings and gift
certificates for meals or merchandise. This non-cash compensation program may be
amended or terminated at any time by Stephens.
Nations Funds 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 Funds understands that Agents may charge fees to their Customers who are
the
own-
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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 Funds. The Sales Support
Agreement and Servicing Agreement require Agents to disclose to their Customers
any compensation payable to the Agent by Stephens or Nations Funds and any other
compensation payable by the Customers for various services provided in
connection with their accounts. Customers should read this Prospectus in light
of the terms governing their accounts with their Agents.
How The Funds Value Their Shares
The Funds calculate the net asset value of a share of each class by dividing the
total value of its assets, less liabilities, by the number of shares in the
class outstanding. Shares are valued as of the close of regular trading on the
Exchange (currently 4:00 p.m., Eastern time) on each Business Day. Currently,
the days on which the Exchange is closed (other than weekends) are: New Year's
Day, Presidents' Day, Good Friday, Memorial Day (observed), Independence Day,
Labor Day, Thanksgiving Day and Christmas Day.
Portfolio securities for which market quotations are readily available are
valued at market value. Short-term investments that will mature in 60 days or
less are valued at amortized cost, which approximates market value. All other
securities and assets are valued at their fair value following procedures
approved by the Trustees.
How Dividends And Distributions Are
Made; Tax Information
DIVIDENDS AND DISTRIBUTIONS: Even though the Funds seek to manage taxable
distributions, the Funds 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 Funds. The Funds' net realized capital gains (including net
short-term capital gains) are distributed at least annually.
Investor A Shares of the Funds are eligible to receive dividends when declared,
provided however, that the purchase order for such shares is received at least
one day prior to the dividend declaration and such shares continue to be
eligible for dividends through and including the day before the redemption order
is executed.
The net asset value of Investor A Shares will be reduced by the amount of any
dividend or distribution. Certain Agents may provide for the reinvestment of
dividends in the form of additional Investor A Shares of the same class in the
same Fund. Dividends and distributions are paid in cash within five Business
Days of the end of the quarter to which the dividend relates. Dividends and
distributions payable to a shareholder are paid in cash within five Business
Days after a shareholder's complete redemption of his/her Investor A Shares.
TAX INFORMATION: Each Fund intends to qualify as a "regulated investment
company" under the 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.
Each Fund intends to distribute substantially all of its investment company
taxable income and net tax-exempt income each taxable year. Distributions by a
Fund of its net investment income and the excess, if any, of its net short-term
capi-
19
<PAGE>
tal 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 a Fund may be entitled to the dividends received
deduction on all or a portion of such Fund's dividends.
Substantially all of the Funds' net realized long-term capital gains will be
distributed at least annually. The Funds will generally have no tax liability
with respect to such gains, and the distributions will be taxable to
shareholders who are not exempt from Federal income tax as long-term capital
gains, regardless of how long the shareholders have held such Funds' shares and
whether such gains are received in cash or reinvested in additional shares.
Each year, shareholders will be notified as to the amount and Federal tax status
of all dividends and capital gains paid during the prior year. Such dividends
and capital gains may be subject to state and local taxes.
Dividends declared in October, November, or December of any year payable to
shareholders of record on a specified date in such months will be deemed to have
been received by shareholders and paid by a Fund on December 31 of such year in
the event such dividends are actually paid during January of the following year.
Federal law requires Nations Funds 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 Funds that the Taxpayer
Identification Number listed on a shareholder account is incorrect according to
its records, or that the shareholder is subject to backup withholding. Amounts
withheld are applied to the shareholder's Federal tax liability, and a refund
may be obtained from the Internal Revenue Service if withholding results in
overpayment of taxes. Federal law also requires the Funds to withhold 30% or the
applicable tax treaty rate from dividends paid to certain nonresident alien,
non-U.S. partnership and non-U.S. corporation shareholder accounts.
The foregoing discussion is based on tax laws and regulations which were in
effect as of the date of this Prospectus and summarizes only some of the
important Federal tax considerations generally affecting the Funds and their
shareholders. It is not intended as a substitute for careful tax planning;
investors should consult their tax advisors with respect to their specific tax
situations as well as with respect to state and local taxes. Further tax
information is contained in the SAI.
Appendix A -- Portfolio Securities
The following are summary descriptions of certain types of instruments in which
a Fund may invest. The "How Objectives Are Pursued" section of the Prospectus
identifies each Fund's permissible investments, and the SAI contains more
information concerning such investments.
BANK INSTRUMENTS: Bank instruments consist mainly of certificates of deposit,
time deposits and bankers' acceptances. The Funds will limit their investments
in bank obligations so they do not exceed 25% of each Fund's total assets at the
time of purchase.
BORROWINGS: When a Fund borrows money, the net asset value of a share may be
subject to greater fluctuation until the borrowing is paid off. The Funds may
borrow money from banks for temporary purposes in amounts of up to one-third of
their respective total assets, provided that borrowings in excess of 5% of the
value of a Fund's total assets must be repaid prior to the purchase of portfolio
securities. Under the requirements of the 1940 Act, the Funds are required to
maintain an asset coverage (including the proceeds of the borrowings) of at
least 300% of all borrowings.
20
<PAGE>
COMMERCIAL INSTRUMENTS: Commercial instruments consist of short-term U.S.
dollar-denominated obligations issued by domestic corporations or foreign
corporations and foreign commercial banks. Investments by a Fund in commercial
paper will consist of issues rated in a manner consistent with such Fund's
investment policies and objective. In addition, a Fund may acquire unrated
commercial paper and corporate bonds that are determined by the Adviser at the
time of purchase to be of comparable quality to rated instruments that may be
acquired by a Fund. Commercial instruments include variable-rate master demand
notes, which are unsecured instruments that permit the indebtedness thereunder
to vary and provide for periodic adjustments in the interest rate, and variable-
and floating-rate instruments.
CONVERTIBLE SECURITIES, PREFERRED STOCK, AND WARRANTS: The Funds may invest in
debt securities convertible into or exchangeable for equity securities,
preferred stocks or warrants. Preferred stocks are securities that represent an
ownership interest in a corporation providing the owner with claims on a
company's earnings and assets before common stock owners, but after bond or
other debt security owners. Warrants are options to buy a stated number of
shares of common stock at a specified price any time during the life of the
warrants.
FUTURES, OPTIONS AND OTHER DERIVATIVE INSTRUMENTS: The Funds may attempt to
reduce the overall level of investment risk of particular securities and attempt
to protect a Fund against adverse market movements by investing in futures,
options and other derivative instruments. These include the purchase and writing
of options on securities (including index options), and 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 a Fund to
additional investment risks and transaction costs. If the Adviser incorrectly
analyzes market conditions or does not employ the appropriate strategy with
respect to these instruments, a Fund could be left in a less favorable position.
Additional risks inherent in the use of futures, options, forward contracts and
swaps include: imperfect correlation between the price of futures, options and
forward contracts and movements in the prices of the securities or currencies
being hedged; the possible absence of a liquid secondary market for any
particular instrument at any time; and the possible need to defer closing out
certain hedged positions to avoid adverse tax consequences. Further information
on the use of futures, options and other derivative instruments, and the
associated risks, is contained in the SAI.
ILLIQUID SECURITIES: Certain securities may be sold only pursuant to certain
legal restrictions, and may be difficult to sell. The Funds will not hold more
than 15% of the value of their respective net assets in securities that are
illiquid or such lower percentage as may be required by the states in which the
appropriate Fund sells its shares. Repurchase agreements, time deposits and
guaranteed investment contracts that do not provide for payment to a Fund within
seven days after notice, and illiquid restricted securities are subject to the
limitation on illiquid securities.
If otherwise consistent with its investment objective and policies, certain
Funds may purchase securities that are not registered under the Securities Act
of 1933, as amended (the "1933 Act") but which can be sold to "qualified
institutional buyers" in accordance with Rule 144A under the 1933 Act, or which
were issued under Section 4(2) of the 1933 Act. Any such security will not be
considered illiquid so long as it is determined by a Fund's Board of Trustees or
the Adviser, acting under guidelines approved and monitored by such Fund's
Board, after considering trading activity, availability of reliable price
information and other relevant information, that an adequate trading market
exists for that security. To the extent that, for a period of time, qualified
institutional or other buyers cease purchasing such restricted securities
pursuant to Rule 144A or otherwise, the level of illiquidity of a Fund holding
such securities may increase during such period.
MONEY MARKET INSTRUMENTS: The term "money market instruments" refers to
instruments with remaining maturities of one year or
21
<PAGE>
less. Money market instruments may include, among other instruments, certain
U.S. Treasury obligations, U.S. Government obligations, bank instruments,
commercial instruments, repurchase agreements and municipal securities. Such
instruments are described in this Appendix A.
OTHER INVESTMENT COMPANIES: Each Fund may invest in securities issued by other
investment companies to the extent that such investments are consistent with the
Fund's investment objective and policies and permissible under the 1940 Act. As
a shareholder of another investment company, a Fund would bear, along with other
shareholders, its pro rata portion of the other investment company's expenses,
including advisory fees. These expenses would be in addition to the advisory and
other expenses that a Fund bears directly in connection with its own operations.
REPURCHASE AGREEMENTS: A repurchase agreement involves the purchase of a
security by a Fund and a simultaneous agreement (generally with a bank or
broker/dealer) to repurchase that security from the Fund at a specified price
and date or upon demand. This technique offers a method of earning income on
idle cash. A risk associated with repurchase agreements is the failure of the
seller to repurchase the securities as agreed, which may cause a Fund to suffer
a loss if the market value of such securities declines before they can be
liquidated on the open market. Repurchase agreements with a duration of more
than seven days are considered illiquid securities and are subject to the limit
stated above. A Fund may enter into repurchase agreements jointly with other
investment portfolios of Nations Funds.
SECURITIES LENDING: To increase return on portfolio securities, the Funds may
lend their portfolio securities to broker/dealers and other institutional
investors pursuant to agreements requiring that the loans be continuously
secured by collateral equal at all times in value to at least the market value
of the securities loaned. There is a risk of delay in receiving collateral or in
recovering the securities loaned or even a loss of rights in the collateral
should the borrower of the securities fail financially. However, loans are made
only to borrowers deemed by the Adviser to be credit worthy and when, in its
judgment, the income to be earned from the loan justifies the attendant risks.
The aggregate of all outstanding loans of a Fund may not exceed 30% of the value
of its total assets.
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.
22
<PAGE>
Prospectus
INVESTOR C SHARES
JULY 31, 1997
This Prospectus describes NATIONS MANAGED VALUE
INDEX FUND and NATIONS MANAGED SMALLCAP VALUE INDEX
FUND (the "Funds") of Nations Fund Trust, an
open-end management investment company in the
Nations Funds Family ("Nations Funds" or "Nations
Funds Family"). This Prospectus describes one class
of shares of the Funds -- Investor C Shares.
This Prospectus sets forth concisely the
information about the Funds that 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 Funds at its address or
telephone number shown below. The SAI, dated July
31, 1997, is incorporated by reference in its
entirety into this Prospectus. NationsBanc
Advisors, Inc. ("NBAI") is the investment adviser
to the Funds. TradeStreet Investment Associates,
Inc. ("TradeStreet") is investment sub-adviser to
the Funds. As used herein the term "Adviser" shall
mean NBAI and/or TradeStreet as the context may
require.
SHARES OF NATIONS FUNDS ARE NOT DEPOSITS OR OTHER
OBLIGATIONS OF, OR ISSUED, ENDORSED OR GUARANTEED
BY, NATIONSBANK, N.A. ("NATIONSBANK") OR ANY OF ITS
AFFILIATES. SUCH SHARES ARE NOT INSURED BY THE U.S.
GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER
GOVERNMENT AGENCY. AN INVESTMENT IN THE FUNDS
INVOLVES CERTAIN RISKS, INCLUDING POSSIBLE LOSS OF
PRINCIPAL.
NATIONSBANK AND CERTAIN OF ITS AFFILIATES PROVIDE
INVESTMENT ADVISORY AND CERTAIN OTHER SERVICES TO
NATIONS FUNDS, 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 FUNDS.
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 Value
Index Fund
Nations
Managed SmallCap Value
Index Fund
For Fund information call:
1-800-321-7854
Nations Funds
c/o Stephens Inc.
One NationsBank Plaza
33rd Floor
Charlotte, NC 28255
NATIONS FUNDS
NF-96696-1096
<PAGE>
Table Of Contents
About The Funds
Prospectus Summary 3
Expenses Summary 4
Objectives 6
How The Objectives Are Pursued 6
How Performance Is Shown 10
How The Funds Are Managed 10
Organization And History 13
About Your Investment
How To Buy Shares 14
How To Redeem Shares 15
How To Exchange Shares 17
Shareholder Servicing And Distribution Plans 18
How The Funds Value Their Shares 19
How Dividends And Distributions are Made; Tax
Information 20
Appendix A -- Portfolio Securities 21
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT
CONTAINED IN THIS PROSPECTUS, OR IN THE FUNDS' SAI
INCORPORATED HEREIN BY REFERENCE, IN CONNECTION
WITH THE OFFERING MADE BY THIS PROSPECTUS AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY NATIONS FUNDS OR ITS DISTRIBUTOR. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY
NATIONS FUNDS OR BY THE DISTRIBUTOR IN ANY
JURISDICTION IN WHICH SUCH OFFERING MAY
NOT LAWFULLY BE MADE.
2
<PAGE>
About The Funds
Prospectus Summary
(Bullet) TYPE OF COMPANY: Open-end management investment company.
(Bullet) INVESTMENT OBJECTIVES AND POLICIES:
(BULLET) Nations Managed Value Index Fund's investment objective is to
seek, over the long-term, to provide a total return that (gross of
fees and expenses) exceeds the total return of the S&P 500/BARRA
Value Index.
(Bullet) Nations Managed SmallCap Value Index Fund's investment objective
is to seek, over the long-term, to provide a total return that
(gross of fees and expenses) exceeds the total return of the S&P
SmallCap 600/BARRA Value Index.
(Bullet) When consistent with the Funds' objectives, the Funds will employ
various techniques to manage capital gain distributions.
(Bullet) INVESTMENT ADVISER: NationsBanc Advisors, Inc. serves as the investment
adviser to the Funds. NBAI provides investment advice to more than 50
investment company portfolios in the Nations Funds Family. TradeStreet
Investment Associates, Inc. provides sub-advisory services to the
Funds. See "How The Funds Are Managed."
(Bullet) DIVIDENDS AND DISTRIBUTIONS: Nations Managed Value Index Fund and
Nations Managed SmallCap Value Index Fund declare and pay dividends
from net investment income each calendar quarter. Each Fund's net
realized capital gains, including net short-term capital gains, are
distributed at least annually.
(Bullet) RISK FACTORS: Although the Adviser seeks to achieve the investment
objective of the Funds, there is no assurance that it will be able to
do so. Investments in the Funds are not insured against loss of
principal. Investments by the Funds in common stocks and other equity
securities are subject to stock market risk, which is the risk that the
value of the stocks the Funds hold may decline over short or even
extended periods. Certain of the Funds' 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 Objectives Are Pursued -- Risk
Considerations" and "Appendix A -- Portfolio Securities."
(Bullet) MINIMUM PURCHASE: $1,000 minimum initial investment for each of the
Funds per record holder except that the minimum initial investment is:
$500 for Individual Retirement Account ("IRA") investors; $250 for
non-working spousal IRAs; and $100 for investors participating on a
monthly basis in the Systematic Investment Plan. There is no minimum
investment amount for investments by certain 401(k) and employee
pension plans or salary reduction -- Individual Retirement Accounts.
The minimum subsequent investment is $100, except for investments
pursuant to the Systematic Investment Plan. See "How To Buy Shares."
3
<PAGE>
Expenses Summary
Expenses are one of several factors to consider when investing in the Funds. The
following tables summarize shareholder transaction and operating expenses for
Investor C Shares of the Funds. The Examples show the cumulative expenses
attributable to a hypothetical $1,000 investment in Investor C Shares of the
indicated Fund over specified periods.
INVESTOR C SHARES
<TABLE>
<CAPTION>
<S> <C> <C>
Nations Nations
Managed Managed
Value Index SmallCap
SHAREHOLDER TRANSACTION EXPENSES Fund Value Index Fund
Maximum Sales Load Imposed on Purchases (as a percentage of offering price) None None
Maximum Deferred Sales Charge (as a percentage of the lower of the original purchase price
or redemption proceeds) .50% .50%
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
<TABLE>
<S> <C> <C>
Management Fees (After Fee Waivers) .30% 0.30%
Rule 12b-1 Fees (After Fee Waivers) .25% 0.25%
Shareholder Servicing Fees .25% 0.25%
Other Expenses .20% 0.20%
Total Operating Expenses (After Fee Waivers) 1.00% 1.00%
</TABLE>
4
<PAGE>
EXAMPLES:
You would pay the following expenses on a $1,000 investment in Investor C Shares
of the Funds, assuming (1) a 5% annual return and (2) redemption at the end of
each time period.
<TABLE>
<CAPTION>
<S> <C> <C>
Nations Nations
Managed Managed
Value Index SmallCap
Fund Value Index Fund
1 Year $ 10 $ 10
3 Years $ 32 $ 32
</TABLE>
You would pay the following expenses on a $1,000 investment in Investor C Shares
of the Funds, assuming a 5% annual return but no redemption.
<TABLE>
<CAPTION>
<S> <C> <C>
Nations Nations
Managed Managed
Value Index SmallCap
Fund Value Index Fund
1 Year $ 10 $ 10
3 Years $ 32 $ 32
</TABLE>
The purpose of the foregoing tables is to assist an investor in understanding
the various shareholder transaction and operating expenses that an investor in
Investor C Shares will bear either directly or indirectly. The figures in the
above tables 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 Funds'
operating expenses, see "How The Funds Are Managed." For a more complete
description of the Rule 12b-1 and shareholder servicing fees payable by the
Funds, see "Shareholder Servicing And Distribution Plan."
Absent fee waivers, "Management Fees," "Rule 12b-1 Fees" and "Total Operating
Expenses" would be .50%, .75% and 1.20%, respectively, for both Nations Managed
Value Index Fund and Nations Managed SmallCap Value Index Fund.
THE FOREGOING SHOULD NOT BE CONSIDERED TO BE AN ACTUAL REPRESENTATION OF PAST OR
FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES AND RATES OF RETURN MAY BE
GREATER OR LESS THAN THOSE SHOWN.
5
<PAGE>
Objectives
NATIONS MANAGED VALUE INDEX FUND: Nations Managed Value Index Fund's investment
objective is to seek, over the long-term, to provide a total return that (gross
of fees and expenses) exceeds the total return of the S&P 500/BARRA Value Index
(the "S&P/BARRA Value Index").
NATIONS MANAGED SMALLCAP VALUE INDEX FUND: Nations Managed SmallCap Value Index
Fund's investment objective is to seek, over the long-term, to provide a total
return that (gross of fees and expenses) exceeds the total return of the S&P
SmallCap 600/BARRA Value Index (the "S&P/BARRA SmallCap Value Index").
How The Objectives Are Pursued
NATIONS MANAGED VALUE INDEX FUND: In seeking to achieve its investment
objective, the Fund will invest in selected equity securities that are included
in the S&P/BARRA Value Index. The S&P/BARRA Value Index is a subset of the
Standard and Poor's 500 Composite Stock Price Index (the "S&P 500 Index")1. The
S&P 500 Index is a market capitalization weighted index consisting of 500 common
stocks chosen for market size, liquidity and industry group representation. The
S&P/BARRA Value Index is a market capitalization weighted index consisting of
approximately 340 common stocks selected from the S&P 500 Index on the basis of
a lower than average price-to-book ratio. Because of their lower than average
price-to-book ratios, stocks in the S&P/BARRA Value Index, on average, typically
exhibit higher yields than stocks in the S&P 500 Index. Historically, stocks in
the S&P/BARRA Value Index, on average, have exhibited less short-term volatility
than stocks in the S&P 500 Index.
S&P constructs the S&P/BARRA Value Index semi-annually by ranking all common
stocks included in the S&P 500 Index by their price-to-book ratios. The
resulting list is then divided in half by market capitalization. Stocks in the
half of the list that have lower price-to-book ratios are included in the
S&P/BARRA Value Index.
Unlike traditional index funds, the Fund has a "managed" overlay. The Adviser
believes that a managed equity value index portfolio can provide investors with
positive incremental performance relative to the S&P/BARRA Value Index while
reducing the downside risk of underperforming the S&P/BARRA Value Index over
time.
The initial stock universe considered by the Adviser is the S&P/BARRA Value
Index. The Adviser ranks the attractiveness of each security according to a
multi-factor valuation model. Although the universe consists exclusively of
value stocks, 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 are useful in determining a stock's value in relation to others in
the same industry. An earnings momentum model is also applied in the portfolio
construction process to serve as a validity check. Each stock is assigned a
ranking from 1 to 10 (best to worst). The Adviser then either underweighs or
eliminates the less attractive stocks and modestly emphasizes the most
attractive stocks resulting in a portfolio of 100 to 200 holdings that capture
the overall investment characteristics of the S&P/BARRA Value Index.
Under normal conditions, the Adviser will invest at least 80% of its total
assets in common stocks which are included in the S&P/BARRA Value
(1) Standard & Poor's 500 Index is a registered service trademark of Standard &
Poor's Corporation ("S&P").
6
<PAGE>
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
obligations ("U.S. Government Obligations") and repurchase agreements.
NATIONS MANAGED SMALLCAP VALUE INDEX FUND: In seeking to achieve its investment
objective, the Fund will invest in selected equity securities that are included
in the S&P/BARRA SmallCap Value Index. The S&P/BARRA SmallCap Value Index is a
subset of the Standard and Poor's SmallCap 600 Index (the "S&P 600 Index")2. The
S&P 600 Index is a market capitalization weighted index consisting of 600
domestic stocks which capture the economic and industry characteristics of small
stock performance. The S&P/BARRA SmallCap Value Index is a market capitalization
weighted index consisting of approximately 375 companies selected from the S&P
600 Index on the basis of price-to-book ratios. Those companies with lower
price-to-book ratios make up the S&P/BARRA SmallCap Value Index. The S&P/BARRA
SmallCap Value Index is also rebalanced semi-annually to reflect changes in the
S&P 600 Index. Most of these stocks are listed on either the New York, American
or NASDAQ stock exchanges.
Unlike traditional index funds, the Fund has a "managed" overlay. The Adviser
believes that a managed equity index portfolio can provide investors with
positive incremental performance relative to the S&P/BARRA SmallCap Value Index
while reducing the downside risk of underperforming the S&P/BARRA SmallCap Value
Index over time.
The initial stock universe considered by the Adviser is the S&P/BARRA SmallCap
Value Index. The Adviser ranks the attractiveness of each security according to
a multi-factor valuation model. Although the universe consists exclusively of
value stocks, 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 are useful in determining a stock's value in relation to others in
the same industry. An earnings momentum model is also applied in the portfolio
construction process to serve as a validity check. Each stock is assigned a
ranking from 1 to 10 (best to worst). The Adviser then either underweighs or
eliminates the less attractive stocks and modestly emphasizes the most
attractive stocks resulting in a portfolio of 200 to 300 holdings that capture
the overall investment characteristics of the S&P/BARRA SmallCap Value Index.
Under normal conditions, the Adviser will invest at least 80% of its total
assets in common stocks which are included in the S&P/BARRA SmallCap Value
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
Obligations and repurchase agreements.
GENERAL: Each of the Funds 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. Each Fund may lend its portfolio securities to qualified
institutional investors. Each Fund also may invest in restricted, private
placement and
(2) S&P 600 Index is a registered service trademark of S&P.
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other illiquid securities. In addition, the Funds may invest in securities
issued by other investment companies, consistent with the Fund's investment
objective and policies.
In addition, when consistent with the Fund's respective investment objective,
each of the Funds 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.
Equity mutual funds, like other investors in equity securities, incur
transaction (brokerage) costs in connection with the purchase and sale of
portfolio securities. For some funds, these costs can have a material negative
impact on performance. The Adviser to the Funds will attempt to minimize these
transaction costs by utilizing computerized exchanges called "crossing networks"
which allow institutions to execute trades at the midpoint of the bid/ask spread
and at a reduced commission rate.
ABOUT THE INDEXES:
The S&P/BARRA Value Index and the S&P/BARRA SmallCap Value Index (collectively,
the "BARRA Value Indexes") are constructed by dividing the stocks in the S&P 500
Index and the S&P 600 Index, respectively, according to a single attribute:
book-to-price ratios. The BARRA Value Indexes are capitalization-weighted,
meaning that each stock is weighted in the approximate index in proportion to
its market value. Additionally, book-to-price ratios tend to be more stable over
time than alternative measures such as price-to-earnings ratios, historical
earnings growth rates, or return on equity. This results in indexes with
relatively low turnover. Generally, the companies in the BARRA Value Indexes
also exhibit characteristics associated with "value" stocks: lower
price-to-earnings ratios, higher dividend yields, and lower historical and
predicted earnings growth than the S&P 500 Index or the S&P 600 Index,
respectively.
The S&P/BARRA Value Index and the S&P/BARRA SmallCap Value Index are relatively
concentrated. The S&P/BARRA Value Index tends to be more heavily concentrated in
the Energy, Utility, and Financial sectors than the S&P 500 Index. Additionally,
the S&P/BARRA SmallCap Value Index tends to be more heavily concentrated in the
Utility and Financial Sectors than the S&P 600 Index.
The inclusion of a stock in the S&P/BARRA Value Index or the S&P/BARRA SmallCap
Value Index in no way implies that S&P or BARRA believes the stock to be an
attractive investment. The BARRA Value Indexes are determined, composed and
calculated by S&P and BARRA without regard to the Funds. Neither S&P or BARRA is
a sponsor of, or in any way affiliated with, the Funds, and neither S&P or BARRA
makes any representation or warranty, expressed or implied, on the advisability
of investing in the Funds or as to the ability of the BARRA Value Indexes to
track general stock market performance. S&P and BARRA disclaim all warranties of
merchantability or fitness for a particular purpose or use with respect to the
BARRA Value Indexes or any data included therein.
PORTFOLIO TURNOVER: Generally, the Funds will purchase portfolio securities for
capital appreciation or investment income, or both, and not for short-term
trading profits. While it is not possible to predict exactly annual portfolio
turnover rates, it is expected that under normal market conditions, the annual
portfolio turnover rate for each Fund will not exceed 25%.
RISK CONSIDERATIONS: Although the Adviser will seek to achieve the investment
objective of each Fund, there is no assurance that it will be able to do so. No
single fund should be considered, by itself, to provide a complete investment
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program for any investor. Investments in a Fund are not insured against loss of
principal.
Investments by a Fund in common stocks and other equity securities are subject
to stock market 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 Funds' 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 a Fund's investment objective and do not unduly
increase the Fund's exposure to market or other risks. For additional risk
information regarding the Funds' investments in particular instruments, see
"Appendix A -- Portfolio Securities."
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 a 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 Funds to manage capital gain
distributions may result in the accumulation of substantial unrealized gains in
the Funds' portfolios. Moreover, the realization of capital gains is not
entirely within a 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.
Furthermore, the U.S. Treasury has proposed legislation which would require
holders of substantially identical securities to determine their tax basis using
the average cost of all of their holdings in such securities. If enacted, the
legislation would prevent the Funds from specifically identifying each lot of
shares that they hold and from selling first those specific shares with the
highest tax basis. Thus, the legislation would restrict the Funds' ability to
manage capital gains.
INVESTMENT LIMITATIONS: Each Fund is subject to a number of investment
limitations. The following investment limitations are matters of fundamental
policy and may not be changed without the affirmative vote of the holders of a
majority of each Fund's outstanding shares. Other investment limitations that
cannot be changed without such a vote of shareholders are described in the SAI.
Each Fund may not:
1. Purchase any securities which would cause 25% or more of the value of the
Fund's total assets at the time of such purchase to be invested in the
securities of one or more issuers conducting their principal activities in the
same industry. (For purposes of this limitation, U.S. Government securities are
not considered members of any industry.)
2. Make loans, except that a Fund may purchase and hold debt instruments
(whether such instruments are part of a public offering or privately placed),
may enter into repurchase agreements and may lend portfolio securities in
accordance with its investment policies.
3. Purchase securities of any one issuer (other than securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities) if,
immediately after such purchase, more than 5% of the value of such Fund's total
assets would be invested in the securities of such issuer, except that up to 25%
of the value of the Fund's total assets may be invested without regard to these
limitations and with respect to 75% of such
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Fund's assets, the Fund will not hold more than 10% of the voting securities of
any issuer.
The investment objective and policies of each Fund, unless otherwise specified,
may be changed without a vote of the Fund's shareholders. If the investment
objective or policies of a Fund change, shareholders should consider whether the
Fund remains an appropriate investment in light of their then current position
and needs.
How Performance Is Shown
From time to time the Funds may advertise the total return and yield on a class
of shares. BOTH TOTAL RETURN AND YIELD FIGURES ARE BASED ON HISTORICAL DATA AND
ARE NOT INTENDED TO INDICATE FUTURE PERFORMANCE. The "total return" of a class
of shares of a Fund may be calculated on an average annual total return basis or
an aggregate total return basis. Average annual total return refers to the
average annual compounded rates of return on a class of shares over one-, five-,
and ten-year periods or the life of a Fund (as stated in the advertisement) that
would equate an initial amount invested at the beginning of a stated period to
the ending redeemable value of the investment, assuming the reinvestment of all
dividend and capital gain distributions. Aggregate total return reflects the
total percentage change in the value of the investment over the measuring
period, again assuming the reinvestment of all dividends and capital gain
distributions. Total return may also be presented for other periods.
"Yield" is calculated by dividing the annualized net investment income per share
during a recent 30-day (or one month) period of a class of shares of a Fund by
the maximum public offering price per share on the last day of that period.
Investment performance, which will vary, is based on many factors, including
market conditions, the composition of a Fund's portfolio and a Fund's operating
expenses. Investment performance also often reflects the risks associated with
such Fund's investment objective and policies. These factors should be
considered when comparing a Fund's investment results to those of other mutual
funds and other investment vehicles. Since yields fluctuate, yield data cannot
necessarily be used to compare an investment in a Fund with bank deposits,
savings accounts, and similar investment alternatives which often provide an
agreed-upon or guaranteed fixed yield for a stated period of time.
In addition to Investor C Shares, the Funds offer 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 Funds'
shares. Any fees charged by a selling agent and/or servicing agent directly to
its customers' accounts in connection with investments in the Funds will not be
included in calculations of total return or yield. Each Fund's annual report
contains additional performance information and is available upon request
without charge from the Funds' distributor or your selling agent.
How The Funds Are 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 Funds 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 recom-
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mendations set forth in the May 9, 1994 Report of the Advisory Group on Personal
Investing of the Investment Company Institute.
INVESTMENT ADVISER: NationsBanc Advisors, Inc. serves as investment adviser to
the Funds. NBAI is a wholly owned subsidiary of NationsBank, which in turn is a
wholly owned banking subsidiary of NationsBank Corporation, a bank holding
company organized as a North Carolina corporation. NBAI has its principal
offices at One NationsBank Plaza, Charlotte, North Carolina 28255.
TradeStreet Investment Associates, Inc., with principal offices at One
NationsBank Plaza, Charlotte, North Carolina 28255, serves as investment
sub-adviser to the Funds. TradeStreet is a wholly owned subsidiary of
NationsBank. TradeStreet provides investment management services to individuals,
corporations and institutions. TradeStreet has employed the "managed index"
style since 1989 and currently manages more than $1.5 billion in this style on
behalf of its clients, including the Nations Managed Index Fund and Nations
Managed SmallCap Index Fund.
Subject to the general supervision of Nations Fund Trust's Board of Trustees,
and in accordance with each Fund's investment policies, the Adviser formulates
guidelines and lists of approved investments for each Fund, makes decisions with
respect to and places orders for each Fund's purchases and sales of portfolio
securities and maintains records relating to such purchases and sales. The
Adviser is authorized to allocate purchase and sale orders for portfolio
securities to certain financial institutions, including, in the case of agency
transactions, financial institutions which are affiliated with the Adviser or
which have sold shares in such Funds, if the Adviser believes that the quality
of the transaction and the commission are comparable to what they would be with
other qualified brokerage firms. From time to time, to the extent consistent
with its investment objective, policies and restrictions, each Fund may invest
in securities of companies with which NationsBank has a lending relationship.
For the services provided and expenses assumed pursuant to 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
each Fund.
From time to time, NBAI (and/or TradeStreet) may waive or reimburse (either
voluntarily or pursuant to applicable state limitations) advisory fees and/or
expenses payable by a Fund.
For the 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 each
Fund.
Jeffrey C. Moser, CFA, is a Senior Product Manager, Equity Management for
TradeStreet and Senior Portfolio Manager for Nations Managed Value Index Fund
and Nations Managed SmallCap Value Index Fund. Mr. Moser has been with
TradeStreet since 1996 and Portfolio Manager for Nations Managed Value Index
Fund and Nations Managed SmallCap Value Index Fund since the inception of the
Funds. He is also the Portfolio Manager for the Nations Disciplined Equity Fund.
Prior to assuming his position with TradeStreet, he was Senior Vice President
and Senior Portfolio Manager for the Investment Management Group at NationsBank.
Mr. Moser has worked for the Investment Management Group at NationsBank since
1983 where his responsibilities included institutional portfolio management and
equity analysis. Mr. Moser graduated Phi Beta Kappa with a B.S. in Mathematics
from Wake Forest University. He holds the Chartered Financial Analyst
designation and is a member of the Association for Investment Management and
Research as well as the North Carolina Society of Financial Analysts, Inc.
Morrison & Foerster LLP, counsel to Nations Funds and special counsel to
NationsBank, has advised Nations Funds 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
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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 Funds pursuant to an Administration Agreement. Pursuant to the terms of
the Administration Agreement, Stephens provides various administrative and
corporate secretarial services to the Funds, including providing general
oversight of other service providers, office space, utilities and various legal
and administrative services in connection with the satisfaction of various
regulatory requirements applicable to the Funds.
First Data Investor Services Group, Inc. ("First Data"), formerly The
Shareholder Services Group, Inc., a wholly owned subsidiary of First Data
Corporation, with principal offices at One Exchange Place, Boston, Massachusetts
02109, serves as the co-administrator of Nations Funds pursuant to a
Co-Administration Agreement. Under the Co-Administration Agreement, First Data
provides various administrative and accounting services to the Funds including
performing the calculations necessary to determine the net asset value per share
and dividends of each class of shares of the Funds, preparing tax returns and
financial statements and maintaining the portfolio records and certain of the
general accounting records for the Funds.
For the services rendered pursuant to the Administration and Co-Administration
Agreements, Stephens and First Data are entitled to receive a combined fee at an
annual rate of up to 0.10% of each Fund's average daily net assets.
NationsBank serves as sub-administrator for Nations Funds pursuant to a
Sub-Administration Agreement. Pursuant to the terms of the Sub-Administration
Agreement, NationsBank assists Stephens in supervising, coordinating and
monitoring various aspects of the Funds' administrative operations. For
providing such services NationsBank shall be entitled to receive a monthly fee
from Stephens based on an annual rate of 0.01% of the Funds' average daily net
assets.
Shares of the Funds are sold on a continuous basis by Stephens, as the Funds'
sponsor and distributor. Stephens is a registered broker/dealer with principal
offices at 111 Center Street, Little Rock, Arkansas 72201. Nations Funds has
entered into a distribution agreement with Stephens which provides that Stephens
has the exclusive right to distribute shares of the Funds. Stephens may pay
service fees or commissions to selling agents that assist customers in
purchasing Investor C Shares of the Funds. See "Shareholder Servicing And
Distribution Plan."
NationsBank of Texas, N.A. ("NationsBank of Texas" and, collectively with The
Bank of New York ("BONY"), called "Custodians") serves as Custodian for the
assets of all Nations Funds, except the international portfolios NationsBank of
Texas, is located at 1401 Elm Street, Dallas, Texas 75202, and is a wholly-owned
subsidiary of NationsBank Corporation. In return for providing custodial
services, NationsBank of Texas is entitled to receive, in addition to
out-of-pocket expenses, fees at the rate of (i) $300,000 per annum, to be paid
monthly in payments of $25,000 for custodian services for up to and including 50
Funds; and (ii) $6,000 per annum, to be paid in equal monthly payments, for
custodian services for each additional Fund above 50 Funds.
BONY has entered into an agreement with each of the Funds and NationsBank of
Texas, N.A., whereby BONY will serve as sub-custodian ("Sub-Custodian") for the
assets of all Nations Funds except the international portfolios, for which BONY
is already serving as Custodian.
BONY is located at 90 Washington Street, New York, New York 10286. In return for
providing sub-custodial services, BONY shall receive, in addition to out of
pocket expenses, fees at the rate of (i) 3/4 of one basis point per annum on the
aggregate net assets of all Nations' Non-Money Market Funds up to $10 billion;
and (ii) 1/2 of one basis point on the excess.
First Data serves as transfer agent (the "Transfer Agent") for the Funds'
Investor C Shares.
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The Transfer Agent is located at One Exchange Place, Boston, Massachusetts
02109.
Price Waterhouse LLP serves as independent accountant to Nations Funds. Its
address is 160 Federal Street, Boston, Massachusetts 02110.
EXPENSES: The accrued expenses of each Fund, as well as certain expenses
attributable to Investor C Shares, are deducted from accrued income before
dividends are declared. The Funds' 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 Funds; 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 Funds are members of the Nations Funds Family, which consists of Nations
Fund Trust, Nations Fund, Inc., Nations Fund Portfolios, Inc. and Nations
Institutional Reserves. The Nations Funds Family currently consists of more than
50 distinct investment portfolios and total assets in excess of $18 billion.
NATIONS FUND TRUST: Nations Fund Trust was organized as a Massachusetts business
trust on May 6, 1985. Nations Fund Trust's fiscal year end is March 31; prior to
1996, Nations Fund Trust's fiscal year end was November 30. The Funds currently
offer 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 Value Index Fund and Nations Managed SmallCap Value
Index Fund. To obtain additional information regarding the Funds' other classes
of shares which may be available to you, contact your Agent (as defined below)
or Nations Funds 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, as amended, (the "1940 Act") requires voting by
fund.
As of July 31, 1997, 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
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<PAGE>
possessed or shared power to dispose or vote as of a certain date, see Nations
Fund Trust's SAI.
Nations Fund Trust does not presently intend to hold annual meetings except as
required by the 1940 Act. Shareholders will have the right to remove Trustees.
Nations Fund Trust's Code of Regulations provides that special meetings of
shareholders shall be called at the written request of the shareholders entitled
to vote at least 10% of the outstanding shares of Nations Fund Trust entitled to
be voted at such meeting.
About Your Investment
How To Buy Shares
The Funds have established various procedures for purchasing Investor C Shares
in order to accommodate different investors. Purchase orders for Investor C
Shares may be placed through banks, broker/dealers or other financial
institutions (including certain affiliates of NationsBank) that have entered
into a shareholder servicing agreement ("Servicing Agreement") with Nations
Funds ("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 Funds 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 Funds may agree to voluntarily reduce the maximum
fees payable for sales support or shareholder services.
Nations Funds reserves the right to reject any purchase order. The issuance of
Investor C Shares is recorded on the books of the Funds, and share certificates
are not issued unless expressly requested in writing. Certificates are not
issued for fractional shares.
EFFECTIVE TIME OF PURCHASES: Purchase orders for Investor C Shares of the Funds
which are received by Stephens or by the Transfer Agent or sub-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
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<PAGE>
payment of the purchase price are received by the Funds' Custodian. Such payment
must be received no later than 4:00 p.m., Eastern time, by the third Business
Day following receipt of the order. If funds are not received by such date, the
order will not be accepted and notice thereof will be given to the Agent placing
the order. Payment for orders which are not received or accepted will be
returned after prompt inquiry to the sending Agent.
The Agents are responsible for transmitting orders for purchases of Investor C
Shares by their Customers, and delivering required funds, on a timely basis.
Stephens is responsible for transmitting orders it receives to Nations Funds.
SYSTEMATIC INVESTMENT PLAN: Under the Funds' Systematic Investment Plan ("SIP")
a shareholder may automatically purchase Investor C Shares. On a bi-monthly,
monthly or quarterly basis, a shareholder may direct cash to be transferred
automatically from his/her checking or savings account at any bank to his/her
Fund account. Transfers will occur on or about the 15th and/or 30th day of the
applicable month. The systematic investment amount may be in any amount from $25
to $100,000. For more information concerning the SIP, contact your Agent.
TELEPHONE TRANSACTIONS: Investors may effect purchases, redemptions (up to
$50,000) and exchanges by telephone. See "How To Redeem Shares" and "How To
Exchange Shares" below. If a shareholder desires to elect the telephone
transaction feature after opening an account, a signature guarantee will be
required. Shareholders should be aware that by using the telephone transaction
feature, such shareholders may be giving up a measure of security that they may
have if they were to authorize written requests only. A shareholder may bear the
risk of any resulting losses from a telephone transaction. Nations Funds will
employ reasonable procedures to confirm that instructions communicated by
telephone are genuine, and if Nations Funds and its service providers fail to
employ such measures, they may be liable for any losses due to unauthorized or
fraudulent instructions. Nations Funds 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 Funds 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 Contingent
Deferred Sales Charge ("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 Funds. 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 Funds 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
bal-
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<PAGE>
ances also may be redeemed at the direction of an Agent pursuant to arrangements
between the Agent and its Customers. Nations Funds also may redeem shares of the
Funds involuntarily or make payment for redemption in readily marketable
securities or other property under certain circumstances in accordance with the
1940 Act.
Prior to effecting a redemption of Investor C Shares represented by
certificates, the Transfer Agent must have received such certificates at its
principal office. All such certificates must be endorsed by the redeeming
shareholder or accompanied by a signed stock power, in each instance with the
signature guaranteed by a commercial bank or a member of a major stock exchange,
unless other arrangements satisfactory to Nations Funds have previously been
made. Nations Funds may require any additional information reasonably necessary
to evidence that a redemption has been duly authorized.
CONTINGENT DEFERRED SALES CHARGE: Subject to certain waivers, Investor C Shares
of the Funds that are redeemed within one year of the date of purchase may be
subject to a CDSC equal to 0.50% of the lesser of the net asset value or the
purchase price of the shares being redeemed. 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 Funds 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
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<PAGE>
a new or existing shareholder of the Funds if the value of the Investor C Shares
in his/her accounts within the Nations Funds Family (valued at the net asset
value at the time of the establishment of the AWP) equals $10,000 or more.
Investor C Shares redeemed under the AWP will not be subject to a CDSC, provided
that the shares so redeemed do not exceed, on an annual basis, 12% of the net
asset value of the Investor C Shares in the account. Otherwise, any applicable
CDSC will be imposed on shares redeemed under the AWP. Shareholders who elect to
establish an AWP may receive a monthly, quarterly or annual check or automatic
transfer to a checking or savings account in a stated amount of not less than
$25 on or about the 10th or 25th day of the applicable month of withdrawal.
Investor C Shares will be redeemed (net of any applicable CDSC) as necessary to
meet withdrawal payments. Withdrawals will reduce principal and may eventually
deplete the shareholder's account. If a shareholder desires to establish an AWP
after opening an account, a signature guarantee will be required. An AWP may be
terminated by a shareholder on 30 days' written notice to his/her Agent or by
Nations Funds at any time.
How To Exchange Shares
The exchange feature enables a shareholder of Investor C Shares of a Nations
Funds non-money market fund to acquire shares of the same class that are offered
by another non-money market fund of Nations Funds or Investor D Shares of any
Nations Funds 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 Funds non-money market
fund or Investor D Shares of a Nations Funds 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 Funds 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 Funds, 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 Funds
to another as allowed by the applicable exchange rules within the prospectus.
Exchanges will occur on or about the 15th or 30th day of the applicable month.
The shareholder must have an existing position in both Funds in order to
establish the AEF. This feature may be established by directing a request to the
Transfer Agent by telephone or in writing. For additional information, an
investor should contact his/her Selling Agent.
GENERAL: The Funds and each of the other funds of Nations Funds 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 Funds 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 Funds 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
require-
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<PAGE>
ment 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 Funds reserves the right to
reject any exchange request. Only shares that may legally be sold in the state
of the investor's residence may be acquired in an exchange. Only shares of a
class that is accepting investments generally may be acquired in an exchange. An
investor may telephone an exchange request by calling his/her Agent which is
responsible for transmitting such request to Stephens or to the Transfer Agent.
During periods of significant economic or market change, telephone exchanges may
be difficult to complete. In such event, shares may be exchanged by mailing the
request directly to the Agent through which the original shares were purchased.
An investor should consult his/her Agent or Stephens for further information
regarding exchanges.
Shareholder Servicing And Distribution
Plans
Pursuant to Rule 12b-1 under the 1940 Act, the Trustees have approved a
Distribution Plan with respect to Investor C Shares of the Funds. Pursuant to
the Distribution Plan, the Funds may compensate or reimburse Stephens for any
activities or expenses primarily intended to result in the sale of the Funds'
Investor C Shares. Payments under the Investor C Distribution Plan will be
calculated daily and paid monthly at a rate or rates set from time to time by
the Trustees, provided that the annual rate may not exceed 0.75% of the average
daily net asset value of the Funds' Investor C Shares.
The fees payable under the Distribution Plan are used (i) to compensate Selling
Agents for providing sales support assistance relating to Investor C Shares,
(ii) to pay for promotional activities intended to result in the sale of
Investor C Shares such as the preparation, printing and distribution of
prospectuses to other than current shareholders, and (iii) to compensate Selling
Agents for providing sales support services with respect to their Customers who
are, from time to time, beneficial and record holders of Investor C Shares.
Currently, substantially all fees paid pursuant to the Distribution Plan are
paid to compensate Selling Agents for providing the services described in (i)
and (iii) above, with any remaining amounts being used by Stephens to partially
defray other expenses incurred by Stephens in distributing Investor C Shares.
Fees received by Stephens pursuant to the Distribution Plan will not be used to
pay any interest expenses, carrying charges or other financing costs (except to
the extent permitted by the SEC) and will not be used to pay any general and
administrative expenses of Stephens.
Nations Funds 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 Funds which permits the Funds to compensate Servicing Agents for
services provided to their Customers that own Investor C Shares. Payments under
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<PAGE>
the Servicing Plan are calculated daily and paid monthly at a rate or rates set
from time to time by the Funds, provided that the annual rate may not exceed
0.25% of the average daily net asset value of the Funds' Investor C Shares.
The fees payable under the Servicing Plan are used primarily to compensate or
reimburse Servicing Agents for shareholder services provided, and related
expenses incurred, by such Servicing Agents. The shareholder services provided
by Servicing Agents may include: (i) aggregating and processing purchase and
redemption requests for Investor C Shares from Customers and transmitting net
purchase and redemption orders to Stephens or the Transfer Agent; (ii) providing
Customers with a service that invests the assets of their accounts in Investor C
Shares pursuant to specific or preauthorized instructions; (iii) processing
dividend and distribution payments from the Funds on behalf of Customers; (iv)
providing information periodically to Customers showing their positions in
Investor C Shares; (v) arranging for bank wires; and (vi) providing general
shareholder liaison services.
Nations Funds 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 Funds 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 Funds. The Sales
Support Agreements and Servicing Agreements require Agents to disclose to their
Customers any compensation payable to the Agent by Stephens or Nations Funds and
any other compensation payable by the Customers for various services provided in
connection with their accounts. Customers should read this Prospectus in light
of the terms governing their accounts with their Agents.
Stephens may, from time to time, at its expense or as an expense for which it
may be reimbursed under the Distribution Plan, pay a bonus or other
consideration or incentive to Agents who sell a minimum dollar amount of shares
of the Funds during a specified period of time. Stephens also may, from time to
time, pay additional consideration to Agents not to exceed 0.75% of the offering
price per share on all sales of Investor C Shares as an expense of Stephens or
for which Stephens may be reimbursed under the Distribution Plan or upon receipt
of a CDSC. Any such additional consideration or incentive program may be
terminated at any time by Stephens.
In addition, Stephens has established a non-cash compensation program, pursuant
to which broker/dealers or financial institutions that sell shares of the Funds
may earn additional compensation in the form of trips to sales seminars or
vacation destinations, tickets to sporting events, theater or other
entertainment, opportunities to participate in golf or other outings and gift
certificates for meals or merchandise. This non-cash compensation program may be
amended or terminated at any time by Stephens.
How The Funds Value Their Shares
The Funds calculate the net asset value of a share of each class by dividing the
total value of its assets, less liabilities, by the number of shares in the
class outstanding. Shares are valued as of the close of regular trading on the
Exchange (currently 4:00 p.m., Eastern time) on each Business Day. Currently,
the days on which the Exchange is closed (other than weekends) are: New Year's
Day, Presidents' Day, Good Friday, Memorial Day (observed), Independence Day,
Labor Day, Thanksgiving Day and Christmas Day.
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<PAGE>
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 Funds seek to manage taxable
distributions, the Funds 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 Funds. The Funds' net realized capital gains (including net
short-term capital gains) are distributed at least annually.
Investor C Shares of the Funds are eligible to receive dividends when declared,
provided however, that the purchase order for such shares is received at least
one day prior to the dividend declaration and such shares continue to be
eligible for dividends through and including the day before the redemption order
is executed.
The net asset value of Investor C Shares will be reduced by the amount of any
dividend or distribution. Certain Agents may provide for the reinvestment of
dividends in the form of additional Investor C Shares of the same class in the
same Fund. Dividends and distributions are paid in cash within five Business
Days of the end of the quarter to which the dividend relates. Dividends and
distributions payable to a shareholder are paid in cash within five Business
Days after a shareholder's complete redemption of his/her Investor C Shares.
TAX INFORMATION: Each Fund intends to qualify as a "regulated investment
company" under the Code. Such qualification relieves a Fund of liability for
Federal income tax on amounts distributed in accordance with the Code.
Each Fund intends to distribute substantially all of its investment company
taxable income and net tax-exempt income each taxable year. Distributions by a
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 a Fund may be entitled to the dividends-received
deduction on all or a portion of such Fund's dividends.
Substantially all of the Funds' net realized long-term capital gains will be
distributed at least annually. The Funds will generally have no tax liability
with respect to such gains, and the distributions will be taxable to
shareholders who are not exempt from Federal income taxes as long-term capital
gains, regardless of how long the shareholders have held such Funds' shares and
whether such gains are received in cash or reinvested in additional shares.
Each year, shareholders will be notified as to the amount and Federal tax status
of all dividends and capital gains paid during the prior year. Such dividends
and capital gains may be subject to state and local taxes.
Dividends declared in October, November, or December of any year payable to
shareholders of record on a specified date in such months will be deemed to have
been received by shareholders and paid by a Fund on December 31 of such year in
the event such dividends are actually paid during January of the following year.
Federal law requires Nations Funds 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
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<PAGE>
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 Funds that the Taxpayer
Identification Number listed on a shareholder account is incorrect according to
its records, or that the shareholder is subject to backup withholding. Amounts
withheld are applied to the shareholder's Federal tax liability, and a refund
may be obtained from the Internal Revenue Service if withholding results in
overpayment of taxes. Federal law also requires the Funds to withhold 30% or the
applicable tax treaty rate from dividends paid to certain nonresident alien,
non-U.S. partnership and non-U.S. corporation shareholder accounts.
The foregoing discussion is based on tax laws and regulations which were in
effect as of the date of this Prospectus and summarizes only some of the
important Federal tax considerations generally affecting the Funds and their
shareholders. It is not intended as a substitute for careful tax planning;
investors should consult their tax advisors with respect to their specific tax
situations as well as with respect to state and local taxes. Further tax
information is contained in the SAI.
Appendix A -- Portfolio Securities
The following are summary descriptions of certain types of instruments in which
a Fund may invest. The "How Objectives Are Pursued" section of the Prospectus
identifies each Fund's permissible investments, and the SAI contains more
information concerning such investments.
BANK INSTRUMENTS: Bank instruments consist mainly of certificates of deposit,
time deposits and bankers' acceptances. The Funds will limit their investments
in bank obligations so they do not exceed 25% of each Fund's total assets at the
time of purchase.
BORROWINGS: When a Fund borrows money, the net asset value of a share may be
subject to greater fluctuation until the borrowing is paid off. The Funds may
borrow money from banks for temporary purposes in amounts of up to one-third of
their respective total assets, provided that borrowings in excess of 5% of the
value of the Fund's total assets must be repaid prior to the purchase of
portfolio securities. Under the requirements of the 1940 Act, the Funds are
required to maintain an asset coverage (including the proceeds of the
borrowings) of at least 300% of all borrowings.
COMMERCIAL INSTRUMENTS: Commercial instruments consist of short-term U.S.
dollar-denominated obligations issued by domestic corporations or foreign
corporations and foreign commercial banks. Investments by a Fund in commercial
paper will consist of issues rated in a manner consistent with such Fund's
investment policies and objective. In addition, a Fund may acquire unrated
commercial paper and corporate bonds that are determined by the Adviser at the
time of purchase to be of comparable quality to rated instruments that may be
acquired by a Fund. Commercial instruments include variable-rate master demand
notes, which are unsecured instruments that permit the indebtedness 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 Funds may invest in
debt securities convertible into or exchangeable for equity securities,
preferred stocks or warrants. Preferred stocks are securities that represent an
ownership interest in a corporation providing the owner with claims on a
company's earnings and assets before common stock owners, but after bond or
other debt security owners. Warrants are options to buy a stated number of
shares of common stock at a specified price any time during the life of the
warrants.
FUTURES, OPTIONS AND OTHER DERIVATIVE INSTRUMENTS: The Funds may attempt to
reduce the overall level of investment risk of
par-
21
<PAGE>
ticular securities and attempt to protect a Fund against adverse market
movements by investing in futures, options and other derivative instruments.
These include the purchase and writing of options on securities (including index
options), and 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 a Fund to
additional investment risks and transaction costs. If the Adviser incorrectly
analyzes market conditions or does not employ the appropriate strategy with
respect to these instruments, a Fund could be left in a less favorable position.
Additional risks inherent in the use of futures, options, forward contracts and
swaps include: imperfect correlation between the price of futures, options and
forward contracts and movements in the prices of the securities or currencies
being hedged; the possible absence of a liquid secondary market for any
particular instrument at any time; and the possible need to defer closing out
certain hedged positions to avoid adverse tax consequences. Further information
on the use of futures, options and other derivative instruments, and the
associated risks, is contained in the SAI.
ILLIQUID SECURITIES: Certain securities may be sold only pursuant to certain
legal restrictions, and may be difficult to sell. The Funds will not hold more
than 15% of the value of their respective net assets in securities that are
illiquid or such lower percentage as may be required by the states in which the
appropriate Fund sells its shares. Repurchase agreements, time deposits and
guaranteed investment contracts that do not provide for payment to a Fund within
seven days after notice, and illiquid restricted securities are subject to the
limitation on illiquid securities.
If otherwise consistent with its investment objective and policies, certain
Funds may purchase securities that are not registered under the Securities Act
of 1933, as amended (the "1933 Act") but which can be sold to "qualified
institutional buyers" in accordance with Rule 144A under the 1933 Act, or which
were issued under Section 4(2) of the 1933 Act. Any such security will not be
considered illiquid so long as it is determined by a Fund's Board of Trustees or
the Adviser, acting under guidelines approved and monitored by such Fund's
Board, after considering trading activity, availability of reliable price
information and other relevant information that an adequate trading market
exists for that security. To the extent that, for a period of time, qualified
institutional or other buyers cease purchasing such restricted securities
pursuant to Rule 144A or otherwise, the level of illiquidity of a Fund holding
such securities may increase during such period.
MONEY MARKET INSTRUMENTS: The term "money market instruments" refers to
instruments with remaining maturities of one year or less. Money market
instruments may include, among other instruments, certain U.S. Treasury
obligations, U.S. Government obligations, bank instruments, commercial
instruments, repurchase agreements and municipal securities. Such instruments
are described in this Appendix A.
OTHER INVESTMENT COMPANIES: Each Fund may invest in securities issued by other
investment companies to the extent that such investments are consistent with the
Fund's investment objective and policies and permissible under the 1940 Act. As
a shareholder of another investment company, a Fund would bear, along with other
shareholders, its pro rata portion of the other investment company's expenses,
including advisory fees. These expenses would be in addition to the advisory and
other expenses that a Fund bears directly in connection with its own operations.
REPURCHASE AGREEMENTS: A repurchase agreement involves the purchase of a
security by a Fund and a simultaneous agreement (generally with a bank or
broker/dealer) to repurchase that security from the Fund at a specified price
and date or upon demand. This technique offers a method of earning income on
idle cash. A risk associated with repurchase agreements is the failure of the
seller to repurchase the securities as agreed, which may cause a Fund to suffer
a
22
<PAGE>
loss if the market value of such securities declines before they can be
liquidated on the open market. Repurchase agreements with a duration of more
than seven days are considered illiquid securities and are subject to the limit
stated above. A Fund may enter into repurchase agreements jointly with other
investment portfolios of Nations Funds.
SECURITIES LENDING: To increase return on portfolio securities, the Funds may
lend their portfolio securities to broker/dealers and other institutional
investors pursuant to agreements requiring that the loans be continuously
secured by collateral equal at all times in value to at least the market value
of the securities loaned. There is a risk of delay in receiving collateral or in
recovering the securities loaned or even a loss of rights in the collateral
should the borrower of the securities fail financially. However, loans are made
only to borrowers deemed by the Adviser to be credit worthy and when, in its
judgment, the income to be earned from the loan justifies the attendant risks.
The aggregate of all outstanding loans of a Fund may not exceed 30% of the value
of its total assets.
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.
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NATIONS FUND TRUST
STATEMENT OF ADDITIONAL INFORMATION
Nations Managed SmallCap Value Index Fund
Nations Managed Value Index Fund
INVESTOR SHARES AND PRIMARY SHAREs
July 31, 1997
This Statement of Additional Information ("SAI") provides supplementary
information pertaining to the classes of shares representing interests in the
above-listed investment portfolios 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 Funds related to the class or series of shares in which one
is interested, dated July 31, 1997 (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 Funds, c/o Stephens Inc., One NationsBank Plaza, 33rd Floor,
Charlotte, North Carolina 28255, or by calling Nations Funds 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.................................................................12
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....................................................................................16
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>
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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 Funds. TradeStreet
Investment Associates, Inc. ("TradeStreet") is the investment sub-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 SmallCap Value Index Fund ("Managed
SmallCap Value Index Fund") and Nations Managed Value Index Fund ("Managed Value
Index Fund") (collectively, the "Funds"). The Primary A Shares and Primary B
Shares of the Funds are sometimes collectively referred to as "Primary Shares."
The Investor A Shares and Investor C Shares of the Funds 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 Funds.
Transactions on U.S. stock exchanges involve the payment of negotiated
brokerage commissions. On exchanges on which commissions are negotiated, the
cost of transactions may vary among different brokers. Transactions on foreign
stock exchanges involve payment of brokerage commissions which are generally
fixed.
Transactions in both foreign and domestic over-the-counter markets are
generally principal transactions with dealers, and the costs of such
transactions involve dealer spreads rather than brokerage commissions. With
respect to over-the-counter transactions, the Trust, where possible, will deal
directly with dealers who make a market in the securities involved except in
those circumstances in which better prices and execution are available
elsewhere.
Securities purchased and sold by the Funds are generally traded in the
over-the-counter market on a net basis (i.e., without commission) through
dealers, or otherwise involve transactions directly with the issuer of an
instrument. The cost of securities purchased from underwriters includes an
underwriting commission or concession, and the prices at which securities are
purchased from and sold to dealers include a dealer's mark-up or mark-down.
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The Funds may participate, if and when practicable, in bidding for the
purchase of portfolio securities directly from an issuer in order to take
advantage of the lower purchase price available to members of a bidding group. A
Fund will engage in this practice, however, only when the Adviser, in its sole
discretion, believes such practice to be otherwise in the Fund's interests.
In executing portfolio transactions and selecting brokers or dealers, the
Adviser will seek to obtain the best overall terms available for each Fund. In
assessing the best overall terms available for any transaction, the Adviser
shall consider factors deemed relevant, including the breadth of the market in
the security, the price of the security, the financial condition and execution
capability of the broker or dealer, and the reasonableness of the commission, if
any, both for the specific transaction and on a continuing basis. The Adviser
may cause a Fund to pay a broker/dealer which furnishes brokerage and research
services a higher commission than that which might be charged by another
broker/dealer for effecting the same transaction, provided that the Adviser
determines in good faith that such commission is reasonable in relation to the
value of the brokerage and research services provided by such broker/dealer,
viewed in terms of either the particular transaction or the overall
responsibilities of the Adviser. Such brokerage and research services might
consist of reports and statistics relating to specific companies or industries,
general summaries of groups of stocks or bonds and their comparative earnings
and yields, or broad overviews of the stock, bond, and government securities
markets and the economy.
Supplementary research information so received is in addition to, and not
in lieu of, services required to be performed by the Adviser and does not reduce
the advisory fees payable by the Funds. The Board of Trustees will periodically
review the commissions paid by the Funds to consider whether the commissions
paid over representative periods of time appear to be reasonable in relation to
the benefits inuring to the Funds. It is possible that certain of the
supplementary research or other services received will primarily benefit one or
more other investment companies or other accounts for which investment
discretion is exercised. Conversely, a Fund may be the primary beneficiary of
the research or services received as a result of portfolio transactions effected
for such other account or investment company.
Under Section 28(e) of the Securities Exchange Act of 1934, an adviser
shall not be "deemed to have acted unlawfully or to have breached its fiduciary
duty" solely because under certain circumstances it has caused the account to
pay a higher commission than the lowest available. To obtain the benefit of
Section 28(e), an adviser must make a good faith determination that the
commissions paid are "reasonable in relation to the value of the brokerage and
research services provided . . . viewed in terms of either that particular
transaction or its overall responsibilities with respect to the accounts as to
which it exercises investment discretion and that the services provided by a
broker provide an adviser with lawful and appropriate assistance in the
performance of its investment decision-making responsibilities." Accordingly,
the price to a Fund in any transaction may be less favorable than that available
from another broker/dealer if the difference is reasonably justified by other
aspects of the portfolio execution services offered.
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Broker/dealers utilized by the Adviser may furnish statistical, research
and other information or services which are deemed by the Adviser to be
beneficial to the Funds' investment programs. Research services received from
brokers supplement the Adviser's own research and may include the following
types of information: statistical and background information on industry groups
and individual companies; forecasts and interpretations with respect to U.S. and
foreign economies, securities, markets, specific industry groups and individual
companies; information on political developments; portfolio management
strategies; performance information on securities and information concerning
prices of securities; and information supplied by 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 Funds. Similarly, any research services received by the Adviser
through the placement of portfolio transactions of other clients may be of value
to the Adviser in fulfilling its obligations to the Funds. It is the opinion of
the Adviser that this material is beneficial in supplementing 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 Funds.
The Trust will not execute portfolio transactions through, or purchase or
sell portfolio securities from or to the distributor, the Adviser, the
administrator, or the co-administrator, or their affiliates acting as principal
(including repurchase and reverse repurchase agreements), except to the extent
permitted by the Securities and Exchange Commission (the "SEC"). In addition,
the Trust will not give preference to correspondents of NationsBank, N.A.
("NationsBank") or its affiliates with respect to such transactions or
securities. (However, the Adviser is authorized to allocate purchase and sale
orders for portfolio securities to certain
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financial institutions, including, in the case of agency transactions, financial
institutions which are affiliated with NationsBank or its affiliates, and to
take into account the sale of Fund shares if the Adviser believes that the
quality of the transaction and the commission are comparable to what they would
be with other qualified brokerage firms.) In addition, a Fund will not purchase
securities during the existence of any underwriting or selling group relating
thereto of which the distributor, the Adviser, administrator, or the
co-administrator, or any of their affiliates, is a member, except to the extent
permitted by the SEC. Under certain circumstances, the Funds may 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.
Each of the Funds may purchase securities from underwriting syndicates of which
NationsBank or any of its affiliates is a member under certain conditions, in
accordance with the provisions of a rule adopted under the 1940 Act and any
restrictions imposed by the Board of Governors of the Federal Reserve System.
NationsBank has agreed to maintain its policy and practice of conducting
its trust department independently of its commercial department. In making
investment recommendations for the Funds, trust department personnel will not
inquire or take into consideration whether the issuer of securities proposed for
purchase or sale for those Funds' accounts are customers of the commercial
department. In dealing with commercial customers, the commercial department will
not inquire or take into consideration whether securities of those customers are
held by the Trust.
Investment decisions for each Fund are made independently from those for
the Trust's other investment portfolios, other investment companies, and
accounts advised or managed by the Adviser. Such other investment portfolios,
investment companies, and accounts may also invest in the same securities as the
Funds. When a purchase or sale of the same security is made at substantially the
same time on behalf of one or more of the Funds and another investment
portfolio, investment company, or account, the transaction will be averaged as
to price and available investments allocated as to amount, in a manner which the
Adviser believes to be equitable to each Fund and such other investment
portfolio, investment company or account. In some instances, this investment
procedure may adversely affect the price paid or received by a Fund or the size
of the position obtained or sold by the Fund. To the extent permitted by law,
the Adviser may aggregate the securities to be sold or purchased for the Funds
with those to be sold or purchased for other investment portfolios, investment
companies, or accounts in executing transactions.
The portfolio turnover rates described in the Prospectuses are calculated
by dividing the lesser of purchases or sales of portfolio securities for the
year by the monthly average value of the portfolio securities. The calculation
excludes all securities whose maturities at the time of acquisition were one
year or less. Fund turnover may vary greatly from year to year as well as within
a particular year, and may also be affected by the cash requirements for
redemptions of shares and by requirements which enable a Fund to receive certain
favorable tax treatment. Fund turnover will not be a limiting factor in making
portfolio decisions.
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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 a Fund in commercial paper will consist of issues rated in
a manner consistent with such Fund's investment policies and objective. In
addition, the Funds may acquire unrated commercial paper and corporate bonds
that are determined by the Adviser at the time of purchase to be of comparable
quality to rated instruments that may be acquired by these Funds as previously
described.
Variable-rate master demand notes are unsecured instruments that permit
the indebtedness thereunder to vary and provide for periodic adjustments in the
interest rate. While some of these notes are not rated by credit rating
agencies, issuers of variable-rate master demand notes must satisfy the Adviser
that criteria similar to the following are met: (a) if rated by at least two
Nationally Recognized Statistical Rating Organizations ("NRSROs"), the
instruments are rated in the highest rating category for short-term obligations
given by such organizations, or if only rated by one such organization, are
rated in the highest rating category for short-term debt obligations given by
such organization; or (b) if not rated are (i) comparable in priority and
security to a class of short-term instruments of the same issuer that has such
rating(s), or (ii) of comparable quality to such instruments as determined by
the Board of Trustees on the advice of the Adviser. Variable-rate instruments
acquired by a Fund will be rated at a level consistent with such Fund's
investment objective and policies of high quality as determined by a major
rating agency or, if not rated, will be of comparable quality as determined by
the Adviser. 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 a Fund, a Fund may, from time to time as specified in
the instrument, demand payment of the principal or may resell the instrument to
a third party. The absence of an active secondary market, however, could make it
difficult for a Fund to dispose of an instrument if the issuer defaulted on its
payment obligation or during periods when a Fund is not entitled to exercise its
demand rights, and a Fund could, for these or other reasons, suffer a loss. 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. A Fund may invest in variable-
and floating-rate instruments only when the Adviser deems the investment to
involve minimal credit risk. If such instruments are not rated, the Adviser will
consider the earning power, cash flows, and other liquidity ratios of the
issuers of such instruments and will continuously monitor their financial status
to meet payment on demand. In determining average weighted portfolio maturity,
an
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instrument will be deemed to have a maturity equal to the longer of the
period remaining to the next interest rate adjustment or the demand notice
period specified in the instrument.
Repurchase Agreements
The repurchase price under the repurchase agreements described in the
Prospectuses generally equals the price paid by a Fund plus interest negotiated
on the basis of current short-term rates (which may be more or less than the
rate on the securities underlying the repurchase agreement). Securities subject
to repurchase agreements will be held by the Trust's custodian, or a
sub-custodian, in a segregated account or in the Federal Reserve/Treasury
book-entry system. Repurchase agreements are considered to be loans by the Trust
under the 1940 Act.
Reverse Repurchase Agreements
At the time a Fund enters into a reverse repurchase agreement, it may
establish a segregated account with its custodian bank in which it will maintain
cash, U.S. Government securities or other liquid high grade debt obligations
equal in value to its obligations in respect of reverse repurchase agreements.
Reverse repurchase agreements involve the risk that the market value of the
securities the Funds are obligated to repurchase under the agreement may decline
below the repurchase price. In the event the buyer of securities under a reverse
repurchase agreement files for bankruptcy or becomes insolvent, the Funds' use
of proceeds of the agreement may be restricted pending a determination by the
other party, or its trustee or receiver, whether to enforce the Funds'
obligation to repurchase the securities. Reverse repurchase agreements are
speculative techniques involving leverage, and are subject to asset coverage
requirements if the Funds do not establish and maintain a segregated account (as
described above). In addition, some or all of the proceeds received by a Fund
from the sale of a portfolio instrument may be applied to the purchase of a
repurchase agreement. To the extent the proceeds are used in this fashion and a
common broker/dealer is the counterparty on both the reverse repurchase
agreement and the repurchase agreement, the arrangement might be recharacterized
as a swap transaction. Under the requirements of the 1940 Act, the Funds are
required to maintain an asset coverage (including the proceeds of the
borrowings) of at least 300% of all borrowings. Depending on market conditions,
the Funds' asset coverage and other factors at the time of a reverse repurchase,
the Funds may not establish a segregated account when the Adviser believes it is
not in the best interests of the Funds to do so. In this case, such reverse
repurchase agreements will be considered borrowings subject to the asset
coverage described above.
Lending Securities
When a 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.
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American Depository Receipts
The Funds 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 Funds under "Appendix A -- Foreign
Securities."
Futures, Options and Other Derivative Instruments
The Funds may purchase put and call options which are traded on a national
securities exchange in an amount not exceeding 5% of its net assets. Such
options may relate to particular securities or to various stock or bond indices.
Purchasing options is a specialized investment technique which entails a
substantial risk of a complete loss of the amount paid as premiums to the writer
of the option.
FUTURES CONTRACTS AND RELATED OPTIONS. In addition, the Adviser may
determine that it would be in the interest of a Fund to purchase or sell futures
contracts, or options thereon, as a hedge against changes resulting from market
conditions in the value of the securities held by one of the Funds, or of
securities which one of them intends to purchase. For example, a Fund may enter
into transactions involving a stock or bond index futures contract, which is a
bilateral agreement pursuant to which two parties agree to take or make delivery
of an amount of cash equal to a specified dollar amount times the difference
between the index value (which assigns relative values to the common stocks or
bonds included in the index) at the close of the last trading day of the
contract and the price at which the futures contract is originally struck. No
physical delivery of the underlying stocks or bonds in the index is made. During
the coming fiscal year, each of these Funds intends to limit its transactions in
futures contracts and options thereon so that: (i) no more than 5% of a Fund's
total assets would be committed to initial margin deposits or premiums on such
contracts and (ii) immediately after entering into such contracts, no more than
30% of a Fund's total assets would be represented by such contracts.
OPTIONS TRADING. Call options written by a Fund give the holder the right
to buy the underlying securities from the Fund at a fixed exercise price up to a
stated expiration date or, in the case of certain options, on such date. Put
options give the holder the right to sell the underlying securities to the Fund
during the term of the option at a fixed exercise price up to a stated
expiration date or, in the case of certain options, on such date. Call options
are "covered" by a Fund, for example, when it owns the underlying securities and
put options are "covered" by a Fund, for example, when it has established a
segregated account of cash, cash equivalents or securities which can be
liquidated promptly to satisfy any obligation of a Fund to purchase the
underlying securities. A Fund also may write combinations of puts and calls on
the same underlying security.
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A Fund will receive a premium from writing a put or call option, which
increases the gross income of a Fund in the event the option expires unexercised
or is closed out at a profit. The amount of the premium will reflect, among
other things, the relationship of the exercise price to the market price and
volatility of the underlying security, the remaining term of the option, supply
and demand and interest rates. By writing a call option, a Fund limits its
opportunity to profit from any increase in the market value of the underlying
security above the exercise price of the option. By writing a put option, a Fund
assumes the risk that it may be required to purchase the underlying security for
an exercise price higher than its then current market value, resulting in a
potential capital loss unless the security subsequently appreciates in value.
A Fund may terminate an option that it has written prior to its expiration
by entering into a closing purchase transaction in which the Fund purchases an
option having the same terms as the option written. It is possible, however,
that illiquidity in the options markets may make it difficult from time to time
for a Fund to close out its written option positions.
A Fund also may purchase put or call options in anticipation of changes in
interest rates which may adversely affect the value of its portfolio or the
prices of securities that the Fund wants to purchase at a later date. The
premium paid for a put or call option plus any transaction costs will reduce the
benefit, if any, realized by a Fund upon exercise of the option and, unless the
price of the underlying security changes sufficiently, the option may expire
without value.
A Fund may write and purchase options on securities both for hedging
purposes and in an effort to increase current income. Options on securities that
are written or purchased by a Fund will be traded on U.S. and foreign exchanges
and over-the-counter.
The staff of the SEC has taken the position that purchased
over-the-counter options and assets used to cover written over-the-counter
options are illiquid and, therefore, together with other illiquid securities,
cannot exceed applicable limitations on the amount of a Fund's assets that may
be invested in illiquid securities. The Adviser intends to limit a Fund's
writing of over-the-counter options in accordance with the following procedure.
Each Fund intends to write over-the-counter options only with primary U.S.
Government securities dealers recognized by the Federal Reserve Bank of New
York. Also, the contracts which a Fund has in place with such primary dealers
will provide that the Fund has the absolute right to repurchase an option it
writes at any time at a price which represents the fair market value, as
determined in good faith through negotiation between the parties, but which in
no event will exceed a price determined pursuant to a formula in the contract.
Although the specific formula may vary between contracts with different primary
dealers, the formula will generally be based on a multiple of the premium
received by a Fund for writing the option, plus the amount, if any, of the
option's intrinsic value (i.e., the amount that the option is in-the-money). The
formula also may include a factor to account for the difference between the
price of the security and the strike price of the option if the option is
written out-of-the-money. A Fund will treat all or a part of the formula price
as illiquid for purposes of the applicable SEC test regarding illiquid
securities.
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As stated in the related Prospectuses, each Fund may purchase put and call
options listed on a national securities exchange. This is a highly specialized
activity which entails greater than ordinary investment risks. Regardless of how
much the market price of the underlying security 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.
A Fund's obligation to sell a security subject to a covered call option
written by it, or to purchase a security subject to a secured put option written
by it, may be terminated prior to the expiration date of the option by the Fund
executing a closing purchase transaction, which is effected by purchasing on an
exchange an option of the same series (i.e., same underlying security, exercise
price, and expiration date) as the option previously written. Such a purchase
does not result in the ownership of an option. A closing purchase transaction
will ordinarily be effected to realize a profit on an outstanding option, to
prevent an underlying security from being called, to permit the sale of the
underlying security, or to permit the writing of a new option containing
different terms on such underlying security. The cost of such a liquidation
purchase plus transaction costs may be greater than the premium received upon
the original option, in which event the Fund will have incurred a loss in the
transaction. An option position may be closed out only on an exchange which
provides a secondary market for an option of the same series. There is no
assurance that a liquid secondary market on an exchange will exist for any
particular option. A covered call option writer, unable to effect a closing
purchase transaction, will not be able to sell the underlying security until the
option expires or the underlying security is delivered upon exercise with the
result that the writer in such circumstances will be subject to the risk of
market decline in the underlying security during such period. A Fund will write
an option on a particular security only if the Adviser believes that a liquid
secondary market will exist on an exchange for options of the same series which
will permit the Fund to make a closing purchase transaction in order to close
out its position.
When a Fund writes a covered call option, an amount equal to the net
premium (the premium less the commission) received by the Fund is included in
the liability section of the Fund's statement of assets and liabilities as a
deferred credit. The amount of the deferred credit will be subsequently
marked-to-market to reflect the current value of the option written. The current
value of the traded option is the last sale price or, in the absence of a sale,
the average of the closing bid and asked prices. If an option expires on the
stipulated expiration date or if the Fund enters into a closing purchase
transaction, it will realize a gain (or loss if the cost of a closing purchase
transaction exceeds the net premium received when the option is sold), and the
deferred
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credit related to such option will be eliminated. Any gain on a covered
call option may be offset by a decline in the market price of the underlying
security during the option period. If a covered call option is exercised, the
Fund may deliver the underlying security held by it or purchase the underlying
security in the open market. In either event, the proceeds of the sale will be
increased by the net premium originally received, and the Fund will realize a
gain or loss. If a secured put option is exercised, the amount paid by the Fund
involved for the underlying security will be partially offset by the amount of
the premium previously paid to the Fund. Premiums from expired options written
by a Fund and net gains from closing purchase transactions are treated as
short-term capital gains for Federal income tax purposes, and losses on closing
purchase transactions are short-term capital losses.
FUTURES CONTRACTS. A futures contract is a bilateral agreement providing
for the purchase and sale of a specified type and amount of a financial
instrument, or, in the case of futures contracts on indices of securities, for
the making and acceptance of a cash settlement, at a stated time in the future
for a fixed price. By its terms, a futures contract provides for a specified
settlement date on which, in the case of the majority of interest rate futures
contracts, the fixed income securities underlying a contract are delivered by
the seller and paid for by the purchaser, or on which, in the case of a stock
index futures contract, an amount equal to a dollar amount multiplied by the
difference between the value of a stock index at the close of the last trading
day of the contract and the value of such index at the time the futures contract
was originally entered into is settled between the purchaser and seller in cash.
The purchase or sale of a futures contract differs from the purchase or sale of
a security in that no purchase price is paid or received at the time the
contract is entered into. Instead, an amount of cash or cash equivalents, the
value of which may vary but is generally equal to 2% or less of the value of the
contract, must be deposited with the broker as initial deposit or "margin."
Subsequent payments to and from the broker, referred to as "variation margin,"
are made on a daily basis as the value of the index underlying the futures
contract fluctuates, making positions in the futures contract more or less
valuable, a process known as "marking to the market."
At any time prior to the expiration of a futures contract, a trader may
elect to close out a Fund's position by taking an opposite position, subject to
the availability of a secondary market, which will operate to terminate the
initial position. At that time, a final determination of variation margin is
made and any loss experienced by a party is required to be paid to the exchange
clearing corporation, while any profit due to a party must be delivered to it.
Futures contracts differ from options in that they are bilateral
agreements, with both the purchaser and the seller equally obligated to complete
the transaction. Futures contracts call for settlement only on the expiration
date, and cannot be "exercised" at any other time during their term.
OPTIONS ON FUTURES CONTRACTS. An option on a futures contract gives the
purchaser (the "holder") the right, but not the obligation, to enter into a
"long" position in the underlying futures contract (i.e., a purchase of such
futures contract) in the case of an option to purchase (a "call" option), or a
"short" position in the underlying futures contract (i.e., a sale of such
futures contract) in the case of an option to sell (a "put" option), at a fixed
price (the "strike price") up to
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a stated expiration date. The holder pays a non-refundable purchase price for
the option, known as the "premium." The maximum amount of risk the purchase of
the option assumes is equal to the premium plus related transaction costs,
although this entire amount may be lost. Upon exercise of the option by the
holder, the exchange clearing corporation establishes a corresponding long
position in the case of a put option. In the event that an option is exercised,
the parties will be subject to all the risks associated with the trading of
futures contracts, such as payment of variation margin deposits. In addition,
the writer of an option on a futures contract, unlike the holder, is subject to
initial and variation margin requirements on the option position.
An option, whether based on a futures contract, a stock index or an equity
security, becomes worthless to the holder when it expires. A position in an
option may be terminated by the purchaser or seller prior to expiration by
effecting a closing purchase or sale transaction subject to the availability of
a secondary market, which is the purchase or sale of an option of the same
series (i.e., the same exercise price and expiration date) as the option
previously purchased or sold. The difference between the premiums paid and
received represents the party's profit or loss on the transaction.
The use of futures contracts and options does involve certain transaction
costs and risks. A Fund's ability effectively to hedge all or a portion of its
portfolio through transactions in futures, options on futures or options on
stock indices depends on the degree to which movements in the value of the
securities or index underlying such hedging instrument correlate with movements
in the value of the relevant portion of the Fund's holdings. The trading of
futures and options on indices involves the additional risk of imperfect
correlation between movements in the futures or option price and the value of
the underlying index. While a Fund will establish a future or option position
only if there appears to be a liquid secondary market therefor, there can be no
assurance that such a market will exist for any particular futures or option
contract at any specific time. In such event, it may not be possible to close
out a position held by a Fund, which could require such Fund to purchase or sell
the instrument underlying the position, make or receive a cash settlement, or
meet ongoing variation margin requirements. Investments in futures contracts on
fixed income securities and related indices involve the risk that if the
Adviser's investment judgment concerning the general direction of interest rates
is incorrect, a Fund's overall performance may be poorer than if it had not
entered into any such contract. Income earned from transactions in futures
contracts and options thereon would be treated in part as a short-term, and in
part as a long-term, capital gain and, if not offset by net realized capital
losses, generally would be subject to Federal income tax.
When-Issued Purchases and Forward Commitments
A Fund may agree to purchase securities on a when-issued basis or enter
into a forward commitment to purchase securities. When a Fund engages in these
transactions, its custodian will set aside cash, U.S. government securities or
other high quality debt obligations equal to the amount of the commitment in a
separate account. Normally, the custodian will set aside portfolio securities to
satisfy a purchase commitment, and in such a case a Fund may be required
subsequently to place additional assets in the separate account in order to
ensure that the value of the account remains equal to the amount of the Fund's
commitment. Because a Fund will set
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aside cash or liquid assets to satisfy its purchase commitments in the manner
described, the Fund's liquidity and ability to manage its portfolio might be
adversely affected in the event its commitments to purchase when-issued
securities ever exceeded 25% of the value of its assets. In the case of a
forward commitment to sell portfolio securities, the Fund's custodian will hold
the portfolio securities themselves in a segregated account while the commitment
is outstanding.
A Fund will make commitments to purchase securities on a when-issued basis
or to purchase or sell securities on a forward commitment basis only with the
intention of completing the transaction and actually purchasing or selling the
securities. If deemed advisable as a matter of investment strategy, however, a
Fund may dispose of or renegotiate a commitment after it is entered into, and
may sell securities it has committed to purchase before those securities are
delivered to the Fund on the settlement date. In these cases the Fund may
realize a capital gain or loss.
When a Fund engages in when-issued and forward commitment transactions, it
relies on the other party to consummate the trade. Failure of such party to do
so may result in the Fund's incurring a loss or missing an opportunity to obtain
a price considered to be advantageous.
The value of the securities underlying a when-issued purchase or a forward
commitment to purchase securities, and any subsequent fluctuations in their
value, is taken into account when determining the net asset value of a Fund
starting on the date the Fund agrees to purchase the securities. The Fund does
not earn dividends on the securities it has committed to purchase until they are
paid for and delivered on the settlement date. When the Fund makes a forward
commitment to sell securities it owns, the proceeds to be received upon
settlement are included in the Fund's assets. Fluctuations in the value of the
underlying securities are not reflected in the Fund's net asset value as long as
the commitment remains in effect.
Real Estate Investment Trusts
A real estate investment trust ("REIT") is a managed portfolio of real
estate investments which may include office buildings, apartment complexes,
hotels and shopping malls. An Equity REIT holds equity positions in real estate,
and it seeks to provide its shareholders with income from the leasing of its
properties, and with capital gains from any sales of properties. A Mortgage REIT
specializes in lending money to developers of properties, and passes any
interest income it may earn to its shareholders.
REITs may be affected by changes in the value of the underlying property
owned or financed by the REIT, while Mortgage REITs also may be affected by the
quality of credit extended. Both Equity and Mortgage REITs are dependent upon
management skill and may not be diversified. REITs also may be subject to heavy
cash flow dependency, defaults by borrowers, self-liquidation, and the
possibility of failing to qualify for tax-free pass-through of income under the
Internal Revenue Code of 1986, as amended.
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Guaranteed Investment Contracts
Guaranteed Investment Contracts ("GICs") are issued by highly rated U.S.
insurance companies. Pursuant to such contracts, a Fund makes cash contributions
to a deposit fund of the insurance company's general or separate accounts. The
insurance company then credits to a 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.
A Fund will only purchase GICs from issuers which, at the time of
purchase, meet quality and credit standards established by the Adviser.
Generally, GICs are not assignable or transferable without the permission of the
issuing insurance companies, and an active secondary market in GICs does not
currently exist. Also, a Fund may not receive the principal amount of a GIC from
the insurance company on seven days' notice or less.
Therefore, GICs are considered to be illiquid investments.
Variable- and Floating- Rate Instruments
The Funds may purchase variable-rate and floating-rate obligations as
described in the Prospectuses. If such instrument is not rated, the Adviser will
consider the earning power, cash flows, and other liquidity ratios of the
issuers and guarantors of such obligations and, if the obligation is subject to
a demand feature, will monitor their financial status to meet payment on demand.
In determining average weighted portfolio maturity, a variable-rate demand
instrument issued or guaranteed by the U.S. Government or an agency or
instrumentality thereof will be deemed to have a maturity equal to the period
remaining until the obligations next interest rate adjustment. Other
variable-rate obligations will be deemed to have a maturity equal to the longer
of the period remaining to the next interest rate adjustment or the time a Fund
can recover payment of principal as specified in the instrument.
The variable- and floating-rate demand instruments that the Funds may
purchase include participations in Municipal Securities purchased from and owned
by financial institutions, primarily banks. Participation interests provide a
Fund with a specified undivided interest (up to 100%) in the underlying
obligation and the right to demand payment of the unpaid principal balance plus
accrued interest on the participation interest from the institution upon a
specified number of days' notice, not to exceed 30 days. Each participation
interest is backed by an irrevocable letter of credit or guarantee of a bank
that the Adviser has determined meets the prescribed quality standards for the
Funds. The bank typically retains fees out of the interest paid on the
obligation for servicing the obligation, providing the letter of credit, and
issuing the repurchase commitment.
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
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determining a Fund's average weighted maturity. The remaining maturities of such
obligations will be determined as follows: (i) a government security with a
variable or floating-rate of interest will be deemed to have a maturity equal to
the period remaining until the next readjustment of the interest rate; (ii) a
government security with a demand or put feature that entitles the holder to
receive the principal amount of the underlying security at the time of or
sometime after the holder gives notice of demand or exercise of the put will be
deemed to have a maturity equal to the period remaining until the principal
amount can be recovered through demand or exercise of the put; and (iii) a
government security with both a variable or floating rate of interest as
described in clause (i) and a demand or put feature as described in clause (ii)
will be deemed to have a maturity equal to the shorter of the period remaining
until the next readjustment of the interest rate or the period remaining until
the principal amount can be recovered through demand.
Dollar Roll Transactions
The Funds 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. Each 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.
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Foreign Currency Transactions
The Funds may enter into foreign currency exchange transactions to convert
foreign currencies to and from the United States Dollar. A Fund either enters
into these transactions on a spot (i.e., cash) basis at the spot rate prevailing
in the foreign currency exchange market, or uses forward contracts to purchase
or sell foreign currencies.
A forward foreign currency exchange contract is an obligation by a Fund to
purchase or sell a specific currency at a future date, which may be any fixed
number of days from the date of the contract. Forward foreign currency exchange
contracts establish an exchange rate at a future 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. Each Fund maintains with its custodian a segregated
account of high grade liquid assets in an amount at least equal to its
obligations under each forward foreign currency exchange contract. Neither spot
transactions nor forward foreign currency exchange contracts eliminate
fluctuations in the prices of a Fund's portfolio securities or in foreign
exchange rates, or prevent loss if the prices of these securities should
decline.
The Funds also may purchase and write options on such futures contracts.
These investments will be used only to hedge against anticipated future changes
in interest rates which otherwise might either adversely affect the value of the
portfolio securities of a Fund or adversely affect the prices of securities
which a Fund intends to purchase at a later date. Should interest rates move in
an unexpected manner, a Fund may not achieve the anticipated benefits of futures
contracts or options on futures contracts or may realize a loss.
Foreign currency hedging transactions are an attempt to protect a Fund
against changes in foreign currency exchange rates between the trade and
settlement dates of specific securities transactions or changes in foreign
currency exchange rates that would adversely affect a portfolio position or an
anticipated portfolio position. Although these transactions tend to minimize the
risk of loss due to a decline in the value of the hedged currency, at the same
time they tend to limit any potential gain that might be realized should the
value of the hedged currency increase. The precise matching of the forward
contract amount and the value of the securities involved will not generally be
possible because the future value of these securities in foreign currencies will
change as a consequence of market movements in the value of those securities
between the date the forward contract is entered into and date it matures.
Interest Rate Transactions
Among the strategic transactions into which the Funds may enter are
interest rate swaps and the purchase or sale of related caps and floors. Each
Fund expects to enter into these transactions primarily to preserve a return or
spread on a particular investment or portion of its portfolio, to protect
against currency fluctuations, as a duration management technique or to protect
against any increase in the price of securities the Funds anticipate purchasing
at a later date. Each Fund intends to use these transactions as hedges and not
as speculative investments and will not sell
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interest rate caps or floors where it does not own securities or other
instruments providing the income stream the Fund may be obligated to pay.
Interest rate swaps involve the exchange by the Fund with another party of their
respective commitments to pay or receive interest, e.g., an exchange of
floating-rate payments for fixed rate payments with respect to a notional amount
of principal. A currency swap is an agreement to exchange cash flows on a
notional amount of two or more currencies based on the relative value
differential among them and an index swap is an agreement to swap cash flows on
a notional amount based on changes in the values of the reference indices. The
purchase of a cap entitles the purchaser to receive payments on a notional
principal amount from the party selling such floor to the extent that a
specified index falls below a predetermined interest rate or amount.
A Fund will usually enter into swaps on a net basis, i.e., the two payment
streams are netted out in a cash settlement on the payment date or dates
specified in the instrument, with the Fund receiving or paying, as the case may
be, only the net amount of the two payments. Inasmuch as these swaps, caps, and
floors are entered into for good faith hedging purposes, the Adviser and the
Fund believe such obligations do not constitute senior securities under the 1940
Act and, accordingly, will not treat them as being subject to its borrowing
restrictions. A Fund will not enter into any swap, cap, 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, a Fund may have contractual remedies pursuant to
the agreements related to the transaction. The swap market has grown
substantially in recent years with a large number of banks and investment
banking firms acting both as principals and as agents utilizing standardized
swap documentation. As a result, the swap market has become relatively liquid.
Caps and floors are more recent innovations for which standardized documentation
has not yet been fully developed and, accordingly, they are less liquid than
swaps.
With respect to swaps, a Fund will accrue the net amount of the excess, if
any, of its obligations over its entitlements with respect to each swap on a
daily basis and will segregate an amount of cash or liquid high grade securities
having a value equal to the accrued excess. Caps and floors require segregation
of assets with a value equal to a Fund's net obligation, if any.
Illiquid Securities
The Funds 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 each Fund's investments could be impaired if
trading does not develop or declines.
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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,
each Fund is subject to the investment limitations enumerated in this subsection
which may be changed with respect to such Fund only by a vote of the holders of
a majority of the Fund's outstanding shares (as defined in this SAI).
Each Fund may not:
1. Borrow money or issue senior securities as defined in the 1940 Act
except that (a) a Fund may borrow money from banks for temporary
purposes in amounts up to one-third of the value of such Fund's
total assets at the time of borrowing, provided that borrowings in
excess of 5% of the value of such Fund's total assets will be
repaid prior to the purchase of portfolio securities by such Fund,
(b) a Fund may enter into commitments to purchase securities in
accordance with such Fund's investment program, including delayed
delivery and when-issued securities, which commitments may be
considered the issuance of senior securities, and (c) a Fund may
issue multiple classes of shares in accordance with SEC
regulations or exemptions under the 1940 Act. The purchase or sale
of futures contracts and related options shall not be considered
to involve the borrowing of money or issuance of senior
securities.
2. Purchase any securities on margin (except for such short-term
credits as are necessary for the clearance of purchases and sales
of portfolio securities) or sell any securities short (except
against the box). (For purposes of this restriction, the deposit
or payment by a 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 a Fund's investment program
may be deemed an underwriting. This restriction shall not limit a
Fund's ability to invest in securities issued by other registered
investment companies.
4. Invest in real estate or real estate limited partnership interests
(a 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).
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5. Purchase or sell commodity contracts except that each Fund may, to
the extent appropriate under its investment policies, purchase
publicly traded securities of companies engaging in whole or in
part in such activities, may enter into futures contracts and
related options, may engage in transactions on a when issued or
forward commitment basis, and may enter into forward currency
contracts in accordance with its investment policies.
In addition, certain non-fundamental investment restrictions are
applicable, including the following:
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. A 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 such Fund's
investment in such classes of securities would exceed 5% of such
Fund's total assets. For purposes of the above-described
investment limitation, issuers include predecessors, sponsors,
controlling persons, general partners, guarantors and originators
of underlying assets which have less than three years of
continuous operations of relevant business experience.
3. Each Fund will not invest in warrants, valued at the lower of cost
or market, in excess of 5% of the value of such Fund's assets, and
no more than 2% of the value of the Fund's net assets may be
invested in warrants that are not listed on the New York or
American Stock Exchange (for purposes of this undertaking,
warrants acquired by the Fund in units or attached to securities
will be deemed to have no value).
4. Each Fund will not purchase securities of companies for the
purpose of exercising control.
5. Each 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.
6. Each 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 a 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
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futures contracts, and collateral arrangements with respect
to initial and variation margin are not considered to be a
mortgage, pledge or hypothecation of assets.
7. Each 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.
8. Each Fund will not purchase oil, gas or mineral leases or other
interests (a Fund may, however, purchase and sell the securities
of companies engaged in exploration, development, production,
refining, transporting and marketing of oil, gas or minerals).
In order to permit the sale of shares of the Trust in certain states, the
Trust may make commitments more restrictive than the investment policies and
limitations described above and in the Prospectuses. Should the Trust determine
that any such commitment is no longer in its best interest, it will revoke the
commitment by terminating sales of its shares to investors residing in the state
involved.
NET ASSET VALUE
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 a 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.
--------------------------
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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 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, a 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. (A 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 Funds and each of the other funds of Nations Fund may limit the number
of times the exchange privilege may be exercised by a shareholder within a
specified period of time. Also, the exchange privilege may be terminated or
revised at any time by the Trust upon such notice as may be required by
applicable regulatory agencies (presently sixty days for termination or material
revision), provided that the exchange privilege may be terminated or materially
revised without notice under certain unusual circumstances.
The current prospectuses for the Investor Shares and Primary B Shares of
the Funds describe the exchange privileges available to investors in such
Investor Shares and Primary B Shares, respectively.
Primary Shares of the Funds are offered and sold on a continuous basis by
the Distributor acting as agent. As stated in the Prospectuses for the Primary
Shares, Primary Shares are sold to bank trust departments and other financial
institutions (primarily to NationsBank and its affiliated and correspondent
banks) (collectively, "Institutions") acting on behalf of customers maintaining
a qualified trust account or relationship at the Institution.
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DESCRIPTION OF SHARES
Nations Fund Trust is a Massachusetts business trust. The Trust's
Declaration of Trust authorizes the Board of Trustees to issue an unlimited
number of units of beneficial interest ("shares") and to classify or reclassify
any unissued shares of the Trust into one or more additional classes or series
by setting or changing in any one or more respects their respective preferences,
conversion or other rights, voting powers, restrictions, limitations as to
dividends, qualifications, and terms and conditions of redemption. Pursuant to
such authority, the Board of Trustees has authorized the issuance of thirty-two
series of shares, two of which -- the Managed SmallCap Value Index Fund and the
Managed Value Index Fund -- are described in this SAI. These Funds only issue
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 Funds, shareholders of the Funds are entitled to receive the assets
available for distribution belonging to the Funds, and a proportionate
distribution, based upon the relative asset values of the Trust's respective
investment portfolios, of any general assets of the Trust not belonging to any
particular investment portfolio which are available for distribution.
Shareholders of a Fund are entitled to participate, in proportion to the net
asset value of the class or series of shares held, in the net distributable
assets of a Fund if it is liquidated, based on the number of shares of such Fund
that are held by such shareholders.
As stated in the Prospectuses, shareholders of a 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
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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 a Fund to another management investment company for
consideration which may include securities issued by the purchaser and, in
connection therewith, to cause all outstanding shares of such Fund involved to
be redeemed at a price which is equal to their net asset value and which may be
paid in cash or by distribution of the securities or other consideration
received from the sale and conveyance; (b) sell and convert a Fund's assets into
money and, in connection therewith, to cause all outstanding shares of such Fund
involved to be redeemed at their net asset value; or (c) combine the assets
belonging to a Fund with the assets belonging to another investment portfolio of
the Trust, if the Board of Trustees reasonably determines that such combination
will not have a material adverse effect on shareholders of any investment
portfolio participating in such combination, and, in connection therewith, to
cause all outstanding shares of any such 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 a 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 such 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 each Fund, net investment income for dividend purposes
consists of (i) interest accrued and original issue discount earned on a 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 a 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 each 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.
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<PAGE>
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").
Federal Taxes - In General
Each 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, a Fund is not subject to federal income tax on the portion
of its net investment income (i.e., taxable interest, dividends and other
taxable ordinary income, net of expenses) and capital gain net income (i.e., the
excess of capital gains over capital losses) that it distributes to
shareholders, provided that it distributes at least 90% of its investment
company taxable income (i.e., net investment income and the excess of its
short-term capital gains over net long-term capital losses) and at least 90% of
its tax-exempt income (net of expenses allocable thereto) for the taxable year
(the "Distribution Requirement"), and satisfies certain other requirements of
the Code that are described below. Distributions by a Fund made during the
taxable year or, under specified circumstances, within twelve months after the
close of the taxable year, will be considered distributions of income and gains
of the taxable year and can therefore satisfy the Distribution Requirement.
In addition to satisfying the Distribution Requirement; a regulated
investment company must (i) derive at least 90% of its gross income from
dividends, interest, certain payments with respect to securities loans, gains
from the sale or other disposition of stock or securities or foreign currencies
(to the extent such currency gains are directly related to the regulated
investment company's principal business of investing in stock or securities) and
other income (including but not limited to gains from options, futures or
forward contracts) derived with respect to its business of investing in such
stock, securities or currencies (the "Income Requirement"); and (ii) derive less
than 30% of its gross income (exclusive of certain gains on designated hedging
transactions that are offset by realized or unrealized losses on offsetting
positions) from the sale or other disposition of stock, securities or foreign
currencies (or options, futures or forward contracts thereon) held for less than
three months (the "Short-Short Gain Test"). However, foreign currency gains,
including those derived from options, futures and forwards, will not be
characterized as Short-Short Gain if they are directly related to the regulated
investment company's investments in stock or securities (or options or futures
thereon). Because of the Short-Short Gain Test, a Fund may have to limit the
sale of appreciated securities that it has held for less than three months.
However, the Short-Short Gain Test will not prevent a Fund from disposing of
investments at a loss, since the recognition of a loss before the expiration of
the three-month holding period is disregarded. Interest (including original
issue discount) received by a Fund at maturity or upon the disposition of a
security held for less than three months will not be treated as gross income
derived from the sale or other disposition of such security within the meaning
of the Short-Short Gain Test. However, income that is attributable to realized
market appreciation will be treated as gross income from the sale or other
disposition of securities for this purpose.
23
<PAGE>
In general, gain or loss recognized by a Fund on the disposition of an
asset will be a capital gain or loss. However, gain recognized on the
disposition of a debt obligation (including tax-exempt obligations purchased
after April 30, 1993) purchased by a Fund at a market discount (generally, at a
price less than its principal amount) will be treated as ordinary income to the
extent of the portion of the market discount which accrued during the period of
time the Fund held the debt obligation. In addition, under the rules of Code
Section 988, gain or loss recognized on the disposition of a debt obligation
denominated in a foreign currency or an option with respect thereto (but only to
the extent attributable to changes in foreign currency exchange rates), and gain
or loss recognized on the disposition of a foreign currency forward contract,
futures contract, option or similar financial instrument, or of foreign currency
itself, will generally be treated as ordinary income or loss.
In general, for purposes of determining whether capital gain or loss
recognized by a Fund on the disposition of an asset is long-term or short-term,
the holding period of the asset may be affected if (i) the asset is used to
close a "short sale" (which includes for certain purposes the acquisition of a
put option) or is substantially identical to another asset so used, (ii) the
asset is otherwise held by the Fund as part of a "straddle" (which term
generally excludes a situation where the asset is stock and the Fund grants a
qualified covered call option (which, among other things, must not be
deep-in-the-money) with respect thereto) or (iii) the asset is stock and the
Fund grants an in-the-money qualified covered call option with respect thereto.
However, for purposes of the Short-Short Gain Test, the holding period of the
asset disposed of may be reduced only in the case of clause (i) above. In
addition, a Fund may be required to defer the recognition of a loss on the
disposition of an asset held as part of a straddle to the extent of any
unrecognized gain on the offsetting position.
Any gain recognized by a Fund on the lapse of, or any gain or loss
recognized by 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 a Fund will commence on the date it is written and end on the date it lapses
or the date a closing transaction is entered into. Accordingly, a Fund may be
limited in its ability to write options which expire within three months and to
enter into closing transactions at a gain within three months of the writing of
options.
Treasury regulations permit a regulated investment company, in determining
its investment company taxable income and net capital gain (i.e., the excess of
net long-term capital gain over net short-term capital loss) for any taxable
year, to elect (unless it has made a taxable year election for excise tax
purposes as discussed below) to treat all or part of any net capital loss, any
net long-term capital loss or any net foreign currency loss incurred after
October 31 as if they had been incurred in the succeeding year.
In addition to satisfying the requirement described above, each Fund must
satisfy an asset diversification test in order to qualify as a regulated
investment company. Under this test, at the close of each quarter of each Fund's
taxable year, at least 50% of the value of the Fund's assets must consist of
cash and cash items, Government securities, securities of other regulated
24
<PAGE>
investment companies, and securities of other issuers (as to which the Fund has
not invested more than 5% of the value of the Fund's total assets in securities
of such issuer and as to which the Fund does not hold more than 10% of the
outstanding voting securities of such issuer), and no more than 25% of the value
of its total assets may be invested in the securities of any one issuer (other
than U.S. Government securities and securities of other regulated investment
companies), or in two or more issuers which the Fund controls and which are
engaged in the same or similar trades or businesses.
If for any taxable year a Fund does not qualify for Federal tax treatment
as a regulated investment company, all of its taxable income (including its net
capital gain) will be subject to Federal income tax at regular corporate rates
without any deduction for distributions to its shareholders. In such event,
dividend distributions 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 a Fund's activities in states and localities
in which its offices are maintained, in which its agents or independent
contractors are located, or in which it is otherwise deemed to be conducting
business, a Fund may be subject to the tax laws of such states or localities. In
addition, in those states and localities which have income tax laws, the
treatment of a Fund and its shareholders under such laws may differ from their
treatment under Federal income tax laws.
Federal Excise Tax on Regulated Investment Companies
A 4% non-deductible excise tax is imposed on a regulated investment
company that fails to distribute in each calendar year an amount equal to 98% of
ordinary taxable income for the calendar year and 98% of capital gain net income
for the one-year period ended on October 31 of such calendar year (or, at the
election of a regulated investment company having a taxable year ending November
30 or December 31, for its taxable year (a "taxable year election")). The
balance of such income must be distributed during the next calendar year. For
the foregoing purposes, a regulated investment company is treated as having
distributed any amount on which it is subject to income tax for any taxable year
ending in such calendar year.
For purposes of the excise tax, a regulated investment company may (1)
reduce its capital gain net income (but not below its net capital gain) by the
amount of any net ordinary loss for the calendar year and (2) exclude foreign
currency gains and losses incurred after October 31 of any year (or after the
end of its taxable year if it has made a taxable year election) in determining
the amount of ordinary taxable income for the current calendar year (and,
instead, include such gains and losses in determining ordinary taxable income
for the succeeding calendar year).
Each Fund intends to make sufficient distributions or deemed distributions
of its ordinary taxable income and capital gain net income to avoid liability
for the excise tax. However, investors should note that each Fund may in certain
circumstances be required to liquidate Fund investments to make sufficient
distributions to avoid excise tax liability.
25
<PAGE>
Distributions
Each Fund anticipates distributing substantially all of its investment
company taxable income for each taxable year. Such distributions will be taxable
to shareholders as ordinary income and treated as dividends for federal income
tax purposes but they will qualify for the 70% dividends-received deduction for
corporate shareholders only to the extent discussed below.
A Fund may either retain or distribute to shareholders its net capital
gain for each taxable year. Each Fund currently intends to distribute any such
amounts. If net capital gain is distributed and designated as a capital gain
dividend, it will be taxable to shareholders as long-term capital gain,
regardless of the length of time the shareholder has held his/her shares or
whether such gain was recognized by the Fund prior to the date on which the
shareholder acquired his/her shares. Conversely, if a Fund elects to retain its
net capital gain, the Fund will be taxed thereon (except to the extent of any
available capital loss carryovers) at the applicable corporate tax rate. If a
Fund elects to retain its net capital gain, it is expected that the Fund also
will elect to have shareholders treated as if each received a distribution of
its pro rata share of such gain, with the result that each shareholder will be
required to report its pro rata share of such gain on its tax return as
long-term capital gain, will receive a refundable tax credit for its share of
tax paid by the Fund on the gain, and will increase the basis for its shares by
an amount equal to the deemed distribution less the tax credit.
Ordinary income dividends derived from a Fund's investment in the stock of
domestic corporations with respect to a taxable year will qualify for the 70%
dividends received deduction generally available to corporations (other than
corporations, such as "S" corporations, which are not eligible for the deduction
because of their special characteristics and other than for purposes of special
taxes such as the accumulated earnings tax and the personal holding company tax)
to the extent of the amount of qualifying dividends received by such Fund from
domestic corporations for the taxable year. A dividend received by a Fund
investing in the stock of domestic corporations will not be treated as a
qualifying dividend (1) if it has been received with respect to any share of
stock that such 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 such 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 a
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 a 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).
26
<PAGE>
For purposes of the corporate alternative minimum tax (the "AMT") and the
environmental superfund tax the corporate dividends received deduction is not
itself an item of tax preference that must be added back to taxable income or is
otherwise disallowed in determining a corporation's alternative minimum taxable
income ("AMTI"). However, corporate shareholders will generally be required to
take the full amount of any dividend received into account (without a
dividends-received deduction) in determining its adjusted current earnings.
Investment income that may be received by the Funds from sources within
foreign countries may be subject to foreign taxes withheld at the source. The
United States has entered into tax treaties with many foreign countries which
entitle the Funds 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 Funds' assets to be invested in various countries is not
known. If more than 50% of the value of a Fund's total assets at the close of
its taxable year consists of the stock or securities of foreign corporations,
such Fund may elect to "pass through" to the Fund's shareholders the amount of
foreign taxes paid by the Fund. If a Fund so elects, each shareholder would be
required to include in gross income, even though not actually received, its pro
rata share of the foreign taxes paid by the Fund, but would be treated as having
paid its pro rata share of such foreign taxes and would, therefore, be allowed
to either deduct such amount in computing taxable income or use such amount
(subject to various Code limitations) as a foreign tax credit against federal
income tax (but not both). For purposes of the foreign tax credit limitation
rules of the Code, each shareholder would treat as foreign source income its pro
rata share of such foreign taxes plus the portion of dividends received from the
Fund representing income derived from foreign sources. No deduction for foreign
taxes could be claimed by an individual shareholder who does not itemize
deductions.
Distributions by a Fund that do not constitute ordinary income dividends,
exempt-interest dividends or capital gain dividends will be treated as a return
of capital to the extent of (and in reduction of) the shareholder's tax basis in
his/her shares; any excess will be treated as gain from the sale of his/her
shares, as discussed below.
Prior to purchasing shares in a 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 a Fund will be treated in the manner described above
regardless of whether such distributions are paid in cash or reinvested in
additional shares of such 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
27
<PAGE>
such amounts will be taxable to the shareholder in the manner described above,
although such distributions economically constitute a return of capital to the
shareholder.
Ordinarily, shareholders are required to take distributions by a Fund into
account in the year in which the distributions are made. However, distributions
declared in October, November or December of any year and payable to
shareholders of record on a specified date in such a month will be deemed to
have been received by the shareholders (and made by the Fund) on December 31 of
such calendar year if such distributions are actually paid in January of the
following year. Shareholders will be advised annually as to the U.S. federal
income tax consequences of distributions made (or deemed made) during the year.
Each 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 a Fund in an amount equal to the difference between the proceeds of
the sale or redemption and the shareholder's adjusted tax basis in the shares.
All or a portion of any loss so recognized may be disallowed if the shareholder
purchases other shares of a 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 a Fund,
(ii) disposes of such shares less than 91 days after they are acquired and (iii)
subsequently acquires shares of the Fund or another fund at a reduced sales load
pursuant to a right to reinvest at such reduced sales load acquired in
connection with the acquisition of the shares disposed of, then the sales load
on the shares disposed of (to the extent of the reduction in the sales load on
the shares subsequently acquired) shall not be taken into account in determining
gain or loss on the shares disposed of, but shall be treated as incurred on the
acquisition of the shares subsequently acquired.
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<PAGE>
FOREIGN SHAREHOLDERS
Taxation of a shareholder who, as to the United States, is a nonresident
alien individual, foreign trust or estate, foreign corporation, or foreign
partnership ("foreign shareholder"), depends on whether the income from a Fund
is "effectively connected" with a U.S. trade or business carried on by such
shareholder.
If the income from a Fund is not effectively connected with a U.S. trade
or business carried on by a foreign shareholder, ordinary income dividends will
be subject to U.S. withholding tax at the rate of 30% (or lower applicable
treaty rate) upon the gross amount of the dividend. Furthermore, such a foreign
shareholder may be subject to U.S. withholding tax at the rate of 30% (or lower
applicable treaty rate) on the gross income resulting from the Fund's election
to treat any foreign taxes paid by its shareholders, but may not be allowed a
deduction against this gross income or a credit against this U.S. withholding
tax for the foreign shareholder's pro rata share of such foreign taxes which it
is treated as having paid. Such a foreign shareholder would generally be exempt
from U.S. federal income tax on gains realized on the sale of shares of a Fund,
capital gain dividends and exempt-interest dividends and amounts retained by a
Fund that are designated as undistributed capital gains.
If the income from a Fund is effectively connected with a U.S. trade or
business carried on by a foreign shareholder, then ordinary income dividends,
capital gain dividends and any gains realized upon the sale of shares of the
Fund will be subject to U.S. federal income tax at the rates applicable to U.S.
citizens, U.S. residents or domestic corporations.
In the case of foreign noncorporate shareholders, a Fund may be required
to withhold U.S. federal income tax at a rate of 31% on distributions that are
otherwise exempt from withholding tax (or taxable at a reduced treaty rate)
unless such shareholders furnish the Fund with proper notification of their
foreign status.
The tax consequences to a foreign shareholder entitled to claim the
benefits of an applicable tax treaty may be different from those described
herein. Foreign shareholders are urged to consult their own tax advisers with
respect to the particular tax consequences to them of an investment in a Fund,
including the applicability of foreign taxes.
Special Tax Considerations Pertaining to the FundS
With respect to the Funds, 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.
29
<PAGE>
With respect to transactions covered by the special rules, foreign currency gain
or loss is calculated separately from any gain or loss on the underlying
transaction and is normally taxable as ordinary gain or loss. The amount of any
realized gain or loss on closing out a forward contract will generally result in
a realized capital gain or loss for tax purposes.
Under Code Section 1256, forward currency contracts held by a Fund at the
end of each fiscal year will be required to be "marked-to-market" for Federal
income tax purposes, that is, deemed to have been sold at market value. Sixty
percent (60%) of any net realized gain or loss from any actual sales will be
treated as long-term gain or loss, and the remainder will be treated as
short-term capital gain or loss. Code Section 988 may also apply to forward
contracts. In accordance with Treasury regulations, certain transactions subject
to the special currency rules that are part of a "section 988 hedging
transaction" may be integrated and treated as a single transaction for purposes
of the Code and are not subject to the marked-to-market or loss deferral rules
under the Code. Gain or loss attributable to the foreign currency component of
transactions engaged in by a Fund which are not subject to the special currency
rules (such as foreign equity investments other than certain preferred stocks)
will be treated as capital gain or loss and will not be segregated from the gain
or loss on the underlying transaction.
In the case of an overlap between Sections 1256 and 988, special
provisions determine the character and timing of any income, gain or loss. Each
Fund will attempt to monitor Section 988 transactions to avoid an adverse tax
impact.
Investment returns received by a Fund may give rise to withholding and
other taxes imposed by foreign countries, generally at rates from 10% to 40%.
Tax conventions between certain countries and the U.S. may reduce or eliminate
such taxes. Foreign countries generally do not impose taxes on capital gains
with respect to investments by nonresident investors. To the extent a Fund does
pay foreign withholding or other foreign taxes on certain of its investments,
investors will be unable to take a deduction or receive a tax credit with
respect to such foreign taxes in computing their U.S. tax liability, since
investment by each 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 Funds.
30
<PAGE>
TRUSTEES AND OFFICERS
The Trustees and executive officers of the Trust, their addresses, principal
occupations during the past five years, and other affiliations are as set forth
below. The address of each, unless otherwise indicated, is 111 Center Street,
Little Rock, Arkansas 72201. Those Trustees who are "interested persons" of the
Trust (as defined in the 1940 Act) are indicated by an asterisk (*).
<TABLE>
<CAPTION>
POSITION WITH PRINCIPAL OCCUPATION DURING
NAME, ADDRESS AND AGE THE TRUST PAST 5 YEARS AND CURRENT DIRECTORSHIPS
- --------------------- --------------- --------------------------------------
<S> <C> <C>
Edmund L. Benson, III, 60 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, 54 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, 64 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, 65 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., 61 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;
31
<PAGE>
POSITION WITH PRINCIPAL OCCUPATION DURING
NAME, ADDRESS AND AGE THE TRUST PAST 5 YEARS AND CURRENT DIRECTORSHIPS
- --------------------- --------------- --------------------------------------
Director, Nations Fund, Inc. and Nations Fund Portfolios
Inc.; Trustee, Nations Institutional Reserves
A. Max Walker*, 75 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,
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, 58 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.*, 58 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., 40 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, 36 Assistant Secretary Associate, Financial Services Group of Stephens Inc.
Stephens Inc.
Louise P. Newcomb, 44 Assistant Secretary Corporation Syndicate Associate, Stephens Inc.
Stephens Inc.
James E. Banks, 40 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, 41 Treasurer Since 1994, Vice President, Division Manager, The
the Shareholder Services Group, Inc. Shareholder Services Group, since 1988, Senior Vice
One Exchange Place
32
<PAGE>
POSITION WITH PRINCIPAL OCCUPATION DURING
NAME, ADDRESS AND AGE THE TRUST PAST 5 YEARS AND CURRENT DIRECTORSHIPS
- --------------------- --------------- --------------------------------------
Boston, MA 02109 President, The Boston Company Advisors, Inc.
Joseph C. Viselli, 33 Assistant Treasurer Assistant Vice President, The Boston Company
The Shareholder Services Group, Inc. Advisors, Inc since April 1992.
One Exchange Place
Boston, MA 02109
Susan Manter, 43 Assistant Treasurer Since 1996, Vice President, First Data Investor
First Data Investor Services Group, Inc. Services Group, Inc., since 1994, Vice President,
One Exchange Place Scudder Stevens and Clark, Inc., previously Senior
Boston, MA 02109 Manager, Coopers & Lybrand LLP
</TABLE>
33
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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.
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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 a Fund, or (ii) was
being purchased or sold by a Fund. For purposes of the Code of Ethics, an access
person means (i) a Trustee or officer of the Trust, (ii) any employee of the
Trust (or any company in a control relationship with the Trust) who, in the
course of his/her regular duties, obtains information about, or makes
recommendations with respect to, the purchase or sale of securities by the
Trust, and (iii) any natural person in a control relationship with the Trust who
obtains information concerning recommendations made to the Trust regarding the
purchase or sale of securities. Portfolio managers and other persons who assist
in the investment process are subject to additional restrictions, including a
requirement that they disgorge to the Trust any profits realized on short-term
trading (i.e., the purchase/sale or sale/purchase of securities within any
60-day period). The above restrictions do not apply to purchases or sales of
certain types of securities, including money market instruments and certain U.S.
Government securities. To facilitate enforcement, the Code of Ethics generally
requires that the Trust's access persons, other than its "disinterested"
Trustees, submit reports to the Trust's designated compliance person regarding
transactions involving securities which are eligible for purchase by a Fund.
Nations 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
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<PAGE>
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 Funds commencing on the first day
of the calendar quarter coincident with or next following his date of retirement
equal to 5% of the aggregate trustee's fees payable by the Funds during the
calendar year in which the trustee's retirement occurs multiplied by the number
of years of service (not in excess of ten years of service) completed with
respect to any of the Funds. Such benefit is payable to each eligible trustee in
quarterly installments for a period of no more than five years. If an eligible
trustee dies after attaining age 65, the trustee's surviving spouse (if any)
will be entitled to receive 50% of the benefits that would have been paid (or
would have continued to have been paid) to the trustee if he had not died. The
Retirement Plan is unfunded. The benefits owed to each trustee are unsecured and
subject to the general creditors of the Funds. At present the Plan is not in
effect and therefore there are no fees to disclose.
Nations 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 Funds from which they are deferring compensation.
Shareholder and Trustee Liability
Under Massachusetts law, shareholders of a business trust may, under
certain circumstances, be held personally liable as partners for the obligations
of the trust. However, the Trust's Declaration of Trust provides that
shareholders shall not be subject to any personal liability for the acts or
obligations of the Trust, and that every note, bond, contract, order, or other
undertaking made by the Trust shall contain a provision to the effect that the
shareholders are not personally
36
<PAGE>
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 SERVICING AND DISTRIBUTION SERVICES AGREEMENTS
Investment Adviser
NBAI serves as investment adviser to the Funds of the Trust, pursuant to
an Investment Advisory Agreement dated January 1, 1996. Effective upon the
inception of the Funds, TradeStreet began serving as sub-investment adviser to
the Funds, pursuant to a Sub-Advisory Agreement dated January 1, 1996.
NBAI also serves as the investment adviser to Nations Fund, Inc., Nations
Institutional Reserves and Nations Fund Portfolios, Inc., each a registered
investment company that is part of the Nations Fund Family. In addition, NBAI
serves as the investment advisor to Hatteras Income Securities, Inc., Nations
Government Income Term Trust 2003, Inc., Nations Government Income Term Trust
2004, Inc. and Managed Balanced Target Maturity Fund, Inc., each a closed-end
diversified management investment company traded on the New York Stock Exchange.
TradeStreet also serves as the sub-investment adviser to all of the Funds of
Nations Fund, Inc., except the Nations International Equity Fund, and to Nations
Institutional Reserves, Hatteras
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<PAGE>
Income Securities, Inc., Nations Government Income Term Trust 2003, Inc.,
Nations Government Income Term Trust 2004, Inc. and Nations 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.
The Investment Advisory Agreement shall become effective with respect to a
Fund if and when approved by the Trustees of the Trust, and if so approved,
shall thereafter continue from year to year, provided that such continuation of
the Agreement is specifically approved at least annually by (a) (i) the Trust's
Board of Trustees or (ii) the vote of "a majority of the outstanding voting
securities" of a Fund (as defined in Section 2(a)(42) of the 1940 Act), and (b)
the affirmative vote of a majority of the Trust's Trustees who are not parties
to such Agreement or
38
<PAGE>
"interested persons" (as defined in the 1940 Act) of a party to such Agreement
(other than as Trustees of the Trust), by votes cast in person at a meeting
specifically called for such purpose.
The Investment Advisory Agreement will terminate automatically in the
event of its assignment, and is terminable with respect to a Fund at any time
without penalty by the Trust (by vote of the Board of Trustees or by vote of a
majority of the outstanding voting securities of the Fund) or by NBAI on 60
days' written notice.
The Sub-Advisory Agreement shall become effective with respect to each
Fund as of its execution date and, unless sooner terminated, shall continue in
full force and effect for one year, and may be continued with respect to each
Fund thereafter, provided that the continuation of the Agreement is specifically
approved at least annually by (a) (i) the Trust's Board of Trustees or (ii) the
vote of "a majority of the outstanding voting securities" of 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 a Fund at any time without
penalty by the Trust (by vote of the Board of Trustees or by vote of a majority
of the outstanding voting securities of the Fund), or by NBAI, or by TradeStreet
on 60 days' written notice.
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 each
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 each 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").
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 each Fund.
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<PAGE>
Pursuant to the Administration Agreement, the Administrator has agreed to,
among other things, (i) maintain office facilities for the Funds, (ii) furnish
statistical and research data, data processing, clerical, and internal executive
and administrative services to the Trust, (iii) furnish corporate secretarial
services to the Trust, including coordinating the preparation and distribution
of materials for Board of Trustees meetings, (iv) coordinate the provision of
legal advice to the Trust with respect to regulatory matters, (v) coordinate the
preparation of reports to the Trust's shareholders and the SEC, including annual
and semi-annual reports, (vi) coordinate the provision of services to the Trust
by the Co-Administrator, the Transfer Agents and the Custodian, and (vii)
generally assist in all aspects of the Trust's operations. Additionally, the
Administrator is authorized to receive, as agent for the Co-Administrator, the
fees payable to the Co-Administrator by the Trust for its services rendered
under the Co-Administration Agreement. The Administrator bears all expenses
incurred in connection with the performance of its services.
Pursuant to the Co-Administration Agreement, the Co-Administrator has
agreed to, among other things, (i) provide accounting and bookkeeping services
for the Funds, (ii) compute the Funds' 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 a
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 a
Fund's shares are registered or qualified for sale.
Custodian and Transfer Agent
NationsBank of Texas, N.A., serves as custodian for the fund securities
and cash of the Fund. As custodian, NationsBank of Texas, N.A., maintains
custody of the Funds' securities, cash and other property, delivers securities
against payment upon sale and pays for securities against delivery upon
purchase, makes payments on behalf of the Funds for payments of dividends,
distributions and redemptions, endorses and collects on behalf of the Funds all
checks, and receives all dividends and other distributions made on securities
owned by the Funds. For
40
<PAGE>
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 each Fund, (ii) $10.00 per repurchase
collateral transaction by such Fund, and (iii) $15.00 per purchase, sale and
maturity transaction involving such Fund. NationsBank of Texas, N.A. is a wholly
owned subsidiary of NationsBank Corp.
The Bank of New York ("BONY") has entered into an agreement with each of
the Funds and NationsBank of Texas, N.A., whereby BONY will serve as
sub-custodian for the assets of the Funds. BONY is located at 90 Washington
Street, New York, New York 10286. In return for providing sub-custodial
services, BONY shall receive, in addition to out of pocket expenses, fees at the
rate of (I) 3/4 of one basis point per annum on the aggregate net assets of all
Nations' Non-Money Market Funds up to $10 billion; and (ii) 1/2 of one basis
point on the excess.
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 Funds' 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 Funds,
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 communications
(such as proxies, shareholder reports annual and semi-annual financial
statements
41
<PAGE>
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 Funds may pay the
Distributor or banks, broker/dealers or other financial institutions that offer
shares of the Funds 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 Funds.
Such payments may be made to (i) the Distributor for reimbursements of
distribution-related expenses actually incurred by the Distributor, including,
but not limited to, expenses of organizing and conducting sales seminars,
printing of prospectuses and statements of additional information (and
supplements thereto) and reports for other than existing shareholders,
preparation and distribution of advertising material and sales literature and
costs of administering the Investor A Plan, or (ii) Selling Agents that have
entered into a Sales Support Agreement with the Distributor for providing sales
support assistance in connection with the sale of Investor A Shares. The sales
support assistance provided by a Selling Agent under a Sales Support Agreement
may include forwarding sales literature and advertising provided by Nations Fund
Trust or the Distributor to their customers and providing such other sales
support assistance as may be requested by the Distributor from time to time.
Payments under the Investor A Plan by the Funds 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 Funds. Such
shareholder support services provided by Servicing Agents to holders of Investor
A Shares of the Funds may include (i) aggregating and processing purchase and
42
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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 Funds would not be contractually obligated to pay the
Distributor for any expenses not previously reimbursed by the Funds. 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 Funds. Pursuant to the Investor C Plan, the Funds 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 Funds. 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 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
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being used by the Distributor to partially defray other expenses
incurred by the Distributor in distributing Investor C Shares of the Funds. 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
Funds. 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 Funds held
of record or beneficially by such Customers. The sales support services provided
by Selling Agents may include providing distribution assistance and promotional
activities intended to result in the sales of shares such as paying for the
preparation, printing and distribution of prospectuses to other than current
shareholders. Fees paid pursuant to the Investor C Plan are accrued daily and
paid monthly, and are charged as expenses of shares of the Funds 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
Funds would not be contractually obligated to pay the Distributor for any
expenses not previously reimbursed by the Funds 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 Funds (the
"Investor C Servicing Plan"). Pursuant to its Investor C Servicing Plan, the
Funds 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 Funds' 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
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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 Funds 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 Funds' 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 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
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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 Funds, Stephens Inc. (the "Distributor"), began
serving as the principal underwriter and distributor of the shares of the Funds.
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 Funds on a continuous basis and
transmits purchase and redemption orders that its receives to the Trust or the
Transfer Agent. Additionally, the Distributor has agreed to use appropriate
efforts to solicit orders for the sale of shares and to undertake such
advertising and promotion as it believes appropriate in connection with such
solicitation. Pursuant to the Distribution Agreement, the Distributor, at its
own expense, finances those activities which are primarily intended to result in
the sale of shares of the Funds, including, but not limited to, advertising,
compensation of underwriters, dealers and sales personnel, the printing of
prospectuses to other than existing shareholders, and the printing and mailing
of sales literature. The Distributor, however, may be reimbursed for all or a
portion of such expenses to the extent permitted by a distribution plan adopted
by the Trust pursuant to Rule 12b-1 under the 1940 Act.
The Distribution Agreement will continue year to year as long as such
continuance is approved at least annually by (i) the Board of Trustees or a vote
of the majority (as defined in the 1940 Act) of the outstanding voting
securities of the Funds 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 Funds, 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 Funds, or
by the Distributor.
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.
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The Funds have not commenced operation as of the date of this SAI. As
such, the financial statements for the Fund are not yet available. The Annual
Report for the Funds, 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 Funds' 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 Funds by dividing the net investment income per share for a
particular class or series of shares (as described below) earned during a 30-day
period by the maximum offering price per share on the last day of the period
(for Primary A and Primary B Shares, maximum offering price per share is the
same as the net asset value per share) and annualizing the result on a
semi-annual basis by adding one to the quotient, raising the sum to the power of
six, subtracting one from the result and then doubling the difference. For a
class or series of shares in a Fund, net investment income per share earned
during the period is based on the average daily number of shares outstanding
during the period entitled to receive dividends and includes dividends and
interest earned during the period minus expenses accrued for the period, net of
reimbursements. This calculation can be expressed as follows:
Yield = 2 [(a-b+ 1)6 - 1]
cd
Where: a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of shares outstanding
during the period that were entitled to receive
dividends.
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d = maximum offering price per share on the last day of
the period (again, for Primary A and Primary B Shares,
this is equivalent to net asset value per share).
For the purpose of determining net investment income earned during the
period (variable "a" in the formula), dividend income on equity securities held
by a Fund is recognized by accruing 1/360 of the stated dividend rate of the
security each day that the security is in the portfolio. Each Fund calculates
interest earned on any debt obligations held in its portfolio by computing the
yield to maturity of each obligation held by it based on the market value of the
obligation (including 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 Funds 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.
Total Return Calculations
Each 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
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$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.
Each 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 Funds' 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 Funds 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 Funds have not commenced operation, no information on average
annual total return or aggregate annual total return for any class of shares is
available.
From time to time, the Funds may compare the performance and yield of a
class or series of shares to those of other mutual funds with similar investment
objectives and to other relevant indices or to rankings prepared by independent
services or other financial or industry publications that monitor the
performance of mutual funds. For example, the performance and yield of a class
of shares in the Funds may be compared to data prepared by Lipper Analytical
Services, Inc. The
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<PAGE>
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 Funds.
The Funds may quote information obtained from the Investment Company
Institute in their advertising materials and sales literature.
IBBOTSON DATA. Ibbotson Associates of Chicago, Illinois, ("Ibbotson")
provides historical returns of the capital markets in the United States. Each
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.
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SCHEDULE A
ADDITIONAL INFORMATION CONCERNING
OPTIONS & FUTURES
As stated in the Prospectuses, the Funds may enter into futures contracts
and options for hedging purposes. Such transactions are described in this
Schedule. During the current fiscal year, each 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 a 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 such Fund under the rules of the exchange on which the futures
contract (or futures option) is traded, plus any premiums paid by the Fund on
its open futures options positions, exceeds 5% of the Fund's total assets, after
taking into account any unrealized profits and unrealized losses on the Fund's
open contracts and excluding the amount that a futures option is "in-the-money"
at the time of purchase. (An option to buy a futures contract is "in-the-money"
if the value of the contract that is subject to the option exceeds the exercise
price; an option to sell a futures contract is "in-the-money" if the exercise
price exceeds the value of the contract that is subject of the option.)
I. Interest Rate Futures Contracts.
Use of Interest Rate Futures Contracts. Bond prices are established in
both the cash market and the futures market. In the cash market, bonds are
purchased and sold with payment for the full purchase price of the bond being
made in cash, generally within five business days after the trade. In the
futures market, only a contract is made to purchase or sell a bond in the future
for a set price on a certain date. Historically, the prices for bonds
established in the futures market have tended to move generally in the aggregate
in concert with the cash market prices and have maintained fairly predictable
relationships. Accordingly, a Fund may use interest rate futures as a defense,
or hedge, against anticipated interest rate changes and not for speculation. As
described below, this would include the use of futures contract sales to protect
against expected increases in interest rates and futures contract purchases to
offset the impact of interest rate declines.
Each 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 Funds, through using futures contracts.
Description of Interest Rates Futures Contracts. An interest rate futures
contract sale would create an obligation by a Fund, as seller, to deliver the
specific type of financial instrument called for in the contract at a specific
future time for a specified price. A futures contract purchase would create an
obligation by a Fund, as purchaser, to take delivery of the specific type of
financial instrument at a specific future time at a specific price. The specific
securities delivered or
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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 a 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 a Fund's entering into
a futures contract sale. If the offsetting sale price exceeds the purchase
price, the Fund realizes a gain, and if the purchase price exceeds the
offsetting sale price, the Fund realizes a loss.
Interest rate futures contracts are traded in an auction environment on
the floors of several exchanges - principally, the Chicago Board of Trade, the
Chicago Mercantile Exchange and the New York Futures Exchange. A Fund would deal
only in standardized contracts on recognized exchanges. 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. A 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. A Fund would engage in an interest rate
futures contract sale to maintain the income advantage from continued holding of
a long-term bond while endeavoring to avoid part or all of the loss in market
value that would otherwise accompany a decline in long-term securities prices.
Assume that the market value of a certain security in a Fund tends to move in
concert with the futures market prices of long-term United States Treasury bonds
("Treasury Bonds"). The investment adviser ("Adviser") wishes to fix the current
market value of this portfolio security until some point in the future. Assume
the portfolio security has a market value of 100, and the Adviser believes that,
because of an anticipated rise in interest rates, the value will decline to 95.
A Fund might enter into futures contract sales of Treasury bonds for an
equivalent of 98. If the market value of the portfolio securities does indeed
decline from 100 to 95, the equivalent futures market price for the Treasury
bonds might also decline from 98 to 93.
In that case, the five-point loss in the market value of the portfolio
security would be offset by the five-point gain realized by closing out the
futures contract sale. Of course, the futures market price of Treasury bonds
might well decline to more than 93 or to less than 93 because of the imperfect
correlation between cash and futures prices mentioned below.
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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, a Fund in the above example might
incur a loss of 2 points (which might be reduced by an offsetting transaction
prior to the settlement date). In each transaction, transaction expenses would
also be incurred.
Examples of Future Contract Purchase. A Fund would engage in an interest
rate futures contract purchase when it is not fully invested in long-term bonds
but wishes to defer for a time the purchase of long-term bonds in light of the
availability of advantageous interim investments, e.g., shorter-term securities
whose yields are greater than those available on long-term bonds. The Fund's
basic motivation would be to maintain for a time the income advantage from
investing in the short-term securities; the Fund would be endeavoring at the
same time to eliminate the effect of all or part of an expected increase in
market price of the long-term bonds that the Fund may purchase.
For example, assume that the market price of a long-term bond that the
Fund may purchase, currently yielding 10%, tends to move in concert with futures
market prices of Treasury bonds. The Adviser wishes to fix the current market
price (and thus 10% yield) of the long-term bond until the time (four months
away in this example) when it may purchase the bond. Assume the long-term bond
has a market price of 100, and the Adviser believes that, because of an
anticipated fall in interest rates, the price will have risen to 105 (and the
yield will have dropped to about 9-1/2%) in four months. The Fund might enter
into futures contracts purchases of Treasury bonds for an equivalent price of
98. At the same time, the Fund would assign a pool of investments in short-term
securities that are either maturing in four months or earmarked for sale in four
months, for purchase of the long-term bond at an assumed market price of 100.
Assume these short-term securities are yielding 15%. If the market price of the
long-term bond does indeed rise from 100 to 105, the equivalent futures market
price for Treasury bonds might also rise from 98 to 103. In that case, the
5-point increase in the price that the Fund pays for the long-term bond would be
offset by the 5-point gain realized by closing out the futures contract
purchase.
The Adviser could be wrong in its forecast of interest rates; long-term
interest rates might rise to above 10%; and the equivalent futures market price
could fall below 98. If short-term rates at the same time fall to 10% or below,
it is possible that the Fund would continue with its purchase program for
long-term bonds. The market price of available long-term bonds would have
decreased. The benefit of this price decrease, and thus yield increase, will be
reduced by the loss realized on closing out the futures contract purchase.
If, however, short-term rates remained above available long-term rates, it
is possible that the Fund would discontinue its purchase program for long-term
bonds. The yield on short-term 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
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incremental income will be reduced by the loss realized on closing out the
futures contract purchase.
In each transaction, expenses also would be incurred.
II. Index Futures Contracts.
A stock or bond index assigns relative values to the stocks or bonds
included in the index, and the index fluctuates with changes in the market
values of the stocks or bonds included. Some stock index futures contracts are
based on broad market indices, such as the Standard & Poor's 500 or the Exchange
Composite Index. In contract, certain exchanges offer futures contracts on
narrower market indices, such as the Standard & Poor's 100, the Bond Buyer
Municipal Bond Index, an index composed of 40 term revenue and general
obligation bonds, or indices based on an industry or market segment, such as oil
and gas stocks. Futures contracts are traded on organized exchanges regulated by
the Commodity Futures Trading Commission. Transactions on such exchanges are
cleared through a clearing corporation, which guarantees the performance of the
parties to each contract.
A Fund will sell index futures contracts in order to offset a decrease in
market value of its portfolio securities that might otherwise result from a
market decline. Such Fund may do so either to hedge the value of its portfolio
as a whole, or to protect against declines, occurring prior to sales of
securities, in the value of the securities to be sold. Conversely, a Fund will
purchase index futures contracts in anticipation of purchases of securities. In
a substantial majority of these transactions, the Fund will purchase such
securities upon termination of the long futures position, but a long futures
position may be terminated without a corresponding purchase of securities.
In addition, a Fund may utilize index futures contracts in anticipation of
changes in the composition of its portfolio holdings. For example, in the event
that a Fund expects to narrow the range of industry groups represented in its
holdings it may, prior to making purchases of the actual securities, establish a
long futures position based on a more restricted index, such as an index
comprised of securities of a particular industry group. A Fund also may sell
futures contracts in connection with this strategy, in order to protect against
the possibility that the value of the securities to be sold as part of the
restructuring of the portfolio will decline prior to the time of sale.
The following are examples of transactions in stock index futures (net of
commissions and premiums, if any).
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ANTICIPATORY PURCHASE HEDGE: BUY THE FUTURE
HEDGE OBJECTION: PROTECT AGAINST INCREASING PRICE
Portfolio Futures
-Day Hedge is Placed-
Anticipate Buying $62,500 Buying 1 Index Futures at 125
Equity Portfolio Value of Futures = $62,500/Contract
-Day Hedge is Lifted-
Buy Equity Portfolio with Sell 1 Index Futures at 130
Actual Cost = $65,000 Value of Futures = $65,000/Contract
Increase in Purchase Price =$2,500 Gain on Futures = $2,500
HEDGING A STOCK PORTFOLIO: SELL THE FUTURE
HEDGE OBJECTIVE: PROTECT AGAINST DECLINING
VALUE OF THE PORTFOLIO
Factors:
Value of Stock Portfolio = $1,000,000 Value of Futures Contract = 125 x $500 =
$62,500 Portfolio Beta Relative to the Index - 1.0
Portfolio Futures
-Day Hedge is Placed --
Anticipate Selling $1,000,000 Sell 16 Index Futures at 125
Equity Portfolio Value of Futures = $1,000,000
-Day Hedge is Lifted --
Equity Portfolio-Own Buy 16 Index Futures at 120
Stock with Value = $960,000 Value of Futures = $960,000
Loss in Portfolio Value = $40,000 Gain on Futures = $40,000
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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
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III. Margin Payments.
Unlike when a Fund purchases or sells a security, no price is paid or
received by a Fund upon the purchase or sale of a futures contract. Initially, a
Fund will be required to deposit with the broker or in a segregated account with
such Fund's Custodian an amount of cash or cash equivalents, the value, of which
may vary but is generally equal to 10% or less of the value of the contract.
This amount is known as initial margin. The nature of initial margin in futures
transactions is different from that of margin in security transactions in that
futures contract margin does not involve the borrowing of funds by the customer
to finance the transactions. Rather, the initial margin is in the nature of a
performance bond or good faith deposit on the contract which is returned to the
Fund upon termination of the futures contract assuming all contractual
obligations have been satisfied. Subsequent payments, called variation margin,
to and from the broker, will be made on a daily basis as the price of the
underlying security or index fluctuates making the long and short positions in
the futures contract more or less valuable, a process known as marking to the
market. For example, when a Fund has purchased a futures contract and the price
of the contract has risen in response to a rise in the underlying instruments,
that position will have increased in value and the Fund will be entitled to
receive from the broker a variation margin payment equal to that increase in
value. Conversely, where a Fund has purchased a futures contract and the price
of the futures contract has declined in response to a decrease in the underlying
instruments, the position would be less valuable, and the Fund would be required
to make a variation margin payment to the broker. At any time prior to
expiration of the futures contract, the Adviser may elect to close the position
by taking an opposite position, subject to the availability of a secondary
market, which will operate to terminate the Fund's position in the futures
contract. A final determination of variation margin is then made, additional
cash is required to be paid by or released to the Fund, and the Fund realizes a
loss or gain.
IV. Risks of Transactions in Futures Contracts.
There are several risks in connection with the use of futures by a Fund as
a hedging device. One risk arises because of the imperfect correlation between
movements in the price of the future and movements in the price of the
securities which are the subject of the hedge. The price of the future may move
more than or less than the price of the securities being hedged. If the price of
the future moves less than the price of the securities which are the subject of
the hedge, the hedge will not be fully effective but, if the price of the
securities being hedged has moved in an unfavorable direction, the Fund would be
in a better position than if it had not hedged at all. If the price of the
securities being hedged has moved in a favorable direction, this advance will be
partially offset by the loss on the future. If the price of the future moves
more than the price of the hedged securities, the Fund involved will experience
either a loss or gain on the future which will not be completely offset by
movements in the price of the securities which are the subject of the hedge.
To compensate for the imperfect correlation of movements in the price of
securities being hedged and movements in the price of futures contracts, a Fund
may buy or sell futures contracts in a greater dollar amount than the dollar
amount of securities being hedged if the volatility over a particular time
period of the prices of such securities has been greater than the volatility
over such
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time period of the future, or if otherwise deemed to be appropriate by the
Adviser. Conversely, a Fund may buy or sell fewer futures contracts if the
volatility over a particular time period of the prices of the securities being
hedged is less than the volatility over such time period of the futures contract
being used, or if otherwise deemed to be appropriate by the Adviser. It also is
possible that, where a Fund has sold futures to hedge its portfolio against a
decline in the market, the market may advance, and the value of securities held
by the Fund may decline. If this occurred, the Fund would lose money on the
future and also experience a decline in value in its portfolio securities.
Where futures are purchased to hedge against a possible increase in the
price of securities before a Fund is able to invest its cash (or cash
equivalents) in securities (or options) in an orderly fashion, it is possible
that the market may decline instead; if the Fund then concludes not to invest in
securities or options at that time because of concern as to possible further
market decline or for other reasons, the Fund will realize a loss on the futures
contract that is not offset by a reduction in the price of securities purchased.
In instances involving the purchase of futures contracts by a Fund, an
amount of cash and cash equivalents, equal to the market value of the futures
contracts, will be deposited in a segregated account with the Fund's Custodian
and/or in a margin account with a broker to collateralize the position and
thereby insure that the use of such futures is unleveraged.
In addition to the possibility that there may be an imperfect correlation,
or no correlation at all, between movements in the futures and the securities
being hedged, the price of futures may not correlate perfectly with movement in
the cash market due to certain market distortions. Rather than meeting
additional margin deposit requirements, investors may close futures contracts
through off-setting transactions which could distort the normal relationship
between the cash and futures markets. Second, with respect to financial futures
contracts, the liquidity of the futures market depends on participants entering
into off-setting transactions rather than making or taking delivery. To the
extent participants decide to make or take delivery, liquidity in the futures
market could be reduced thus producing distortions. Third, from the point of
view of speculators, the deposit requirements in the futures market are less
onerous than margin requirements in the securities market. Therefore, increased
participation by speculators in the futures market may also cause temporary
price distortions. Due to the possibility of price distortion in the futures
market, and because of the imperfect correlation between the movements in the
cash market and movements in the price of futures, a correct forecast of general
market trends or interest rate movements by the Adviser still may not result in
a successful hedging transaction over a short time frame.
Positions in futures may be closed out only on an exchange or board of
trade which provides a secondary market for such futures. Although each Fund
intends to purchase or sell futures only on exchanges or boards of trade where
there appear to be active secondary markets, there is no assurance that a liquid
secondary market on any exchange or board of trade will exist for any particular
contract or at any particular time. In such event, it may not be possible to
close a futures investment position, and in the event of adverse price
movements, a Fund would continue to be required to make daily cash payments of
variation margin. However, in the event futures
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contracts have been used to hedge portfolio securities, such securities will not
be sold until the futures contract can be terminated. In such circumstances, an
increase in the price of the securities, if any, may partially or completely
offset losses on the futures contract. However, as described above, there is no
guarantee that the price of the securities will in fact correlate with the price
movements in the futures contract and thus provide an offset on a futures
contract.
Further, it should be noted that the liquidity of a secondary market in a
futures contract may be adversely affected by "daily price fluctuation limits"
established by commodity exchanges which limit the amount of fluctuation in a
futures contract price during a single trading day. Once the daily limit has
been reached in the contract, no trades may be entered into at a price beyond
the limit, thus preventing the liquidation of open futures positions.
Successful use of futures by a Fund also is subject to the Adviser's
ability to predict correctly movements in the direction of the market. For
example, if a Fund has hedged against the possibility of a decline in the market
adversely affecting securities held in its portfolio and securities prices
increase instead, the Fund will lose part or all of the benefit to the increased
value of its securities which it has hedged because it will have offsetting
losses in its futures positions. In addition, in such situations, if the Fund
has insufficient cash, it may have to sell securities to meet daily variation
margin requirements. Such sales of securities may be, but will not necessarily
be, at increased prices which reflect the rising market. The Fund may have to
sell securities at a time when it may be disadvantageous to do so.
V. Options on Futures Contracts.
Each 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 Funds because the maximum amount at risk is the premium
paid for the options (plus transaction costs). Although
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<PAGE>
permitted by their fundamental investment policies, the Funds do not currently
intend to write future options, and will not do so in the future absent any
necessary regulatory approvals.
VI. Accounting and Tax Treatment.
Accounting for futures contracts and options will be in accordance with
generally accepted accounting principles.
Generally, futures contracts and options on futures contracts held by the
Funds at the close of the Funds' 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 a Fund holds the futures contract or option (the "40%-60% rule"). The
amount of any capital gain or loss actually realized by a Fund in a subsequent
sale or other disposition of those futures contracts will be adjusted to reflect
any capital gain or loss taken into account by the Fund in a prior year as a
result of the constructive sale of the contracts and options. With respect to
futures contracts to sell or options which will be regarded as parts of a "mixed
straddle" because their values fluctuate inversely to the values of specific
securities held by a Fund, losses as to such contracts to sell or options will
be subject to certain loss deferral rules which limit the amount of loss
currently deductible on either part of the straddle to the amount thereof which
exceeds the unrecognized gain (if any) with respect to the other part of the
straddle, and to certain wash sales regulations. Under short sales rules, which
also will be applicable, the holding period of the securities forming part of
the straddle will (if they have not been held for the long-term holding period)
be deemed not to begin prior to termination of the straddle. With respect to
certain futures contracts and options, deductions for interest and carrying
charges will not be allowed. Notwithstanding the rules described above, with
respect to futures contracts to sell which are properly identified as such and
certain options, a Fund may make an election which will except (in whole or in
part) those identified futures contracts or options from being treated for
Federal income tax purposes as sold on the last business day of a Fund's taxable
year, but gains and losses will be subject to such short sales, wash sales, loss
deferral rules and the requirement to capitalize interest and carrying charges.
Under temporary regulations, a Fund would be allowed (in lieu of the foregoing)
to elect to either (1) offset gains or losses from portions which are part of a
mixed straddle by separately identifying each mixed straddle to which such
treatment applies, or (2) establish a mixed straddle account for which gains and
losses would be recognized and offset on a periodic basis during the taxable
year. Under either election, the 40%-60% rule will apply to the net gain or loss
attributable to the futures contracts, but in the case of a mixed straddle
account election, not more than 50% of any net gain may be treated as long-term
and not more than 40% of any net loss may be treated as short-term.
Certain foreign currency contracts entered into by a Fund may be subject
to the "marking-to-market" process and the 40%-60% rule in a manner similar to
that described in the preceding paragraph for futures contracts and options on
futures contracts. To receive such Federal income tax treatment, a foreign
currency contract must meet the following conditions: (1) the contract must
require delivery of a foreign currency of a type in which regulated futures
contracts are
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traded or upon which the settlement value of the contract depends;
(2) the contract must be entered into at arm's length at a price determined by
reference to the price in the interbank market; and (3) the contract must be
traded in the interbank market. The Treasury Department has broad authority to
issue regulations under the provisions respecting foreign currency contracts.
Other foreign currency contracts entered into by a Fund may result in the
creation of one or more straddles for Federal income tax purposes, in which case
certain loss deferral, short sales, and wash sales rules and the requirement to
capitalize interest and carrying charges may apply.
As described more full in the section of the SAI entitled "Additional
Information Concerning Taxes," in order to qualify as a regulated investment
company under the Code 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 a Fund's futures contracts and other investments that qualify as part
of a "designated hedge," as defined in the Code, may be netted.
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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.
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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.
Each 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 Funds will, consistent with their investment objective and
policies, consider making investments in such new types of securities.
UNDERLYING MORTGAGES
Pools consist of whole mortgage loans or participations in loans. The
majority of these loans are made to purchasers of 1-4 family homes. The terms
and characteristics of the mortgage instruments are generally uniform within a
pool but may vary among pools. For example, in addition to fixed-rate,
fixed-term mortgages, the Funds 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 a 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.
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<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 Funds. The
compounding effect from reinvestments of monthly payments received by the Funds
will increase its yield to shareholders, compared to bonds that pay interest
semi-annually.
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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 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
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<PAGE>
Unaudited financial statements for the period ended January 31, 1997 for Primary
A, Primary B, Investor A and Investor C Shares for Nations Managed SmallCap
Index Fund.
Included in Part C:
Consent of Independent Accountants
(b) Exhibits
Exhibit
Number
(1)(a) Declaration of Trust dated May 6, 1985, is incorporated by
reference to its Registration Statement, filed May 17, 1985.
(1)(b) Certificate pertaining to classification of shares dated May 17,
1985, is incorporated by reference to its Registration Statement,
filed May 17, 1985.
(1)(c) Amendment dated July 27, 1987, to Declaration of Trust is
incorporated by reference to Post-Effective Amendment No. 4 to
its Registration Statement filed January 29, 1988.
(1)(d) Amendment dated September 13, 1989, to Declaration of Trust is
incorporated by reference to Post-Effective Amendment No. 8 to
its Registration Statement filed March 16, 1990.
(1)(e) Certificate pertaining to classification of shares dated August
24, 1990, is incorporated by Post-Effective Amendment No. 11,
filed September 26, 1990.
(1)(f) Amendment dated November 26, 1990 to Declaration of Trust 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 dated September 21, 1992, to Declaration of Trust is
incorporated by reference to Post-Effective Amendment No. 23,
filed December 23, 1992.
(1)(k) Amendment dated March 26, 1993, to the Declaration of Trust is
incorporated by reference to Post-Effective Amendment No. 27,
filed May 27, 1993.
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<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-Trm 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.
(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.
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<PAGE>
(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) Mutual Fund Custody and Sub-Custody Agreement between Registrant,
NationsBank of Texas, N.A. ("NationsBank Texas") and The Bank of
New York, dated October 18, 1996, is filed herewith.
(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.
4
<PAGE>
(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 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.
5
<PAGE>
(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) N/A
(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.
6
<PAGE>
(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.
(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.
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 April 9, 1997.
<TABLE>
<CAPTION>
Number of
Title of Class Record Holders
<S> <C> <C>
Nations Government Money Market Fund - Investor A 209
- Investor B 42
- Investor C 30
- Daily 5
- Primary A 4
- Primary B 1
Nations Tax Exempt Fund - Investor A 3,073
- Investor B 324
- Investor C 435
- Daily 2
7
<PAGE>
- Primary A 4
- Primary B 1
Nations Value Fund - Investor A 3,511
- Investor C 293
- Investor N 7,579
- Primary A 53
- Primary B 5
Nations Capital Growth Fund - Investor A 1,593
- Investor C 239
- Investor N 4,030
- Primary A 47
- Primary B 3
Nations Emerging Growth Fund - Investor A 1,327
- Investor C 119
- Investor N 4,273
- Primary A 37
- Primary B 4
Nations Disciplined Equity Fund - Investor A 502
- Investor C 36
- Investor N 1,745
- Primary A 7
- Primary B 2
Nations Equity Index Fund - Primary A 40
- Primary B 4
- Investor A 94
Nations Managed Index Fund - Investor A 101
- Investor C 12
- Primary A 3
- Primary B 1
Nations Managed SmallCap Index Fund - Investor A 90
- Investor C 4
- Primary A 13
- Primary B 2
Nations Balanced Assets Fund - Investor A 568
- Investor C 75
- Investor N 3,838
8
<PAGE>
- Primary A 53
- Primary B 5
Nations Short-Intermediate - Investor A 1,071
Government Fund - Investor C 327
- Investor N 524
- Primary A 28
- Primary B 3
Nations Short-Term Income Fund - Investor A 138
- Investor C 105
- Investor N 383
- Primary A 9
- Primary B 2
Nations Diversified Income Fund - Investor A 477
- Investor C 151
- Investor N 3,801
- Primary A 9
- Primary B 2
Nations Strategic Fixed Income - Investor A 280
Fund - Investor C 17
- Investor N 126
- Primary A 57
- Primary B 5
Nations Municipal Income Fund - Investor A 252
- Investor C 56
- Investor N 369
- Primary A 1
- Primary B 0
Nations Intermediate Municipal - Investor A 42
Bond Fund - Investor C 7
- Investor N 41
- Primary A 1
- Primary B 0
Nations Short-Term Municipal - Investor A 45
Income Fund - Investor C 11
- Investor N 134
- Primary A 1
- Primary B 0
9
<PAGE>
Nations Florida Intermediate - Investor A 61
Municipal Bond Fund - Investor C 9
- Investor N 114
- Primary A 1
- Primary B 0
Nations Georgia Intermediate - Investor A 170
Municipal Bond Fund - Investor C 44
- Investor N 171
- Primary A 6
- Primary B 0
Nations Maryland Intermediate - Investor A 289
Municipal Bond Fund - Investor C 67
- Investor N 204
- Primary A 1
- Primary B 0
Nations North Carolina Intermediate - Investor A 115
Municipal Bond Fund - Investor C 31
- Investor N 200
- Primary A 1
- Primary B 0
Nations South Carolina Intermediate - Investor A 165
Municipal Bond Fund - Investor C 100
- Investor N 199
- Primary A 1
- Primary B 0
Nations Tennessee Intermediate - Investor A 64
Municipal Bond Fund - Investor C 2
- Investor N 64
- Primary A 1
- Primary B 0
Nations Texas Intermediate - Investor A 20
Municipal Bond Fund - Investor C 3
- Investor N 64
- Primary A 1
- Primary B 0
Nations Virginia Intermediate - Investor A 821
Municipal Bond Fund - Investor C 124
- Investor N 374
10
<PAGE>
- Primary A 1
- Primary B 0
Nations Virginia Municipal Bond - Investor A 19
Fund - Investor C 3
- Investor N 486
- Primary A 1
- Primary B 0
Nations Maryland Municipal Bond - Investor A 12
Fund - Investor C 2
- Investor N 335
- Primary A 2
- Primary B 0
Nations North Carolina Municipal - Investor A 39
Bond Fund - Investor C 3
- Investor N 637
- Primary A 2
- Primary B 0
Nations South Carolina Municipal - Investor A 14
Bond Fund - Investor C 4
- Investor N 259
- Primary A 1
- Primary B 0
Nations Florida Municipal Bond Fund - Investor A 13
- Investor C 3
- Investor N 449
- Primary A 1
- Primary B 0
Nations Georgia Municipal Bond Fund - Investor A 6
- Investor C 3
- Investor N 298
- Primary A 2
- Primary B 0
Nations Tennessee Municipal Bond - Investor A 8
Fund - Investor C 3
- Investor N 140
- Primary A 2
- Primary B 0
11
<PAGE>
Nations Texas Municipal Bond Fund - Investor A 12
- Investor C 3
- Investor N 275
- Primary A 2
- 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.;
2. Co-Administration Agreement with First Data Investors
Services Group, Inc.;
3. Distribution Agreement with Stephens Inc.;
4. Mutual Fund Custody and Sub-Custody Agreement with
NationsBank Texas and The Bank of New York;
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
12
<PAGE>
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 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.
13
<PAGE>
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 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.
14
<PAGE>
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).
(7) The Bank of New York, 90 Washington Street, New York, New York 10286
(records relating to its function as sub-custodian)
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.
15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the 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
16th day of May, 1997.
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 May 16, 1997
- ----------------------------------------
(A. Max Walker) of the Board of Trustees
(Principal Executive Officer)
* Treasurer May 16, 1997
- ----------------------------------------
(Richard H. Rose) Vice President
(Principal Financial and
Accounting Officer)
* Trustee May 16, 1997
- ----------------------------------------
(Edmund L. Benson, III)
* Trustee May 16, 1997
- ----------------------------------------
(James Ermer)
* Trustee May 16, 1997
- ----------------------------------------
(William H. Grigg)
* Trustee May 16, 1997
- ----------------------------------------
(Thomas F. Keller)
* Trustee May 16, 1997
- ----------------------------------------
(Carl E. Mundy, Jr.)
* Trustee May 16, 1997
- ----------------------------------------
(Charles B. Walker)
* Trustee May 16, 1997
- ----------------------------------------
(Thomas S. Word)
/s/ Richard H. Blank, Jr.
Richard H. Blank, Jr.
*Attorney-in-Fact
</TABLE>
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
EX-99.B8 CUST AGMT
EX-99.B10 OPIN COUNS
<PAGE>
EX-99.B8
MUTUAL FUND CUSTODY AND SUB-CUSTODY AGREEMENT
THIS AGREEMENT is made as of the 18th day of October, 1996 by
and among NationsBank of Texas, N.A., a national banking association
("Custodian"), The Bank of New York, a New York corporation authorized to do a
banking business ("Sub-Custodian"), and Nations Fund Trust, a Massachusetts
business trust (the "Trust").
W I T N E S S E T H
WHEREAS, the Trust is a registered open-end management
investment company under the Investment Company Act of 1940, as amended (the
"1940 Act"); and
WHEREAS, the Trust desires to retain Custodian to serve as
custodian for the Trust, on behalf of its portfolios listed on Schedule I
(individually a "Fund" and collectively the "Funds") and to provide the services
described herein, and Custodian is willing to serve and to provide such
services; and
WHEREAS, Custodian and Trust each desires to retain
Sub-Custodian to serve as the Trust's sub-custodian and provide the services
described herein, and Sub-Custodian is willing to so serve and to provide such
services;
NOW, THEREFORE, in consideration of the premises and mutual
covenants herein contained, the Trust, Custodian and Sub-Custodian hereby agree
as follows:
1. Appointment. The Trust hereby appoints the Custodian to act as
custodian of its portfolio securities, cash and other property on the terms set
forth in this Agreement. The Custodian accepts such appointment and agrees to
furnish the services herein set forth in return for the compensation as provided
in Paragraph 23 hereof. The Custodian agrees to comply with all relevant
provisions of the 1940 Act and applicable rules and regulations thereunder.
Custodian and Trust each hereby appoints Sub-Custodian to act as a
sub-custodian of the portfolio securities, cash and other property of the Trust
on the terms set forth in this Agreement. Sub-Custodian accepts such appointment
and agrees to furnish the services herein set forth in return for the
compensation as provided in Paragraph 23 hereof, Sub-Custodian agrees to comply
with all relevant provisions of the 1940 Act and applicable rules and
regulations thereunder applicable to Sub-Custodian's performance of its services
hereunder.
The Trust may from time to time issue separate series or classes, and
classify and reclassify shares of any such series or class. Custodian or the
Trust shall promptly specify to Sub-Custodian in writing such series or classes,
or any reclassification, and thereafter Sub-Custodian shall identify to each
such series or class Property, as hereinafter defined, belonging to such series
or class, and such reports, confirmations and notices to the Trust called for
under this Agreement shall identify the series or class to which such report,
confirmation or notice pertains.
1
<PAGE>
2. Delivery of Documents. The Trust has furnished to the Custodian and
Sub-Custodian copies properly certified or authenticated of each of the
following:
(a) Resolutions of the Trust's Board of Trustees authorizing
the appointment of Custodian and Sub-Custodian as a custodian and sub-custodian
of portfolio securities, cash and other property of the Trust, respectively, and
approving and consenting to this Agreement;
(b) Schedule A identifying and containing the signatures of
the Trust's officers and/or other persons authorized to issue Oral Instructions
and to sign Written Instructions, as hereinafter defined, on behalf of the
Trust;
(c) Schedule B setting forth the names and signatures of the
present officers of the Trust;
(d) The Trust's current Registration Statement on Form N-1A
under the 1940 Act and the Securities Act of 1933, as amended (the "1933 Act"),
as filed with the Securities and Exchange Commission (the "SEC"), relating to
shares of beneficial interest of the Trust, without par value (the "Shares");
(e) The current prospectuses and statements of additional
information of each of the Funds, including all amendments and supplements
thereto (the "Prospectuses"); and
(f) A copy of the opinion of counsel for the Trust, with
respect to the validity of the Shares and the status of such Shares under the
1933 Act filed with the SEC, and any other applicable federal law or regulation.
The Trust shall furnish to Custodian and Sub-Custodian from
time to time copies, properly certified or authenticated, of all amendments of
or supplements to any of the foregoing.
3. Definitions.
(a) "Authorized Person". As used in this Agreement, the term
"Authorized Person" means any of the Trust's officers, and any other person,
whether or not any such person is an officer or employee of the Trust, duly
authorized by the Board of Trustees of the Trust to give Oral and Written
Instructions to Custodian and Sub-Custodian on behalf of the Trust and listed on
Schedule A, which may be amended from time to time. Authorized Persons duly
authorized by the Board of Trustees of the Trust to buy and sell foreign
currency on a spot and forward basis and options to buy and sell foreign
currency are denoted by an asterisk thereon.
(b) "Book-Entry System". As used in this Agreement, the term
"Book-Entry System" means the Federal Reserve/Treasury book-entry system for
United States and federal agency securities, its successor or successors and its
nominee or nominees and any book-entry system maintained by a clearing agency
registered with the SEC under Section 17A of the Securities Exchange Act of 1934
(the "1934 Act").
2
<PAGE>
(c) "Composite Currency Unit". Shall mean the European
Currency Unit or any other composite unit consisting of the aggregate of
specified amounts of specified Currencies as such unit may be constituted from
time to time.
(d) "Currency". Shall mean money denominated in a lawful
currency of any country or the European Currency Unit.
(e) "FX Transaction". Shall mean any transaction for the
purchase by one party of an agreed amount in one Currency against the sale by it
to the other party of an agreed amount in another Currency.
(f) "Instructions". Shall mean instruction communications
transmitted by electronic or telecommunications media including S.W.I.F.T.,
computer-to-computer interface, dedicated transmission line, facsimile
transmission (which may be signed or unsigned) and tested telex.
(g) "Oral Instructions". As used in this Agreement, the term
"Oral Instructions" means oral instructions actually received by Custodian or
Sub-Custodian from an Authorized Person or from a person reasonably believed by
Custodian or Sub-Custodian to be an Authorized Person.
(h) "Officer's Certificate". The term "Officer's Certificate"
as used in this Agreement means instructions delivered by hand, mail, tested
telegram, cable, telex, or facsimile sending device, and actually received by
Custodian or Sub-Custodian signed or reasonably believed by Custodian or
Sub-Custodian to be signed by two officers of the Trust listed on Schedule B.
(i) "Property". The term "Property", as used in this
Agreement, means:
(i) any and all securities and other property of the
Trust which the Trust or Custodian may from time to time deliver to Custodian or
Sub-Custodian, as applicable, or which Custodian or Sub-Custodian may from time
to time hold for the Trust;
(ii) all income in respect of any securities or other
property described in immediately preceding clause (i);
(iii) all proceeds of sales of any of such securities
or other property described in preceding clause (i) actually received by
Custodian or Sub-Custodian; and
(iv) proceeds of the sale of Shares received by
Custodian or Sub-Custodian from time to time from or on behalf of the Trust.
(j) "Securities Depository". As used in this Agreement, the
term "Securities Depository" shall mean The Depository Trust Company, a clearing
agency registered with the SEC or its successor or successors and its nominee or
nominees; and shall also mean any other registered clearing agency, its
successor or successors specifically identified in a certified copy of
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a resolution of the Trust's Board of Trustees approving deposits by the
Custodian or Sub-Custodian therein.
(k) "Written Instructions". As used in this Agreement,
"Written Instructions" means instructions delivered by hand, mail, tested
telegram, cable, telex, or facsimile sending device, and actually received by
the Custodian or Sub-Custodian, signed or reasonably believed by the Custodian
or Sub-Custodian to be signed by two Authorized Persons, and the term Written
Instructions shall also include Instructions.
4A. Services of Custodian. The Custodian shall be responsible for
oversight and monitoring of the performance by the Sub-Custodian of the duties
assumed by it hereunder. Such oversight and monitoring shall include, but not be
limited to, coordinating communication between the Funds' investment adviser(s)
and the Sub-Custodian with respect to Fund trading activity, assisting with
failed trade resolution, reviewing Fund cash management activity with the
Sub-Custodian, reviewing posting of income to Fund accounts, monitoring
Sub-Custodian's reporting of corporate actions to the Funds' investment
adviser(s) and communications related thereto, facilitating the establishment of
Fund accounts on the Sub-Custodian's custody system, and assisting in the
resolution of any issues between the Sub-Custodian and the Funds.
In no case, however, shall the Custodian have physical custody of any
of the Funds' securities, cash or other monies.
4B. Delivery and Registration of the Property. Custodian or the Trust
shall deliver or cause to be delivered to Sub-Custodian all securities and all
monies owned by the Funds, including cash received for the issuance of Shares,
at any time during the period of this Agreement, except for securities and
monies to be delivered to any other sub-custodian appointed, with approval of
Trust, by Custodian or Sub-Custodian pursuant to Paragraphs 7, 27, or 28(g)
hereof. Sub-Custodian will not be responsible for such securities and such
monies until actually received by it. All securities delivered to Sub-Custodian
(other than in bearer form) shall be registered in the name of the Fund or in
the name of a nominee of a Fund or in the name of Sub-Custodian or any nominee
of Sub-Custodian (with or without indication of fiduciary status) or in the name
of any sub-custodian or any nominee of such sub-custodian appointed, with
approval of Trust, pursuant to Paragraphs 7, 27, or 28(g) hereof or shall be
properly endorsed and in form for transfer satisfactory to Sub-Custodian.
5. Voting Rights. With respect to all securities, however registered,
it is understood that the voting and other rights and powers shall be exercised
by the Trust. Sub-Custodian's only duty shall be to mail to the Trust within two
(2) business days following receipt by the Sub-Custodian any documents received
by Sub-Custodian as sub-custodian, including proxy statements and offering
circulars, with any proxies for securities registered in a nominee name executed
by such nominee. Where warrants, options, tenders or other securities have fixed
expiration dates, the Trust understands that in order for Sub-Custodian to act,
Sub-Custodian must receive the Trust's instructions at its offices in New York,
addressed as Sub-Custodian may from time to time request, by no later than noon
(New York City time) at least one (1) business day prior to the last scheduled
date to act with respect thereto (or such earlier date or time as Sub-Custodian
may reasonably notify the Trust and Custodian). Absent Sub-Custodian's timely
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receipt of such instructions, such instructions will expire without liability to
Sub-Custodian. Corporate reports need not be forwarded to the Trust.
6. Receipt and Disbursement of Money.
(a) Sub-Custodian shall open and maintain a custody account
for each Fund of the Trust, subject only to draft or order by Sub-Custodian
acting pursuant to the terms of this Agreement, and, subject to Paragraphs 7,
27, or 28(g) hereof, shall hold in such account, subject to the provisions
hereof, all cash received by it from or for the Funds. Sub-Custodian shall make
payments of cash to, or for the account of, each Fund from such cash only (i)
for the purchase of securities for the Funds as provided in Paragraph 14 hereof;
(ii) upon receipt of an Officer's Certificate for the payment of dividends or
other distributions on or with respect to Shares, or for the payment of
interest, taxes, administration, distribution or advisory fees or expenses which
are to be borne by the Funds under the terms of this Agreement and, with respect
to each Fund, and under the terms of any investment advisory agreements,
administration agreement or distribution agreement; (iii) upon receipt of
Written Instructions for payments in connection with the conversion, exchange or
surrender of securities owned or subscribed to by the Funds and held by or to be
delivered to Sub-Custodian; (iv) to a sub-custodian or co-custodian pursuant to
Paragraphs 7, 27, or 28(g) hereof; or (v) for the redemption of Shares; or (vi)
upon receipt of an Officer's Certificate for other corporate purposes.
(b) Sub-Custodian is hereby authorized to endorse and collect
all checks, drafts or other orders for the payment of money received as
custodian for the Funds.
7. Receipt of Securities.
(a) Except as provided by Paragraphs 7(c), 8, 27, or 28(g)
hereof, and except as otherwise directed by Oral or Written Instructions
described in Paragraph 11 hereof, Sub-Custodian shall hold and physically
segregate in a separate account with respect to each Fund, identifiable from
those of any other person, all securities and non-cash property received by it
for the Funds. All such securities and non-cash property are to be held or
disposed of by Sub-Custodian for each Fund pursuant to the terms of this
Agreement. In the absence of Written Instructions accompanied by a certified
resolution authorizing the specific transaction by the Trust's Board of
Trustees, and subject to Paragraph 25 hereof, Sub-Custodian shall have no power
or authority to withdraw, deliver, assign, hypothecate, pledge or otherwise
dispose of any such securities and investments, except in accordance with the
express terms provided for in this Agreement. In no case may any director,
officer, employee or agent of the Trust or of Custodian withdraw any securities.
In connection with its duties under this Paragraph 7(a), Sub-Custodian may, with
the prior written approval of Trust and Custodian, enter into sub-custodian
agreements with other banks or trust companies for the receipt of certain
securities and cash to be held by Sub-Custodian for the account of a Fund
pursuant to this Agreement; provided that each such bank or trust company has an
aggregate capital, surplus and undivided profits, as shown by its last published
report, of not less than one million dollars ($1,000,000) for a Sub-Custodian
subsidiary or affiliate, or of not less than twenty million dollars
($20,000,000) for a sub-custodian that is not a subsidiary or affiliate of
Sub-Custodian and that in either case such bank or trust company agrees with
Sub-Custodian to comply with the provisions of the 1940 Act and applicable rules
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and regulations thereunder applicable to its performance of its services.
Sub-Custodian will provide the Trust and Custodian with a copy of each
sub-custodian agreement it executes pursuant to this Paragraph 7(a).
Sub-Custodian shall be liable for acts or omissions of any such sub-custodian
selected by it pursuant to this Paragraph 7(a), under the standards of care
provided for herein, except for any such sub-custodian engaged at the specific
direction of the Funds. Notwithstanding anything herein to the contrary, this
Paragraph 7(a) shall not apply to Sub-Custodian's engagement of foreign
sub-custodians, which shall instead be governed by Paragraph 27 hereof.
(b) Promptly after the close of business on each day,
Sub-Custodian shall furnish the Trust and/or Custodian with confirmations and a
summary of all transfers to or from the account of each Fund during said day.
Where securities are transferred to the account of any Fund established at a
Securities Depository or the Book Entry System pursuant to Paragraph 8 hereof,
Sub-Custodian shall also, by book-entry or otherwise, identify as belonging to
such Fund the quantity of securities in a fungible bulk of securities registered
in the name of Sub-Custodian (or its nominee) or shown in Sub-Custodian's
account on the books of a Securities Depository or the Book-Entry System. At
least monthly and from time to time, Sub-Custodian shall furnish the Trust
and/or Custodian with a detailed statement of the Property held for each Fund
under this Agreement.
(c) Notwithstanding any provision elsewhere contained herein,
Sub-Custodian shall not be required to obtain possession of any instrument or
certificate representing any futures contract, any option, or any futures
contract option until after it shall have determined, or shall have received an
Officer's Certificate from the Trust stating that any such instruments or
certificates are available. The Trust shall deliver to Sub-Custodian such an
Officer's Certificate no later than the business day preceding the availability
of any such instrument or certificate. Prior to such availability, Sub-Custodian
shall comply with the 1940 Act in connection with the purchase, sale,
settlement, closing out or writing of futures contracts, options, or futures
contract options by making payments or deliveries specified in such Officer's
Certificates or Written Instructions received by Sub-Custodian in connection
with any such purchase, sale, writing, settlement or closing out upon its
receipt from a broker, dealer, or futures commission merchant of a statement or
confirmation reasonably believed by Sub-Custodian to be in the form customarily
used by brokers, dealers, or future commission merchants with respect to such
futures contracts, options, or futures contract options, as the case may be,
confirming that the same is held by such broker, dealer or futures commission
merchant, in book-entry form or otherwise, in the name of Sub-Custodian (or any
nominee of Sub-Custodian) as Sub-Custodian for the Fund, provided, however, that
notwithstanding the foregoing, and subject to Paragraph 13(b) hereof, payments
to or deliveries from any margin account, and payments with respect to future
contracts, options, or future contract options to which a margin account
relates, shall be made in accordance with the terms and conditions of the
Trust's relevant margin account agreement. Whenever any such instruments or
certificates are available, Sub-Custodian shall, notwithstanding any provision
in this Agreement to the contrary, make payment for any futures contract,
option, or futures contract option for which such instruments or such
certificates are available against the delivery to Sub-Custodian of such
instrument or such certificate, and deliver any futures contract, option or
futures contract option for which such instruments or such certificates are
available only against receipt by Sub-Custodian of payment therefor. Any such
instrument or certificate
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delivered to Sub-Custodian shall be held by Sub-Custodian hereunder in
accordance with, and subject to, the provisions of this Agreement.
8. Use of Securities Depository or the Book-Entry System. Custodian or
the Trust shall deliver to Sub-Custodian a certified resolution of the Board of
Trustees of the Trust approving, authorizing and instructing Sub-Custodian on a
continuous and ongoing basis until instructed to the contrary by Written
Instructions (i) to deposit in a Securities Depository or the Book-Entry System
all securities of the Funds held hereunder eligible for deposit therein and (ii)
to utilize a Securities Depository or the Book-Entry System to the extent
possible in connection with the performance of its duties hereunder, including
without limitation settlements of purchases and sales of securities by the
Funds, and deliveries and returns of securities loaned, subject to repurchase
agreements or used as collateral in connection with borrowings. Without limiting
the generality of such use, the following provisions shall apply thereto:
(a) Securities and any cash of the Funds deposited by
Sub-Custodian in a Securities Depository or the Book-Entry System will at all
times be segregated from any assets and cash controlled by Sub-Custodian in
other than a fiduciary or custodian capacity. Subject to Paragraph 28(m) hereof,
Sub-Custodian and its sub-custodians, if any, will pay out money only upon
receipt of securities and will deliver securities only upon receipt of money,
absent Written Instructions to the contrary.
(b) All books and records maintained by Sub-Custodian that
relate to the Funds' participation in a Securities Depository or the Book-Entry
System will at all times during Sub-Custodian's regular business hours be open
to inspection by the Trust's and/or Custodian's duly authorized employees or
agents and the Trust's independent auditors in accordance with applicable
regulations, it being understood, however, that such records may be kept in an
off site Sub-Custodian storage location and the Trust and Custodian will be
furnished with all information in respect of the services rendered to it as it
may require.
(c) Sub-Custodian will provide the Trust with copies of any
report obtained by Sub-Custodian on the system of internal accounting control of
the Securities Depository or Book-Entry System promptly after receipt of such a
report by Sub-Custodian. Sub-Custodian will also provide the Trust and/or
Custodian with such reports on its own system of internal control as the Trust
and/or Custodian may reasonably request from time to time.
9. Instructions Consistent With the Charter, Etc. Unless otherwise
provided in this Agreement, Custodian and Sub-Custodian shall act only upon
Officer's Certificates, Oral Instructions and/or Written Instructions. Custodian
and Sub-Custodian may assume that any Officer's Certificate, Oral Instructions
or Written Instructions received hereunder are not in any way inconsistent with
any provision of the Declaration of Trust or Code of Regulations or any vote or
resolution of the Trust's Board of Trustees, or any committee thereof. Custodian
and Sub-Custodian shall be entitled to rely upon any Oral Instructions or
Written Instructions actually received by Custodian and Sub-Custodian pursuant
to this Agreement, and upon any certificate, oral instructions, or written
instructions reasonably believed by Custodian and Sub-Custodian to be,
respectively, an Officer's Certificate, Oral Instructions or Written
Instructions. The Trust and Custodian agree to forward to Custodian and
Sub-Custodian, as the case may be, Written
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Instructions confirming Oral Instructions in such manner that the Written
Instructions are received by Custodian and Sub-Custodian at the close of
business of the same day that such Oral Instructions are given to Custodian and
Sub-Custodian. The Trust and Custodian agree that the fact that such confirming
Written Instructions are not received by Sub-Custodian shall in no way affect
the validity of any of the transactions authorized by the Trust by giving Oral
Instructions, and that Sub-Custodian's records with respect to the content of
Oral Instructions shall be controlling.
10. Transactions-Not Requiring Instructions. Sub-Custodian is
authorized to take the following action without Oral Instructions, Written
Instructions, or an Officer's Certificate:
(a) Collection of Income and Other Payments. Sub-Custodian
shall subject to Paragraph 28(f) hereof:
(i) collect and receive for the account of any Fund,
all income and other payments and distributions, including (without limitation)
stock dividends, rights, warrants and similar items, included or to be included
in the Property of any Fund, and promptly advise the Trust and Custodian of such
receipt and shall credit such income, as collected, to such Fund of the Trust.
From time to time, Sub-Custodian may elect, but shall not be so obligated, to
credit the account with interest, dividends or principal payments on payable or
contractual settlement date, in anticipation of receiving same from a payor,
central depository, Securities Depository, broker or other agent employed by the
Trust or Sub-Custodian. Any such crediting and posting shall be at the Trust's
sole risk, and Sub-Custodian shall be authorized to reverse (A) any such advance
posting in the event it does not receive good funds from any such payor, central
depository, Securities Depository, broker or agent, and (B) any other payment or
crediting, including, without limitation, payments made by check or draft, in
the event it does not receive good funds or final payment.
(ii) with respect to securities of foreign issue, and
subject to Paragraph 27 hereof, effect collection of dividends, interest and
other income, and to promptly transmit to the Trust and Custodian all reports,
written information or notices actually received by Sub-Custodian as
sub-custodian, including notices of any call for redemption, offer of exchange,
right of subscription, reorganization, or other proceedings affecting such
securities, or any default in payments due thereon. It is understood, however,
that Sub-Custodian shall be under no responsibility for any failure or delay in
effecting such collections or giving such notice with respect to securities of
foreign issue, regardless of whether or not the relevant information is
published in any financial service available to it unless such failure or delay
is due to Sub-Custodian's own negligence. Collections of income in foreign
currency are, to the extent possible, to be converted into United States dollars
unless otherwise instructed in writing, and in effecting such conversion
Sub-Custodian may use such methods or agencies as it may see fit, including the
facilities of its own foreign division at customary rates. All risk and expenses
incident to such collection and conversion are for the account of the Funds and
Sub-Custodian shall have no responsibility for fluctuations in exchange rates
affecting any such conversions.
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(iii) endorse and deposit for collection in the name
of the Trust and each of its Funds, checks, drafts, or other orders for the
payment of money on the same day as received;
(iv) receive and hold for the account of each of the
Fund's securities received by the Funds as a result of a stock dividend, share
split-up or reorganization, recapitalization, readjustment or other
rearrangement or distribution of rights or similar securities issued with
respect to any portfolio securities of the Funds held by Sub-Custodian
hereunder;
(v) present for payment and collect the amount
payable upon all securities which may mature or be called, redeemed or retired,
or otherwise become payable on the date such securities become payable, but,
with respect to calls, early redemptions, or early retirements, only if
Sub-Custodian either (i) receives a written notice of the same or (ii) notice of
the same appears in one or more of the publications then listed in Appendix A
hereto, which Appendix may be amended to add other publications at any time by
Sub-Custodian without prior notice to or consent from the Trust or Custodian and
which may be amended to delete a publication with the prior notice and consent
from the Trust and Custodian;
(vi) subject to Paragraphs 28(e) and (f) hereof, take
any action which may be necessary and proper in connection with the collection
and receipt of such income and other payments and the endorsement for collection
of checks, drafts and other negotiable instructions;
(vii) with respect to domestic securities, to
exchange securities in temporary form for securities in definitive form, to
effect an exchange of the shares where the par value of stock is changed, and to
surrender securities at maturity or when advised by the Trust or the investment
adviser to the Trust of earlier call for redemption, against payment therefor in
accordance with accepted industry practice. When fractional shares of stock of a
declaring corporation are received as a stock distribution, Sub-Custodian is
authorized to sell the fraction received and credit the Trust's account. Unless
specifically instructed to the contrary in writing, Sub-Custodian is authorized
to exchange securities in bearer form for securities in registered form. If any
Property registered in the name of a nominee of Sub-Custodian is called for
partial redemption by the issuer of such Property, Sub-Custodian is authorized
to allot the called portion to the respective beneficial holders of the Property
in such manner deemed to be fair and equitable by Sub-Custodian in its
reasonable discretion.
(b) Miscellaneous Transactions. Sub-Custodian is authorized to
deliver or cause to be delivered Property against payment or other consideration
or written receipt therefor in the following cases:
(i) for examination by a broker selling for the
account of the Trust in accordance with street delivery custom;
(ii) for the exchange for interim receipts or
temporary securities for definitive securities;
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(iii) for transfer of securities into the name of the
Funds or Sub-Custodian or a nominee of either, or for exchange or securities for
a different number of bonds, certificates, or other evidence, representing the
same aggregate face amount or number of units bearing the same interest rate,
maturity date and call provisions, if any; provided that, in any such case, the
new securities are to be delivered to Sub-Custodian.
11. Transactions Requiring Instructions. Upon receipt of Oral or
Written Instructions, and not otherwise, Sub-Custodian, directly or through the
use of a Securities Depository or the Book-Entry System, shall:
(a) Execute and deliver to such persons as may be designated
in such Oral or Written Instructions, proxies, consents, authorizations, and any
other instruments whereby the authority of the Funds as owners of any securities
may be exercised;
(b) Deliver any securities held for any Fund against receipt
of other securities or cash issued or paid in connection with the liquidation,
reorganization, refinancing, merger, consolidation or recapitalization of any
corporation, or the exercise of any conversion privilege;
(c) Deliver any securities held for any Fund to any protective
committee, reorganization committee or other person in connection with the
reorganization, refinancing, merger, consolidation, recapitalization or sale of
assets of any corporation, against receipt of such certificates or deposit,
interim receipts or other instruments or documents as may be issued to it to
evidence such delivery;
(d) Make such transfers or exchanges of the assets of any Fund
and take such other steps as shall be stated in said instructions to be for the
purposes of effectuating any duly authorized plan of liquidation,
reorganization, merger, consolidation or recapitalization of the Funds;
(e) Subject to Paragraph 25(b) hereof, release securities
belonging to any Fund to any bank or trust company for the purpose of pledge or
hypothecation to secure any loan incurred by such Fund; provided, however, that
securities shall be released only upon payment to Sub-Custodian of the monies
borrowed, except that in cases where additional collateral is required to secure
a borrowing already made, subject to proper prior authorization, further
securities may be released for that purpose; and pay such loan upon redelivery
to it of the securities pledged or hypothecated therefor and upon surrender of
the note or notes evidencing the loan;
(f) Deliver any securities held for any Fund upon the exercise
of a covered call option written by such Fund on such securities;
(g) Release and deliver securities owned by a Fund in
connection with any repurchase agreement entered into on behalf of such Fund,
but subject to Paragraph 28(m) hereof, only on receipt of payment therefor; and
pay out monies of such Fund in connection with such repurchase agreements, but
only upon the delivery of the securities;
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(h) otherwise transfer, exchange or deliver securities in
accordance with Oral or Written Instructions specifying the purpose of such
transfer, including without limitation, loans of securities, short sales, or
reverse repurchase agreements, and subject to Paragraph 7(a) hereof.
12. Segregated Accounts. Sub-Custodian shall upon receipt of Written or
Oral Instructions establish and maintain a segregated account or accounts on its
records for and on behalf of any Fund, into which account or accounts shall be
credited, but only pursuant to an Officer's Certificate or Written Instructions
specifying the particular securities and/or amount of cash, cash and/or
securities, including securities in the Book-Entry System (i) for the purposes
of compliance by the Funds and the Trust with the procedures required by a
securities or option exchange, (ii) for the purpose of compliance by the Funds
and the Trust with the 1940 Act and Release No. 10666 or any subsequent release
or releases of the SEC relating to the maintenance of segregated accounts by
registered investment companies, and (iii) for other proper corporate purposes.
13. Dividends and Distributions.
(a) The Trust and/or Custodian shall furnish Sub-Custodian
with appropriate evidence of action by the Trust's Board of Trustees declaring
and authorizing the payment of any dividends and distributions. Upon receipt by
Sub-Custodian of an Officer's Certificate with respect to dividends and
distributions declared by the Trust's Board of Trustees and payable to
shareholders of any Fund who are entitled to receive cash for fractional shares
and those who have elected in the proper manner to receive their distributions
on dividends in cash, and in conformance with procedures mutually agreed upon by
Custodian and Sub-Custodian, the Trust, and the Trust's administrator or
transfer agent, Sub-Custodian shall pay to the Fund's transfer agent, as agent
for the shareholders, an amount equal to the amount indicated in said Officer's
Certificate as payable by the Fund to such shareholders for distribution in cash
by the transfer agent to such shareholders.
(b) Sub-Custodian may enter into separate custodial agreements
with various futures commission merchants ("FCMs") that the Trust or Custodian
uses (each an "FCM Agreement"), pursuant to which the Funds' margin deposits in
any transactions involving futures contracts and options on futures contracts
will be held by Sub-Custodian in accounts (each an "FCM Account") subject to the
disposition by the FCM involved in such contracts in accordance with the
customer contract between FCM and the Trust ("FCM Contract"), SEC rules
governing such segregated accounts, Commodities and Futures Trading Commission
("CFTC") rules and the rules of the applicable commodities exchange. Such FCM
Agreements shall only be entered into by Sub-Custodian upon receipt by
Sub-Custodian of Written Instructions from the Trust which state that (i) an FCM
Contract has been entered into; (ii) the Trust is in compliance with all the
rules and regulations of the CFTC; and (iii) the FCM Agreement is acceptable to
the Trust. Transfers of initial margin shall be made into an FCM Account only
upon Written Instructions; transfers of premium and variation margin may be made
into an FCM Account pursuant to Oral Instructions. Transfers of funds from an
FCM Account to the FCM for which Custodian holds such an account may only occur
in accordance with the terms of the FCM Agreement.
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14. Purchase of Securities. Promptly after each purchase of securities
by the Trust on behalf of any Fund, the Trust or Custodian shall deliver to
Sub-Custodian Oral or Written Instructions specifying with respect to each such
purchase: (a) the name of the issuer and the title of the securities, (b) the
number of shares of the principal amount purchased and accrued interest, if any,
(c) the dates of purchase and settlement, (d) the purchase price per unit, (e)
the total amount payable upon such purchase, (f) the name of the person from
whom or the broker through whom the purchase was made and (g) the Fund for which
the purchase was made. Sub-Custodian shall upon receipt of securities purchased
by or for the Trust pay out of the monies held for the account of the Trust the
total amount payable to the person from whom or the broker through whom the
purchase was made, provided that the same conforms to the total amount payable
as set forth in such Oral or Written Instructions.
15. Sales of Securities. Promptly after each sale of securities by the
Funds, the Trust or Custodian shall deliver to Sub-Custodian Oral or Written
Instructions, specifying with respect to each such sale: (a) the name of the
issuer and the title of the security, (b) the number of shares or principal
amount sold, and accrued interest, if any, (c) the dates of sale, (d) the sale
price per unit, (e) the total amount payable to the Trust upon such sale, (f)
the name of the broker through whom or the person to whom the sale was made and
(g) the Fund for which the sale was made. Sub-Custodian shall, subject to
Paragraph 28(m) hereof, deliver the securities against payment of the total
amount payable to the Trust upon such sale, provided that the same conforms to
the total amount payable as set forth in such Oral and Written Instructions.
16. Records. The books and records pertaining to the Funds and the
Trust which are in the possession of Sub-Custodian shall be the property of the
Trust. Such books and records shall be prepared and maintained as required by
the 1940 Act and other applicable securities laws and rules and regulations. The
SEC, the Trust, or the Trust's authorized representatives, shall have access to
such books and records at all times during Sub-Custodian's normal business
hours. Upon the reasonable request of the Trust or Custodian, copies of any such
books and records shall be provided by Sub-Custodian to the Custodian, the Trust
or the Trust's authorized representative, and the Trust shall reimburse
Sub-Custodian reasonable expenses for providing such copies. Upon reasonable
request of the Trust or the Custodian, Sub-Custodian shall provide in hard copy,
tape or on micro-film, or such other medium as agreed to among Trust, Custodian
and Sub-Custodian, and any books and records maintained by Sub-Custodian.
17. Reports.
(a) Sub-Custodian shall furnish the Trust and Custodian the
following reports:
(i) such periodic and special reports as the Trust
and Custodian may reasonably request from time to time;
(ii) a monthly statement summarizing all transactions
and entries for the account of each Fund;
(iii) a monthly report of portfolio securities
belonging to each Fund showing the adjusted average cost of each issue and
market value at the end of such month;
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(iv) a monthly report of the cash account of each
Fund showing disbursements;
(v) the reports to be furnished to the Trust pursuant
to Rule 17f-4 under the 1940 Act; and
(vi) such other information as may be agreed upon
from time to time between the Trust and/or Custodian and Sub-Custodian.
(b) Subject to Paragraphs 5 and 27(g) hereof, Sub-Custodian
shall transmit promptly to the Trust any proxy statement, proxy materials,
notice of a call or conversion or similar communications actually received by
Sub-Custodian as custodian of the Property.
(c) Sub-Custodian shall report as the market value at the end
of each month the last closing bid, offer or sale price to the extent, and as
the same, is furnished to Sub-Custodian by a pricing or similar service utilized
or subscribed to by Sub-Custodian. Sub-Custodian shall not be responsible for,
have any liability with respect to, or be under any duty to inquire into, nor
deemed to make any assurances with respect to, the accuracy or completeness of
such information, even if The Bank of New York in performing services for
others, including services similar to those performed hereunder, receives
different valuations of the same or different securities of the same issuer.
18. Cooperation with Accountants. Each of the Custodian and
Sub-Custodian shall cooperate with the Trust's independent certified public
accountants and shall take all reasonable action in the performance of its
obligations under this Agreement, and obligations under Rule 17f-2 under the
1940 Act to the extent such rule is applicable, to assure that the necessary
information is made available to such accountants.
19. Confidentiality. Each of Custodian and Sub-Custodian agrees on
behalf of itself and its employees to treat all record and other information
relative to the Trust, its prior, present or potential shareholders, its
managers and its prior, present or potential customers, as confidential
information, and to protect and safeguard the same to the extent required by
applicable law, provided, however, that Custodian and Sub-Custodian may make
such disclosure as required by applicable law, regulation, court order, decrees
or legal process and upon receipt of any of the foregoing requiring such
disclosure, Custodian and Sub-Custodian's only obligation shall be to notify the
Trust thereof. Each of Custodian and Sub-Custodian further agrees not to
otherwise use such records and information for any purpose other than
performance of its responsibilities and duties hereunder, except after prior
notification to and approval in writing by the Trust.
20. Equipment Failures. In the event of equipment failures beyond
Sub-Custodian's control, Sub-Custodian shall take reasonable steps to minimize
service interruptions but neither it nor Custodian shall have any further
liability with respect thereto. Notwithstanding the foregoing, Sub-Custodian
shall maintain sufficient back up electronic data processing equipment to enable
Sub-Custodian to fulfill its obligations under this Agreement consistent with
standard industry practices.
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21. Right to Receive Advice.
(a) Advice of Fund. If Custodian or Sub-Custodian shall be in
doubt as to any action to be taken or omitted by it, either may request, and
shall receive, from the Trust clarification or advice, including Oral or Written
Instructions.
(b) Advice of Counsel. If Custodian or Sub-Custodian shall be
in doubt as to any question of law involved in any action to be taken or omitted
by Custodian or Sub-Custodian, either may request at its option advice from its
own counsel, at its own expense, or advice from the Trust's counsel.
(c) Conflicting Advice. In case of conflict between
directions, advice or Oral or Written Instructions received by Custodian or
Sub-Custodian pursuant to subparagraph (a) of this paragraph and advice received
by Custodian or Sub-Custodian pursuant to subparagraph (b) of this paragraph,
Custodian and Sub-Custodian shall be entitled to rely on and follow the advice
received pursuant to subparagraph (b) alone.
(d) Protection of Sub-Custodian. Each of Custodian and
Sub-Custodian shall be protected in any action or inaction which it takes or
omits to take in reliance on any directions, advice or Oral or Written
Instructions received pursuant to subparagraphs (a) or (b) of this section which
it, after receipt of any such directions, advice or Oral or Written
Instructions, in good faith reasonably believes to be consistent with such
directions, advice or Oral or Written Instructions, as the case may be. Nothing
in this Paragraph 21 shall be construed as imposing upon Custodian or
Sub-Custodian any obligation (i) to seek such directions, advice or Oral or
Written Instructions, or (ii) to act in accordance with such directions, advice
or Oral or Written Instructions when received, unless, under the terms or
another provision of this Agreement, the same is a condition to Custodian or
Sub-Custodian's properly taking or omitting to take such action. Nothing in this
Paragraph 21(d) shall excuse Custodian or Sub-Custodian when an action or
omission on the part of Custodian or Sub-Custodian constitutes willful
misfeasance or bad faith, or negligence or reckless disregard by Custodian or
Sub-Custodian of its duties under this Agreement.
22. Compliance with Governmental Rules and Regulations. Each of
Custodian and Sub-Custodian undertakes to comply with the laws, rules and
regulations of governmental authorities having jurisdiction over Custodian and
Sub-Custodian and its express duties hereunder.
23. Compensation. As compensation for the services rendered by
Custodian and Sub-Custodian during the term of this Agreement, the Trust shall
pay to Custodian and Sub-Custodian, in addition to reimbursement of its
out-of-pocket expenses, such compensation as may be agreed upon from time to
time in writing by the Trust and Custodian and/or Sub-Custodian, as applicable
as set forth in Appendix E with respect to Custodian and Appendix F with respect
to Sub-Custodian.
24. Indemnification. The Trust agrees to indemnify each of Custodian
and Sub-Custodian against, and hold harmless from all taxes, charges, expenses
(including reasonable fees
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and expenses of counsel), assessments, claims, losses, demands and liabilities
whatsoever (including, without limitation, liabilities arising under the 1933
Act, the 1934 Act and the 1940 Act, and any state and foreign securities laws,
all as currently in effect or as may be amended from time to time) and expenses,
including without limitation, reasonable attorney's fees and disbursements,
howsoever arising or incurred because of or in connection with this Agreement,
except for such liability, claim, loss, demand, charge, expense, tax or
assessment arising out of either Custodian's or Sub-Custodian's, or their
nominees', willful misconduct or negligence or reckless disregard of their
duties under this Agreement. For the purposes of this Agreement, including,
without limitation, for purposes of Paragraphs 24 and 28, neither
Sub-Custodian's acceptance of Instructions in accordance with Paragraph 26A nor
Sub-Custodian's use of Foreign Sub-Custodians pursuant to agreements that do not
permit actual examination by independent public accountants, nor the denial of
examination by any Foreign Sub-Custodian, shall, in and of itself, constitute,
or be deemed to constitute, a breach by Sub-Custodian of this Agreement or
negligence, willful misconduct, or reckless disregard of its duties by
Sub-Custodian, provided the relevant agreement between Sub-Custodian and a
Foreign Sub-Custodian satisfies the requirements of Rule 17f-5, exclusive of any
requirements of such Rule imposed by Rule 17f-2.
25. Overdrafts or Indebtedness.
(a) Sub-Custodian shall advance funds under this Agreement
with respect to any Fund which results in an overdraft because the moneys held
by Sub-Custodian in the separate account for such Fund shall be insufficient to
pay the total amount payable upon a purchase of securities by such Fund, as set
forth in an Officer's Certificate or Oral or Written Instructions, or which
results in an overdraft in the separate account of such Fund for some other
reason, or if the Trust is for any other reason indebted to Sub-Custodian,
including any indebtedness to The Bank of New York under the Trust's Cash
Management and Related Services Agreement, (except a borrowing for investment or
for temporary or emergency purposes using securities as collateral pursuant to a
separate agreement and subject to the provisions of Paragraph 25(b) hereof),
such overdraft or indebtedness shall be deemed to be a loan made by
Sub-Custodian to the Trust for such Fund payable on demand and shall bear
interest from the date incurred at a rate per annum (based on a 360-day year for
the actual number of days involved) equal to the overdraft rate specified in
Appendix F to this Agreement. In addition, the Trust hereby agrees that
Sub-Custodian shall have a continuing lien and security interest in and to any
property at any time held by it for the benefit of such Fund or in which the
Fund may have an interest which is then in Sub-Custodian's possession or control
or in possession or control of any third party acting on Sub-Custodian's behalf.
The Trust authorizes Sub-Custodian, in its sole discretion, at any time to
charge any such overdraft or indebtedness together with interest due thereon
against any balance of account standing to such Fund's credit on Sub-Custodian's
books. In addition, the Trust hereby covenants that on each Business Day on
which either it intends to enter a Reverse Repurchase Agreement and/or otherwise
borrow from a third party, or which next succeeds a Business Day on which at the
close of business the Trust had outstanding a Reverse Repurchase Agreement or
such a borrowing, it shall prior to 1:00 p.m., New York City time, advise
Sub-Custodian, in writing, of each such borrowing, shall specify the Fund to
which the same relates, and shall not incur any indebtedness not so specified
other than from Sub-Custodian.
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(b) The Trust will cause to be delivered to Sub-Custodian by
any bank (including, if the borrowing is pursuant to a separate agreement,
Sub-Custodian) from which it borrows money for investment or for temporary or
emergency purposes using securities held by Sub-Custodian hereunder as
collateral for such borrowings, a notice or undertaking in the form currently
employed by such bank setting forth the amount which such bank will loan to the
Trust against delivery of a stated amount of collateral. The Trust shall
promptly deliver to Sub-Custodian Written Instruction specifying with respect to
each such borrowing: (a) the Fund to which such borrowing relates; (b) the name
of the bank, (c) the amount and terms of the borrowing, which may be set forth
by incorporating by reference an attached promissory note, duly endorsed by the
Fund, or other loan agreement, (d) the time and date, if known, on which the
loan is to be entered into, (e) the date on which the loan becomes due and
payable, (f) the total amount payable to the Fund on the borrowing date, (g) the
market value of securities to be delivered as collateral for such loan,
including the name of the issuer, the title and the number of shares or the
principal amount of any particular securities, and (h) a statement specifying
whether such loan is for investment purposes or for temporary or emergency
purposes and that such loan is in conformance with the 1940 Act and the Fund's
prospectus. Sub-Custodian shall deliver on the borrowing date specified in
Written Instructions the specified collateral and the executed promissory note,
if any, against delivery by the lending bank of the total amount of the loan
payable, provided that the same conforms to the total amount payable as set
forth in such Written Instructions. Sub-Custodian may, at the option of the
lending bank, keep such collateral in its possession, but such collateral shall
be subject to all rights therein given the lending bank by virtue of any
promissory note or loan agreement. Sub-Custodian shall deliver such securities
as additional collateral as may be specified in Written Instructions to
collateralize further any transaction described in this Paragraph 25(b). The
Trust shall cause all securities released from collateral status to be returned
directly to Sub-Custodian, and Sub-Custodian shall receive from time to time
such return of collateral as may be tendered to it. In the event that the Trust
fails to specify in Written Instructions the Fund, the name of the issuer, the
title and number of shares or the principal amount of any particular securities
to be delivered as collateral by Sub-Custodian, Sub-Custodian shall not be under
any obligation to deliver any securities.
26A. Instructions
(a) With respect to any software provided by the Sub-Custodian
to a Fund in order for the Fund to transmit Instructions to the Sub-Custodian
(the "Software"), the Sub-Custodian grants to the Trust a personal,
nontransferable and nonexclusive license to use the Software solely for the
purpose of transmitting Instructions to, and receiving communications from, the
Sub-Custodian in connection with its account(s). The Trust agrees not to sell,
reproduce, lease or otherwise provide, directly or indirectly, the Software or
any portion thereof to any third party without the prior written consent of the
Sub-Custodian. At no time shall Trust be obligated to use the Software to
transmit Instructions to the Sub-Custodian.
(b) The Trust shall obtain and maintain at its own cost and
expense all equipment and services, including but not limited to communications
services, necessary for it to utilize the Software and transmit Instructions to
the Sub-Custodian. The Sub-Custodian shall not be responsible for the
reliability, compatibility with the Software or availability of any such
equipment or services.
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(c) The Trust acknowledges that the Software, all data bases
made available to the Trust by utilizing the Software (other than data bases
relating solely to the assets of the Funds and transactions with respect
thereto), and any proprietary data, processes, information and documentation
(other than those which are or become part of the public domain or are legally
required to be made available to the public) (collectively, the "Information"),
are the exclusive and confidential property of the Sub-Custodian. The Trust
shall keep the Information confidential by using the same care and discretion
that the Trust uses with respect to its own confidential property and trade
secrets and shall neither make nor permit any disclosure without the prior
written consent of the Sub-Custodian. Upon termination of this Agreement or the
Software license granted hereunder for any reason, the Trust shall return to the
Sub-Custodian all copies of the Information which are in its possession or under
its control or which the Trust distributed to third parties.
(d) The Sub-Custodian reserves the right to modify the
Software from time to time upon reasonable prior notice and the Trust shall, if
it desires in its sole discretion to continue to use the software, install new
releases of the Software as the Sub-Custodian may direct. The Trust agrees not
to modify or attempt to modify the Software without the Sub-Custodian's prior
written consent. The Trust acknowledges that any modifications to the Software,
whether by the Trust or the Sub-Custodian and whether with or without the
Sub-Custodian's consent, shall become the property of the Sub-Custodian.
(e) The Sub-Custodian makes no warranties or representations
of any kind with regard to the Software or the method(s) by which the Trust may
transmit Instructions to the Sub-Custodian, express or implied, including but
not limited to any implied warranties or merchantability or fitness for a
particular purpose.
(f) Where the method for transmitting Instructions by the
Trust involves an automatic systems acknowledgment by the Sub-Custodian of its
receipt of such Instructions, then in the absence of such acknowledgment, the
Sub-Custodian shall not be liable for any failure to act pursuant to such
Instructions and the Trust may not claim that such Instructions were received by
the Sub-Custodian, and the Trust shall deliver a Certificate by some other
means.
(g) (i) The Trust agrees that where it delivers to the
Sub-Custodian Instructions hereunder, it shall be the Trust's sole
responsibility to ensure that only persons duly authorized by the Trust and the
correct number of such persons transmit such Instructions to the Sub-Custodian.
The Trust will cause all persons transmitting Instructions to the Sub-Custodian
to treat applicable use and authorization codes, passwords and authentication
keys with extreme care, and authorizes the Sub-Custodian to act in accordance
with and rely upon Instructions received by it pursuant hereto.
(ii) The Trust hereby represents, acknowledges and
agrees that it is fully informed of the protections and risks associated with
the various methods of transmitting Instructions to the Sub-Custodian and that
there may be more secure methods of transmitting instructions to the
Sub-Custodian than the method(s) selected by the Trust. The Trust hereby agrees
that the security procedures (if any) to be followed in connection with the
Trust's
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transmission of Instructions provide to it a commercially reasonable degree of
protection in light of its particular needs and circumstances.
(h) The Trust shall notify the Sub-Custodian of any errors,
omissions or interruptions in, or delay or unavailability of, its ability to
send Instructions as promptly as practicable, and in any event within 24 hours
after the earliest of (i) discovery thereof, (ii) the business day on which
discovery should have occurred through the exercise of reasonable care and (iii)
in the case of any error, the date of actual receipt of the earliest notice
which reflects such error, it being agreed that discovery and receipt of notice
may only occur on a business day. The Sub-Custodian shall, as promptly as
practicable, and in any event within 24 hours after the earliest of (i)
discovery thereof, (ii) the business day on which discovery should have occurred
through the exercise of reasonable care and (iii) in the case of any error, the
date of actual receipt of the earliest notice which reflects such error, it
being agreed that discovery and receipt of notice may only occur on a business
day, advise the Trust whenever the Sub-Custodian learns of any errors, omissions
or interruption in, or delay or unavailability of, the Trust's ability to send
Instructions.
26B. FX Transactions
(a) Whenever a Fund shall enter into an FX Transaction, the
Fund shall promptly deliver to the Sub-Custodian a Certificate or Oral
Instructions specifying with respect to such FX Transaction: (a) the Series to
which such FX Transaction is specifically allocated; (b) the type and amount of
Currency to be purchased by the Fund; (c) the type and amount of Currency to be
sold by the Fund; (d) the date on which the Currency to be purchased is to be
delivered; (e) the date on which the Currency to be sold is to be delivered; and
(f) the name of the person from whom or through whom such currencies are to be
purchased and sold. Unless otherwise instructed by a Certificate or Oral
Instructions, the Custodian shall deliver, or shall instruct a Foreign
Sub-Custodian to deliver, the Currency to be sold on the date on which such
delivery is to be made, as set forth in the Certificate, and shall receive, or
instruct a Foreign Sub-Custodian to receive, the Currency to be purchased on the
date as set forth in the Certificate.
(b) Where the Currency to be sold is to be delivered on the
same day as the Currency to be purchased, as specified in the Certificate or
Oral Instructions, the Sub-Custodian or a Foreign Sub-Custodian may arrange for
such deliveries and receipts to be made in accordance with the customs
prevailing from time to time among brokers or dealers in Currencies, and such
receipt and delivery may not be completed simultaneously. The Fund assumes all
responsibility and liability for all credit risks involved in connection with
such receipts and deliveries, which responsibility and liability shall continue
until the Currency to be received by the Fund has been received in full.
(c) Any foreign exchange transaction effected by the
Sub-Custodian in connection with this Agreement may be entered with the
Sub-Custodian, any office, branch or subsidiary of The Bank of New York Company,
Inc., or any Foreign Sub-Custodian acting as principal or otherwise through
customary banking channels. The Fund may issue a standing Certificate with
respect to foreign exchange transactions but the Sub-Custodian may establish
rules or limitations concerning any foreign exchange facility made available to
the Fund. The Fund shall bear all risks of investing in Securities or holding
Currency. Without limiting the
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foregoing, the Fund shall bear the risks that rules or procedures imposed by a
Foreign Sub-Custodian or foreign depositories, exchange controls, asset freezes
or other laws, rules, regulations or orders shall prohibit or impose burdens or
costs on the transfer to, by or for the account of the Fund of Securities or any
cash held outside the Fund's jurisdiction or denominated in Currency other than
its home jurisdiction or the conversion of cash from one Currency into another
currency. The Sub-Custodian shall not be obligated to substitute another
Currency for a Currency (including a Currency that is a component of a Composite
Currency Unit) whose transferability, convertibility or availability has been
affected by such law, regulation, rule or procedure. Neither the Sub-Custodian
nor any Foreign Sub-Custodian shall be liable to the Fund for any loss resulting
from any of the foregoing events.
27. Duties of Sub-Custodian with respect to Property of any Fund held
outside of the United States.
(a) Sub-Custodian is authorized and instructed to employ, as
sub-custodian for each Fund's Foreign Securities (as such term is defined in
paragraph (c)(1) of Rule 17f-5 under the 1940 Act) and other assets, the foreign
banking institutions and foreign securities depositories and clearing agencies
designated on Appendix C hereto ("Foreign Sub-Custodians") to carry out their
respective responsibilities in accordance with the terms of the sub-custodian
agreement between each such Foreign Sub-Custodian and Sub-Custodian (each such
agreement, a "Foreign Sub-Custodian Agreement"). Upon receipt of an Officer's
Certificate, together with a certified resolution substantially in the form
attached as Appendix D of the Trust's Board of Trustees, the Trust may designate
any additional foreign sub-custodian with which Sub-Custodian has an agreement
for such entity to act as Sub-Custodian's agent, as its sub-custodian and any
such additional foreign sub-custodian shall be deemed added to Appendix C
hereto. Upon receipt of an Officer's Certificate, Sub-Custodian shall cease the
employment of any one or more Foreign Sub-Custodians for maintaining custody of
the Trust's assets and such Foreign Sub-Custodian shall be deemed deleted from
Appendix C hereto.
(b) Each Foreign Sub-Custodian Agreement shall be
substantially in the form delivered to the Trust herewith and will not be
amended in a way that materially adversely affects the Trust without the Trust's
prior written consent.
(c) Sub-Custodian shall identify on its books as belonging to
each Fund the Foreign Securities of such Fund held by each Foreign
Sub-Custodian. At the election of the Trust, it shall be entitled to be
subrogated to the rights of Sub-Custodian with respect to any claims by the
Trust or any Fund against a Foreign Sub-Custodian as a consequence of any loss,
damage, cost, expense, liability or claim sustained or incurred by the Trust or
any Fund if and to the extent that the Trust or such Fund has not been made
whole for any such loss, damage, cost, expense, liability or claim.
(d) Upon request of the Trust, Sub-Custodian will, consistent
with the terms of the applicable Foreign Sub-Custodian Agreement, use reasonable
efforts to arrange for the independent accountants of the Trust to be afforded
access to the books and records of any Foreign Sub-Custodian insofar as such
books and records relate to the performance of such Foreign Sub-Custodian under
its agreement with Sub-Custodian on behalf of the Trust.
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(e) Sub-Custodian will supply to the Trust and to the
Custodian from time to time, as mutually agreed upon, statements in respect of
the securities and other assets of each Fund held by Foreign Sub-Custodians,
including but not limited to, an identification of entities having possession of
each Fund's Foreign Securities and other assets, and advices or notifications of
any transfers of Foreign Securities to or from each custodial account maintained
by a Foreign Sub-Custodian for Sub-Custodian on behalf of the Fund.
(f) Sub-Custodian shall furnish annually to the Trust and to
the Custodian, as mutually agreed upon, information concerning the Foreign
Sub-Custodians employed by Sub-Custodian. Such information shall be similar in
kind and scope to that furnished to the Trust in connection with the Trust's
initial approval of such Foreign Sub-Custodians and, in any event, shall include
information pertaining to (i) the Foreign Sub-Custodian's financial strength,
general reputation and standing in the countries in which they are located and
their ability to provide the custodial services required, and (ii) whether the
Foreign Sub-Custodians would provide a level of safeguards for safekeeping and
custody of securities not materially different from those prevailing in the
United States. Sub-Custodian shall monitor the general operating performance of
each Foreign Sub-Custodian. Sub-Custodian agrees that it will use reasonable
care in monitoring compliance by each Foreign Sub-Custodian with the terms of
the relevant Foreign Sub-Custodian Agreement and that if it learns of any breach
of such Foreign Sub-Custodian Agreement believed by Sub-Custodian to have a
material adverse effect on the Trust or any Fund it will promptly notify the
Trust and Custodian in writing of such breach. Sub-Custodian also agrees to use
reasonable and diligent efforts to enforce its rights under the relevant Foreign
Sub-Custodian Agreement.
(g) Sub-Custodian shall transmit promptly to the Trust all
notices, reports or other written information received pertaining to the Trust's
Foreign Securities, including without limitation, notices of corporate action,
proxies and proxy solicitation materials.
(h) Notwithstanding any provision of this Agreement to the
contrary, settlement and payment for securities received for the account of the
Trust or any Fund and delivery of securities maintained for the account of the
Trust or any Fund may be effected in accordance with the customary or
established securities trading or securities processing practices and procedures
in the jurisdiction or market in which the transaction occurs, including,
without limitation, delivery of securities to the purchaser thereof or to a
dealer therefor (or an agent for such purchaser or dealer) against a receipt
with the expectation of receiving later payment for such securities from such
purchaser or dealer.
(i) With respect to any losses or damages arising out of or
relating to any actions or omissions of any Foreign Sub-Custodian, the sole
responsibility and liability of Sub-Custodian shall be to take all appropriate
and reasonable action at the Trust's expense to recover such loss or damage from
the Foreign Sub-Custodian. It is expressly understood and agreed that
Sub-Custodian's sole responsibility and liability shall be limited to amounts so
recovered from the Foreign Sub-Custodian. Custodians' liability to the Trust
under this paragraph (i) shall under no circumstances exceed the liability of
Sub-Custodian assumed hereunder.
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28. Concerning Custodians.
(a) (i) The Custodian shall exercise care and diligence and
act in good faith and use all commercially reasonable efforts in the performance
of its duties hereunder. The Sub-Custodian shall exercise care and diligence and
act in good faith and use all commercially reasonable efforts in the performance
of its duties hereunder. The Custodian shall be responsible to the Trust for its
own failure, or the failure of Sub-Custodian, or the failure of any
sub-custodian that either shall appoint (other than a foreign sub-custodian
referred to in Paragraph 27) or that of their respective employees or agents, to
perform their duties, obligations or responsibilities in accordance with this
Agreement, but only to the extent that such failure results from acts or
omissions that constitute willful misfeasance, bad faith or negligence on the
part of the Custodian or Sub-Custodian, or on the part of their respective
employees or agents, or reckless disregard of such duties, obligations and
responsibilities. The Sub-Custodian shall be responsible to the Trust and to the
Custodian for its own failure, or the failure of any sub-custodian that it shall
appoint (other than a foreign sub-custodian referred to in Paragraph 27 or a
sub-custodian appointed by the Sub-Custodian at the specific direction of the
Custodian or the Trust), or that of their respective employees or agents, to
perform their duties, obligations or responsibilities in accordance with this
Agreement, but only to the extent that such failure results from acts or
omissions that constitute willful misfeasance, bad faith or negligence on the
part of the Sub-Custodian or such sub-custodian, or on the part of their
respective employees or agents, or reckless disregard of such duties,
obligations and responsibilities.
(ii) Without limiting the generality of the foregoing
or any other provision of this Agreement, in no event shall Custodian or
Sub-Custodian be liable to the Fund or any third party nor, except as otherwise
provided in this subparagraph (a), shall Sub-Custodian be liable to Custodian,
for special, indirect or consequential damages or lost profits or loss of
business, arising under or in connection with this Agreement, even if previously
informed of the possibility of such damages and regardless of the form of
action. Custodian and/or Sub-Custodian may, with respect to questions of law
arising under any FCM Agreement, apply for and obtain the advice and opinion of
counsel to the Trust at the expense of the Trust, or of its own counsel at its
own expense, and shall be fully protected with respect to anything done or
omitted by it in good faith in conformity with such advice or opinion.
Sub-Custodian shall be liable to the Trust for any loss or damage resulting from
the use of the Book-Entry System or any Securities Depository arising by reason
of any negligence or willful misconduct on the part of Sub-Custodian or any of
its employees or agents.
(iii) Sub-Custodian's liability pursuant to the last
sentence of subparagraph (a)(i) shall include, but not be limited to,
reimbursing Custodian for court-ordered damage awards, fines, penalties, and
judicially-approved settlements (and attorney's fees and disbursements relating
thereto) arising out of or in connection with the conduct giving rise to such
liability.
(iv) If Custodian receives notice of the commencement
of any action, suit, or proceeding (an "Action"), or notice that any Action may
be commenced, for which Sub-Custodian may be liable to Custodian pursuant to
this Paragraph 28, Custodian shall give notice to Sub-Custodian of the
commencement of the Action or of the possibility that an Action
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will be commenced. Any omission to notify Sub-Custodian will not relieve
Sub-Custodian from any liability which it may have under this Paragraph, except
to the extent the failure to notify Sub-Custodian prejudices the rights of
Sub-Custodian. Sub-Custodian will be entitled at its sole expense and liability,
to exercise full control of the defense, compromise or settlement of any such
Action, provided that Sub-Custodian (1) notifies Custodian in writing of
Sub-Custodian's intention to assume such defense; and (2) retains legal counsel
reasonably satisfactory to Custodian to conduct the defense of such Action. If
Sub-Custodian advises Custodian that it does not wish to exercise full control
of any defense, compromise or settlement of any Action, Sub-Custodian shall be
responsible for the fees and expenses of counsel selected by Custodian, in
addition to any other amounts for which Sub-Custodian may be liable pursuant to
this Paragraph 28. The other person will cooperate with the person assuming the
defense, compromise or settlement of any Action in accordance with this
Paragraph in any manner that such person reasonably may request. If
Sub-Custodian so assumes the defense of any such Action, Custodian will have the
right to employ a separate counsel and to participate in (but not control) the
defense, compromise or settlement of the Action, but the fees and expenses of
such counsel will be at the expense of Custodian unless (a) Sub-Custodian has
agreed to pay such fees and expenses, (b) any relief other than the payment of
money damages is sought against Custodian, or (c) Custodian has been advised by
its counsel that there may be one or more defenses available to it which are
different from or additional to those available to Sub-Custodian and that a
conflict of interest therefore exists, and in any such case that portion of the
fees and expenses of such separate counsel that are reasonably related to
matters for which Sub-Custodian is liable pursuant to this Paragraph will be
paid by Sub-Custodian. Custodian will not settle or compromise any such Action
for which Sub-Custodian is liable pursuant to this Paragraph without the prior
written consent of Sub-Custodian, unless Sub-Custodian has failed, after
reasonable notice, to undertake control of such Action in the manner provided in
this Paragraph. Sub-Custodian will not settle or compromise any such Action in
which any relief other than the payment of money damages is sought against
Custodian without the consent of Custodian, such consent not to be unreasonably
withheld. In the event that Sub-Custodian intends to settle or compromise any
Action in which solely money damages are sought, Sub-Custodian shall give
Custodian fifteen (15) business days prior written notice.
(b) Without limiting the generality of the foregoing, neither
Custodian nor Sub-Custodian shall be under any obligation to inquire into, and
neither party shall be liable for:
(i) The validity of the issue of any securities
purchased, sold, or written by or for the Trust or any Fund, the legality of the
purchase, sale or writing thereof, or the propriety of the amount paid or
received therefor;
(ii) The legality of the sale or redemption of any
Shares, or the propriety of the amount to be received or paid therefor;
(iii) The legality of the declaration or payment of
any dividend by the Trust;
(iv) The legality of any borrowing by the Trust using
securities as collateral;
22
<PAGE>
(v) The legality of any loan of portfolio securities,
nor shall Custodian or Sub-Custodian be under any duty or obligation to see to
it that any cash collateral delivered to it by a broker, dealer, or financial
institution or held by it at any time as a result of such loan of portfolio
securities is adequate collateral for or against any loss Custodian,
Sub-Custodian, the Trust or any Fund might sustain as a result of such loan. The
Custodian and Sub-Custodian specifically, but not by way of limitation, shall
not be under any duty or obligation periodically to check or notify the Trust or
any Fund that the amount of such cash collateral held by Sub-Custodian for the
Trust is sufficient collateral for the Trust, but such duty or obligation shall
be the sole responsibility of the Trust. In addition, Custodian and
Sub-Custodian shall be under no duty or obligation to see that any broker,
dealer or financial institution to which portfolio securities are lent makes
payment to it of any dividends or interest which are payable to or for the
account of the Trust during the period of such loan or at the termination of
such loan, provided, however, that Sub-Custodian shall promptly notify the Trust
in the event that such dividends or interest are not paid and received when due;
or
(vi) The sufficiency or value of any amounts of money
and/or securities held in any segregated account described in Paragraph 12(a)
hereof in connection with transactions by the Funds, or whether such segregated
account provides the compliance intended to be achieved. In addition, neither
Custodian nor Sub-Custodian shall be under any duty or obligation to see that
any broker, dealer, FCM or Clearing Member makes payment to the Fund of any
variation margin payment or similar payment which the Fund may be entitled to
receive from such broker, dealer, FCM or Clearing Member, to see that any
payment received by Sub-Custodian from any broker, dealer, FCM or Clearing
Member is the amount the Trust is entitled to receive, or to notify the Trust or
a Fund of Sub-Custodian's receipt or non-receipt of any such payment.
(c) Neither Custodian nor Sub-Custodian shall be liable for,
or considered to be sub-custodian or custodian of, any money, whether or not
represented by any check, draft, or other instrument for the payment of money,
received by Sub-Custodian on behalf of the Trust until Sub-Custodian actually
receives and collects such money directly or by the final crediting of the
account representing the Fund's interest at the Book-Entry System or a
Securities Depository.
(d) Neither Custodian nor Sub-Custodian shall have any
responsibility or be liable for ascertaining or acting upon any calls,
conversions, exchange offers, tenders, interest rate changes or similar matters
relating to securities held in a Securities Depository, unless Custodian or
Sub-Custodian shall have actually received timely notice from such Securities
Depository. In no event shall Custodian or Sub-Custodian have any responsibility
or liability for the failure of any Securities Depository to collect, or for the
late collection or late crediting by a Securities Depository of any amount
payable upon securities deposited in a Securities Depository which may mature or
be redeemed, retired, called or otherwise become payable. Upon receipt of
Written Instructions from the Trust of an overdue amount on securities held in a
Securities Depository Sub-Custodian shall make a claim against a Securities
Depository on behalf of the Trust, except that neither Custodian nor
Sub-Custodian shall be under any obligation to appear in, prosecute or defend
any action suit or proceeding in respect to any securities held by a Securities
Depository which in its opinion may involve it in expense or liability, unless
indemnity satisfactory to it against all expense and liability be furnished as
often as may be required.
23
<PAGE>
(e) Neither Custodian nor Sub-Custodian shall be under any
duty or obligation to take action to effect collection of any amount due to the
Trust from a transfer agent of the Trust nor to take any action to effect
payment or distribution by the transfer agent of the Trust of any amount paid by
Sub-Custodian to the transfer agent of the Trust in accordance with this
Agreement.
(f) Neither Custodian nor Sub-Custodian shall be under any
duty or obligation to take action to effect collection of any amount, if the
securities upon which such amount is payable are in default, or if payment is
refused after due demand or presentation, unless and until (i) it shall be
directed to take such action by Written Instructions and (ii) it shall be
assured to its reasonable satisfaction of reimbursement of its costs and
expenses in connection with any such action.
(g) Custodian and Sub-Custodian may in addition to the
employment of Foreign Sub-Custodians pursuant to Paragraphs 7 and 27, hereof
appoint one or more banking institutions as Depository or Depositories, as a
sub-custodian or as sub-custodians, or as a co-custodian or as co-custodians,
including, but not limited to, banking institutions located in foreign
countries, of securities and moneys at any time owned by the Fund, upon such
terms and conditions as may be approved in an Officer's Certificate or contained
in an agreement executed by Sub-Custodian, Custodian and the Trust and the
appointed institution.
(h) Neither Custodian nor Sub-Custodian shall be under any
duty or obligation (i) to ascertain whether any securities at any time delivered
to, or held by it or by any Foreign Sub-Custodian, for the account of the Trust
and specifically allocated to a Fund are such as properly may be held by the
Trust or such Fund under the provisions of its Prospectus, or (ii) to ascertain
whether any transactions by the Fund, whether or not involving Sub-Custodian,
are such transactions as may properly be engaged in by the Fund.
(i) Sub-Custodian shall charge its compensation and any
expenses with respect to the Funds of the Trust incurred by Sub-Custodian in the
performance of its duties under this Agreement only against the money of the
Fund or Funds of the Trust from which such compensation or expenses is actually
due and payable, and under no circumstances shall any compensation or expenses
due to the Sub-Custodian be considered to be a joint, or joint and several,
obligation of the Funds of the Trust. To the extent that Sub-Custodian is
entitled to recover from the Trust any loss, damage, liability or expense
(including counsel fees) under this Agreement, Sub-Custodian shall charge the
amount due in respect of such loss, damage, liability or expense (including
counsel fees) only against the money held by it for the Fund or Funds of the
Trust that is/are identified by the Trust in an Officer's Certificate, unless
and until the Trust instructs Sub-Custodian by an Officer's Certificate to
charge against money held by it for the account of a Fund such Fund's pro rata
share (based on such Fund's net asset value at the time of the charge in
proportion to the aggregate net asset value of all Funds at that time) of the
amount of such loss, damage, liability or expense (including counsel fees).
(j) Custodian and Sub-Custodian shall be entitled to rely upon
any Officer's Certificate, Written Instructions, notice or other instrument in
writing received by Custodian or Sub-Custodian and reasonably believed by
Custodian or Sub-Custodian, as the case may be, to be
24
<PAGE>
an Officer's Certificate or Written Instructions. Custodian and Sub-Custodian
shall be entitled to rely upon any Oral Instructions actually received by
Custodian or Sub-Custodian. The Trust agrees to forward to Custodian or
Sub-Custodian Written Instructions confirming such Oral Instructions in such
manner so that such Written Instructions are received by Sub-Custodian, whether
by hand delivery, telecopier or other similar device, or otherwise, by the close
of business of the same day that such Oral Instructions are received by
Sub-Custodian. The Trust agrees that the fact that such confirming instructions
are not received, or that contrary instructions are received, by Custodian or
Sub-Custodian shall in no way affect the validity of the transactions or
enforceability of the transactions hereby authorized by the Trust. The Trust
agrees that neither Custodian nor Sub-Custodian shall incur any liability to the
Trust in acting upon Oral Instructions given to Custodian or Sub-Custodian
hereunder concerning such transactions provided such instructions reasonably
appear to have been received from an Authorized Person.
(k) Each of Custodian and Sub-Custodian shall be entitled to
rely upon any instrument, instruction or notice received by it and reasonably
believed by it to be given in accordance with the terms and conditions of any
FCM Agreement. Without limiting the generality of the foregoing, neither
Custodian nor Sub-Custodian shall be under any duty to inquire into, and neither
Custodian nor Sub-Custodian shall be liable for, the accuracy of any statements
or representations contained in any such instrument or other notice including,
without limitation, any specification of any amount to be paid to a broker,
dealer, futures commission merchant or clearing member.
(l) Sub-Custodian shall provide the Trust with any report
obtained by Sub-Custodian on the system of internal accounting control of the
Book-Entry System, any Securities Depository utilized hereunder the Depository
or the Options Clearing Corporation, and with such reports on its own systems of
internal accounting control as the Trust may reasonably request from time to
time.
(m) Subject to the foregoing provisions of this Agreement,
including, without limitation, those contained in Paragraph 27 hereof,
Sub-Custodian may deliver and receive securities, and receipts with respect to
such securities, and arrange for payments to be made and received by
Sub-Custodian in accordance with the customs prevailing from time to time among
brokers or dealers in such securities. When Sub-Custodian is instructed to
deliver securities against payment, delivery of such securities and receipt of
payment therefor may not be completed simultaneously. The Fund assumes all
responsibility and liability for all credit risks involved in connection with
Sub-Custodian's delivery of securities pursuant to proper instructions of the
Fund, which responsibility and liability shall continue until final payment in
full has been received by Sub-Custodian.
(n) Neither Custodian nor Sub-Custodian shall have any duties
or responsibilities whatsoever except such duties and responsibilities as are
specifically set forth in this Agreement, and no covenant or obligation shall be
implied in this Agreement against Custodian or Sub-Custodian.
(o) To the extent Custodian shall have discharged its
obligations to the Trust under subparagraph (a)(i) of this paragraph 28 on
account of conduct of Sub-Custodian, its
25
<PAGE>
agents or employees, Custodian shall be subrogated to all rights of the Trust
with respect to such conduct.
29. Termination. Any of the parties hereto may terminate this Agreement
by giving to the other parties a notice in writing specifying the date of such
termination, which shall be not less than ninety (90) days after the date of
giving of such notice. Upon the date set forth in such notice this Agreement
shall terminate, and Sub-Custodian shall on that date deliver directly to the
Custodian or a successor sub-custodian designated by the Trust or Custodian all
securities and moneys then owned by the Trust and held by Sub-Custodian, after
deducting all fees, expenses and other amounts for the payment or reimbursement
of which it shall then be entitled; provided, however, that transaction fees and
expenses payable by the Trust in connection with a deconversion to a successor
sub-custodian shall be limited to Sub-Custodian's actual direct cost.
26
<PAGE>
30. Notices. All notices and other communications (collectively
referred to as "Notice" or "Notices" in this paragraph) hereunder shall be in
writing or by confirm in telegram, cable, telex, or facsimile sending device.
Notices shall be addressed (a) if to Sub-Custodian, at Sub-Custodian's address,
90 Washington Street, (22nd Floor), New York, New York 10286, Attention: Frank
Ajosa; (b) if to Custodian, at Custodian's address, NationsBank, 101 South Tryon
Street, NC1-002-33-31, Charlotte, NC 28255, Attention: James Jones; (c) if to
the Trust, at the address of the Trust, 111 Center Street, Little Rock, Arkansas
72201, Attention: Richard H. Blank, Jr., Secretary; or (d) if to none of the
foregoing, at such other address as shall have been notified to the sender of
any such Notice or other communication. Notice shall be deemed to have been
given when actually received by the other party. All postage, cable, telegram,
telex and facsimile sending device charges arising from the sending of a Notice
hereunder shall be paid by the sender.
31. Further Actions. Each party agrees to perform such further acts and
execute such further documents as it deems necessary to effectuate the purposes
hereof.
32. Amendments. This Agreement or any part hereof may be changed or
waived only by an instrument in writing signed by the party against which
enforcement of such change or waiver is sought.
33. Miscellaneous.
(a) The Trust agrees that Sub-Custodian may be a counterparty
in any purchase or sale of foreign currency by or for the Trust on a spot or
forward basis, and on any option to buy or sell foreign currency.
(b) This Agreement embodies the entire Agreement and
understanding between the parties hereto, and supersedes all prior agreements
and understandings relating to the subject matter hereof. The captions in this
Agreement are included for convenience of reference only and in no way define or
delimit any of the provisions hereof or otherwise affect their construction or
effect. This Agreement shall be deemed to be a contract made in New York and
governed by New York law. If any provision of this Agreement shall be held or
made invalid by a court decision, statute, rule or otherwise, the remainder of
this Agreement shall not be affected thereby. This Agreement shall be binding
upon and shall inure to the benefit of the parties hereto and their respective
successors.
34. The names "Nations Fund" and "Trustees of Nations Fund" refer
respectively to the Trust created and the Trustees, as Trustees but not
individually or personally, acting from time to time under a Declaration of
Trust dated May 6, 1985, which is hereby referred to and a copy of which is on
file at the office of the State Secretary of The Commonwealth of Massachusetts
and at the principal office of the Trust. The obligations of "Nations Fund"
entered into in the name or on behalf thereof by any of the Trustees,
representatives or agents are made not individually, but in such capacities, and
are not binding upon any of the Trustees, Shareholders, or representatives of
the Trust personally, but bind only the Trust Property, and all persons dealing
with any class of Shares of the Trust Property, and all persons dealing with any
class of Shares of the Trust must
27
<PAGE>
look solely to the Trust Property belonging to such class for the enforcement of
any claims against the Trust.
35. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original.
28
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their officers designated below as of the day and
year first above written.
THE BANK OF NEW YORK NATIONSBANK OF TEXAS, N.A.
By: /s/ Stephen E. Grunston By: /s/ John R. Glover
Stephen E. Grunston John R. Glover
Vice-President Senior Vice-President
NATIONS FUND TRUST
By: /s/ Richard H. Blank, Jr.
Richard H. Blank, Jr.
Secretary
29
<PAGE>
SCHEDULE A
AUTHORIZED PERSONS FOR
ORAL AND WRITTEN INSTRUCTIONS
In addition to the Trust's Officers, any one of the following
persons is authorized as an "Authorized Person" to give "Oral
Instructions" on behalf of the Trust to the Custodian or Sub-Custodian
pursuant to the Mutual Fund Custody and Sub-Custody Agreement among
the Trust, NationsBank of Texas, N.A. and The Bank of New York,
provided that no person shall be authorized or permitted to withdraw
Trust investments or assets upon his/her mere receipt (unless
otherwise authorized with respect to a specific Fund or Funds pursuant
to a separate vote approved by the Board of Trustees):
Mark Ahnrud
Edward D. Bedard
Gregg Cobb
Melinda Allen Crosby
Sandra Duck
Christopher Gunster
John Kohl
James Jones
Mary Primm
Martha Sherman
Kelly Simeonides
Richard Szafran; and
In addition to the Trust's Officers, any two of the
individuals named above be is authorized as an "Authorized Person" to
give "Written Instructions" on behalf of the Trust to the Custodian,
provided, however, that "Written Instructions" given in connection
with the issuance of checks and other drafts in payment of the Trust's
operating expenses as provided therein must not be given except upon
prior written authorization of the Trust's President, Treasurer or
Assistant Treasurer; and provided further that no one or more persons
shall be authorized or permitted to withdraw Trust investments or
assets upon his/her or their mere receipt (unless otherwise authorized
with respect to a specific Fund or Funds pursuant to a separate vote
approved by the Board of Trustees).
30
<PAGE>
SCHEDULE B
OFFICERS OF THE TRUST
OFFICER POSITION
A. Max Walker President and
Chairman of the Board
Richard H. Blank, Jr. Secretary
Michael W. Nolte Assistant Secretary
Louise P. Newcomb Assistant Secretary
James E. Banks Assistant Secretary
Richard H. Rose Treasurer
Joseph C. Viselli Assistant Treasurer
Susan Manter Assistant Treasurer
31
<PAGE>
SCHEDULE I
The Custody and Sub-Custody Agreement between the Trust, Custodian and
Sub-Custodian applies to the following funds of the Trust:
Nations Government Money Market Fund
Nations Tax Exempt Fund
Nations Value Fund
Nations Capital Growth Fund
Nations Emerging Growth Fund
Nations Equity Index Fund
Nations Managed Index Fund
Nations Managed SmallCap Index Fund
Nations Disciplined Equity Fund
Nations Balanced Assets Fund
Nations Short-Intermediate Government Fund
Nations Short-Term Income Fund
Nations Diversified Income Fund
Nations Strategic Fixed Income Fund
Nations Municipal Income Fund
Nations Short-Term Municipal Income Fund
Nations Intermediate Municipal Bond Fund
Nations Florida Intermediate Municipal Bond Fund
Nations Florida Municipal Bond Fund
Nations Georgia Intermediate Municipal Bond Fund
Nations Georgia Municipal Bond Fund
Nations Maryland Intermediate Municipal Bond Fund
Nations Maryland Municipal Bond Fund
Nations North Carolina Intermediate Municipal Bond Fund
Nations North Carolina Municipal Bond Fund
Nations South Carolina Intermediate Municipal Bond Fund
Nations South Carolina Municipal Bond Fund
Nations Tennessee Intermediate Municipal Bond Fund
Nations Tennessee Municipal Bond Fund
Nations Texas Intermediate Municipal Bond Fund
Nations Texas Municipal Bond Fund
Nations Virginia Intermediate Municipal Bond Fund
Nations Virginia Municipal Bond Fund
32
<PAGE>
APPENDIX A
I, , a Vice President with THE BANK OF NEW YORK do
hereby designate the following publications:
The Bond Buyer
Depository Trust Company Notices
Financial Daily Card Service
JJ Kenney Municipal Bond Service
London Financial Times
New York Times
Standard & Poor's Called Bond Record
Wall Street Journal
33
<PAGE>
APPENDIX B
The undersigned, Richard H. Blank, Jr., hereby certifies that he is the
duly elected and acting Secretary of Nations Fund Trust, a Massachusetts
business trust (the "Trust"), further certifies that the following resolutions
were adopted by the Board of Trustees of the Trust at a meeting duly held on
October 11-12, 1996, at which a quorum was at all times present and that such
resolutions have not been modified or rescinded and are in full force and effect
as of the date hereof.
TRUST VOTE
VOTED, that the Sub-Custody Agreement for each Fund as
presented to this meeting be, and it hereby is, approved, and that the
appropriate Officers of the Trust be, and each hereby is, authorized
and directed to execute and deliver the Sub-Custody Agreement on behalf
of the Trust, in that form or with such changes as that Officer, with
the advice of counsel, deems necessary or desirable.
IN WITNESS WHEREOF, I have hereunto set my hand as of the 18th day of
October 1996.
By: /s/ Richard H. Blank, Jr.
Richard H. Blank, Jr.
Secretary
34
<PAGE>
APPENDIX C
SCHEDULE OF FOREIGN SUB-CUSTODIANS
<TABLE>
<CAPTION>
- --------------------------------- -----------------------------------------------------
COUNTRY ELIGIBLE FOREIGN CUSTODIAN
- --------------------------------- -----------------------------------------------------
<S> <C>
Argentina The Bank of Boston, Buenos Aires
- --------------------------------- -----------------------------------------------------
Australia ANZ, Melbourne
- --------------------------------- -----------------------------------------------------
Austria Creditanstalt, Vienna
- --------------------------------- -----------------------------------------------------
Bangladesh Standard Chartered Bank, Dhaka
- --------------------------------- -----------------------------------------------------
Belgium BBL, Brussels
- --------------------------------- -----------------------------------------------------
Botswana Stanbic Bank, Botswana
- --------------------------------- -----------------------------------------------------
Brazil The Bank of Boston, Sao Paolo
- --------------------------------- -----------------------------------------------------
Canada Royal Bank of Canada
- --------------------------------- -----------------------------------------------------
Chile The Bank of Boston, Santiago
- --------------------------------- -----------------------------------------------------
China (Shanghai) Standard Chartered, Shanghai
- --------------------------------- -----------------------------------------------------
China (Shenzhen) Standard Chartered, Shenzhen
- --------------------------------- -----------------------------------------------------
Colombia Cititrust, Bogota
- --------------------------------- -----------------------------------------------------
Czech Republic CSOB, Prague
- --------------------------------- -----------------------------------------------------
Denmark Den Danske Bank, Copenhagen
- --------------------------------- -----------------------------------------------------
Ecuador Citibank, Quito
- --------------------------------- -----------------------------------------------------
Egypt Citibank, Cairo
- --------------------------------- -----------------------------------------------------
Euromarket CEDEL, Luxembourg
- --------------------------------- -----------------------------------------------------
Finland Merita Bank, Helsinki
- --------------------------------- -----------------------------------------------------
France Banque Paribas, Paris
- --------------------------------- -----------------------------------------------------
Germany Dresdner Bank AG, Frankfurt
- --------------------------------- -----------------------------------------------------
Ghana Merchant Bank Ghana, Accra
- --------------------------------- -----------------------------------------------------
Greece National Bank of Greece, Athens
- --------------------------------- -----------------------------------------------------
Hong Kong HSBC, Hong Kong
- --------------------------------- -----------------------------------------------------
Hungary Citibank, Budapest
- --------------------------------- -----------------------------------------------------
India HSBC, Bombay
- --------------------------------- -----------------------------------------------------
Indonesia HSBC, Jakarta
- --------------------------------- -----------------------------------------------------
Ireland Allied Irish Banks, plc.
- --------------------------------- -----------------------------------------------------
Israel Bank Leumi, Tel Aviv
- --------------------------------- -----------------------------------------------------
Italy Banca Commerciale Italiana, Milan
- --------------------------------- -----------------------------------------------------
Japan Fuji Bank, Kabutochu, Tokyo
- --------------------------------- -----------------------------------------------------
Jordon British Bank of Middle East, Amman
- --------------------------------- -----------------------------------------------------
Kenya Stanbic Bank Kenya
- --------------------------------- -----------------------------------------------------
Korea Seoulbank, Seoul
- --------------------------------- -----------------------------------------------------
Luxembourg Banque Int'l a Luxembourg
- --------------------------------- -----------------------------------------------------
Malaysia Hong Kong Bank Malaysia Berhad, Kuala Lumpur
- --------------------------------- -----------------------------------------------------
Mexico Banamex, Mexico City
- --------------------------------- -----------------------------------------------------
35
<PAGE>
- --------------------------------- -----------------------------------------------------
COUNTRY ELIGIBLE FOREIGN CUSTODIAN
- --------------------------------- -----------------------------------------------------
Morocco Banque Commerciale du Maroc, Casablanca
- --------------------------------- -----------------------------------------------------
Namibia Stanbic Bank Namibia
- --------------------------------- -----------------------------------------------------
Netherlands Mees Pierson, Amsterdam
- --------------------------------- -----------------------------------------------------
New Zealand ANZ, Wellington
- --------------------------------- -----------------------------------------------------
Nigeria Stanbic Bank Nigeria
- --------------------------------- -----------------------------------------------------
Norway Den norske Bank, Oslo
- --------------------------------- -----------------------------------------------------
Pakistan Standard Chartered, Karachi
- --------------------------------- -----------------------------------------------------
Peru Citibank, Lima
- --------------------------------- -----------------------------------------------------
Philippines HSBC, Manila
- --------------------------------- -----------------------------------------------------
Poland Bank Handlowy, Warsaw
- --------------------------------- -----------------------------------------------------
Portugal Banco Comercial Portugues, Lisbon
- --------------------------------- -----------------------------------------------------
Singapore United Overseas Singapore
- --------------------------------- -----------------------------------------------------
Slovak Republic CSOB, Bratislava
- --------------------------------- -----------------------------------------------------
South Africa Standard Bank of South Africa, Johannesburg
- --------------------------------- -----------------------------------------------------
Spain Banco Bilbao Vizcaya, Madrid
- --------------------------------- -----------------------------------------------------
Sri Lanka Standard Chartered, Colombo
- --------------------------------- -----------------------------------------------------
Swaziland Stanbic Bank Swaziland
- --------------------------------- -----------------------------------------------------
Sweden Skandinaviska Enskilda Banken, Stockholm
- --------------------------------- -----------------------------------------------------
Switzerland Bank Leu, Zurich
- --------------------------------- -----------------------------------------------------
Taiwan HSBC, Taipei
- --------------------------------- -----------------------------------------------------
Thailand Bangkok Bank, Bangkok
- --------------------------------- -----------------------------------------------------
Turkey CITIBANK, Istanbul
- --------------------------------- -----------------------------------------------------
United Kingdom The Bank of New York, London
- --------------------------------- -----------------------------------------------------
United States The Bank of New York, New York
- --------------------------------- -----------------------------------------------------
Uruguay The Bank of Boston, Montevideo
- --------------------------------- -----------------------------------------------------
Venezuela Citibank, Caracas
- --------------------------------- -----------------------------------------------------
Zambia Stanbic Bank Zambia
- --------------------------------- -----------------------------------------------------
Zimbabwe Stanbic Bank Zimbabwe, Harare
- --------------------------------- -----------------------------------------------------
</TABLE>
36
<PAGE>
APPENDIX D
The undersigned, Richard H. Blank, Jr., hereby certifies that he is the
duly elected and acting Secretary of Nations Fund Trust, a Massachusetts
business trust (the "Trust"), further certifies that the following resolutions
were adopted by the Board of Trustees of the Fund at a meeting duly held on
October 11-12, 1996, at which a quorum was at all times present and that such
resolutions have not been modified or rescinded and are in full force and effect
as of the date hereof.
TRUST VOTES
VOTED, that the sub-custody and maintenance of securities and
other assets owned by the Funds of the Trust in countries other than
the United States is necessary, appropriate and desirable for the
efficient operation of the Funds; and
FURTHER VOTED, that pursuant to Rule 17f-5 under the 1940 Act,
BONY, as custodian for the Funds of the Trust, be, and it hereby is,
authorized and directed to use the foreign sub-custodians and
depositories in the indicated countries listed on the attached
Schedule, each such foreign sub-custodian and depository being an
eligible foreign custodian under Rule 17f-5 or being authorized to act
in such capacity pursuant to exemptive relief granted by the SEC;
FURTHER VOTED, that the Sub-Custodian Agreements between BONY
and its network banks, providing for, among other things, the manner
in which BONY will maintain the Funds' foreign securities and other
assets with eligible foreign sub-custodians be, and they hereby are,
approved;
FURTHER VOTED, that the appropriate Officers of the Trust be,
and each hereby is, authorized to execute such documents and to take
such actions as may be necessary or appropriate to carry out the
purposes and intent of the preceding resolutions, the execution and
delivery of such documents or taking of such action to be conclusive
evidence of the Board of Trustees' approval;
FURTHER VOTED, that the attached Schedule of approved foreign
custodians may be amended from time to time with the approval of a
majority of the Board of Trustees; and
37
<PAGE>
FURTHER VOTED, that BONY is permitted to use the CREST system
for book-entry settlement of United Kingdom and Irish securities
transactions on behalf of the Funds of the Trust, including with
respect to eligible Fund assets, if any, currently held in the vaults
of The Bank of New York, London and Allied Irish Banks, plc.
IN WITNESS WHEREOF, I hereunto set my hand as of the 18th day of
October 1996.
By: /s/ Richard H. Blank, Jr.
Richard H. Blank, Jr.
Secretary
38
<PAGE>
APPENDIX E
FEE SCHEDULE FOR NATIONSBANK OF TEXAS, N.A.
The funds of Nations Fund Trust, Nations Fund, Inc. (except
Nations International Equity Fund) and Nations Institutional Reserves, and each
of Hatteras Income Securities, Inc. and Nations Balanced Target Maturity Fund,
Inc. ("Funds" and each a "Fund") shall pay to the Custodian on a pro rata basis,
with each Fund's pro rata share to be determined based on the number of Funds
covered by this Agreement, the following fees:
1. $300,000 per annum, to be paid monthly in payments of $25,000, for
custodian services for up to and including fifty (50) Funds; and
2. $6,000 per annum, to be paid in equal monthly payments, for
custodian services for each additional Fund above fifty (50) Funds.
The Funds covered under this Appendix are set forth below.
NATIONS FUND TRUST:
1. Nations Government Money Market Fund
2. Nations Tax Exempt Fund
3. Nations Value Fund
4. Nations Capital Growth Fund
5. Nations Emerging Growth Fund
6. Nations Equity Index Fund
7. Nations Managed Index Fund
8. Nations Managed SmallCap Index Fund
9. Nations Disciplined Equity Fund
10. Nations Balanced Assets Fund
11. Nations Short-Intermediate Government Fund
12. Nations Short-Term Income Fund
13. Nations Diversified Income Fund
14. Nations Strategic Fixed Income Fund
15. Nations Municipal Income Fund
16. Nations Short-Term Municipal Income Fund
17. Nations Intermediate Municipal Bond Fund
18. Nations Florida Intermediate Municipal Bond Fund
19. Nations Florida Municipal Bond Fund
20. Nations Georgia Intermediate Municipal Bond Fund
21. Nations Georgia Municipal Bond Fund
22. Nations Maryland Intermediate Municipal Bond Fund
23. Nations Maryland Municipal Bond Fund
24. Nations North Carolina Intermediate Municipal Bond Fund
39
<PAGE>
25. Nations North Carolina Municipal Bond Fund
26. Nations South Carolina Intermediate Municipal Bond Fund
27. Nations South Carolina Municipal Bond Fund
28. Nations Tennessee Intermediate Municipal Bond Fund
29. Nations Tennessee Municipal Bond Fund
30. Nations Texas Intermediate Municipal Bond Fund
31. Nations Texas Municipal Bond Fund
32. Nations Virginia Intermediate Municipal Bond Fund
33. Nations Virginia Municipal Bond Fund
NATIONS FUND, INC.:
34. Nations Prime Fund
35. Nations Treasury Fund
36. Nations Equity Income Fund
37. Nations Government Securities Fund
NATIONS INSTITUTIONAL RESERVES:
38. Nations Cash Reserves Fund
39. Nations Treasury Reserves Fund
40. Nations Government Reserves Fund
41. Nations Municipal Reserves Fund
42. HATTERAS INCOME SECURITIES, INC.
43. NATIONS BALANCED TARGET MATURITY FUND, INC.
Dated: October 18, 1996
<PAGE>
[MORRISON & FOERSTER LLP LETTERHEAD]
May 16, 1997
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. 48 and Amendment No. 50
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
May 16, 1997
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 Statement 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
