As filed with the Securities and Exchange Commission
on September 4, 1998
Registration No. 2-97817; 811-4305
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
Post-Effective Amendment No. 56 [ ]
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
Amendment No. 58 [ ]
(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
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<S> <C>
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).
[ ] 75 days after filing pursuant to [ ] on (date) pursuant to
paragraph (a)(2) paragraph (a)(2) of Rule 485
</TABLE>
If appropriate, check the following box:
o this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
<PAGE>
EXPLANATORY NOTE
-----------------
This Post-Effective Amendment No. 56 to the Registration Statement of
Nations Fund Trust is being filed to add Primary B Shares of Nations Marsico
Focused Equities Fund and Nations Marsico Growth & Income Fund, to revise the
sales load structure of Investor A Shares and Investor B Shares and to
reconfigure the Investor A Shares and Investor B Shares into combined
prospectuses.
<PAGE>
NATIONS FUND TRUST
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
<S> <C>
Part A
Item No. Prospectus
- -------- ----------
1. Cover Page ................................................. Cover Page
2. Synopsis ................................................... Expenses Summary
3. Condensed Financial
Information ................................................ Financial Highlights; How
Performance Is Shown
4. General Description of
Registrant ................................................. Cover Page; Objectives; How
Objectives Are Pursued; Organization And
History
5. Management of the Fund ..................................... How The Funds Are Managed
6. Capital Stock and Other
Securities ................................................. How To Buy Shares; How The
Funds Value Their Shares; How Dividends
And Distributions Are Made; Tax
Information
7. Purchase of Securities Being
Offered .................................................... Cover Page; How To Buy Shares
8. Redemption or Repurchase ................................... How To Redeem Shares; How To
Exchange Shares
9. Legal Proceedings .......................................... Organization And History
Part B
Item No.
- --------
10. Cover Page.................................................. Cover Page
11. Table of Contents........................................... Table of Contents
12. General Information and
History..................................................... Introduction
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<CAPTION>
13. Investment Objectives and
Policies.................................................... Additional Information on Fund
Investments
14. Management of the Registrant................................ Trustees And Officers
15. Control Persons and Principal
Holders of Securities....................................... Miscellaneous--Certain Record
Holders
16. Investment Advisory and Other Services...................... Investment Advisory, Administration,
Custody, Transfer Agency,
Shareholder Servicing,
Shareholder Administration And
Distribution Agreements
17. Brokerage Allocation ....................................... Fund Transactions and Brokerage--
General Brokerage Policy
18. Capital Stock and Other
Securities.................................................. Description Of Shares;
Investment Advisory, Administration,
Custody, Transfer Agency,
Shareholder Servicing And
Distribution Agreements
19. Purchase, Redemption and Pricing
of Securities Being Offered................................. Net Asset Value -- Purchases
And Redemptions; Distributor
20. Tax Status.................................................. Additional Information Concerning
Taxes
21. Underwriters................................................ Investment Advisory, Administration
Custody, Transfer Agency,
Shareholder Servicing,
Shareholder Administration And
Distribution Agreements
22. Calculation of Performance Data............................. Additional Information on
Performance
23. Financial Statements........................................ Independent Accountant and
Reports
</TABLE>
<PAGE>
Part C
Item No. Other Information
- ------- ------------------
Information required to be included in
Part C is set forth under the
appropriate Item, so numbered, in Part C
of this Document
<PAGE>
NATIONS FUND TRUST
NATIONS MUNICIPAL INCOME FUND
NATIONS FLORIDA MUNICIPAL BOND FUND
NATIONS GEORGIA MUNICIPAL BOND FUND
NATIONS MARYLAND MUNICIPAL BOND FUND
NATIONS NORTH CAROLINA MUNICIPAL BOND FUND
NATIONS SOUTH CAROLINA MUNICIPAL BOND FUND
NATIONS TENNESSEE MUNICIPAL BOND FUND
NATIONS TEXAS MUNICIPAL BOND FUND
NATIONS VIRGINIA MUNICIPAL BOND FUND
SUPPLEMENT DATED NOVEMBER 1, 1998
TO PROSPECTUSES DATED AUGUST 1, 1998
The combined prospectuses for the Primary A and Investor C Shares for
Nations Municipal Income Fund are hereby supplemented by deleting the second
paragraph regarding the Fund's expected average dollar-weighted maturity and
duration under the heading "HOW OBJECTIVES ARE PURSUED" and inserting in its
place the following:
Under normal market conditions, the average dollar-weighted
maturity and duration of each of the Funds' portfolios are expected to
be as follows: Nations Short-Term Municipal Income Fund--average
dollar-weighted maturity less than three years and duration between
1.25 and 2.75 years; Nations Intermediate Municipal Bond Fund--average
dollar-weighted maturity between three and 10 years and duration
between three and six years; and Nations Municipal Income Fund--average
dollar-weighted maturity greater than seven years and duration greater
than six years.
The combined prospectuses for the Primary A and Investor C Shares for
Nations Florida Municipal Bond Fund, Nations Georgia Municipal Bond Fund,
Nations Maryland Municipal Bond Fund, Nations North Carolina Municipal Bond
Fund, Nations South Carolina Municipal Bond Fund, Nations Tennessee Municipal
Bond Fund, Nations Texas Municipal Bond Fund and Nations Virginia Municipal Bond
Fund are hereby supplemented by deleting the second paragraph regarding the
Funds' expected average dollar-weighted maturity and duration under the heading
"HOW OBJECTIVES ARE PURSUED" and inserting in its place the following:
Under normal market conditions, the average dollar-weighted
maturity and duration of the State Intermediate Municipal Bond Funds
are expected to be between three and 10 years and three and six years,
respectively; the State Municipal Bond Funds' average dollar-weighted
maturity is expected to be greater than seven years and duration is
expected to be greater than six years.
<PAGE>
Prospectus
Investor A Shares and
Investor B Shares
August 1, 1998
as supplemented on
November 15, 1998
This Prospectus describes the investment portfolios listed in the column to the
right (each a "Fund") of Nations Fund Trust, an open-end management investment
company in the Nations Funds Family ("Nations Funds" or "Nations Funds
Family"). This Prospectus describes two classes of shares of each Fund --
Investor A Shares and Investor B Shares.
This Prospectus sets forth concisely the information about each Fund that a
prospective purchaser of Investor A Shares and Investor 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 for Nations Funds, dated
August 1, 1998, is incorporated by reference in its entirety into this
Prospectus. The SEC maintains a Web site (http://www.sec.gov) that contains the
SAI, material incorporated by reference in this Prospectus and other
information regarding registrants that file electronically with the SEC.
NationsBanc Advisors, Inc. ("NBAI") is the investment adviser to each of the
Funds. TradeStreet Investment Associates, Inc. ("TradeStreet") is the
investment sub-adviser to the Funds. As used herein the term "Adviser" shall
mean NBAI, and/or TradeStreet as the context may require, see "How The Funds
Are Managed."
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 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.
TAX-EXEMPT BOND FUNDS:
Nations Florida Intermediate
Municipal Bond Fund
Nations Florida Municipal Bond
Fund
Nations Georgia Intermediate
Municipal Bond Fund
Nations Georgia Municipal Bond
Fund
Nations Maryland Intermediate
Municipal Bond Fund
Nations Maryland Municipal Bond
Fund
Nations North Carolina
Intermediate Municipal Bond
Fund
Nations North Carolina Municipal
Bond Fund
Nations South Carolina
Intermediate Municipal Bond
Fund
Nations South Carolina Municipal
Bond Fund
Nations Tennessee Intermediate
Municipal Bond Fund
Nations Tennessee Municipal Bond
Fund
Nations Texas Intermediate
Municipal Bond Fund
Nations Texas Municipal Bond Fund
Nations Virginia Intermediate
Municipal Bond Fund
Nations Virginia Municipal Bond
Fund
For Fund information call:
1-800-321-7854
Nations Funds
c/o Stephens Inc.
One NationsBank Plaza
33rd Floor
Charlotte, NC 28255
[GRAPHIC OMITTED]
NF-98391-11/98
<PAGE>
Table Of Contents
About The Prospectus Summary 3
Funds -----------------------------------------------------
Expenses Summary 5
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Objectives 14
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How Objectives Are Pursued 15
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How Performance Is Shown 18
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How The Funds Are Managed 19
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Organization And History 22
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How To Buy Shares 23
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About Your Investor A Shares -- Charges and Features 25
Investment -----------------------------------------------------
Investor B Shares -- Charges and Features 29
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How To Redeem Shares 28
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How To Exchange Shares 33
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Shareholder Servicing And Distribution Plan 35
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How The Funds Value Their Shares 37
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How Dividends And Distributions Are Made;
Tax Information 37
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Financial Highlights 39
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Appendix A -- Portfolio Securities 73
-----------------------------------------------------
Appendix B -- Description Of Ratings 79
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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
o TYPE OF COMPANY: Open-end management investment company.
o INVESTMENT OBJECTIVES AND POLICIES:
o Nations Florida Intermediate Municipal Bond Fund's investment objective is
to seek high current income exempt from Federal income and the Florida state
intangibles taxes consistent with moderate fluctuation of principal. The
Fund invests in investment grade, intermediate-term municipal securities.
o Nations Florida Municipal Bond Fund's investment objective is to seek high
current income exempt from Federal income and the Florida state intangibles
taxes with the potential for principal fluctuation associated with
investments in long-term municipal securities. The Fund invests in
investment grade, long-term municipal securities.
o Nations Georgia Intermediate Municipal Bond Fund's investment objective is
to seek high current income exempt from Federal and Georgia state income
taxes consistent with moderate fluctuation of principal. The Fund invests in
investment grade, intermediate-term municipal securities.
o Nations Georgia Municipal Bond Fund's investment objective is to seek high
current income exempt from Federal and Georgia state income taxes with the
potential for principal fluctuation associated with investments in long-term
municipal securities. The Fund invests in investment grade, long-term
municipal securities.
o Nations Maryland Intermediate Municipal Bond Fund's investment objective is
to seek high current income exempt from Federal and Maryland state income
taxes consistent with moderate fluctuation of principal. The Fund invests in
investment grade, intermediate-term municipal securities.
o Nations Maryland Municipal Bond Fund's investment objective is to seek high
current income exempt from Federal and Maryland state income taxes with the
potential for principal fluctuation associated with investments in long-term
municipal securities. The Fund invests in investment grade, long-term
municipal securities.
o Nations North Carolina Intermediate Municipal Bond Fund's investment
objective is to seek high current income exempt from Federal and North
Carolina state income taxes consistent with moderate fluctuation of
principal. The Fund invests in investment grade, intermediate-term municipal
securities.
o Nations North Carolina Municipal Bond Fund's investment objective is to seek
high current income exempt from Federal and North Carolina state income
taxes with the potential for principal fluctuation associated with
investments in long-term municipal securities. The Fund invests in
investment grade, long-term municipal securities.
o Nations South Carolina Intermediate Municipal Bond Fund's investment
objective is to seek high current income exempt from Federal and South
Carolina state income taxes consistent with moderate fluctuation of
principal. The Fund invests in investment grade, intermediate-term municipal
securities.
3
<PAGE>
o Nations South Carolina Municipal Bond Fund's investment objective is to seek
high current income exempt from Federal and South Carolina state income
taxes with the potential for principal fluctuation associated with
investments in long-term municipal securities. The Fund invests in
investment grade, long-term municipal securities.
o Nations Tennessee Intermediate Municipal Bond Fund's investment objective is
to seek high current income exempt from Federal income tax and the Tennessee
Hall Income Tax on unearned income consistent with moderate fluctuation of
principal. The Fund invests in investment grade, intermediate-term municipal
securities.
o Nations Tennessee Municipal Bond Fund's investment objective is to seek high
current income exempt from Federal income tax and the Tennessee Hall Income
Tax on unearned income with the potential for principal fluctuation
associated with investments in long-term municipal securities. The Fund
invests in investment grade, long-term municipal securities.
o Nations Texas Intermediate Municipal Bond Fund's investment objective is to
seek high current income exempt from Federal income tax consistent with
moderate fluctuation of principal. The Fund invests in investment grade,
intermediate-term municipal securities.
o Nations Texas Municipal Bond Fund's investment objective is to seek high
current income exempt from Federal income tax with the potential for
principal fluctuation associated with investments in long-term municipal
securities. The Fund invests in investment grade, long-term municipal
securities.
o Nations Virginia Intermediate Municipal Bond Fund's investment objective is
to seek high current income exempt from Federal and Virginia state income
taxes consistent with moderate fluctuation of principal. The Fund invests in
investment grade, intermediate-term municipal securities.
o Nations Virginia Municipal Bond Fund's investment objective is to seek high
current income exempt from Federal and Virginia state income taxes with the
potential for principal fluctuation associated with investments in long-term
municipal securities. The Fund invests in investment grade, long-term
municipal securities.
o INVESTMENT ADVISER: NationsBanc Advisors, Inc. serves as the investment
adviser to the Funds. NBAI provides investment management services to more
than 60 investment company portfolios in the Nations Funds Family. TradeStreet
Investment Associates, Inc., an affiliate of NBAI, provides investment
sub-advisory services to the Funds. For more information about the investment
adviser and investment sub-adviser to the Nations Funds, see "How The Funds
Are Managed."
o DIVIDENDS AND DISTRIBUTIONS: The Funds declare dividends daily and pay them
monthly. Each Fund's net realized capital gains, including net short-term
capital gains, are distributed at least annually.
o RISK FACTORS: Although NBAI, together with the sub-adviser, seek to achieve
the investment objective of each Fund, there is no assurance that they will be
able to do so. Investments in a Fund are not insured against loss of
principal. Investments by a Fund in debt securities are subject to interest
rate risk, which is the risk that increases in market interest rates will
adversely affect a Fund's investments in debt securities. The value of a
Fund's investments in debt securities, including U.S. Government Obligations
(as defined below), will tend to decrease when interest rates rise and
increase when interest rates fall. In general, longer-term debt instruments
tend to fluctuate in value more than shorter-term debt instruments in response
to interest rate movements. In addition, debt securities which are not issued
or guaranteed by the U.S. Government are subject to credit risk, which is the
risk that the issuer may not be able to pay principal and/or interest when
due. Certain of the Funds' investments may constitute derivative securities.
Certain types of derivative securities can, under particular circumstances,
significantly increase an investor's exposure to market and other risks. Since
4
<PAGE>
the Funds invest primarily in securities issued by entities located in a
single state, the Funds are more susceptible to changes in value due to
political or economic changes affecting such states or their subdivisions. For
a discussion of these and other factors, see "How Objectives Are Pursued --
Risk Considerations" and "Appendix A."
o MINIMUM PURCHASE: $1,000 minimum initial investment per record holder, except
that the minimum initial investment is $250 for accounts established with
certain fee-based investment advisers or financial planners, including wrap
fee accounts and other managed agency/asset allocation accounts. The minimum
subsequent investment is $100, except for investments pursuant to the
Systematic Investment Plan. See "How To Buy Shares."
Expenses Summary
Expenses are one of several factors to consider when investing in the Funds. The
following tables summarize shareholder transaction and operating expenses for
Investor A and Investor B Shares of the Funds. The Examples show the cumulative
expenses attributable to a hypothetical $1,000 investment in the Funds over
specified periods.
NATIONS FUNDS INVESTOR A SHARES
<TABLE>
<CAPTION>
Nations Nations
Florida Nations Georgia Nations
Intermediate Florida Intermediate Georgia
Municipal Municipal Municipal Municipal
Shareholder Transaction Expenses Bond Fund Bond Fund Bond Fund Bond Fund
<S> <C> <C> <C> <C>
Maximum Sales Load Imposed on Purchases (as a percentage of
offering price) 3.25% 4.75% 3.25% 4.75%
Maximum Deferred Sales Charge (as a percentage of the lower of
the original purchase price or redemption proceeds)(1) 1.00% 1.00% 1.00% 1.00%
Redemption Fees Payable to the Fund None(2) None(2) None(2) None(2)
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management Fees (After Fee Waivers) .31% .35% .31% .23%
Rule 12b-1 Fees (Including Shareholder Servicing Fees) (After Fee
Waivers) .20% .20% .20% .20%
Other Expenses (After Expense Reimbursements) .19% .25% .19% .37%
Total Operating Expenses (After Fee Waivers and Expense
Reimbursements) .70% .80% .70% .80%
</TABLE>
(1) Certain Investor A Shares that are purchased at net asset value are subject
to a Deferred Sales Charge if redeemed within two years of purchase. See
"Sales Charges."
(2) There is a 1% redemption fee retained by the Fund or Funds which is imposed
only on certain redemptions by investors investing $1 million or more
("Substantial Investors") in Investor A Shares held less than 18 months and
purchased between July 31, 1997 and November 15, 1998. See "How To Redeem
Shares -- Redemption Fee."
5
<PAGE>
NATIONS FUNDS INVESTOR A SHARES
<TABLE>
<CAPTION>
Nations Nations
Nations North Nations South Nations
Maryland Nations Carolina North Carolina South
Shareholder Intermediate Maryland Intermediate Carolina Intermediate Carolina
Transaction Municipal Municipal Municipal Municipal Municipal Municipal
Expenses Bond Fund Bond Fund Bond Fund Bond Fund Bond Fund Bond Fund
<S> <C> <C> <C> <C> <C> <C>
Maximum Sales Load Imposed on
Purchases (as a percentage of
offering price) 3.25% 4.75% 3.25% 4.75% 3.25% 4.75%
Maximum Deferred Sales Charge (as
a percentage of the lower of the
original purchase price or
redemption proceeds)1 1.00% 1.00% 1.00% 1.00% 1.00% 1.00%
Redemption Fees Payable to the
Fund None(2) None(2) None(2) None(2) None(2) None(2)
Annual Fund
Operating Expenses
(as a percentage of average
net assets)
Management Fees (After Fee
Waivers) .29% .22% .33% .31% .33% .27%
Rule 12b-1 Fees (Including
Shareholder Servicing Fees) (After
Fee Waivers) .20% .20% .20% .20% .20% .20%
Other Expenses (After Expense
Reimbursements) .21% .38% .17% .29% .17% .33%
Total Operating Expenses (After Fee
Waivers and Expense
Reimbursements) .70% .80% .70% .80% .70% .80%
</TABLE>
(1) Certain Investor A Shares that are purchased at net asset value are subject
to a Deferred Sales Charge if redeemed within two years of purchase. See
"Sales Charges."
(2) There is a 1% redemption fee retained by the Fund or Funds which is imposed
only on certain redemptions by investing $1 million or more ("Substantial
Investors") in Investor A Shares held less than 18 months and purchased
between July 31, 1997 and November 15, 1998. See "How To Redeem Shares --
Redemption Fee."
6
<PAGE>
NATIONS FUNDS INVESTOR A SHARES
<TABLE>
<CAPTION>
Nations Nations Nations
Tennessee Nations Texas Nations Virginia Nations
Shareholder Intermediate Tennessee Intermediate Texas Intermediate Virginia
Transaction Municipal Municipal Municipal Municipal Municipal Municipal
Expenses Bond Fund Bond Fund Bond Fund Bond Fund Bond Fund Bond Fund
<S> <C> <C> <C> <C> <C> <C>
Maximum Sales Load Imposed on
Purchases (as a percentage of
offering price) 3.25% 4.75% 3.25% 4.75% 3.25% 4.75%
Maximum Deferred Sales Charge (as
a percentage of the lower of the
original purchase price or
redemption proceeds)(1) 1.00% 1.00% 1.00% 1.00% 1.00% 1.00%
Redemption Fees Payable to the
Fund None(2) None(2) None(2) None(2) None(2) None(2)
Annual Fund
Operating Expenses
(as a percentage of average
net assets)
Management Fees (After Fee
Waivers) .26% .09% .34% .20% .31% .28%
Rule 12b-1 Fees (Including
Shareholder Servicing Fees) (After
Fee Waivers) .20% .20% .20% .20% .20% .20%
Other Expenses (After Expense
Reimbursements) .24% .51% .16% .40% .19% .32%
Total Operating Expenses (After Fee
Waivers and Expense
Reimbursements) .70% .80% .70% .80% .70% .80%
</TABLE>
(1) Certain Investor A Shares that are purchased at net asset value are subject
to a Deferred Sales Charge if redeemed within two years of purchase. See
"Sales Charges."
(2) There is a 1% redemption fee retained by the Fund or Funds which is imposed
only on certain redemptions by investors investing $1 million or more
("Substantial Investors") in Investor A Shares held less than 18 months and
purchased between July 31, 1997 and November 15, 1998. See "How To Redeem
Shares -- Redemption Fee."
7
<PAGE>
NATIONS FUNDS INVESTOR B SHARES
<TABLE>
<CAPTION>
Nations Nations
Florida Nations Georgia Nations
Shareholder Intermediate Florida Intermediate Georgia
Transaction Municipal Municipal Municipal Municipal
Expenses Bond Fund Bond Fund Bond Fund Bond Fund
<S> <C> <C> <C> <C>
Sales Load Imposed on Purchases None None None None
Maximum Deferred Sales Charge (as a percentage of the lower of
the original purchase price or redemption proceeds)(1) 3.00% 5.00% 3.00% 5.00%
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management Fees (After Fee Waivers) .31% .35% .31% .23%
Rule 12b-1 Fees (After Fee Waivers) .55% .60% .55% .60%
Shareholder Servicing Fees .25% .25% .25% .25%
Other Expenses (After Expense Reimbursements) .19% .25% .19% .37%
Total Operating Expenses (After
Fee Waivers and Expense Reimbursements) 1.30% 1.45% 1.30% 1.45%
</TABLE>
(1) Investor B Shares purchased prior to January 1, 1996 or after July 31, 1997
are subject to the Deferred Sales Charge as set forth in the applicable
schedule. The Maximum Deferred Sales Charge is 5.00% in the first year after
purchase, declining to 1.00% in the sixth year after purchase and eliminated
thereafter. For the applicable Deferred Sales Charge schedule see "How to
Redeem Shares -- Contingent Deferred Sales Charge."
NATIONS FUNDS INVESTOR B SHARES
<TABLE>
<CAPTION>
Nations
Nations North
Maryland Nations Carolina
Intermediate Maryland Intermediate
Municipal Municipal Municipal
Shareholder Transaction Expenses Bond Fund Bond Fund Bond Fund
<S> <C> <C> <C>
Sales Load Imposed on Purchases None None None
Maximum Deferred Sales Charge (as a percentage of the lower of the original
purchase price or redemption proceeds)(1) 3.00% 5.00% 3.00%
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management Fees (After Fee Waivers) .29% .22% .33%
Rule 12b-1 Fees (After Fee Waivers) .55% .60% .55%
Shareholder Servicing Fees .25% .25% .25%
Other Expenses (After Expense Reimbursements) .21% .38% .17%
Total Operating Expenses (After Fee Waivers and Expense Reimbursements) 1.30% 1.45% 1.30%
</TABLE>
(1) Investor B Shares purchased prior to January 1, 1996 or after July 31, 1997
are subject to the Deferred Sales Charge as set forth in the applicable
schedule. The Maximum Deferred Sales Charge is 5.00% in the first year after
purchase, declining to 1.00% in the sixth year after purchase and eliminated
thereafter. For the applicable Deferred Sales Charge schedule see "How to
Redeem Shares -- Contingent Deferred Sales Charge."
8
<PAGE>
NATIONS FUNDS INVESTOR B SHARES
<TABLE>
<CAPTION>
Nations
Nations South Nations
North Carolina South
Carolina Intermediate Carolina
Municipal Municipal Municipal
Shareholder Transaction Expenses Bond Fund Bond Fund Bond Fund
<S> <C> <C> <C>
Sales Load Imposed on Purchases None None None
Maximum Deferred Sales Charge (as a percentage of the lower of the original
purchase price or redemption proceeds)(1) 5.00% 3.00% 5.00%
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management Fees (After Fee Waivers) .31% .33% .27%
Rule 12b-1 Fees (After Fee Waivers) .60% .55% .60%
Shareholder Servicing Fees .25% .25% .25%
Other Expenses (After Expense Reimbursements) .29% .17% .33%
Total Operating Expenses (After Fee Waivers and Expense Reimbursements) 1.45% 1.30% 1.45%
</TABLE>
1 Investor B Shares purchased prior to January 1, 1996 or after July 31, 1997
are subject to the Deferred Sales Charge as set forth in the applicable
schedule. The Maximum Deferred Sales Charge is 5.00% in the first year after
purchase, declining to 1.00% in the sixth year after purchase and eliminated
thereafter. For the applicable Deferred Sales Charge schedule see "How to
Redeem Shares -- Contingent Deferred Sales Charge."
NATIONS FUNDS INVESTOR B SHARES
<TABLE>
<CAPTION>
Nations Nations
Tennessee Nations Texas
Intermediate Tennessee Intermediate
Municipal Municipal Municipal
Shareholder Transaction Expenses Bond Fund Bond Fund Bond Fund
<S> <C> <C> <C>
Sales Load Imposed on Purchases None None None
Maximum Deferred Sales Charge (as a percentage of the lower of the original
purchase price or redemption proceeds)(1) 3.00% 5.00% 3.00%
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management Fees (After Fee Waivers) .26% .09% .34%
Rule 12b-1 Fees (After Fee Waivers) .55% .60% .55%
Shareholder Servicing Fees .25% .25% .25%
Other Expenses (After Expense Reimbursements) .24% .51% .16%
Total Operating Expenses (After Fee Waivers and Expense Reimbursements) 1.30% 1.45% 1.30%
</TABLE>
(1) Investor B Shares purchased prior to January 1, 1996 or after July 31, 1997
are subject to the Deferred Sales Charge as set forth in the applicable
schedule. The Maximum Deferred Sales Charge is 5.00% in the first year after
purchase, declining to 1.00% in the sixth year after purchase and eliminated
thereafter. For the applicable Deferred Sales Charge schedule see "How to
Redeem Shares -- Contingent Deferred Sales Charge."
9
<PAGE>
NATIONS FUNDS INVESTOR B SHARES
<TABLE>
<CAPTION>
Nations
Nations Virginia Nations
Texas Intermediate Virginia
Municipal Municipal Municipal
Shareholder Transaction Expenses Bond Fund Bond Fund Bond Fund
<S> <C> <C> <C>
Sales Load Imposed on Purchases None None None
Maximum Deferred Sales Charge (as a percentage of the lower of the original
purchase price or redemption proceeds)(1) 5.00% 3.00% 5.00%
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management Fees (After Fee Waivers) .20% .31% .28%
Rule 12b-1 Fees (After Fee Waivers) .60% .55% .60%
Shareholder Servicing Fees .25% .25% .25%
Other Expenses (After Expense Reimbursements) .40% .19% .32%
Total Operating Expenses (After Fee Waivers and Expense Reimbursements) 1.45% 1.30% 1.45%
</TABLE>
(1) Investor B Shares purchased prior to January 1, 1996 or after July 31, 1997
are subject to the Deferred Sales Charge as set forth in the applicable
schedule. The Maximum Deferred Sales Charge is 5.00% in the first year after
purchase, declining to 1.00% in the sixth year after purchase and eliminated
thereafter. For the applicable Deferred Sales Charge schedule see "How to
Redeem Shares -- Contingent Deferred Sales Charge."
Examples: You would pay the following expenses on a $1,000 investment in
Investor A Shares of the indicated Fund, assuming (1) a 5% annual return and (2)
redemption at the end of each time period.
<TABLE>
<CAPTION>
Nations
Nations Nations Nations North Nations
Florida Nations Georgia Nations Maryland Nations Carolina North
Intermediate Florida Intermediate Georgia Intermediate Maryland Intermediate Carolina
Municipal Municipal Municipal Municipal Municipal Municipal Municipal Municipal
Bond Fund Bond Fund Bond Fund Bond Fund Bond Fund Bond Fund Bond Fund Bond Fund
-------------- ----------- -------------- ----------- -------------- ----------- -------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 Year $ 39 $ 55 $ 39 $ 55 $ 39 $ 55 $ 39 $ 55
3 Years $ 54 $ 72 $ 54 $ 72 $ 54 $ 72 $ 54 $ 72
5 Years $ 70 $ 90 $ 70 $ 90 $ 70 $ 90 $ 70 $ 90
10 Years $117 $142 $117 $142 $117 $142 $117 $142
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
Nations
South Nations Nations Nations Nations
Carolina South Tennessee Nations Texas Nations Virginia Nations
Intermediate Carolina Intermediate Tennessee Intermediate Texas Intermediate Virginia
Municipal Municipal Municipal Municipal Municipal Municipal Municipal Municipal
Bond Fund Bond Fund Bond Fund Bond Fund Bond Fund Bond Fund Bond Fund Bond Fund
-------------- ----------- -------------- ----------- -------------- ----------- -------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 Year $ 39 $ 55 $ 39 $ 55 $ 39 $ 55 39 $ 55
3 Years $ 54 $ 72 $ 54 $ 72 $ 54 $ 72 $ 54 $ 72
5 Years $ 70 $ 90 $ 70 $ 90 $ 70 $ 90 $ 70 $ 90
10 Years $117 $142 $117 $142 $117 $142 $117 $142
</TABLE>
You would pay the following expenses on a $1,000 investment in Investor B Shares
of the indicated Fund, assuming (1) a 5% annual return and (2) redemption at the
end of each time period.
<TABLE>
<CAPTION>
Nations
Nations Nations Nations North Nations
Florida Nations Georgia Nations Maryland Nations Carolina North
Intermediate Florida Intermediate Georgia Intermediate Maryland Intermediate Carolina
Municipal Municipal Municipal Municipal Municipal Municipal Municipal Municipal
Bond Fund Bond Fund Bond Fund Bond Fund Bond Fund Bond Fund Bond Fund Bond Fund
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 Year $ 43 $ 65 $ 43 $ 65 $ 43 $ 65 $ 43 $ 65
3 Years $ 61 $ 76 $ 61 $ 76 $ 61 $ 76 $ 61 $ 76
5 Years $ 71 $ 99 $ 71 $ 99 $ 71 $ 99 $ 71 $ 99
10 Years $140 $156 $140 $156 $140 $156 $140 $156
</TABLE>
<TABLE>
<CAPTION>
Nations South Nations Nations Nations Nations
Carolina South Tennessee Nations Texas Nations Virginia Nations
Intermediate Carolina Intermediate Tennessee Intermediate Texas Intermediate Virginia
Municipal Municipal Municipal Municipal Municipal Municipal Municipal Municipal
Bond Fund Bond Fund Bond Fund Bond Fund Bond Fund Bond Fund Bond Fund Bond Fund
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 Year $ 43 $ 65 $ 43 $ 65 $ 43 $ 65 $ 43 $ 65
3 Years $ 61 $ 76 $ 61 $ 76 $ 61 $ 76 $ 61 $ 76
5 Years $ 71 $ 99 $ 71 $ 99 $ 71 $ 99 $ 71 $ 99
10 Years $140 $156 $140 $156 $140 $156 $140 $156
</TABLE>
11
<PAGE>
You would pay the following expenses on a $1,000 investment in Investor B Shares
of the indicated Fund, assuming (1) a 5% annual return and (2) no redemption:
<TABLE>
<CAPTION>
Nations
Nations Nations Nations North Nations
Florida Nations Georgia Nations Maryland Nations Carolina North
Intermediate Florida Intermediate Georgia Intermediate Maryland Intermediate Carolina
Municipal Municipal Municipal Municipal Municipal Municipal Municipal Municipal
Bond Fund Bond Fund Bond Fund Bond Fund Bond Fund Bond Fund Bond Fund Bond Fund
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 Year $ 13 $ 15 $ 13 $ 15 $ 13 $ 15 $ 13 $ 15
3 Years $ 41 $ 46 $ 41 $ 46 $ 41 $ 46 $ 41 $ 46
5 Years $ 71 $ 79 $ 71 $ 79 $ 71 $ 79 $ 71 $ 79
10 Years $140 $156 $140 $156 $140 $156 $140 $156
</TABLE>
<TABLE>
<CAPTION>
Nations
South Nations Nations Nations Nations
Carolina South Tennessee Nations Texas Nations Virginia Nations
Intermediate Carolina Intermediate Tennessee Intermediate Texas Intermediate Virginia
Municipal Municipal Municipal Municipal Municipal Municipal Municipal Municipal
Bond Fund Bond Fund Bond Fund Bond Fund Bond Fund Bond Fund Bond Fund Bond Fund
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 Year $ 13 $ 15 $ 13 $ 15 $ 13 $ 15 $ 13 $ 15
3 Years $ 41 $ 46 $ 41 $ 46 $ 41 $ 46 $ 41 $ 46
5 Years $ 71 $ 79 $ 71 $ 79 $ 71 $ 79 $ 71 $ 79
10 Years $140 $156 $140 $156 $140 $156 $140 $156
</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 and Investor B Shares will bear either directly or indirectly. The
figures contained in the above tables are based on amounts incurred during each
Fund's most recent fiscal year and have been adjusted as necessary to reflect
current service provider fees. There is no assurance that any fee waivers and/or
reimbursements will continue. In particular, to the extent Other Expenses are
less than those shown, waivers and/or reimbursements of Management Fees, if any,
may decrease. Shareholders will be notified of any decrease that materially
increases Total Operating Expenses. If fee waivers and/or reimbursements are
decreased or discontinued, the amounts contained in the "Examples" above may
increase. Long-term shareholders of a Fund could pay more in sales charges than
the economic equivalent of the maximum front-end sales charges applicable to
mutual funds sold by members of the National Association of Securities Dealers,
Inc. For more complete descriptions of the Funds' operating expenses, see "How
The Funds Are Managed." For a more complete description of the Rule 12b-1 and
shareholder servicing fees payable by the Funds, see "Shareholder Servicing And
Distribution Plans."
Absent fee waivers and expense reimbursements, "Management Fees," "12b-1 fees,"
"Other Expenses" and "Total Operating Expenses" for Investor A Shares of the
indicated Fund would have been as follows: Nations Florida Intermediate
Municipal Bond Fund -- .50%, .25%, .26% and 1.01%, respectively; Nations Florida
Municipal Bond Fund -- .60%, .25%, .30% and 1.15%, respectively; Nations Georgia
Intermediate Municipal Bond Fund -- .50%, .25%, .25% and 1.00%, respectively;
Nations Georgia Municipal Bond Fund -- .60%, .25%, .42% and 1.27%, respectively;
Nations Maryland Intermediate Municipal Bond Fund -- .50%, .25%, .30% and 1.05%,
respectively; Nations Maryland Municipal Bond Fund -- .60%, .25%, .47% and
1.32%, respectively; Nations North Carolina Intermediate Municipal Bond Fund --
.50%, .25%, .26% and 1.01%, respectively; Nations North Carolina Municipal Bond
Fund -- .60%, .25%, .33% and 1.18%,
12
<PAGE>
respectively; Nations South Carolina Intermediate Municipal Bond Fund -- .50%,
.25%, .25% and 1.00%, respectively; Nations South Carolina Municipal Bond Fund
- -- .60%, .25%, .39% and 1.24%, respectively; Nations Tennessee Intermediate
Municipal Bond Fund -- .50%, .25%, .34% and 1.09%, respectively; Nations
Tennessee Municipal Bond Fund -- .60%, .25%, .60% and 1.45%, respectively;
Nations Texas Intermediate Municipal Bond Fund -- .50%, .25%, .25% and 1.00%,
respectively; Nations Texas Municipal Bond Fund -- .60%, .25%, .47% and 1.32%,
respectively; Nations Virginia Intermediate Municipal Bond Fund -- .50%, .25%,
.24% and .99%, respectively; and Nations Virginia Municipal Bond Fund -- .60%,
.25%, .36% and 1.21%, respectively.
Absent fee waivers and expense reimbursements, "Management Fees," "12b-1 fees,"
"Other Expenses" and "Total Operating Expenses" for Investor B Shares of the
indicated Fund would have been as follows: Nations Florida Intermediate
Municipal Bond Fund -- .50%, .75%, .26% and 1.76%, respectively; Nations Florida
Municipal Bond Fund -- .60%, .75%, .30% and 1.90%, respectively; Nations Georgia
Intermediate Municipal Bond Fund -- .50%, .75%, .25% and 1.75%, respectively;
Nations Georgia Municipal Bond Fund -- .60%, .75%, .42% and 2.02%, respectively;
Nations Maryland Intermediate Municipal Bond Fund -- .50%, .75%, .30% and 1.80%,
respectively; Nations Maryland Municipal Bond Fund -- .60%, .75%, .47% and
2.07%, respectively; Nations North Carolina Intermediate Municipal Bond Fund --
.50%, .75%, .26% and 1.76%, respectively; Nations North Carolina Municipal Bond
Fund -- .60%, .75%, .33% and 1.93%, respectively; Nations South Carolina
Intermediate Municipal Bond Fund -- .50%, .75%, .25% and 1.75%, respectively;
Nations South Carolina Municipal Bond Fund -- .60%, .75%, .39% and 1.99%,
respectively; Nations Tennessee Intermediate Municipal Bond Fund -- .50%, .75%,
.34% and 1.84%, respectively; Nations Tennessee Municipal Bond Fund -- .60%,
.75%, .60% and 2.20%, respectively; Nations Texas Intermediate Municipal Bond
Fund -- .50%, .75%, .25% and 1.75%, respectively; Nations Texas Municipal Bond
Fund -- .60%, .75%, .47% and 2.07%, respectively; Nations Virginia Intermediate
Municipal Bond Fund -- .50%, .75%, .24% and 1.74%, respectively; and Nations
Virginia Municipal Bond Fund -- .60%, .75%, .36% and 1.96%, respectively.
THE FOREGOING SHOULD NOT BE CONSIDERED TO BE AN ACTUAL REPRESENTATION OF PAST
OR FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES AND RATES OF RETURN MAY BE
GREATER OR LESS THAN THOSE SHOWN.
13
<PAGE>
Objectives
Nations Florida Intermediate Municipal Bond Fund: Nations Florida Intermediate
Municipal Bond Fund's investment objective is to seek high current income exempt
from Federal income and the Florida state intangibles taxes consistent with
moderate fluctuation of principal. The Fund invests in investment grade,
intermediate-term municipal securities.
Nations Florida Municipal Bond Fund: Nations Florida Municipal Bond Fund's
investment objective is to seek high current income exempt from Federal income
and the Florida state intangibles taxes with the potential for principal
fluctuation associated with investments in long-term municipal securities. The
Fund invests in investment grade, long-term municipal securities.
Nations Georgia Intermediate Municipal Bond Fund: Nations Georgia Intermediate
Municipal Bond Fund's investment objective is to seek high current income exempt
from Federal and Georgia state income taxes consistent with moderate fluctuation
of principal. The Fund invests in investment grade, intermediate-term municipal
securities.
Nations Georgia Municipal Bond Fund: Nations Georgia Municipal Bond Fund's
investment objective is to seek high current income exempt from Federal and
Georgia state income taxes with the potential for principal fluctuation
associated with investments in long-term municipal securities. The Fund invests
in investment grade, long-term municipal securities.
Nations Maryland Intermediate Municipal Bond Fund: Nations Maryland Intermediate
Municipal Bond Fund's investment objective is to seek high current income exempt
from Federal and Maryland state income taxes consistent with moderate
fluctuation of principal. The Fund invests in investment grade,
intermediate-term municipal securities.
Nations Maryland Municipal Bond Fund: Nations Maryland Municipal Bond Fund's
investment objective is to seek high current income exempt from Federal and
Maryland state income taxes with the potential for principal fluctuation
associated with investments in long-term municipal securities. The Fund invests
in investment grade, long-term municipal securities.
Nations North Carolina Intermediate Municipal Bond Fund: Nations North Carolina
Intermediate Municipal Bond Fund's investment objective is to seek high current
income exempt from Federal and North Carolina state income taxes consistent with
moderate fluctuation of principal. The Fund invests in investment grade,
intermediate-term municipal securities.
Nations North Carolina Municipal Bond Fund: Nations North Carolina Municipal
Bond Fund's investment objective is to seek high current income exempt from
Federal and North Carolina state income taxes with the potential for principal
fluctuation associated with investments in long-term municipal securities. The
Fund invests in investment grade, long-term municipal securities.
Nations South Carolina Intermediate Municipal Bond Fund: Nations South Carolina
Intermediate Municipal Bond Fund's investment objective is to seek high current
income exempt from Federal and South Carolina state income taxes consistent with
moderate fluctuation of principal. The Fund invests in investment grade,
intermediate-term municipal securities.
Nations South Carolina Municipal Bond Fund: Nations South Carolina Municipal
Bond Fund's investment objective is to seek high current income exempt from
Federal and South Carolina state income taxes with the potential for principal
fluctuation associated with investments in long-term municipal securities. The
Fund invests in investment grade, long-term municipal securities.
Nations Tennessee Intermediate Municipal Bond Fund: Nations Tennessee
Intermediate Municipal Bond Fund's investment objective is to seek high current
income exempt from Federal income tax and the Tennessee Hall Income Tax on
unearned income consistent with moderate fluctuation of principal. The Fund
invests in investment grade, intermediate-term municipal securities.
14
<PAGE>
Nations Tennessee Municipal Bond Fund: Nations Tennessee Municipal Bond Fund's
investment objective is to seek high current income exempt from Federal income
tax and the Tennessee Hall Income Tax on unearned income with the potential for
principal fluctuation associated with investments in long-term municipal
securities. The Fund invests in investment grade, long-term municipal
securities.
Nations Texas Intermediate Municipal Bond Fund: Nations Texas Intermediate
Municipal Bond Fund's investment objective is to seek high current income exempt
from Federal income tax consistent with moderate fluctuation of principal. The
Fund invests in investment grade, intermediate-term municipal securities.
Nations Texas Municipal Bond Fund: Nations Texas Municipal Bond Fund's
investment objective is to seek high current income exempt from Federal income
tax with the potential for principal fluctuation associated with investments in
long-term municipal securities. The Fund invests in investment grade, long-term
municipal securities.
Nations Virginia Intermediate Municipal Bond Fund: Nations Virginia Intermediate
Municipal Bond Fund's investment objective is to seek high current income exempt
from Federal and Virginia state income taxes consistent with moderate
fluctuation of principal. The Fund invests in investment grade,
intermediate-term municipal securities.
Nations Virginia Municipal Bond Fund: Nations Virginia Municipal Bond Fund's
investment objective is to seek high current income exempt from Federal and
Virginia state income taxes with the potential for principal fluctuation
associated with investments in long-term municipal securities. The Fund invests
in investment grade, long-term municipal securities.
Nations Florida Intermediate Municipal Bond Fund, Nations Georgia Intermediate
Municipal Bond Fund, Nations Maryland Intermediate Municipal Bond Fund, Nations
North Carolina Intermediate Municipal Bond Fund, Nations South Carolina
Intermediate Municipal Bond Fund, Nations Tennessee Intermediate Municipal Bond
Fund, Nations Texas Intermediate Municipal Bond Fund and Nations Virginia
Intermediate Municipal Bond Fund are sometimes collectively referred to as the
"State Intermediate Municipal Bond Funds," and Nations Florida Municipal Bond
Fund, Nations Georgia Municipal Bond Fund, Nations Maryland Municipal Bond Fund,
Nations North Carolina Municipal Bond Fund, Nations South Carolina Municipal
Bond Fund, Nations Tennessee Municipal Bond Fund, Nations Texas Municipal Bond
Fund and Nations Virginia Municipal Bond Fund are sometimes collectively
referred to as the "State Municipal Bond Funds".
Although the Adviser will seek to achieve the investment objective of each Fund,
there is no assurance that it will be able to do so. No single Fund should be
considered, by itself, to provide a complete investment program for any
investor. The net asset value of the shares of each Fund will fluctuate based on
market conditions. Investments in the Funds are not insured against loss of
principal.
How Objectives Are Pursued
Under normal market conditions, at least 80% of the net assets of the State
Intermediate Municipal Bond Funds and the State Municipal Bond Funds will be
invested in obligations issued by or on behalf of states, territories and
possessions of the United States, the District of Columbia and their political
subdivisions, agencies, instrumentalities and authorities, the interest on
which, in the opinion of counsel to the issuer or bond counsel, is exempt from
regular Federal income tax ("Municipal Securities"). In addition, at least 80%
of each Fund's net assets will be invested in debt instruments, issued by or on
behalf of the pertinent state and its political subdivisions, agencies,
instrumentalities and authorities.
Under normal market conditions, the average dollar-weighted maturity and
duration of the State Inter-
15
<PAGE>
mediate Municipal Bond Funds are expected to be between three and 10 years and
between three and six years, respectively; the State Municipal Bond Funds'
average dollar-weighted maturity is expected to be greater than seven years and
duration is expected to be greater than six years.
Each of the State Intermediate Municipal Bond Funds and the State Municipal Bond
Funds operates as a non-diversified fund (except to the extent diversification
is required for Federal income tax purposes).
Dividends paid by each of these Funds which are derived from interest
attributable to tax-exempt obligations of the pertinent state and that state's
political subdivisions, agencies, instrumentalities and authorities, as well as
certain other governmental issuers such as Puerto Rico, will be exempt from
regular Federal income tax and (with the exception of Texas and Florida) the
income tax of the pertinent state. Texas and Florida do not impose a state
income tax; however, Florida imposes a state intangibles tax. Dividends derived
from interest on obligations of other governmental issuers will be exempt from
regular Federal income tax, but generally will be subject to state income tax
(with the exception of Texas and Florida). (See "How Dividends And Distributions
Are Made; Tax Information.") During normal market conditions and as a matter of
fundamental investment policy, each of these Funds will invest at least 80% of
its total net assets in obligations the interest on which will be exempt from
regular Federal income tax and (with the exception of Texas and Florida) the
income tax of the pertinent state.
Municipal Securities acquired by the Funds will be rated investment grade at the
time of purchase by at least one nationally recognized statistical rating
organization ("NRSRO") or, if unrated, determined by the Adviser to be of
comparable quality at the time of purchase to rated obligations that may be
acquired by the Funds. Obligations rated in the lowest of the top four
investment grade rating categories (E.G. rated "BBB" by Standard & Poor's
Corporation ("S&P") or "Baa" by Moody's Investors Services, Inc. ("Moody's"))
have speculative characteristics, and changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity to make principal
and interest payments than is the case with higher grade debt obligations.
Subsequent to its purchase by a Fund, an issue of Municipal Securities may cease
to be rated, or its rating may be reduced below the minimum rating required for
purchase by a Fund. The Adviser will consider such an event in determining
whether a Fund should continue to hold the obligation. See "Appendix B" below
for a description of these rating designations.
During temporary defensive periods, the Funds may invest in short-term taxable
and non-taxable obligations in such proportions as, in the opinion of the
Adviser, prevailing market or economic conditions warrant. Taxable obligations
that may be acquired by the Funds include repurchase agreements and short-term
debt securities. Under normal market conditions, each Fund's investments in
taxable obligations and private activity bonds, the interest on which may be
treated as a specific tax preference item under the Federal alternative minimum
tax, will not exceed 20% of its net assets at the time of purchase.
General: Each Fund may invest in certain specified derivative securities,
including: interest rate swaps, caps and floors for hedging purposes;
exchange-traded options; over-the-counter options executed with primary dealers,
including long calls and puts and covered calls to enhance return; and U.S. and
foreign exchange-traded financial futures and options thereon approved by the
Commodity Futures Trading Commission (the "CFTC") for market exposure risk
management. Each Fund also may lend its portfolio securities to qualified
institutional investors and may invest in repurchase agreements, restricted,
private placement and other illiquid securities. Additionally, each Fund may
purchase securities issued by other investment companies, consistent with the
Fund's investment objective and policies. The Funds also may invest in
instruments issued by trusts or certain partnerships including pass-through
certificates representing participations in, or debt instruments backed by, the
securities and other assets owned by such trusts and partnerships.
Certain securities that have variable or floating interest rates or demand, put
or prepayment features or paydown schedules may be deemed to have remaining
maturities shorter than their nominal maturities for purposes of determining the
average weighted maturity and duration of the Funds.
16
<PAGE>
Duration, as used in this Prospectus, means modified duration, which is a
measure of the expected life of fixed income securities on a present value
basis. Duration is used to estimate how much a State Municipal Bond Fund's or
State Intermediate Municipal Bond Fund's share price will fluctuate in response
to a change in interest rates. To see how a Fund's share price could shift,
multiply the Fund's duration by the change in rates. If interest rates rise by
one percentage point, for example, the share price of a Fund with a duration of
five years would decline by about 5%. If rates decrease by one percentage point,
the Fund's share price would rise by about 5%.
Average dollar-weighted maturity is the average length of time until fixed
income securities held by a Fund reach maturity and are repaid. In general, the
longer the average dollar-weighted maturity, the more a Fund's share price will
fluctuate in response to changes in interest rates.
For more information concerning these and other investments in which the Funds
may invest and the Funds' investment practices, see "Appendix A."
Portfolio Turnover: Generally, the Funds will purchase portfolio securities for
capital appreciation or investment income, or both, and not for short-term
trading profits. If a Fund's annual portfolio turnover rate exceeds 100%, it may
result in higher brokerage costs and possible tax consequences for the Fund and
its shareholders. For the Funds' portfolio turnover rates see "Financial
Highlights."
Risk Considerations: The value of a Fund's investments in debt securities,
including obligations issued or guaranteed by U.S. Government, its agencies or
instrumentalities ("U.S. Government Obligations"), will tend to decrease when
interest rates rise and increase when interest rates fall. In general,
longer-term debt instruments tend to fluctuate in value more than shorter-term
debt instruments in response to interest rate movements. In addition, debt
securities that are not backed by the U.S. Government are subject to credit
risk, which is the risk that the issuer may not be able to pay principal and/or
interest when due. Since the Funds invest primarily in securities issued by
entities located in a single state, the Funds are more susceptible to changes in
value due to political or economic changes affecting that state or its
subdivisions.
Certain of the Funds' investments constitute derivative securities, which are
securities whose value is derived, at least in part, from an underlying index or
reference rate. There are certain types of derivative securities that can, under
certain circumstances, significantly increase a purchaser's exposure to market
or other risks. The Adviser, however, only purchases derivative securities in
circumstances where it believes such purchases are consistent with a Fund's
investment objective and do not unduly increase the Fund's exposure to market or
other risks. For additional risk information regarding the Funds' investments in
particular instruments, see "Appendix A."
Year 2000 Issue: Many computer programs employed throughout the world use two
digits to identify the year. Unless modified, these programs may not correctly
handle the change from "99"to "00"on January 1, 2000, and may not be able to
perform necessary functions. Any failure to adapt these programs in time could
hamper the Funds' operations. The Funds' principal service providers have
advised the Funds that they have been actively working on implementing necessary
changes to their systems, and that they expect that their systems will be
adapted in time, although there can be no assurance of success. Because the year
2000 issue affects virtually all organizations, the companies or governmental
entities in which the Funds invest also could be adversely impacted by the Year
2000 issue, although extent of such impact cannot be predicted. To the extent
the impact on a portfolio holding is negative, a Fund's return could be
adversely affected.
Investment Limitations: Each Fund is subject to a number of investment
limitations. The following investment limitations are matters of fundamental
policy and may not be changed without the affirmative vote of the holders of a
majority of the Fund's outstanding shares. Other investment limitations that
cannot be changed without such a vote of shareholders are described in the SAI.
Each Fund may not:
1. Purchase any securities which would cause 25% or more of the value of the
Fund's total assets at the time of such purchase to be invested in the
17
<PAGE>
securities of one or more issuers conducting their principal activities in the
same industry. (For purposes of this limitation, U.S. Government securities and
tax-exempt securities issued by state or municipal governments and their
political subdivisions are not considered members of any industry.)
2. Make loans, except that a Fund may purchase and hold debt instruments
(whether such instruments are part of a public offering or privately placed),
may enter into repurchase agreements and may lend portfolio securities in
accordance with its investment policies.
3. Purchase securities of any one issuer (other than U.S. Government
Obligations) if, immediately after such purchase, more than 25% of the value of
a Fund's total assets would be invested in the securities of one issuer, and
with respect to 50% of such Fund's total assets, more than 5% of its assets
would be invested in the securities of one issuer.
As a matter of fundamental policy, except during defensive periods, the Funds
will invest at least 80% of their respective total net assets in Municipal
Securities the interest on which is exempt from Federal income taxes and the
pertinent state's income taxes (with the exception of Texas and Florida). For
purposes of these fundamental policies, private activity bonds are included in
the term "Municipal Securities" only if the interest paid thereon is exempt from
Federal income tax and not treated as a specific tax preference item under the
Federal alternative minimum tax.
If a percentage limitation has been met at the time an investment is made, a
subsequent change in that percentage that is the result of a change in value of
a Fund's portfolio securities does not mean that the limitation has been
violated.
The investment objective and policies of each Fund, unless otherwise specified,
may be changed without shareholder approval. If the investment objective or
policies of a Fund change, shareholders should consider whether the Fund remains
an appropriate investment in light of their current positions and needs.
How Performance Is Shown
From time to time, a Fund may advertise the "total return" and "yield" on a
class of shares. The Funds may also advertise the "tax-equivalent yield" of a
class of shares. Total return, yield and tax equivialent 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 a Fund's 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. The
"tax-equivalent yield" of the Funds also may be quoted from time to time, which
shows the level of taxable yield needed to produce an after-tax equivalent to
the particular class's tax-free yield. This is done by increasing such class's
yield (as calculated above) by the amount necessary to reflect the payment of
Federal income tax at a stated tax rate. The tax equivalent yield of a class of
Shares of a State Municipal Bond Fund or State Intermediate Municipal Bond Fund
will always be higher than its yield.
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
18
<PAGE>
should be considered when comparing a Fund's investment results to those of
other mutual funds and other investment vehicles. Since yields fluctuate, yield
data cannot necessarily be used to compare an investment in the Funds with bank
deposits, savings accounts, and similar investment alternatives which often
provide an agreed-upon or guaranteed fixed yield for a stated period of time.
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.
In addition to Investor A Shares and Investor B Shares, the Funds offer Primary
A Shares 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
a Fund's shares. Each Fund's annual report contains additional performance
information and is available upon request without charge from the Funds'
distributor or your Agent (as defined below) or by calling Nations Funds at the
toll-free number indicated on the cover of this Prospectus.
How The Funds Are Managed
The business and affairs of Nations Fund Trust are managed under the direction
of its Board of Trustees. The SAI contains the names of and general background
information concerning each Trustee of Nations Fund Trust.
As described below, each Fund is advised by NBAI which is responsible for the
overall management and supervision of the investment management of each Fund.
Each Fund also is sub-advised by a separate investment sub-adviser, which as a
general matter is responsible for the day-to-day investment decision for the
respective Fund.
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.
NationsBank Corporation, the parent company of NationsBank, has signed an
agreement to merge with BankAmerica Corporation. The proposed merger is subject
to certain regulatory approvals and must be approved by shareholders of both
holding companies. The merger is expected to close in the second half of 1998.
NationsBank and NBAI have advised the Funds that the merger will not reduce the
level or quality of advisory and other services provided to the Funds.
Investment Adviser: NationsBanc Advisors, Inc., serves as investment adviser to
the Funds. NBAI is a wholly owned subsidiary of NationsBank, which in turn is a
wholly owned banking subsidiary of NationsBank Corporation, a bank holding
company organized as a North Carolina corporation. NBAI has its principal
offices at One NationsBank Plaza, Charlotte, North Carolina 28255.
TradeStreet Investment Associates, Inc., with principal offices at One
NationsBank Plaza, Charlotte, North Carolina 28255, serves as investment
sub-adviser to the Funds. TradeStreet is a wholly owned subsidiary of
NationsBank. TradeStreet provides investment management services to individuals,
corporations and institutions.
Subject to the general supervision of Nations Fund Trust's Board of Trustees and
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
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<PAGE>
the Adviser or which have sold shares in such Funds, if the Adviser believes
that the quality of the transactions and the commissions are comparable to what
they would be with other qualified brokerage firms. From time to time, to the
extent consistent with its investment objective, policies and restrictions, each
Fund may invest in securities of companies with which NationsBank has a lending
relationship.
For the services provided and expenses assumed pursuant to an investment
advisory agreement, NBAI is entitled to receive advisory fees, computed daily
and paid monthly, at the annual rates of: .50% of the average daily net assets
of the State Intermediate Municipal Bond Funds; .60% of the average daily net
assets of the State Municipal Bond Funds.
For the services provided pursuant to an investment sub-advisory agreement, NBAI
will pay TradeStreet sub-advisory fees, computed daily and paid monthly, at the
annual rate of .07% of each Fund's average daily net assets.
From time to time, NBAI (and/or TradeStreet), may waive or reimburse (either
voluntarily or pursuant to applicable state limitations) advisory fees or
expenses payable by a Fund.
For the fiscal period from April 1, 1997 to March 31, 1998, after waivers,
Nations Fund Trust paid NBAI under the investment advisory agreement, advisory
fees at the indicated rates of the following Funds' average daily net assets:
Nations Florida Intermediate Municipal Bond Fund -- .26%, Nations Georgia
Intermediate Municipal Bond Fund -- .27%, Nations Maryland Intermediate
Municipal Bond Fund -- .23%, Nations North Carolina Intermediate Municipal Bond
Fund -- .26%, Nations South Carolina Intermediate Municipal Bond Fund -- .27%,
Nations Tennessee Intermediate Municipal Bond Fund -- .18%, Nations Texas
Intermediate Municipal Bond Fund -- .27%, Nations Virginia Intermediate
Municipal Bond Fund -- .28%, Nations Florida Municipal Bond Fund -- .32%,
Nations Georgia Municipal Bond Fund -- .20%, Nations Maryland Municipal Bond
Fund -- .14%, Nations North Carolina Municipal Bond Fund -- .28%, Nations South
Carolina Municipal Bond Fund -- .22%, Nations Tennessee Municipal Bond Fund --
.02%, Nations Texas Municipal Bond Fund -- .16%, and Nations Virginia Municipal
Bond Fund -- .25%.
For the fiscal period from April 1, 1997 to March 31, 1998, after waivers, NBAI
paid TradeStreet under the investment sub-advisory agreements, sub-advisory fees
at the indicated rates of the following Funds' average daily net assets: Nations
Florida Intermediate Municipal Bond Fund -- .07%, Nations Georgia Intermediate
Municipal Bond Fund -- .07%, Nations Maryland Intermediate Municipal Bond Fund
- -- .07%, Nations North Carolina Intermediate Municipal Bond Fund -- .07%,
Nations South Carolina Intermediate Municipal Bond Fund -- .07%, Nations
Tennessee Intermediate Municipal Bond Fund -- .07%, Nations Texas Intermediate
Municipal Bond Fund -- .07%, Nations Virginia Intermediate Municipal Bond Fund
- -- .07%, Nations Florida Municipal Bond Fund -- .07%, Nations Georgia Municipal
Bond Fund -- .07%, Nations Maryland Municipal Bond Fund -- .07%, Nations North
Carolina Municipal Bond Fund -- .07%, Nations South Carolina Municipal Bond Fund
- -- .07%, Nations Tennessee Municipal Bond Fund -- .07%, Nations Texas Municipal
Bond Fund -- .07% and Nations Virginia Municipal Bond Fund -- .07%.
The Municipal Fixed Income Management Team of TradeStreet is responsible for the
day-to-day management of the Funds.
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 such services, it is expected
that
20
<PAGE>
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"), 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 calculations necessary to determine net asset
value and dividends, preparing tax returns and financial statements and
maintaining the portfolio records and certain general accounting records for the
Funds. For the services rendered pursuant to the administration and
co-administration agreements, Stephens and First Data are entitled to receive a
combined fee at the annual rate of up to .10% of each Fund's average daily net
assets.
For the fiscal period from April 1, 1997 to March 31, 1998, after waivers,
Nations Fund Trust paid its administrators combined fees at the indicated rates
of the following Funds' average daily net assets: Nations Florida Intermediate
Municipal Bond Fund -- .08%, Nations Georgia Intermediate Municipal Bond Fund --
.08%, Nations Maryland Intermediate Municipal Bond Fund -- .08%, Nations North
Carolina Intermediate Municipal Bond Fund -- .08%, Nations South Carolina
Intermediate Municipal Bond Fund -- .08%, Nations Tennessee Intermediate
Municipal Bond Fund -- .08%, Nations Texas Intermediate Municipal Bond Fund --
.08%, Nations Virginia Intermediate Municipal Bond Fund -- .08%, Nations Florida
Municipal Bond Fund -- .08%, Nations Georgia Municipal Bond Fund -- .08%,
Nations Maryland Municipal Bond Fund -- .08%, Nations North Carolina Municipal
Bond Fund -- .08%, Nations South Carolina Municipal Bond Fund -- .08%, Nations
Tennessee Municipal Bond Fund -- .08%, Nations Texas Municipal Bond Fund -- .08%
and Nations Virginia Municipal Bond Fund -- .08%.
NBAI serves as sub-administrator for the Funds pursuant to a sub-administration
agreement. Pursuant to the terms of the sub-administration agreement, NBAI
assists Stephens in supervising, coordinating and monitoring various aspects of
the Funds' administrative operations. For providing such services, NBAI shall be
entitled to receive a monthly fee from Stephens based on an annual rate of .01%
of the Funds' average daily net assets.
Shares of the Funds are sold on a continuous basis by Stephens, as the Funds'
sponsor and distributor. Stephens is a registered broker/dealer. 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 selling agents that assist customers in
purchasing Investor A Shares of the Funds. See "Shareholder Servicing And
Distribution Plans."
The Bank of New York ("BONY" or the "Custodian") located at 90 Washington
Street, New York, New York 10286, provides custodial services for the assets of
all Nations Funds, except the international portfolios. In return for providing
custodial services to the Nations Funds Family, BONY is entitled to 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 Funds' non-money
market funds up to $10 billion; and (ii) 1/2 of basis point on the excess,
including all Nations Funds' money market funds.
First Data serves as transfer agent (the "Transfer Agent") for the Funds'
Investor A Shares. The Transfer Agent is located at One Exchange Place, Boston,
Massachusetts 02109.
PricewaterhouseCoopers LLP serves as independent accountant to Nations Funds.
Their address is 160 Federal Street, Boston, Massachusetts 02110.
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<PAGE>
Expenses: The accrued expenses of each Fund are deducted from the Funds' total
accrued income before dividends are declared. These expenses include, but are
not limited to: fees paid to the Adviser, Stephens and First Data; taxes;
interest; fees (including fees paid to Nations Funds' Trustees and officers);
federal and state securities registration and qualification fees; brokerage fees
and commissions; costs of preparing and printing prospectuses for regulatory
purposes and for distribution to existing shareholders; charges of the Custodian
and Transfer Agent; certain insurance premiums; outside auditing and legal
expenses; costs of shareholder reports and shareholder meetings; other expenses
which are not expressly assumed by the Adviser, Stephens or First Data under
their respective agreements with Nations Funds; and any extraordinary expenses.
Investor A and Investor B Shares may bear certain class specific expenses and
also bear certain additional shareholder service and/or sales support costs. Any
general expenses of Nations Fund Trust that are not readily identifiable as
belonging to a particular investment portfolio are allocated among all
portfolios in the proportion that the assets of a portfolio bear to the assets
of Nations Fund Trust or in such other manner as the Board of Trustees deems
appropriate.
Organization And History
The Funds are members of the Nations Funds Family, which consists of Nations
Fund Trust, Nations Fund, Inc., Nations Fund Portfolios, Inc., Nations
Institutional Reserves, Nations Annuity Trust and Nations LifeGoal Funds, Inc.
The Nations Funds Family currently has more than 60 distinct investment
portfolios and total assets in excess of $40 billion.
Nations Fund Trust was organized as a Massachusetts business trust on May 6,
1985. Nations Fund Trust's fiscal year end is March 31; prior to 1996, Nations
Fund Trust's fiscal year end was November 30. The Funds currently offer four
classes of shares -- Primary A Shares, Investor A Shares, Investor B Shares and
Investor C Shares. This Prospectus relates only to the Investor A and Investor B
Shares of the following Funds of Nations Fund Trust: Nations Florida
Intermediate Municipal Bond Fund, Nations Florida Municipal Bond Fund, Nations
Georgia Intermediate Municipal Bond Fund, Nations Georgia Municipal Bond Fund,
Nations Maryland Intermediate Municipal Bond Fund, Nations Maryland Municipal
Bond Fund, Nations North Carolina Intermediate Municipal Bond Fund, Nations
North Carolina Municipal Bond Fund, Nations South Carolina Intermediate
Municipal Bond Fund, Nations South Carolina Municipal Bond Fund, Nations
Tennessee Intermediate Municipal Bond Fund, Nations Tennessee Municipal Bond
Fund, Nations Texas Intermediate Municipal Bond Fund, Nations Texas Municipal
Bond Fund, Nations Virginia Intermediate Municipal Bond Fund and Nations
Virginia Municipal Bond Fund. To obtain additional information regarding the
Funds' other classes of shares which may be available to you, contact your Agent
(as defined below) or Nations 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 of shares. See the SAI for examples of instances where
the Investment Company Act of 1940 (the "1940 Act") requires voting by fund.
22
<PAGE>
As of August 1, 1998, NationsBank and its affiliates possessed or shared power
to dispose or vote with respect to more than 25% of the outstanding shares of
Nations Fund Trust and therefore could be considered to be a controlling person
of Nations Fund Trust for purposes of the 1940 Act. For more detailed
information concerning the percentage of each class or series of shares over
which NationsBank and its affiliates possessed or shared power to dispose or
vote as of a certain date, see the SAI.
Nations Fund Trust does not presently intend to hold annual meetings except as
required by the 1940 Act. Shareholders will have the right to remove Trustees.
Nations Fund Trust's Code of Regulations provides that special meetings of
shareholders shall be called at the written request of the shareholders entitled
to vote at least 10% of the outstanding shares of Nations Fund Trust entitled to
be voted at such meeting.
About Your Investment
How To Buy Shares
This Prospectus offers two classes of shares to the general public. Investor A
Shares are sold with an initial sales charge and are subject to a contingent
deferred sales charge ("CDSC") upon certain redemptions; Investor B Shares are
sold without an initial sales charge and are subject to a CDSC upon certain
redemptions. Investments greater than $250,000 (including current holdings in
the Nations Funds Family) are not eligible to purchase Investor B Shares but may
be directed to Investor A Shares. See "Factors to Consider When Selecting
Investor A Shares or Investor B Shares" for a discussion of issues to consider
in selecting which class of shares to purchase. Contact your Agent or Nations
Funds at 1-800-321-7854 for further information.
The Funds have established various procedures for purchasing Investor A Shares
and Investor B Shares in order to accommodate different investors. Purchase
orders may be placed through banks, broker/dealers or other financial
institutions (including certain affiliates of NationsBank) that have entered
into a shareholder servicing agreement ("Servicing Agreement") with NationsBank
("Servicing Agents") sales support agreement ("Sales Support Agreement") with
Stephens ("Selling Agents"). In addition, under certain circumstances, Investor
A Shares may be purchased directly from the Funds.
Investor A Shares are purchased at net asset value plus any applicable sales
charge. Investor B Shares are purchased at net asset value per share without the
imposition of a sales charge, but are subject to a CDSC if redeemed within a
specified period after purchase. 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 A and Investor B 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 and Stephens reserve the right to reject any purchase order. The
issuance of Investor A and Investor B Shares is recorded on the books of the
Funds, and share certificates are not issued unless expressly requested in
writing. Certificates are not issued for fractional shares.
Effective Time of Purchases: Purchase orders for Investor A Shares and Investor
B Shares in the Funds which are received by Stephens, the Transfer Agent or
their respective agents before the close of regular trading 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. In the event that the Exchange
23
<PAGE>
closes early, purchase orders received prior to closing will be priced as of the
time the Exchange closes and purchase orders received after the Exchange closes
will be deemed received on the next Business Day and priced according to the net
asset value determined on the next Business Day. Purchase orders are not
executed until 4:00 p.m., Eastern time, on the Business Day on which immediately
available funds in payment of the purchase price are received by the Fund's
Custodian. Such payment must be received no later than 4:00 p.m., Eastern time,
by the third Business Day following the receipt of the order, as determined
above.
The Agents are responsible for transmitting orders for purchases of Investor A
and Investor B 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 or Investor B Shares. On a
bi-monthly, monthly or quarterly basis, a shareholder may direct cash to be
transferred automatically from his/her checking or savings account at any bank
which is a member of the Automated Clearing House to his/her Fund account.
Transfers will occur on or about the 15th and/or the last day of the applicable
month. Subject to certain exceptions for employees of NationsBank and its
affiliates and pre-existing SIP accounts, the systematic investment amount may
be in any amount from $50 to $100,000. For more information concerning the SIP,
contact your Agent or Nations Funds.
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. Shareholders should be aware that during periods of
significant economic or market change, telephone transactions may be difficult
to complete.
Conversion Feature: Investor B Shares purchased after November 15, 1998, will
automatically convert to Investor A Shares at the end of the month in which the
eighth anniversary of such share purchase occurs.
Investor B Shares purchased between August 1, 1997 and November 15, 1998, that
have been outstanding for the number of years set forth in the applicable
schedule below will, at the end of the month in which the anniversary of such
share purchase occurs, automatically convert to Investor A Shares.
CONVERSION SCHEDULES
This conversion feature applies to the State Intermediate Municipal Bond Funds
in the manner described by the schedule below:
Amount of Purchase Year of Conversion
- ------------------------------------------------
$0 -- $499,999 6th
- ------------------------------------------------
$500,000 -- $999,999 5th
This conversion feature applies to the State Municipal Bond Funds in the manner
described by the schedule below:
Amount of Purchase Year of Conversion
- ------------------------------------------------
$0 -- $249,999 9th
- ------------------------------------------------
$250,000 -- $499,999 6th
- ------------------------------------------------
$500,000 -- $999,999 5th
Investor B Shares of the State Intermediate Municipal Funds purchased prior to
August 1, 1997, will automatically convert to Investor A Shares at the
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<PAGE>
end of the month in which the sixth anniversary of such share purchase occurs.
Investor B Shares of the State Municipal Bond Funds purchased prior to August 1,
1997, will automatically convert to Investor A Shares at the end of the month in
which the ninth anniversary of such share purchase occurs.
Upon conversion, shareholders will receive Investor A Shares having a total
dollar value equal to the total dollar value of their Investor B Shares, without
the imposition of any sales charge or other charge. The operating expenses
applicable to Investor A Shares, which are lower than those applicable to
Investor B Shares, shall thereafter be applied to such newly converted shares.
Shareholders holding converted shares will benefit from the lower annual
operating expenses of Investor A Shares, which will have a positive effect on
total returns. In each case, shareholders have the right to decline an automatic
conversion by notifying their Agent or the Transfer Agent within 90 days before
a conversion that they do not desire such conversion.
Reinvestments of dividends and distributions in Investor B Shares will be
considered a new purchase for purposes of the conversion period. If a
shareholder effects one or more exchanges among Investor B Shares of the
Non-Money Market Funds of Nations Funds during such period, the holding period
for shares so exchanged will be counted toward such period.
Factors to Consider When Selecting Investor A Shares or Investor B Shares:
Before purchasing Investor A Shares or Investor B Shares, investors should
consider whether, during the anticipated life of their investment in the Funds,
the initial sales charge, accumulated distribution and shareholder servicing fee
and potential CDSC (if applicable) on Investor A Shares would be less than the
accumulated shareholder servicing and distribution fees and potential CDSC on
Investor B Shares. Over time, the cumulative expense of the annual shareholder
servicing and distribution fees on the Investor B Shares may equal or exceed the
initial sales charge and combined distribution and servicing fee applicable to
Investor A Shares.
Because holders of Investor A Shares are subject to a lower fee for distribution
and shareholder services, they can be expected to earn correspondingly higher
dividends per share. However, because initial sales charges are deducted at the
time of purchase, purchasers of Investor A Shares that do not qualify for
waivers of or reductions in the initial sales charge would have less of their
purchase price initially invested in the Funds than purchasers of Investor B
Shares. Any positive investment return on the additional invested amount for
Investor B Shares, however, would be partially or wholly offset by the expected
higher annual expenses borne by Investor B Shares.
Investor A Shares -- Charges and
Features
The public offering price of Investor A Shares in the Funds is the sum of the
net asset value per share of the shares being purchased plus any applicable
sales charge. No sales charge will be assessed on the reinvestment of dividends
or other distributions.
The following schedule of sales charges will be assessed on Investor A Shares of
the State Municipal Bond Funds.
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Dealers'
Total Sales Charge Reallowance
-----------------------------------
As a % of As a % of As a % of
Offering Net Asset Offering
Amount of Price Value Price
Transaction Per Share Per Share Per Share
- -------------------------------------------------------------
$0-$25,000 4.75 5.00 4.50
- -------------------------------------------------------------
$25,000-$99,999 4.50 4.71 4.25
- -------------------------------------------------------------
$100,000-$249,999 3.75 3.89 3.50
- -------------------------------------------------------------
$250,000-$499,999 3.00 3.09 2.75
- -------------------------------------------------------------
$500,000-$999,999 2.00 2.04 1.85
- -------------------------------------------------------------
$1,000,000 and over 0.00* 0.00* 0.00**
The following schedule of sales charges will be assessed on Investor A Shares of
the State Intermediate Municipal Bond Funds.
Dealers'
Total Sales Charge Reallowance
----------------------------------
As a % of As a % of As a % of
Offering Net Asset Offering
Amount of Price Value Price
Transaction Per Share Per Share Per Share
- -------------------------------------------------------------
$0-$100,000 3.25 3.36 3.00
- -------------------------------------------------------------
$100,000-$249,999 2.50 2.56 2.25
- -------------------------------------------------------------
$250,000-$499,999 2.00 2.04 1.75
- -------------------------------------------------------------
$500,000-$999,999 1.50 1.53 1.25
- -------------------------------------------------------------
$1,000,000 and over 0.00* 0.00* 0.00**
* Subject to certain waivers specified below, Investor A Shares that are
purchased in amounts of $1 million or more at net asset value will be subject
to a Contingent Deferred Sales Charge ("CDSC") of 1.00% if redeemed within
one year of purchase, declining to 0.50% in the second year after purchase
and eliminated thereafter.
** 1.00% on first $3,000,000, plus 0.50% on the next $47,000,000, plus 0.25% on
amounts over $50,000,000. Stephens will pay the Dealers' Reallowance in
connection with the purchase of shares in amounts of $1 million or more, for
which it may be reimbursed out of the CDSC if such shares are redeemed within
two years of purchase.
The Dealers' Reallowance, which may be changed from time to time, is paid to
Agents.
Investor A Shares Contingent Deferred Sales Charge: Subject to certain waivers
specified below, Investor A Shares of the Funds that are purchased at net asset
value in amounts of $1 million or more will be subject to a CDSC equal to 1.00%
of the lesser of the market value or the purchase price of the shares being
redeemed if such shares are redeemed within one year of purchase, declining to
0.50% in the second year after purchase and eliminated thereafter. No CDSC is
imposed on increases in net asset value above the initial purchase price,
including shares acquired by reinvestment of distributions.
In determining whether a CDSC is payable on any redemption, the Fund will first
redeem shares not subject to any charge, and then shares resulting in the lowest
possible CDSC. Solely for purposes of determining the number of years from the
date of purchase of shares, all purchases are deemed to have been made on the
trade date of the transaction.
The CDSC will be waived on redemptions of Investor A Shares (i) following the
death or disability (as defined in the Internal Revenue Code of 1986, as amended
(the "Code")) of a shareholder (including a registered joint owner), (ii) in
connection with the following retirement plan distributions: (a) lump- sum or
other distributions from a qualified corporate or self-employed retirement plan
following retirement (or in the case of a "key employee" of a "top heavy" plan,
following attainment of age 59 1/2); (b) distributions from an IRA, or Custodial
Account under Section 403(b)(7) of the Code, following attainment of age 59 1/2;
(c) a tax-free return of an excess contribution to an IRA; and (d) distributions
from a qualified retirement plan that are not subject to the 10% additional
Federal withdrawal tax pursuant to Section 72(t)(2) of the Code, (iii) payments
made to pay medical expenses which exceed 7.5% of income and distributions to
pay for insurance by an individual who has separated from employment and who has
received unemployment compensation under a federal or state program for at least
12 weeks, (iv) effected pursuant to Nations Funds' right to liquidate a
shareholder's account, including instances where the aggregate net asset value
of the Investor A Shares held in the account is less than the minimum account
size, (v) in connection with the combination of Nations Funds with any other
registered investment company by a merger, acquisition of assets or by any other
transaction, and (vi) effected pursuant to the Automatic Withdrawal Plan
discussed below, provided that such redemptions do not exceed, on an annual
basis, 12% of the net asset value of the Investor A Shares in the account. In
addition, the CDSC will be waived on Investor A Shares purchased before
September 30, 1994 by current or retired employees of NationsBank and
26
<PAGE>
its affiliates or by current or former Trustees or Directors of Nations Funds or
other management companies managed by NationsBank. Shareholders are responsible
for providing evidence sufficient to establish that they are eligible for any
waiver of the CDSC. Nations Fund may terminate any waiver of the CDSC by
providing notice in the Funds' Prospectus, but any such termination would only
affect shares purchased after such termination.
Redemption Fee: A redemption fee of 1% of the current net asset value will be
assesed on certain Investor A Shares purchased between July 31, 1997 and
November 15, 1998 and redeemed within 18 months of the date of purchase by a
Substantial Investor (as defined in the footnotes to the "Expenses Summary"). In
addition, a 1% redemption fee will be assesed on Investor A Shares purchased
between July 31, 1997 and November 15, 1998 by an employee benefit plan that (i)
made its initial investment between July 31, 1997 and November 15, 1998 and (ii)
redeemed such shares within 18 months of purchase in connection with a complete
liquidation of such plan's holdings in the Nations Funds Family. This fee is
retained by the Fund or Funds for the benefit of the remaining shareholders and
is intended to encourage long-term investment in the Funds and to avoid
transaction and other expenses associated with short-term investments. The Funds
reserve the right to modify the terms of or terminate this fee at any time.
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. Investor A Shares redeemed under the AWP will not be subject to a CDSC,
provided that the shares so redeemed do not exceed, on an annual basis, 12% of
the net asset value of the Investor A Shares in the account. Otherwise, any
applicable CDSC will be imposed on shares redeemed under the AWP. Shareholders
who elect to establish an AWP may receive a monthly, quarterly or annual check
or automatic transfer to a checking or savings account in a stated amount of not
less than $25 on or about the 10th or 25th day of the applicable month of
withdrawal. Investor A Shares will be redeemed (net of any applicable CDSC) as
necessary to meet withdrawal payments. Withdrawals may reduce principal and will
eventually deplete the shareholder's account. If a shareholder desires to
establish an AWP after opening an account, a signature guarantee will be
required. AWPs may be terminated by shareholders on 30 days' written notice to
their Selling Agent or by Nations Funds at any time.
Reduced Sales Charge: An investor may be entitled to reduced sales charges on
Investor A Shares through Rights of Accumulation, a Letter of Intent, or
Quantity Discounts.
To qualify for a reduced sales charge, an investor must notify the Agent through
which the Investor A Shares are purchased, which in turn must notify Stephens,
the Transfer Agent or their respective agents at the time of purchase. Reduced
sales charges may be modified or terminated at any time. Investors are
responsible for providing evidence sufficient to establish that they are
eligible for any reduction in sales charges.
Rights of Accumulation: An investor who has previously purchased Investor A,
Investor B, or Investor C Shares in the Nations Funds (excluding Nations Funds
money market and index funds, Nations Short-Term Income Fund and Nations
Short-Term Municipal Income Fund) may aggregate investments in such shares with
current purchases to determine the applicable sales charge for current
purchases. An investor's aggregate investment in Investor A, Investor B and
Investor C Shares in such Funds is the total value (based on the higher of
current net asset value or the public offering price originally paid) of: (a)
current purchases, and (b) Investor A, Investor B and Investor C Shares that are
already beneficially owned by the investor.
Letter of Intent: A Letter of Intent provides an opportunity for an investor to
obtain a reduced sales charge by aggregating the investments over a 13-month
period to determine the sales charge as outlined in the preceding table. The
size of investment shown in the preceding table also includes purchases of
shares of the participating Funds over a 13-month period based on the total
amount of intended purchases plus the value of all shares of the participating
Funds previously purchased and still owned. An investor may elect to compute the
13-month period starting up to 90 days before the date of execution of a Letter
of Intent. Each invest-
27
<PAGE>
ment made during the period receives the reduced sales charge applicable to the
total amount of the investment goal. If the goal is not achieved within the
period, the investor must pay the difference between the charges applicable to
the purchases made and the charges previously paid. The initial purchase must be
for an amount equal to at least five percent of the minimum total purchase
amount of the level selected. If trades not initially made under a Letter of
Intent subsequently qualify for a lower sales charge through the 90-day back-
dating provisions, an adjustment will be made at the expiration of the Letter of
Intent to give effect to the lower charge. Such adjustments in sales charge will
be used to purchase additional shares for the shareholder at the applicable
discount category.
Quantity Discounts: As shown in the table under "Sales Charges," larger
purchases may reduce the sales charge paid on Investor A Shares. Purchases of
Investor A Shares in the non-money market funds of the Nations Funds Family that
are made on the same day by the investor, his/her spouse, and his/her children
under age 21 will be combined when calculating the sales charge. For the purpose
of calculating the amount of the transaction, certain distributions or payments
from dissolution of certain qualified plans are permitted to aggregate plan
participant's investments.
Purchases of Shares at Net Asset Value:
o Full-time employees and retired employees of NationsBank Corporation (and its
predecessors), its affiliates and subsidiaries and the immediate families of
such persons may purchase Investor A Shares in the Funds at net asset value.
o Individuals receiving a distribution from a NationsBank trust or other
fiduciary account may use the proceeds of such distribution to purchase
Investor A Shares of the Funds at net asset value, provided that the proceeds
are invested through a trust account established with another trustee and
invested in the Funds within 90 days. Those investors who transfer their
proceeds to a fiduciary account with another trustee may continue to purchase
shares in the Funds at net asset value.
o Nations Fund's Trustees and Directors also may purchase Investor A Shares at
net asset value.
o Registered broker/dealers that have entered into a Nations Fund dealer
agreement with Stephens may purchase Investor A Shares at net asset value for
their investment account only.
o Registered personnel and employees of such broker/dealers also may purchase
Investor A Shares at net asset value in accordance with the internal policies
and procedures of the employing broker/dealer provided such purchases are
made for their own investment purposes.
o Employees of the Transfer Agent may purchase Investor A Shares of the Funds
at net asset value.
o Former shareholders of Class B Shares of the Special Equity Portfolio of The
Capitol Mutual Funds who held such shares as of January 31, 1994 or received
Investor A Shares of Nations Disciplined Equity Fund in connection with the
reorganization of the Special Equity Portfolio into Nations Disciplined
Equity Fund may purchase Investor A Shares of Nations Disciplined Equity Fund
at net asset value.
o Investors who purchase through accounts established with certain fee-based
investment advisers or financial planners, including Nations Funds Personal
Investment Planner accounts, wrap fee accounts and other managed agency/asset
allocation accounts may purchase Investor A Shares at net asset value.
Investor A Shares also may be purchased at net asset value by (i) pension,
profit sharing or other employee benefit plans established under Section 401 or
Section 457 of the Internal Revenue Code of 1986, as amended (the "Code"), or
(ii) employee benefit plans created pursuant to Section 403(b) of the Code and
sponsored by a non-profit organization qualified under Section 501(c)(3) of the
Code, provided that, in either case, the plan (a) has at least $500,000 invested
in Investor A Shares of the Nations Fund non-money market funds, (b) has signed
a letter of intent indicating that the plan intends to purchase at least
$500,000 of Investor A Shares of the Nations Fund non-money market funds, (c) is
an employer-sponsored plan with at least 100 eligible participants (a "Qualified
Plan") or (d) is a participant in an alliance program that has entered into an
agreement with an Agent. Stephens may pay Agents or other finan-
28
<PAGE>
cial service firms up to 1.00% of the net asset value of Investor A Shares
purchased without a sales charge, for which it may be reimbursed out of any
applicable CDSC.
Reinstatement Privilege: Investor A Shares in a Fund may be purchased at net
asset value, without any sales charge, by persons who have redeemed Investor A
Shares of the same Fund within the previous 120 days. 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 reinstatement privilege. In order to exercise this
privilege, a written order for the purchase of Investor Shares must be received
by the Transfer Agent, Stephens or their respective agents within 120 days after
the redemption.
Investor A Shares may be purchased at net asset value, without a sales charge,
to the extent such a purchase, which must be at least $1,000, is paid for with
the proceeds from the redemption of shares of a nonaffiliated mutual fund. A
qualifying purchase of Investor A Shares must occur within 45 days of the prior
redemption and Nations Funds must receive a copy of the confirmation of the
redemption transaction. Stephens may compensate dealers in connection with such
purchases. This privilege may be revoked at any time.
Nations Funds may terminate any waiver of or reduction in the sales charge by
providing notice in the Fund's Prospectus, but any such termination would only
affect future purchases of shares. For more information about reduced sales
charge, contact an Agent or Stephens.
Investor B Shares -- Charges and
Features
Investor B Shares Contingent Deferred Sales Charge: Subject to certain waivers
specified below, Investor B Shares purchased prior to January 1, 1996 and after
July 31, 1997, may be subject to a CDSC if such shares are redeemed within the
years designated in the applicable CDSC schedule set forth below. No CDSC is
imposed on increases in net asset value above the initial purchase price, or
shares acquired by reinvestment of distributions. Subject to the waivers
described below, the amount of the CDSC is determined as a percentage of the
lesser of the market value or the purchase price of the shares being redeemed.
The amount of the CDSC will depend on the number of years since you invested,
according to the following table:
CDSC SCHEDULES
A CDSC is imposed at the following declining rates on Investor B Shares of the
State Intermediate Municipal Bond Funds:
Shares Purchased After November 15, 1998*
CDSC as a
Percentage of Dollar
Year Since Purchase Made Amount Subject to Charge
- -------------------------------------------------------
First 3.0%
- -------------------------------------------------------
Second 3.0%
- -------------------------------------------------------
Third 2.0%
- -------------------------------------------------------
Fourth 1.0%
- -------------------------------------------------------
Fifth None
* Investor B Shares are not available to purchasers desiring to invest $250,000
or more, however, investors desiring to invest $250,000 or more may be
eligible to purchase Investor A Shares.
29
<PAGE>
Shares Purchased Between August 1, 1997 and November 15, 1998 in amount of $0 --
$499,999
CDSC as a
Percentage of Dollar
Year Since Purchase Made Amount Subject to Charge
- --------------------------------------------------------
First 3.0%
- --------------------------------------------------------
Second 2.0%
- --------------------------------------------------------
Third 1.0%
- --------------------------------------------------------
Fourth and thereafter None
Shares Purchased Between August 1, 1997 and November 15, 1998 in amount of
$500,000 -- $999,999
CDSC as a
Percentage of Dollar
Year Since Purchase Made Amount Subject to Charge
- --------------------------------------------------------
First 2.0%
- --------------------------------------------------------
Second 1.0%
- --------------------------------------------------------
Third and thereafter None
Shares Purchased Prior to January 1, 1996
CDSC as a
Percentage of Dollar
Year Since Purchase Made Amount Subject to Charge
- --------------------------------------------------------
First 4.0%
- --------------------------------------------------------
Second 3.0%
- --------------------------------------------------------
Third 3.0%
- --------------------------------------------------------
Fourth 2.0%
- --------------------------------------------------------
Fifth 2.0%
- --------------------------------------------------------
Sixth 1.0%
- --------------------------------------------------------
Seventh and thereafter None
A CDSC is imposed at the following declining rates on Investor B Shares of the
State Municipal Bond Funds:
Shares Purchased After November 15, 1998*
CDSC as a
Percentage of Dollar
Year Since Purchase Made Amount Subject to Charge
- --------------------------------------------------------
First 5.0%
- --------------------------------------------------------
Second 4.0%
- --------------------------------------------------------
Third 3.0%
- --------------------------------------------------------
Fourth 2.0%
- --------------------------------------------------------
Fifth 2.0%
- --------------------------------------------------------
Sixth 1.0%
- --------------------------------------------------------
Seventh and thereafter None
* Except as noted below, Investor B Shares are not available to purchasers
desiring to invest $250,000 or more, however, investors desiring to invest
$250,000 or more may be eligible to purchase Investor A Shares.
Shares Purchased Between August 1, 1997 and November 15, 1998 in amount of $0 --
$249,999
CDSC as a
Percentage of Dollar
Year Since Purchase Made Amount Subject to Charge
- --------------------------------------------------------
First 4.0%
- --------------------------------------------------------
Second 3.0%
- --------------------------------------------------------
Third 3.0%
- --------------------------------------------------------
Fourth 2.0%
- --------------------------------------------------------
Fifth 1.0%
- --------------------------------------------------------
Sixth and thereafter None
Shares Purchased Between August 1, 1997 and November 15, 1998 in amount of
$250,000 -- $499,999
CDSC as a
Percentage of Dollar
Year Since Purchase Made Amount Subject to Charge
- --------------------------------------------------------
First 3.0%
- --------------------------------------------------------
Second 2.0%
- --------------------------------------------------------
Third 1.0%
- --------------------------------------------------------
Fourth and thereafter None
30
<PAGE>
Shares Purchased Between August 1, 1997 and November 15, 1998 in amount of
$500,000 -- $999,999
CDSC as a
Percentage of Dollar
Year Since Purchase Made Amount Subject to Charge
- --------------------------------------------------------
First 2.0%
- --------------------------------------------------------
Second 1.0%
- --------------------------------------------------------
Third and thereafter None
Shares Purchased Prior to January 1, 1996
CDSC as a
Percentage of Dollar
Year Since Purchase Made Amount Subject to Charge
- --------------------------------------------------------
First 5.0%
- --------------------------------------------------------
Second 4.0%
- --------------------------------------------------------
Third 3.0%
- --------------------------------------------------------
Fourth 2.0%
- --------------------------------------------------------
Fifth 2.0%
- --------------------------------------------------------
Sixth 1.0%
- --------------------------------------------------------
Seventh and thereafter None
In determining whether a CDSC is payable on any redemption, a Fund will first
redeem shares not subject to any charge, and then shares resulting in the lowest
possible CDSC. Solely for purposes of determining the number of years from the
date of purchase of shares, all purchases are deemed to have been made on the
trade date of the transaction.
The CDSC will be waived on redemptions of Investor B Shares (i) following the
death or disability (as defined in the Internal Revenue Code of 1986, as amended
(the "Code")) of a shareholder (including a registered joint owner), (ii) in
connection with the following retirement plan distributions: (a) lump- sum or
other distributions from a qualified corporate or self-employed retirement plan
following retirement (or in the case of a "key employee" of a "top heavy" plan,
following attainment of age 59 1/2); (b) distributions from an IRA, or Custodial
Account under Section 403(b)(7) of the Code, following attainment of age 59 1/2;
(c) a tax-free return of an excess contribution to an IRA; and (d) distributions
from a qualified retirement plan that are not subject to the 10% additional
Federal withdrawal tax pursuant to Section 72(t)(2) of the Code, (iii) payments
made to pay medical expenses which exceed 7.5% of income and distributions to
pay for insurance by an individual who has separated from employment and who has
received unemployment compensation under a federal or state program for at least
12 weeks, (iv) effected pursuant to Nations Funds' right to liquidate a
shareholder's account, including instances where the aggregate net asset value
of the Investor B shares held in the account is less than the minimum account
size, (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 B Shares in the account, and (vi) in connection with
the combination of Nations Funds with any other registered investment company by
a merger, acquisition of assets or by any other transaction. In addition, the
CDSC will be waived on Investor B Shares purchased before September 30, 1994 by
current or retired employees of NationsBank and its affiliates or by current or
former Trustees or Directors of Nations Funds or other management companies
managed by NationsBank. Shareholders are responsible for providing evidence
sufficient to establish that they are eligible for any waiver of the CDSC.
Reinstatement Privilege: Within 120 days after a redemption of Investor B Shares
of a Fund, a shareholder may reinvest any portion of the proceeds of such
redemption in Investor B 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 B Shares must be
received by the Transfer Agent or by Stephens within 120 days after the
redemption.
Automatic Withdrawal Plan: An Automatic Withdrawal Plan ("AWP") may be
established by a new or existing shareholder of the Funds if the value of the
Investor B Shares in his/her accounts within the Nations Funds Family (valued at
the net asset value at the time of the establishment
31
<PAGE>
of the AWP) equals $10,000 or more. Investor B 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 value of the Investor B 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 B 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 Redeem Shares
For shareholders who open and maintain an account directly with a Fund,
redemption orders should be communicated to such Fund by calling Nations Funds
at 1-800-321-7854 or in writing. (Shareholders must have established telephone
features on their account in order to effect telephone transactions.) Redemption
orders for Investor A or Investor B Shares of the Funds which are received by
Stephens, the Transfer Agent or their respective agents before the close of
regular trading on the Exchange (currently 4:00 p.m., Eastern time) on any
Business Day are priced according to the net asset value next determined after
acceptance of the order, less any applicable CDSC. In the event that the
Exchange closes early, redemption orders received prior to closing will be
priced as of the time the Exchange closes and redemption orders received after
the Exchange closes will be deemed received on the next Business Day and priced
according to the net asset value determined on the next Business Day. Redemption
proceeds are normally sent by mail or wired within three Business Days after
receipt of the order by the Fund. For shareholders who purchased their shares
through an Agent, redemption orders should be transmitted by telephone or in
writing through the same Agent. Redemption proceeds are normally remitted in
federal funds wired to the redeeming Agent or investor within three Business
Days after receipt of the order by Stephens, the Transfer Agent or their
respective agents. Redemption orders are effected at the net asset value per
share next determined after receipt of the order by the Fund, Stephens, the
Transfer Agent or their respective agents, as the case may be, less any
applicable CDSC. The Agents are responsible for transmitting redemption orders
to Stephens, the Transfer Agent or their respective agents 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. Except for any CDSC
which may be applicable upon redemption of Investor A Shares or Investor B
Shares as described below, there is no redemption charge.
Nations Funds may redeem a shareholder's Investor A or Investor B Shares upon 60
days' written notice if the balance in the shareholder's account drops below
$500 as a result of redemptions. Share balances also may be redeemed at the
direction of an Agent pursuant to arrangements between the Agent and its
Customers. Nations Funds also may redeem shares of a Fund involuntarily or make
payment for redemption in readily marketable securities or other property under
certain circumstances in accordance with the 1940 Act.
Prior to effecting a redemption of Investor A or Investor B Shares represented
by certificates, the Transfer Agent must have received such certificates at its
principal office. All such certificates must be endorsed by the redeeming
shareholder or accompanied by a signed stock power, in each instance with the
signature guaranteed by a commercial bank or a member of a major stock exchange,
32
<PAGE>
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.
How To Exchange Shares
Investor A Shares: The exchange feature enables a shareholder of a fund of
Nations Funds to acquire shares of the same class that are offered by another
fund (other than an index fund) of Nations Funds when the shareholder believes
that a shift between funds is an appropriate investment decision. A qualifying
exchange is based on the next calculated net asset value per share of each fund
after the exchange order is received.
No CDSC will be imposed in connection with an exchange of Investor A Shares that
meets the requirements discussed in this section. If Investor A Shares of a Fund
are exchanged for shares of the same class of another fund, any CDSC applicable
to the shares exchanged will be applied upon the redemption of the acquired
shares. The holding period of such Investor A Shares (for purposes of
determining whether a CDSC is applicable upon redemption) will be computed from
the time of the initial purchase of the Investor A Shares of the Fund.
Shareholders who have paid a front-end sales charge on purchases of Investor A
Shares of one of Nations Fund's non-money market funds (including Investor A
Shares acquired through the reinvestment of dividends and distributions on such
shares) may exchange those Investor A Shares at net asset value without any
sales charge for Investor A Shares available under the exchange privilege
described herein, provided that the maximum sales charge applicable to the
acquired Investor A Shares is equal to or less than the "maximum sales charge
applicable" to the Investor A Shares being exchanged. For purposes of
determining the "maximum sales charge applicable" to the Investor A Shares being
exchanged, a shareholder may include any sales charge paid on shares of the same
class offered by one of Nations Fund's other funds that were previously
exchanged to acquire the subject Investor A Shares then being exchanged,
provided that notification of such prior exchange is made to the Transfer Agent,
Stephens or their respective agents.
If the Investor A Shares being acquired are subject to a higher maximum
front-end sales charge than the Investor A Shares being exchanged, then the
shareholder must pay a "sales charge differential," which is the difference
between the maximum front-end sales charge applicable to those Investor A Shares
being exchanged and those being acquired. However, a shareholder would not have
to pay a sales charge differential to the extent such shareholder is eligible
for a reduced or waived sales charge on the Investor A Shares being acquired. In
addition, a shareholder of Investor A Shares of a non-money market fund would
not have to pay a sales charge differential upon an exchange if the shareholder
has owned such shares for at least 90 days.
If Investor A Shares are exchanged for shares of the same class of another fund,
any redemption fee applicable to the original shares purchased will be assessed
upon the redemption of the acquired shares. The holding period of such shares
(for purposes of determining whether a redemption fee is applicable) will be
computed from the time of the initial purchase of the Investor A Shares of a
Fund, except that the holding period will not accrue while the shares owned are
Investor A Shares of Nations Short-Term Municipal Income Fund, Nations
Short-Term Income Fund or a Nations Funds' money market fund. If a redemption
fee ultimately is charged, it will be retained by the initial Fund purchased.
If Investor A Shares are exchanged for shares of the same class of another fund,
any redemption fee applicable to the original shares purchased will be assessed
upon the redemption of the acquired shares. The holding period of such shares
(for purposes of determining whether a redemption fee is applicable) will be
computed from the time of the initial purchase of the Investor A Shares of a
Fund, except that the holding period will not accrue while the shares owned are
Investor A Shares of Nations
33
<PAGE>
Short-Term Municipal Income Fund, Nations Short-Term Income Fund or a Nations
Funds' money market fund. If a redemption fee ultimately is charged, it will be
retained by the initial Fund purchased.
Automatic Exchange Feature: Under the Funds' Automatic Exchange Feature ("AEF")
a shareholder of Investor A Shares 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 the
last 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
Nations Funds.
Investor B Shares: The exchange feature enables a shareholder to exchange funds
as specified below when the shareholder believes that a shift between funds is
an appropriate investment decision. The exchange feature enables a shareholder
of Investor B Shares of a fund offered by Nations Funds to acquire shares of the
same class that are offered by another fund of Nations Funds (except Nations
Short-Term Income Fund and Nations Short-Term Municipal Income Fund), Investor A
Shares of Nations Short-Term Income Fund or Nations Short-Term Municipal Income
Fund or Investor C Shares of a Nations Funds money market fund. A qualifying
exchange is based on the next calculated net asset value per share of each fund
after the exchange order is received.
No CDSC will be imposed in connection with an exchange of Investor B Shares that
meets the requirements discussed in this section. If a shareholder acquires
Investor B Shares of another fund through an exchange, any CDSC schedule
applicable (CDSCs may apply to shares purchased prior to January 1, 1996 or
after July 31, 1997) to the original shares purchased will be applied to any
redemption of the acquired shares. If a shareholder exchanges Investor B Shares
of a fund for Investor C Shares of a money market fund or Investor A Shares of
Nations Short-Term Income Fund or Nations Short-Term Municipal Income Fund, the
acquired shares will remain subject to the CDSC schedule applicable to the
Investor B Shares exchanged. The holding period (for purposes of determining the
applicable rate of the CDSC) does not accrue while the shares owned are Investor
C Shares of a Nations Funds money market fund or Investor A Shares of Nations
Short-Term Income Fund or Nations Short-Term Municipal Income Fund. As a result,
the CDSC that is ultimately charged upon a redemption is based upon the total
holding period of Investor B Shares of a fund that charges a CDSC.
General: For shareholders who maintain an account directly with a Fund, exchange
requests should be communicated to the Fund by calling Nations Funds at
1-800-321-7854 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),
provided that the exchange feature may be terminated or materially revised
without notice under certain unusual circumstances.
The current prospectus for each Fund describes its investment objective and
policies, and shareholders should obtain a copy and examine it carefully before
investing. Exchanges are subject to the minimum investment requirement and any
other conditions imposed by each fund. In the case of any shareholder holding a
share certificate or certificates, no exchanges may be made until all applicable
share certificates have been received by the Transfer Agent and deposited in the
shareholder's account. An exchange will be treated for Federal income tax
purposes the same as a redemption of shares, on which the shareholder may
realize a capital gain or loss. However, the ability to deduct capital losses on
an exchange may be limited in
34
<PAGE>
situations where there is an exchange of shares within 90 days after the shares
are purchased.
Nations Funds and Stephens reserve 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.
The Investor A Shares and Investor B Shares exchanged must have a current value
of at least $1,000. Nations Funds and Stephens reserve the right to reject any
exchange request. Only shares that may legally be sold in the state of the
investor's residence may be acquired in an exchange. Only shares of a class that
is accepting investments generally may be acquired in an exchange. An investor
may telephone an exchange request by calling the investor's Selling Agent which
is responsible for transmitting such request to Stephens or to the Transfer
Agent.
During periods of significant economic or market change, telephone exchanges may
be difficult to complete. In such event, shares may be exchanged by mailing the
request directly to the Selling Agent through which the original shares were
purchased. An investor should consult his/her Selling Agent or Stephens for
further information regarding exchanges.
Shareholder Servicing And Distribution
Plan
Investor A Shares: The Funds' Shareholder Servicing and Distribution Plan (the
"Investor A Plan"), adopted pursuant to Rule 12b-1 under the 1940 Act, permits
each Fund to compensate (i) Servicing Agents and Selling Agents for services
provided to their Customers that own Investor A Shares and (ii) Stephens for
distribution-related expenses incurred in connection with Investor A Shares.
Aggregate payments under the Investor A Plan are calculated daily and paid
monthly at a rate or rates set from time to time by each Fund, provided that the
annual rate may not exceed .25% of the average daily net asset value of the
Investor A Shares of the Fund.
The fees payable to Servicing Agents under the Investor A Plan are used
primarily to compensate or reimburse Servicing Agents for shareholder services
provided, and related expenses incurred, by such Servicing Agents. The
shareholder services provided by Servicing Agents may include: (i) aggregating
and processing purchase and redemption requests for Investor A Shares from
Customers and transmitting net purchase and redemption orders to Stephens, the
Transfer Agent or their respective agents; (ii) providing Customers with a
service that invests the assets of their accounts in Investor A Shares pursuant
to specific or preauthorized instructions; (iii) processing dividend and
distribution payments from a Fund on behalf of Customers; (iv) providing
information periodically to Customers showing their positions in Investor A
Shares; (v) arranging for bank wires; and (vi) providing general shareholder
liaison services. The fees payable to Selling Agents are used primarily to
compensate 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.
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 Agreements and Sales Support
Agreements. See the SAI for more details on the Investor A Plan.
35
<PAGE>
Investor B Shares:
Shareholder Servicing Plan: The Funds' shareholder servicing plan ("Servicing
Plan") permits each Fund to compensate Servicing Agents for services provided to
their Customers that own Investor B Shares. Payments under the Funds' Servicing
Plan are calculated daily and paid monthly at a rate or rates set from time to
time by the Funds, provided that the annual rate may not exceed .25% of the
average daily net asset value of the Investor B 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 B 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 B
Shares pursuant to specific or preauthorized instructions; (iii) processing
dividend and distribution payments from a Fund on behalf of Customers; (iv)
providing information periodically to Customers showing their positions in
Investor B 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 Funds' Servicing Plan
described above and the terms of the Servicing Agreement. See the SAI for more
details on the Servicing Plan.
Distribution Plan: Pursuant to Rule 12b-1 under the 1940 Act, the Trustees have
approved a Distribution Plan with respect to Investor B Shares of the Funds.
Pursuant to the Distribution Plan, a Fund may compensate or reimburse Stephens
for any activities or expenses primarily intended to result in the sale of the
Fund's Investor B Shares. Payments under the Funds' Distribution Plan will be
calculated daily and paid monthly at a rate or rates set from time to time by
the Trustees, provided that the annual rate may not exceed .75% of the average
daily net asset value of each Fund's Investor B Shares.
The fees payable under the Distribution Plan are used primarily to compensate or
reimburse Stephens for distribution services provided by it, and related
expenses incurred, including payments by Stephens to compensate or reimburse
Selling Agents for sales support services provided, and related expenses
incurred, by such Selling Agents. Payments under the Distribution Plan may be
made with respect to the following expenses: the cost of preparing, printing,
and distributing prospectuses, sales literature and advertising materials;
commissions, incentive compensation or other compensation to, and expenses of,
account executives or other employees of Stephens or Selling Agents; overhead
and other office expenses; opportunity costs relating to the foregoing; and any
other costs and expenses relating to distribution or sales support activities.
The overhead and other office expenses referenced above may include, without
limitation, (i) the expenses of operating Stephens' or the Selling Agents'
offices in connection with the sale of Fund shares, including rent, the salaries
and employee benefit costs of administrative, operations and support personnel,
utility costs, communications costs and the costs of stationery and supplies,
(ii) the costs of client sales seminars and travel related to distribution and
sales support activities, and (iii) other expenses relating to distribution and
sales support activities.
Nations Funds and Stephens may suspend or reduce payments under the Distribution
Plan at any time, and payments are subject to the continuation of the Funds'
Distribution Plan described above and the terms of the Sales Support Agreements
between Selling Agents and Stephens. See the SAI for more details on the
Distribution Plan.
General: Nations Funds understands that Agents may charge fees to their
Customers who own Investor A or Investor B Shares in connection with a
Customer's account. These fees would be in addition to any amounts received by a
Selling Agent under its Sales Support Agreement with Stephens or by a Servicing
Agent under its Servicing Agreement with Nations 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
connec-
36
<PAGE>
tion with their accounts. Customers should read this Prospectus in light of the
terms governing their accounts with their Agents.
The Adviser may also pay out of its own assets amounts to Stephens or other
broker/dealers in connection with the provision of administrative and/or
distribution related services to shareholders.
In addition, Stephens may, from time to time, at its expense or as an expense
for which it may be reimbursed under the plan adopted pursuant to Rule 12b-1
under the 1940 Act, pay a bonus or other consideration or incentive to Selling
Agents who sell a minimum dollar amount of shares of a Fund during a specified
period of time. Stephens may also, from time to time, pay additional
consideration to Selling Agents not to exceed 1.00% of the offering price per
share on all sales of Investor A Shares and 4.00% of the offering price per
share on all sales of Investor B Shares as an expense of Stephens or for which
Stephens may be reimbursed under the plan adopted pursuant to Rule 12b-1 or upon
receipt of a CDSC. Any such additional consideration or incentive program may be
terminated at any time by Stephens.
Stephens has also 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 of the Funds are valued as of the close of regular
trading on the Exchange (currently 4:00 p.m., Eastern time) on each Business
Day. In the event that the Exchange closes early, shares of the Funds will be
priced as of the time the Exchange closes. Currently, the days on which the
Exchange is closed (other than weekends) are: New Year's Day, Martin Luther
King, Jr. Day, Presidents' Day, Good Friday, Memorial Day (observed),
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
Portfolio securities for which market quotations are readily available are
valued at market value. Short-term investments that will mature in 60 days or
less are valued at amortized cost, which approximates market value. All other
securities and assets are valued at their fair value following procedures
approved by the Trustees.
How Dividends And Distributions Are
Made; Tax Information
Dividends and Distributions: Dividends from net investment income are declared
daily and paid monthly by the Funds. Each Fund's net realized capital gains
(including net short-term capital gains) are distributed at least annually.
Distributions from capital gains are made after applying any available capital
loss carryovers. Distributions paid by the Funds with respect to one class of
shares may be greater or less than those paid with respect to another class of
shares due to the different expenses of the different classes.
Investor A and Investor B Shares of the Funds are eligible to begin earning
dividends that are declared on the day the purchase order is executed and
continue to be eligible for dividends through and including the day before the
redemption order is executed.
37
<PAGE>
The net asset value of Investor A and Investor B Shares will be reduced by the
amount of any dividend or distribution. Accordingly, dividends and distributions
on newly purchased shares represent, in substance, a return of capital. However,
such dividends and distributions would nevertheless be taxable. Certain Selling
or Servicing Agents may provide for the reinvestment of dividends in the form of
additional Investor A or Investor B Shares of the same class of the same Fund.
Dividends and distributions are paid in cash within five Business Days of the
end of the month to which the payment 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 or Investor B Shares.
Tax Information: Each Fund intends to continue to qualify as a "regulated
investment company" under the Internal Revenue Code of 1986, as amended (the
"Code"). Such qualification relieves a Fund of liability for Federal income tax
on amounts distributed in accordance with the Code.
As regulated investment companies, the Funds are permitted to pass through to
their shareholders tax-exempt income ("exempt-interest dividends") subject to
certain requirements which the Funds intend to satisfy. Distributions from
taxable income generally will be taxable as ordinary income to shareholders
whether such income is received in cash or reinvested in additional shares. The
policy of the Funds is to pay their shareholders an amount equal to at least 90%
of their exempt- interest income net of certain deductions and of their
investment company taxable income. Exempt-interest dividends may be treated by
shareholders as items of interest excludable from their Federal gross income
under Section 103(a) of the Code unless, under the circumstances applicable to
the particular shareholder, the exclusion would be disallowed. (See the SAI
under "Additional Information Concerning Taxes.") Distributions from the Funds
will not qualify for the dividends-received deduction for corporate
shareholders.
Substantially all of a Fund's net realized long-term capital gains will be
distributed at least annually. The Funds generally will have no tax liability
with respect to such gains, and the distributions will be taxable to
shareholders as net capital gain, regardless of how long the shareholders have
held the Fund's shares and whether such gains are received in cash or reinvested
in additional shares. Noncorporate shareholders may be taxed on such
distributions at preferential rates.
Each year, shareholders will be notified as to the amount and Federal tax status
of all dividends and capital gain distributions paid during the prior year. Such
dividends and capital gain distributions may be subject to state and local
taxes.
Dividends and distributions 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 and distributions are actually paid
during January of the following year.
Federal law requires Nations Funds to withhold 31% from any distributions (other
than exempt-interest dividends) paid by Nations Funds and/or redemptions
(including exchanges and redemptions in-kind) that occur in certain shareholder
accounts if the shareholder has not properly furnished a certified correct
Taxpayer Identification Number and has not certified that withholding does not
apply, or if the Internal Revenue Service has notified Nations 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.
With respect to the State Intermediate Municipal Bond Funds and the State
Municipal Bond Funds, it is anticipated that exempt-interest dividends derived
from tax-exempt interest paid on municipal obligations of the pertinent state
and that state's political subdivisions, agencies, instrumentalities, and
authorities, and certain other issuers, including Puerto Rico and Guam, will be
exempt from state income tax with respect to those states which impose a state
income tax. Florida and Texas do not impose income taxes, but Florida imposes a
tax upon intangible personal property which may apply to shares of Nations
Florida Intermediate Municipal Bond Fund and Nations Florida Munici-
38
<PAGE>
pal Bond Fund held by residents of that state. Florida has issued a Technical
Assistance Advisement indicating that shares in such Funds will not be subject
to Florida's intangibles tax, subject to certain requirements which the Funds
intend to satisfy. See the SAI for further details about state tax treatment
relevant to shareholders of these Funds. In addition to annual disclosures as to
Federal tax consequences of dividends and distributions, shareholders of the
State Intermediate Municipal Bond Funds and the State Municipal Bond Funds will
also be advised as to the state tax consequences of dividends and distributions
made each year.
The foregoing discussion is based on tax laws and regulations which were in
effect as of the date of this Prospectus and summarizes only some of the
important tax considerations generally affecting the Funds and their
shareholders. It is not intended as a substitute for careful tax planning;
investors should consult their tax advisors with respect to their specific tax
situations as well as respect to foreign, state and local taxes. Further tax
information is contained in the SAI.
Financial Highlights
The following financial information has been derived from the audited financial
statements of Nations Fund Trust. PricewaterhouseCoopers LLP is the independent
accountant to Nations Fund Trust. The reports of PricewaterhouseCoopers LLP for
the most recent fiscal period accompany the financial statements for such period
and are incorporated by reference in the SAI, which is available upon request.
Shareholders of a Fund will receive unaudited semi-annual reports describing the
Fund's investment operations and annual financial statements audited by the
Funds' independent accountant.
39
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations Florida Intermediate Municipal Bond Fund
<TABLE>
<CAPTION>
YEAR YEAR
ENDED ENDED
Investor A Shares 03/31/98 03/31/97
- ----------------------------------------------------------------
<S> <C> <C>
Operating performance:
Net asset value, beginning of period $10.40 $10.46
- ----------------------------------------------------------------
Net investment income 0.48 0.47
- ----------------------------------------------------------------
Net realized and unrealized
gain/(loss) on investments 0.37 ( 0.06)
- ----------------------------------------------------------------
Net increase/(decrease) in net asset
value from operations 0.85 0.41
- ----------------------------------------------------------------
Distributions:
Dividends from net investment
income ( 0.48) ( 0.47)
- ----------------------------------------------------------------
Distributions from net realized
capital gains -- --
Total dividends and distributions ( 0.48) ( 0.47)
- ----------------------------------------------------------------
Net asset value, end of period $10.77 $10.40
- ----------------------------------------------------------------
Total return++ 8.34% 4.01%
- ----------------------------------------------------------------
Ratios to average net
assets/supplemental data:
Net assets, end of period (in 000's) $7,205 $2,142
- ----------------------------------------------------------------
Ratio of operating expenses to
average net assets 0.70%(a) 0.70%(a)
- ----------------------------------------------------------------
Ratio of net investment income to
average net assets 4.54% 4.52%
- ----------------------------------------------------------------
Portfolio turnover rate 13% 16%
- ----------------------------------------------------------------
Ratio of operating expenses to
average net assets without waivers
and/or expense reimbursements 0.96% 1.01%
- ----------------------------------------------------------------
<CAPTION>
PERIOD YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
Investor A Shares 03/31/96(b) 11/30/95 11/30/94 11/30/93*
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $10.63 $ 9.61 $10.50 $ 9.99
- -----------------------------------------------------------------------------------------------------
Net investment income 0.16 0.46 0.43 0.42
- -----------------------------------------------------------------------------------------------------
Net realized and unrealized
gain/(loss) on investments (0.17) 1.02 (0.88) 0.51
- -----------------------------------------------------------------------------------------------------
Net increase/(decrease) in net asset
value from operations (0.01) 1.48 (0.45) 0.93
- -----------------------------------------------------------------------------------------------------
Distributions:
Dividends from net investment
income (0.16) (0.46) (0.43)# (0.42)
- -----------------------------------------------------------------------------------------------------
Distributions from net realized
capital gains -- -- (0.01) --
- -----------------------------------------------------------------------------------------------------
Total dividends and distributions (0.16) (0.46) (0.44) (0.42)
- -----------------------------------------------------------------------------------------------------
Net asset value, end of period $10.46 $10.63 $ 9.61 $10.50
- -----------------------------------------------------------------------------------------------------
Total return++ ( 0.13)% 15.68% (4.43)% 9.44%
- -----------------------------------------------------------------------------------------------------
Ratios to average net
assets/supplemental data:
Net assets, end of period (in 000's) $2,029 $2,292 $2,114 $2,261
- -----------------------------------------------------------------------------------------------------
Ratio of operating expenses to
average net assets 0.70%+(a) 0.75%(a) 0.73%(a) 0.59%+
- -----------------------------------------------------------------------------------------------------
Ratio of net investment income to
average net assets 4.46%+ 4.50% 4.26% 4.13%+
- -----------------------------------------------------------------------------------------------------
Portfolio turnover rate 18% 27% 34% 15%
- -----------------------------------------------------------------------------------------------------
Ratio of operating expenses to
average net assets without waivers
and/or expense reimbursements 1.06%+ 1.01% 0.94% 0.95%+
</TABLE>
* Nations Florida Intermediate Municipal Bond Fund Investor A Shares commenced
operations on December 14, 1992.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
# Amount includes distributions in excess of net investment income, which were
less than $0.01 per share.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
40
<PAGE>
FOR AN INVESTOR B SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations Florida Intermediate Municipal Bond Fund
<TABLE>
<CAPTION>
YEAR YEAR
ENDED ENDED
Investor B Shares 03/31/98 03/31/97
- -----------------------------------------------------------------------------------
<S> <C> <C>
Operating performance:
Net asset value, beginning of period $10.40 $10.46
- -----------------------------------------------------------------------------------
Net investment income 0.43 0.44
- -----------------------------------------------------------------------------------
Net realized and unrealized gain/(loss) on
investments 0.37 (0.06)
- -----------------------------------------------------------------------------------
Net increase/(decrease) in net asset value from
operations 0.80 0.38
- -----------------------------------------------------------------------------------
Distributions:
Dividends from net investment income (0.43) (0.44)
- -----------------------------------------------------------------------------------
Distributions from net realized capital gains -- --
- -----------------------------------------------------------------------------------
Total dividends and distributions (0.43) (0.44)
- -----------------------------------------------------------------------------------
Net asset value, end of period $10.77 $10.40
- -----------------------------------------------------------------------------------
Total return++ 7.80% 3.70%
- -----------------------------------------------------------------------------------
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $3,606 $3,488
- -----------------------------------------------------------------------------------
Ratio of operating expenses to average net assets 1.20%(a) 1.00%(a)
- -----------------------------------------------------------------------------------
Ratio of net investment income to average net assets 4.04% 4.22%
- -----------------------------------------------------------------------------------
Portfolio turnover rate 13% 16%
- -----------------------------------------------------------------------------------
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 1.46% 1.31%
<CAPTION>
PERIOD YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
Investor B Shares 03/31/96(b) 11/30/95 11/30/94 11/30/93*
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $10.63 $ 9.61 $10.50 $10.32
- ----------------------------------------------------------------------------------------------------------------------
Net investment income 0.15 0.43 0.40 0.18
- ----------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain/(loss) on
investments (0.17) 1.02 (0.88) 0.18
- ----------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) in net asset value from
operations (0.02) 1.45 (0.48) 0.36
- ----------------------------------------------------------------------------------------------------------------------
Distributions:
Dividends from net investment income (0.15) (0.43) (0.40)# (0.18)
- ----------------------------------------------------------------------------------------------------------------------
Distributions from net realized capital gains -- -- (0.01) --
- ----------------------------------------------------------------------------------------------------------------------
Total dividends and distributions (0.15) (0.43) (0.41) (0.18)
- ----------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $10.46 $10.63 $ 9.61 $10.50
- ----------------------------------------------------------------------------------------------------------------------
Total return++ (0.23)% 15.34% (4.73)% 3.53%
- ----------------------------------------------------------------------------------------------------------------------
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $4,001 $4,775 $4,691 $3,328
- ----------------------------------------------------------------------------------------------------------------------
Ratio of operating expenses to average net assets 1.00%+(a) 1.05%(a) 1.05%(a) 0.94%+
- ----------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets 4.16%+ 4.20% 3.94% 3.78%+
- ----------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 18% 27% 34% 15%
- ----------------------------------------------------------------------------------------------------------------------
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 1.36%+ 1.31% 1.26% 1.30%+
</TABLE>
* Nations Florida Intermediate Municipal Bond Fund Investor B Shares commenced
operations on June 7, 1993.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
# Amount includes distributions in excess of net investment income, which were
less than $0.01 per share.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
41
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations Florida Municipal Bond Fund
<TABLE>
<CAPTION>
YEAR YEAR
ENDED PERIOD
Investor A Shares 03/31/98 03/31/97
- ---------------------------------------------------------------------------------
<S> <C> <C>
Operating performance:
Net asset value, beginning of period $ 9.48 $ 9.47
- ---------------------------------------------------------------------------------
Net investment income 0.46 0.46
- ---------------------------------------------------------------------------------
Net realized and unrealized gain/(loss) on
investments 0.51 0.01
- ---------------------------------------------------------------------------------
Net increase/(decrease) in net asset value from
operations 0.97 0.47
- ---------------------------------------------------------------------------------
Distributions:
Dividends from net investment income (0.46) (0.46)
- ---------------------------------------------------------------------------------
Total dividends and distributions (0.46) (0.46)
- ---------------------------------------------------------------------------------
Net asset value, end of period $ 9.99 $ 9.48
- ---------------------------------------------------------------------------------
Total return++ 10.38% 5.09%
- ---------------------------------------------------------------------------------
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $2,027 $1,781
- ---------------------------------------------------------------------------------
Ratio of operating expenses to average net assets 0.80%(a) 0.80%(a)
- ---------------------------------------------------------------------------------
Ratio of net investment income to average net assets 4.65% 4.87%
- ---------------------------------------------------------------------------------
Portfolio turnover rate 19% 23%
- ---------------------------------------------------------------------------------
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 1.10% 1.13%
<CAPTION>
PERIOD YEAR PERIOD
ENDED ENDED ENDED
Investor A Shares 03/31/96(b) 11/30/95 11/30/94*
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 9.76 $ 8.40 $ 9.98
- --------------------------------------------------------------------------------------------------------
Net investment income 0.15 0.49 0.47
- --------------------------------------------------------------------------------------------------------
Net realized and unrealized gain/(loss) on
investments (0.29) 1.36 (1.58)
- --------------------------------------------------------------------------------------------------------
Net increase/(decrease) in net asset value from
operations (0.14) 1.85 (1.11)
- --------------------------------------------------------------------------------------------------------
Distributions:
Dividends from net investment income (0.15) (0.49) (0.47)
- --------------------------------------------------------------------------------------------------------
Total dividends and distributions (0.15) (0.49) (0.47)
- --------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 9.47 $ 9.76 $ 8.40
- --------------------------------------------------------------------------------------------------------
Total return++ (1.40)% 22.45% (11.35)%
- --------------------------------------------------------------------------------------------------------
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $1,836 $1,787 $ 1,024
- --------------------------------------------------------------------------------------------------------
Ratio of operating expenses to average net assets 0.80%+(a) 0.59%(a) 0.39%+(a)
- --------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets 4.83%+ 5.24% 5.37%+
- --------------------------------------------------------------------------------------------------------
Portfolio turnover rate 7% 13% 46%
- --------------------------------------------------------------------------------------------------------
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 1.16%+ 1.15% 1.09%+
- --------------------------------------------------------------------------------------------------------
</TABLE>
* Nations Florida Municipal Bond Fund Investor A Shares commenced operations
on December 10, 1993.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
42
<PAGE>
FOR AN INVESTOR B SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations Florida Municipal Bond Fund
<TABLE>
<CAPTION>
YEAR YEAR
ENDED ENDED
Investor B Shares 03/31/98 03/31/97
- ---------------------------------------------------------------------------
<S> <C> <C>
Operating performance:
Net asset value, beginning of period $ 9.48 $ 9.47
- ---------------------------------------------------------------------------
Net investment income 0.40 0.41
- ---------------------------------------------------------------------------
Net realized and unrealized
gain/(loss) on investments 0.51 0.01
- ---------------------------------------------------------------------------
Net increase/(decrease) in net asset
value from operations 0.91 0.42
- ---------------------------------------------------------------------------
Distributions:
Dividends from net investment
income (0.40) (0.41)
- ---------------------------------------------------------------------------
Total dividends and distributions (0.40) (0.41)
- ---------------------------------------------------------------------------
Net asset value, end of period $ 9.99 $ 9.48
- ---------------------------------------------------------------------------
Total return++ 9.71% 4.52%
- ---------------------------------------------------------------------------
Ratios to average net
assets/supplemental data:
Net assets, end of period (in 000's) $17,048 $19,751
- ---------------------------------------------------------------------------
Ratio of operating expenses to
average net assets 1.42%(a) 1.35%(a)
- ---------------------------------------------------------------------------
Ratio of net investment income to
average net assets 4.03% 4.32%
- ---------------------------------------------------------------------------
Portfolio turnover rate 19% 23%
- ---------------------------------------------------------------------------
Ratio of operating expenses to
average net assets without waivers
and/or expense reimbursements 1.72% 1.68%
<CAPTION>
PERIOD YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
Investor B Shares 03/31/96(b) 11/30/95 11/30/94 11/30/93*
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 9.76 $ 8.40 $ 9.73 $ 10.00
- -----------------------------------------------------------------------------------------------------------
Net investment income 0.14 0.44 0.45 0.03
- -----------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain/(loss) on investments (0.29) 1.36 (1.33) ( 0.27)
- -----------------------------------------------------------------------------------------------------------
Net increase/(decrease) in net asset
value from operations (0.15) 1.80 (0.88) ( 0.24)
- -----------------------------------------------------------------------------------------------------------
Distributions:
Dividends from net investment
income (0.14) (0.44) (0.45) ( 0.03)
- -----------------------------------------------------------------------------------------------------------
Total dividends and distributions (0.14) (0.44) (0.45) ( 0.03)
- -----------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 9.47 $ 9.76 $ 8.40 $ 9.73
- -----------------------------------------------------------------------------------------------------------
Total return++ (1.58)% 21.78% (9.37)% ( 2.35)%
- -----------------------------------------------------------------------------------------------------------
Ratios to average net
assets/supplemental data:
- -----------------------------------------------------------------------------------------------------------
Net assets, end of period (in 000's) $23,947 $25,398 $19,868 $11,434
- -----------------------------------------------------------------------------------------------------------
Ratio of operating expenses to
average net assets 1.35%+(a) 1.14%(a) 0.96%(a) 0.68%+
- -----------------------------------------------------------------------------------------------------------
Ratio of net investment income to
average net assets 4.28%+ 4.69% 4.80% 3.29%+
- -----------------------------------------------------------------------------------------------------------
Portfolio turnover rate 7% 13% 46% 0%
- -----------------------------------------------------------------------------------------------------------
Ratio of operating expenses to
average net assets without waivers
and/or expense reimbursements 1.71%+ 1.70% 1.66% 1.84%+
</TABLE>
* Nations Florida Municipal Bond Fund Investor B Shares commenced operations
on October 22, 1993.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
43
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations Georgia Intermediate Municipal Bond Fund
<TABLE>
<CAPTION>
YEAR YEAR PERIOD
ENDED ENDED ENDED
Investor A Shares 03/31/98 03/31/97 03/31/96(b)
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of
period $10.58 $10.63 $10.81
- ------------------------------------------------------------------------------------
Net investment income 0.47 0.48 0.16
- ------------------------------------------------------------------------------------
Net realized and unrealized
gain/(loss) on investments 0.38 (0.05) (0.18)
- ------------------------------------------------------------------------------------
Net increase/(decrease) in net
asset value from operations 0.85 0.43 (0.02)
- ------------------------------------------------------------------------------------
Distributions:
Dividends from net investment
income (0.47) (0.48) (0.16)
- ------------------------------------------------------------------------------------
Distributions from net realized
capital gains (0.04) -- --
- ------------------------------------------------------------------------------------
Total dividends and distributions (0.51) (0.48) (0.16)
- ------------------------------------------------------------------------------------
Net asset value, end of period $10.92 $10.58 $10.63
- ------------------------------------------------------------------------------------
Total return++ 8.24% 4.12% (0.19)%
- ------------------------------------------------------------------------------------
Ratios to average net
assets/supplemental data:
Net assets, end of period (in 000's) $9,446 $8,810 $8,625
- ------------------------------------------------------------------------------------
Ratio of operating expenses to
average net assets 0.70% 0.70% 0.70%+
- ------------------------------------------------------------------------------------
Ratio of operating expenses to
average net assets including
interest expense (a) (a) (a)
- ------------------------------------------------------------------------------------
Ratio of net investment income to
average net assets 4.34% 4.52% 4.47%+
- ------------------------------------------------------------------------------------
Portfolio turnover rate 25% 9% 3%
- ------------------------------------------------------------------------------------
Ratio of operating expenses to
average net assets without
waivers and/or expense
reimbursements 0.95% 1.00% 1.03%+
<CAPTION>
YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
Investor A Shares 11/30/95 11/30/94 11/30/93 11/30/92*
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of
period $ 9.82 $ 10.82 $ 10.28 $ 9.98
- ---------------------------------------------------------------------------------------------
Net investment income 0.48 0.47 0.48 0.30
- ---------------------------------------------------------------------------------------------
Net realized and unrealized
gain/(loss) on investments 0.99 (0.98) 0.57 0.30
- ---------------------------------------------------------------------------------------------
Net increase/(decrease) in net
asset value from operations 1.47 (0.51) 1.05 0.60
- ---------------------------------------------------------------------------------------------
Distributions:
Dividends from net investment
income (0.48) (0.47)# (0.48) (0.30)
- ---------------------------------------------------------------------------------------------
Distributions from net realized
capital gains -- (0.02) (0.03) --
- ---------------------------------------------------------------------------------------------
Total dividends and distributions (0.48) (0.49) (0.51) (0.30)
- ---------------------------------------------------------------------------------------------
Net asset value, end of period $10.81 $ 9.82 $ 10.82 $10.28
- ---------------------------------------------------------------------------------------------
Total return++ 15.20% (4.87)% 10.37% 6.12%+++
- ---------------------------------------------------------------------------------------------
Ratios to average net
assets/supplemental data:
Net assets, end of period (in 000's) $9,175 $10,401 $16,752 $3,809
- ---------------------------------------------------------------------------------------------
Ratio of operating expenses to
average net assets 0.75% 0.72% 0.61% 0.34%+
- ---------------------------------------------------------------------------------------------
Ratio of operating expenses to
average net assets including
interest expense (a) 0.73% -- --
- ---------------------------------------------------------------------------------------------
Ratio of net investment income to
average net assets 4.56% 4.56% 4.42% 5.01%+
- ---------------------------------------------------------------------------------------------
Portfolio turnover rate 17% 22% 6% 12%
- ---------------------------------------------------------------------------------------------
Ratio of operating expenses to
average net assets without
waivers and/or expense
reimbursements 1.00% 0.93% 0.92% 0.91%+
</TABLE>
* Nations Georgia Intermediate Municipal Bond Fund Investor A Shares commenced
operations on May 4, 1992.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# Amount includes distributions in excess of net investment income, which were
less than $0.01 per share.
(a) The effect of interest expense on the operating ratio was less than 0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
44
<PAGE>
FOR AN INVESTOR B SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations Georgia Intermediate Municipal Bond Fund
<TABLE>
<CAPTION>
YEAR YEAR
ENDED ENDED
Investor B Shares 03/31/98 03/31/97
- ---------------------------------------------------------------------------------------
<S> <C> <C>
Operating performance:
Net asset value, beginning of period $10.58 $10.63
- ---------------------------------------------------------------------------------------
Net investment income 0.42 0.45
- ---------------------------------------------------------------------------------------
Net realized and unrealized gain/(loss) on
investments 0.38 (0.05)
- ---------------------------------------------------------------------------------------
Net increase/(decrease) in net asset value from
operations 0.80 0.40
- ---------------------------------------------------------------------------------------
Distributions:
Dividends from net investment income (0.42) (0.45)
- ---------------------------------------------------------------------------------------
Distributions from net realized capital gains (0.04) --
- ---------------------------------------------------------------------------------------
Total dividends and distributions (0.46) (0.45)
- ---------------------------------------------------------------------------------------
Net asset value, end of period $10.92 $10.58
- ---------------------------------------------------------------------------------------
Total return++ 7.70% 3.81%
- ---------------------------------------------------------------------------------------
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $7,378 $7,601
- ---------------------------------------------------------------------------------------
Ratio of operating expenses to average net assets 1.20% 1.00%
- ---------------------------------------------------------------------------------------
Ratio of operating expenses to average net assets
including interest expense (a) (a)
- ---------------------------------------------------------------------------------------
Ratio of net investment income to average net assets 3.84% 4.22%
- ---------------------------------------------------------------------------------------
Portfolio turnover rate 25% 9%
- ---------------------------------------------------------------------------------------
Ratio of operating expenses to average net assets
without waivers and/or expense reimburements 1.45% 1.30%
<CAPTION>
PERIOD YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
Investor B Shares 03/31/96(b) 11/30/95 11/30/94 11/30/93*
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $10.81 $ 9.82 $10.82 $10.61
- -------------------------------------------------------------------------------------------------------------
Net investment income 0.15 0.45 0.44 0.20
- -------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain/(loss) on
investments (0.18) 0.99 (0.98) 0.21
- -------------------------------------------------------------------------------------------------------------
Net increase/(decrease) in net asset value from
operations (0.03) 1.44 (0.54) 0.41
- -------------------------------------------------------------------------------------------------------------
Distributions:
Dividends from net investment income (0.15) (0.45) (0.44)# (0.20)
- -------------------------------------------------------------------------------------------------------------
Distributions from net realized capital gains -- -- (0.02) --
- -------------------------------------------------------------------------------------------------------------
Total dividends and distributions (0.15) (0.45) (0.46) (0.20)
- -------------------------------------------------------------------------------------------------------------
Net asset value, end of period $10.63 $10.81 $ 9.82 $10.82
- -------------------------------------------------------------------------------------------------------------
Total return++ (0.29)% 14.85% (5.17)% 3.86%
- -------------------------------------------------------------------------------------------------------------
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $8,098 $8,160 $7,269 $4,506
- -------------------------------------------------------------------------------------------------------------
Ratio of operating expenses to average net assets 1.00%+ 1.05% 1.04% 0.96%+
- -------------------------------------------------------------------------------------------------------------
Ratio of operating expenses to average net assets
including interest expense (a) (a) 1.05% --
- -------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets 4.17%+ 4.26% 4.24% 4.07%+
- -------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 3% 17% 22% 6%
- -------------------------------------------------------------------------------------------------------------
Ratio of operating expenses to average net assets
without waivers and/or expense reimburements 1.33%+ 1.30% 1.25% 1.27%+
</TABLE>
* Nations Georgia Intermediate Municipal Bond Fund Investor B Shares commenced
operations on June 7, 1993.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
# Amount includes distributions in excess of net investment income, which were
less than $0.01 per share.
(a) The effect of interest expense on the operating ratio was less than 0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
45
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations Georgia Municipal Bond Fund
<TABLE>
<CAPTION>
YEAR YEAR
ENDED ENDED
Investor A Shares 03/31/98 03/31/97
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Operating performance:
Net asset value, beginning of period $ 9.50 $ 9.48
- ----------------------------------------------------------------------------------------
Net investment income 0.45 0.45
- ----------------------------------------------------------------------------------------
Net realized and unrealized gain/(loss) on
investments 0.50 0.02
- ----------------------------------------------------------------------------------------
Net increase/(decrease) in net asset value from
operations 0.95 0.47
- ----------------------------------------------------------------------------------------
Distributions:
Dividends from net investment income (0.45) (0.45)
- ----------------------------------------------------------------------------------------
Net asset value, end of period $10.00 $ 9.50
- ----------------------------------------------------------------------------------------
Total return++ 10.22% 5.05%
- ----------------------------------------------------------------------------------------
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 483 $ 208
- ----------------------------------------------------------------------------------------
Ratio of operating expenses to average net assets 0.80%(a) 0.80%(a)
- ----------------------------------------------------------------------------------------
Ratio of net investment income to average net assets 4.62% 4.76%
- ----------------------------------------------------------------------------------------
Portfolio turnover rate 30% 19%
- ----------------------------------------------------------------------------------------
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 1.22% 1.25%
<CAPTION>
PERIOD YEAR PERIOD
ENDED ENDED ENDED
Investor A Shares 03/31/96(b) 11/30/95 11/30/94*
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 9.72 $ 8.38 $ 9.99
- --------------------------------------------------------------------------------------------------------------
Net investment income 0.14 0.49 0.47
- --------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain/(loss) on
investments (0.24) 1.34 (1.61)
- --------------------------------------------------------------------------------------------------------------
Net increase/(decrease) in net asset value from
operations (0.10) 1.83 (1.14)
- --------------------------------------------------------------------------------------------------------------
Distributions:
Dividends from net investment income (0.14) (0.49) (0.47)
- --------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 9.48 $ 9.72 $ 8.38
- --------------------------------------------------------------------------------------------------------------
Total return++ (1.08)% 22.25% (11.71)%
- --------------------------------------------------------------------------------------------------------------
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 7 $ 7 $ 6
- --------------------------------------------------------------------------------------------------------------
Ratio of operating expenses to average net assets 0.80%+(a) 0.60%(a) 0.39%+(a)
- --------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets 4.76%+ 5.22% 5.42%+
- --------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 7% 26% 35%
- --------------------------------------------------------------------------------------------------------------
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 1.34%+ 1.29% 1.22%+
</TABLE>
* Nations Georgia Municipal Bond Fund Investor A Shares commenced operations
on December 30, 1993.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
(a) The effect of interest expense on the operating ratio was less than 0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
46
<PAGE>
FOR AN INVESTOR B SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations Georgia Municipal Bond Fund
<TABLE>
<CAPTION>
YEAR YEAR
ENDED ENDED
Investor B Shares 03/31/98 03/31/97
- ------------------------------------------------------------------------
<S> <C> <C>
Operating performance:
Net asset value, beginning of period $ 9.50 $ 9.48
- ------------------------------------------------------------------------
Net investment income 0.39 0.40
- ------------------------------------------------------------------------
Net realized and unrealized
gain/(loss) on investments 0.50 0.02
- ------------------------------------------------------------------------
Net increase/(decrease) in net asset
value from operations 0.89 0.42
- ------------------------------------------------------------------------
Distributions:
Dividends from net investment
income (0.39) (0.40)
- ------------------------------------------------------------------------
Net asset value, end of period $ 10.00 $ 9.50
- ------------------------------------------------------------------------
Total return++ 9.54% 4.50%
- ------------------------------------------------------------------------
Ratios to average net
assets/supplemental data:
Net assets, end of period (in 000's) $10,052 $10,182
- ------------------------------------------------------------------------
Ratio of operating expenses to
average net assets 1.42%(a) 1.35%(a)
- ------------------------------------------------------------------------
Ratio of net investment income to
average net assets 4.00% 4.21%
- ------------------------------------------------------------------------
Portfolio turnover rate 30% 19%
- ------------------------------------------------------------------------
Ratio of operating expenses to
average net assets without waivers
and/or expense reimbursements 1.84% 1.80%
<CAPTION>
PERIOD YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
Investor B Shares 03/31/96(b) 11/30/95 11/30/94 11/30/93*
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 9.72 $ 8.38 $ 9.81 $10.00
- ------------------------------------------------------------------------------------------------------------
Net investment income 0.14 0.44 0.45 0.04
- ------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain/(loss) on investments (0.24) 1.34 (1.43) (0.19)
- ------------------------------------------------------------------------------------------------------------
Net increase/(decrease) in net asset
value from operations (0.10) 1.78 (0.98) (0.15)
- ------------------------------------------------------------------------------------------------------------
Distributions:
Dividends from net investment
income (0.14) (0.44) (0.45) (0.04)
- ------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 9.48 $ 9.72 $ 8.38 $ 9.81
- ------------------------------------------------------------------------------------------------------------
Total return++ (1.09)% 21.58% (10.28)% (1.49)%
- ------------------------------------------------------------------------------------------------------------
Ratios to average net
assets/supplemental data:
Net assets, end of period (in 000's) $12,254 $13,017 $ 9,500 $4,820
- ------------------------------------------------------------------------------------------------------------
Ratio of operating expenses to
average net assets 1.35%+(a) 1.15%(a) 0.96%(a) 0.70%+
- ------------------------------------------------------------------------------------------------------------
Ratio of net investment income to
average net assets 4.21%+ 4.67% 4.85% 3.63%+
- ------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 7% 26% 35% 30%
- ------------------------------------------------------------------------------------------------------------
Ratio of operating expenses to
average net assets without waivers
and/or expense reimbursements 1.89%+ 1.84% 1.79% 2.08%+
</TABLE>
* Nations Georgia Municipal Bond Fund Investor B Shares commenced operations
on October 21, 1993.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year end March 31. Prior to this, the fiscal year end was November
30.
47
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations Maryland Intermediate Municipal Bond Fund
<TABLE>
<CAPTION>
YEAR YEAR
ENDED ENDED
Investor A Shares 03/31/98 03/31/97
- ------------------------------------------------------------------------------------
<S> <C> <C>
Operating performance:
Net asset value, beginning of period $ 10.70 $ 10.80
- ------------------------------------------------------------------------------------
Net investment income 0.49 0.48
- ------------------------------------------------------------------------------------
Net realized and unrealized gain/(loss) on
investments 0.31 (0.10)
- ------------------------------------------------------------------------------------
Net increase/(decrease) in net asset value from
operations 0.80 0.38
- ------------------------------------------------------------------------------------
Distributions:
Dividends from net investment income (0.49) (0.48)
- ------------------------------------------------------------------------------------
Distributions from net realized capital gains -- --
- ------------------------------------------------------------------------------------
Distributions in excess of net realized capital gains -- --
- ------------------------------------------------------------------------------------
Total dividends and distributions (0.49) (0.48)
- ------------------------------------------------------------------------------------
Net asset value, end of period $ 11.01 $ 10.70
- ------------------------------------------------------------------------------------
Total return++ 7.61% 3.62%
- ------------------------------------------------------------------------------------
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $15,558 $14,988
- ------------------------------------------------------------------------------------
Ratio of operating expenses to average net assets 0.70% 0.70%(a)
- ------------------------------------------------------------------------------------
Ratio of net investment income to average net assets 4.43% 4.50%
- ------------------------------------------------------------------------------------
Portfolio turnover rate 12% 10%
- ------------------------------------------------------------------------------------
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 1.00% 0.98%
<CAPTION>
PERIOD YEAR YEAR
ENDED ENDED ENDED
Investor A Shares 03/31/96(b) 11/30/95 11/30/94
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 10.95 $ 10.00 $ 11.09
- ---------------------------------------------------------------------------------------------------------------
Net investment income 0.16 0.48 0.48
- ---------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain/(loss) on
investments (0.15) 0.98 (0.99)
- ---------------------------------------------------------------------------------------------------------------
Net increase/(decrease) in net asset value from
operations 0.01 1.46 (0.51)
- ---------------------------------------------------------------------------------------------------------------
Distributions:
Dividends from net investment income (0.16) (0.48) (0.48)
- ---------------------------------------------------------------------------------------------------------------
Distributions from net realized capital gains -- (0.03) (0.10)
- ---------------------------------------------------------------------------------------------------------------
Distributions in excess of net realized capital gains -- -- (0.00)#
- ---------------------------------------------------------------------------------------------------------------
Total dividends and distributions (0.16) (0.51) (0.58)
- ---------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 10.80 $ 10.95 $ 10.00
- ---------------------------------------------------------------------------------------------------------------
Total return++ 0.09% 14.94% (4.82)%
- ---------------------------------------------------------------------------------------------------------------
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $19,456 $21,208 $22,145
- ---------------------------------------------------------------------------------------------------------------
Ratio of operating expenses to average net assets 0.70%+(a) 0.75%(a) 0.71%(a)
- ---------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets 4.42%+ 4.56% 4.55%
- ---------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 4% 11% 22%
- ---------------------------------------------------------------------------------------------------------------
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 1.01%+ 1.00% 0.91%
</TABLE>
* Nations Maryland Intermediate Municipal Bond Fund Investor A Shares
commenced operations on September 1, 1990.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# Amount represents less than $0.01 per share.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
48
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations Maryland Intermediate Municipal Bond Fund (cont.)
<TABLE>
<CAPTION>
YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
Investor A Shares 11/30/93 11/30/92 11/30/91 11/30/90*
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 10.72 $ 10.44 $10.21 $10.00
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income 0.51 0.54 0.60 0.16
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain/(loss) on investments 0.44 0.31 0.24 0.21
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) in net asset value from operations 0.95 0.85 0.84 0.37
- ------------------------------------------------------------------------------------------------------------------------------------
Distributions:
Dividends from net investment income (0.51) (0.54) (0.60) (0.16)
- ------------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized capital gains (0.07) (0.03) (0.01) --
- ------------------------------------------------------------------------------------------------------------------------------------
Distributions in excess of net realized capital gains -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total dividends and distributions (0.58) (0.57) (0.61) (0.16)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 11.09 $ 10.72 $10.44 $10.21
- ------------------------------------------------------------------------------------------------------------------------------------
Total return++ 8.96% 8.32%+++ 8.46%+++ 3.72%+++
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $22,144 $20,092 $9,934 $2,228
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of operating expenses to average net assets 0.64% 0.48% 0.20% 0.21%+
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets 4.58% 4.98% 5.76% 6.12%+
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 26% 38% 26% 49%
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of operating expenses to average net assets without waivers
and/or expense reimbursements 0.88% 0.87% 0.71% 0.84%+
</TABLE>
* Nations Maryland Intermediate Municipal Bond Fund Investor A Shares
commenced operations on September 1, 1990.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# Amount represents less than $0.01 per share.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
49
<PAGE>
FOR AN INVESTOR B SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations Maryland Intermediate Municipal Bond Fund
<TABLE>
<CAPTION>
YEAR YEAR
ENDED ENDED
Investor B Shares 03/31/98 03/31/97
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Operating performance:
Net asset value, beginning of period $10.70 $10.80
- ---------------------------------------------------------------------------------------------
Net investment income 0.43 0.45
- ---------------------------------------------------------------------------------------------
Net realized and unrealized gain/(loss) on
investments 0.31 (0.10)
- ---------------------------------------------------------------------------------------------
Net increase/(decrease) in net asset value from
operations 0.74 0.35
- ---------------------------------------------------------------------------------------------
Distributions:
Dividends from net investment income (0.43) (0.45)
- ---------------------------------------------------------------------------------------------
Distributions from net realized capital gains -- --
- ---------------------------------------------------------------------------------------------
Distributions in excess of net realized capital gains -- --
- ---------------------------------------------------------------------------------------------
Total dividends and distributions (0.43) (0.45)
- ---------------------------------------------------------------------------------------------
Net asset value, end of period $11.01 $10.70
- ---------------------------------------------------------------------------------------------
Total return++ 7.07% 3.31%
- ---------------------------------------------------------------------------------------------
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $4,804 $4,299
- ---------------------------------------------------------------------------------------------
Ratio of operating expenses to average net assets 1.20% 1.00%(a)
- ---------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets 3.93% 4.20%
- ---------------------------------------------------------------------------------------------
Portfolio turnover rate 12% 10%
- ---------------------------------------------------------------------------------------------
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 1.50% 1.28%
<CAPTION>
PERIOD YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
Investor B Shares 03/31/96(b) 11/30/95 11/30/94 11/30/93*
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $10.95 $10.00 $11.09 $10.94
- ------------------------------------------------------------------------------------------------------------------------------
Net investment income 0.15 0.45 0.45 0.21
- ------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain/(loss) on
investments (0.15) 0.98 (0.99) 0.17
- ------------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) in net asset value from
operations 0.00 1.43 (0.54) 0.38
- ------------------------------------------------------------------------------------------------------------------------------
Distributions:
Dividends from net investment income (0.15) (0.45) (0.45) (0.21)
- ------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized capital gains -- (0.03) (0.10) (0.02)
- ------------------------------------------------------------------------------------------------------------------------------
Distributions in excess of net realized capital gains -- -- (0.00)# --
- ------------------------------------------------------------------------------------------------------------------------------
Total dividends and distributions (0.15) (0.48) (0.55) (0.23)
- ------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $10.80 $10.95 $10.00 $11.09
- ------------------------------------------------------------------------------------------------------------------------------
Total return++ (0.01)% 14.59% (5.12)% 3.53%
- ------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $4,500 $4,485 $4,368 $3,234
- ------------------------------------------------------------------------------------------------------------------------------
Ratio of operating expenses to average net assets 1.00%+(a) 1.05%(a) 1.03%(a) 0.99%+
- ------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets 4.12%+ 4.26% 4.23% 4.23%+
- ------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 4% 11% 22% 26%
- ------------------------------------------------------------------------------------------------------------------------------
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 1.31%+ 1.30% 1.23% 1.23%+
</TABLE>
* Nations Maryland Intermediate Municipal Bond Fund Investor B Shares
commenced operations on June 8, 1993.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
# Amount represents less than $0.01 per share.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
50
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations Maryland Municipal Bond Fund
<TABLE>
<CAPTION>
YEAR YEAR PERIOD YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED ENDED
Investor A Shares 03/31/98 03/31/97 03/31/96(b) 11/30/95 11/30/94 11/30/93*
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 9.41 $ 9.39 $ 9.63 $ 8.37 $ 9.77 $ 9.80
- ---------------------------------------------------------------------------------------------------------------------
Net investment income 0.43 0.44 0.14 0.46 0.49 0.03
- ---------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain/(loss) on investments 0.53 0.02 (0.24) 1.26 (1.40) (0.03)
- ---------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) in net asset
value from operations 0.96 0.46 (0.10) 1.72 (0.91) 0.00
- ---------------------------------------------------------------------------------------------------------------------
Distributions:
Dividends from net investment
income (0.43) (0.44) (0.14) (0.46) (0.49) (0.03)
- ---------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 9.94 $ 9.41 $ 9.39 $ 9.63 $ 8.37 $ 9.77
- ---------------------------------------------------------------------------------------------------------------------
Total return++ 10.40% 4.99% (1.01)% 20.99% (9.59)% 0.05%
- ---------------------------------------------------------------------------------------------------------------------
Ratios to average net
assets/supplemental data:
Net assets, end of period (in 000's) $1,902 $1,409 $1,086 $1,031 $ 9 $ 6
- ---------------------------------------------------------------------------------------------------------------------
Ratio of operating expenses to
average net assets 0.80% 0.80% 0.80%+ 0.60% 0.39%(a) 0.13%+
- ---------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to
average net assets 4.41% 4.68% 4.52%+ 4.94% 5.30% 3.97%+
- ---------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 17% 18% 7% 11% 39% 1%
- ---------------------------------------------------------------------------------------------------------------------
Ratio of operating expenses to
average net assets without waivers
and/or expense reimbursements 1.27% 1.32% 1.43%+ 1.46% 1.48% 1.76%+
</TABLE>
* Nations Maryland Municipal Bond Fund Investor A Shares commenced operations
on November 4, 1993.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
51
<PAGE>
FOR AN INVESTOR B SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations Maryland Municipal Bond Fund
<TABLE>
<CAPTION>
YEAR YEAR PERIOD
ENDED ENDED ENDED
Investor B Shares 03/31/98 03/31/97 03/31/96(b)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 9.41 $ 9.39 $ 9.63
- --------------------------------------------------------------------------------------------------------
Net investment income 0.37 0.39 0.13
- --------------------------------------------------------------------------------------------------------
Net realized and unrealized gain/(loss) on
investments 0.53 0.02 (0.24)
- --------------------------------------------------------------------------------------------------------
Net increase/(decrease) in net asset value from
operations 0.90 0.41 (0.11)
- --------------------------------------------------------------------------------------------------------
Distributions:
Dividends from net investment income (0.37) (0.39) (0.13)
- --------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 9.94 $ 9.41 $ 9.39
- --------------------------------------------------------------------------------------------------------
Total return++ 9.72% 4.42% (1.19)%
- --------------------------------------------------------------------------------------------------------
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $11,071 $8,099 9,662
- --------------------------------------------------------------------------------------------------------
Ratio of operating expenses to average net assets 1.42% 1.35% 1.35%+
- --------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets 3.79% 4.13% $ 3.97%+
- --------------------------------------------------------------------------------------------------------
Portfolio turnover rate 17% 18% 7%
- --------------------------------------------------------------------------------------------------------
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 1.89% 1.87% 1.98%+
<CAPTION>
YEAR YEAR PERIOD
ENDED ENDED ENDED
Investor B Shares 11/30/95 11/30/94 11/30/93*
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 8.37 $ 9.77 $10.00
- --------------------------------------------------------------------------------------------------------
Net investment income 0.41 0.44 0.04
- --------------------------------------------------------------------------------------------------------
Net realized and unrealized gain/(loss) on
investments 1.26 (1.40) (0.23)
- --------------------------------------------------------------------------------------------------------
Net increase/(decrease) in net asset value from
operations 1.67 (0.96) (0.19)
- --------------------------------------------------------------------------------------------------------
Distributions:
Dividends from net investment income (0.41) (0.44) (0.04)
- --------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 9.63 $ 8.37 $ 9.77
- --------------------------------------------------------------------------------------------------------
Total return++ 20.33% (10.11)% (1.94)%
- --------------------------------------------------------------------------------------------------------
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $10,002 $ 4,819 $3,048
- --------------------------------------------------------------------------------------------------------
Ratio of operating expenses to average net assets 1.15% 0.96%(a) 0.73%+
- --------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets 4.39% 4.73% 3.37%+
- --------------------------------------------------------------------------------------------------------
Portfolio turnover rate 11% 39% 1%
- --------------------------------------------------------------------------------------------------------
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 2.01% 2.05% 2.36%+
</TABLE>
* Nations Maryland Municipal Bond Fund Investor B Shares commenced operations
on October 21, 1993.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
52
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations North Carolina Intermediate Municipal Bond Fund
<TABLE>
<CAPTION>
YEAR YEAR
ENDED ENDED
Investor A Shares 03/31/98 03/31/97
- -----------------------------------------------------------------------
<S> <C> <C>
Operating performance:
Net asset value, beginning of period $10.34 $10.36
- -----------------------------------------------------------------------
Net investment income 0.47 0.45
- -----------------------------------------------------------------------
Net realized and unrealized
gain/(loss) on investments 0.36 (0.02)
- -----------------------------------------------------------------------
Net increase/(decrease) in net asset
value from operations 0.83 0.43
- -----------------------------------------------------------------------
Distributions:
Dividends from net investment
income (0.47) (0.45)
- -----------------------------------------------------------------------
Distributions from net realized
capital gains -- --
- -----------------------------------------------------------------------
Total dividends and distributions (0.47) (0.45)
- -----------------------------------------------------------------------
Net asset value, end of period $10.70 $10.34
- -----------------------------------------------------------------------
Total return++ 8.17% 4.25%
- -----------------------------------------------------------------------
Ratios to average net
assets/supplemental data:
Net assets, end of period (in 000's) $8,572 $5,723
- -----------------------------------------------------------------------
Ratio of operating expenses to
average net assets 0.70%(a) 0.70%(a)
- -----------------------------------------------------------------------
Ratio of net investment income to
average net assets 4.49% 4.37%
- -----------------------------------------------------------------------
Portfolio turnover rate 21% 26%
- -----------------------------------------------------------------------
Ratio of operating expenses to
average net assets without waivers
and/or expense reimbursements 0.96% 1.02%
<CAPTION>
PERIOD YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
Investor A Shares 03/31/96(b) 11/30/95 11/30/94 11/30/93*
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $10.51 $ 9.53 $10.46 $ 10.01
- ----------------------------------------------------------------------------------------------------
Net investment income 0.15 0.43 0.42 0.42
- ----------------------------------------------------------------------------------------------------
Net realized and unrealized
gain/(loss) on investments (0.15) 0.99 (0.88) 0.45
- ----------------------------------------------------------------------------------------------------
Net increase/(decrease) in net asset
value from operations 0.00 1.42 (0.46) 0.87
- ----------------------------------------------------------------------------------------------------
Distributions:
Dividends from net investment
income (0.15) (0.43)# (0.42) (0.42)
- ----------------------------------------------------------------------------------------------------
Distributions from net realized
capital gains -- (0.01) (0.05) --
- ----------------------------------------------------------------------------------------------------
Total dividends and distributions (0.15) (0.44) (0.47) (0.42)
- ----------------------------------------------------------------------------------------------------
Net asset value, end of period $10.36 $10.51 $ 9.53 $ 10.46
- ----------------------------------------------------------------------------------------------------
Total return++ (0.01)% 15.18% (4.51)% 8.76%
- ----------------------------------------------------------------------------------------------------
Ratios to average net
assets/supplemental data:
Net assets, end of period (in 000's) $7,672 $8,525 $8,896 $13,749
- ----------------------------------------------------------------------------------------------------
Ratio of operating expenses to
average net assets 0.70%+ 0.77%(a) 0.73%(a) 0.57%+
- ----------------------------------------------------------------------------------------------------
Ratio of net investment income to
average net assets 4.27%+ 4.27% 4.20% 4.08%+
- ----------------------------------------------------------------------------------------------------
Portfolio turnover rate 3% 57% 37% 29%
- ----------------------------------------------------------------------------------------------------
Ratio of operating expenses to
average net assets without waivers
and/or expense reimbursements 1.07%+ 1.04% 1.00% 1.00%+
</TABLE>
* Nations North Carolina Intermediate Municipal Bond Fund Investor A Shares
commenced operations on December 14, 1992.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
# Amount includes distributions in excess of net investment income, which were
less than $0.01 per share.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
53
<PAGE>
FOR AN INVESTOR B SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations North Carolina Intermediate Municipal Bond Fund
<TABLE>
<CAPTION>
YEAR YEAR
ENDED ENDED
Investor B Shares 03/31/98 03/31/97
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Operating performance:
Net asset value, beginning of period $10.34 $10.36
- ------------------------------------------------------------------------------------------
Net investment income 0.42 0.42
- ------------------------------------------------------------------------------------------
Net realized and unrealized gain/(loss) on
investments 0.36 (0.02)
- ------------------------------------------------------------------------------------------
Net increase/(decrease) in net asset value from
operations 0.78 0.40
- ------------------------------------------------------------------------------------------
Distributions:
Dividends from net investment income (0.42) (0.42)
- ------------------------------------------------------------------------------------------
Distributions from net realized capital gains -- --
- ------------------------------------------------------------------------------------------
Total dividends and distributions (0.42) (0.42)
- ------------------------------------------------------------------------------------------
Net asset value, end of period $10.70 $10.34
- ------------------------------------------------------------------------------------------
Total return++ 7.64% 3.94%
- ------------------------------------------------------------------------------------------
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $6,859 $6,796
- ------------------------------------------------------------------------------------------
Ratio of operating expenses to average net assets 1.20%(a) 1.00%(a)
- ------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets 3.99% 4.07%
- ------------------------------------------------------------------------------------------
Portfolio turnover rate 21% 26%
- ------------------------------------------------------------------------------------------
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 1.46% 1.32%
<CAPTION>
PERIOD YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
Investor B Shares 03/31/96(b) 11/30/95 11/30/94 11/30/93*
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $10.51 $ 9.53 $10.46 $10.31
- ----------------------------------------------------------------------------------------------------------------------------
Net investment income 0.14 0.40 0.39 0.18
- ----------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain/(loss) on
investments (0.15) 0.99 (0.88) 0.15
- ----------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) in net asset value from
operations (0.01) 1.39 (0.49) 0.33
- ----------------------------------------------------------------------------------------------------------------------------
Distributions:
Dividends from net investment income (0.14) (0.40)# (0.39) (0.18)
- ----------------------------------------------------------------------------------------------------------------------------
Distributions from net realized capital gains -- (0.01) (0.05) --
- ----------------------------------------------------------------------------------------------------------------------------
Total dividends and distributions (0.14) (0.41) (0.44) (0.18)
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $10.36 $10.51 $ 9.53 $10.46
- ----------------------------------------------------------------------------------------------------------------------------
Total return++ (0.12)% 14.84% (4.82)% 3.23%
- ----------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $8,102 $7,848 $5,706 $3,822
- ----------------------------------------------------------------------------------------------------------------------------
Ratio of operating expenses to average net assets 1.00%+ 1.07%(a) 1.05%(a) 0.92%+
- ----------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets 3.97%+ 3.97% 3.88% 3.73%+
- ----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 3% 57% 37% 29%
- ----------------------------------------------------------------------------------------------------------------------------
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 1.37%+ 1.34% 1.32% 1.35%+
</TABLE>
* Nations North Carolina Intermediate Municipal Bond Fund Investor B Shares
commenced operations on June 7, 1993.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
# Amount includes distributions in excess of net investment income, which were
less than $0.01 per share.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year end change to March 31. Prior to this, the fiscal year end was
November 30.
54
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations North Carolina Municipal Bond Fund
<TABLE>
<CAPTION>
YEAR YEAR
ENDED ENDED
Investor A Shares 03/31/98 03/31/97
- -----------------------------------------------------------------------
<S> <C> <C>
Operating performance:
Net asset value, beginning of period $ 9.47 $ 9.49
- -----------------------------------------------------------------------
Net investment income 0.45 0.45
- -----------------------------------------------------------------------
Net realized and unrealized
gain/(loss) on investments 0.54 (0.02)
- -----------------------------------------------------------------------
Net increase/(decrease) in net asset
value from operations 0.99 0.43
- -----------------------------------------------------------------------
Distributions:
Dividends from net investment
income (0.45) (0.45)
- -----------------------------------------------------------------------
Net asset value, end of period $10.01 $ 9.47
- -----------------------------------------------------------------------
Total return++ 10.64% 4.62%
- -----------------------------------------------------------------------
Ratios to average net
assets/supplemental data:
Net assets, end of period (in 000's) $ 609 $ 594
- -----------------------------------------------------------------------
Ratio of operating expenses to
average net assets 0.80%(a) 0.80%(a)
- -----------------------------------------------------------------------
Ratio of net investment income to
average net assets 4.58% 4.75%
- -----------------------------------------------------------------------
Portfolio turnover rate 20% 28%
- -----------------------------------------------------------------------
Ratio of operating expenses to
average net assets without waivers
and/or expense reimbursements 1.13% 1.14%
<CAPTION>
PERIOD YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
Investor A Shares 03/31/96(b) 11/30/95 11/30/94 11/30/93*
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 9.73 $ 8.36 $ 9.85 $ 9.97
- --------------------------------------------------------------------------------------------------------
Net investment income 0.15 0.49 0.50 0.04
- --------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain/(loss) on investments (0.24) 1.37 (1.49) (0.12)
- --------------------------------------------------------------------------------------------------------
Net increase/(decrease) in net asset
value from operations (0.09) 1.86 (0.99) (0.08)
- --------------------------------------------------------------------------------------------------------
Distributions:
Dividends from net investment
income (0.15) (0.49) (0.50) (0.04)
- --------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 9.49 $ 9.73 $ 8.36 $ 9.85
- --------------------------------------------------------------------------------------------------------
Total return++ (0.94)% 22.63% (10.41)% (0.80)%
- --------------------------------------------------------------------------------------------------------
Ratios to average net
assets/supplemental data:
Net assets, end of period (in 000's) $ 448 $ 347 $ 1,161 $1,085
- --------------------------------------------------------------------------------------------------------
Ratio of operating expenses to
average net assets 0.80%+ 0.58%(a) 0.39%(a) 0.09%+
- --------------------------------------------------------------------------------------------------------
Ratio of net investment income to
average net assets 4.66%+ 5.23% 5.35% 3.97%+
- --------------------------------------------------------------------------------------------------------
Portfolio turnover rate 22% 40% 29% 10%
- --------------------------------------------------------------------------------------------------------
Ratio of operating expenses to
average net assets without waivers
and/or expense reimbursements 1.19%+ 1.16% 1.10% 1.21%+
</TABLE>
* Nations North Carolina Municipal Bond Fund Investor A Shares commenced
operations on November 1, 1993.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
55
<PAGE>
FOR AN INVESTOR B SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations North Carolina Municipal Bond Fund
<TABLE>
<CAPTION>
YEAR YEAR
ENDED ENDED
Investor B Shares 03/31/98 03/31/97
- ------------------------------------------------------------------------------------
<S> <C> <C>
Operating performance:
Net asset value, beginning of period $ 9.47 $ 9.49
- ------------------------------------------------------------------------------------
Net investment income 0.39 0.40
- ------------------------------------------------------------------------------------
Net realized and unrealized gain/(loss) on
investments 0.54 (0.02)
- ------------------------------------------------------------------------------------
Net increase/(decrease) in net asset value from
operations 0.93 0.38
- ------------------------------------------------------------------------------------
Distributions:
Dividends from net investment income (0.39) (0.40)
- ------------------------------------------------------------------------------------
Net asset value, end of period $ 10.01 $ 9.47
- ------------------------------------------------------------------------------------
Total return++ 9.96% 4.06%
- ------------------------------------------------------------------------------------
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $25,187 $23,863
- ------------------------------------------------------------------------------------
Ratio of operating expenses to average net assets 1.42%(a) 1.35%(a)
- ------------------------------------------------------------------------------------
Ratio of net investment income to average net assets 3.96% 4.20%
- ------------------------------------------------------------------------------------
Portfolio turnover rate 20% 28%
- ------------------------------------------------------------------------------------
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 1.75% 1.69%
<CAPTION>
PERIOD YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
Investor B Shares 03/31/96(b) 11/30/95 11/30/94 11/30/93*
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 9.73 $ 8.36 $ 9.85 $ 10.00
- --------------------------------------------------------------------------------------------------------------------------
Net investment income 0.13 0.43 0.45 0.04
- --------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain/(loss) on
investments (0.24) 1.37 (1.49) (0.15)
- --------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) in net asset value from
operations (0.11) 1.80 (1.04) (0.11)
- --------------------------------------------------------------------------------------------------------------------------
Distributions:
Dividends from net investment income (0.13) (0.43) (0.45) (0.04)
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 9.49 $ 9.73 $ 8.36 $ 9.85
- --------------------------------------------------------------------------------------------------------------------------
Total return++ (1.12)% 21.96% (10.92)% (1.11)%
- --------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $28,298 $30,048 $23,659 $11,395
- --------------------------------------------------------------------------------------------------------------------------
Ratio of operating expenses to average net assets 1.35%+ 1.13%(a) 0.96%(a) 0.69%+
- --------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets 4.11%+ 4.68% 4.78% 3.37%+
- --------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 22% 40% 29% 10%
- --------------------------------------------------------------------------------------------------------------------------
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 1.74%+ 1.71% 1.67% 1.81%+
</TABLE>
* Nations North Carolina Municipal Bond Fund Investor B Shares commenced
operations on October 21, 1993.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
56
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations South Carolina Intermediate Municipal Bond Fund
<TABLE>
<CAPTION>
YEAR YEAR PERIOD
ENDED ENDED ENDED
Investor A Shares 03/31/98 03/31/97 03/31/96(b)
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning
of period $ 10.50 $ 10.52 $ 10.69
- --------------------------------------------------------------------------------------
Net investment income 0.50 0.49 0.16
- --------------------------------------------------------------------------------------
Net realized and unrealized
gain/(loss) on investments 0.29 (0.02) (0.17)
- --------------------------------------------------------------------------------------
Net increase/(decrease) in
net asset value from
operations 0.79 0.47 (0.01)
- --------------------------------------------------------------------------------------
Distributions:
Dividends from net
investment income (0.50) (0.49) (0.16)
- --------------------------------------------------------------------------------------
Distributions from net
realized capital gains (0.00)(c) -- --
- --------------------------------------------------------------------------------------
Total dividends and
distributions (0.50) (0.49) (0.16)
- --------------------------------------------------------------------------------------
Net asset value, end of
period $ 10.79 $ 10.50 $ 10.52
- --------------------------------------------------------------------------------------
Total return++ 7.67% 4.51% (0.07)%
- --------------------------------------------------------------------------------------
Ratios to average net
assets/supplemental data:
Net assets, end of period (in
000's) $13,945 $10,465 $14,288
- --------------------------------------------------------------------------------------
Ratio of operating expenses
to average net assets 0.70%(a) 0.70%(a) 0.70%+(a)
- --------------------------------------------------------------------------------------
Ratio of net investment
income to average net
assets 4.66% 4.60% 4.61%+
- --------------------------------------------------------------------------------------
Portfolio turnover rate 16% 13% 6%
- --------------------------------------------------------------------------------------
Ratio of operating expenses
to average net assets
without waivers and/or
expense reimbursements 0.95% 0.99% 1.02%+
<CAPTION>
YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
Investor A Shares 11/30/95 11/30/94 11/30/93 11/30/92*
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning
of period $ 9.76 $ 10.61 $ 10.18 $ 9.98
- --------------------------------------------------------------------------------------------
Net investment income 0.49 0.48 0.48 0.30
- --------------------------------------------------------------------------------------------
Net realized and unrealized
gain/(loss) on investments 0.93 (0.84) 0.43 0.20
- --------------------------------------------------------------------------------------------
Net increase/(decrease) in
net asset value from
operations 1.42 (0.36) 0.91 0.50
- --------------------------------------------------------------------------------------------
Distributions:
Dividends from net
investment income (0.49) (0.48)# (0.48) (0.30)
- --------------------------------------------------------------------------------------------
Distributions from net
realized capital gains -- (0.01) -- --
- --------------------------------------------------------------------------------------------
Total dividends and
distributions (0.49) (0.49) (0.48) (0.30)
- --------------------------------------------------------------------------------------------
Net asset value, end of
period $ 10.69 $ 9.76 $ 10.61 $10.18
- --------------------------------------------------------------------------------------------
Total return++ 14.79% (3.54)% 9.16% 5.03%+++
- --------------------------------------------------------------------------------------------
Ratios to average net
assets/supplemental data:
Net assets, end of period (in
000's) $14,452 $16,378 $20,024 $7,414
- --------------------------------------------------------------------------------------------
Ratio of operating expenses
to average net assets 0.75%(a) 0.72%(a) 0.60% 0.33%+
- --------------------------------------------------------------------------------------------
Ratio of net investment
income to average net
assets 4.72% 4.64% 4.53% 4.83%+
- --------------------------------------------------------------------------------------------
Portfolio turnover rate 11% 30% 11% 7%
- --------------------------------------------------------------------------------------------
Ratio of operating expenses
to average net assets
without waivers and/or
expense reimbursements 0.95% 0.93% 0.90% 0.85%+
</TABLE>
* Nations South Carolina Intermediate Municipal Bond Fund Investor A Shares
commenced operations on May 5, 1992.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# Amount includes distributions in excess of net investment income, which
were less than $0.01 per share.
(a) The effect of interest on the operating expense ratio was less than 0.01%.
(b) Fiscal year changed to March 31. Prior to this, the fiscal year end was
November 30.
(c) Amount represents less than $0.01 per share.
57
<PAGE>
FOR AN INVESTOR B SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations South Carolina Intermediate Municipal Bond Fund
<TABLE>
<CAPTION>
YEAR YEAR
ENDED ENDED
Investor B Shares 03/31/98 03/31/97
- --------------------------------------------------------------------------------------
<S> <C> <C>
Operating performance:
Net asset value, beginning of period $10.50 $10.52
- --------------------------------------------------------------------------------------
Net investment income 0.44 0.45
- --------------------------------------------------------------------------------------
Net realized and unrealized gain/(loss) on
investments 0.29 (0.02)
- --------------------------------------------------------------------------------------
Net increase/(decrease) in net asset value from
operations 0.73 0.43
- --------------------------------------------------------------------------------------
Distributions:
Dividends from net investment income (0.44) (0.45)
- --------------------------------------------------------------------------------------
Distributions from net realized capital gains (0.00)(c) --
- --------------------------------------------------------------------------------------
Total dividends and distributions (0.44) (0.45)
- --------------------------------------------------------------------------------------
Net asset value, end of period $10.79 $10.50
- --------------------------------------------------------------------------------------
Total return++ 7.13% 4.19%
- --------------------------------------------------------------------------------------
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $6,819 $5,738
- --------------------------------------------------------------------------------------
Ratio of operating expenses to average net assets 1.20%(a) 1.00%(a)
- --------------------------------------------------------------------------------------
Ratio of net investment income to average net assets 4.16% 4.30%
- --------------------------------------------------------------------------------------
Portfolio turnover rate 16% 13%
- --------------------------------------------------------------------------------------
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 1.45% 1.29%
<CAPTION>
PERIOD YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
Investor B Shares 03/31/96(b) 11/30/95 11/30/94 11/30/93*
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $10.69 $ 9.76 $10.61 $ 10.47
- ---------------------------------------------------------------------------------------------------------------------------
Net investment income 0.15 0.46 0.45 0.20
- ---------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain/(loss) on
investments (0.17) 0.93 (0.84) 0.14
- ---------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) in net asset value from
operations (0.02) 1.39 (0.39) 0.34
- ---------------------------------------------------------------------------------------------------------------------------
Distributions:
Dividends from net investment income (0.15) (0.46) (0.45)# (0.20)
- ---------------------------------------------------------------------------------------------------------------------------
Distributions from net realized capital gains -- -- (0.01) --
- ---------------------------------------------------------------------------------------------------------------------------
Total dividends and distributions (0.15) (0.46) (0.46) (0.20)
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $10.52 $10.69 $ 9.76 $ 10.61
- ---------------------------------------------------------------------------------------------------------------------------
Total return++ (0.17)% 14.45% (3.85)% 3.23%
- ---------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $6,968 $6,457 $5,740 $4,057
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of operating expenses to average net assets 1.00%+(a) 1.05%(a) 1.04%(a) 0.95%+
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets 4.31%+ 4.42% 4.32% 4.18%+
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 6% 11% 30% 11%
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 1.32%+ 1.25% 1.25% 1.25%+
</TABLE>
* Nations South Carolina Intermediate Municipal Bond Fund Investor B Shares
commenced operations on June 8, 1993.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
# Amount includes distributions in excess of net investment income, which were
less than $0.01 per share.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
(c) Amount represents less than $0.01 per share.
58
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations South Carolina Municipal Bond Fund
<TABLE>
<CAPTION>
YEAR YEAR
ENDED ENDED
Investor A Shares 03/31/98 03/31/97
- ----------------------------------------------------------------------
<S> <C> <C>
Operating performance:
Net asset value, beginning of period $ 9.79 $ 9.77
- ----------------------------------------------------------------------
Net investment income 0.47 0.47
- ----------------------------------------------------------------------
Net realized and unrealized
gain/(loss) on investments 0.47 0.02
- ----------------------------------------------------------------------
Net increase/(decrease) in net asset
value from operations 0.94 0.49
- ----------------------------------------------------------------------
Distributions:
Dividends from net investment
income (0.47) (0.47)
- ----------------------------------------------------------------------
Distributions from net realized
capital gains (0.00)# --
- ----------------------------------------------------------------------
Total dividends and distributions (0.47) (0.47)
- ----------------------------------------------------------------------
Net asset value, end of period $10.26 $ 9.79
- ----------------------------------------------------------------------
Total return++ 9.82% 5.12%
- ----------------------------------------------------------------------
Ratios to average net
assets/supplemental data:
Net assets, end of period (in 000's) $1,517 $ 811
- ----------------------------------------------------------------------
Ratio of operating expenses to
average net assets 0.80%(a) 0.80%(a)
- ----------------------------------------------------------------------
Ratio of net investment income to
average net assets 4.59% 4.79%
- ----------------------------------------------------------------------
Portfolio turnover rate 9% 30%
- ----------------------------------------------------------------------
Ratio of operating expenses to
average net assets without waivers
and/or expense reimbursements 1.19% 1.20%
<CAPTION>
PERIOD YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
Investor A Shares 03/31/96(b) 11/30/95 11/30/94 11/30/93*
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 9.99 $ 8.65 $ 9.86 $ 9.87
- ------------------------------------------------------------------------------------------------------------
Net investment income 0.16 0.50 0.50 0.03
- ------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain/(loss) on investments (0.22) 1.34 (1.21) (0.01)
- ------------------------------------------------------------------------------------------------------------
Net increase/(decrease) in net asset
value from operations (0.06) 1.84 (0.71) 0.02
- ------------------------------------------------------------------------------------------------------------
Distributions:
Dividends from net investment
income (0.16) (0.50) (0.50) (0.03)
- ------------------------------------------------------------------------------------------------------------
Distributions from net realized
capital gains -- -- -- --
- ------------------------------------------------------------------------------------------------------------
Total dividends and distributions (0.16) (0.50) (0.50) (0.03)
- ------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 9.77 $ 9.99 $ 8.65 $ 9.86
- ------------------------------------------------------------------------------------------------------------
Total return++ (0.64)% 21.74% (7.45)% 0.21%
- ------------------------------------------------------------------------------------------------------------
Ratios to average net
assets/supplemental data:
Net assets, end of period (in 000's) $1,219 $1,238 $ 140 $ 14
- ------------------------------------------------------------------------------------------------------------
Ratio of operating expenses to
average net assets 0.80%+(a) 0.60%(a) 0.39%(a) 0.10%+
- ------------------------------------------------------------------------------------------------------------
Ratio of net investment income to
average net assets 4.76%+ 5.24% 5.30% 4.16%+
- ------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 20% 13% 14% 8%
- ------------------------------------------------------------------------------------------------------------
Ratio of operating expenses to
average net assets without waivers
and/or expense reimbursements 1.33%+ 1.28% 1.30% 1.63%+
</TABLE>
* Nations South Carolina Municipal Bond Fund Investor A Shares commenced
operations on November 8, 1993.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
# Amount represents less than $0.01 per share.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
59
<PAGE>
FOR AN INVESTOR B SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations South Carolina Municipal Bond Fund
<TABLE>
<CAPTION>
YEAR YEAR
ENDED ENDED
Investor B Shares 03/31/98 03/31/97
- ---------------------------------------------------------------------------------------
<S> <C> <C>
Operating performance:
Net asset value, beginning of period $ 9.79 $ 9.77
- ---------------------------------------------------------------------------------------
Net investment income 0.40 0.42
- ---------------------------------------------------------------------------------------
Net realized and unrealized gain/(loss) on
investments 0.47 0.02
- ---------------------------------------------------------------------------------------
Net increase/(decrease) in net asset value from
operations 0.87 0.44
- ---------------------------------------------------------------------------------------
Distributions:
Dividends from net investment income (0.40) (0.42)
- ---------------------------------------------------------------------------------------
Distributions from net realized capital gains (0.00)# --
- ---------------------------------------------------------------------------------------
Total dividends and distributions (0.40) (0.42)
- ---------------------------------------------------------------------------------------
Net asset value, end of period $ 10.26 $ 9.79
- ---------------------------------------------------------------------------------------
Total return++ 9.15% 4.54%
- ---------------------------------------------------------------------------------------
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $10,394 $12,104
- ---------------------------------------------------------------------------------------
Ratio of operating expenses to average net
assets 1.42%(a) 1.35%(a)
- ---------------------------------------------------------------------------------------
Ratio of net investment income to average net
assets 3.97% 4.24%
- ---------------------------------------------------------------------------------------
Portfolio turnover rate 9% 30%
- ---------------------------------------------------------------------------------------
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 1.81% 1.75%
<CAPTION>
PERIOD YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
Investor B Shares 03/31/96(b) 11/30/95 11/30/94 11/30/93*
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 9.99 $ 8.65 $ 9.86 $10.00
- -------------------------------------------------------------------------------------------------------------------------
Net investment income 0.14 0.45 0.45 0.04
- -------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain/(loss) on
investments (0.22) 1.34 (1.21) (0.14)
- -------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) in net asset value from
operations (0.08) 1.79 (0.76) (0.10)
- -------------------------------------------------------------------------------------------------------------------------
Distributions:
Dividends from net investment income (0.14) (0.45) (0.45) (0.04)
- -------------------------------------------------------------------------------------------------------------------------
Distributions from net realized capital gains -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------
Total dividends and distributions (0.14) (0.45) (0.45) (0.04)
- -------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 9.77 $ 9.99 $ 8.65 $ 9.86
- -------------------------------------------------------------------------------------------------------------------------
Total return++ (0.82)% 21.08% (7.97)% (1.00)%
- -------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $12,991 $12,670 $8,263 $4,048
- -------------------------------------------------------------------------------------------------------------------------
Ratio of operating expenses to average net
assets 1.35%+(a) 1.15%(a) 0.96%(a) 0.70%+
- -------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net
assets 4.21%+ 4.69% 4.73% 3.56%+
- -------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 20% 13% 14% 8%
- -------------------------------------------------------------------------------------------------------------------------
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 1.88%+ 1.83% 1.87% 2.23%+
</TABLE>
* Nations South Carolina Municipal Bond Fund Investor B Shares commenced
operations on October 21, 1993.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
# Amount represents less than $0.01 per share.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
60
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations Tennessee Intermediate Municipal Bond Fund
<TABLE>
<CAPTION>
YEAR YEAR PERIOD YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED ENDED
Investor A Shares 03/31/98 03/31/97 03/31/96(b) 11/30/95 11/30/94 11/30/93*
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Operating performance:
- -----------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $10.08 $10.09 $10.23 $ 9.30 $10.18 $ 10.00
Net investment income 0.45 0.44 0.15 0.44 0.43 0.29
- -----------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain/(loss) on investments 0.32 (0.01) (0.14) 0.93 (0.87) 0.18
- -----------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) in net asset
value from operations 0.77 0.43 0.01 1.37 (0.44) 0.47
- -----------------------------------------------------------------------------------------------------------------------
Distributions:
Dividends from net investment
income (0.45) (0.44) (0.15) (0.44) (0.43)# (0.29)
- -----------------------------------------------------------------------------------------------------------------------
Distributions from net realized
capital gains -- -- -- -- (0.01) --
- -----------------------------------------------------------------------------------------------------------------------
Total dividends and distributions (0.45) (0.44) (0.15) (0.44) (0.44) (0.29)
- -----------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $10.40 $10.08 $10.09 $10.23 $ 9.30 $ 10.18
- -----------------------------------------------------------------------------------------------------------------------
Total return++ 7.77% 4.33% 0.06% 15.00% (4.41)% 4.68%
Ratios to average net
assets/supplemental data:
Net assets, end of period (in 000's) $8,061 $6,840 $7,439 $7,573 $7,831 $15,573
- -----------------------------------------------------------------------------------------------------------------------
Ratio of operating expenses to
average net assets 0.70% 0.70% 0.70%+ 0.77% 0.70% 0.42%+
- -----------------------------------------------------------------------------------------------------------------------
Ratio of operating expenses to
average net assets including
interest expenses (a) (a) -- (a) 0.71% --
- -----------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to
average net assets 4.38% 4.35% 4.31%+ 4.45% 4.38% 4.16%+
- -----------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 38% 28% 3% 34% 41% 16%
- -----------------------------------------------------------------------------------------------------------------------
Ratio of operating expenses to
average net assets without waivers
and/or expense reimbursements 1.04% 1.13% 1.22%+ 1.12% 1.07% 1.09%+
</TABLE>
* Nations Tennessee Intermediate Municipal Bond Fund Investor A Shares
commenced operations on April 2, 1993.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
# Amount includes distributions in excess of net investment income, which were
less than $0.01 per share.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
61
<PAGE>
FOR AN INVESTOR B SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations Tennessee Intermediate Municipal Bond Fund
<TABLE>
<CAPTION>
YEAR YEAR
ENDED ENDED
Investor B Shares 03/31/98 03/31/97
- --------------------------------------------------------------------------------------
<S> <C> <C>
Operating performance:
Net asset value, beginning of period $10.08 $ 10.09
- --------------------------------------------------------------------------------------
Net investment income 0.40 0.41
- --------------------------------------------------------------------------------------
Net realized and unrealized gain/(loss) on
investments 0.32 (0.01)
- --------------------------------------------------------------------------------------
Net increase/(decrease) in net asset value from
operations 0.72 0.40
- --------------------------------------------------------------------------------------
Distributions:
Dividends from net investment income (0.40) (0.41)
- --------------------------------------------------------------------------------------
Distributions from net realized capital gains -- --
- --------------------------------------------------------------------------------------
Total dividends and distributions (0.40) (0.41)
- --------------------------------------------------------------------------------------
Net asset value, end of period $10.40 $ 10.08
- --------------------------------------------------------------------------------------
Total return++ 7.24% 4.02%
- --------------------------------------------------------------------------------------
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $2,924 $3,050
- --------------------------------------------------------------------------------------
Ratio of operating expenses to average net assets 1.20% 1.00%
- --------------------------------------------------------------------------------------
Ratio of operating expenses to average net assets
including interest expenses (a) (a)
- --------------------------------------------------------------------------------------
Ratio of net investment income to average net assets 3.88% 4.05%
- --------------------------------------------------------------------------------------
Portfolio turnover rate 38% 28%
- --------------------------------------------------------------------------------------
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 1.54% 1.43%
<CAPTION>
PERIOD YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
Investor B Shares 03/31/96(b) 11/30/95 11/30/94 11/30/93*
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $10.23 $ 9.30 $10.18 $10.03
- ----------------------------------------------------------------------------------------------------------------
Net investment income 0.14 0.41 0.40 0.17
- ----------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain/(loss) on
investments (0.14) 0.93 (0.87) 0.15
- ----------------------------------------------------------------------------------------------------------------
Net increase/(decrease) in net asset value from
operations 0.00 1.34 (0.47) 0.32
- ----------------------------------------------------------------------------------------------------------------
Distributions:
Dividends from net investment income (0.14) (0.41) (0.40)# (0.17)
- ----------------------------------------------------------------------------------------------------------------
Distributions from net realized capital gains -- -- (0.01) --
- ----------------------------------------------------------------------------------------------------------------
Total dividends and distributions (0.14) (0.41) (0.41) (0.17)
- ----------------------------------------------------------------------------------------------------------------
Net asset value, end of period $10.09 $10.23 $ 9.30 $10.18
- ----------------------------------------------------------------------------------------------------------------
Total return++ (0.04)% 14.65% (4.72)% 3.32%
- ----------------------------------------------------------------------------------------------------------------
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $3,528 $3,573 $3,368 $2,210
- ----------------------------------------------------------------------------------------------------------------
Ratio of operating expenses to average net assets 1.00%+ 1.07% 1.02% 0.77%+
- ----------------------------------------------------------------------------------------------------------------
Ratio of operating expenses to average net assets
including interest expenses -- (a) 1.03% --
- ----------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets 4.01%+ 4.15% 4.06% 3.81%+
- ----------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 3% 34% 41% 16%
- ----------------------------------------------------------------------------------------------------------------
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 1.52%+ 1.42% 1.39% 1.44%+
</TABLE>
* Nations Tennessee Intermediate Municipal Bond Fund Investor B Shares
commenced operations on June 10, 1993.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
# Amount includes distributions in excess of net investment income, which were
less than $0.01 per share.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
62
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations Tennessee Municipal Bond Fund
<TABLE>
<CAPTION>
YEAR YEAR PERIOD YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED ENDED
Investor A Shares 03/31/98 03/31/97 03/31/96(b) 11/30/95 11/30/94 11/30/93*
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 9.70 $ 9.68 $ 9.87 $ 8.58 $ 9.80 $ 9.88
- -------------------------------------------------------------------------------------------------------------------------
Net investment income 0.46 0.46 0.15 0.50 0.50 0.04
- -------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain/(loss) on investments 0.52 0.02 (0.19) 1.29 (1.22) (0.08)
- -------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) in net asset
value from operations 0.98 0.48 (0.04) 1.79 (0.72) (0.04)
- -------------------------------------------------------------------------------------------------------------------------
Distributions:
Dividends from net investment
income (0.46) (0.46) (0.15) (0.50) (0.50) (0.04)
- -------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 10.22 $ 9.70 $ 9.68 $ 9.87 $ 8.58 $ 9.80
- -------------------------------------------------------------------------------------------------------------------------
Total return++ 10.23% 5.02% (0.37)% 21.28% (7.58)% (0.43)%
- -------------------------------------------------------------------------------------------------------------------------
Ratios to average net
assets/supplemental data:
Net assets, end of period (in 000's) $1,440 $1,018 $ 973 $ 203 $ 43 $ 34
- -------------------------------------------------------------------------------------------------------------------------
Ratio of operating expenses to
average net assets 0.80% 0.80% 0.80%+ 0.60% 0.39% 0.17%+
- -------------------------------------------------------------------------------------------------------------------------
Ratio of operating expenses to
average net assets including
interest expenses (a) (a) 0.81%+ (a) (a) --
- -------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to
average net assets 4.54% 4.71% 4.72%+ 5.29% 5.38% 4.31%+
- -------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 19% 31% 2% 45% 38% 3%
- -------------------------------------------------------------------------------------------------------------------------
Ratio of operating expenses to
average net assets without waivers
and/or expense reimbursements 1.40% 1.44% 1.67%+ 1.47% 1.38% 1.86%+
</TABLE>
* Nations Tennessee Municipal Bond Fund Investor A Shares commenced operations
on November 2, 1993.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
63
<PAGE>
FOR AN INVESTOR B SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations Tennessee Municipal Bond Fund
<TABLE>
<CAPTION>
YEAR YEAR
ENDED ENDED
Investor B Shares 03/31/98 03/31/97
- ------------------------------------------------------------------------------------
<S> <C> <C>
Operating performance:
Net asset value, beginning of period $ 9.70 $ 9.68
- ------------------------------------------------------------------------------------
Net investment income 0.40 0.40
- ------------------------------------------------------------------------------------
Net realized and unrealized gain/(loss) on
investments 0.52 0.02
- ------------------------------------------------------------------------------------
Net increase/(decrease) in net asset value from
operations 0.92 0.42
- ------------------------------------------------------------------------------------
Distributions:
Dividends from net investment income (0.40) (0.40)
- ------------------------------------------------------------------------------------
Net asset value, end of period $10.22 $ 9.70
- ------------------------------------------------------------------------------------
Total return++ 9.56% 4.45%
- ------------------------------------------------------------------------------------
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $4,915 $5,319
- ------------------------------------------------------------------------------------
Ratio of operating expenses to average net assets 1.42% 1.35%
- ------------------------------------------------------------------------------------
Ratio of operating expenses to average net assets
including interest expenses (a) (a)
- ------------------------------------------------------------------------------------
Ratio of net investment income to average net assets 3.92% 4.16%
- ------------------------------------------------------------------------------------
Portfolio turnover rate 19% 31%
- ------------------------------------------------------------------------------------
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 2.02% 1.99%
<CAPTION>
PERIOD YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
Investor B Shares 03/31/96(b) 11/30/95 11/30/94 11/30/93*
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 9.87 $ 8.58 $ 9.80 $10.00
- --------------------------------------------------------------------------------------------------------------
Net investment income 0.14 0.45 0.45 0.04
- --------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain/(loss) on
investments (0.19) 1.29 (1.22) (0.20)
- --------------------------------------------------------------------------------------------------------------
Net increase/(decrease) in net asset value from
operations (0.05) 1.74 (0.77) (0.16)
- --------------------------------------------------------------------------------------------------------------
Distributions:
Dividends from net investment income (0.14) (0.45) (0.45) (0.04)
- --------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 9.68 $ 9.87 $ 8.58 $ 9.80
- --------------------------------------------------------------------------------------------------------------
Total return++ (0.55)% 20.63% (8.10)% (1.61)%
- --------------------------------------------------------------------------------------------------------------
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $6,761 $6,619 $5,504 $3,284
- --------------------------------------------------------------------------------------------------------------
Ratio of operating expenses to average net assets 1.35%+ 1.15% 0.96% 0.77%+
- --------------------------------------------------------------------------------------------------------------
Ratio of operating expenses to average net assets
including interest expenses 1.36%+ (a) (a) --
- --------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets 4.17%+ 4.74% 4.81% 3.71%+
- --------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 2% 45% 38% 3%
- --------------------------------------------------------------------------------------------------------------
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 2.22%+ 2.02% 1.95% 2.46%+
</TABLE>
* Nations Tennessee Municipal Bond Fund Investor B Shares commenced operations
on October 21, 1993.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
64
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations Texas Intermediate Municipal Bond Fund
<TABLE>
<CAPTION>
YEAR YEAR PERIOD YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED ENDED
Investor A Shares 03/31/98 03/31/97 03/31/96(b) 11/30/95 11/30/94 11/30/93*
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $10.18 $10.21 $10.36 $ 9.53 $10.35 $ 10.15
- ------------------------------------------------------------------------------------------------------------------------------
Net investment income 0.47 0.45 0.15 0.44 0.42 0.37
- ------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain/(loss) on investments 0.32 (0.03) (0.15) 0.83 (0.79) 0.20
- ------------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) in net asset
value from operations 0.79 0.42 0.00 1.27 (0.37) 0.57
- ------------------------------------------------------------------------------------------------------------------------------
Distributions:
Dividends from net investment
income (0.47) (0.45) (0.15) (0.44) (0.42)# (0.37)
- ------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized
capital gains -- -- -- -- (0.03) --
- ------------------------------------------------------------------------------------------------------------------------------
Total dividends and distributions (0.47) (0.45) (0.15) (0.44) (0.45) (0.37)
- ------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $10.50 $10.18 $10.21 $10.36 $ 9.53 $ 10.35
- ------------------------------------------------------------------------------------------------------------------------------
Total return++ 7.87% 4.17% (0.02)% 13.60% (3.66)% 5.64%
- ------------------------------------------------------------------------------------------------------------------------------
Ratios to average net
assets/supplemental data:
Net assets, end of period (in 000's) $2,666 $ 909 $ 801 $ 806 $ 718 $ 968
- ------------------------------------------------------------------------------------------------------------------------------
Ratio of operating expenses to
average net assets 0.70% 0.70% 0.70%+ 0.77%(a) 0.73%(a) 0.59%+
- ------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to
average net assets 4.54% 4.39% 4.32%+ 4.42% 4.22% 4.28%+
- ------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 19% 34% 11% 64% 61% 63%
- ------------------------------------------------------------------------------------------------------------------------------
Ratio of operating expenses to
average net assets without waivers
and/or expense reimbursements 0.95% 1.04% 1.09%+ 1.03% 0.96% 0.97%+
</TABLE>
* Nations Texas Intermediate Municipal Bond Fund Investor A Shares commenced
operations on February 4, 1993.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
# Amount includes distributions in excess of net investment income which were
less than $0.01 per share.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
65
<PAGE>
FOR AN INVESTOR B SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations Texas Intermediate Municipal Bond Fund
<TABLE>
<CAPTION>
YEAR YEAR PERIOD
ENDED ENDED ENDED
Investor B Shares 03/31/98 03/31/97 03/31/96(b)
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $10.18 $10.21 $ 10.36
- ----------------------------------------------------------------------------------------
Net investment income 0.42 0.42 0.14
- ----------------------------------------------------------------------------------------
Net realized and unrealized gain/(loss) on
investments 0.32 (0.03) (0.15)
- ----------------------------------------------------------------------------------------
Net increase/(decrease) in net asset value from
operations 0.74 0.39 (0.01)
- ----------------------------------------------------------------------------------------
Distributions:
Dividends from net investment income (0.42) (0.42) (0.14)
- ----------------------------------------------------------------------------------------
Distributions from net realized capital gains -- -- --
- ----------------------------------------------------------------------------------------
Total dividends and distributions (0.42) (0.42) (0.14)
- ----------------------------------------------------------------------------------------
Net asset value, end of period $10.50 $10.18 $10.21
- ----------------------------------------------------------------------------------------
Total return++ 7.34% 3.87% (0.12)%
- ----------------------------------------------------------------------------------------
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $2,184 $2,182 $2,845
- ----------------------------------------------------------------------------------------
Ratio of operating expenses to average net assets 1.20% 1.00% 1.00%+
- ----------------------------------------------------------------------------------------
Ratio of net investment income to average net assets 4.04% 4.09% 4.02%+
- ----------------------------------------------------------------------------------------
Portfolio turnover rate 19% 34% 11%
- ----------------------------------------------------------------------------------------
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 1.45% 1.34% 1.39%+
<CAPTION>
YEAR YEAR PERIOD
ENDED ENDED ENDED
Investor B Shares 11/30/95 11/30/94 11/30/93*
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 9.53 $10.35 $ 10.25
- -------------------------------------------------------------------------------------------------
Net investment income 0.41 0.39 0.17
- -------------------------------------------------------------------------------------------------
Net realized and unrealized gain/(loss) on
investments 0.83 (0.79) 0.10
- -------------------------------------------------------------------------------------------------
Net increase/(decrease) in net asset value from
operations 1.24 (0.40) 0.27
- -------------------------------------------------------------------------------------------------
Distributions:
Dividends from net investment income (0.41) (0.39)# (0.17)
- -------------------------------------------------------------------------------------------------
Distributions from net realized capital gains -- (0.03) --
- -------------------------------------------------------------------------------------------------
Total dividends and distributions (0.41) (0.42) (0.17)
- -------------------------------------------------------------------------------------------------
Net asset value, end of period $10.36 $ 9.53 $10.35
- -------------------------------------------------------------------------------------------------
Total return++ 13.27% (3.96)% 2.61%
- -------------------------------------------------------------------------------------------------
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $3,136 $2,774 $1,330
- -------------------------------------------------------------------------------------------------
Ratio of operating expenses to average net assets 1.07%(a) 1.05%(a) 0.94%+
- -------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets 4.12% 3.90% 3.93%+
- -------------------------------------------------------------------------------------------------
Portfolio turnover rate 64% 61% 63%
- -------------------------------------------------------------------------------------------------
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 1.33% 1.28% 1.32%+
</TABLE>
* Nations Texas Intermediate Municipal Bond Fund Investor B Shares commenced
operations on June 22, 1993.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
# Amount includes distributions in excess of net investment income, which were
less than $0.01 per share.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
66
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations Texas Municipal Bond Fund
<TABLE>
<CAPTION>
YEAR YEAR
ENDED ENDED
Investor A Shares 03/31/98(c) 03/31/97
- ---------------------------------------------------------------------------------
<S> <C> <C>
Operating performance:
Net asset value, beginning of period $ 9.48 $ 9.49
- ---------------------------------------------------------------------------------
Net investment income 0.46 0.46
- ---------------------------------------------------------------------------------
Net realized and unrealized gain/(loss) on
investments 0.56 (0.01)
- ---------------------------------------------------------------------------------
Net increase/(decrease) in net asset value from
operations 1.02 0.45
- ---------------------------------------------------------------------------------
Distributions:
Dividends from net investment income (0.46) (0.46)
- ---------------------------------------------------------------------------------
Net asset value, end of period $10.04 $ 9.48
- ---------------------------------------------------------------------------------
Total return++ 10.90% 4.78%
- ---------------------------------------------------------------------------------
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 419 $ 371
- ---------------------------------------------------------------------------------
Ratio of operating expenses to average net assets 0.80%(a) 0.80%(a)
- ---------------------------------------------------------------------------------
Ratio of net investment income to average net assets 4.63% 4.79%
- ---------------------------------------------------------------------------------
Portfolio turnover rate 33% 52%
- ---------------------------------------------------------------------------------
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 1.27% 1.23%
<CAPTION>
PERIOD YEAR PERIOD
ENDED ENDED ENDED
Investor A Shares 03/31/96(b) 11/30/95 11/30/94*
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 9.70 $ 8.39 $ 9.92
- ------------------------------------------------------------------------------------------------
Net investment income 0.15 0.49 0.47
- ------------------------------------------------------------------------------------------------
Net realized and unrealized gain/(loss) on
investments (0.21) 1.31 (1.53)
- ------------------------------------------------------------------------------------------------
Net increase/(decrease) in net asset value from
operations (0.06) 1.80 (1.06)
- ------------------------------------------------------------------------------------------------
Distributions:
Dividends from net investment income (0.15) (0.49) (0.47)
- ------------------------------------------------------------------------------------------------
Net asset value, end of period $ 9.49 $ 9.70 $ 8.39
- ------------------------------------------------------------------------------------------------
Total return++ (0.62)% 21.85% (10.98)%
- ------------------------------------------------------------------------------------------------
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 317 $ 351 $ 55
- ------------------------------------------------------------------------------------------------
Ratio of operating expenses to average net assets 0.80%+ 0.59%(a) 0.40%+(a)
- ------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets 4.72%+ 5.25% 5.34%+
- ------------------------------------------------------------------------------------------------
Portfolio turnover rate 6% 50% 107%
- ------------------------------------------------------------------------------------------------
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 1.31%+ 1.25% 1.24%+
</TABLE>
* Nations Texas Municipal Bond Fund Investor A Shares commenced operations on
December 17, 1993.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
(c) Per share net investment income has been calculated using the monthly
average share method.
67
<PAGE>
FOR AN INVESTOR B SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations Texas Municipal Bond Fund
<TABLE>
<CAPTION>
YEAR YEAR
ENDED ENDED
Investor B Shares 03/31/98(c) 03/31/97
- ------------------------------------------------------------------
<S> <C> <C>
Operating performance:
Net asset value, beginning of period $ 9.48 $ 9.49
- ------------------------------------------------------------------
Net investment income 0.39 0.40
- ------------------------------------------------------------------
Net realized and unrealized
gain/(loss) on investments 0.56 (0.01)
- ------------------------------------------------------------------
Net increase/(decrease) in net asset
value from operations 0.95 0.39
- ------------------------------------------------------------------
Distributions:
Dividends from net investment
income (0.39) (0.40)
- ------------------------------------------------------------------
Net asset value, end of period $10.04 $ 9.48
- ------------------------------------------------------------------
Total return++ 10.23% 4.21%
- ------------------------------------------------------------------
Ratios to average net
assets/supplemental data:
Net assets, end of period (in 000's) $8,804 $10,090
- ------------------------------------------------------------------
Ratio of operating expenses to
average net assets 1.42%(a) 1.35%(a)
- ------------------------------------------------------------------
Ratio of net investment income to
average net assets 4.01% 4.24%
- ------------------------------------------------------------------
Portfolio turnover rate 33% 52%
- ------------------------------------------------------------------
Ratio of operating expenses to
average net assets without waivers
and/or expense reimbursements 1.89% 1.78%
<CAPTION>
PERIOD YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
Investor B Shares 03/31/96(b) 11/30/95 11/30/94 11/30/93*
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 9.70 $ 8.39 $ 9.78 $10.00
- -----------------------------------------------------------------------------------------------
Net investment income 0.13 0.43 0.44 0.04
- -----------------------------------------------------------------------------------------------
Net realized and unrealized
gain/(loss) on investments (0.21) 1.31 (1.39) (0.22)
- -----------------------------------------------------------------------------------------------
Net increase/(decrease) in net asset
value from operations (0.08) 1.74 (0.95) (0.18)
- -----------------------------------------------------------------------------------------------
Distributions:
Dividends from net investment
income (0.13) (0.43) (0.44) (0.04)
- -----------------------------------------------------------------------------------------------
Net asset value, end of period $ 9.49 $ 9.70 $ 8.39 $ 9.78
- -----------------------------------------------------------------------------------------------
Total return++ (0.80)% 21.19% (9.98)% (1.82)%
- -----------------------------------------------------------------------------------------------
Ratios to average net
assets/supplemental data:
Net assets, end of period (in 000's) $11,838 $12,587 $10,812 $6,154
- -----------------------------------------------------------------------------------------------
Ratio of operating expenses to
average net assets 1.35%+ 1.14%(a) 0.97%(a) 0.70%+
- -----------------------------------------------------------------------------------------------
Ratio of net investment income to
average net assets 4.17%+ 4.70% 4.77% 3.32%+
- -----------------------------------------------------------------------------------------------
Portfolio turnover rate 6% 50% 107% 5%
- -----------------------------------------------------------------------------------------------
Ratio of operating expenses to
average net assets without waivers
and/or expense reimbursements 1.86%+ 1.80% 1.81% 2.05%+
</TABLE>
* Nations Texas Municipal Bond Fund Investor B Shares commenced operations on
October 21, 1993.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30. (c) Per share net investment income has been calculated using
the monthly average shares method.
68
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations Virginia Intermediate Municipal Bond Fund
<TABLE>
<CAPTION>
YEAR YEAR
ENDED ENDED
Investor A Shares 03/31/98 03/31/97
- ----------------------------------------------------------------------------------
<S> <C> <C>
Operating performance:
Net asset value, beginning of period $ 10.59 $ 10.69
- ----------------------------------------------------------------------------------
Net investment income 0.49 0.49
- ----------------------------------------------------------------------------------
Net realized and unrealized gain/(loss) on
investments 0.33 (0.10)
- ----------------------------------------------------------------------------------
Net increase/(decrease) in net asset value from
operations 0.82 0.39
- ----------------------------------------------------------------------------------
Distributions:
Dividends from net investment income (0.49) (0.49)
- ----------------------------------------------------------------------------------
Distributions from net realized capital gains -- --
- ----------------------------------------------------------------------------------
Distributions in excess of net realized capital gains -- --
- ----------------------------------------------------------------------------------
Total dividends and distributions (0.49) (0.49)
- ----------------------------------------------------------------------------------
Net asset value, end of period $ 10.92 $ 10.59
- ----------------------------------------------------------------------------------
Total return++ 7.91% 3.71%
- ----------------------------------------------------------------------------------
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $54,080 $55,791
- ----------------------------------------------------------------------------------
Ratio of operating expenses to average net assets 0.70%(a) 0.70%(a)
- ----------------------------------------------------------------------------------
Ratio of net investment income to average net assets 4.57% 4.59%
- ----------------------------------------------------------------------------------
Portfolio turnover rate 21% 20%
- ----------------------------------------------------------------------------------
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 0.94% 0.94%
<CAPTION>
PERIOD YEAR YEAR
ENDED ENDED ENDED
Investor A Shares 03/31/96(b) 11/30/95 11/30/94
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 10.83 $ 9.94 $ 10.99
- --------------------------------------------------------------------------------------------------------
Net investment income 0.16 0.49 0.48
- --------------------------------------------------------------------------------------------------------
Net realized and unrealized gain/(loss) on
investments (0.14) 0.89 (0.96)
- --------------------------------------------------------------------------------------------------------
Net increase/(decrease) in net asset value from
operations 0.02 1.38 (0.48)
- --------------------------------------------------------------------------------------------------------
Distributions:
Dividends from net investment income (0.16) (0.49) (0.48)
- --------------------------------------------------------------------------------------------------------
Distributions from net realized capital gains -- (0.00)# (0.09)
- --------------------------------------------------------------------------------------------------------
Distributions in excess of net realized capital gains -- -- (0.00)#
- --------------------------------------------------------------------------------------------------------
Total dividends and distributions (0.16) (0.49) (0.57)
- --------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 10.69 $ 10.83 $ 9.94
- --------------------------------------------------------------------------------------------------------
Total return++ 0.20% 14.16% (4.52)%
- --------------------------------------------------------------------------------------------------------
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $68,003 $73,253 $79,412
- --------------------------------------------------------------------------------------------------------
Ratio of operating expenses to average net assets 0.70%+(a) 0.76%(a) 0.79%(a)
- --------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets 4.52%+ 4.67% 4.58%
- --------------------------------------------------------------------------------------------------------
Portfolio turnover rate 2% 22% 14%
- --------------------------------------------------------------------------------------------------------
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 0.96%+ 0.94% 0.91%
</TABLE>
* Nations Virginia Intermediate Municipal Bond Fund Investor A Shares
commenced operations on December 5, 1989.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# Amount represents less than $0.01 per share.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
69
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations Virginia Intermediate Municipal Bond Fund (cont.)
<TABLE>
<CAPTION>
YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
Investor A Shares 11/30/93 11/30/92 11/30/91 11/30/90*
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 10.59 $ 10.34 $ 10.14 $ 10.08
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income 0.51 0.54 0.58 0.61
- -----------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain/(loss) on investments 0.42 0.29 0.21 0.11
- -----------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) in net asset value from operations 0.93 0.83 0.79 0.72
- -----------------------------------------------------------------------------------------------------------------------------
Distributions:
Dividends from net investment income (0.51) (0.54) (0.58) (0.66)
- -----------------------------------------------------------------------------------------------------------------------------
Distributions from net realized capital gains (0.02) (0.04) (0.01) --
- -----------------------------------------------------------------------------------------------------------------------------
Distributions in excess of net realized capital gains -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------
Total dividends and distributions (0.53) (0.58) (0.59) (0.66)
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 10.99 $ 10.59 $ 10.34 $ 10.14
- -----------------------------------------------------------------------------------------------------------------------------
Total return++ 8.91% 8.18%+++ 8.04%+++ 7.41%+++
- -----------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $103,689 $76,650 $44,540 $24,303
- -----------------------------------------------------------------------------------------------------------------------------
Ratio of operating expenses to average net assets 0.72% 0.65% 0.45% 0.26%+
- -----------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets 4.65% 5.04% 5.67% 6.09%+
- -----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 26% 13% 24% 19%
- -----------------------------------------------------------------------------------------------------------------------------
Ratio of operating expenses to average net assets without waivers
and/or expense reimbursements 0.84% 0.97% 0.73% 0.80%+
</TABLE>
* Nations Virginia Intermediate Municipal Bond Fund Investor A Shares
commenced operations on December 5, 1989.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# Amount represents less than $0.01 per share.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
70
<PAGE>
FOR AN INVESTOR B SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations Virginia Intermediate Municipal Bond Fund
<TABLE>
<CAPTION>
YEAR YEAR
ENDED ENDED
Investor B Shares 03/31/98(c) 03/31/97
- -------------------------------------------------------------------
<S> <C> <C>
Operating performance:
Net asset value, beginning of period $10.59 $ 10.69
- -------------------------------------------------------------------
Net investment income 0.44 0.46
- -------------------------------------------------------------------
Net realized and unrealized
gain/(loss) on investments 0.33 (0.10)
- -------------------------------------------------------------------
Net increase/(decrease) in net asset
value from operations 0.77 0.36
- -------------------------------------------------------------------
Distributions:
Dividends from net investment
income (0.44) (0.46)
- -------------------------------------------------------------------
Distributions from net realized
capital gains -- --
- -------------------------------------------------------------------
Distributions in excess of net realized
capital gains -- --
- -------------------------------------------------------------------
Total dividends and distributions (0.44) (0.46)
- -------------------------------------------------------------------
Net asset value, end of period $10.92 $ 10.59
- -------------------------------------------------------------------
Total return++ 7.37% 3.40%
- -------------------------------------------------------------------
Ratios to average net
assets/supplemental data:
Net assets, end of period (in 000's) $9,643 $10,516
- -------------------------------------------------------------------
Ratio of operating expenses to
average net assets 1.20%(a) 1.00%(a)
- -------------------------------------------------------------------
Ratio of net investment income to
average net assets 4.07% 4.29%
- -------------------------------------------------------------------
Portfolio turnover rate 21% 20%
- -------------------------------------------------------------------
Ratio of operating expenses to
average net assets without waivers
and/or expense reimbursements 1.44% 1.24%
<CAPTION>
PERIOD YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
Investor B Shares 03/31/96(b) 11/30/95 11/30/94 11/30/93*
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 10.83 $ 9.94 $10.99 $10.83
- -----------------------------------------------------------------------------------------------------
Net investment income 0.15 0.46 0.45 0.21
- -----------------------------------------------------------------------------------------------------
Net realized and unrealized
gain/(loss) on investments (0.14) 0.89 (0.96) 0.16
- -----------------------------------------------------------------------------------------------------
Net increase/(decrease) in net asset
value from operations 0.01 1.35 (0.51) 0.37
- -----------------------------------------------------------------------------------------------------
Distributions:
Dividends from net investment
income (0.15) (0.46) (0.45) (0.21)
- -----------------------------------------------------------------------------------------------------
Distributions from net realized
capital gains -- (0.00)# (0.09) --
- -----------------------------------------------------------------------------------------------------
Distributions in excess of net realized
capital gains -- -- (0.00)# --
- -----------------------------------------------------------------------------------------------------
Total dividends and distributions (0.15) (0.46) (0.54) (0.21)
- -----------------------------------------------------------------------------------------------------
Net asset value, end of period $ 10.69 $ 10.83 $ 9.94 $10.99
- -----------------------------------------------------------------------------------------------------
Total return++ 0.10% 13.82% (4.82)% 3.48%
- -----------------------------------------------------------------------------------------------------
Ratios to average net
assets/supplemental data:
Net assets, end of period (in 000's) $11,926 $12,163 $9,690 $5,249
- -----------------------------------------------------------------------------------------------------
Ratio of operating expenses to
average net assets 1.00%+(a) 1.06%(a) 1.11%(a) 1.07%+
- -----------------------------------------------------------------------------------------------------
Ratio of net investment income to
average net assets 4.22%+ 4.37% 4.26% 4.30%+
- -----------------------------------------------------------------------------------------------------
Portfolio turnover rate 2% 22% 14% 26%
- -----------------------------------------------------------------------------------------------------
Ratio of operating expenses to
average net assets without waivers
and/or expense reimbursements 1.26%+ 1.24% 1.23% 1.19%+
</TABLE>
* Nations Virginia Intermediate Municipal Bond Fund Investor B Shares
commenced operations on June 7, 1993.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
# Amount represents less than $0.01 per share.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
(c) Per share net investment income has been calculated using the monthly
average shares method.
71
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations Virginia Municipal Bond Fund
<TABLE>
<CAPTION>
YEAR YEAR PERIOD YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED ENDED
Investor A Shares 03/31/98(c) 03/31/97 03/31/96(b) 11/30/95 11/30/94 11/30/93*
<S> <C> <C> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 9.40 $ 9.38 $ 9.62 $ 8.29 $ 9.77 $ 9.84
Net investment income 0.45 0.46 0.16 0.49 0.49 0.03
Net realized and unrealized
gain/(loss) on investments 0.55 0.02 (0.24) 1.33 (1.48) (0.07)
Net increase/(decrease) in net asset
value from operations 1.00 0.48 (0.08) 1.82 (0.99) (0.04)
Distributions:
Dividends from net investment
income (0.45) (0.46) (0.16) (0.49) (0.49) (0.03)
Net asset value, end of period $ 9.95 $ 9.40 $ 9.38 $ 9.62 $ 8.29 $ 9.77
Total return++ 10.88% 5.23% (0.91)% 22.39% (10.44)% (0.42)%
Ratios to average net
assets/supplemental data:
Net assets, end of period (in 000's) $1,222 $ 726 $ 661 $ 650 $ 168 $ 25
Ratio of operating expenses to
average net assets 0.79% 0.80% 0.80%+ 0.59% 0.39% 0.10%+
Ratio of operating expenses to
average net assets including
interest expense (a) (a) 0.81%+ (a) (a) --
Ratio of net investment income to
average net assets 4.66% 4.90% 4.86%+ 5.31% 5.34% 3.88%+
Portfolio turnover rate 9% 37% 8% 16% 61% 0%
Ratio of operating expenses to
average net assets without waivers
and/or expense reimbursements 1.16% 1.18% 1.27%+ 1.24% 1.17% 1.30%+
</TABLE>
* Nations Virginia Municipal Bond Fund Investor A Shares commenced operations
on November 8, 1993.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
(c) Per share net investment income has been calculated using the monthly
average share method.
72
<PAGE>
FOR AN INVESTOR B SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations Virginia Municipal Bond Fund
<TABLE>
<CAPTION>
YEAR YEAR PERIOD YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED ENDED
Investor B Shares 03/31/98(c) 03/31/97 03/31/96(b) 11/30/95 11/30/94 11/30/93*
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 9.40 $ 9.38 $ 9.62 $ 8.29 $ 9.77 $10.00
- -----------------------------------------------------------------------------------------------------------------------
Net investment income 0.39 0.41 0.14 0.44 0.44 0.04
- -----------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain/(loss) on investments 0.55 0.02 (0.24) 1.33 (1.48) (0.23)
- -----------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) in net asset
value from operations 0.94 0.43 (0.10) 1.77 (1.04) (0.19)
- -----------------------------------------------------------------------------------------------------------------------
Distributions:
Dividends from net investment
income (0.39) (0.41) (0.14) (0.44) (0.44) (0.04)
- -----------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 9.95 $ 9.40 $ 9.38 $ 9.62 $ 8.29 $ 9.77
- -----------------------------------------------------------------------------------------------------------------------
Total return++ 10.21% 4.65% (1.09)% 21.72% (10.95)% (1.93)%
- -----------------------------------------------------------------------------------------------------------------------
Ratios to average net
assets/supplemental data:
Net assets, end of period (in 000's) $13,082 $13,972 $15,938 $16,489 $12,738 $6,580
- -----------------------------------------------------------------------------------------------------------------------
Ratio of operating expenses to
average net assets 1.41% 1.35% 1.35%+ 1.14% 0.96% 0.70%+
- -----------------------------------------------------------------------------------------------------------------------
Ratio of operating expenses to
average net assets including
interest expense (a) (a) 1.36%+ (a) (a) --
- -----------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to
average net assets 4.04% 4.35% 4.31%+ 4.76% 4.77% 3.28%+
- -----------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 9% 37% 8% 16% 61% 0%
- -----------------------------------------------------------------------------------------------------------------------
Ratio of operating expenses to
average net assets without waivers
and/or expense reimbursements 1.78% 1.73% 1.82%+ 1.79% 1.74% 1.90%+
</TABLE>
* Nations Virginia Municipal Bond Fund Investor B Shares commenced operations
on October 21, 1993.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
(c) Per share net investment income has been calculated using the monthly
average shares method.
73
<PAGE>
Appendix A -- Portfolio Securities
The following are summary descriptions of certain types of instruments in which
a Fund may invest. The "How Objectives Are Pursued" section of the Prospectus
identifies each Fund's permissible investments, and the SAI contains more
information concerning such investments.
Bank Instruments: Bank instruments consist mainly of certificates of deposit,
time deposits and bankers' acceptances. Each Fund will limit its investments in
bank obligations so they do not exceed 25% of the Fund's total assets at the
time of purchase.
U.S. dollar-denominated obligations issued by foreign branches of domestic
banks ("Eurodollar" obligations) and domestic branches of foreign banks
("Yankee dollar" obligations) and other foreign obligations involve special
investment risks, including the possibility that liquidity could be impaired
because of future political and economic developments, the obligations may be
less marketable than comparable domestic obligations of domestic issuers, a
foreign jurisdiction might impose withholding taxes on interest income payable
on such obligations, deposits may be seized or nationalized, foreign
governmental restrictions such as exchange controls may be adopted which might
adversely affect the payment of principal of and interest on such obligations,
the selection of foreign obligations may be more difficult because there may be
less publicly available information concerning foreign issuers, there may be
difficulties in enforcing a judgment against a foreign issuer or the
accounting, auditing and financial reporting standards, practices and
requirements applicable to foreign issuers may differ from those applicable to
domestic issuers. In addition, foreign banks are not subject to examination by
U.S. Government agencies or instrumentalities.
Borrowings: When a Fund borrows money, the net asset value of a share may be
subject to greater fluctuation until the borrowing is paid off. The Funds may
borrow money from banks for temporary purposes in amounts of up to one-third of
their respective total assets, provided that borrowings in excess of 5% of the
value of the Funds' total assets must be repaid prior to the purchase of
portfolio securities. Pursuant to line of credit arrangements with BONY, the
Funds may borrow primarily for temporary or emergency purposes, including the
meeting of redemption requests that otherwise might require the untimely
disposition of securities.
Fixed Income Investing: The performance of the fixed income debt component of a
Fund's portfolio depends primarily on interest rate changes, the average
weighted maturity of the portfolio and the quality of the securities held. The
debt component of a Fund's portfolio will tend to decrease in value when
interest rates rise and increase when interest rates fall. A Fund's share price
and yield depend, in part, on the maturity and quality of its debt instruments.
Futures, Options And Other Derivative Instruments: Each Fund may attempt to
reduce the overall level of investment risk of particular securities and
attempt to protect a Fund against adverse market movements by investing in
futures, options and other derivative instruments. These include the purchase
and writing of options on securities (including index options) and options on
foreign currencies, and investing in futures contracts for the purchase or sale
of instruments based on financial indices, including interest rate indices or
indices of U.S. or foreign government, equity or fixed income securities
("futures contracts"), options on futures contracts, forward contracts and
swaps and swap-related products such as interest rate swaps, currency swaps,
caps, collars and floors.
The use of futures, options, forward contracts and swaps exposes a Fund to
additional investment risks and transaction costs. If the Adviser incorrectly
analyzes market conditions or does not employ the appropriate strategy with
respect to these instruments, a Fund could be left in a less favorable
position. Additional risks inherent in the use of futures, options, forward
contracts and swaps include: imperfect correlation between the price of
futures, options and forward contracts and movements in the prices of the
securities or currencies being hedged; the possible absence of a liquid
secondary market for any particular instrument at any time; and the
74
<PAGE>
possible need to defer closing out certain hedged positions to avoid adverse
tax consequences. A Fund may not purchase put and call options which are traded
on a national stock exchange in an amount exceeding 5% of its net assets.
Further information on the use of futures, options and other derivative
instruments, and the associated risks, is contained in the SAI.
Illiquid Securities: Certain securities may be sold only pursuant to certain
legal restrictions, and may be difficult to sell. The Funds will not hold more
than 15% of the value of their respective net assets in securities that are
illiquid. Repurchase agreements, time deposits and guaranteed investment
contracts that do not provide for payment to a Fund within seven days after
notice, and illiquid restricted securities, are subject to the limitation on
illiquid securities. In addition, interests in privately arranged loans
acquired by the State Intermediate Municipal Bond Funds and the State Municipal
Bond Funds may be subject to this limitation.
If otherwise consistent with their investment objectives and policies, certain
Funds may purchase securities that are not registered under the Securities Act
of 1933, as amended (the "1933 Act") but which can be sold to "qualified
institutional buyers" in accordance with Rule 144A under the 1933 Act, or which
were issued under Section 4(2) of the 1933 Act. Any such security will not be
considered illiquid so long as it is determined by a Fund's Board of Trustees
or the Adviser, acting under guidelines approved and monitored by the Fund's
Board, after considering trading activity, availability of reliable price
information and other relevant information, that an adequate trading market
exists for that security. To the extent that, for a period of time, qualified
institutional or other buyers cease purchasing such restricted securities
pursuant to Rule 144A or otherwise, the level of illiquidity of a Fund holding
such securities may increase during such period.
Interest Rate Transactions: In order to attempt to protect the value of their
portfolios from interest rate fluctuations, certain of the Funds may enter into
various hedging transactions, such as interest rate swaps and the purchase or
sale of interest rate caps and floors. Interest rate swaps involve the exchange
by a Fund with another party of their respective commitments to pay or receive
interest, E.G., an exchange of floating-rate payments for fixed-rate payments.
A Fund will enter into a swap transaction on a net basis, I.E. the payment
obligations of the Fund and the counterparty will be netted out with the Fund
receiving or paying, as the case may be, only the net amount of the two payment
obligations. A Fund will segregate, on a daily basis, cash or liquid high
quality debt securities with a value at least equal to the Fund's net
obligations, if any, under a swap agreement.
The purchase of an interest rate cap entitles the purchaser, to the extent that
a specified index exceeds a predetermined interest rate, to receive payments of
interest on a notional principal amount from the party selling such interest
rate cap. The purchase of an interest rate floor entitles the purchaser, to the
extent that a specified index is below a predetermined interest rate, to
receive payments of interest on a notional principal amount from the party
selling such interest rate floor. The Adviser expects to enter into these
transactions on behalf of a Fund primarily to preserve a return or spread on a
particular investment or portion of its portfolio or to protect against any
increase in the price of securities the Fund anticipated purchasing at a later
date rather than for speculative purposes. A Fund will not sell interest rate
caps or floors that it does not own.
Money Market Instruments: The term "money market instruments" refers to
instruments with remaining maturities of one year or less. Money market
instruments may include, among other instruments, certain U.S. Treasury
obligations, U.S. Government obligations, bank instruments, commercial
instruments, repurchase agreements and municipal securities. Such instruments
are described in this Appendix A.
Municipal Securities: The two principal classifications of Municipal Securities
are "general obligation" securities and "revenue" securities. General
obligation securities are secured by the issuer's pledge of its full faith,
credit, and taxing power for the payment of principal and interest. Revenue
securities are payable only from the revenues derived from a particular
facility or class of facilities or, in some cases, from the proceeds of a
special excise tax or other specific revenue source such as the user of the
facility being financed. Pri-
75
<PAGE>
vate activity bonds held by a Fund are in most cases revenue securities and are
not payable from the unrestricted revenues of the issuer. Consequently, the
credit quality of private activity bonds is usually directly related to the
credit standing of the corporate user of the facility involved.
Municipal Securities may include "moral obligation" bonds, which are normally
issued by special purpose public authorities. If the issuer of moral obligation
bonds is unable to meet its debt service obligations from current revenues, it
may draw on a reserve fund, the restoration of which is a moral commitment but
not a legal obligation of the state or municipality which created the issuer.
Municipal Securities may include variable- or floating-rate instruments issued
by industrial development authorities and other governmental entities. While
there may not be an active secondary market with respect to a particular
instrument purchased by a Fund, a Fund may demand payment of the principal and
accrued interest on the instrument or may resell it to a third party as
specified in the instruments. The absence of an active secondary market,
however, could make it difficult for a Fund to dispose of the instrument if the
issuer defaulted on its payment obligation or during periods the Fund is not
entitled to exercise its demand rights, and the Fund could, for these or other
reasons, suffer a loss.
Some of these instruments may be unrated, but unrated instruments purchased by
a Fund will be determined by the Adviser to be of comparable quality at the
time of purchase to instruments rated "high quality" by any major rating
service. Where necessary to ensure that an instrument is of comparable "high
quality," a Fund will require that an issuer's obligation to pay the principal
of the note may be backed by an unconditional bank letter or line of credit,
guarantee, or commitment to lend.
Municipal Securities may include participations in privately arranged loans to
municipal borrowers, some of which may be referred to as "municipal leases."
Generally such loans are unrated, in which case they will be determined by the
Adviser to be of comparable quality at the time of purchase to rated
instruments that may be acquired by a Fund. Frequently, privately arranged
loans have variable interest rates and may be backed by a bank letter of
credit. In other cases, they may be unsecured or may be secured by assets not
easily liquidated. Moreover, such loans in most cases are not backed by the
taxing authority of the issuers and may have limited marketability or may be
marketable only by virtue of a provision requiring repayment following demand
by the lender. Such loans made by a Fund may have a demand provision permitting
the Fund to require payment within seven days. Participations in such loans,
however, may not have such a demand provision and may not be otherwise
marketable. To the extent these securities are illiquid, they will be subject
to each Fund's limitation on investments in illiquid securities. Recovery of an
investment in any such loan that is illiquid and payable on demand may depend
on the ability of the municipal borrower to meet an obligation for full
repayment of principal and payment of accrued interest within the demand
period, normally seven days or less (unless a Fund determines that a particular
loan issue, unlike most such loans, has a readily available market). As it
deems appropriate, the Adviser will establish procedures to monitor the credit
standing of each such municipal borrower, including its ability to meet
contractual payment obligations.
Municipal Securities may include units of participation in trusts holding pools
of tax-exempt leases. Municipal participation interests may be purchased from
financial institutions, and give the purchaser an undivided interest in one or
more underlying municipal security. To the extent that municipal participation
interests are considered to be "illiquid securities," such instruments are
subject to each Fund's limitation on the purchase of illiquid securities.
Municipal leases and participating interests therein which may take the form of
a lease or an installment sales contract, are issued by state and local
governments and authorities to acquire a wide variety of equipment and
facilities. Interest payments on qualifying leases are exempt from Federal
income taxes.
In addition, certain of the Funds may acquire "stand-by commitments" from banks
or broker/dealers with respect to municipal securities held in their portfolios.
Under a stand-by commitment, a dealer would agree to purchase at a Fund's option
specified Municipal Securities at a speci-
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fied price. A Fund will acquire stand-by commitments solely to facilitate
portfolio liquidity and do not intend to exercise their rights thereunder for
trading purposes.
Although the Funds do not presently intend to do so on a regular basis, each
may invest more than 25% of its total assets in Municipal Securities the
interest on which is paid solely from revenues of similar projects if such
investment is deemed necessary or appropriate by the Adviser. To the extent
that more than 25% of a Fund's total assets are invested in Municipal
Securities that are payable from the revenues of similar projects, a Fund will
be subject to the peculiar risks presented by such projects to a greater extent
than it would be if its assets were not so concentrated.
Since each of the Funds will invest primarily in securities issued by issuers
located in one state, each of these Funds is susceptible to changes in value
due to political and economic factors affecting that state's issuers. A
comparable municipal bond fund which is not concentrated in obligations issued
by issuers located in one state would be less susceptible to these risks. If
any issuer of securities held by one of these Funds is unable to meets its
financial obligations, that Fund's income, capital, and liquidity may be
adversely affected.
Florida is the fourth most populous state with an estimated 1997 population of
14,700,000. By the year 2000, population will likely exceed 15.5 million.
Population growth has historically been driven by retirement migration with
local economies weighted heavily in tourism and agriculture. Over the past
twenty years, retirement, agriculture and tourism have been complemented by
high technology jobs, service sector jobs and international trade. In the
meantime, the three traditional industries have taken on a global character.
Trade and tourism have become international and this has fueled foreign
retirement migration. The character and dynamism of Florida has changed
considerably in recent decades and the state is considered a bellwether
indicator for the health of national economic trends.
Georgia's state financial health continues to be strong and stable after the
completion of the Olympic events as evidenced by the ratings given to General
Obligation Bonds which are rated by Moody's as "Aaa," "AAA" by S&P and "AAA" by
Fitch. Such high ratings are based upon: Georgia's stable and broad-based trade,
service, and transportation oriented economy, which has produced steady economic
and employment growth, and the state's history of satisfactory finances and its
moderate debt ratios. Although economic activity slowed after the Olympic
events, unemployment rates have remained low and continue to outstrip the
national rate. Strong population growth and in-migration continues to fuel
employment and is expected to continue, and state lottery proceeds, some of
which has been used to create a revenue reserve, continue to surpass
expectations.
Maryland is one of the wealthiest states in the U.S. and its General Obligation
Bonds have been rated "Aaa" by Moody's, and "AAA" by S&P. This highest quality
rating reflects healthy fiscal 1998 revenues that are exceeding forecasts,
conservative outyear forecasts, carefully monitored debt, and an economy that
is improving as the pace of federal downsizing slows and growth in other
sectors emerges. According to most estimates Maryland is on track to log a
$317.2 million surplus for the 1998 fiscal year. This favorable economic trend
should aid in absorbing a costly tax cut that was passed in 1997 and
accelerated in the 1998 session. The rating outlook for Maryland is stable.
Maryland's conservative posture in forecasting its revenue and managing its
debt levels, as well as its strengthening economy, place the state on solid
financial ground.
North Carolina, rated "Aaa" by Moody's, and "AAA" by both S&P and Fitch, has
benefited from an inflow of people as well as businesses. This is due in part
to North Carolina's affordable housing, above-average growth in per capita
income and below-average cost of doing business. North Carolina's textile
industry has begun to give way to the high-tech and financial sectors, as
evidenced by the title of "Banking Center of the South." Consequently, high
wage job growth has been expanding at a pace greater than national averages and
is expected to continue to do so for the foreseeable future.
South Carolina is primarily a manufacturing state with the textile industry
being the major industrial employer in the State. Since 1950, however, the
State's economy has undergone a gradual transition to other activities and
tends to resemble more
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closely that of the United States. The economic base of the State has
diversified into other areas such as trade, health care, services, and durable
goods manufacturing. The dominance of the manufacturing sector has been both a
positive and a negative for South Carolina. On the positive side, the expansion
of manufacturing, specifically autos and related parts, has lessened the impact
of the naval base closure in Charleston and provided a much needed infusion of
new jobs. On the negative side, the cyclical nature of South Carolina's
manufacturing economy has kept per capita income below national and regional
levels. That said, South Carolina's low debt burden, strong security
arrangements and lack of credit extension have led to an "Aaa" rating by
Moody's, "AAA" rating by S&P and an "AAA" rating by Fitch, for the state.
Combine this with a conservative plan of finance, and South Carolina looks to be
in a very strong financial position, despite its reliance on the manufacturing
sector.
Tennessee's very low debt burden, nearly exclusive use of general obligation
debt and conservative financial policies all combine to give the state of
Tennessee a "Aaa" rating by Moody's, "AA" rating by S&P, and a "AAA" rating by
Fitch. Tennessee's economy remains in a developing mode, as the state continues
to shift its growth in manufacturing output to autos (Tennessee ranks third in
the nation in automobile production) and related products from textiles.
Tennessee relies on sales tax revenues as a main source of funds. This could
prove to be a limiting factor were it not for Tennessee's strong pattern of job
growth and growing population.
Texas has proven its ability to adapt and rebound to a changing economic
environment, both within the state and abroad. Texas has also historically
taken a conservative approach to financial management, as is reflected in the
state's "Aaa" rating by Moody's, and "AAA" rating by S&P. Although Texas has
consistently led the U.S. in employment growth, unemployment in Texas is above
the national average. This is due, in part, to the heavy migration into the
state (in 1994 Texas replaced New York as the second most populous state). The
mix of job growth in Texas provides a strong base for sustainable growth
because the new jobs are largely in industries with bright prospects for future
growth, such as knowledge-based services and manufacturing.
The state of Virginia has earned its highest "Aaa" rating by Moody's and "AAA"
rating by S&P for its General Obligation Bonds because of Virginia's manageable
debt, conservative fiscal stewardship, and healthy economy, despite substantial
structural changes. Virginia's financial position remains strong despite the
fact that the Commonwealth's debt levels are increasing due to certain large
highway and university construction projects. The Constitutionally dedicated
Revenue Stabilization Fund had a balance of $156.6 million as of June 30, 1997,
with another $58.3 million reserved from the fund balance to be deposited in
fiscal 1998. The outlook for the Commonwealth of Virginia is stable and
Virginia has achieved success in transitioning to an economy less dependent on
the federal government. However, it has plans to eliminate a car tax, which
when fully phased in by fiscal 2003, is estimated to cost the state over $2.8
billion. How the Commonwealth plans for this significant revenue loss will be
an ongoing part of Virginia credit evaluation by NRSROs.
There can be no assurance that the economic conditions on which the above
ratings for a specific state are based will continue or that particular bond
issues may not be adversely affected by changes in economic or political
conditions. More detailed information about matters relating to each of the
State Intermediate Municipal Bond and State Municipal Bond Funds is contained
in the SAI.
Other Investment Companies: Each Fund may invest in securities issued by other
investment companies to the extent that such investments are consistent with
the Fund's investment objective and policies and permissible under the 1940
Act. As a shareholder of another investment company, a Fund would bear, along
with other shareholders, its pro rata portion of the other investment company's
expenses, including advisory fees. These expenses would be in addition to the
advisory and other expenses that a Fund bears directly in connection with its
own operations. Pursuant to an exemptive order issued by the SEC, the Nations
Funds' non-money market funds may purchase shares of Nations Funds' money
market funds.
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Repurchase Agreements: A repurchase agreement involves the purchase of a
security by a Fund and a simultaneous agreement (generally with a bank or
broker/dealer) to repurchase that security from the Fund at a specified price
and date or upon demand. This technique offers a method of earning income on
uninvested cash. A risk associated with repurchase agreements is the failure of
the seller to repurchase the securities as agreed, which may cause a Fund to
suffer a loss if the market value of such securities declines before they can
be liquidated on the open market. Repurchase agreements with a maturity of more
than seven days are considered illiquid securities and are subject to the limit
stated above. A Fund may enter into joint repurchase agreements jointly with
other investment portfolios of Nations 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 their
judgment, the income to be earned from the loan justifies the attendant risks.
The aggregate of all outstanding loans of a Fund may not exceed 33% of the
value of its total assets, which may include cash collateral received for
securities loans. Cash collateral received by a Nations Fund may be invested in
a Nations Funds' money market fund.
Stock Index, Interest Rate And Currency Futures Contracts: The Funds may
purchase and sell futures contracts and related options with respect to
non-U.S. stock indices, non-U.S. interest rates and foreign currencies, that
have been approved by the CFTC for investment by U.S. investors, for the
purpose of hedging against changes in values of a Fund's securities or changes
in the prevailing levels of interest rates or currency exchange rates. The
contracts entail certain risks, including but not limited to the following: no
assurance that futures contracts transactions can be offset at favorable
prices; possible reduction of a Fund's total return due to the use of hedging;
possible lack of liquidity due to daily limits on price fluctuation; imperfect
correlation between the contracts and the securities or currencies being
hedged; and potential losses in excess of the amount invested in the futures
contracts themselves.
Trading on foreign commodity exchanges presents additional risks. Unlike
trading on domestic commodity exchanges, trading on foreign commodity exchanges
is not regulated by the CFTC and may be subject to greater risks than trading
on domestic exchanges. For example, some foreign exchanges are principal
markets for which no common clearing facility exists and a trader may look only
to the broker for performance of the contract. In addition, unless a Fund
hedges against fluctuations in the exchange rate between the U.S. dollar and
the currencies in which trading is done on foreign exchanges, any profits that
such Fund might realize could be eliminated by adverse changes in the exchange
rate, or the Fund could incur losses as a result of those changes.
U.S. Government Obligations: U.S. Government Obligations consist of marketable
securities and instruments issued or guaranteed by the U.S. Government or any
of its agencies, authorities or instrumentalities. Direct obligations are
issued by the U.S. Treasury and include all U.S. Treasury instruments. U.S.
Treasury obligations differ only in their interest rates, maturities and time
of issuance. Obligations of U.S. Government agencies, authorities and
instrumentalities are issued by government-sponsored agencies and enterprises
acting under authority of Congress. Although obligations of federal agencies,
authorities and instrumentalities are not debts of the U.S. Treasury, some are
backed by the full faith and credit of the U.S. Treasury, such as direct
pass-through certificates of the GNMA; some are supported by the right of the
issuer to borrow from the U.S. Government, such as obligations of Federal Home
Loan Banks, and some are backed only by the credit of the issuer itself, such
as obligations of the FNMA. 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
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debt instruments, including U.S. Government obligations, declines when market
interest rates increase and rises when market interest rates decrease. Certain
types of U.S. Government Obligations are subject to fluctuations in yield or
value due to their structure or contract terms.
Variable- and Floating-Rate Instruments: Certain instruments issued, guaranteed
or sponsored by the U.S. Government or its agencies, state and local government
issuers, and certain debt instruments issued by domestic banks and corporations
may carry variable or floating rates of interest. Such instruments bear interest
rates which are not fixed, but which vary with changes in specified market rates
or indices, such as a Federal Reserve composite index. A variable-rate demand
instrument is an obligation with a variable or floating interest rate and an
unconditional right of demand on the part of the holder to receive payment of
unpaid principal and accrued interest. An instrument with a demand period
exceeding seven days may be considered illiquid if there is no secondary market
for such security.
When-Issued, Delayed Delivery And Forward Commitment Securities: The purchase of
new issues of securities on a "when-issued," "delayed delivery" or "forward
commitment" basis occurs when the payment for and delivery of securities takes
place at a future date. Because actual payment for and delivery of such
securities generally take place 15 to 45 days after the purchase date,
purchasers of such securities bear the risk that interest rates on debt
securities at the time of delivery may be higher or lower than those contracted
for on the security purchased.
Appendix B -- Description Of Ratings
The following summarizes the highest eight ratings used by S&P for corporate and
municipal bonds. The first four ratings denote investment grade securities.
AAA -- This is the highest rating assigned by S&P to a debt obligation
and indicates an extremely strong capacity to pay interest and repay
principal.
AA -- Debt rated AA is considered to have a very strong capacity to pay
interest and repay principal and differs from AAA issues only in a small
degree.
A -- Debt rated A has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse effects
of changes in circumstances and economic conditions than debt in
higher-rated categories.
BBB -- Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than for those in
higher-rated categories.
BB, B -- Bonds rated BB and B are regarded, on balance, as predominantly
speculative with respect to capacity to pay interest and repay principal
in accordance with the terms of the obligation. BB represents the lowest
degree of speculation and B a higher degree of speculation. While such
bonds will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
CCC, CC -- An obligation rated CCC is vulnerable to nonpayment and is
dependent upon favorable business, financial, and economic conditions for
the obligor to meet its financial commitment on the obligation. In the
event of adverse conditions, the obligor is not likely to have the
capacity to meet its financial commitments on the obligation; an
obligation rated CC is highly vulnerable to nonpayment.
To provide more detailed indications of credit quality, the AA, A, BBB and CCC
ratings may be modified by the addition of a plus or minus sign to show relative
standing within these major rating categories.
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The following summarizes the highest eight ratings used by Moody's for corporate
and municipal bonds. The first four ratings denote investment grade securities.
Aaa -- Bonds that are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally
referred to as "gilt edge." Interest payments are protected by a large or
by an exceptionally stable margin and principal is secure. While the
various protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position
of such issues.
Aa -- Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there
may be other elements present which make the long-term risks appear
somewhat larger than in Aaa securities.
A -- Bonds that are rated A possess many favorable investment attributes
and are to be considered upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in
the future.
Baa -- Bonds that are rated Baa are considered medium grade obligations,
I.E., they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics
as well.
Ba -- Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection
of interest and principal payments may be very moderate and thereby not
well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time
may be small.
Caa, Ca -- Bonds that are rated Caa are of poor standing. Such issues may
be in default or there may be present elements of danger with respect to
principal or interest. Bonds that are rated Ca represent obligations that
are speculative in a high degree. Such issues are often in default or
have other marked shortcomings.
Moody's applies numerical modifiers (1, 2 and 3) with respect to corporate bonds
rated Aa through B. The modifier 1 indicates that the bond being rated ranks in
the higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates that the bond ranks in the lower
end of its generic rating category. With regard to municipal bonds, those bonds
in the Aa, A and Baa groups which Moody's believes possess the strongest
investment attributes are designated by the symbols Aa1, A1 or Baa1,
respectively.
The following summarizes the highest four ratings used by D&P for bonds, each of
which denotes that the securities are investment grade:
AAA -- Bonds that are rated AAA are of the highest credit quality. The
risk factors are considered to be negligible, being only slightly more
than for risk-free U.S. Treasury debt.
AA -- Bonds that are rated AA are of high credit quality. Protection
factors are strong. Risk is modest, but may vary slightly from time to
time because of economic conditions.
A -- Bonds that are rated A have protection factors which are average but
adequate. However, risk factors are more variable and greater in periods
of economic stress.
BBB -- Bonds that are rated BBB have below average protection factors but
still are considered sufficient for prudent investment. Considerable
variability in risk exists during economic cycles.
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To provide more detailed indications of credit quality, the AA, A and BBB
ratings may be modified by the addition of a plus or minus sign to show relative
standing within these major categories.
The following summarizes the highest four ratings used by Fitch IBCA ("Fitch")
for bonds, each of which denotes that the securities are investment grade:
AAA -- "AAA" ratings denote the lowest expectation of credit risk. They
are assigned only in case of exceptionally strong capacity for timely
payment of financial commitments. This capacity is highly unlikely to be
adversely affected by foreseeable events.
AA -- "AA" ratings denote a very low expectation of credit risk. They
indicate very strong capacity for timely payment of financial
commitments. This capacity is not significantly vulnerable to
foreseeable events.
A -- "A" ratings denote a low expectation of credit risk. The capacity
for timely payment of financial commitments is considered strong. This
capacity may, nevertheless, be more vulnerable to changes in
circumstances or in economic conditions than is the case for higher
ratings.
BBB -- "BBB" ratings indicate that there is currently a low expectation
of credit risk. The capacity for timely payment of financial commitments
is considered adequate, but adverse changes in circumstances and in
economic conditions are more likely to impair this capacity. This is the
lowest investment-grade category.
The following summarizes the two highest ratings used by Moody's for short-term
municipal notes and variable-rate demand obligations:
MIG-1/VMIG-1 -- Obligations bearing these designations are of the best
quality, enjoying strong protection from established cash flows,
superior liquidity support or demonstrated broad-based access to the
market for refinancing.
MIG-2/VMIG-2 -- Obligations bearing these designations are of high
quality, with ample margins of protection although not so large as in
the preceding group.
The following summarizes the two highest ratings used by S&P for short-term
municipal notes:
SP-1 -- Very strong or strong capacity to pay principal and interest.
Those issues determined to possess overwhelming safety characteristics
are given a "plus" (+) designation.
SP-2 -- Satisfactory capacity to pay principal and interest.
The three highest rating categories of D&P for short-term debt, each of which
denotes that the securities are investment grade, are D-1, D-2 and D-3. D&P
employs three designations, D-1+, D-1 and D-1-, within the highest rating
category. D-1+ indicates highest certainty of timely payment. Short-term
liquidity, including internal operating factors and/or access to alternative
sources of funds, is judged to be "outstanding, and safety is just below
risk-free U.S. Treasury short-term obligations." D-1 indicates very high
certainty of timely payment. Liquidity factors are excellent and supported by
good fundamental protection factors. Risk factors are considered to be minor.
D-1- indicates high certainty of timely payment. Liquidity factors are strong
and supported by good fundamental protection factors. Risk factors are very
small. D-2 indicates good certainty of timely payment. Liquidity factors and
company fundamentals are sound. Although ongoing funding needs may enlarge total
financing requirements, access to capital markets is good. Risk factors are
small. D-3 indicates satisfactory liquidity and other protection factors which
qualify the issue as investment grade. Risk factors are larger and subject to
more variation. Nevertheless, timely payment is expected.
The following summarizes the two highest rating categories used by Fitch for
short-term obligations:
F1+ securities possess exceptionally strong credit quality. Issues
assigned this rating are regarded as having the strongest degree of
assurance for timely payment.
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F1 securities possess very strong credit quality. Issues assigned this
rating reflect an assurance of timely payment only slightly less in
degree than issues rated F1+.
Commercial paper rated A-1 by S&P indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted A-1+. Capacity for timely payment on
commercial paper rated A-2 is satisfactory, but the relative degree of safety
is not as high as for issues designated A-1. Commercial paper rated A-3
exhibits adequate protection parameters. However, adverse economic conditions
or changing circumstances are more likely to lead to a weakened capacity of the
obligor to meet its financial commitment on the obligation. Commercial paper
rated A-3 or B correlates with the S&P Bond rankings (described above) of BBB/
BBB- and BB+, respectively.
The rating Prime-1 is the highest commercial paper rating assigned by Moody's.
Issuers rated Prime-1 (or related supporting institutions) are considered to
have a superior capacity for repayment of senior short-term obligations.
Issuers rated Prime-2 (or related supporting institutions) are considered to
have a strong capacity for repayment of senior short-term obligations. This
will normally be evidenced by many of the characteristics of issuers rated
Prime-1, but to a lesser degree. Earnings trends and coverage ratios, while
sound, will be more subject to variation. Capitalization characteristics, while
still appropriate, may be more affected by external conditions. Ample alternate
liquidity is maintained. Issuers rated Prime-3 have an acceptable ability for
repayment of senior short-term obligations. The effect of industry
characteristics and market compositions may be more pronounced. Variability in
earnings and profitability may result in changes in the level of debt
protection measurements and may require relatively high financial leverage.
Adequate alternate liquidity is maintained.
For commercial paper, D&P uses the short-term debt ratings described above.
For commercial paper, Fitch uses the short-term debt ratings described above.
BankWatch ratings are based upon a qualitative and quantitative analysis of all
segments of the organization including, where applicable, holding company and
operating subsidiaries. BankWatch ratings do not constitute a recommendation to
buy or sell securities of any of these companies. Further, BankWatch does not
suggest specific investment criteria for individual clients.
BankWatch long-term ratings apply to specific issues of long-term debt and
preferred stock. The long-term ratings specifically assess the likelihood of
untimely payment of principal or interest over the term to maturity of the
rated instrument. The following are the four investment grade ratings used by
BankWatch for long-term debt:
AAA -- The highest category; indicates ability to repay principal and
interest on a timely basis is extremely high.
AA -- The second highest category; indicates a very strong ability to
repay principal and interest on a timely basis with limited incremental
risk versus issues rated in the highest category.
A -- The third highest category; indicates the ability to repay
principal and interest is strong. Issues rated "A" could be more
vulnerable to adverse developments (both internal and external) than
obligations with higher ratings.
BBB -- The lowest investment grade category; indicates an acceptable
capacity to repay principal and interest. Issues rated "BBB" are,
however, more vulnerable to adverse developments (both internal and
external) than obligations with higher ratings.
The BankWatch short-term ratings apply to commercial paper, other senior
short-term obligations and deposit obligations of the entities to which the
rating has been assigned. The BankWatch short-term ratings specifically assess
the likelihood of an untimely payment of principal or interest.
TBW-1 -- The highest category; indicates a very high likelihood that
principal and interest will be paid on a timely basis.
TBW-2 -- The second highest category; while the degree of safety
regarding timely repay--
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ment of principal and interest is strong, the relative degree of safety
is not as high as for issues rated "TBW-1".
TBW-3 -- The lowest investment grade category; indicates that while more
susceptible to adverse developments (both internal and external) than
obligations with higher ratings, capacity to service principal and
interest in a timely fashion is considered adequate.
TBW-4 -- The lowest rating category; this rating is regarded as
non-investment grade and therefore speculative.
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Prospectus
Investor A Shares and
Investor B Shares
August 1, 1998
as supplemented on
November 15, 1998
This Prospectus describes NATIONS SHORT-TERM MUNICIPAL INCOME FUND, NATIONS
INTERMEDIATE MUNICIPAL BOND FUND and NATIONS MUNICIPAL INCOME FUND (each a
"Fund") of Nations Fund Trust, an open-end management investment company in the
Nations Funds Family ("Nations Funds" or "Nations Funds Family"). This
Prospectus describes two classes of shares of each Fund -- Investor A Shares
and Investor B Shares.
This Prospectus sets forth concisely the information about each Fund that a
prospective purchaser of Investor A Shares and Investor 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 for Nations Funds, dated
August 1, 1998 is incorporated by reference in its entirety into this
Prospectus. The SEC maintains a Web site (http://www.sec.gov) that contains the
SAI, material incorporated by reference in this Prospectus and other
information regarding registrants that file electronically with the SEC.
NationsBanc Advisors, Inc. ("NBAI") is the investment adviser to each of the
Funds. TradeStreet Investment Associates, Inc. ("TradeStreet") is the
investment sub-adviser to the Funds. As used herein the term "Adviser" shall
mean NBAI and/or TradeStreet as the context may require, see "How The Funds Are
Managed."
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 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 Short-Term
Municipal Income
Fund
Nations
Intermediate
Municipal Bond
Fund
Nations Municipal
Income 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 LOGO]
<PAGE>
About The
Funds
About Your
Investment
Table Of Contents
Prospectus Summary 3
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Expenses Summary 4
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Objectives 7
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How Objectives Are Pursued 7
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How Performance Is Shown 10
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How The Funds Are Managed 11
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Organization And History 13
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How To Buy Shares 14
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Investor A Shares -- Charges and Features 17
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Investor B Shares -- Charges and Features 20
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How To Redeem Shares 23
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How To Exchange Shares 24
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Shareholder Servicing And Distribution Plans 26
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How The Funds Value Their Shares 28
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How Dividends And Distributions Are Made;
Tax Information 29
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Financial Highlights 30
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Appendix A -- Portfolio Securities 38
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Appendix B -- Description Of Ratings 42
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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
o TYPE OF COMPANY: Open-end management investment company.
o INVESTMENT OBJECTIVES AND POLICIES:
o Nations Short-Term Municipal Income Fund's investment objective is to seek
high current income exempt from Federal income tax consistent with minimal
fluctuation of principal. The Fund invests in investment grade, short-term
municipal securities.
o Nations Intermediate Municipal Bond Fund's investment objective is to seek
high current income exempt from Federal income tax consistent with
moderate fluctuation of principal. The Fund invests in investment grade,
intermediate-term municipal securities.
o Nations Municipal Income Fund's investment objective is to seek high current
income exempt from Federal income tax with the potential for principal
fluctuation associated with investments in long-term municipal securities.
The Fund invests in investment grade, long-term municipal securities.
o INVESTMENT ADVISER: NationsBanc Advisors, Inc. serves as the investment
adviser to the Funds. NBAI provides investment management services to more
than 60 investment company portfolios in the Nations Funds Family.
TradeStreet Investment Associates, Inc., an affiliate of NBAI, provides
investment sub-advisory services to the Funds. For more information about
the investment adviser and investment sub-adviser to the Nations Funds, see
"How The Funds Are Managed."
o DIVIDENDS AND DISTRIBUTIONS: The Funds declare dividends daily and pay them
monthly. Each Fund's net realized capital gains, including net short-term
capital gains, are distributed at least annually.
o RISK FACTORS: Although NBAI, together with the sub-adviser, seek to achieve
the investment objective of each Fund, there is no assurance that they will
be able to do so. Investments in a Fund are not insured against loss of
principal. Investments by a Fund in debt securities are subject to interest
rate risk, which is the risk that increases in market interest rates will
adversely affect a Fund's investments in debt securities. The value of a
Fund's investments in debt securities, including U.S. Government
Obligations (as defined below), will tend to decrease when interest rates
rise and increase when interest rates fall. In general, longer-term debt
instruments tend to fluctuate in value more than shorter-term debt
instruments in response to interest rate movements. In addition, debt
securities which are not issued or guaranteed by the U.S. Government are
subject to credit risk, which is the risk that the issuer may not be able
to pay principal and/or interest when due. Certain of the Funds'
investments may constitute derivative securities. Certain types of
derivative securities can, under particular circumstances, significantly
increase an investor's exposure to market and other risks. For a discussion
of these and other factors, see "How Objectives Are Pursued -- Risk
Considerations" and "Appendix A."
o MINIMUM PURCHASE: $1,000 minimum initial investment per record holder, except
for investments pursuant to the Systematic Investment Plan. 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 and Investor B Shares of the Funds. The Examples show the
cumulative expenses attributable to a hypothetical $1,000 investment in the
Funds over specified periods.
NATIONS FUNDS INVESTOR A SHARES
<TABLE>
<CAPTION>
Nations Nations
Short-Term Intermediate Nations
Municipal Municipal Municipal
Shareholder Transaction Expenses Income Fund Bond Fund Income Fund
----------- ------------ -----------
<S> <C> <C> <C>
Maximum Sales Load Imposed on Purchases (as a percentage of offering price) 3.25% 3.25% 4.75%
Maximum Deferred Sales Charge (as a percentage of the lower of the original
purchase price or redemption proceeds)1 1.00% 1.00% 1.00%
Redemption Fees Payable to the Fund None(2) None(2) None(2)
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management Fees (After Fee Waivers) .17% .34% .42%
Rule 12b-1 Fees (Including Shareholder Servicing Fees) (After Fee Waivers) .20%(3) .20% .20%
Other Expenses (After Expense Reimbursements) .23% .16% .18%
Total Operating Expenses (After Fee Waivers and Expense Reimbursements) .60% .70% .80%
</TABLE>
1 Certain Investor A Shares that are purchased at net asset value are subject
to a Deferred Sales Charge if redeemed within two years of purchase. See
"Sales Charges."
2 There is a 1% redemption fee retained by the Fund or Funds which is imposed
only on certain redemptions by investors investing $1 million or more
("Substantial Investors") in Investor A Shares held less than 18 months and
purchased between July 31, 1997 and November 15, 1998. See "How To Redeem
Shares -- Redemption Fee."
3 Shareholder servicing fees for Nations Short-Term Municipal Income Fund are
paid pursuant to a separate Shareholder Servicing Plan. See "Shareholder
Servicing And Distribution Plans."
4
<PAGE>
NATIONS FUNDS INVESTOR B SHARES
<TABLE>
<CAPTION>
Nations Nations
Short-Term Intermediate Nations
Municipal Municipal Municipal
Shareholder Transaction Expenses Income Fund Bond Fund Income Fund
----------- ------------- ------------
<S> <C> <C> <C>
Sales Load Imposed on Purchases None None None
Maximum Deferred Sales Charge (as a percentage of the lower of the original
purchase price or redemption proceeds)1 3.00% 3.00% 5.00%
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management Fees (After Fee Waivers) .17% .34% .42%
Rule 12b-1 Fees (After Fee Waivers) .10% .55% .60%
Shareholder Servicing Fees .25% .25% .25%
Other Expenses (After Expenses Reimbursements) .23% .16% .18%
Total Operating Expenses (After
Fee Waivers and Expense Reimbursements) .75% 1.30% 1.45%
</TABLE>
1 Investor B Shares purchased prior to January 1, 1996 or after July 31, 1997
are subject to the Deferred Sales Charge as set forth in the applicable
schedule. The Maximum Deferred Sales Charge is 5.00% in the first year after
purchase, declining to 5.00% in the sixth year after purchase and eliminated
thereafter. For the applicable Deferred Sales Charge schedule see "How to
Redeem Shares -- Contingent Deferred Sales Charge."
Examples: You would pay the following expenses on a $1,000 investment in
Investor A Shares of the indicated Fund, assuming (1) a 5% annual return and
(2) redemption at the end of each time period.
<TABLE>
<CAPTION>
Nations Nations
Short-Term Intermediate Nations
Municipal Municipal Municipal
Income Fund Bond Fund Income Fund
----------- ------------ ------------
<S> <C> <C> <C>
1 Year $ 38 $ 39 $ 55
3 Years $ 51 $ 54 $ 72
5 Years $ 65 $ 70 $ 90
10 Years $105 $117 $142
</TABLE>
You would pay the following expenses on a $1,000 investment in Investor B
Shares of the indicated Fund, assuming (1) a 5% annual return and (2)
redemption at the end of each time period.
<TABLE>
<CAPTION>
Nations Nations
Short-Term Intermediate Nations
Municipal Municipal Municipal
Income Fund Bond Fund Income Fund
----------- ----------- -----------
<S> <C> <C> <C>
1 Year $38 $ 43 $ 65
3 Years $44 $ 61 $ 76
5 Years $42 $ 71 $ 99
10 Years $89 $140 $156
</TABLE>
5
<PAGE>
You would pay the following expenses on a $1,000 investment in Investor B
Shares of the indicated Fund assuming a 5% annual return and no redemption:
<TABLE>
<CAPTION>
Nations Nations
Short-Term Intermediate Nations
Municipal Municipal Municipal
Income Fund Bond Fund Income Fund
----------- ------------- -----------
<S> <C> <C> <C>
1 Year $ 8 $ 13 $ 15
3 Years $24 $ 41 $ 46
5 Years $42 $ 71 $ 79
10 Years $89 $140 $156
</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 and Investor B Shares will bear either directly or
indirectly. The figures contained in the above tables are based on amounts
incurred during each Fund's most recent fiscal year and have been adjusted as
necessary to reflect current service provider fees. There is no assurance that
any fee waivers and/or reimbursements will continue. In particular, to the
extent Other Expenses are less than those shown, waivers and/or reimbursements
of Management Fees, if any, may decrease. Shareholders will be notified of any
decrease that materially increases Total Operating Expenses. If fee waivers
and/or expense reimbursements are decreased or discontinued, the amounts
contained in the "Examples" above may increase. Long-term shareholders of the
Funds could pay more in sales charges than the economic equivalent of the
maximum front-end sales charges applicable to mutual funds sold by members of
the National Association of Securities Dealers, Inc. For more complete
descriptions of the Funds' operating expenses, see "How The Funds Are Managed."
For a more complete description of the Rule 12b-1 and shareholder servicing
fees payable by the Funds, see "Shareholder Servicing And Distribution Plan."
Absent fee waivers and expense reimbursements, "Management Fees," "12b-1 Fees,"
"Other Expenses" and "Total Operating Expenses" for Investor A Shares of the
indicated Fund would have been as follows: Nations Municipal Income Fund --
.60%, .25%, .24% and 1.09%, respectively; Nations Short-Term Municipal Income
Fund -- .50%, .25%, .27% and 1.02%, respectively; and Nations Intermediate
Municipal Fund .50%, .25%, .24% and .99%, respectively.
Absent fee waivers and expense reimbursements, "Management Fees," "12b-1 Fees,"
"Other Expenses" and "Total Operating Expenses" for Investor B Shares of the
indicated Fund would have been as follows: Nations Short-Term Municipal Income
Fund -- .50%, .75%, .27% and 1.77%, respectively; Nations Intermediate
Municipal Fund .50%, .75%, .24% and 1.74%, respectively; and Nations Municipal
Income Fund -- .60%, .75%, .24% and 1.84%, respectively.
THE FOREGOING SHOULD NOT BE CONSIDERED TO BE AN ACTUAL REPRESENTATION OF PAST
OR FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES AND RATES OF RETURN MAY BE
GREATER OR LESS THAN THOSE SHOWN.
6
<PAGE>
Objectives
Nations Short-Term Municipal Income Fund:
Nations Short-Term Municipal Income Fund's investment objective is to seek high
current income exempt from Federal income tax consistent with minimal
fluctuation of principal. The Fund invests in investment grade, short-term
municipal securities.
Nations Intermediate Municipal Bond Fund:
Nations Intermediate Municipal Bond Fund's investment objective is to seek high
current income exempt from Federal income tax consistent with moderate
fluctuation of principal. The Fund invests in investment grade,
intermediate-term municipal securities.
Nations Municipal Income Fund: Nations Municipal Income Fund's investment
objective is to seek high current income exempt from Federal income tax with
the potential for principal fluctuation associated with investments in
long-term municipal securities. The Fund invests in investment grade, long-term
municipal securities.
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 the Funds are not insured against loss of
principal.
How Objectives Are Pursued
In pursuing their objectives, the Funds will invest at least 80% of their total
net assets in investment grade obligations issued by or on behalf of states,
territories, and possessions of the United States, the District of Columbia,
and their political subdivisions, agencies, instrumentalities, and authorities,
the interest on which, in the opinion of counsel to the issuer or bond counsel,
is exempt from Federal income tax ("Municipal Securities"). To the extent
consistent with the Funds' investment approach described in this Prospectus,
the Funds are managed to seek capital appreciation and minimize capital losses
due to interest rate movements.
Under normal market conditions, the average dollar-weighted maturity and
duration of each of the Funds' portfolios are expected to be as follows:
Nations Short-Term Municipal Income Fund -- average dollar-weighted maturity
less than three years and duration between 1.25 and 2.75 years; Nations
Intermediate Municipal Bond Fund -- average dollar-weighted maturity between
three and 10 years and duration between three and six years; and Nations
Municipal Income Fund -- average dollar-weighted maturity greater than seven
years and duration greater than six years.
Municipal Securities will be rated investment grade at the time of purchase by
at least one of the following nationally recognized statistical rating
organizations: Standard & Poor's Corporation ("S&P"), Moody's Investors Service,
Inc. ("Moody's"), Duff & Phelps Credit Rating Co. ("D&P"), Fitch IBCA ("Fitch"),
or Thomson BankWatch, Inc. ("BankWatch") (collectively, "NRSROs") or, if
unrated, determined by the Adviser to be of comparable quality at the time of
purchase to rated obligations that may be acquired by a Fund. Obligations rated
in the lowest of the top four investment grade rating categories (E.G. rated
"BBB" by S&P or "Baa" by Moody's) have speculative characteristics and changes
in economic conditions or other circumstances are more likely to lead to a
weakened capacity to make principal and interest payments than is the case with
higher grade debt obligations. Subsequent to its purchase by a Fund, an issue of
Municipal Securities may cease to be rated, or its rating may be reduced below
the minimum rating required for purchase by a Fund. The Adviser will consider
such an event in determining whether a Fund should continue to hold the
obligation. See "Appendix B" for a description of these rating designations.
During temporary defensive periods, the Funds may invest in short-term taxable
and non-taxable obli-
7
<PAGE>
gations in such proportions as, in the opinion of the Adviser, prevailing market
or economic conditions warrant. Taxable obligations that may be acquired by a
Fund include repurchase agreements and short-term debt securities. Under normal
market conditions, each Fund's investments in taxable obligations and private
activity bonds the interest on which may be treated as a specific tax preference
item under the Federal alternative minimum tax, will not exceed 20% of its total
net assets at the time of purchase. The Funds may hold uninvested cash reserves
pending investment or during defensive periods.
General: Each Fund may invest in certain specified derivative securities,
including: interest rate swaps, caps and floors for hedging purposes;
exchange-traded options; over-the-counter options executed with primary
dealers, including long calls and puts and covered calls to enhance return; and
U.S. and foreign exchange-traded financial futures and options thereon approved
by the Commodity Futures Trading Commission (the "CFTC") for market exposure
risk-management. Each Fund also may lend its portfolio securities to qualified
institutional investors and may invest in restricted, private placement and
other illiquid securities. Additionally, each Fund may purchase securities
issued by other investment companies, consistent with the Fund's investment
objective and policies. The Funds also may invest in instruments issued by
certain trusts, partnerships or other special service issuers, including
pass-through certificates representing participations in, or debt instruments
backed by, the securities and other assets owned by such issuers.
Certain government securities that have variable or floating interest rates or
demand, put or prepayment features or paydown schedules may be deemed to have
remaining maturities shorter than their nominal maturities for purposes of
determining the average weighted maturity and duration of the Funds.
Duration, as used in this Prospectus, means modified duration, which is a
measure of the expected life of fixed income securities on a present value
basis. Duration is used to estimate how much a Fund's share price will
fluctuate in response to a change in interest rates. To see how a Fund's share
price could shift, multiply the Fund's duration by the change in rates. If
interest rates rise by one percentage point, for example, the share price of a
Fund with a duration of five years would decline by about 5%. If rates decrease
by one percentage point, the Fund's share price would rise by about 5%.
Average dollar-weighted maturity is the average length of time until fixed
income securities held by a Fund reach maturity and are repaid. In general, the
longer the average dollar-weighted maturity, the more a Fund's share price will
fluctuate in response to changes in interest rates.
For more information concerning these and other investments in which the Funds
may invest and the Funds' investment practices, see "Appendix A."
Portfolio Turnover: Generally, the Funds will purchase portfolio securities for
capital appreciation or investment income, or both, and not for short-term
trading profits. If a Fund's annual portfolio turnover rate exceeds 100%, it
may result in higher brokerage costs and possible tax consequences for the Fund
and its shareholders. For the Funds' portfolio turnover rates, see "Financial
Highlights."
Risk Considerations: The value of a Fund's investments in debt securities,
including U.S. Government Obligations, will tend to decrease when interest
rates rise and increase when interest rates fall. In general, longer-term debt
instruments tend to fluctuate in value more than shorter-term debt instruments
in response to interest rate movements. In addition, debt securities that are
not backed by the United States Government are subject to credit risk, which is
the risk that the issuer may not be able to pay principal and/or interest when
due.
Certain of the Funds' investments constitute derivative securities, which are
securities whose value is derived, at least in part, from an underlying index or
reference rate. There are certain types of derivative securities that can, under
particular circumstances, significantly increase a purchaser's exposure to
market or other risks. The Adviser, however, only purchases derivative
securities in circumstances where it believes such purchases are consistent with
the Funds' investment objective and do not unduly increase the Fund's exposure
to market or other risks. For additional risk information
8
<PAGE>
regarding the Funds' investments in particular instruments, see "Appendix A."
Year 2000 Issue: Many computer programs employed throughout the world use two
digits to identify the year. Unless modified, these programs may not correctly
handle the change from "99" to "00" on January 1, 2000, and may not be able to
perform necessary functions. Any failure to adapt these programs in time could
hamper the Funds' operations. The Funds' principal service providers have
advised the Funds that they have been actively working on implementing
necessary changes to their systems, and that they expect that their systems
will be adapted in time, although there can be no assurance of success. Because
the Year 2000 issue affects virtually all organizations, the companies or
governmental entities in which the Funds invest could be adversely impacted by
the Year 2000 issue, although the extent of such impact cannot be predicted. To
the extent the impact on a portfolio holding is negative, a Fund's return could
be adversely affected.
Investment Limitations: Each Fund is subject to a number of investment
limitations. The following investment limitations are matters of fundamental
policy and may not be changed without the affirmative vote of the holders of a
majority of the Fund's outstanding shares. Other investment limitations that
cannot be changed without such a vote of shareholders are described in the SAI.
Each Fund may not:
1. Purchase any securities which would cause 25% or more of the value of the
Fund's total assets at the time of such purchase to be invested in the
securities of one or more issuers conducting their principal activities in the
same industry. (For purposes of this limitation, U.S. Government securities and
tax-exempt securities issued by state or municipal governments and their
political subdivisions are not considered members of any industry.)
2. Make loans, except that a Fund may purchase and hold debt instruments
(whether such instruments are part of a public offering or privately placed),
may enter into repurchase agreements and may lend portfolio securities in
accordance with its investment policies.
3. Purchase securities of any one issuer (other than securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities) if,
immediately after such purchase, more than 5% of the value of such Fund's total
assets would be invested in the securities of such issuer, except that up to
25% of the value of the Fund's total assets may be invested without regard to
these limitations and with respect to 75% of such Fund's assets, such Fund will
not hold more than 10% of the voting securities of any issuer.
As a matter of fundamental policy, except during defensive periods, Nations
Short-Term Municipal Income Fund, Nations Intermediate Municipal Bond Fund and
Nations Municipal Income Fund will invest at least 80% of their respective
total net assets in Municipal Securities the interest on which is exempt from
Federal income taxes. For purposes of these fundamental policies, private
activity bonds are included in the term "Municipal Securities" only if the
interest paid thereon is exempt from Federal income tax and not treated as a
specific tax preference item under the Federal alternative minimum tax.
The investment objective and policies of each Fund, unless otherwise specified,
may be changed without shareholder approval. If the investment objective or
policies of a Fund change, shareholders should consider whether the Fund
remains an appropriate investment in light of their then current position and
needs.
9
<PAGE>
How Performance Is Shown
From time to time, the Funds may advertise the "total return," "yield" and
"tax-equivalent yield" on a class of shares. TOTAL RETURN, YIELD AND TAX-
EQUIVALENT YIELD FIGURES ARE BASED ON HISTORICAL DATA AND ARE NOT INTENDED TO
INDICATE FUTURE PERFORMANCE. The "total return" of a class of shares of a Fund
may be calculated on an average total return basis or an aggregate total return
basis. Average annual total return refers to the average annual compounded
rates of return over one-, five-, and ten-year periods or the life of the Fund
(as stated in a Fund's advertisement) that would equate an initial amount
invested at the beginning of a stated period to the ending redeemable value of
the investment (reflecting the deduction of any applicable contingent deferred
sales charge ("CDSC")), assuming the reinvestment of all dividend and capital
gain distributions. Aggregate total return reflects the total percentage change
in the value of the investment over the measuring period again assuming the
reinvestment of all dividends and capital gain distributions. Total return may
also be presented for other periods or may not reflect the deduction of the
CDSC.
"Yield" is calculated by dividing the annualized net investment income per
share during a recent 30-day (or one month) period of a class of shares of a
Fund by the maximum public offering price per share on the last day of that
period. The yield on a class of shares does not reflect deduction of the CDSC.
The "tax-equivalent yield" of a class of shares of a Fund also may be quoted
from time to time, which shows the level of taxable yield needed to produce an
after-tax equivalent to the particular class's tax-free yield. This is done by
increasing such class's yield (as calculated above) by the amount necessary to
reflect the payment of Federal income tax at a stated tax rate. The tax-
equivalent yield of a class of shares will always be higher than its yield.
Investment performance, which will vary, is based on many factors, including
market conditions, the composition of a Fund's portfolio and such Fund's
operating expenses. Investment performance also often reflects the risks
associated with a Fund's investment objective and policies. These factors
should be considered when comparing a Fund's investment results to those of
other mutual funds and other investment vehicles. Since yields fluctuate, yield
data cannot necessarily be used to compare an investment in the Funds with bank
deposits, savings accounts, and similar investment alternatives which often
provide an agreed-upon or guaranteed fixed yield for a stated period of time.
In addition to Investor A and Investor B Shares, the Funds offer Primary 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. Total return
and yield quotations will be computed separately for each class of a Fund's
shares. Any quotation of total return or yield not reflecting CDSCs would be
reduced if such charges were reflected. Any fees charged by a selling agent
and/or servicing agent directly to its customers' accounts in connection with
investments in the Funds will not be included in calculations of total return
or yield. The Fund's annual report contains additional performance information
and is available upon request without charge from the Funds' distributor or an
investor's Agent (as defined below) or by calling Nations Funds at the
toll-free number indicated on the cover of this Prospectus.
10
<PAGE>
How The Funds Are Managed
The business and affairs of Nations Fund Trust are managed under the direction
of its Trustees. The SAI contains the names of and general background
information of each Trustee of Nations Fund Trust.
As described below, each Fund is advised by NBAI which is responsible for the
overall management and supervision of the investment management of each Fund.
Each Fund also is sub-advised by a separate investment sub-adviser, which as a
general matter is responsible for the day-to-day investment decisions for the
respective Fund.
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.
NationsBank Corporation, the parent company of NationsBank, has signed an
agreement to merge with BankAmerica Corporation. The proposed merger is subject
to certain regulatory approvals and must be approved by shareholders of both
holding companies. The merger is expected to close in the second half of 1998.
NationsBank and NBAI have advised the Funds that the merger will not reduce the
level or quality of advisory and other services provided to the Funds.
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 all of the Funds. TradeStreet is wholly owned subsidiary of
NationsBank. TradeStreet provides investment management services to
individuals, corporations and institutions.
Subject to the general supervision of the Trustees of Nations Fund Trust and in
accordance with each Fund's investment policies, the Adviser formulates
guidelines and lists of approved investments for each Fund, makes decisions
with respect to and places orders for each Fund's purchases and sales of
portfolio securities and maintains records relating to such purchases and
sales. The Adviser is authorized to allocate purchase and sale orders for
portfolio securities to certain financial institutions, including, in the case
of agency transactions, financial institutions which are affiliated with the
Adviser or which have sold shares in the Funds, if the Adviser believes that
the quality of the transaction and the commission are comparable to what they
would be with other qualified brokerage firms. From time to time, to the extent
consistent with their investment objectives, policies and restrictions, the
Funds may invest in securities of companies with which NationsBank has a
lending relationship.
For the services provided and expenses assumed pursuant to an investment
advisory agreement, NBAI is entitled to receive advisory fees, computed daily
and paid monthly, at the following annual rates: .50% of each of the average
daily net assets of each of Nations Short-Term Municipal Income Fund and
Nations Intermediate Municipal Bond Fund; and .60% of the average daily net
assets of Nations Municipal Income Fund.
For the services provided pursuant to an investment sub-advisory agreement,
NBAI will pay TradeStreet sub-advisory fees, computed daily and paid monthly,
at the annual rate of .07% of each Fund's average daily net assets.
From time to time, NBAI (and/or TradeStreet) may waive or reimburse (either
voluntarily or pursuant to applicable state limitations) advisory fees and/or
expenses payable by a Fund.
For the fiscal period from April 1, 1997 to March 31, 1998, after waivers,
Nations Fund Trust paid NBAI under the investment advisory agree-
11
<PAGE>
ment advisory fees at the indicated rates of the following Funds' average daily
net assets: Nations Short-Term Municipal Income Fund -- .14%, Nations
Intermediate Municipal Bond Fund -- .28%, and Nations Municipal Income Fund --
.38%
For the fiscal period from April 1, 1997 to March 31, 1998, after waivers, NBAI
paid TradeStreet under investment sub-advisory agreements sub-advisory fees at
the indicated rates of the following Funds' average daily net assets: Nations
Municipal Income Fund -- .07%, Nations Short-Term Municipal Income Fund --
.07%, and Nations Intermediate Municipal Bond Fund -- .07%.
The Municipal Fixed Income Management Team of TradeStreet is responsible for
the day-to-day management of Nations Short-Term Municipal Income Fund, Nations
Intermediate Municipal Bond Fund and Nations Municipal Income Fund.
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 statutes, regulations and judicial or
administrative decisions or interpretations, could prevent such entities from
continuing to perform, in whole or in part, such services. If any such entity
were prohibited from performing any such services, it is expected that new
agreement's would be proposed or entered into with another entity or entities
qualified to perform such services.
Other Service Providers: Stephens Inc. ("Stephens"), with principal offices at
111 Center Street, Little Rock, Arkansas 72201, serves as the administrator of
the Funds pursuant to an administration agreement. Pursuant to the terms of the
administration agreement, Stephens provides various administrative and
corporate secretarial services to the Funds, including providing general
oversight of other service providers, office space, utilities and various legal
and administrative services in connection with the satisfaction of various
regulatory requirements applicable to the Funds.
First Data Investor Services Group, Inc. ("First Data"), a wholly owned
subsidiary of First Data Corporation, with principal offices at One Exchange
Place, Boston, Massachusetts 02109, serves as the co-administrator of the Funds
pursuant to a co-administration agreement. Under the co-administration
agreement, First Data provides various administrative and accounting services
to the Funds, including performing calculations necessary to determine net
asset values and dividends, preparing tax returns and financial statements and
maintaining the portfolio records and certain general accounting records for
the Funds. For the services rendered pursuant to the administration and
co-administration agreements, Stephens and First Data are entitled to receive a
combined fee at the annual rate of up to .10% of each Fund's average daily net
assets.
For the fiscal period from April 1, 1997 to March 31, 1998, after waivers,
Nations Fund Trust paid its administrators combined fees at the indicated rates
of the following Funds' average daily net assets: Nations Short-Term Municipal
Income Fund -- .08%, Nations Intermediate Municipal Bond Fund -- .08%, and
Nations Municipal Income Fund -- .08%.
NBAI serves as sub-administrator for the Funds pursuant to a sub-administration
agreement. Pursuant to the terms of the sub-administration agreement, NBAI
assists Stephens in supervising, coordinating and monitoring various aspects of
the Funds' administrative operations. For providing such services, NBAI shall
be entitled to receive a monthly fee from Stephens based on an annual rate of
.01% of the Funds' average daily net assets.
Shares of each Fund are sold on a continuous basis by Stephens, as the Funds'
sponsor and distributor. Stephens is a registered broker/dealer. 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
purchas-
12
<PAGE>
ing Investor B Shares of the Funds. See "Shareholder Servicing And Distribution
Plans."
The Bank of New York ("BONY" or the "Custodian"), located at 90 Washington
Street, New York, New York 10286, provides custodial services for the assets of
all Nations Funds, except the international portfolios. In return for providing
custodial services to the Nations Funds Family, BONY is entitled to 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 Funds' non-money
market funds up to $10 billion; and (ii) 1/2 of one basis point on the excess,
including all Nations Funds' money market funds.
First Data serves as transfer agent (the "Transfer Agent") for the Funds'
Investor B Shares. The Transfer Agent is located at One Exchange Place, Boston,
Massachusetts 02109.
PricewaterhouseCoopers LLP serves as independent accountant to Nations Funds.
Their address is 160 Federal Street, Boston, Massachuetts 02110.
Expenses: The accrued expenses of each Fund are deducted from the Funds'
accrued income before dividends are declared. These expenses include, but are
not limited to: fees paid to the Adviser, Stephens and First Data; interest;
fees (including fees paid to Nations Funds' Trustees and officers); federal and
state securities registration and qualification fees; brokerage fees and
commissions; costs of preparing and printing prospectuses for regulatory
purposes and for distribution to existing shareholders; charges of the
Custodian and Transfer Agent; certain insurance premiums; outside auditing and
legal expenses; costs of shareholder reports and shareholder meetings; other
expenses which are not expressly assumed by the Adviser, Stephens or First Data
under their respective agreements with Nations Funds; and any extraordinary
expenses. Investor A and Investor B Shares may bear certain class specific
expenses and also bear certain additional shareholder service and sales support
costs. Any general expenses of Nations Fund Trust that are not readily
identifiable as belonging to a particular investment portfolio are allocated
among all portfolios in the proportion that the assets of a portfolio bear to
the assets of Nations Fund Trust or in such other manner as the Board of
Trustees deems appropriate.
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., Nations
Institutional Reserves, Nations Annuity Trust and Nations LifeGoal Funds, Inc.
The Nations Funds Family currently has more than 60 distinct investment
portfolios and total assets in excess of $40 billion.
Nations Fund Trust was organized as a Massachusetts business trust on May 6,
1985. Nations Fund Trust's fiscal year end is March 31; prior to 1996, Nations
Fund Trust's fiscal year end was November 30. The Funds currently offer four
classes of shares -- Primary A Shares, Investor A Shares, Investor B Shares and
Investor C Shares. This Prospectus relates only to the Investor A and Investor
B Shares of the following Funds of Nations Fund Trust: Nations Municipal Income
Fund, Nations Short-Term Municipal Income Fund and Nations Intermediate
Municipal Bond Fund. To obtain additional information regarding the Funds'
other classes of shares which may be available to you, contact your Agent (as
defined below) or Nations 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
13
<PAGE>
fund of Nations Fund Trust will vote in the aggregate and not by fund, and
shareholders of each fund will vote in the aggregate and not by class except as
otherwise expressly required by law or when the Board of Trustees determines
that the matter to be voted on affects only the interests of shareholders of a
particular fund or class of shares. See the SAI for examples of instances where
the Investment Company Act of 1940 (the "1940 Act") requires voting by fund.
As of August 1, 1998, NationsBank and its affiliates possessed or shared power
to dispose or vote with respect to more than 25% of the outstanding shares of
Nations Fund Trust and therefore could be considered to be a controlling person
of Nations Fund Trust for purposes of the 1940 Act. For more detailed
information concerning the percentage of each class or series of shares over
which NationsBank and its affiliates possessed or shared power to dispose or
vote as of a certain date, see the SAI.
Nations Fund Trust does not presently intend to hold annual meetings except as
required by the 1940 Act. Shareholders will have the right to remove Trustees.
Nations Fund Trust's Code of Regulations provides that special meetings of
shareholders shall be called at the written request of the shareholders
entitled to vote at least 10% of the outstanding shares of Nations Fund Trust
entitled to be voted at such meeting.
About Your Investment
How To Buy Shares
This Prospectus offers two classes of shares to the general public. Investor A
Shares are sold with an initial sales charge and are subject to a contingent
deferred sales charge ("CDSC") upon certain redemptions; Investor B Shares are
sold without an initial sales charge and are subject to a CDSC upon certain
redemptions. Investments greater than $250,000 (including current holdings in
the Nations Funds Family) are not eligible to purchase Investor B Shares but
may be directed to Investor A Shares. See "Factors to Consider When Selecting
Investor A Shares or Investor B Shares" for a discussion of issues to consider
in selecting which class of shares to purchase. Contact your Agent or Nations
Funds at 1-800-321-7854 for further information.
The Funds have established various procedures for purchasing Investor A Shares
and Investor B Shares in order to accommodate different investors. Purchase
orders may be placed through banks, broker/dealers or other financial
institutions (including certain affiliates of NationsBank) that have entered
into a shareholder servicing agreement ("Servicing Agreement") with NationsBank
("Servicing Agents") sales support agreement ("Sales Support Agreement") with
Stephens ("Selling Agents"). In addition, under certain circumstances, Investor
A Shares may be purchased directly from the Funds.
There is a minimum initial investment of $1,000, except that the minimum
initial investment is $250 for accounts established with certain fee-based
investment advisers or financial planners, including wrap fee accounts and
other managed agency/asset allocation accounts, and investments pursuant to the
Systematic Investment Plan have a minimum initial investment as described
below. The minimum subsequent investment is $100, except for investments
pursuant to the Systematic Investment Plan.
Investor A Shares are purchased at net asset value plus any applicable sales
charge. Investor B Shares are purchased at net asset value per share without
the imposition of a sales charge, but are subject to a CDSC if redeemed within
a specified period after purchase. 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
14
<PAGE>
customers ("Customers") who own Investor A and Investor B Shares. Selling Agents
and Servicing 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 and Stephens reserve the right to reject any purchase order. The
issuance of Investor A and Investor B Shares is recorded on the books of the
Funds and share certificates are not issued unless expressly requested in
writing. Certificates are not issued for fractional shares.
Effective Time of Purchases: Purchase orders for Investor A Shares and Investor
B Shares in the Funds which are received by Stephens, the Transfer Agent or
their respective agents before the close of regular trading 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. In the event that the Exchange
closes early, purchase orders received prior to closing will be priced as of
the time the Exchange closes and purchase orders received after the Exchange
closes will be deemed received on the next Business Day and priced according to
the net asset value determined on the next Business Day. Purchase orders 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 the receipt of the order, as
determined above. 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
and Investor B 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: The minimum initial investment is $100 for
investors participating on a monthly basis in the Systematic Investment Plan
("SIP"). Under the Funds' SIP, a shareholder may automatically purchase
Investor A or Investor B Shares. On a bi-monthly, monthly or quarterly basis,
shareholders may direct cash to be transferred automatically from their
checking or savings accounts at any bank which is a member of the Automated
Clearing House to their Fund account. Transfers will occur on and/or about the
15th or the last day of the applicable month. Subject to certain exceptions for
employees of NationsBank and its affiliates and pre-existing SIP accounts, the
systematic investment amount may be in any amount from $50 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 requests in writing only. Shareholders 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. Shareholders should be aware that during periods of
significant economic or market change, telephone transactions may be difficult
to complete.
Conversion Feature: Investor B Shares purchased after November 15, 1998, will
automatically convert to Investor A Shares at the end of the month in which the
eighth anniversary of such share purchase occurs.
Investor B Shares purchased between August 1, 1997 and November 15, 1998, that
have been outstanding for the number of years set forth in the applicable
schedule below will, at the end of the
15
<PAGE>
month in which the anniversary of such share purchase occurs, automatically
convert to Investor A Shares.
Conversion Schedules: This conversion feature applies to Nations Intermediate
Municipal Bond Fund in the manner described by the schedule below:
<TABLE>
<CAPTION>
Amount of Purchase Year of Conversion
<S> <C>
$ 0--$499,999 6th
$500,000--$999,999 5th
</TABLE>
This conversion feature applies to Nations Municipal Income Fund in the manner
described by the schedule below:
<TABLE>
<CAPTION>
Amount of Purchase Year of Conversion
<S> <C>
$ 0--$249,999 9th
$250,000--$499,999 6th
$500,000--$999,999 5th
</TABLE>
Investor B Shares of Nations Intermediate Municipal Bond Fund purchased prior
to August 1, 1997, will automatically convert to Investor A Shares at the end
of the month in which the sixth anniversary of such share purchase occurs.
Investor B Shares of Nations Municipal Income Fund purchased prior to August 1,
1997, will automatically convert to Investor A Shares at the end of the month
in which the ninth anniversary of such share purchase occurs.
Upon conversion, shareholders will receive Investor A Shares having a total
dollar value equal to the total dollar value of their Investor B Shares,
without the imposition of any sales charge or other charge. The operating
expenses applicable to Investor A Shares, which are lower than those applicable
to Investor B Shares, shall thereafter be applied to such newly converted
shares. Shareholders holding converted shares will benefit from the lower
annual operating expenses of Investor A Shares, which will have a positive
effect on total returns. In each case, shareholders have the right to decline
an automatic conversion by notifying their Agent or the Transfer Agent within
90 days before a conversion that they do not desire such conversion.
Reinvestments of dividends and distributions in Investor B Shares will be
considered a new purchase for purposes of the conversion period. If a
shareholder effects one or more exchanges among Investor B Shares of the
non-money market funds of Nations Funds during such period, the holding period
for shares so exchanged will be counted toward such period.
Factors to Consider When Selecting Investor A Shares or Investor B Shares:
Before purchasing Investor A Shares or Investor B Shares, investors should
consider whether, during the anticipated life of their investment in the Funds,
the initial sales charge, accumulated distribution and shareholder servicing
fee and potential CDSC (if applicable) on Investor A Shares would be less than
the accumulated shareholder servicing and distribution fees and potential CDSC
on Investor B Shares. Over time, the cumulative expense of the annual
shareholder servicing and distribution fees on the Investor B Shares may equal
or exceed the initial sales charge and combined distribution and servicing fee
applicable to Investor A Shares.
Because holders of Investor A Shares are subject to a lower fee for
distribution and shareholder services, they can be expected to earn
correspondingly higher dividends per share. However, because initial sales
charges are deducted at the time of purchase, purchasers of Investor A Shares
that do not qualify for waivers of or reductions in the initial sales charge
would have less of their purchase price initially invested in the Funds than
purchasers of Investor B Shares. Any positive investment return on the
additional invested amount for Investor B Shares, however, would be partially
or wholly offset by the expected higher annual expenses borne by Investor B
Shares.
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<PAGE>
Investor A Shares -- Charges and Features
The public offering price of Investor A Shares in the Funds is the sum of the
net asset value per share of the shares being purchased plus any applicable
sales charge. No sales charge will be assessed on the reinvestment of dividends
or other distributions.
The following schedule of sales charges will be assessed on Investor A Shares
of Nations Municipal Income Fund.
<TABLE>
<CAPTION>
Dealers'
Total Sales Charge Reallowance
------------------ -----------
As a % of As a % of As a % of
Offering Net Asset Offering
Amount of Price Value Price
Transaction Per Share Per Share Per Share
- ----------- --------- ---------- -----------
<S> <C> <C> <C>
$ 0-$25,000 4.75 5.00 4.50
$ 25,000-$99,999 4.50 4.71 4.25
$100,000-$249,999 3.75 3.89 3.50
$250,000-$499,999 3.00 3.09 2.75
$500,000-$999,999 2.00 2.04 1.85
$1,000,000 and over 0.00* 0.00* 0.00**
</TABLE>
The following schedule of sales charges will be assessed on Investor A Shares
of Nations Short-Term Municipal Income Fund and Nations Intermediate Municipal
Bond Fund.
<TABLE>
<CAPTION>
Dealers'
Total Sales Charge Reallowance
------------------ -----------
As a % of As a % of As a % of
Offering Net Asset Offering
Amount of Price Value Price
Transaction Per Share Per Share Per Share
- ----------- ---------- ---------- ----------
<S> <C> <C> <C>
$ 0-$100,000 3.25 3.36 3.00
$100,000-$249,999 2.50 2.56 2.25
$250,000-$499,999 2.00 2.04 1.75
$500,000-$999,999 1.50 1.53 1.25
$1,000,000 and over 0.00* 0.00* 0.00**
</TABLE>
* Subject to certain waivers specified below, Investor A Shares that are
purchased in amounts of $1 million or more at net asset value will be
subject to a Contingent Deferred Sales Charge ("CDSC") of 1.00% if
redeemed within one year of purchase, declining to 0.50% in the second
year after purchase and eliminated thereafter.
** 1.00% on first $3,000,000, plus 0.50% on the next $47,000,000, plus 0.25% on
amounts over $50,000,000. Stephens will pay the Dealers' Reallowance in
connection with the purchase of shares in amounts of $1 million or more,
for which it may be reimbursed out of the CDSC if such shares are redeemed
within two years of purchase.
The Dealers' Reallowance, which may be changed from time to time, is paid to
Agents.
Investor A Shares Contingent Deferred Sales Charge: Subject to certain waivers
specified below, Investor A Shares of the Funds that are purchased at net asset
value in amounts of $1 million or more will be subject to a CDSC equal to 1.00%
of the lesser of the market value or the purchase price of the shares being
redeemed if such shares are redeemed within one year of purchase, declining to
0.50% in the second year after purchase and eliminated thereafter. No CDSC is
imposed on increases in net asset value above the initial purchase price,
including shares acquired by reinvestment of distributions.
In determining whether a CDSC is payable on any redemption, the Fund will first
redeem shares not subject to any charge, and then shares resulting in the
lowest possible CDSC. Solely for purposes of determining the number of years
from the date of purchase of shares, all purchases are deemed to have been made
on the trade date of the transaction.
The CDSC will be waived on redemptions of Investor A Shares (i) following the
death or disability (as defined in the Internal Revenue Code of 1986, as
amended (the "Code")) of a shareholder (including a registered joint owner),
(ii) in connection with the following retirement plan distributions: (a) lump-
sum or other distributions from a qualified corporate or self-employed
retirement plan following retirement (or in the case of a "key employee" of a
"top heavy" plan, following attainment of age 59 1/2); (b) distributions from
an IRA, or Custodial Account under Section 403(b)(7) of the Code, following
attainment of age 59 1/2; (c) a tax-free return of an excess contribution to an
IRA; and (d) distributions from a qualified retirement plan that are not
subject to the 10% additional Federal with-
17
<PAGE>
drawal tax pursuant to Section 72(t)(2) of the Code, (iii) payments made to pay
medical expenses which exceed 7.5% of income and distributions to pay for
insurance by an individual who has separated from employment and who has
received unemployment compensation under a federal or state program for at least
12 weeks, (iv) effected pursuant to Nations Funds' right to liquidate a
shareholder's account, including instances where the aggregate net asset value
of the Investor A Shares held in the account is less than the minimum account
size, (v) in connection with the combination of Nations Funds with any other
registered investment company by a merger, acquisition of assets or by any other
transaction, and (vi) effected pursuant to the Automatic Withdrawal Plan
discussed below, provided that such redemptions do not exceed, on an annual
basis, 12% of the net asset value of the Investor A Shares in the account. In
addition, the CDSC will be waived on Investor A Shares purchased before
September 30, 1994 by current or retired employees of NationsBank and its
affiliates or by current or former Trustees or Directors of Nations Funds or
other management companies managed by NationsBank. Shareholders are responsible
for providing evidence sufficient to establish that they are eligible for any
waiver of the CDSC. Nations Fund may terminate any waiver of the CDSC by
providing notice in the Funds' Prospectus, but any such termination would only
affect shares purchased after such termination.
Redemption Fee: A redemption fee of 1% of the current net asset value will be
assesed on certain Investor A Shares purchased between July 31, 1997 and
November 15, 1998 and redeemed within 18 months of the date of purchase by a
Substantial Investor (as defined in the footnotes to the "Expenses Summary").
In addition, a 1% redemption fee will be assesed on Investor A Shares purchased
between July 31, 1997 and November 15, 1998 by an employee benefit plan that
(i) made its initial investment between July 31, 1997 and November 15, 1998 and
(ii) redeemed such shares within 18 months of purchase in connection with a
complete liquidation of such plan's holdings in the Nations Funds Family. This
fee is retained by the Fund or Funds for the benefit of the remaining
shareholders and is intended to encourage long-term investment in the Funds and
to avoid transaction and other expenses associated with short-term investments.
The Funds reserve the right to modify the terms of or terminate this fee at any
time.
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. Investor A Shares redeemed under the AWP will not be subject
to a CDSC, provided that the shares so redeemed do not exceed, on an annual
basis, 12% of the net asset value of the Investor A Shares in the account.
Otherwise, any applicable CDSC will be imposed on shares redeemed under the
AWP. Shareholders who elect to establish an AWP may receive a monthly,
quarterly or annual check or automatic transfer to a checking or savings
account in a stated amount of not less than $25 on or about the 10th or 25th
day of the applicable month of withdrawal. Investor A Shares will be redeemed
(net of any applicable CDSC) as necessary to meet withdrawal payments.
Withdrawals may reduce principal and will eventually deplete the shareholder's
account. If a shareholder desires to establish an AWP after opening an account,
a signature guarantee will be required. AWPs may be terminated by shareholders
on 30 days' written notice to their Selling Agent or by Nations Funds at any
time.
Reduced Sales Charge: An investor may be entitled to reduced sales charges on
Investor A Shares through Rights of Accumulation, a Letter of Intent, or
Quantity Discounts.
To qualify for a reduced sales charge, an investor must notify the Agent
through which the Investor A Shares are purchased, which in turn must notify
Stephens, the Transfer Agent or their respective agents at the time of
purchase. Reduced sales charges may be modified or terminated at any time.
Investors are responsible for providing evidence sufficient to establish that
they are eligible for any reduction in sales charges.
Rights of Accumulation: An investor who has previously purchased Investor A,
Investor B, or Investor C Shares in the Nations Funds (excluding Nations Funds
money market and index funds, Nations Short-Term Income Fund and Nations
Short-Term Municipal Income Fund) may aggregate investments in such shares with
current pur-
18
<PAGE>
chases to determine the applicable sales charge for current purchases. An
investor's aggregate investment in Investor A, Investor B and Investor C Shares
in such Funds is the total value (based on the higher of current net asset value
or the public offering price originally paid) of: (a) current purchases, and (b)
Investor A, Investor B and Investor C Shares that are already beneficially owned
by the investor.
Letter of Intent: A Letter of Intent provides an opportunity for an investor to
obtain a reduced sales charge by aggregating the investments over a 13-month
period to determine the sales charge as outlined in the preceding table. The
size of investment shown in the preceding table also includes purchases of
shares of the participating Funds over a 13-month period based on the total
amount of intended purchases plus the value of all shares of the participating
Funds previously purchased and still owned. An investor may elect to compute
the 13-month period starting up to 90 days before the date of execution of a
Letter of Intent. Each investment made during the period receives the reduced
sales charge applicable to the total amount of the investment goal. If the goal
is not achieved within the period, the investor must pay the difference between
the charges applicable to the purchases made and the charges previously paid.
The initial purchase must be for an amount equal to at least five percent of
the minimum total purchase amount of the level selected. If trades not
initially made under a Letter of Intent subsequently qualify for a lower sales
charge through the 90-day back-dating provisions, an adjustment will be made at
the expiration of the Letter of Intent to give effect to the lower charge. Such
adjustments in sales charge will be used to purchase additional shares for the
shareholder at the applicable discount category.
Quantity Discounts: As shown in the table under "Sales Charges," larger
purchases may reduce the sales charge paid on Investor A Shares. Purchases of
Investor A Shares in the non-money market funds of the Nations Funds Family
that are made on the same day by the investor, his/her spouse, and his/her
children under age 21 will be combined when calculating the sales charge. For
the purpose of calculating the amount of the transaction, certain distributions
or payments from dissolution of certain qualified plans are permitted to
aggregate plan participant's investments.
Purchases of Shares at Net Asset Value:
o Full-time employees and retired employees of NationsBank Corporation (and its
predecessors), its affiliates and subsidiaries and the immediate families
of such persons may purchase Investor A Shares in the Funds at net asset
value.
o Individuals receiving a distribution from a NationsBank trust or other
fiduciary account may use the proceeds of such distribution to purchase
Investor A Shares of the Funds at net asset value, provided that the
proceeds are invested through a trust account established with another
trustee and invested in the Funds within 90 days. Those investors who
transfer their proceeds to a fiduciary account with another trustee may
continue to purchase shares in the Funds at net asset value.
o Nations Fund's Trustees and Directors also may purchase Investor A Shares at
net asset value.
o Registered broker/dealers that have entered into a Nations Fund dealer
agreement with Stephens may purchase Investor A Shares at net asset value
for their investment account only.
o Registered personnel and employees of such broker/dealers also may purchase
Investor A Shares at net asset value in accordance with the internal
policies and procedures of the employing broker/dealer provided such
purchases are made for their own investment purposes.
o Employees of the Transfer Agent may purchase Investor A Shares of the Funds
at net asset value.
o Former shareholders of Class B Shares of the Special Equity Portfolio of The
Capitol Mutual Funds who held such shares as of January 31, 1994 or
received Investor A Shares of Nations Disciplined Equity Fund in
connection with the reorganization of the Special Equity Portfolio into
Nations Disciplined Equity Fund may purchase Investor A Shares of Nations
Disciplined Equity Fund at net asset value.
o Investors who purchase through accounts established with certain fee-based
investment advisers or financial planners, including Nations Funds Personal
Investment Planner accounts, wrap fee accounts and other managed agency/asset
19
<PAGE>
allocation accounts may purchase Investor A Shares at net asset value.
Investor A Shares also may be purchased at net asset value by (i) pension,
profit sharing or other employee benefit plans established under Section 401 or
Section 457 of the Internal Revenue Code of 1986, as amended (the "Code"), or
(ii) employee benefit plans created pursuant to Section 403(b) of the Code and
sponsored by a non-profit organization qualified under Section 501(c)(3) of the
Code, provided that, in either case, the plan (a) has at least $500,000
invested in Investor A Shares of the Nations Fund non-money market funds, (b)
has signed a letter of intent indicating that the plan intends to purchase at
least $500,000 of Investor A Shares of the Nations Fund non-money market funds,
(c) is an employer-sponsored plan with at least 100 eligible participants (a
"Qualified Plan") or (d) is a participant in an alliance program that has
entered into an agreement with an Agent. Stephens may pay Agents or other
financial service firms up to 1.00% of the net asset value of Investor A Shares
purchased without a sales charge, for which it may be reimbursed out of any
applicable CDSC.
Reinstatement Privilege: Investor A Shares in a Fund may be purchased at net
asset value, without any sales charge, by persons who have redeemed Investor A
Shares of the same Fund within the previous 120 days. 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 reinstatement privilege. In order to exercise this
privilege, a written order for the purchase of Investor Shares must be received
by the Transfer Agent, Stephens or their respective agents within 120 days
after the redemption.
Investor A Shares may be purchased at net asset value, without a sales charge,
to the extent such a purchase, which must be at least $1,000, is paid for with
the proceeds from the redemption of shares of a nonaffiliated mutual fund. A
qualifying purchase of Investor A Shares must occur within 45 days of the prior
redemption and Nations Funds must receive a copy of the confirmation of the
redemption transaction. Stephens may compensate dealers in connection with such
purchases. This privilege may be revoked at any time.
Nations Funds may terminate any waiver of or reduction in the sales charge by
providing notice in the Fund's Prospectus, but any such termination would only
affect future purchases of shares. For more information about reduced sales
charge, contact an Agent or Stephens.
Investor B Shares -- Charges and Features
Investor B Shares Contingent Deferred Sales Charge: Subject to certain waivers
specified below, Investor B Shares purchased prior to January 1, 1996 and after
July 31, 1997, may be subject to a CDSC if such shares are redeemed within the
years designated in the applicable CDSC schedule set forth below. No CDSC is
imposed on increases in net asset value above the initial purchase price, or
shares acquired by reinvestment of distributions. Subject to the waivers
described below, the amount of the CDSC is determined as a percentage of the
lesser of the market value or the purchase price of the shares being redeemed.
The amount of the CDSC will depend on the number of years since you invested,
according to the following table:
20
<PAGE>
CDSC SCHEDULES
A CDSC is imposed at the following declining rates on Investor B Shares of
Nations Short-Term Municipal Income Fund and Nations Intermediate Municipal
Bond Fund:
Shares Purchased After November 15, 1998*
<TABLE>
<CAPTION>
CDSC as a
Percentage of Dollar
Year Since Purchase Made Amount Subject to Charge
- ------------------------ ------------------------
<S> <C>
First 3.0%
Second 3.0%
Third 2.0%
Fourth 1.0%
Fifth None
</TABLE>
* Except as noted below, Investor B Shares are not available to purchasers
desiring to invest $250,000 or more, however, investors desiring to invest
$250,000 or more may be eligible to purchase Investor A Shares.
Shares Purchased Between August 1, 1997 and November 15, 1998 in amount of $0
- -- $499,999
<TABLE>
<CAPTION>
CDSC as a
Percentage of Dollar
Year Since Purchase Made Amount Subject to Charge
- ------------------------- -------------------------
<S> <C>
First 3.0%
Second 2.0%
Third 1.0%
Fourth and thereafter None
</TABLE>
Shares Purchased Between August 1, 1997 and November 15, 1998 in amount of
$500,000 -- $999,999
<TABLE>
<CAPTION>
CDSC as a
Percentage of Dollar
Year Since Purchase Made Amount Subject to Charge
- ------------------------ -------------------------
<S> <C>
First 2.0%
Second 1.0%
Third and thereafter None
</TABLE>
Shares Purchased Prior to January 1, 1996
<TABLE>
<CAPTION>
CDSC as a
Percentage of Dollar
Year Since Purchase Made Amount Subject to Charge
- ------------------------ ------------------------
<S> <C>
First 4.0%
Second 3.0%
Third 3.0%
Fourth 2.0%
Fifth 2.0%
Sixth 1.0%
Seventh and thereafter None
</TABLE>
A CDSC is imposed at the following declining rates on Investor B Shares of
Nations Municipal Income Fund:
Shares Purchased After November 15, 1998*
<TABLE>
<CAPTION>
CDSC as a
Percentage of Dollar
Year Since Purchase Made Amount Subject to Charge
- ------------------------ ------------------------
<S> <C>
First 5.0%
Second 4.0%
Third 3.0%
Fourth 2.0%
Fifth 2.0%
Sixth 1.0%
Seventh and thereafter None
</TABLE>
* Investor B Shares are not available to purchasers desiring to invest $250,000
or more, however, investors desiring to invest $250,000 or more may be
eligible to purchase Investor A Shares.
Shares Purchased Between August 1, 1997 and November 15, 1998 in amount of $0
- -- $249,999
<TABLE>
<CAPTION>
CDSC as a
Percentage of Dollar
Year Since Purchase Made Amount Subject to Charge
- ------------------------ ------------------------
<S> <C>
First 4.0%
Second 3.0%
Third 3.0%
Fourth 2.0%
Fifth 1.0%
Sixth and thereafter None
</TABLE>
21
<PAGE>
Shares Purchased Between August 1, 1997 and November 15, 1998 in amount of
$250,000 -- $499,999
<TABLE>
<CAPTION>
CDSC as a
Percentage of Dollar
Year Since Purchase Made Amount Subject to Charge
- ------------------------ ------------------------
<S> <C>
First 3.0%
Second 2.0%
Third 1.0%
Fourth and thereafter None
</TABLE>
Shares Purchased Between August 1, 1997 and November 15, 1998 in amount of
$500,000 -- $999,999
<TABLE>
<CAPTION>
CDSC as a
Percentage of Dollar
Year Since Purchase Made Amount Subject to Charge
- ------------------------ ------------------------
<S> <C>
First 2.0%
Second 1.0%
Third and thereafter None
</TABLE>
Shares Purchased Prior to January 1, 1996
<TABLE>
<CAPTION>
CDSC as a
Percentage of Dollar
Year Since Purchase Made Amount Subject to Charge
- ------------------------ ------------------------
<S> <C>
First 5.0%
Second 4.0%
Third 3.0%
Fourth 2.0%
Fifth 2.0%
Sixth 1.0%
Seventh and thereafter None
</TABLE>
In determining whether a CDSC is payable on any redemption, a Fund will first
redeem shares not subject to any charge, and then shares resulting in the
lowest possible CDSC. Solely for purposes of determining the number of years
from the date of purchase of shares, all purchases are deemed to have been made
on the trade date of the transaction.
The CDSC will be waived on redemptions of Investor B Shares (i) following the
death or disability (as defined in the Internal Revenue Code of 1986, as
amended (the "Code")) of a shareholder (including a registered joint owner),
(ii) in connection with the following retirement plan distributions: (a) lump-
sum or other distributions from a qualified corporate or self-employed
retirement plan following retirement (or in the case of a "key employee" of a
"top heavy" plan, following attainment of age 59 1/2); (b) distributions from
an IRA, or Custodial Account under Section 403(b)(7) of the Code, following
attainment of age 59 1/2; (c) a tax-free return of an excess contribution to an
IRA; and (d) distributions from a qualified retirement plan that are not
subject to the 10% additional Federal withdrawal tax pursuant to Section
72(t)(2) of the Code, (iii) payments made to pay medical expenses which exceed
7.5% of income and distributions to pay for insurance by an individual who has
separated from employment and who has received unemployment compensation under
a federal or state program for at least 12 weeks, (iv) effected pursuant to
Nations Funds' right to liquidate a shareholder's account, including instances
where the aggregate net asset value of the Investor B shares held in the
account is less than the minimum account size, (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 B
Shares in the account, and (vi) in connection with the combination of Nations
Funds with any other registered investment company by a merger, acquisition of
assets or by any other transaction. In addition, the CDSC will be waived on
Investor B Shares purchased before September 30, 1994 by current or retired
employees of NationsBank and its affiliates or by current or former Trustees or
Directors of Nations Funds or other management companies managed by
NationsBank. Shareholders are responsible for providing evidence sufficient to
establish that they are eligible for any waiver of the CDSC.
Reinstatement Privilege: Within 120 days after a redemption of Investor B Shares
of a Fund, a shareholder may reinvest any portion of the proceeds of such
redemption in Investor B 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
22
<PAGE>
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 B Shares must be received by the Transfer Agent or by
Stephens within 120 days after the redemption.
Automatic Withdrawal Plan: An Automatic Withdrawal Plan ("AWP") may be
established by a new or existing shareholder of the Funds if the value of the
Investor B 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 B 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 B 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 B Shares will be redeemed
(net of any applicable CDSC) as necessary to meet withdrawal payments.
Withdrawals will reduce principal and may eventually deplete the shareholder's
account. If a shareholder desires to establish an AWP after opening an account,
a signature guarantee will be required. AWPs may be terminated by shareholders
on 30 days' written notice to their Selling Agents or by Nations Funds at any
time.
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 for
Investor A or Investor B Shares of the Funds which are received by Stephens,
the Transfer Agent or their respective agents before the close of regular
trading on the Exchange (currently 4:00 p.m., Eastern time) on any Business Day
are priced according to the net asset value next determined after acceptance of
the order. In the event that the Exchange closes early, redemption orders
received prior to closing will be priced as of the time the Exchange closes and
redemption orders received after the Exchange closes will be deemed received on
the next Business Day and priced according to the net asset value determined on
the next Business Day. 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 or their respective agents, less any applicable CDSC. The Agents
are responsible for transmitting redemption orders to Stephens or to the
Transfer Agent or their respective agents 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 A Shares or Investor B 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
or their respective agents. 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 A or Investor B Shares upon
60 days' written notice if the balance in the shareholder's account drops below
$500 as a result of redemptions. Share balances also may be redeemed at the
direction of an Agent pursuant to arrangements between the Agent and its
Customers. Nations Funds also may redeem shares of a Fund involuntarily or make
payment for redemption in readily marketable securities or other property under
certain circumstances in accordance with the 1940 Act.
Prior to effecting a redemption of Investor A or Investor B Shares represented
by certificates, the Transfer Agent must have received such certifi-
23
<PAGE>
cates 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.
How To Exchange Shares
Investor A Shares: The exchange feature enables a shareholder of a fund of
Nations Funds (other than an index fund) to acquire shares of the same class
that are offered by another fund (other than an index fund) of Nations Funds
when the shareholder believes that a shift between funds is an appropriate
investment decision. A qualifying exchange is based on the next calculated net
asset value per share of each fund after the exchange order is received.
No CDSC will be imposed in connection with an exchange of Investor A Shares
that meets the requirements discussed in this section. If Investor A Shares of
a Fund are exchanged for shares of the same class of another fund, any CDSC
applicable to the shares exchanged will be applied upon the redemption of the
acquired shares. The holding period of such Investor A Shares (for purposes of
determining whether a CDSC is applicable upon redemption) will be computed from
the time of the initial purchase of the Investor A Shares of the Fund.
Shareholders who have paid a front-end sales charge on purchases of Investor A
Shares of one of Nations Fund's non-money market funds (including Investor A
Shares acquired through the reinvestment of dividends and distributions on such
shares) may exchange those Investor A Shares at net asset value without any
sales charge for Investor A Shares available under the exchange privilege
described herein, provided that the maximum sales charge applicable to the
acquired Investor A Shares is equal to or less than the "maximum sales charge
applicable" to the Investor A Shares being exchanged. For purposes of
determining the "maximum sales charge applicable" to the Investor A Shares
being exchanged, a shareholder may include any sales charge paid on shares of
the same class offered by one of Nations Fund's other funds that were
previously exchanged to acquire the subject Investor A Shares then being
exchanged, provided that notification of such prior exchange is made to the
Transfer Agent, Stephens or their respective agents.
If the Investor A Shares being acquired are subject to a higher maximum
front-end sales charge than the Investor A Shares being exchanged, then the
shareholder must pay a "sales charge differential," which is the difference
between the maximum front-end sales charge applicable to those Investor A
Shares being exchanged and those being acquired. However, a shareholder would
not have to pay a sales charge differential to the extent such shareholder is
eligible for a reduced or waived sales charge on the Investor A Shares being
acquired. In addition, a shareholder of Investor A Shares of a non-money market
fund would not have to pay a sales charge differential upon an exchange if the
shareholder has owned such shares for at least 90 days.
Investor A Shares of Nations Short-Term Municipal Income Fund acquired directly
or indirectly through an exchange from Investor B Shares of another non-money
market fund may be re-exchanged only for Investor B Shares of another non-money
market fund, Investor C Shares of a Nations Funds money market fund or Investor
A Shares of Nations Short-Term Income Fund. Such shares (and any Investor A or
Investor C Shares acquired through the exchange of such shares) will remain
subject to the CDSC schedule applicable to the Investor B Shares originally
purchased. The holding period (for the purpose of determining the applicable
rate of the CDSC) does not accrue while the shares owned are Investor A Shares
of Nations Short-Term Municipal Income Fund or Nations Short-Term Income Fund or
Investor C Shares of a Nations Funds money market fund. The CDSC that is
ultimately charged upon redemption is based
24
<PAGE>
upon the total period of time the shareholder holds Investor B Shares of any
fund that charges a CDSC.
If Investor A Shares are exchanged for shares of the same class of another
fund, any redemption fee applicable to the original shares purchased will be
assessed upon the redemption of the acquired shares. The holding period of such
shares (for purposes of determining whether a redemption fee is applicable)
will be computed from the time of the initial purchase of the Investor A Shares
of a fund, except that the holding period will not accrue while the shares
owned are Investor A Shares of Nations Short-Term Municipal Income Fund,
Nations Short-Term Income Fund or a Nations Funds' money market fund. If a
redemption fee ultimately is charged, it will be retained by the initial Fund
purchased.
Automatic Exchange Feature: Under the Funds' Automatic Exchange Feature ("AEF")
a shareholder of Investor A Shares 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 the
last 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 Nations Funds.
Investor B Shares: The exchange feature enables a shareholder to exchange funds
as specified below when the shareholder believes that a shift between funds is
an appropriate investment decision. The exchange feature enables a shareholder
of Investor B Shares of a fund offered by Nations Funds to acquire shares of
the same class that are offered by another fund of Nations Funds (except
Nations Short-Term Income Fund and Nations Short-Term Municipal Income Fund),
Investor A Shares of the Nations Short-Term Income Fund or Nations Short-Term
Municipal Income Fund, or Investor C Shares of a Nations Funds money market
fund. Additionally, the exchange feature enables a shareholder of Investor B
Shares of Nations Short-Term Municipal Income Fund to exchange such shares for
Investor B Shares of Nations Short-Term Income Fund. A qualifying exchange is
based on the next calculated net asset value per share of each fund after the
exchange order is received.
No CDSC will be imposed in connection with an exchange of Investor B Shares
that meets the requirements discussed in this section. If a shareholder
acquires Investor B Shares of another fund through an exchange, any CDSC
schedule applicable (CDSCs may apply to shares purchased prior to January 1,
1996 or after July 31, 1997) to the original shares purchased will be applied
to any redemption of the acquired shares. If a shareholder exchanges Investor B
Shares of a fund for Investor C Shares of a money market fund or Investor A
Shares of Nations Short-Term Income Fund or Nations Short-Term Municipal Income
Fund, the acquired shares will remain subject to the CDSC schedule applicable
to the Investor B Shares exchanged. The holding period (for purposes of
determining the applicable rate of the CDSC) does not accrue while the shares
owned are Investor C Shares of a Nations Funds money market fund or Investor A
Shares of Nations Short-Term Income Fund or Nations Short-Term Municipal Income
Fund. As a result, the CDSC that is ultimately charged upon a redemption is
based upon the total holding period of Investor B Shares of a fund that charges
a CDSC.
General: For shareholders who maintain an account directly with a Fund,
exchange requests should be communicated to the Fund by calling Nations Funds
at 1-800-321-7854 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), provided that the exchange feature may be terminated or materially
revised without notice under certain unusual circumstances.
25
<PAGE>
The current prospectus for each Fund describes its investment objective and
policies, and shareholders should obtain a copy and examine it carefully before
investing. Exchanges are subject to the minimum investment requirement and any
other conditions imposed by each fund. In the case of any shareholder holding a
share certificate or certificates, no exchanges may be made until all
applicable share certificates have been received by the Transfer Agent and
deposited in the shareholder's account. An exchange will be treated for Federal
income tax purposes the same as a redemption of shares, on which the
shareholder may realize a capital gain or loss. However, the ability to deduct
capital losses on an exchange may be limited in situations where there is an
exchange of shares within 90 days after the shares are purchased.
Nations Funds and Stephens reserve 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.
The Investor A Shares and Investor B Shares exchanged must have a current value
of at least $1,000. Nations Funds and Stephens reserve the right to reject any
exchange request. Only shares that may legally be sold in the state of the
investor's residence may be acquired in an exchange. Only shares of a class
that is accepting investments generally may be acquired in an exchange. An
investor may telephone an exchange request by calling his/her Selling Agent
which is responsible for transmitting such request to Stephens or to the
Transfer Agent.
During periods of significant economic or market change, telephone exchanges
may be difficult to complete. In such event, shares may be exchanged by mailing
the request directly to the Selling Agent through which the original shares
were purchased. An investor should consult his/her Selling Agent or Stephens
for further information regarding exchanges.
Shareholder Servicing And
Distribution Plans
Investor A Shares: The Funds' Shareholder Servicing and Distribution Plan (the
"Investor A Plan"), adopted pursuant to Rule 12b-1 under the 1940 Act, permits
each Fund to compensate (i) Servicing Agents and Selling Agents for services
provided to their Customers that own Investor A Shares and (ii) Stephens for
distribution-related expenses incurred in connection with Investor A Shares.
Nations Short-Term Municipal Income Fund, however, may not pay for shareholder
services under the Investor A Plan. Aggregate payments under the Investor A
Plan are calculated daily and paid monthly at a rate or rates set from time to
time by each Fund, provided that the annual rate may not exceed .25% of the
average daily net asset value of the Investor A Shares of the Fund.
The fees payable to Servicing Agents under the Investor A Plan are used
primarily to compensate or reimburse Servicing Agents for shareholder services
provided, and related expenses incurred, by such Servicing Agents. The
shareholder services provided by Servicing Agents may include: (i) aggregating
and processing purchase and redemption requests for Investor A Shares from
Customers and transmitting net purchase and redemption orders to Stephens, the
Transfer Agent or their respective agents; (ii) providing Customers with a
service that invests the assets of their accounts in Investor A Shares pursuant
to specific or preauthorized instructions; (iii) processing dividend and
distribution payments from a Fund on behalf of Customers; (iv) providing
information periodically to Customers showing their positions in Investor A
Shares; (v) arranging for bank wires; and (vi) providing general shareholder
liaison services. Nations Short-Term Municipal Income Fund, however, may not pay
for shareholder services under the Investor A Plan. The fees payable to Selling
Agents are used primarily to compensate or reimburse Sell-
26
<PAGE>
ing 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.
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 Agreements and Sales
Support Agreements. See the SAI for more details on the Investor A Plan.
In addition, the Trustees and Directors have approved a Shareholder Servicing
Plan (the "Servicing Plan") with respect to the Investor A Shares of Nations
Short-Term Municipal Income Fund. Pursuant to its Servicing Plan, Nations
Short-Term Municipal Income Fund may pay Servicing Agents that have entered
into a Servicing Agreement with Nations Funds for certain shareholder support
services that are provided by the Servicing Agents. Payments under the Fund's
Servicing Plan may not exceed .25% of the average daily net asset value of the
Fund's Investor A Shares. The shareholder services provided by Servicing Agents
include, but are not limited to, those listed above with respect to the
Investor A Plan.
Nations 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.
Investor B Shares:
Shareholder Servicing Plan: The Funds' shareholder servicing plan ("Servicing
Plan") permits each Fund to compensate Servicing Agents for services provided
to their Customers that own Investor B Shares. Payments under the Funds'
Servicing Plan are calculated daily and paid monthly at a rate or rates set
from time to time by the Funds, provided that the annual rate may not exceed
.25% of the average daily net asset value of the Investor B 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 B 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 B Shares pursuant to specific or preauthorized instructions; (iii)
processing dividend and distribution payments from a Fund on behalf of
Customers; (iv) providing information periodically to Customers showing their
positions in Investor B 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 Funds' Servicing Plan
described above and the terms of the Servicing Agreement. See the SAI for more
details on the Servicing Plan.
Distribution Plan: Pursuant to Rule 12b-1 under the 1940 Act, the Trustees have
approved a Distribution Plan with respect to Investor B Shares of the Funds.
Pursuant to the Distribution Plan, a Fund may compensate or reimburse Stephens
for any activities or expenses primarily intended to result in the sale of the
Fund's Investor B Shares. Payments under the Funds' Distribution Plan will be
calculated daily and paid monthly at a rate or rates set from time to time by
the Trustees, provided that the annual rate may not exceed .75% of the average
daily net asset value of each Fund's Investor B Shares.
The fees payable under the Distribution Plan are used primarily to compensate or
reimburse Stephens for distribution services provided by it, and related
expenses incurred, including payments by Stephens to compensate or reimburse
Selling Agents for sales support services provided, and related expenses
incurred, by such Selling Agents. Payments under the Distribution Plan may be
made with respect to the following expenses: the cost of preparing,
27
<PAGE>
printing, and distributing prospectuses, sales literature and advertising
materials; commissions, incentive compensation or other compensation to, and
expenses of, account executives or other employees of Stephens or Selling
Agents; overhead and other office expenses; opportunity costs relating to the
foregoing; and any other costs and expenses relating to distribution or sales
support activities. The overhead and other office expenses referenced above may
include, without limitation, (i) the expenses of operating Stephens' or the
Selling Agents' offices in connection with the sale of Fund shares, including
rent, the salaries and employee benefit costs of administrative, operations and
support personnel, utility costs, communications costs and the costs of
stationery and supplies, (ii) the costs of client sales seminars and travel
related to distribution and sales support activities, and (iii) other expenses
relating to distribution and sales support activities.
Nations Funds and Stephens may suspend or reduce payments under the
Distribution Plan at any time, and payments are subject to the continuation of
the Funds' Distribution Plan described above and the terms of the Sales Support
Agreements between Selling Agents and Stephens. See the SAI for more details on
the Distribution Plan.
General: Nations Funds understands that Agents may charge fees to their
Customers who own Investor A or Investor B Shares in connection with a
Customer's account. These fees would be in addition to any amounts received by
a Selling Agent under its Sales Support Agreement with Stephens or by a
Servicing Agent under its Servicing Agreement with Nations 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.
The Adviser may also pay out of its own assets amounts to Stephens or other
broker/dealers in connection with the provision of administrative and/or
distribution related services to shareholders.
In addition, Stephens may, from time to time, at its expense or as an expense
for which it may be reimbursed under the plan adopted pursuant to Rule 12b-1
under the 1940 Act, pay a bonus or other consideration or incentive to Selling
Agents who sell a minimum dollar amount of shares of a Fund during a specified
period of time. Stephens may also, from time to time, pay additional
consideration to Selling Agents not to exceed 1.00% of the offering price per
share on all sales of Investor A Shares and 4.00% of the offering price per
share on all sales of Investor B Shares as an expense of Stephens or for which
Stephens may be reimbursed under the plan adopted pursuant to Rule 12b-1 or
upon receipt of a CDSC. Any such additional consideration or incentive program
may be terminated at any time by Stephens.
Stephens has also 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 of the Funds are valued as of the close of regular
trading on the Exchange (currently 4:00 p.m., Eastern time) on each Business
Day. In the event that the Exchange closes early, shares of the Funds will be
priced as of the time the Exchange closes. Currently, the days on which the
Exchange is closed (other than weekends) are: New Year's Day, Martin Luther
King, Jr. 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.
28
<PAGE>
How Dividends And Distributions Are Made; Tax Information
Dividends and Distributions: Dividends from net investment income are declared
daily and paid monthly by the Funds. Each Fund's net realized capital gains
(including net short-term capital gains) are distributed at least annually.
Distributions from capital gains are made after applying any available capital
loss carryovers. Distributions paid by the Funds with respect to one class of
shares may be greater or less than those paid with respect to another class of
shares due to the different expenses of the different classes.
Investor A and Investor B Shares of the Funds are eligible to begin earning
dividends that are declared on the day the purchase order is executed and
continue to be eligible for dividends through and including the day before the
redemption order is executed.
The net asset value of Investor A and Investor B Shares will be reduced by the
amount of any dividend or distribution. Certain Selling Agents may provide for
the reinvestment of dividends in the form of additional Investor A or Investor
B Shares of the same Fund. Dividends and distributions are paid in cash within
five Business Days of the end of the month to which the payment 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 or Investor B Shares.
Tax Information: Each Fund intends to continue to qualify as a "regulated
investment company" under the Internal Revenue Code of 1986, as amended (the
"Code"). Such qualification relieves a Fund of liability for Federal income tax
on amounts distributed in accordance with the Code.
As regulated investment companies, the Funds are permitted to pass through to
their shareholders tax-exempt income ("exempt-interest dividends") subject to
certain requirements which the Funds intend to satisfy. Distributions from
taxable income generally will be taxable as ordinary income to shareholders
whether such income is received in cash or reinvested in additional shares. The
policy of the Funds is to pay their shareholders an amount equal to at least
90% of their exempt- interest income net of certain deductions and of their
investment company taxable income. Exempt-interest dividends may be treated by
shareholders as items of interest excludable from their Federal gross income
under Section 103(a) of the Code unless, under the circumstances applicable to
the particular shareholder, the exclusion would be disallowed. (See the SAI
under "Additional Information Concerning Taxes.") Distributions from the Funds
will not qualify for the dividends-received deduction for corporate
shareholders. Distributions of net investment income by Nations Municipal
Income Fund, Nations Short-Term Municipal Income Fund and Nations Intermediate
Municipal Bond Fund may be taxable to investors under state or local law even
though a substantial portion of such distributions may be derived from interest
on tax exempt obligations which, if realized directly, would be exempt from
such income taxes.
To the extent that dividends, if any, paid by the Funds to shareholders are
derived from taxable income or from long-term or short-term capital gains, such
dividends will not be exempt from Federal income tax.
Substantially all of a Fund's net realized long-term capital gains will be
distributed at least annually. The Funds generally will have no tax liability
with respect to such gains, and the distributions will be taxable to
shareholders as net capital gain, regardless of how long the shareholders have
held the Fund's shares and whether such gains are received in cash or
reinvested in additional shares. Noncorporate shareholders may be taxed on such
distributions at preferential rates.
Each year, shareholders will be notified as to the amount and Federal tax
status of all dividends and capital gain distributions paid during the prior
year. Such dividends and capital gain distributions may be subject to state and
local taxes as well as discussed more fully below in the SAI.
29
<PAGE>
Dividends and distributions 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 and distributions are actually paid
during January of the following year.
Federal law requires Nations Funds to withhold 31% from any distributions
(other than exempt-interest dividends) paid by Nations Funds and/or redemptions
(including exchanges and redemptions in-kind) that occur in certain shareholder
accounts if the shareholder has not properly furnished a certified correct
Taxpayer Identification Number and has not certified that withholding does not
apply, or if the Internal Revenue Service has notified Nations 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.
The foregoing discussion is based on tax laws and regulations which were in
effect as of the date of this Prospectus and summarizes only some of the
important tax considerations generally affecting the Funds and their
shareholders. It is not intended as a substitute for careful tax planning;
investors should consult their tax advisors with respect to their specific tax
situations and with respect to foreign, state and local taxes. Further tax
information is contained in the SAI.
Financial Highlights
The following financial information has been derived from the audited financial
statements of Nations Fund Trust. PricewaterhouseCoopers LLP is the independent
accountant to Nations Fund Trust. The reports of PricewaterhouseCoopers LLP for
the most recent fiscal period accompany the financial statements for such
period and are incorporated by reference in the SAI, which is available upon
request. Shareholders of a Fund will receive unaudited semi-annual reports
describing the Fund's investment operations and annual financial statements
audited by the Funds' independent accountant.
30
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations Short-Term Municipal Income Fund
<TABLE>
<CAPTION>
YEAR YEAR
ENDED ENDED
Investor A Shares 03/31/98 03/31/97
- ---------------------------------------------------------------
<S> <C> <C>
Operating performance:
Net asset value, beginning of period $ 9.95 $ 9.98
Net investment income 0.40 0.42
Net realized and unrealized
gain/(loss) on investments 0.10 (0.03)
Net increase in net asset value from
operations 0.50 0.39
Distributions:
Dividends from net investment
income (0.40) (0.42)
Distributions from net realized
capital gains -- --
Total dividends and distributions (0.40) (0.42)
Net asset value, end of period $ 10.05 $ 9.95
Total return++ 5.12% 3.96%
Ratios to average net
assets/supplemental data:
Net assets, end of period (in 000's) $23,580 $8,417
Ratio of operating expenses to
average net assets 0.60%(a) 0.60%(a)
Ratio of net investment income to
average net assets 3.97% 4.16%
Portfolio turnover rate 94% 80%
Ratio of operating expenses to
average net assets without waivers
and/or expense reimbursements 0.97% 1.04%
<CAPTION>
PERIOD YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
Investor A Shares 03/31/96(b) 11/30/95 11/30/94 11/30/93*
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 10.03 $ 9.69 $ 9.96 $ 9.98
Net investment income 0.14 0.42 0.36 0.03
Net realized and unrealized
gain/(loss) on investments (0.05) 0.34 (0.27) (0.02)
Net increase in net asset value from
operations 0.09 0.76 0.09 0.01
Distributions:
Dividends from net investment
income (0.14) (0.42) (0.36) (0.03)
Distributions from net realized
capital gains -- -- (0.00)# --
Total dividends and distributions (0.14) (0.42) (0.36) (0.03)
Net asset value, end of period $ 9.98 $ 10.03 $ 9.69 $ 9.96
Total return++ 0.90% 7.95% 0.90% 0.06%
Ratios to average net
assets/supplemental data:
Net assets, end of period (in 000's) $ 4,599 $ 3,741 $ 217 $ 731
Ratio of operating expenses to
average net assets 0.60%+(a) 0.65%(a) 0.52%(a) 0.24%+
Ratio of net investment income to
average net assets 4.17%+ 4.18% 3.65% 3.01%+
Portfolio turnover rate 16% 82% 57% 45%
Ratio of operating expenses to
average net assets without waivers
and/or expense reimbursements 1.06%+ 1.13% 0.99% 1.19%+
</TABLE>
* Nations Short-Term Municipal Income Fund Investor A Shares commenced
operations on November 2, 1993.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
31
<PAGE>
FOR AN INVESTOR B SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations Short-Term Municipal Income Fund
<TABLE>
<CAPTION>
YEAR YEAR
ENDED ENDED
Investor B Shares 03/31/98 03/31/97
- ---------------------------------------------------------------
<S> <C> <C>
Operating performance:
Net asset value, beginning of period $ 9.95 $ 9.98
Net investment income 0.39 0.40
Net realized and unrealized
gain/(loss) on investments 0.10 (0.03)
Net increase/(decrease) in net asset
value from operations 0.49 0.37
Distributions:
Dividends from net investment
income (0.39) (0.40)
Distributions from net realized
capital gains -- --
Total dividends and distributions (0.39) (0.40)
Net asset value, end of period $ 10.05 $ 9.95
Total return++ 4.96% 3.78%
Ratios to average net
assets/supplemental data:
Net assets, end of period (in 000's) $13,753 $10,655
Ratio of operating expenses to
average net assets 0.75%(a) 0.75%(a)
Ratio of net investment income to
average net assets 3.82% 4.01%
Portfolio turnover rate 94% 80%
Ratio of operating expenses to
average net assets without waivers
and/or expense reimburements. 1.12% 1.19%
<CAPTION>
PERIOD YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
Investor B Shares 03/31/96(b) 11/30/95 11/30/94 11/30/93*
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 10.03 $ 9.69 $ 9.96 $ 10.00
Net investment income 0.13 0.40 0.34 0.04
Net realized and unrealized
gain/(loss) on investments (0.05) 0.34 (0.27) (0.04)
Net increase/(decrease) in net asset
value from operations 0.08 0.74 0.07 0.00
Distributions:
Dividends from net investment
income (0.13) (0.40) (0.34) (0.04)
Distributions from net realized
capital gains -- -- (0.00)# --
Total dividends and distributions (0.13) (0.40) (0.34) (0.04)
Net asset value, end of period $ 9.98 $ 10.03 $ 9.69 $ 9.96
Total return++ 0.84% 7.78% 0.73% (0.02)%
Ratios to average net
assets/supplemental data:
Net assets, end of period (in 000's) $13,859 $ 9,803 $13,421 $ 5,863
Ratio of operating expenses to
average net assets 0.75%+(a) 0.80%(a) 0.69%(a) 0.44%+
Ratio of net investment income to
average net assets 4.02%+ 4.03% 3.48% 2.81%+
Portfolio turnover rate 16% 82% 57% 45%
Ratio of operating expenses to
average net assets without waivers
and/or expense reimburements. 1.21%+ 1.28% 1.15% 1.39%+
</TABLE>
* Nations Short-Term Municipal Income Fund Investor B Shares commenced
operations on October 12, 1993.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
# Amount represents less than $0.01 per share.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
32
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations Intermediate Municipal Bond Fund
<TABLE>
<CAPTION>
YEAR YEAR
ENDED ENDED
Investor A Shares 03/31/98 03/31/97
- --------------------------------------------------------------------
<S> <C> <C>
Operating performance:
Net asset value, beginning of period $ 10.01 $ 10.03
Net investment income 0.46 0.46
Net realized and unrealized
gain/(loss) on investments 0.33 (0.02)
Net increase/(decrease) in net asset
value from operations 0.79 0.44
Distributions:
Dividends from net investment
income (0.46) (0.46)
Distributions from net realized
capital gains (0.04) --
Total dividends and distributions (0.50) (0.46)
Net asset value, end of period $ 10.30 $ 10.01
Total return++ 7.99% 4.42%
Ratios to average net
assets/supplemental data:
Net assets, end of period (in 000's) $ 6,487 $ 2,067
Ratio of operating expenses to
average net assets 0.70%(a) 0.70%(a)
Ratio of net investment income to
average net assets 4.45% 4.54%
Portfolio turnover rate 47% 21%
Ratio of operating expenses to
average net assets without waivers
and/or expense reimbursements 0.94% 1.01%
<CAPTION>
PERIOD YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
Investor A Shares 03/31/96(b) 11/30/95 11/30/94 11/30/93*
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 10.17 $ 9.24 $ 10.11 $ 10.10
Net investment income 0.15 0.47 0.42 0.12
Net realized and unrealized
gain/(loss) on investments (0.14) 0.93 (0.86) 0.01
Net increase/(decrease) in net asset
value from operations 0.01 1.40 (0.44) 0.13
Distributions:
Dividends from net investment
income (0.15) (0.47) (0.42)# (0.12)
Distributions from net realized
capital gains -- -- (0.01) --
Total dividends and distributions (0.15) (0.47) (0.43) (0.12)
Net asset value, end of period $ 10.03 $ 10.17 $ 9.24 $ 10.11
Total return++ 0.13% 15.38% (4.48)% 1.28%
Ratios to average net
assets/supplemental data:
Net assets, end of period (in 000's) $ 1,500 $1,249 $ 172 $ 68
Ratio of operating expenses to
average net assets 0.70%+(a) 0.65%(a) 0.53%(a) 0.39%+
Ratio of net investment income to
average net assets 4.55%+ 4.71% 4.41% 3.92%+
Portfolio turnover rate 4% 31% 51% 23%
Ratio of operating expenses to
average net assets without waivers
and/or expense reimbursements 1.03%+ 1.04% 1.06% 1.11%+
</TABLE>
* Nations Intermediate Municipal Bond Fund Investor A Shares commenced
operations on August 17, 1993.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
# Amount includes distributions in excess of net investment income, which were
less than 0.01 per share.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
33
<PAGE>
FOR AN INVESTOR B SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations Intermediate Municipal Bond Fund
<TABLE>
<CAPTION>
YEAR YEAR
ENDED ENDED
Investor B Shares 03/31/98 03/31/97
- -------------------------------------------------------------------------------
<S> <C> <C>
Operating performance:
Net asset value, beginning of period $ 10.01 $ 10.03
Net investment income 0.41 0.43
Net realized and unrealized gain/(loss) on
investments 0.33 (0.02)
Net increase/(decrease) in net asset value
from operations 0.74 0.41
Distributions:
Dividends from net investment income (0.41) (0.43)
Distributions from net realized capital gains (0.04) --
Total dividends and distributions (0.45) (0.43)
Net asset value, end of period $ 10.30 $ 10.01
Total return++ 7.50% 4.12%
Ratios to average net assets/supplemental
data:
Net assets, end of period (in 000's) $ 2,023 $ 1,481
Ratio of operating expenses to average net
assets 1.20%(a) 1.00%(a)
Ratio of net investment income to average
net assets 3.95% 4.24%
Portfolio turnover rate 47% 21%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 1.44% 1.31%
<CAPTION>
PERIOD YEAR PERIOD
ENDED ENDED ENDED
Investor B Shares 03/31/96(b) 11/30/95 11/30/94*
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 10.17 $ 9.24 $ 10.13
Net investment income 0.14 0.43 0.39
Net realized and unrealized gain/(loss) on
investments (0.14) 0.93 (0.88)
Net increase/(decrease) in net asset value
from operations 0.00 1.36 (0.49)
Distributions:
Dividends from net investment income (0.14) (0.43) (0.39)#
Distributions from net realized capital gains -- -- (0.01)
Total dividends and distributions (0.14) (0.43) (0.40)
Net asset value, end of period $ 10.03 $ 10.17 $ 9.24
Total return++ 0.03% 15.02% (5.00)%
Ratios to average net assets/supplemental
data:
Net assets, end of period (in 000's) $ 1,623 $ 1,352 $ 943
Ratio of operating expenses to average net
assets 1.00%+(a) 0.95%(a) 0.85%+(a)
Ratio of net investment income to average
net assets 4.25%+ 4.41% 4.09%+
Portfolio turnover rate 4% 31% 51%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 1.33%+ 1.34% 1.38%+
</TABLE>
* Nations Intermediate Municipal Bond Fund Investor B Shares commenced
operations on December 2, 1993.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
# Amount includes distributions in excess of net investment income, which were
less than $0.01 per share.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
34
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations Municipal Income Fund
<TABLE>
<CAPTION>
YEAR YEAR PERIOD YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
Investor A Shares 03/31/98 03/31/97 03/31/96(b) 11/30/95 11/30/94
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 10.89 $ 10.84 $ 11.08 $ 9.64 $ 11.33
Net investment income 0.54 0.57 0.19 0.57 0.55
Net realized and unrealized gain/(loss) on
investments 0.62 0.05 (0.24) 1.44 (1.44)
Net increase/(decrease) in net asset value from
operations 1.16 0.62 (0.05) 2.01 (0.89)
Distributions:
Dividends from net investment income (0.54) (0.57) (0.19) (0.57) (0.55)#
Distributions from net realized capital gains (0.05) -- -- -- (0.25)
Total dividends and distributions (0.59) (0.57) (0.19) (0.57) (0.80)
Net asset value, end of period $ 11.46 $ 10.89 $ 10.84 $ 11.08 $ 9.64
Total return++ 10.89% 5.82% (0.47)% 21.31% (8.34)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $19,226 $15,075 $26,085 $27,963 $23,754
Ratio of operating expenses to average net assets 0.80% 0.80% 0.80%+ 0.80% 0.79%
Ratio of operating expenses to average net assets
including interest expense (a) (a) (a) (a) 0.80%
Ratio of net investment income to average net assets 4.77% 5.21% 5.15%+ 5.43% 5.24%
Portfolio turnover rate 38% 25% 4% 49% 63%
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 1.04% 1.11% 1.11%+ 1.08% 1.08%
</TABLE>
* Nations Municipal Income Fund Investor A Shares commenced operations on
February 1, 1991.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# Amount includes distributions in excess of net investment income, which
were less than $0.01 per share.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
35
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations Municipal Income Fund (cont.)
<TABLE>
<CAPTION>
YEAR YEAR PERIOD
ENDED ENDED ENDED
Investor A Shares 11/30/93 11/30/92 11/30/91*
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 10.65 $ 10.25 $ 10.00
Net investment income 0.57 0.58 0.52
Net realized and unrealized gain/(loss) on investments 0.72 0.41 0.25
Net increase/(decrease) in net asset value from operations 1.29 0.99 0.77
Distributions:
Dividends from net investment income (0.57) (0.58) (0.52)
Distributions from net realized capital gains (0.04) (0.01) --
Total dividends and distributions (0.61) (0.59) (0.52)
Net asset value, end of period $ 11.33 $ 10.65 $ 10.25
Total return++ 12.37% 9.88%+++ 7.87%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $28,415 $21,056 $ 7,234
Ratio of operating expenses to average net assets 0.60% 0.52% 0.20%+
Ratio of operating expenses to average net assets including interest expense -- -- --
Ratio of net investment income to average net assets 5.09% 5.42% 6.07%+
Portfolio turnover rate 48% 19% 54%
Ratio of operating expenses to average net assets without waivers and/or expense
reimbursements 0.99% 0.99% 0.88%+
</TABLE>
* Nations Municipal Income Fund Investor A Shares commenced operations on
February 1, 1991.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# Amount includes distributions in excess of net investment income, which
were less than $0.01 per share.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
36
<PAGE>
FOR AN INVESTOR B SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations Municipal Income Fund
<TABLE>
<CAPTION>
YEAR YEAR PERIOD YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED ENDED
Investor B Shares 03/31/98 03/31/97 03/31/96(b) 11/30/95 11/30/94 11/30/93*
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 10.89 $ 10.84 $ 11.08 $ 9.64 $ 11.33 $ 11.13
Net investment income 0.48 0.51 0.17 0.51 0.49 0.23
Net realized and unrealized
gain/(loss) on investments 0.62 0.05 (0.24) 1.44 (1.44) 0.20
Net increase/(decrease) in net asset
value from operations 1.10 0.56 (0.07) 1.95 (0.95) 0.43
Distributions:
Dividends from net investment
income (0.48) (0.51) (0.17) (0.51) (0.49)# (0.23)
Distributions from net realized
capital gains (0.05) -- -- -- (0.25) --
Total dividends and distributions (0.53) (0.51) (0.17) (0.51) (0.74) (0.23)
Net asset value, end of period $ 11.46 $ 10.89 $ 10.84 $ 11.08 $ 9.64 $ 11.33
Total return++ 10.23% 5.24% (0.66)% 20.65% (8.86)% 3.89%
Ratios to average net
assets/supplemental data:
Net assets, end of period (in 000's) $15,383 $14,615 $16,870 $18,165 $17,101 $15,133
Ratio of operating expenses to
average net assets 1.42% 1.35% 1.35%+ 1.35% 1.36% 1.27%+
Ratio of operating expenses to
average net assets including
interest expense (a) (a) (a) (a) 1.37% --
Ratio of net investment income to
average net assets 4.15% 4.66% 4.60%+ 4.88% 4.67% 4.49%+
Portfolio turnover rate 38% 25% 4% 49% 63% 48%
Ratio of operating expenses to
average net assets without waivers
and/or expense reimbursements 1.66% 1.66% 1.66%+ 1.63% 1.65% 1.59%+
</TABLE>
* Nations Municipal Income Fund Investor B Shares commenced operations on
June 7, 1993.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
# Amount includes distributions in excess of net investment income, which were
less than $0.01 per share.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
37
<PAGE>
Appendix A -- Portfolio Securities
The following are summary descriptions of certain types of instruments in which
a Fund may invest. The "How Objectives Are Pursued" section of the Prospectus
identifies each Fund's permissible investments, and the SAI contains more
information concerning such investments.
Bank Instruments: Bank instruments consist mainly of certificates of deposit,
time deposits and bankers' acceptances. Each Fund will limit its investments in
bank obligations so they do not exceed 25% of the Fund's total assets at the
time of purchase.
U.S. dollar-denominated obligations issued by foreign branches of domestic
banks ("Eurodollar" obligations) and domestic branches of foreign banks
("Yankee dollar" obligations) and other foreign obligations involve special
investment risks, including the possibility that liquidity could be impaired
because of future political and economic developments, the obligations may be
less marketable than comparable domestic obligations of domestic issuers, a
foreign jurisdiction might impose withholding taxes on interest income payable
on such obligations, deposits may be seized or nationalized, foreign
governmental restrictions such as exchange controls may be adopted which might
adversely affect the payment of principal of and interest on such obligations,
the selection of foreign obligations may be more difficult because there may be
less publicly available information concerning foreign issuers, there may be
difficulties in enforcing a judgment against a foreign issuer or the
accounting, auditing and financial reporting standards, practices and
requirements applicable to foreign issuers may differ from those applicable to
domestic issuers. In addition, foreign banks are not subject to examination by
U.S. Government agencies or instrumentalities.
Borrowings: When a Fund borrows money, the net asset value of a share may be
subject to greater fluctuation until the borrowing is paid off. The Funds may
borrow money from banks for temporary purposes in amounts of up to one-third of
their respective total assets, provided that borrowings in excess of 5% of the
value of the Funds' total assets must be repaid prior to the purchase of
portfolio securities. Pursuant to line of credit arrangements with BONY, the
Funds may borrow primarily for temporary or emergency purposes, including the
meeting of redemption requests that otherwise might require the untimely
disposition of securities.
Fixed Income Investing: The performance of the fixed income debt component of a
Fund's portfolio depends primarily on interest rate changes, the average
weighted maturity of the portfolio and the quality of the securities held. The
debt component of a Fund's portfolio will tend to decrease in value when
interest rates rise and increase when interest rates fall. A Fund's share price
and yield depend, in part, on the maturity and quality of its debt instruments.
Futures, Options And Other Derivative Instruments: Each Fund may attempt to
reduce the overall level of investment risk of particular securities and
attempt to protect a Fund against adverse market movements by investing in
futures, options and other derivative instruments. These include the purchase
and writing of options on securities (including index options) and options on
foreign currencies, and investing in futures contracts for the purchase or sale
of instruments based on financial indices, including interest rate indices or
indices of U.S. or foreign government, equity or fixed income securities
("futures contracts"), options on futures contracts, forward contracts and
swaps and swap-related products such as interest rate swaps, currency swaps,
caps, collars and floors.
The use of futures, options, forward contracts and swaps exposes a Fund to
additional investment risks and transaction costs. If the Adviser incorrectly
analyzes market conditions or does not employ the appropriate strategy with
respect to these instruments, a Fund could be left in a less favorable position.
Additional risks inherent in the use of futures, options, forward contracts and
swaps include: imperfect correlation between the price of futures, options and
forward contracts and movements in the prices of the securities or currencies
being hedged; the possible absence of a liquid secondary market for any
particular instrument at any time; and the
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possible need to defer closing out certain hedged positions to avoid adverse tax
consequences. A Fund may not purchase put and call options which are traded on a
national stock exchange in an amount exceeding 5% of its net assets. Further
information on the use of futures, options and other derivative instruments, and
the associated risks, is contained in the SAI.
Illiquid Securities: Certain securities may be sold only pursuant to certain
legal restrictions, and may be difficult to sell. The Funds will not hold more
than 15% of the value of their respective net assets in securities that are
illiquid. Repurchase agreements, time deposits and guaranteed investment
contracts that do not provide for payment to a Fund within seven days after
notice, and illiquid restricted securities, are subject to the limitation on
illiquid securities.
If otherwise consistent with their investment objectives and policies the Funds
may purchase securities that are not registered under the Securities Act of
1933, as amended (the "1933 Act") but can be sold to "qualified institutional
buyers" in accordance with Rule 144A under the 1933 Act, or which were issued
under Section 4(2) of the 1933 Act. Any such security will not be considered
illiquid so long as it is determined by a Fund's Board of Trustees or the
Adviser, acting under guidelines approved and monitored by the Fund's Board of
Trustees after considering trading activity, availability of reliable price
information and other relevant information, that an adequate trading market
exists for that security. To the extent that, for a period of time, qualified
institutional or other buyers cease purchasing such restricted securities
pursuant to Rule 144A or otherwise, the level of illiquidity of a Fund holding
such securities may increase during such period.
Interest Rate Transactions: In order to attempt to protect the value of their
portfolios from interest rate fluctuations, certain of the Funds may enter into
various hedging transactions, such as interest rate swaps and the purchase or
sale of interest rate caps and floors. Interest rate swaps involve the exchange
by a Fund with another party of their respective commitments to pay or receive
interest, E.G., an exchange of floating-rate payments for fixed-rate payments.
A Fund will enter into a swap transaction on a net basis, I.E. the payment
obligations of the Fund and the counterparty will be netted out with the Fund
receiving or paying, as the case may be, only the net amount of the two payment
obligations. A Fund will segregate, on a daily basis, cash or liquid high
quality debt securities with a value at least equal to the Fund's net
obligations, if any, under a swap agreement.
The purchase of an interest rate cap entitles the purchaser, to the extent that
a specified index exceeds a predetermined interest rate, to receive payments of
interest on a notional principal amount from the party selling such interest
rate cap. The purchase of an interest rate floor entitles the purchaser, to the
extent a specified index is below a predetermined interest rate, to receive
payments of interest on a notional principal amount from the party selling such
interest rate floor. The Adviser expects to enter into these transactions on
behalf of a Fund primarily to preserve a return or spread on a particular
investment or portion of its portfolio or to protect against any increase in
the price of securities the Fund anticipated purchasing at a later date rather
than for speculative purposes. A Fund will not sell interest rate caps or
floors that it does not own.
Money Market Instruments: The term "money market instruments" refers to
instruments with remaining maturities of one year or less. Money market
instruments may include, among other instruments, certain U.S. Treasury
obligations, U.S. Government obligations, bank instruments, commercial
instruments, repurchase agreements and municipal securities. Such instruments
are described in this Appendix A.
Municipal Securities: The two principal classifications of Municipal Securities
are "general obligation" securities and "revenue" securities. General obligation
securities are secured by the issuer's pledge of its full faith, credit, and
taxing power for the payment of principal and interest. Revenue securities are
payable only from the revenues derived from a particular facility or class of
facilities or, in some cases, from the proceeds of a special excise tax or other
specific revenue source such as the user of the facility being financed. Private
activity bonds held by a Fund are in most cases revenue securities and are not
payable from the unrestricted revenues of the issuer. Consequently, the credit
quality of private activity bonds is usu-
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ally directly related to the credit standing of the corporate user of the
facility involved.
Municipal Securities may include "moral obligation" bonds, which are normally
issued by special purpose public authorities. If the issuer of moral obligation
bonds is unable to meet its debt service obligations from current revenues, it
may draw on a reserve fund, the restoration of which is a moral commitment but
not a legal obligation of the state or municipality which created the issuer.
Municipal Securities may include variable- or floating-rate instruments issued
by industrial development authorities and other governmental entities. While
there may not be an active secondary market with respect to a particular
instrument purchased by a Fund, a Fund may demand payment of the principal and
accrued interest on the instrument or may resell it to a third party as
specified in the instruments. The absence of an active secondary market,
however, could make it difficult for a Fund to dispose of the instrument if the
issuer defaulted on its payment obligation or during periods the Fund is not
entitled to exercise its demand rights, and the Fund could, for these or other
reasons, suffer a loss.
Some of these instruments may be unrated, but unrated instruments purchased by
a Fund will be determined by the Adviser to be of comparable quality at the
time of purchase to instruments rated "high quality" by any major rating
service. Where necessary to ensure that an instrument is of comparable "high
quality," a Fund will require that an issuer's obligation to pay the principal
of the note may be backed by an unconditional bank letter or line of credit,
guarantee, or commitment to lend.
Municipal Securities may include participations in privately arranged loans to
municipal borrowers, some of which may be referred to as "municipal leases."
Generally such loans are unrated, in which case they will be determined by the
Adviser to be of comparable quality at the time of purchase to rated
instruments that may be acquired by a Fund. Frequently, privately arranged
loans have variable interest rates and may be backed by a bank letter of
credit. In other cases, they may be unsecured or may be secured by assets not
easily liquidated. Moreover, such loans in most cases are not backed by the
taxing authority of the issuers and may have limited marketability or may be
marketable only by virtue of a provision requiring repayment following demand
by the lender. Such loans made by a Fund may have a demand provision permitting
the Fund to require payment within seven days. Participations in such loans,
however, may not have such a demand provision and may not be otherwise
marketable. To the extent these securities are illiquid, they will be subject
to each Fund's limitation on investments in illiquid securities. Recovery of an
investment in any such loan that is illiquid and payable on demand may depend
on the ability of the municipal borrower to meet an obligation for full
repayment of principal and payment of accrued interest within the demand
period, normally seven days or less (unless a Fund determines that a particular
loan issue, unlike most such loans, has a readily available market). As it
deems appropriate, the Adviser will establish procedures to monitor the credit
standing of each such municipal borrower, including its ability to meet
contractual payment obligations.
Municipal Securities may include units of participation in trusts holding pools
of tax-exempt leases. Municipal participation interests may be purchased from
financial institutions, and give the purchaser an undivided interest in one or
more underlying municipal security. To the extent that municipal participation
interests are considered to be "illiquid securities," such instruments are
subject to each Fund's limitation on the purchase of illiquid securities.
Municipal leases and participating interests therein which may take the form of
a lease or an installment sales contract, are issued by state and local
governments and authorities to acquire a wide variety of equipment and
facilities. Interest payments on qualifying leases are exempt from Federal
income taxes.
In addition, certain of the Funds may acquire "stand-by commitments" from banks
or broker/ dealers with respect to Municipal Securities held in their
portfolios. Under a stand-by commitment, a dealer would agree to purchase at a
Fund's option specified Municipal Securities at a specified price. A Fund will
acquire stand-by commitments solely to facilitate portfolio liquidity and do
not intend to exercise their rights thereunder for trading purposes.
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Although the Funds do not presently intend to do so on a regular basis, each
may invest more than 25% of its total assets in Municipal Securities the
interest on which is paid solely from revenues of similar projects if such
investment is deemed necessary or appropriate by the Adviser. To the extent
that more than 25% of a Fund's total assets are invested in Municipal
Securities that are payable from the revenues of similar projects, a Fund will
be subject to the peculiar risks presented by such projects to a greater extent
than it would be if its assets were not so concentrated.
Other Investment Companies: Each Fund may invest in securities issued by other
investment companies to the extent that such investments are consistent with
the Fund's investment objective and policies and permissible under the 1940
Act. As a shareholder of another investment company, a Fund would bear, along
with other shareholders, its pro rata portion of the other investment company's
expenses, including advisory fees. These expenses would be in addition to the
advisory and other expenses that a Fund bears directly in connection with its
own operations. Pursuant to an exemptive order issued by the SEC, the Nations
Funds' non-money market funds may purchase shares of Nations Funds' money
market funds.
Repurchase Agreements: A repurchase agreement involves the purchase of a
security by a Fund and a simultaneous agreement (generally with a bank or
broker/dealer) to repurchase that security from the Fund at a specified price
and date or upon demand. This technique offers a method of earning income on
uninvested cash. A risk associated with repurchase agreements is the failure of
the seller to repurchase the securities as agreed, which may cause a Fund to
suffer a loss if the market value of such securities declines before they can
be liquidated on the open market. Repurchase agreements with a maturity of more
than seven days are considered illiquid securities and are subject to the limit
stated above. A Fund may enter into joint repurchase agreements jointly with
other investment portfolios of Nations 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 their
judgment, the income to be earned from the loan justifies the attendant risks.
The aggregate of all outstanding loans of a Fund may not exceed 33% of the
value of its total assets, which may include cash collateral received for
securities loans. Cash collateral received by a Nations Fund may be invested in
a Nations Funds' money market fund.
Stock Index, Interest Rate And Currency Futures Contracts: The Funds may
purchase and sell futures contracts and related options with respect to
non-U.S. stock indices, non-U.S. interest rates and foreign currencies, that
have been approved by the CFTC for investment by U.S. investors, for the
purpose of hedging against changes in values of a Fund's securities or changes
in the prevailing levels of interest rates or currency exchange rates. These
contracts entail certain risks, including but not limited to the following: no
assurance that futures contracts transactions can be offset at favorable
prices; possible reduction of a Fund's total return due to the use of hedging;
possible lack of liquidity due to daily limits on price fluctuation; imperfect
correlation between the contracts and the securities or currencies being
hedged; and potential losses in excess of the amount invested in the futures
contracts themselves.
Trading on foreign commodity exchanges presents additional risks. Unlike
trading on domestic commodity exchanges, trading on foreign commodity exchanges
is not regulated by the CFTC and may be subject to greater risks than trading
on domestic exchanges. For example, some foreign exchanges are principal
markets for which no common clearing facility exists and a trader may look only
to the broker for performance of the contract. In addition, unless a Fund
hedges against fluctuations in the exchange rate between the U.S. dollar and
the currencies in which trading is done on foreign exchanges, any profits that
such Fund might realize could be eliminated by adverse changes in the exchange
rate, or the Fund could incur losses as a result of those changes.
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U.S. Government Obligations: U.S. Government Obligations consist of marketable
securities and instruments issued or guaranteed by the U.S. Government or any
of its agencies, authorities or instrumentalities. Direct obligations are
issued by the U.S. Treasury and include all U.S. Treasury instruments. U.S.
Treasury obligations differ only in their interest rates, maturities and time
of issuance. Obligations of U.S. Government agencies, authorities and
instrumentalities are issued by government-sponsored agencies and enterprises
acting under authority of Congress. Although obligations of federal agencies,
authorities and instrumentalities are not debts of the U.S. Treasury, some are
backed by the full faith and credit of the U.S. Treasury, such as direct
pass-through certificates of the Government National Mortgage Association; some
are supported by the right of the issuer to borrow from the U.S. Government,
such as obligations of Federal Home Loan Banks, and some are backed only by the
credit of the issuer itself, such as obligations of the Federal National
Mortgage Association. No assurance can be given that the U.S. Government would
provide financial support to government-sponsored instrumentalities if it is
not obligated to do so by law.
The market value of U.S. Government Obligations may fluctuate due to
fluctuations in market interest rates. As a general matter, the value of debt
instruments, including U.S. Government obligations, declines when market
interest rates increase and rises when market interest rates decrease. Certain
types of U.S. Government Obligations are subject to fluctuations in yield or
value due to their structure or contract terms.
Variable- and Floating-Rate Instruments: Certain instruments issued, guaranteed
or sponsored by the U.S. Government or its agencies, state and local government
issuers, and certain debt instruments issued by domestic banks and corporations
may carry variable or floating rates of interest. Such instruments bear interest
rates which are not fixed, but which vary with changes in specified market rates
or indices, such as a Federal Reserve composite index. A variable-rate demand
instrument is an obligation with a variable or floating interest rate and an
unconditional right of demand on the part of the holder to receive payment of
unpaid principal and accrued interest. An instrument with a demand period
exceeding seven days may be considered illiquid if there is no secondary market
for such security.
When-Issued, Delayed Delivery And Forward Commitment Securities: The purchase
of new issues of securities on a "when-issued," "delayed delivery" or "forward
commitment" basis occurs when the payment for and delivery of securities takes
place at a future date. Because actual payment for and delivery of such
securities generally take place 15 to 45 days after the purchase date,
purchasers of such securities bear the risk that interest rates on debt
securities at the time of delivery may be higher or lower than those contracted
for on the security purchased.
Appendix B -- Description Of Ratings
The following summarizes the highest eight ratings used by S&P for corporate
and municipal bonds. The first four ratings denote investment grade securities.
AAA -- This is the highest rating assigned by S&P to a debt obligation
and indicates an extremely strong capacity to pay interest and repay
principal.
AA -- Debt rated AA is considered to have a very strong capacity to pay
interest and repay principal and differs from AAA issues only in a small
degree.
A -- Debt rated A has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than debt in
higher-rated categories.
BBB -- Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal
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for debt in this category than for those in higher-rated categories.
BB, B -- Bonds rated BB and B are regarded, on balance, as predominantly
speculative with respect to capacity to pay interest and repay principal
in accordance with the terms of the obligation. BB represents the lowest
degree of speculation and B a higher degree of speculation. While such
bonds will likely have some quality and protective characteristics,
these are outweighed by large uncertainties or major risk exposures to
adverse conditions.
CCC, CC -- An obligation rated CCC is vulnerable to nonpayment and is
dependent upon favorable business, financial, and economic conditions
for the obligor to meet its financial commitment on the obligation. In
the event of adverse conditions, the obligor is not likely to have the
capacity to meet its financial commitments on the obligation; an
obligation rated CC is highly vulnerable to nonpayment.
To provide more detailed indications of credit quality, the AA, A, BBB and CCC
ratings may be modified by the addition of a plus or minus sign to show
relative standing within these major rating categories.
The following summarizes the highest eight ratings used by Moody's for
corporate and municipal bonds. The first four ratings denote investment grade
securities.
Aaa -- Bonds that are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally
referred to as "gilt edge." Interest payments are protected by a large
or by an exceptionally stable margin and principal is secure. While the
various protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position
of such issues.
Aa -- Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities
or fluctuation of protective elements may be of greater amplitude or
there may be other elements present which make the long-term risks
appear somewhat larger than in Aaa securities.
A -- Bonds that are rated A possess many favorable investment attributes
and are to be considered upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in
the future.
Baa -- Bonds that are rated Baa are considered medium grade obligations,
I.E., they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics
as well.
Ba -- Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection
of interest and principal payments may be very moderate and thereby not
well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time
may be small.
Caa, Ca -- Bonds that are rated Caa are of poor standing. Such issues
may be in default or there may be present elements of danger with
respect to principal or interest. Bonds that are rated Ca represent
obligations that are speculative in a high degree. Such issues are often
in default or have other marked shortcomings.
Moody's applies numerical modifiers (1, 2 and 3) with respect to corporate bonds
rated Aa through B. The modifier 1 indicates that the bond being rated ranks in
the higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates that the bond ranks
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in the lower end of its generic rating category. With regard to municipal bonds,
those bonds in the Aa, A and Baa groups which Moody's believes possess the
strongest investment attributes are designated by the symbols Aa1, A1 or Baa1,
respectively. 43
The following summarizes the highest four ratings used by D&P for bonds, each
of which denotes that the securities are investment grade:
AAA -- Bonds that are rated AAA are of the highest credit quality. The
risk factors are considered to be negligible, being only slightly more
than for risk-free U.S. Treasury debt.
AA -- Bonds that are rated AA are of high credit quality. Protection
factors are strong. Risk is modest, but may vary slightly from time to
time because of economic conditions.
A -- Bonds that are rated A have protection factors which are average
but adequate. However, risk factors are more variable and greater in
periods of economic stress.
BBB -- Bonds that are rated BBB have below average protection factors
but still are considered sufficient for prudent investment. Considerable
variability in risk exists during economic cycles.
To provide more detailed indications of credit quality, the AA, A and BBB
ratings may be modified by the addition of a plus or minus sign to show
relative standing within these major categories.
The following summarizes the highest four ratings used by Fitch ("Fitch") for
bonds, each of which denotes that the securities are investment grade:
AAA -- "AAA" ratings denote the lowest expectation of credit risk. They
are assigned only in case of exceptionally strong capacity for timely
payment of financial commitments. This capacity is highly unlikely to be
adversely affected by foreseeable events.
AA -- "AA" ratings denote a very low expectation of credit risk. They
indicate very strong capacity for timely payment of financial
commitments. This capacity is not significantly vulnerable to
foreseeable events.
A -- "A" ratings denote a low expectation of credit risk. The capacity
for timely payment of financial commitments is considered strong. This
capacity may, nevertheless, be more vulnerable to changes in
circumstances or in economic conditions than is the case for higher
ratings.
BBB -- "BBB" ratings indicate that there is currently a low expectation
of credit risk. The capacity for timely payment of financial commitments
is considered adequate, but adverse changes in circumstances and in
economic conditions are more likely to impair this capacity. This is the
lowest investment-grade category.
The following summarizes the two highest ratings used by Moody's for short-term
municipal notes and variable-rate demand obligations:
MIG-1/VMIG-1 -- Obligations bearing these designations are of the best
quality, enjoying strong protection from established cash flows,
superior liquidity support or demonstrated broad-based access to the
market for refinancing.
MIG-2/VMIG-2 -- Obligations bearing these designations are of high
quality, with ample margins of protection although not so large as in
the preceding group.
The following summarizes the two highest ratings used by S&P for short-term
municipal notes:
SP-1 -- Very strong or strong capacity to pay principal and interest.
Those issues determined to possess overwhelming safety characteristics
are given a "plus" (+) designation.
SP-2 -- Satisfactory capacity to pay principal and interest.
The three highest rating categories of D&P for short-term debt, each of which
denotes that the securities are investment grade, are D-1, D-2 and D-3. D&P
employs three designations, D-1+, D-1 and D-1-, within the highest rating
category. D-1+ indicates highest certainty of timely payment. Short-term
liquidity, including internal operating factors and/or access to alternative
sources of funds, is judged to be "outstanding, and safety is just below
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risk-free U.S. Treasury short-term obligations." D-1 indicates very high
certainty of timely payment. Liquidity factors are excellent and supported by
good fundamental protection factors. Risk factors are considered to be minor.
D-1- indicates high certainty of timely payment. Liquidity factors are strong
and supported by good fundamental protection factors. Risk factors are very
small. D-2 indicates good certainty of timely payment. Liquidity factors and
company fundamentals are sound. Although ongoing funding needs may enlarge total
financing requirements, access to capital markets is good. Risk factors are
small. D-3 indicates satisfactory liquidity and other protection factors which
qualify the issue as investment grade. Risk factors are larger and subject to
more variation. Nevertheless, timely payment is expected.
The following summarizes the two highest rating categories used by Fitch for
short-term obligations:
F1+ securities possess exceptionally strong credit quality. Issues
assigned this rating are regarded as having the strongest degree of
assurance for timely payment.
F1 securities possess very strong credit quality. Issues assigned this
rating reflect an assurance of timely payment only slightly less in
degree than issues rated F1+.
Commercial paper rated A-1 by S&P indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted A-1+. Capacity for timely payment on
commercial paper rated A-2 is satisfactory, but the relative degree of safety
is not as high as for issues designated A-1. Commercial paper rated A-3
exhibits adequate protection parameters. However, adverse economic conditions
or changing circumstances are more likely to lead to a weakened capacity of the
obligor to meet its financial commitment on the obligation. Commercial paper
rated A-3 or B correlates with the S&P Bond rankings (described above) of BBB/
BBB- and BB+, respectively.
The rating Prime-1 is the highest commercial paper rating assigned by Moody's.
Issuers rated Prime-1 (or related supporting institutions) are considered to
have a superior capacity for repayment of senior short-term obligations.
Issuers rated Prime-2 (or related supporting institutions) are considered to
have a strong capacity for repayment of senior short-term obligations. This
will normally be evidenced by many of the characteristics of issuers rated
Prime-1, but to a lesser degree. Earnings trends and coverage ratios, while
sound, will be more subject to variation. Capitalization characteristics, while
still appropriate, may be more affected by external conditions. Ample alternate
liquidity is maintained. Issuers rated Prime-3 have an acceptable ability for
repayment of senior short-term obligations. The effect of industry
characteristics and market compositions may be more pronounced. Variability in
earnings and profitability may result in changes in the level of debt
protection measurements and may require relatively high financial leverage.
Adequate alternate liquidity is maintained.
For commercial paper, D&P uses the short-term debt ratings described above.
For commercial paper, Fitch uses the short-term debt ratings described above.
BankWatch ratings are based upon a qualitative and quantitative analysis of all
segments of the organization including, where applicable, holding company and
operating subsidiaries. BankWatch ratings do not constitute a recommendation to
buy or sell securities of any of these companies. Further, BankWatch does not
suggest specific investment criteria for individual clients.
BankWatch long-term ratings apply to specific issues of long-term debt and
preferred stock. The long-term ratings specifically assess the likelihood of
untimely payment of principal or interest over the term to maturity of the
rated instrument. The following are the four investment grade ratings used by
BankWatch for long-term debt:
AAA -- The highest category; indicates ability to repay principal and
interest on a timely basis is extremely high.
AA -- The second highest category; indicates a very strong ability to
repay principal and interest on a timely basis with limited incremental
risk versus issues rated in the highest category.
A -- The third highest category; indicates the ability to repay
principal and interest is strong.
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Issues rated "A" could be more vulnerable to adverse developments (both
internal and external) than obligations with higher ratings.
BBB -- The lowest investment grade category; indicates an acceptable
capacity to repay principal and interest. Issues rated "BBB" are,
however, more vulnerable to adverse developments (both internal and
external) than obligations with higher ratings.
The BankWatch short-term ratings apply to commercial paper, other senior
short-term obligations and deposit obligations of the entities to which the
rating has been assigned. The BankWatch short-term ratings specifically assess
the likelihood of an untimely payment of principal or interest.
TBW-1 -- The highest category; indicates a very high likelihood that
principal and interest will be paid on a timely basis.
TBW-2 -- The second highest category; while the degree of safety
regarding timely repayment of principal and interest is strong, the
relative degree of safety is not as high as for issues rated "TBW-1".
TBW-3 -- The lowest investment grade category; indicates that while more
susceptible to adverse developments (both internal and external) than
obligations with higher ratings, capacity to service principal and
interest in a timely fashion is considered adequate.
TBW-4 -- The lowest rating category; this rating is regarded as
non-investment grade and therefore speculative.
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Prospectus
Investor A Shares and
Investor B Shares
August 1, 1998
as supplemented on
November 15, 1998
This Prospectus describes the investment portfolios listed in the column to the
right (each a "Fund") of Nations Fund Trust and Nations Fund, Inc., each an
open-end management investment company in the Nations Funds Family ("Nations
Funds" or "Nations Funds Family"). This Prospectus describes two classes of
shares of the Funds -- Investor A Shares and Investor B Shares.
This Prospectus sets forth concisely the information about each Fund that a
prospective purchaser of Investor A Shares and Investor B Shares should
consider before investing. Investors should read this Prospectus and retain it
for future reference. Additional information about Nations Fund Trust and
Nations Fund, Inc. is contained in 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 for Nations Funds, dated August 1, 1998, is incorporated by reference in
its entirety into this Prospectus. The SEC maintains a Web site (http://
www.sec.gov) that contains the SAI, material incorporated by reference in this
Prospectus and other information regarding registrants that file electronically
with the SEC. NationsBanc Advisors, Inc. ("NBAI") is the investment adviser to
each of the Funds. TradeStreet Investment Associates, Inc. ("TradeStreet") is
the investment sub-adviser to all of the Funds, except Nations U.S. Government
Bond Fund, for which Boatmen's Capital Management, Inc. ("Boatmen's") is the
investment sub-adviser. As used herein the term "Adviser" shall mean NBAI,
TradeStreet and/or Boatmen's as the context may require, see "How The Funds Are
Managed."
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 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 Short-Term Income Fund
Nations Short-Intermediate
Government Fund
Nations
Government
Securities Fund
Nations
Strategic Fixed
Income Fund
Nations
Diversified
Income Fund
Nations U.S.
Government Bond 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 logo]
<PAGE>
About The
Funds
Table Of Contents
Prospectus Summary 3
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Expenses Summary 4
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Objectives 7
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How Objectives Are Pursued 8
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How Performance Is Shown 13
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How The Funds Are Managed 14
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Organization And History 17
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About Your
Investment
How To Buy Shares 18
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Investor A Shares -- Charges and Features 21
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Investor B Shares -- Charges and Features 25
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How To Redeem Shares 23
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How To Exchange Shares 28
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Shareholder Servicing And Distribution Plans 30
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How The Funds Value Their Shares 33
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How Dividends And Distributions Are Made;
Tax Information 33
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Financial Highlights 34
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Appendix A -- Portfolio Securities 49
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Appendix B -- Description Of Ratings 59
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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
o TYPE OF COMPANIES: Open-end management investment companies.
o INVESTMENT OBJECTIVES AND POLICIES:
o Nations Short-Term Income Fund's investment objective is to seek high
current income consistent with minimal fluctuation of principal. The Fund
invests in investment grade debt securities.
o Nations Short-Intermediate Government Fund's investment objective is to seek
high current income consistent with modest fluctuation of principal. The
Fund invests primarily in securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities.
o Nations Government Securities Fund's investment objective is to seek high
current income consistent with moderate fluctuation of principal. The Fund
invests primarily in intermediate-term securities issued or guaranteed by
the U.S. Government, its agencies or instrumentalities.
o Nations Strategic Fixed Income Fund's investment objective is to seek total
return by investing in investment grade fixed income securities.
o Nations Diversified Income Fund's investment objective is to seek total
return with an emphasis on current income by investing in a diversified
portfolio of fixed income securities.
o Nations U.S. Government Bond Fund's investment objective is to seek total
return and preservation of capital by investing in U.S. Government
securities and repurchase agreements collateralized by such securities.
o INVESTMENT ADVISER: NationsBanc Advisors, Inc. serves as the investment
adviser to the Funds. NBAI provides investment management services to more
than 60 investment company portfolios in the Nations Funds Family.
TradeStreet Investment Associates, Inc., an affiliate of NBAI, provides
investment sub-advisory services to certain of the Funds, and Boatmen's
Capital Management, Inc. provides investment sub-advisory services to
Nations U.S. Government Bond Fund. For more information about the
investment adviser and investment sub-advisers to the Nations Funds, see
"How The Funds Are Managed."
o DIVIDENDS AND DISTRIBUTIONS: The Funds declare dividends daily and pay them
monthly. Each Fund's net realized capital gains, including net short-term
capital gains are distributed at least annually.
o RISK FACTORS: Although NBAI, together with the sub-advisers, seek to achieve
the investment objective of each Fund, there is no assurance that they will
be able to do so. Investments in a Fund are not insured against loss of
principal. Investments by a Fund in debt securities are subject to interest
rate risk, which is the risk that increases in market interest rates will
adversely affect a Fund's investments in debt securities. The value of a
Fund's investments in debt securities, including U.S. Government
Obligations (as defined below), will tend to decrease when interest rates
rise and increase when interest rates fall. In general, longer-term debt
instruments tend to fluctuate in value more than shorter-term debt
instruments in response to interest rate movements. In addition, debt
securities which are not issued or guaranteed by the U.S. Government are
subject to credit risk, which is the risk that the issuer may not be able
to pay principal and/or interest when due. Certain of the Funds'
3
<PAGE>
investments may constitute derivative securities. Certain types of
derivative securities can, under particular circumstances, significantly
increase an investor's exposure to market and other risks. For a discussion
of these and other factors, see "How Objectives Are Pursued -- Risk
Considerations" and "Appendix A."
o MINIMUM PURCHASE: $1,000 minimum initial investment per record holder except
that the minimum initial investment is: $500 for Individual Retirement
Account ("IRA") Investors; $250 for non-working spousal IRAs; and $100 for
investors participating on a monthly basis in the Systematic Investment
Plan. There is no minimum investment amount for investments by certain
401(k) and employee pension plans or salary reduction. See "How To Buy
Shares."
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 and Investor B Shares of the Funds. The Examples show the
cumulative expenses attributable to a hypothetical $1,000 investment in the
Funds over specified periods.
NATIONS FUNDS INVESTOR A SHARES
<TABLE>
<CAPTION>
Nations
Nations Short- Nations
Short-Term Intermediate Government
Income Government Securities
Shareholder Transaction Expenses Fund Fund Fund
<S> <C> <C> <C>
Maximum Sales Load Imposed on Purchases (as a percentage of offering price) 3.25% 3.25% 4.75%
Maximum Deferred Sales Charge (as a percentage of the lower of the original
purchase price or redemption proceeds)(1) 1.00% 1.00% 1.00%
Redemption Fees Payable to the Fund None(2) None(2) None(2)
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management Fees (After Fee Waivers) .30% .40% .50%
Rule 12b-1 Fees (Including Shareholder Servicing Fees) (After Fee Waivers) .20%(3) .20% .25%
Other Expenses (After Expense Reimbursements) .26% .21% .35%
Total Operating Expenses (After Fee Waivers and Expense Reimbursements) .76% .81% 1.10%
</TABLE>
1 Certain Investor A Shares that are purchased at net asset value are subject
to a Deferred Sales Charge if redeemed within two years of purchase. See
"Sales Charges".
2 There is a 1% redemption fee retained by the Fund or Funds which is imposed
only on certain redemptions by investors investing $ 1 million or more
("Substantial Investors") in Investor A Shares held less than 18 months and
purchased between July 31, 1997 and November 15, 1998. See "How To Redeem
Shares -- Redemption Fee."
3 Shareholder servicing fees for Nations Short-Term Income Fund are paid
pursuant to a separate Shareholder Servicing Plan. See "Shareholder
Servicing and Distribution Plans."
4
<PAGE>
NATIONS FUNDS INVESTOR A SHARES
<TABLE>
<CAPTION>
Nations
Strategic Nations Nations U.S.
Fixed Diversified Government
Shareholder Transaction Expenses Income Fund Income Fund Bond Fund
<S> <C> <C> <C>
Maximum Sales Load Imposed on Purchases (as a percentage of offering price) 3.25% 4.75% 4.75%
Maximum Deferred Sales Charge (as a percentage of the lower of the original
purchase price or redemption proceeds)(1) 1.00% 1.00% 1.00%
Redemption Fees Payable to the Fund None(2) None(2) None(2)
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management Fees (After Fee Waivers) .50% .50% .40%
Rule 12b-1 Fees (Including Shareholder Servicing Fees) (After Fee Waivers) .20% .25% .25%
Other Expenses (After Expense Reimbursements) .20% .23% .20%
Total Operating Expenses (After Fee Waivers and Expense Reimbursements) .90% .98% .85%
</TABLE>
1 Certain Investor A Shares that are purchased at net asset value are subject
to a Deferred Sales Charge if redeemed within two years of purchase. See
"Sales Charges".
2 There is a 1% redemption fee retained by the Fund or Funds which is imposed
only on certain redemptions by investors investing $1 million or more
("Substantial Investors") in Investor A Shares held less than 18 months and
purchased between July 31, 1997 and November 15, 1998. See "How To Redeem
Shares -- Redemption Fee."
NATIONS FUNDS INVESTOR B SHARES
<TABLE>
<CAPTION>
Nations Short- Nations Nations
Shareholder Nations Intermediate Government Strategic Nations Nations U.S.
Transaction Short-Term Government Securities Fixed Income Diversified Government
Expenses Income Fund Fund Fund Fund Income Fund Bond Fund
<S> <C> <C> <C> <C> <C> <C>
Sales Load Imposed on Purchases None None None None None None
Maximum Deferred Sales Charge (as
a percentage of the lower of the
original purchase price or
redemption proceeds)1 3.00% 3.00% 5.00% 3.00% 5.00% 5.00%
Annual Fund
Operating Expenses
(as a percentage
of average net assets)
Management Fees (After Fee
Waivers) .30% .40% .50% .50% .50% .40%
Rule 12b-1 Fees (After Fee Waivers) .10% .55% .60% .55% .60% .60%
Shareholder Servicing Fees .25% .25% .25% .25% .25% .25%
Other Expenses (After Expense
Reimbursements) .26% .21% .35% .20% .23% .20%
Total Operating Expenses (After Fee
Waivers and Expense
Reimbursements) .91% 1.41% 1.70% 1.50% 1.58% 1.45%
</TABLE>
1 Investor B Shares purchased prior to January 1, 1996 or after July 31, 1997
are subject to the Deferred Sales Charge as set forth in the applicable
schedule. The Maximum Deferred Sales Charge is 5.00% in the first year after
purchase, declining to 1.00% in the sixth year after purchase and eliminated
thereafter. For the applicable Deferred Sales Charge schedule see "How to
Redeem Shares -- Contingent Deferred Sales Charge."
5
<PAGE>
Examples: You would pay the following expenses on a $1,000 investment in
Investor A Shares of the indicated Fund, assuming (1) a 5% annual return and
(2) redemption at the end of each time period.
<TABLE>
<CAPTION>
Nations
Short- Nations Nations
Nations Intermediate Government Strategic Nations Nations U.S.
Short-Term Government Securities Fixed Income Diversified Government
Income Fund Fund Fund Fund Income Fund Bond Fund
<S> <C> <C> <C> <C> <C> <C>
1 Year $ 40 $ 41 $ 58 $ 41 $ 57 $ 56
3 Years $ 56 $ 58 $ 81 $ 60 $ 77 $ 73
5 Years $ 73 $ 76 $105 $ 81 $ 99 $ 92
10 Years $124 $129 $175 $140 $162 $147
</TABLE>
You would pay the following expenses on a $1,000 investment in Investor B
Shares of the indicated Fund, assuming (1) a 5% annual return and (2)
redemption at the end of each time period.
<TABLE>
<CAPTION>
Nations Short- Nations Nations
Nations Intermediate Government Strategic Nations Nations U.S.
Short-Term Government Securities Fixed Income Diversified Government
Income Fund Fund Fund Fund Income Fund Bond Fund
<S> <C> <C> <C> <C> <C> <C>
1 Year $ 39 $ 44 $ 67 $ 45 $ 66 $ 65
3 Years $ 49 $ 65 $ 84 $ 67 $ 80 $ 76
5 Years $ 50 $ 77 $112 $ 82 $106 $ 99
10 Years $108 $153 $185 $163 $172 $157
</TABLE>
You would pay the following expenses on a $1,000 investment in Investor B
Shares of the indicated Fund, assuming a 5% annual return and no redemption.
<TABLE>
<CAPTION>
Nations Short- Nations Nations
Nations Intermediate Government Strategic Nations Nations U.S.
Short-Term Government Securities Fixed Income Diversified Government
Income Fund Fund Fund Fund Income Fund Bond Fund
<S> <C> <C> <C> <C> <C> <C>
1 Year $ 9 $ 14 $ 17 $ 15 $ 16 $ 15
3 Years $ 29 $ 45 $ 54 $ 47 $ 50 $ 46
5 Years $ 50 $ 77 $ 92 $ 82 $ 86 $ 79
10 Years $108 $153 $185 $163 $172 $157
</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 and Investor B Shares will bear either directly or
indirectly. The figures contained in the above tables are based on amounts
incurred during each Fund's most recent fiscal year and have been adjusted as
necessary to reflect current service provider fees. There is no assurance that
any fee waivers and/or reimbursements will continue. In particular, to the
extent Other Expenses are less than those shown, waivers and/or reimbursements
of Management Fees, if any, may decrease. Shareholders will be notified of any
decrease that materially increases Total Operating Expenses. If fee waivers
and/or expense reimbursements are decreased or discontinued, the amounts
contained in the "Examples" above may increase. Long-term shareholders of the
Funds could pay more in sales charges than the economic equivalent of the
maximum front-end sales charges applicable to mutual funds sold by members of
the National Association of Securities Dealers, Inc. For more complete
descriptions of the Funds' operating expenses, see "How The Funds Are Man-
6
<PAGE>
aged." 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" and "Total Operating Expenses" for
Investor A Shares of the indicated Fund would have been as follows: Nations
Government Securities Fund -- .64% and 1.24%, respectively; and Nations
Diversified Income Fund -- .60% and 1.08%, respectively.
Absent fee waivers, "Management Fees," "12b-1 Fees" and "Total Operating
Expenses" for Investor A Shares of the indicated Fund would have been as
follows: Nations Short-Intermediate Government Fund -- .60%, .25% and 1.06%,
respectively; and Nations Short-Term Income Fund -- .60%, .25% and 1.11%,
respectively.
Absent fee waivers and expense reimbursements, "Management Fees," "Other
Expenses" and "Total Operating Expenses" for Investor A Shares of the indicated
Fund would have been as follows: Nations U.S. Government Bond Fund -- .60%,
.26% and 1.11%, respectively.
Absent fee waivers and expense reimbursements, "Management Fees," "12b-1 Fees,"
"Other Expenses" and "Total Operating Expenses" for Investor A Shares of the
indicated Fund would have been as follows: Nations Strategic Fixed Income Fund
- -- .60%, .25%, .23% and 1.08%, respectively.
Absent fee waivers, "Management Fees," "12b-1 Fees" and "Total Operating
Expenses" for Investor B Shares of the indicated Fund would have been as
follows: Nations Short-Term Income Fund -- .60%, .75% and 1.86%, respectively;
Nations Short-Intermediate Government Fund -- .60%, .75% and 1.81%,
respectively; Nations Government Securities Fund -- .64%, .75% and 1.99%,
respectively; and Nations Diversified Income Fund -- .60%, .75% and 1.83%,
respectively.
Absent fee waivers and expense reimbursements, "Management Fees," "12b-1 Fees,"
"Other Expenses" and "Total Operating Expenses" for Investor B Shares of the
indicated Fund would have been as follows: Nations Strategic Fixed Income Fund
- -- .60%, .75%, .23% and 1.83%, respectively; and Nations U.S. Government Bond
Fund -- .60%, .75%, .26% and 1.86%, respectively.
Effective May 1999, it is anticipated that certain voluntary Total Operating
Expenses limits put in place in connection with the reorganization of The Pilot
Funds into the Nations Funds will terminate with respect to the following
Funds: Nations Strategic Fixed Income Fund, Nations U.S. Government Bond Fund
and Nations Short Intermediate Government Bond Fund. For more information, see
the SAI.
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 Short-Term Income Fund: Nations Short-Term Income Fund's investment
objective is to seek high current income consistent with minimal fluctuation of
principal. The Fund invests in investment grade debt securities.
Nations Short-Intermediate Government Fund: Nations Short-Intermediate
Government Fund's investment objective is to seek high current income
consistent with modest fluctuation of principal. The Fund invests primarily in
securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities.
Nations Government Securities Fund: Nations Government Securities Fund's
investment objective is to seek high current income consistent with moderate
fluctuation of principal. The Fund invests primarily in intermediate-term
securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities.
7
<PAGE>
Nations Strategic Fixed Income Fund: Nations Strategic Fixed Income Fund's
investment objective is to seek total return by investing in investment grade
fixed income securities.
Nations Diversified Income Fund: Nations Diversified Income Fund's investment
objective is to seek total return with an emphasis on current income by
investing in a diversified portfolio of fixed income securities.
Nations U.S. Government Bond Fund: Nations U.S. Government Bond Fund's
investment objective is to seek total return and preservation of capital by
investing in U.S. Government securities and repurchase agreements
collateralized by such securities.
Although the Adviser will seek to achieve the Funds' investment objectives,
there is no assurance that it will be able to do so. No single Fund should be
considered, by itself, to provide a complete investment program for any
investor. Investments in the Funds are not insured against loss of principal.
How Objectives Are Pursued
Nations Short-Term Income Fund: In pursuing its investment objective, the Fund
will, under normal market conditions, invest at least 65% of the total value of
its assets in investment grade debt obligations. It is expected that the
average dollar-weighted maturity of the Fund will not exceed five years and the
duration of the Fund's portfolio will not exceed three years.
The Fund may invest in corporate convertible and non-convertible debt
obligations, including bonds, notes and debentures rated investment grade by
one of the following six nationally recognized statistical rating
organizations, Duff & Phelps Credit Rating Co. ("D&P"), Fitch IBCA ("Fitch"),
Standard & Poor's Corporation ("S&P"), Moody's Investors Service, Inc.
("Moody's"), or Thomson BankWatch, Inc. ("BankWatch") (collectively, "NRSROs"),
or, if not so rated, determined by the Adviser to be of comparable quality to
instruments so rated; dollar-denominated debt obligations of foreign issuers,
including foreign corporations and foreign governments and mortgage-related
securities of governmental issuers or of private issuers, including mortgage
pass-through certificates, collateralized mortgage obligations or "CMOs", real
estate investment trust securities or mortgage-backed bonds; other asset-backed
and municipal securities rated by one of the NRSROs, or, if not so rated,
determined by the Adviser to be of comparable quality to instruments so rated.
The Fund also may invest in obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities ("U.S. Government Obligations").
Most obligations acquired by the Fund will be issued by companies or
governmental entities located within the United States. The Fund may invest up
to 25% of its assets in foreign securities.
As noted above, the Fund will invest in investment grade debt obligations.
Obligations rated in the lowest of the top four investment grade rating
categories (E.G. rated "BBB" by S&P or "Baa" by Moody's) have speculative
characteristics, and changes in economic conditions or other circumstances are
more likely to lead to a weakened capacity to make principal and interest
payments than is the case with higher grade debt obligations. Subsequent to its
purchase by the Fund, an issue of securities may cease to be rated or its
rating may be reduced below the minimum rating required for purchase by the
Fund. The Adviser will consider such an event in determining whether the Fund
should continue to hold the obligation. See "Appendix B" below for a
description of these rating designations.
The Fund also may invest in "high quality" money market instruments, (i.e.,
those within the two highest rating categories or unrated instruments
determined by the Adviser to be of comparable quality), repurchase agreements
and cash. Such obligations may include those issued by foreign banks and
foreign branches of U.S. banks. These invest-
8
<PAGE>
ments may be in such proportions as, in the Adviser's opinion, prevailing
market or economic circumstances warrant.
Nations Short-Intermediate Government Fund: In pursuing its investment
objective, Nations Short-Intermediate Government Fund invests substantially all
of its assets in U.S. Government Obligations and repurchase agreements relating
to such obligations. Under normal market conditions, it is expected that the
average dollar-weighted maturity of the Fund's portfolio will be between three
and five years and the duration will not exceed five years. U.S. Government
Obligations have historically involved little risk of loss of principal if held
to maturity. However, due to fluctuations in interest rates, the market value
of such securities may vary during the period a shareholder owns shares of the
Fund. The value of the Fund's portfolio generally will vary inversely with
changes in prevailing interest rates.
The Fund also may invest in corporate convertible and non-convertible debt
obligations, including bonds, notes and debentures rated investment grade at
the time of purchase by one of the NRSROs, or if not so rated, determined by
the Adviser to be of comparable quality to instruments so rated;
dollar-denominated debt obligations of foreign issuers, including foreign
corporations and foreign governments; mortgage-related securities of
governmental issuers or of private issuers, including mortgage pass-through
certificates, CMOs, real estate investment trust securities or mortgage-backed
bonds; other asset-backed and municipal securities rated by one of the NRSROs,
or if not so rated, determined by the Adviser to be of comparable quality.
The Fund also may invest in "high quality" money market instruments, repurchase
agreements and cash. Such obligations may include those issued by foreign banks
and foreign branches of U.S. banks. These investments may be in such proportion
as, in the Adviser's opinion, prevailing market or economic circumstances
warrant.
Nations Government Securities Fund: In pursuing its investment objective,
Nations Government Securities Fund invests at least 65% of its assets in U.S.
Government Obligations. Under normal market conditions, it is expected that the
average dollar-weighted maturity of the Fund's portfolio will be between five
and 30 years.
The Fund also may invest in corporate convertible and non-convertible debt
obligations, including bonds, notes and debentures rated investment grade at
the time of purchase by one of the NRSROs, or if not so rated, determined by
the Adviser to be of comparable quality to instruments so rated;
dollar-denominated debt obligations of foreign issuers, including foreign
corporations and foreign governments; mortgage-related securities of
governmental issuers or of private issuers, including mortgage pass-through
certificates, CMOs, real estate investment trust securities or mortgage-backed
bonds; other asset-backed and municipal securities rated by one of the NRSROs,
or if not so rated, determined by the Adviser to be of comparable quality.
The Fund also may invest in "high quality" money market instruments, repurchase
agreements and cash. Such obligations may include those issued by foreign banks
and foreign branches of U.S. banks. These investments may be in such proportion
as, in the Adviser's opinion, prevailing market or economic circumstances
warrant.
Nations Strategic Fixed Income Fund: In pursuing its investment objective, the
Fund will, under normal market conditions, invest at least 65% of the total
value of its assets in investment grade fixed income securities. It is expected
that the average dollar-weighted maturity of the Fund's portfolio will be ten
years or less and under no circumstances will it exceed 15 years.
The Fund may invest in corporate convertible and non-convertible debt
obligations, including bonds, notes and debentures rated investment grade at
the time of purchase by one of the NRSROs, or if not so rated, determined by
the Adviser to be of comparable quality to instruments so rated; U.S.
Government Obligations; dollar-denominated debt obligations of foreign issuers,
including foreign corporations and foreign governments; mortgage-related
securities of governmental issuers or of private issuers, including mortgage
pass-through certificates, CMOs, real estate investment trust securities or
mortgage-backed bonds; other asset-backed and municipal securities rated by one
of the six NRSROs, or if not so rated, determined by
9
<PAGE>
the Adviser to be of comparable quality. The Fund also may invest in
dividend-paying preferred and common stock.
Most obligations acquired by the Fund will be issued by companies or
governmental entities located within the United States. The Fund may invest up
to 25% of its assets in foreign securities.
The Fund will invest in investment grade debt obligations. Obligations rated in
the lowest of the top four investment grade rating categories (E.G. rated "BBB"
by S&P or "Baa" by Moody's) have speculative characteristics, and changes in
economic conditions or other circumstances are more likely to lead to a
weakened capacity to make principal and interest payments than is the case with
higher grade debt obligations. Subsequent to its purchase by the Fund, an issue
of securities may cease to be rated or its rating may be reduced below the
minimum rating required for purchase by the Fund. The Adviser will consider
such an event in determining whether the Fund should continue to hold the
obligation. See "Appendix B" below for a description of these rating
designations.
The Fund also may invest in "high quality" money market instruments, repurchase
agreements and cash. Such obligations may include those issued by foreign banks
and foreign branches of U.S. banks. These investments may be in such
proportions as, in the Adviser's opinion, prevailing market or economic
circumstances warrant.
Nations Diversified Income Fund: In pursuing its investment objective, the Fund
will, under normal market conditions, invest at least 65% of the total value of
its assets in investment grade debt obligations. It is expected that the
average dollar-weighted maturity of the Fund's portfolio will be greater than
five years.
The Fund may invest in corporate convertible and non-convertible debt
obligations; U.S. Government Obligations; dollar-denominated and non-
dollar-denominated debt obligations of foreign issuers, including foreign
corporations and foreign governments; mortgage-related securities of
governmental issuers or of private issuers, including mortgage pass-through
certificates, CMOs, real estate investment trust securities or mortgage-backed
bonds; other asset-backed and municipal securities rated by one of the NRSROs,
or if not so rated, determined by the Adviser to be of comparable quality.
Most obligations acquired by the Fund will be issued by companies or
governmental entities located within the United States. The Fund may invest up
to 25% of its assets in foreign securities.
Obligations rated in the lowest of the top four investment grade rating
categories (E.G. rated "BBB" by S&P or "Baa" by Moody's) have speculative
characteristics, and changes in economic conditions or other circumstances are
more likely to lead to a weakened capacity to make principal and interest
payments than is the case with higher grade debt obligations.
Up to 35% of the total value of the Fund's assets may be invested in
lower-quality fixed income securities rated "B" or better by Moody's or S&P, or
if not so rated, determined by the Adviser to be of comparable quality.
Securities which are rated "B" generally lack characteristics of the desirable
investment, and assurance of interest and principal payment over any long
period of time may be limited. Non-investment grade debt securities are
sometimes referred to as "high yield bonds" or "junk bonds." They tend to have
speculative characteristics, generally involve more risk of principal and
income than higher rated securities, and have yields and market values that
tend to fluctuate more than higher quality securities.
Subsequent to its purchase by the Fund, an issue of securities may cease to be
rated or its rating may be reduced below the minimum rating required for
purchase by the Fund. The Adviser will consider such an event in determining
whether the Fund should continue to hold the obligation. See "Appendix B" below
for a description of these rating designations.
The Fund may hold or invest in "high quality" money market instruments,
repurchase aggreements and cash. Such obligations may include those issued by
foreign banks and foreign branches of U.S. banks. These investments may be in
such proportions as, in the Adviser's opinion, prevailing market or economic
circumstances warrant.
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Nations U.S. Government Bond Fund: Under normal market conditions, the Fund
will invest at least 65% of its total assets in U.S. Government securities and
repurchase agreements collateralized by such securities. While the maturity of
individual securities will not be restricted, except during temporary defensive
periods or unusual market conditions, the average dollar-weighted maturity of
the Fund will be between five and 30 years. The Fund may invest in a variety of
U.S. Government Obligations. The Fund may also invest in interests in the
foregoing securities, including collateralized mortgage obligations issued or
guaranteed by a U.S. Government agency or instrumentality. U.S. Government
Obligations have historically had a very low risk of loss of principal if held
to maturity. The Fund, however, can give no assurance that the U.S. Government
would provide financial support to its agencies or instrumentalities if it were
not legally required to do so.
The Fund may also invest up to 35% of its total assets in debt securities of
U.S. and foreign corporate and foreign government issuers, American Depository
Receipts ("ADRs") and European Depository Receipts ("EDRs"), zero coupon bonds
and cash equivalents. The Fund will purchase only those non-government
investments which are rated investment grade or better by at least one NRSRO
or, if unrated, are determined by the Adviser to be of comparable quality. If a
portfolio security held by the Fund ceases to be rated investment grade by at
least one NRSRO or if the Adviser determines that an unrated portfolio security
held by the Fund is no longer of comparable quality to an investment grade
security, the security will be sold in an orderly manner as quickly as
possible. Additionally, the Fund may also invest in futures contracts, interest
rate swaps and options.
The value of the Fund's portfolio (and consequently its shares) is expected to
fluctuate inversely in relation to changes in the direction of interest rates.
For more information concerning these and other investments in which the Fund
may invest, see "Appendix A".
General: Each of the Funds may invest in certain specified derivative
securities, including: interest rate swaps, caps and floors for hedging
purposes; exchange-traded options; over-the-counter options executed with
primary dealers, including long calls and puts and covered calls to enhance
return; and U.S. and foreign exchange-traded financial futures and options
thereon approved by the Commodity Futures Trading Commission (the "CFTC") for
market exposure risk-management. Each of the Funds also may lend its portfolio
securities to qualified institutional investors and may invest in repurchase
agreements, restricted, private placement and other illiquid securities. Each
of the Funds may engage in reverse repurchase agreements and in dollar roll
transactions. Additionally, each Fund may purchase securities issued by other
investment companies, consistent with the Fund's investment objective and
policies.
The Funds also may invest in instruments issued by trusts or certain
partnerships including pass-through certificates representing participations
in, or debt instruments backed by, the securities and other assets owned by
such trusts and partnerships.
Certain securities that have variable or floating interest rates or demand, put
or prepayment features may be deemed to have remaining maturities shorter than
their nominal maturities for purposes of determining the average weighted
maturity of the Funds.
Duration, as used in this Prospectus, means modified duration, which is a
measure of the expected life of fixed income securities on a present value
basis. Duration is used to estimate how much a Fund's share price will
fluctuate in response to a change in interest rates. To see how a Fund's share
price could shift, multiply the Fund's duration by the change in rates. If
interest rates rise by one percentage point, for example, the share price of a
Fund with a duration of five years would decline by about 5%. If rates decrease
by one percentage point, the Fund's share price would rise by about 5%.
Average dollar-weighted maturity is the average length of time until fixed
income securities held by a Fund reach maturity and are repaid. In general, the
longer the average dollar-weighted maturity, the more a Fund's share price will
fluctuate in response to changes in interest rates.
Although changes in the value of securities subsequent to their acquisition are
reflected in the net asset value of the Funds' shares, such changes
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will not affect the income received by the Funds from such securities. However,
since available yields vary over time, no specific level of income can ever be
assured. The dividends paid by the Funds will increase or decrease in relation
to the income received by the Funds from their investments, which will in any
case be reduced by the Funds' expenses before being distributed to the Funds'
shareholders.
For more information concerning these and other instruments in which the Funds
may invest their investment practices, see "Appendix A".
Portfolio Turnover: Generally, the Funds will purchase portfolio securities for
capital appreciation or investment income, or both, and not for short-term
trading profits. If a Fund's annual portfolio turnover rate exceeds 100%, it
may result in higher brokerage costs and possible tax consequences for the Fund
and its shareholders. For the Funds' portfolio turnover rates, see "Financial
Highlights."
Risk Considerations: The value of a Fund's investments in debt securities,
including U.S. Government Obligations, will tend to decrease when interest
rates rise and increase when interest rates fall. In general, longer-term debt
instruments tend to fluctuate in value more than shorter-term debt instruments
in response to interest rate movements. In addition, debt securities that are
not backed by the United States Government are subject to credit risk, which is
the risk that the issuer may not be able to pay principal and/or interest when
due.
Investments by a Fund in common stocks and other equity securities are subject
to stock market 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' investments constitute derivative securities, which are
securities whose value is derived, at least in part, from an underlying index
or reference rate. There are certain types of derivative securities that can,
under particular circumstances, significantly increase a purchaser's exposure
to market or other risks. The Adviser, however, only purchases derivative
securities in circumstances where it believes such purchases are consistent
with such Fund's investment 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."
Year 2000 Issue: Many computer programs employed throughout the world use two
digits to identify the year. Unless modified, these programs may not correctly
handle the change from "99" to "00" on January 1, 2000, and may not be able to
perform necessary functions. Any failure to adapt these programs in time could
hamper the Funds' operations. The Funds' principal service providers have
advised the Funds that they have been actively working on implementing
necessary changes to their systems, and that they expect that their systems
will be adapted in time, although there can be no assurance of success. Because
the Year 2000 issue affects virtually all organizations, the companies or
governmental entities in which the Funds invest could be adversely impacted by
the Year 2000 issue, although the extent of such impact cannot be predicted. To
the extent the impact on a portfolio holding is negative, a Fund's return could
be adversely affected.
Investment Limitations: Each Fund is subject to a number of investment
limitations. The following investment limitations are matters of fundamental
policy and may not be changed without the affirmative vote of the holders of a
majority of the Fund's outstanding shares. Other investment limitations that
cannot be changed without such a vote of shareholders are described in the SAI.
Each Fund may not:
1. Purchase any securities which would cause 25% or more of the value of the
Fund's total assets at the time of such purchase to be invested in the
securities of one or more issuers conducting their principal activities in the
same industry, provided that this limitation does not apply to investments in
obligations issued or guaranteed by the U.S. Government or its agencies and
instrumentalities.
2. Make loans, except that a Fund may purchase and hold debt instruments
(whether such instruments are part of a public offering or privately placed),
may enter into repurchase agreements and may lend portfolio securities in
accordance with its investment policies.
3. Purchase securities of any one issuer (other than securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities) if, imme-
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diately after such purchase, more than 5% of the value of such Fund's total
assets would be invested in the securities of such issuer, except that up to
25% of the value of the Fund's total assets may be invested without regard to
these limitations and with respect to 75% of such Fund's assets, such Fund will
not hold more than 10% of the voting securities of any issuer.
Nations U.S. Government Bond Fund may not borrow money except as a temporary
measure for extraordinary or emergency purposes or except in connection with
reverse repurchase agreements and mortgage rolls; provided that the Fund will
maintain asset coverage of 300% for all borrowings.
The investment objective and policies of each Fund, unless otherwise specified,
may be changed without shareholder approval. Shareholders of Nations U.S.
Government Bond Fund, however, must receive at least 30 days' prior written
notice in the event an investment objective is changed. 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 the Funds may be calculated on an average annual total
return basis or an aggregate total return basis. Average annual total return
refers to the average annual compounded rates of return over one-, five-, and
ten-year periods or the life of a Fund (as stated in a Fund's advertisement)
that would equate an initial amount invested at the beginning of a stated
period to the ending redeemable value of the investment (reflecting the
deduction of any applicable contingent deferred sales charge ("CDSC")),
assuming the reinvestment of all dividend and capital gain distributions.
Aggregate total return reflects the total percentage change in the value of the
investment over the measuring period again assuming the reinvestment of all
dividends and capital gain distributions. Total return may also be presented
for other periods or may not reflect a deduction of any applicable CDSC.
"Yield" is calculated by dividing the annualized net investment income per
share during a recent 30-day (or one month) period of a class of shares by the
maximum public offering price per share on the last day of that period. The
yield on a class of shares does not reflect the deduction of any applicable
CDSC.
Investment performance, which will vary, is based on many factors, including
market conditions, the composition of the Funds' portfolios and the Funds'
operating expenses. Investment performance also often reflects the risks
associated with the Fund's investment objective and policies. These factors
should be considered when comparing a Fund's investment results to those of
other mutual funds and other investment vehicles. Since yields fluctuate, yield
data cannot necessarily be used to compare an investment in the Funds with bank
deposits, savings accounts, and similar investment alternatives which often
provide an agreed-upon or guaranteed fixed yield for a stated period of time.
In addition to Investor A and Investor B 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. The Funds'
annual report contains additional performance information and is available upon
request without charge from the Funds' distributor or an investor's agent or by
calling Nations Funds at the toll-free number indicated on the cover of this
Prospectus.
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How The Funds Are Managed
The business and affairs of each of Nations Fund Trust and Nations Fund, Inc.
are managed under the direction of its Board of Trustees and Board of
Directors, respectively. The SAI contains the names of and general background
information concerning each Trustee of Nations Fund Trust and each Director of
Nations Fund, Inc.
As described below, each Fund is advised by NBAI which is responsible for the
overall management and supervision of the investment management of each Fund.
Each Fund also is sub-advised by a separate investment sub-adviser, which as a
general matter is responsible for the day-to-day investment decisions for the
respective Fund.
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.
NationsBank Corporation, the parent company of NationsBank, has signed an
agreement to merge with BankAmerica Corporation. The proposed merger is subject
to certain regulatory approvals and must be approved by shareholders of both
holding companies. The merger is expected to close in the second half of 1998.
NationsBank and NBAI have advised the Funds that the merger will not reduce the
level or quality of advisory and other services provided to the Funds.
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 all of the Funds, except Nations U.S. Government Bond Fund.
TradeStreet is a wholly owned subsidiary of NationsBank. TradeStreet provides
investment management services to individuals, corporations and institutions.
Boatmen's Capital Management, Inc. serves as investment sub-adviser to Nations
U.S. Government Bond Fund. Its principal offices are located at 100 North
Broadway, St. Louis, Missouri 63102. Boatmen's is a wholly owned subsidiary of
NationsBank.
Subject to the general supervision of Nations Fund Trust's Board of Trustees
and Nations Fund, Inc.'s Board of Directors, and in accordance with each Fund's
investment policies, the Adviser formulates guidelines and lists of approved
investments for each Fund, makes decisions with respect to and places orders
for each Fund's purchases and sales of portfolio securities and maintains
records relating to such purchases and sales. The Adviser is authorized to
allocate purchase and sale orders for portfolio securities to certain financial
institutions, including, in the case of agency transactions, financial
institutions which are affiliated with the Adviser or which have sold shares in
such Funds, if the Adviser believes that the quality of the transaction and the
commission are comparable to what they would be with other qualified brokerage
firms. From time to time, to the extent consistent with its investment
objective, policies and restrictions, each Fund may invest in securities of
companies with which NationsBank has a lending relationship.
For the services provided and expenses assumed pursuant to various investment
advisory agreements, NBAI is entitled to receive advisory fees, computed daily
and paid monthly, at the annual rate of: .60% of the average daily net assets
of each of Nations Short-Term Income Fund, Nations Diversified Income Fund,
Nations U.S. Government Bond Fund, Nations Strategic Fixed Income Fund and
Nations Short-Intermediate Government Fund; .65% of the first $100 million of
Nations Government Securities Fund's average daily net assets, plus .55% of the
Fund's average daily net assets in excess of
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$100 million and up to $250 million, plus .50% of the Fund's average daily net
assets in excess of $250 million.
For the services provided pursuant to investment sub-advisory agreements, NBAI
will pay TradeStreet sub-advisory fees, computed daily and paid monthly, at the
annual rate of .15% of Nations Short-Intermediate Government Fund's, Nations
Government Securities Fund's, Nations Short-Term Income Fund's, Nations
Strategic Fixed Income Fund's and Nations Diversified Income Fund's average
daily net assets.
NBAI will pay Boatmen's sub-advisory fees at the rate of .15% of the average
daily net assets of Nations U.S. Government Bond Fund.
From time to time, NBAI (and/or TradeStreet and/or Boatmen's) may waive or
reimburse (either voluntarily or pursuant to applicable state limitations)
advisory fees and/or expenses payable by a Fund.
For the fiscal period from April 1, 1997 to March 31, 1998, after waivers,
Nations Fund Trust paid NBAI under the investment advisory agreement, advisory
fees at the indicated rates of the following Funds' average daily net assets:
Nations Short-Intermediate Government Fund -- .40%, Nations Short-Term Income
Fund -- .30%, Nations Diversified Income Fund -- .50% and Nations Strategic
Fixed Income Fund -- .48%.
For the fiscal period from April 1, 1997 to March 31, 1998, after waivers,
Nations Fund, Inc. paid NBAI under the investment advisory agreement, advisory
fees at the indicated rates of the following Funds' average daily net assets:
Nations Government Securities Fund -- .50% and Nations U.S. Government Bond
Fund -- .33%.
For the fiscal period from April 1, 1997 to March 31, 1998, after waivers, NBAI
paid TradeStreet under the investment sub-advisory agreements, sub-advisory
fees at the indicated rates of the following Funds' average daily net assets:
Nations Short-Intermediate Government Fund -- .15%, Nations Short-Term Income
Fund -- .15%, Nations Diversified Income Fund -- .15%, Nations Strategic Fixed
Income Fund -- .15% and Nations Government Securities Fund -- .15%.
For the fiscal period from April 1, 1997 to March 31, 1998, after waivers, NBAI
paid Boatmen's under the investment sub-advisory agreement, sub-advisory fees
at the rate of .15% of Nations U.S. Government Bond Fund.
The Fixed Income Management Team of TradeStreet is responsible for the
day-to-day management of Nations Short-Intermediate Government Fund, Nations
Government Securities Fund, Nations Short-Term Income Fund, Nations Diversified
Income Fund and Nations Strategic Fixed Income Fund.
The Fixed Income Committee of Boatmen's is responsible for the day-to-day
management of Nations U.S. Government Bond Fund.
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 various investment
advisory agreements and this Prospectus without violation of the Glass-Steagall
Act. Such counsel has pointed out, however, that there are no controlling
judicial or administrative interpretations or decisions and that future
judicial or administrative interpretations of, or decisions relating to,
present federal or state statutes, including the Glass-Steagall Act, and
regulations relating to the permissible activities of banks and their
subsidiaries or affiliates, as well as future changes in federal or state
statutes, including the Glass-Steagall Act, and regulations and judicial or
administrative decisions or interpretations thereof, could prevent such
entities from continuing to perform, in whole or in part, such services. If any
such entity were prohibited from performing any of such services, it is
expected that new agreements would be proposed or entered into with another
entity or entities qualified to perform such services.
Other Service Providers: Stephens Inc. ("Stephens"), with principal offices at
111 Center Street, Little Rock, Arkansas 72201, serves as the administrator of
the Funds pursuant to administration agreements. Pursuant to the terms of the
administration agreements, Stephens provides various administrative and
corporate secretarial services to the Funds, including providing general
oversight of other service providers, office space, utilities and various legal
and administrative services in
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connection with the satisfaction of various regulatory requirements applicable
to the Funds.
First Data Investor Services Group, Inc. ("First Data") a wholly owned
subsidiary of First Data Corporation, with principal offices at One Exchange
Place, Boston, Massachusetts 02109, serves as the co-administrator of the Funds
pursuant to a co-administration agreement. Under the co-administration
agreement, First Data provides various administrative and accounting services
to the Funds including performing the calculations necessary to determine the
net asset value per share and dividends of each class of shares of the Funds,
preparing tax returns and financial statements and maintaining the portfolio
records and certain of the general accounting records for the Funds.
For the services rendered pursuant to the administration and co-administration
agreements, Stephens and First Data are entitled to receive a combined fee at
the annual rate of up to 0.10% of each Fund's average daily net assets.
For the fiscal period from April 1, 1997 to March 31, 1998, after waivers,
Nations Fund Trust paid its administrators combined fees at the indicated rates
of the following Funds' average daily net assets: Nations Short-Intermediate
Government Fund -- .10%, Nations Short-Term Income Fund -- .10%, Nations
Diversified Income Fund -- .10% and Nations Strategic Fixed Income Fund --
.10%.
For the fiscal period from April 1, 1997 to March 31, 1998, after waivers,
Nations Fund, Inc. paid its administrators combined fees at the indicated rates
of the following Funds' average daily net assets: Nations Government Securities
Fund -- .10% and Nations U.S. Government Bond Fund -- .10%.
NBAI serves as sub-administrator for the Funds pursuant to a sub-administration
agreement. Pursuant to the terms of the sub-administration agreement, NBAI
assists Stephens in supervising, coordinating and monitoring various aspects of
the Funds' administrative operations. For providing such services, NBAI shall
be entitled to receive a monthly fee from Stephens based on an annual rate of
.01% of the Funds' average daily net assets.
Shares of the Funds are sold on a continuous basis by Stephens, as the Funds'
sponsor and distributor. Stephens is a registered broker/dealer. 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 B Shares of the Funds. See "Shareholder Servicing And
Distribution Plans."
The Bank of New York ("BONY" or the "Custodian"), located at 90 Washington
Street, New York, New York 10286, provides custodial services for the assets of
all the Funds, except the international portfolios. In return for providing
custodial services to the Nations Funds Family, BONY is entitled to 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 Funds' non-money
market funds up to $10 billion; and (ii) 1/2 of one basis point on the excess,
including all Nations Funds' money market funds.
First Data serves as transfer agent (the "Transfer Agent") for the Funds'
Investor B Shares. The Transfer Agent is located at One Exchange Place, Boston,
Massachusetts 02109.
PricewaterhouseCoopers LLP serves as independent accountants to Nations Funds.
Their address is 160 Federal Street, Boston, Massachusetts 02110.
Expenses: The accrued expenses of each Fund are deducted from the Funds'
accrued income before dividends are declared. These expenses include, but are
not limited to: fees paid to the Adviser, Stephens and First Data; interest;
fees (including fees paid to Nations Funds' Directors, Trustees and officers);
federal and state securities registration and qualification fees; brokerage
fees and commissions; costs of preparing and printing prospectuses for
regulatory purposes and for distribution to existing shareholders; charges of
the Custodian and Transfer Agent; certain insurance premiums; outside auditing
and legal expenses; costs of shareholder reports and shareholder meetings;
other expenses which are not expressly assumed by the Adviser, Stephens or
First Data under their respective agreements with Nations Funds; and any
extraordinary expenses. Investor A and Investor B Shares may bear certain class
specific expenses
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and also bear certain additional shareholder service and sales support costs.
Any general expenses of Nations Fund Trust and/or Nations Fund, Inc. that are
not readily identifiable as belonging to a particular investment portfolio are
allocated among all portfolios in the proportion that the assets of a portfolio
bear to the assets of Nations Fund Trust or Nations Fund, Inc. or in such other
manner as the Board of Trustees or the Boards of Directors deems appropriate.
Organization And History
The Funds are members of the Nations Funds Family, which consists of Nations
Fund Trust, Nations Fund, Inc., Nations Fund Portfolios, Inc., Nations
Institutional Reserves, Nations Annuity Trust and Nations LifeGoal Funds, Inc.
The Nations Funds Family currently has more than 60 distinct investment
portfolios and total assets in excess of $40 billion.
Nations Fund Trust: Nations Fund Trust was organized as a Massachusetts
business trust on May 6, 1985. Nations Fund Trust's fiscal year end is March
31; prior to 1996, Nations Fund Trust's fiscal year end was November 30. The
Funds currently offer five classes of shares -- Primary A Shares, Primary B
Shares, Investor A Shares, Investor B Shares and Investor C Shares. This
Prospectus relates only to the Investor A and Investor B Shares of the
following Funds of Nations Fund Trust: Nations Short-Term Income Fund, Nations
Diversified Income Fund, Nations Strategic Fixed Income Fund and Nations
Short-Intermediate Government 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 the SAI for examples of when the Investment
Company Act of 1940, as amended (the "1940 Act") requires voting by fund.
As of August 1, 1998, NationsBank and its affiliates possessed or shared power
to dispose or vote with respect to more than 25% of the outstanding shares of
Nations Fund Trust and therefore could be considered to be a controlling person
of Nations Fund Trust for purposes of the 1940 Act. For more detailed
information concerning the percentage of each class or series of shares over
which NationsBank and its affiliates possessed or shared power to dispose or
vote as of a certain date, see the SAI.
Nations Fund Trust does not presently intend to hold annual meetings except as
required by the 1940 Act. Shareholders will have the right to remove Trustees.
Nations Fund Trust's Code of Regulations provides that special meetings of
shareholders shall be called at the written request of the shareholders
entitled to vote at least 10% of the outstanding shares of Nations Fund Trust
entitled to be voted at such meeting.
Nations Fund, Inc.: Nations Fund, Inc. was incorporated in Maryland on December
13, 1983, but had no operations prior to December 15, 1986. Nations Fund,
Inc.'s fiscal year end is March 31; prior to 1996, Nations Fund, Inc.'s fiscal
year end was May 31. As of the date of this Prospectus, the authorized capital
stock of Nations Fund, Inc. consists of 460,000,000,000 shares of common stock,
par value of $.001 per share, which are divided into series or funds each of
which consists of separate
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classes of shares. This Prospectus relates only to the Investor A and Investor B
Shares of the following Funds of Nations Fund, Inc.: Nations Government
Securities Fund and Nations U.S. Government Bond Fund. To obtain additional
information regarding the Fund's other classes of shares which may be available
to you, contact your Agent (as defined below) or Nations Funds at
1-800-321-7854.
Shares of each fund and class have equal rights with respect to voting, except
that the holders of shares of a particular fund or class will have the
exclusive right to vote on matters affecting only the rights of the holders of
such fund or class. In the event of dissolution or liquidation, holders of each
class will receive pro rata, subject to the rights of creditors, (a) the
proceeds of the sale of that portion of the assets allocated to that class held
in the respective fund of Nations Fund, Inc., less (b) the liabilities of
Nations Fund, Inc. attributable to the respective fund or class or allocated
among the funds or classes based on the respective liquidation value of each
fund or class.
Shareholders of Nations Fund, Inc. do not have cumulative voting rights, and
therefore the holders of more than 50% of the outstanding shares of all funds
voting together for election of directors may elect all of the members of the
Board of Directors of Nations Fund, Inc. Meetings of shareholders may be called
upon the request of 10% or more of the outstanding shares of Nations Fund, Inc.
There are no preemptive rights applicable to any of Nations Fund, Inc.'s
shares. Nations Fund, Inc.'s shares, when issued, will be fully paid and non-
As of August 1, 1998, NationsBank and its affiliates possessed or shared power
to dispose of or vote with respect to more than 25% of the outstanding shares
of Nations Fund, Inc. and therefore could be considered to be a controlling
person of Nations Fund, Inc. for purposes of the 1940 Act. For more detailed
information concerning the percentage of each class or series over which
NationsBank and its affiliates possessed or shared power to dispose or vote as
of a certain date, see the SAI. It is anticipated that Nations Fund, Inc. will
not hold annual shareholder meetings on a regular basis unless required by the
1940 Act or Maryland law.
Because this Prospectus combines disclosure on two separate investment
companies, there is a possibility that one investment company could become
liable for a misstatement, inaccuracy or incomplete disclosure in this
Prospectus concerning another investment company. Nations Fund Trust and
Nations Fund, Inc. have entered into an indemnification agreement that creates
a right of indemnification from the investment company responsible for any such
misstatement, inaccuracy or incomplete disclosure that may appear in this
Prospectus.
About Your Investment
How To Buy Shares
This Prospectus offers two classes of shares to the general public. Investor A
Shares are sold with an initial sales charge and are subject to a contingent
deferred sales charge ("CDSC") upon certain redemptions; Investor B Shares are
sold without an initial sales charge and are subject to a CDSC upon certain
redemptions. Investments greater than $250,000 (including current holdings in
the Nations Funds Family) are not eligible to purchase Investor B Shares but
may be directed to Investor A Shares. See "Factors to Consider When Selecting
Investor A Shares or Investor B Shares" for a discussion of issues to consider
in selecting which class of shares to purchase. Contact your Agent or Nations
Funds at 1-800-321-7854 for further information.
The Funds have established various procedures for purchasing Investor A Shares
and Investor B Shares in order to accommodate different investors. Purchase
orders may be placed through banks, broker/dealers or other financial
institutions (includ-
18
<PAGE>
ing certain affiliates of NationsBank) that have entered into a shareholder
servicing agreement ("Servicing Agreement") with NationsBank ("Servicing
Agents") sales support agreement ("Sales Support Agreement") with Stephens
("Selling Agents"). In addition, under certain circumstances, Investor A Shares
may be purchased directly from the Funds.
There is a minimum initial investment of $1,000 in the Funds, except that the
minimum initial investment is:
o $500 for IRA investors;
o $250 for non-working spousal IRAs;
o $250 for accounts established with certain fee-based investment advisers
or financial planners, including wrap fee accounts and other managed
agency/asset allocation accounts; and
o $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"), Savings Incentives Method Plans for
Employees ("SIMPLE IRAs"), salary reduction-Individual Retirement Accounts
("SAR-IRAs") or similar types of accounts. However, the assets of such plans
must reach an asset value of $1,000 ($500 for SEPs, SAR-SEPs, SIMPLE IRAs, 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 plus any applicable sales
charge. Investor B Shares are purchased at net asset value per share without
the imposition of a sales charge, but are subject to a CDSC if redeemed within
a specified period after purchase. 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 A and Investor B 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 and Stephens reserve the right to reject any purchase order. The
issuance of Investor A and Investor B Shares is recorded on the books of the
Funds, and share certificates are not issued unless expressly requested in
writing. Certificates are not issued for fractional shares.
Effective Time of Purchases: Purchase orders for Investor A Shares and Investor
B Shares in the Funds which are received by Stephens, the Transfer Agent or
their respective agents before the close of regular trading 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. In the event that the Exchange
closes early, purchase orders received prior to closing will be priced as of
the time the Exchange closes and purchase orders received after the Exchange
closes will be deemed received on the next Business Day and priced according to
the net asset value determined on the next Business Day. Purchase orders 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 the receipt of the order, as
determined above. 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
and Investor B 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"), sharehold-
19
<PAGE>
ers may automatically purchase Investor A or Investor B Shares. On a bi-monthly
or quarterly basis, shareholders may direct cash to be transferred
automatically from their checking or savings account at any bank which is a
member of the Automated Clearing House to their Fund account. Transfers will
occur on or about the 15th and/or the last day of the applicable month. Subject
to certain exceptions for employees of NationsBank and its affiliates and
pre-existing SIP accounts, the systematic investment amount may be in any
amount from $50 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. Shareholders should be aware that during periods of
significant economic or market change, telephone transactions may be difficult
to complete.
Conversion Feature: Investor B Shares purchased after November 15, 1998, will
automatically convert to Investor A Shares at the end of the month in which the
eighth anniversary of such share purchase occurs.
Investor B Shares purchased between August 1, 1997 and November 15, 1998, that
have been outstanding for the number of years set forth in the applicable
schedule below will, at the end of the month in which the anniversary of such
share purchase occurs, automatically convert to Investor A Shares.
CONVERSION SCHEDULES
This conversion feature applies to Nations Short-Intermediate Government Fund
and Nations Strategic Fixed Income Fund in the manner described by the schedule
below:
<TABLE>
<CAPTION>
AMOUNT OF PURCHASE YEAR OF CONVERSION
<S> <C>
$ 0--$249,999 6th
$250,000--$499,999 6th
$500,000--$999,999 5th
</TABLE>
This conversion feature also applies to the following Funds in the manner
described by the schedule below: Nations Government Securities Fund, Nations
Diversified Income Fund and Nations U.S. Government Bond Fund:
<TABLE>
<CAPTION>
AMOUNT OF PURCHASE YEAR OF CONVERSION
<S> <C>
$ 0--$249,999 9th
$250,000--$499,999 6th
$500,000--$999,999 5th
</TABLE>
Investor B Shares of Nations Short-Intermediate Government Fund and Nations
Strategic Fixed Income Fund purchased prior to August 1, 1997, will
automatically convert to Investor A Shares at the end of the month in which the
sixth anniversary of such share purchase occurs.
Investor B Shares of Nations Government Securities Fund, Nations Diversified
Income Fund and Nations U.S. Government Bond Fund purchased prior to August 1,
1997, will automatically convert to Investor A Shares at the end of the month
in which the ninth anniversary of such share purchase occurs.
Upon conversion, shareholders will receive Investor A Shares having a total
dollar value equal to the total dollar value of their Investor B Shares,
without the imposition of any sales charge or other charge. The operating
expenses applicable to Investor A Shares, which are lower than those applicable
to Investor B Shares, shall thereafter be applied to such newly converted
shares. Shareholders holding converted shares will benefit from the lower
20
<PAGE>
annual operating expenses of Investor A Shares, which will have a positive
effect on total returns. In each case, shareholders have the right to decline
an automatic conversion by notifying their Agent or the Transfer Agent within
90 days before a conversion that they do not desire such conversion.
Reinvestments of dividends and distributions in Investor B Shares will be
considered a new purchase for purposes of the conversion period. If a
shareholder effects one ormore exchanges among Investor B Shares of the
Non-Money Market Funds of Nations Funds during such period, the holding period
for shares so exchanged will be counted toward such period.
Factors to Consider When Selecting Investor A Shares or Investor B Shares:
Before purchasing Investor A Shares or Investor B Shares, investors should
consider whether, during the anticipated life of their investment in the Funds,
the initial sales charge, accumulated distribution and shareholder servicing
fee and potential CDSC (if applicable) on Investor A Shares would be less than
the accumulated shareholder servicing and distribution fees and potential CDSC
on Investor B Shares. Over time, the cumulative expense of the annual
shareholder servicing and distribution fees on the Investor B Shares may equal
or exceed the initial sales chage and combined distribution and servicing fee
applicable to Investor A Shares.
Because holders of Investor A Shares are subject to a lower fee for
distribution and shareholder services, they can be expected to earn
correspondingly higher dividends per share. However, because initial sales
charges are deducted at the time of purchase, purchasers of Investor A Shares
that do not qualify for waivers of or reductions in the initial sales charge
would have less of their purchase price initially invested in the Funds than
purchasers of Investor B Shares. Any positive investment return on the
additional invested amount for Investor B Shares, however, would be partially
or wholly offset by the expected higher annual expenses borne by Investor B
Shares.
Investor A Shares -- Charges and Features
The public offering price of Investor A Shares in the Funds is the sum of the
net asset value per share of the shares being purchased plus any applicable
sales charge. No sales charge will be assessed on the reinvestment of dividends
or other distributions.
The following schedule of sales charges will be assessed on Investor A Shares
of Nations U.S. Government Bond Fund, Nations Government Securities Fund and
Nations Diversified Income Fund.
<TABLE>
<CAPTION>
Dealers'
Total Sales Charge Reallowance
As a % of As a % of As a % of
Offering Net Asset Offering
Amount of Price Value Price
Transaction Per Share Per Share Per Share
<S> <C> <C> <C>
$ 0-$50,000 4.75 5.00 4.25
$ 50,000-$99,999 4.50 4.71 4.00
$100,000-$249,999 3.50 3.63 3.00
$250,000-$499,999 2.50 2.56 2.25
$500,000-$999,999 2.00 2.04 1.75
$1,000,000 and over 0.00* 0.00* 0.00**
</TABLE>
The following schedule of sales charges will be assessed on Investor A Shares
of Nations Short-Term Income Fund, Nations Short- Intermediate Government Fund
and Nations Strategic Fixed Income Fund.
21
<PAGE>
<TABLE>
<CAPTION>
Dealers'
Total Sales Charge Reallowance
As a % of As a % of As a % of
Offering Net Asset Offering
Amount of Price Value Price
Transaction Per Share Per Share Per Share
<S> <C> <C> <C>
$ 0-$100,000 3.25 3.36 3.00
$100,000-$249,999 2.50 2.56 2.25
$250,000-$499,999 2.00 2.04 1.75
$500,000-$999,999 1.50 1.53 1.25
$1,000,000 and over 0.00* 0.00* 0.00**
</TABLE>
* Subject to certain waivers specified below, Investor A Shares that are
purchased in amounts of $1 million or more at net asset value will be
subject to a Contingent Deferred Sales Charge ("CDSC") of 1.00% if
redeemed within one year of purchase, declining to 0.50% in the second
year after purchase and eliminated thereafter.
** 1.00% on first $3,000,000, plus 0.50% on the next $47,000,000, plus 0.25% on
amounts over $50,000,000. Stephens will pay the Dealers' Reallowance in
connection with the purchase of shares in amounts of $1 million or more,
for which it may be reimbursed out of the CDSC if such shares are redeemed
within two years of purchase.
The Dealers' Reallowance, which may be changed from time to time, is paid to
Agents.
Investor A Shares Contingent Deferred Sales Charge: Subject to certain waivers
specified below, Investor A Shares of the Funds that are purchased at net asset
value in amounts of $1 million or more will be subject to a CDSC equal to 1.00%
of the lesser of the market value or the purchase price of the shares being
redeemed if such shares are redeemed within one year of purchase, declining to
0.50% in the second year after purchase and eliminated thereafter. No CDSC is
imposed on increases in net asset value above the initial purchase price,
including shares acquired by reinvestment of distributions.
In determining whether a CDSC is payable on any redemption, the Fund will first
redeem shares not subject to any charge, and then shares resulting in the
lowest possible CDSC. Solely for purposes of determining the number of years
from the date of purchase of shares, all purchases are deemed to have been made
on the trade date of the transaction.
The CDSC will be waived on redemptions of Investor A Shares (i) following the
death or disability (as defined in the Internal Revenue Code of 1986, as
amended (the "Code")) of a shareholder (including a registered joint owner),
(ii) in connection with the following retirement plan distributions: (a) lump-
sum or other distributions from a qualified corporate or self-employed
retirement plan following retirement (or in the case of a "key employee" of a
"top heavy" plan, following attainment of age 59 1/2); (b) distributions from
an IRA, or Custodial Account under Section 403(b)(7) of the Code, following
attainment of age 59 1/2; (c) a tax-free return of an excess contribution to an
IRA; and (d) distributions from a qualified retirement plan that are not
subject to the 10% additional Federal withdrawal tax pursuant to Section
72(t)(2) of the Code, (iii) payments made to pay medical expenses which exceed
7.5% of income and distributions to pay for insurance by an individual who has
separated from employment and who has received unemployment compensation under
a federal or state program for at least 12 weeks, (iv) effected pursuant to
Nations Funds' right to liquidate a shareholder's account, including instances
where the aggregate net asset value of the Investor A Shares held in the
account is less than the minimum account size, (v) in connection with the
combination of Nations Funds with any other registered investment company by a
merger, acquisition of assets or by any other transaction, and (vi) effected
pursuant to the Automatic Withdrawal Plan discussed below, provided that such
redemptions do not exceed, on an annual basis, 12% of the net asset value of
the Investor A Shares in the account. In addition, the CDSC will be waived on
Investor A Shares purchased before September 30, 1994 by current or retired
employees of NationsBank and its affiliates or by current or former Trustees or
Directors of Nations Funds or other management companies managed by
NationsBank. Shareholders are responsible for providing evidence sufficient to
establish that they are eligible for any waiver of the CDSC. Nations Fund may
terminate any waiver of the CDSC by providing notice in the Funds' Prospectus,
but any such termination would only affect shares purchased after such
termination.
Redemption Fee: A redemption fee of 1% of the current net asset value will be
assesed on certain Investor A Shares purchased between July 31, 1997 and
November 15, 1998 and redeemed within 18 months of the date of purchase by a
Substantial Investor (as defined in the footnotes to the "Expenses Summary").
In addition, a 1% redemption fee will be assesed on Investor A Shares purchased
between
22
<PAGE>
July 31, 1997 and November 15, 1998 by an employee benefit plan that (i) made
its initial investment between July 31, 1997 and November 15, 1998 and (ii)
redeemed such shares within 18 months of purchase in connection with a complete
liquidation of such plan's holdings in the Nations Funds Family. This fee is
retained by the Fund or Funds for the benefit of the remaining shareholders and
is intended to encourage long-term investment in the Funds and to avoid
transaction and other expenses associated with short-term investments. The
Funds reserve the right to modify the terms of or terminate this fee at any
time.
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. Investor A Shares redeemed under the AWP will not be subject
to a CDSC, provided that the shares so redeemed do not exceed, on an annual
basis, 12% of the net asset value of the Investor A Shares in the account.
Otherwise, any applicable CDSC will be imposed on shares redeemed under the
AWP. Shareholders who elect to establish an AWP may receive a monthly,
quarterly or annual check or automatic transfer to a checking or savings
account in a stated amount of not less than $25 on or about the 10th or 25th
day of the applicable month of withdrawal. Investor A Shares will be redeemed
(net of any applicable CDSC) as necessary to meet withdrawal payments.
Withdrawals may reduce principal and will eventually deplete the shareholder's
account. If a shareholder desires to establish an AWP after opening an account,
a signature guarantee will be required. AWPs may be terminated by shareholders
on 30 days' written notice to their Selling Agent or by Nations Funds at any
time.
Reduced Sales Charge: An investor may be entitled to reduced sales charges on
Investor A Shares through Rights of Accumulation, a Letter of Intent, or
Quantity Discounts.
To qualify for a reduced sales charge, an investor must notify the Agent
through which the Investor A Shares are purchased, which in turn must notify
Stephens, the Transfer Agent or their respective agents at the time of
purchase. Reduced sales charges may be modified or terminated at any time.
Investors are responsible for providing evidence sufficient to establish that
they are eligible for any reduction in sales charges.
Rights of Accumulation: An investor who has previously purchased Investor A,
Investor B, or Investor C Shares in the Nations Funds (excluding Nations Funds
money market and index funds, Nations Short-Term Income Fund and Nations
Short-Term Municipal Income Fund) may aggregate investments in such shares with
current purchases to determine the applicable sales charge for current
purchases. An investor's aggregate investment in Investor A, Investor B and
Investor C Shares in such Funds is the total value (based on the higher of
current net asset value or the public offering price originally paid) of: (a)
current purchases, and (b) Investor A, Investor B and Investor C Shares that
are already beneficially owned by the investor.
Letter of Intent: A Letter of Intent provides an opportunity for an investor to
obtain a reduced sales charge by aggregating the investments over a 13-month
period to determine the sales charge as outlined in the preceding table. The
size of investment shown in the preceding table also includes purchases of
shares of the participating Funds over a 13-month period based on the total
amount of intended purchases plus the value of all shares of the participating
Funds previously purchased and still owned. An investor may elect to compute
the 13-month period starting up to 90 days before the date of execution of a
Letter of Intent. Each investment made during the period receives the reduced
sales charge applicable to the total amount of the investment goal. If the goal
is not achieved within the period, the investor must pay the difference between
the charges applicable to the purchases made and the charges previously paid.
The initial purchase must be for an amount equal to at least five percent of
the minimum total purchase amount of the level selected. If trades not
initially made under a Letter of Intent subsequently qualify for a lower sales
charge through the 90-day back-dating provisions, an adjustment will be made at
the expiration of the Letter of Intent to give effect to the lower charge. Such
adjustments in sales charge will be used to purchase additional shares for the
shareholder at the applicable discount category.
23
<PAGE>
Quantity Discounts: As shown in the table under "Sales Charges," larger
purchases may reduce the sales charge paid on Investor A Shares. Purchases of
Investor A Shares in the non-money market funds of the Nations Funds Family
that are made on the same day by the investor, his/her spouse, and his/her
children under age 21 will be combined when calculating the sales charge. For
the purpose of calculating the amount of the transaction, certain distributions
or payments from dissolution of certain qualified plans are permitted to
aggregate plan participant's investments.
Purchases of Shares at Net Asset Value:
o Full-time employees and retired employees of NationsBank Corporation (and its
predecessors), its affiliates and subsidiaries and the immediate families
of such persons may purchase Investor A Shares in the Funds at net asset
value.
o Individuals receiving a distribution from a NationsBank trust or other
fiduciary account may use the proceeds of such distribution to purchase
Investor A Shares of the Funds at net asset value, provided that the
proceeds are invested through a trust account established with another
trustee and invested in the Funds within 90 days. Those investors who
transfer their proceeds to a fiduciary account with another trustee may
continue to purchase shares in the Funds at net asset value.
o Nations Fund's Trustees and Directors also may purchase Investor A Shares at
net asset value.
o Registered broker/dealers that have entered into a Nations Fund dealer
agreement with Stephens may purchase Investor A Shares at net asset value
for their investment account only.
o Registered personnel and employees of such broker/dealers also may purchase
Investor A Shares at net asset value in accordance with the internal
policies and procedures of the employing broker/dealer provided such
purchases are made for their own investment purposes.
o Employees of the Transfer Agent may purchase Investor A Shares of the Funds
at net asset value.
o Former shareholders of Class B Shares of the Special Equity Portfolio of The
Capitol Mutual Funds who held such shares as of January 31, 1994 or
received Investor A Shares of Nations Disciplined Equity Fund in
connection with the reorganization of the Special Equity Portfolio into
Nations Disciplined Equity Fund may purchase Investor A Shares of Nations
Disciplined Equity Fund at net asset value.
o Investors who purchase through accounts established with certain fee-based
investment advisers or financial planners, including Nations Funds
Personal Investment Planner accounts, wrap fee accounts and other managed
agency/asset allocation accounts may purchase Investor A Shares at net
asset value.
Investor A Shares also may be purchased at net asset value by (i) pension,
profit sharing or other employee benefit plans established under Section 401 or
Section 457 of the Internal Revenue Code of 1986, as amended (the "Code"), or
(ii) employee benefit plans created pursuant to Section 403(b) of the Code and
sponsored by a non-profit organization qualified under Section 501(c)(3) of the
Code, provided that, in either case, the plan (a) has at least $500,000
invested in Investor A Shares of the Nations Fund non-money market funds, (b)
has signed a letter of intent indicating that the plan intends to purchase at
least $500,000 of Investor A Shares of the Nations Fund non-money market funds,
(c) is an employer-sponsored plan with at least 100 eligible participants (a
"Qualified Plan") or (d) is a participant in an alliance program that has
entered into an agreement with an Agent. Stephens may pay Agents or other
financial service firms up to 1.00% of the net asset value of Investor A Shares
purchased without a sales charge, for which it may be reimbursed out of any
applicable CDSC.
Reinstatement Privilege: Investor A Shares in a Fund may be purchased at net
asset value, without any sales charge, by persons who have redeemed Investor A
Shares of the same Fund within the previous 120 days. 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 con-
24
<PAGE>
nection with the prior redemption. A shareholder may not exercise this
privilege with the proceeds of a redemption of shares previously purchased
through the reinstatement privilege. In order to exercise this privilege, a
written order for the purchase of Investor Shares must be received by the
Transfer Agent, Stephens or their respective agents within 120 days after the
redemption.
Investor A Shares may be purchased at net asset value, without a sales charge,
to the extent such a purchase, which must be at least $1,000, is paid for with
the proceeds from the redemption of shares of a nonaffiliated mutual fund. A
qualifying purchase of Investor A Shares must occur within 45 days of the prior
redemption and Nations Funds must receive a copy of the confirmation of the
redemption transaction. Stephens may compensate dealers in connection with such
purchases. This privilege may be revoked at any time.
Nations Funds may terminate any waiver of or reduction in the sales charge by
providing notice in the Fund's Prospectus, but any such termination would only
affect future purchases of shares. For more information about reduced sales
charge, contact an Agent or Stephens.
Investor B Shares -- Charges and Features
Investor B Shares Contingent Deferred Sales Charge: Subject to certain waivers
specified below, Investor B Shares purchased prior to January 1, 1996 and after
July 31, 1997, may be subject to a CDSC if such shares are redeemed within the
years designated in the applicable CDSC schedule set forth below. No CDSC is
imposed on increases in net asset value above the initial purchase price, or
shares acquired by reinvestment of distributions. Subject to the waivers
described below, the amount of the CDSC is determined as a percentage of the
lesser of the market value or the purchase price of the shares being redeemed.
The amount of the CDSC will depend on the number of years since you invested,
according to the following table:
CDSC SCHEDULES
A CDSC is imposed at the following declining rates on Investor B Shares of
Nations Short-Term Income Fund, Nations Short-Intermediate Government Fund and
Nations Strategic Fixed Income Fund:
Shares Purchased after November 15, 1998*
<TABLE>
<CAPTION>
CDSC as a Percentage of
Dollar Amount Subject to
Year Since Purchase Made Charge
<S> <C>
First 3.0%
Second 3.0%
Third 2.0%
Fourth 1.00%
Fifth None
</TABLE>
* Investor B Shares are not available to purchasers desiring to invest $250,000
or more, however, investors desiring to invest $250,000 or more may be
eligible to purchase Investor A Shares.
Shares Purchased Between August 1, 1997 and November 15, 1998 in amount of $0
- -- $499,999
<TABLE>
<CAPTION>
CDSC as a Percentage of
Dollar Amount Subject to
Year Since Purchase Made Charge
<S> <C>
First 3.0%
Second 2.0%
Third 1.0%
Fourth and thereafter None
</TABLE>
25
<PAGE>
Shares Purchased Between August 1, 1997 and November 15, 1998 in amount of
$500,000 -- $999,999
<TABLE>
<CAPTION>
CDSC as a Percentage of
Dollar Amount Subject to
Year Since Purchase Made Charge
<S> <C>
First 2.0%
Second 1.0%
Third and thereafter None
</TABLE>
Shares Purchased Prior to January 1, 1996
<TABLE>
<CAPTION>
CDSC as a Percentage of
Dollar Amount Subject to
Year Since Purchase Made Charge
<S> <C>
First 4.0%
Second 3.0%
Third 3.0%
Fourth 2.0%
Fifth 2.0%
Sixth 1.0%
Seventh and thereafter None
</TABLE>
A CDSC is imposed at the following declining rates on Investor B Shares of
Nations Government Securities Fund, Nations Diversified Income Fund and Nations
U.S. Government Bond Fund:
Shares Purchased After November 15, 1998*
<TABLE>
<CAPTION>
CDSC as a
Percentage of Dollar
Year Since Purchase Made Amount Subject to Charge
<S> <C>
First 5.0%
Second 4.0%
Third 3.0%
Fourth 2.0%
Fifth 2.0%
Sixth 1.0%
Seventh and thereafter None
</TABLE>
* Investor B Shares are not available to purchasers desiring to invest $250,000
or more, however, investors desiring to invest $250,000 or more may be
eligible to purchase Investor A Shares.
Shares Purchased between August 1, 1997 and November 15, 1998 in amount of $0
- -- $249,999
<TABLE>
<CAPTION>
CDSC as a Percentage of
Dollar Amount Subject to
Year Since Purchase Made Charge
<S> <C>
First 4.0%
Second 3.0%
Third 3.0%
Fourth 2.0%
Fifth 1.0%
Sixth and thereafter None
</TABLE>
Shares Purchased between August 1, 1997 and November 15, 1998 in amount of
$250,000 -- $499,999
<TABLE>
<CAPTION>
CDSC as a Percentage of
Dollar Amount Subject to
Year Since Purchase Made Charge
<S> <C>
First 3.0%
Second 2.0%
Third 1.0%
Fourth and thereafter None
</TABLE>
Shares Purchased between August 1, 1997 and November 15, 1998 in amount of
$500,000 -- $999,999
<TABLE>
<CAPTION>
CDSC as a Percentage of
Dollar Amount Subject to
Year Since Purchase Made Charge
<S> <C>
First 2.0%
Second 1.0%
Third and thereafter None
</TABLE>
26
<PAGE>
Shares Purchased Prior to January 1, 1996
<TABLE>
<CAPTION>
CDSC as a Percentage of
Dollar Amount Subject to
Year Since Purchase Made Charge
<S> <C>
First 5.0%
Second 4.0%
Third 3.0%
Fourth 2.0%
Fifth 2.0%
Sixth 1.0%
Seventh and thereafter None
</TABLE>
In determining whether a CDSC is payable on any redemption, the Fund will first
redeem shares not subject to any charge, and then shares resulting in the
lowest possible CDSC. Solely for purposes of determining the number of years
from the date of purchase of shares, all purchases are deemed to have been made
on the trade date of the transaction.
The CDSC will be waived on redemptions of Investor B Shares (i) following the
death or disability (as defined in the Internal Revenue Code of 1986, as
amended (the "Code")) of a shareholder (including a registered joint owner),
(ii) in connection with the following retirement plan distributions: (a) lump-
sum or other distributions from a qualified corporate or self-employed
retirement plan following retirement (or in the case of a "key employee" of a
"top heavy" plan, following attainment of age 59 1/2); (b) distributions from
an IRA, or Custodial Account under Section 403(b)(7) of the Code, following
attainment of age 59 1/2; (c) a tax-free return of an excess contribution to an
IRA; and (d) distributions from a qualified retirement plan that are not
subject to the 10% additional Federal withdrawal tax pursuant to Section
72(t)(2) of the Code, (iii) payments made to pay medical expenses which exceed
7.5% of income and distributions to pay for insurance by an individual who has
separated from employment and who has received unemployment compensation under
a federal or state program for at least 12 weeks, (iv) effected pursuant to
Nations Funds' right to liquidate a shareholder's account, including instances
where the aggregate net asset value of the Investor B Shares held in the
account is less than the minimum account size, (v) in connection with the
combination of Nations Funds with any other registered investment company by a
merger, acquisition of assets or by any other transaction, and (vi) 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 B Shares in the account. In addition, the CDSC will be waived on
Investor B Shares purchased before September 30, 1994 by current or retired
employees of NationsBank and its affiliates or by current or former Trustees or
Directors of Nations Funds or other management companies managed by
NationsBank. Shareholders are responsible for providing evidence sufficient to
establish that they are eligible for any waiver of the CDSC.
Reinstatement Privilege: Within 120 days after a redemption of Investor B
Shares of a Fund, a shareholder may reinvest any portion of the proceeds of
such redemption in Investor B 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 B Shares must be
received by the Transfer Agent or by Stephens within 120 days after the
redemption.
Automatic Withdrawal Plan: An Automatic Withdrawal Plan ("AWP") may be
established by a new or existing shareholder of the Funds if the value of the
Investor B 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 B 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 B 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
27
<PAGE>
day of the applicable month of withdrawal. Investor B Shares will be redeemed
(net of any applicable CDSC) as necessary to meet withdrawal payments.
Withdrawals may reduce principal and will eventually deplete the shareholder's
account. If a shareholder desires to establish an AWP after opening an account,
a signature guarantee will be required. AWPs may be terminated by shareholders
on 30 days' written notice to their Selling Agent or by Nations Funds at any
time.
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 for
Investor A or Investor B Shares of the Funds which are received by Stephens,
the Transfer Agent or their respective agents before the close of regular
trading on the Exchange (currently 4:00 p.m., Eastern time) on any Business Day
are priced according to the net asset value next determined after acceptance of
the order. In the event that the Exchange closes early, redemption orders
received prior to closing will be priced as of the time the Exchange closes and
redemption orders received after the Exchange closes will be deemed received on
the next Business Day and priced according to the net asset value determined on
the next Business Day. 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 or their respective agents, less any applicable CDSC. The Agents
are responsible for transmitting redemption orders to Stephens or to the
Transfer Agent or their respective agents 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.
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
or their respective agents. 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 A or Investor B Shares upon
60 days' written notice if the balance in the shareholder's account drops below
$500 as a result of redemptions. Share balances also may be redeemed at the
direction of an Agent pursuant to arrangements between the Agent and its
Customers. Nations 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 or Investor B Shares represented
by certificates, the Transfer Agent must have received such certificates at its
principal office. All such certificates must be endorsed by the redeeming
shareholder or accompanied by a signed stock power, in each instance with the
signature guaranteed by a commercial bank or a member of a major stock
exchange, unless other arrangements satisfactory to Nations Funds have
previously been made. Nations Funds may require any additional information
reasonably necessary to evidence that a redemption has been duly authorized.
28
<PAGE>
How To Exchange Shares
Investor A Shares: The exchange feature enables a shareholder of a fund of
Nations Funds (other than an index fund) to acquire shares of the same class
that are offered by another fund (other than an index fund) of Nations Funds
when the shareholder believes that a shift between funds is an appropriate
investment decision. A qualifying exchange is based on the next calculated net
asset value per share of each fund after the exchange order is received.
No CDSC will be imposed in connection with an exchange of Investor A Shares
that meets the requirements discussed in this section. If Investor A Shares of
a Fund are exchanged for shares of the same class of another fund, any CDSC
applicable to the shares exchanged will be applied upon the redemption of the
acquired shares. The holding period of such Investor A Shares (for purposes of
determining whether a CDSC is applicable upon redemption) will be computed from
the time of the initial purchase of the Investor A Shares of the Fund.
Shareholders who have paid a front-end sales charge on purchases of Investor A
Shares of one of Nations Fund's non-money market funds (including Investor A
Shares acquired through the reinvestment of dividends and distributions on such
shares) may exchange those Investor A Shares at net asset value without any
sales charge for Investor A Shares available under the exchange privilege
described herein, provided that the maximum sales charge applicable to the
acquired Investor A Shares is equal to or less than the "maximum sales charge
applicable" to the Investor A Shares being exchanged. For purposes of
determining the "maximum sales charge applicable" to the Investor A Shares
being exchanged, a shareholder may include any sales charge paid on shares of
the same class offered by one of Nations Fund's other funds that were
previously exchanged to acquire the subject Investor A Shares then being
exchanged, provided that notification of such prior exchange is made to the
Transfer Agent, Stephens or their respective agents.
If the Investor A Shares being acquired are subject to a higher maximum
front-end sales charge than the Investor A Shares being exchanged, then the
shareholder must pay a "sales charge differential," which is the difference
between the maximum front-end sales charge applicable to those Investor A
Shares being exchanged and those being acquired. However, a shareholder would
not have to pay a sales charge differential to the extent such shareholder is
eligible for a reduced or waived sales charge on the Investor A Shares being
acquired. In addition, a shareholder of Investor A Shares of a non-money market
fund would not have to pay a sales charge differential upon an exchange if the
shareholder has owned such shares for at least 90 days.
Investor A Shares of Nations Short-Term Municipal Income Fund acquired directly
or indirectly through an exchange from Investor B Shares of another non-money
market fund may be re-exchanged only for Investor B Shares of another non-money
market fund, Investor C Shares of a Nations Funds money market fund or Investor
A Shares of Nations Short-Term Income Fund. Such shares (and any Investor A or
Investor C Shares acquired through the exchange of such shares) will remain
subject to the CDSC schedule applicable to the Investor B Shares originally
purchased. The holding period (for the purpose of determining the applicable
rate of the CDSC) does not accrue while the shares owned are Investor A Shares
of Nations Short-Term Municipal Income Fund or Nations Short-Term Income Fund
or Investor C Shares of a Nations Funds money market fund. The CDSC that is
ultimately charged upon redemption is based upon the total period of time the
shareholder holds Investor B Shares of any fund that charges a CDSC.
If Investor A Shares are exchanged for shares of the same class of another
fund, any redemption fee applicable to the original shares purchased will be
assessed upon the redemption of the acquired shares. The holding period of such
shares (for purposes of determining whether a redemption fee is applicable)
will be computed from the time of the initial purchase of the Investor A Shares
of a fund, except that the holding period will not accrue while the shares
owned are Investor A Shares of Nations
29
<PAGE>
Short-Term Municipal Income Fund, Nations Short-Term Income Fund or a Nations
Funds' money market fund. If a redemption fee ultimately is charged, it will be
retained by the initial Fund purchased.
Automatic Exchange Feature: Under the Funds' Automatic Exchange Feature ("AEF")
a shareholder of Investor A Shares 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 the
last 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 Nations Funds.
Investor B Shares: The exchange feature enables a shareholder to exchange funds
as specified below when the shareholder believes that a shift between funds is
an appropriate investment decision. The exchange feature enables a shareholder
of Investor B Shares of a fund offered by Nations Funds to acquire shares of
the same class that are offered by another fund of Nations Funds (except
Nations Short-Term Income Fund and Nations Short-Term Municipal Income Fund),
Investor A Shares of Nations Short-Term Income Fund or Nations Short-Term
Municipal Income Fund or Investor C Shares of a Nations Funds money market
fund. Additionally, the exchange feature enables a shareholder of Investor B
Shares of Nations Short-Term Income Fund to exchange such shares for Investor B
Shares of Nations Short-Term Municipal Income Fund. A qualifying exchange is
based on the next calculated net asset value per share of each fund after the
exchange order is received.
No CDSC will be imposed in connection with an exchange of Investor B Shares
that meets the requirements discussed in this section. If a shareholder
acquires Investor B Shares of another fund through an exchange, any CDSC
schedule applicable (CDSCs may apply to shares purchased prior to January 1,
1996 or after July 31, 1997) to the original shares purchased will be applied
to any redemption of the acquired shares. If a shareholder exchanges Investor B
Shares of a fund for Investor C Shares of a money market fund or Investor A
Shares of Nations Short-Term Income Fund or Nations Short-Term Municipal Income
Fund, the acquired shares will remain subject to the CDSC schedule applicable
to the Investor B Shares exchanged. The holding period (for purposes of
determining the applicable rate of the CDSC) does not accrue while the shares
owned are Investor C Shares of a Nations Funds money market fund or Investor A
Shares of Nations Short-Term Income Fund or Nations Short-Term Municipal Income
Fund. As a result, the CDSC that is ultimately charged upon a redemption is
based upon the total holding period of Investor B Shares of a fund that charges
a CDSC.
General: For shareholders who maintain an account directly with a Fund,
exchange requests should be communicated to the Fund by calling Nations Funds
at 1-800-321-7854 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), provided that the exchange feature may be terminated or materially
revised without notice under certain unusual circumstances.
The current prospectus for each Fund describes its investment objective and
policies, and shareholders should obtain a copy and examine it carefully before
investing. Exchanges are subject to the minimum investment requirement and any
other conditions imposed by each fund. In the case of any shareholder holding a
share certificate or certificates, no exchanges may be made until all
applicable share certificates have been received by the Transfer Agent and
deposited in the shareholder's account. An exchange will be treated for Federal
income tax purposes the same as a redemption of shares, on which the
shareholder may realize a capital gain or loss. However, the ability to deduct
30
<PAGE>
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 and Stephens reserve 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.
The Investor A Shares and Investor B Shares exchanged must have a current value
of at least $1,000. Nations Funds and Stephens reserve the right to reject any
exchange request. Only shares that may legally be sold in the state of the
investor's residence may be acquired in an exchange. Only shares of a class
that is accepting investments generally may be acquired in an exchange. An
investor may telephone an exchange request by calling the investor's Selling
Agent which is responsible for transmitting such request to Stephens or to the
Transfer Agent.
During periods of significant economic or market change, telephone exchanges
may be difficult to complete. In such event, shares may be exchanged by mailing
the request directly to the Selling Agent through which the original shares
were purchased. An investor should consult his/her Selling Agent or Stephens
for further information regarding exchanges.
Shareholder Servicing And Distribution Plans
Investor A Shares: The Funds' Shareholder Servicing and Distribution Plan (the
"Investor A Plan"), adopted pursuant to Rule 12b-1 under the 1940 Act, permits
each Fund to compensate (i) Servicing Agents and Selling Agents for services
provided to their Customers that own Investor A Shares and (ii) Stephens for
distribution-related expenses incurred in connection with Investor A Shares.
Nations Short-Term Municipal Income Fund, however, may not pay for shareholder
services under the Investor A Plan. Aggregate payments under the Investor A
Plan are calculated daily and paid monthly at a rate or rates set from time to
time by each Fund, provided that the annual rate may not exceed .25% of the
average daily net asset value of the Investor A Shares of the Fund.
The fees payable to Servicing Agents under the Investor A Plan are used
primarily to compensate or reimburse Servicing Agents for shareholder services
provided, and related expenses incurred, by such Servicing Agents. The
shareholder services provided by Servicing Agents may include: (i) aggregating
and processing purchase and redemption requests for Investor A Shares from
Customers and transmitting net purchase and redemption orders to Stephens, the
Transfer Agent or their respective agents; (ii) providing Customers with a
service that invests the assets of their accounts in Investor A Shares pursuant
to specific or preauthorized instructions; (iii) processing dividend and
distribution payments from a Fund on behalf of Customers; (iv) providing
information periodically to Customers showing their positions in Investor A
Shares; (v) arranging for bank wires; and (vi) providing general shareholder
liaison services. Nations Short-Term Municipal Income Fund, however, may not
pay for shareholder services under the Investor A Plan. The fees payable to
Selling Agents are used primarily to compensate or reimburse Selling Agents for
providing sales support assistance in connection with the sale of Investor A
Shares to Customers, 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.
31
<PAGE>
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 Agreements and Sales
Support Agreements. See the SAI for more details on the Investor A Plan.
In addition, the Trustees and Directors have approved a Shareholder Servicing
Plan (the "Servicing Plan") with respect to the Investor A Shares of Nations
Short-Term Municipal Income Fund. Pursuant to its Servicing Plan, Nations
Short-Term Municipal Income Fund may pay Servicing Agents that have entered
into a Servicing Agreement with Nations Funds for certain shareholder support
services that are provided by the Servicing Agents. Payments under the Fund's
Servicing Plan may not exceed .25% of the average daily net asset value of the
Fund's Investor A Shares. The shareholder services provided by Servicing Agents
include, but are not limited to, those listed above with respect to the
Investor A Plan.
Nations 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.
Investor B Shares:
Shareholder Servicing Plan: The Funds' shareholder servicing plan ("Servicing
Plan") permits the Funds to compensate Servicing Agents for services provided
to their Customers that own Investor B Shares. Payments under the Servicing
Plan are calculated daily and paid monthly at a rate or rates set from time to
time by the Funds, provided that the annual rate may not exceed .25% of the
average daily net asset value of the Investor B 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 B 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 B 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 B 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.
Distribution Plan: Pursuant to Rule 12b-1 under the 1940 Act, the Trustees of
Nations Fund Trust and the Directors of Nations Fund, Inc. have approved a
Distribution Plan with respect to Investor B 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 B Shares. Payments under the Distribution Plan will be calculated
daily and paid monthly at a rate or rates set from time to time by the Trustees
or Directors provided that the annual rate may not exceed .75% of the average
daily net asset value of the Funds' Investor B Shares.
The fees payable under the Distribution Plan are used primarily to compensate
or reimburse Stephens for distribution services provided by it, and related
expenses incurred, including payments by Stephens to compensate or reimburse
Selling Agents for sales support services provided, and related expenses
incurred, by such Selling Agents. Payments under the Distribution Plan may be
made with respect to the following expenses: the cost of preparing, printing
and distributing prospectuses, sales literature and advertising materials;
commissions, incentive compensation or other compensation to, and expenses of,
account executives or other employees of Stephens or Selling Agents; overhead
and other office expenses; opportunity costs relating to the foregoing; and any
other costs and expenses relating to distribution or sales support activities.
The overhead and other office expenses referenced above may include, without
limitation, (i) the expenses of operating Stephens' or the Sell-
32
<PAGE>
ing Agents' offices in connection with the sale of Fund shares, including rent,
the salaries and employee benefit costs of administrative, operations and
support personnel, utility costs, communications costs and the costs of
stationery and supplies, (ii) the costs of client sales seminars and travel
related to distribution and sales support activities, and (iii) other expenses
relating to distribution and sales support activities.
Nations 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.
General: Nations Funds understands that Agents may charge fees to their
Customers who own Investor A or Investor B Shares for various services provided
in connection with a Customer's account. These fees would be in addition to any
amounts received by a Selling Agent under its Sales Support Agreement with
Stephens or by a Servicing Agent under its Servicing Agreement with Nations
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.
The Adviser may also pay out of its own assets amounts to Stephens or other
broker/dealers in connection with the provision of administrative and/or
distribution related services to shareholders.
In addition, Stephens may, from time to time, at its expense or as an expense
for which it may be reimbursed under the plan adopted pursuant to Rule 12b-1
under the 1940 Act, pay a bonus or other consideration or incentive to Selling
Agents who sell a minimum dollar amount of shares of the Funds during a
specified period of time. Stephens may also from time to time, pay additional
consideration to Selling Agents not to exceed 1.00% of the offering price per
share on all sales of Investor A Shares and 4.00% of the offering price per
share on all sales of Investor B Shares as an expense of Stephens or for which
Stephens may be reimbursed under the plan adopted pursuant to Rule 12b-1 or
upon receipt of a CDSC. Any such additional consideration or incentive program
may be terminated at any time by Stephens.
Stephens has also established a non-cash compensation program, pursuant to
which broker/dealers or financial institutions that sell shares of the Funds
33
<PAGE>
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 of the Funds are valued as of the close of regular
trading on the Exchange (currently 4:00 p.m., Eastern time) on each Business
Day. In the event that the Exchange closes early, shares of the Funds will be
priced as of the time the Exchange closes. Currently, the days on which the
Exchange is closed (other than weekends) are: New Year's Day, Martin Luther
King, Jr. Day, Presidents' Day, Good Friday, Memorial Day (observed),
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
Portfolio securities for which market quotations are readily available are
valued at market value. Short-term investments that will mature in 60 days or
less are valued at amortized cost, which approximates market value. All other
securities and assets are valued at their fair value following procedures
approved by the Trustees or Directors.
How Dividends And Distributions Are Made; Tax Information
Dividends and Distributions: Dividends from net investment income are declared
daily and paid monthly by the Funds. The Funds' net realized capital gains
(including net short-term capital gains) are distributed at least annually.
Distributions from capital gains are made after applying any available capital
loss carryovers. Distributions paid by the Funds with respect to one class of
shares may be greater or less than those paid with respect to another class of
shares due to the different expenses of the different classes.
Investor A and Investor B Shares of the Funds and Tax-Exempt Bond Funds are
eligible to begin earning dividends that are declared on the day the purchase
order is executed and continue to be eligible for dividends through and
including the day before the redemption order is executed.
The net asset value of Investor A and Investor B Shares will be reduced by the
amount of any dividend or distribution. Accordingly, dividends and
distributions on newly purchased shares represent, in substance, a return of
capital. However, such dividends and distributions would nevertheless be
taxable. Certain Selling Agents may provide for the reinvestment of dividends
in the form of additional Investor A or Investor B Shares of the same Fund.
Dividends and distributions are paid in cash within five Business Days of the
end of the month to which the payment 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 or Investor B Shares.
Tax Information: Each Fund intends to continue to qualify as a "regulated
investment company" under the Internal Revenue Code of 1986, as amended (the
"Code"). Such qualification relieves the Funds of liability for Federal income
tax on amounts distributed in accordance with the Code.
Each Fund intends to distribute substantially all of its net investment income
each taxable year. Distributions by a Fund of its net investment income
(including net foreign currency gain) and the excess, if any, of its net
short-term capital gain over its
34
<PAGE>
net long-term capital loss generally are taxable as ordinary income to
shareholders, whether such income is received in cash or reinvested in
additional shares. Corporate investors generally will not be entitled to the
dividends received deduction on dividends paid by the Funds.
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 generally will be taxable to
shareholders as net capital gains, regardless of how long the shareholders have
held the Funds' shares and whether such distributions are received in cash or
reinvested in additional shares. Noncorporate shareholders may be taxed on such
distributions at preferential rates.
Each year, shareholders will be notified as to the amount and Federal tax
status of all dividends and capital gain distributions paid during the prior
year. Such dividends and capital gain distributions may be subject to state and
local taxes.
Dividends and distributions declared in October, November, or December of any
year payable to shareholders of record on a specified date in such months will
be deemed to have been received by shareholders and paid by the Funds on
December 31 of such year in the event such dividends and distributions are
actually paid during January of the following year.
Federal law requires Nations Funds to withhold 31% from any distributions paid
by Nations Funds and/or redemptions (including exchanges and redemptions
in-kind) that occur in certain shareholder accounts if the shareholder has not
properly furnished a certified correct Taxpayer Identification Number and has
not certified that withholding does not apply, or if the Internal Revenue
Service has notified Nations 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 tax on dividendspaid to certain
foreign shareholders.
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 foreign, state and local taxes. Further
tax information is contained in the SAI.
Financial Highlights
The following financial information has been derived from the audited financial
statements of Nations Fund Trust and Nations Fund, Inc. PricewaterhouseCoopers
LLP is the independent accountant to Nations Fund Trust and Nations Fund, Inc.
The reports of PricewaterhouseCoopers LLP for the most recent fiscal period of
Nations Fund Trust and Nations Fund, Inc. accompany the financial statements
for such period and are incorporated by reference in the SAI, which is
available upon request. For more information see "Organization And History."
Shareholders of the Funds will receive unaudited semi-annual reports describing
the Funds' investment operations and annual financial statements audited by the
Funds' independent accountant.
Information for Investor B Shares of Nations U.S. Government Bond Fund has been
derived from the audited financial statements dated May 16, 1997 for the Class
B Shares of The Pilot Funds' U.S. Government Securities Fund, the predecessor
fund to Nations U.S. Government Bond Fund. This information has been audited by
Arthur Andersen LLP and is provided to help you understand the historical
performance of the Fund and its predecessor. The reports of Arthur Andersen LLP
accompany the financial statements dated May 16, 1997 and are incorporated by
reference in the SAI, which is available upon request.
35
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations Short-Term Income Fund
<TABLE>
<CAPTION>
YEAR YEAR
Investor A ENDED ENDED
Shares 03/31/98 03/31/97#
<S> <C> <C>
Operating performance:
Net asset value,
beginning of period $ 9.68 $ 9.76
Net investment income 0.54 0.56
Net realized and
unrealized gain/(loss)
on investments 0.09 (0.08)
Net increase/(decrease) in
net asset value from
operations 0.63 0.48
Distributions:
Dividends from net
investment income (0.54) (0.56)
Distributions in excess of
net investment income -- --
Distributions from capital -- --
Total dividends and
distributions (0.54) (0.56)
Net asset value, end of
period $ 9.77 $ 9.68
Total return++ 6.67% 5.04%
Ratios to average net
assets/supplemental
data:
Net assets, end of period
(in 000's) $13,688 $6,169
Ratio of operating
expenses to average net
assets 0.76%(b)(c) 0.75%(b)
Ratio of net investment
income to average net
assets 5.55% 5.77%
Portfolio turnover rate 66% 172%
Ratio of operating
expenses to average net
assets without waivers
and/or expense
reimbursements 1.06%(c) 1.05%
<CAPTION>
PERIOD YEAR YEAR YEAR PERIOD
Investor A ENDED ENDED ENDED ENDED ENDED
Shares 03/31/96(a)# 11/30/95# 11/30/94# 11/30/93 11/30/92*
<S> <C> <C> <C> <C> <C>
Operating performance:
Net asset value,
beginning of period $ 9.84 $ 9.48 $ 10.01 $ 9.75 $ 10.00
Net investment income 0.19 0.59 0.48 0.51 0.08
Net realized and
unrealized gain/(loss)
on investments (0.08) 0.36 ( 0.51) 0.26 ( 0.26)
Net increase/(decrease) in
net asset value from
operations 0.11 0.95 ( 0.03) 0.77 ( 0.18)
Distributions:
Dividends from net
investment income (0.19) (0.59) ( 0.46) ( 0.51) ( 0.07)
Distributions in excess of
net investment income -- -- ( 0.02) -- --
Distributions from capital -- -- ( 0.02) -- --
Total dividends and
distributions (0.19) (0.59) ( 0.50) ( 0.51) ( 0.07)
Net asset value, end of
period $ 9.76 $ 9.84 $ 9.48 $ 10.01 $ 9.75
Total return++ 1.13% 10.29% ( 0.33)% 8.03% ( 1.81)%+++
Ratios to average net
assets/supplemental
data:
Net assets, end of period
(in 000's) $2,810 $2,969 $2,490 $11,205 $ 254
Ratio of operating
expenses to average net
assets 0.75%+ 0.76% 0.71% 0.57% 0.45%+
Ratio of net investment
income to average net
assets 5.87%+ 6.12% 5.02% 5.07% 5.39%+
Portfolio turnover rate 73% 224% 293% 121% 45%
Ratio of operating
expenses to average net
assets without waivers
and/or expense
reimbursements 1.08%+ 1.06% 1.03% 0.99% 1.05%+
</TABLE>
* Nations Short-Term Income Fund Investor A Shares commenced operations on
October 2, 1992.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# Per share net investment income has been calculated using the monthly
average share method.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
(b) The effect of interest expense on the operating expense ratio was less than
0.01%.
(c) The effect of the fees reduced by the credits allowed by the custodian on
the operating expense ratio, with and without waivers and/or expense
reimbursements, was less than 0.01%.
36
<PAGE>
FOR AN INVESTOR B SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations Short-Term Income Fund
<TABLE>
<CAPTION>
YEAR YEAR PERIOD YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED ENDED
Investor B Shares 03/31/98 03/31/97# 03/31/96(a)# 11/30/95# 11/30/94# 11/30/93*
<S> <C> <C> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of
period $ 9.68 $ 9.76 $ 9.84 $ 9.48 $ 10.01 $ 9.94
Net investment income 0.53 0.55 0.19 0.57 0.47 0.22
Net realized and unrealized
gain/(loss) on investments 0.09 (0.08) (0.08) 0.36 (0.51) 0.07
Net increase/(decrease) in net
asset value from operations 0.62 $ 0.47 0.11 0.93 (0.04) 0.29
Distributions:
Dividends from net investment
income (0.53) (0.55) (0.19) (0.57) (0.45) (0.22)
Distributions in excess of net
investment income -- -- -- -- (0.02) --
Distributions from capital -- -- -- -- (0.02) --
Total dividends and
distributions (0.53) (0.55) (0.19) (0.57) (0.49) (0.22)
Net asset value, end of period 9.77 $ 9.68 $ 9.76 $ 9.84 $ 9.48 $ 10.01
Total return++ 6.51% 4.89% 1.08% 10.10% (0.46)% 2.96%
Ratios to average net
assets/supplemental data:
Net assets, end of period
(in 000's) $4,602 $5,536 $7,339 $8,873 $16,550 $39,861
Ratio of operating expenses to
average net assets 0.91%(b)(c) 0.90%(b) 0.90%+ 0.91% 0.85% 0.72%+
Ratio of net investment income
to average net assets 5.40% 5.62% 5.72%+ 5.97% 4.88% 4.92%+
Portfolio turnover rate 66% 172% 73% 224% 293% 121%
Ratio of operating expenses to
average net assets without
waivers and/or expense
reimbursements 1.21%(c) 1.20% 1.23%+ 1.21% 1.17% 1.14%+
</TABLE>
* Nations Short-Term Income Fund Investor B Shares commenced operations on
June 7, 1993.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
# Per share net investment income has been calculated using the monthly
average share method.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
(b) The effect of interest expense on the operating expense ratio was less than
0.01%.
(c) The effect of the fees reduced by credits allowed by the custodian on the
operating expense ratio, with and without waivers and/or expense
reimbursements, was less than 0.01%.
37
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations Short-Intermediate Government Fund
<TABLE>
<CAPTION>
YEAR YEAR
ENDED ENDED
Investor A Shares 03/31/98 03/31/97#
<S> <C> <C>
Operating performance:
Net asset value, beginning of period $ 3.99 $ 4.07
Net investment income 0.22 0.22
Net realized and unrealized gain/(loss) on
investments 0.13 (0.08)
Net increase/(decrease) in net asset value from
operations 0.35 0.14
Distributions:
Dividends from net investment income (0.22) (0.22)
Distributions from net realized capital gains -- --
Total dividends and distributions (0.22) (0.22)
Net asset value, end of period $ 4.12 $ 3.99
Total return++ 8.89% 3.51%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $49,478 $42,468
Ratio of operating expenses to average net assets 0.81% 0.83%(c)(d)
Ratio of net investment income to average net
assets 5.33% 5.53%
Portfolio turnover rate 538% 529%
Ratio of operating expenses to average net assets
without waivers and/or expense
reimbursements 1.01% 1.03%(d)
<CAPTION>
PERIOD YEAR YEAR
ENDED ENDED ENDED
Investor A Shares 03/31/96(b)# 11/30/95# 11/30/94
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 4.14 $ 3.93 $ 4.28
Net investment income 0.07 0.23 0.22
Net realized and unrealized gain/(loss) on
investments (0.07) 0.21 (0.33)
Net increase/(decrease) in net asset value from
operations 0.00 0.44 (0.11)
Distributions:
Dividends from net investment income (0.07)(a) (0.23)(a) (0.22)(a)
Distributions from net realized capital gains -- -- (0.02)
Total dividends and distributions (0.07) (0.23) (0.24)
Net asset value, end of period $ 4.07 $ 4.14 $ 3.93
Total return++ 0.00%### 11.48% (2.41)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $57,381 $64,848 $77,128
Ratio of operating expenses to average net assets 0.83%+ 0.80% 0.77%
Ratio of net investment income to average net
assets 5.12%+ 5.68% 5.58%
Portfolio turnover rate 189% 328% 133%
Ratio of operating expenses to average net assets
without waivers and/or expense
reimbursements 1.06%+ 1.00% 0.98%
</TABLE>
* Nations Short-Intermediate Government Fund Investor A Shares commenced
operations on August 5, 1991.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited. # Per share net investment income has been calculated using the
monthly average share method.
## Nations Short-Intermediate Government Fund's net asset value upon
commencement of operations was $2.00 per share. Effective September 25,
1991, the net asset value doubled as a result of the reclassification of
each outstanding share into half as many shares (reverse split).
### Amount represents less than 0.01%.
(a) Includes distribution in excess of less than $0.01 per share.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
(c) The effect of interest expense on the operating expense ratio was less than
0.01%.
(d) The effect of the credits allowed by the custodian on the operating expense
ratio, with and without waivers and/or expense reimbursements, was less than
0.01%.
38
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations Short-Intermediate Government Fund (cont.)
<TABLE>
<CAPTION>
YEAR YEAR PERIOD
ENDED ENDED ENDED
Investor A Shares 11/30/93 11/30/92 11/30/91*
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 4.16 $ 4.17 $ 4.00##
Net investment income 0.22 0.27 0.10
Net realized and unrealized gain/(loss) on investments 0.14 (0.01) 0.17
Net increase/(decrease) in net asset value from operations 0.36 0.26 0.27
Distributions:
Dividends from net investment income (0.22) (0.27) (0.10)
Distributions from net realized capital gains (0.02) -- --
Total dividends and distributions (0.24) (0.27) (0.10)
Net asset value, end of period $ 4.28 $ 4.16 $ 4.17
Total return++ 8.85% 6.61% 6.81%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $173,449 $188,624 $53,874
Ratio of operating expenses to average net assets 0.70% 0.48% 0.08%+
Ratio of net investment income to average net assets 5.25% 6.34% 7.21%+
Portfolio turnover rate 92% 25% 11%
Ratio of operating expenses to average net assets without waivers and/or
expense reimbursements 0.94% 0.88% 0.82%+
</TABLE>
* Nations Short-Intermediate Government Fund Investor A Shares commenced
operations on August 5, 1991.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# Per share net investment income has been calculated using the monthly
average share method.
## Nations Short-Intermediate Government Fund's net asset value upon
commencement of operations was $2.00 per share. Effective September 25,
1991, the net asset value doubled as a result of the reclassification of
each outstanding share into half as many shares (reverse split).
### Amount represents less than 0.01%.
(a) Includes distribution in excess of less than $0.01 per share.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
(c) The effect of interest expense on the operating expense ratio was less than
0.01%.
(d) The effect of the fees reduced by credits allowed by the custodian on the
operating expense ratio, with and without waivers and/or expense
reimbursements was less than 0.01%.
39
<PAGE>
FOR AN INVESTOR B SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations Short-Intermediate Government Fund
<TABLE>
<CAPTION>
YEAR YEAR
ENDED ENDED
Investor B Shares 03/31/98 03/31/97#
<S> <C> <C>
Operating performance:
Net asset value, beginning of period $ 3.99 $ 4.07
Net investment income 0.20 0.20
Net realized and unrealized
gain/(loss) on investments 0.13 (0.08)
Net increase/(decrease) in net asset
value from operations 0.33 0.12
Distributions:
Dividends from net investment
income (0.20) (0.20)
Distributions from net realized
capital gains -- --
Total dividends and distributions (0.20) (0.20)
Net asset value, end of period $ 4.12 $ 3.99
Total return++ 8.35% 3.10%
Ratios to average net
assets/supplemental data:
Net assets, end of period
(in 000's) $9,815 $10,788
Ratio of operating expenses to
average net assets 1.34% 1.23%(c)(d)
Ratio of net investment income to
average net assets 4.80% 5.13%
Portfolio turnover rate 538% 529%
Ratio of operating expenses to
average net assets without waivers
and/or expense reimbursements 1.54% 1.43%(d)
<CAPTION>
PERIOD YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
Investor B Shares 03/31/96(b)# 11/30/95# 11/30/94 11/30/93*
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 4.14 $ 3.93 $ 4.28 $ 4.26
Net investment income 0.07 0.21 0.20 0.09
Net realized and unrealized
gain/(loss) on investments (0.07) 0.21 (0.33) 0.02
Net increase/(decrease) in net asset
value from operations 0.00 0.42 (0.13) 0.11
Distributions:
Dividends from net investment
income (0.07)(a) (0.21)(a) (0.20)(a) (0.09)
Distributions from net realized
capital gains -- -- (0.02) --
Total dividends and distributions (0.07) (0.21) (0.22) (0.09)
Net asset value, end of period $ 4.07 $ 4.14 $ 3.93 $ 4.28
Total return++ (0.13)% 11.02% (2.81)% 2.65%
Ratios to average net
assets/supplemental data:
Net assets, end of period
(in 000's) $13,789 $14,893 $10,974 $8,847
Ratio of operating expenses to
average net assets 1.23%+ 1.20% 1.19% 1.15%+
Ratio of net investment income to
average net assets 4.72%+ 5.28% 5.16% 4.80%+
Portfolio turnover rate 189% 328% 133% 92%
Ratio of operating expenses to
average net assets without waivers
and/or expense reimbursements 1.46%+ 1.40% 1.40% 1.39%+
</TABLE>
* Nations Short-Intermediate Government Fund Investor B Shares commenced
operations on June 7, 1993.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
# Per share net investment income has been calculated using the monthly
average share method.
(a) Includes distribution in excess of less than $0.01 per share.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
(c) The effect of interest expense on the operating expense ratio was less than
0.01%.
(d) The effect of the credits allowed by the custodian on the operating expense
ratio, with and without waivers and/or expense reimbursements, was less than
0.01%.
40
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations Government Securities Fund
<TABLE>
<CAPTION>
YEAR
ENDED
Investor A Shares 03/31/98
<S> <C>
Operating performance:
Net asset value, beginning of period $ 9.39
Net investment income 0.52
Net realized and unrealized gain/(loss) on
investments 0.51
Net increase/(decrease) in net asset value from
operations 1.03
Distributions:
Dividends from net investment income (0.52)
Distributions in excess of net investment income --
Distributions in excess of net realized capital gains --
Distributions from capital --
Total dividends and distributions (0.52)
Net asset value, end of period $ 9.90
Total return++ 11.37%
Ratios to average net assets/ supplemental data:
Net assets, end of period (in 000's) $8,509
Ratio of operating expenses to average net assets 1.10%(c)(d)
Ratio of net investment income to average net assets 5.38%
Portfolio turnover rate 303%
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 1.24%(d)
<CAPTION>
YEAR PERIOD YEAR YEAR
ENDED ENDED ENDED ENDED
Investor A Shares 03/31/97# 03/31/96(a)# 05/31/95# 05/31/94
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 9.67 $ 9.86 $ 9.80 $ 10.46
Net investment income 0.58 0.50 0.61 0.62
Net realized and unrealized gain/(loss) on
investments (0.30) (0.19) 0.06 ( 0.61)
Net increase/(decrease) in net asset value from
operations 0.28 0.31 0.67 0.01
Distributions:
Dividends from net investment income (0.56) (0.48) (0.57) ( 0.56)
Distributions in excess of net investment income -- (0.02) -- ( 0.02)
Distributions in excess of net realized capital gains -- -- -- ( 0.05)
Distributions from capital (0.00)(b) -- (0.04) ( 0.04)
Total dividends and distributions (0.56) (0.50) (0.61) ( 0.67)
Net asset value, end of period $ 9.39 $ 9.67 $ 9.86 $ 9.80
Total return++ 2.92% 3.20% 7.29% ( 0.11)%
Ratios to average net assets/ supplemental data:
Net assets, end of period (in 000's) $9,852 $11,662 $10,928 $14,044
Ratio of operating expenses to average net assets 1.05% 1.05%+ 1.01% 0.90%
Ratio of net investment income to average net assets 6.03% 6.11%+ 6.44% 5.91%
Portfolio turnover rate 468% 199% 413% 56%
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 1.19% 1.20%+ 1.19% 1.11%
</TABLE>
* Nations Government Securities Fund Investor A Shares commenced operations on
April 17, 1991.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# Per share net investment income has been calculated using the monthly
average share method.
(a) Fiscal year ended changed to March 31. Prior to this, the fiscal year ended
was May 31.
(b) Amount represents less than $0.01.
(c) The effect of interest expense on the operating expense ratio was less than
0.01%.
(d) The effect of the credits allowed by the custodian on the operating expense
ratio, with and without waivers and/or expense reimbursements, was less
than 0.01%.
41
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations Government Securities Fund (cont.)
<TABLE>
<CAPTION>
YEAR YEAR PERIOD
ENDED ENDED ENDED
Investor A Shares 05/31/93# 05/31/92 05/31/91*
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 10.36 $ 10.05 $ 10.01
Net investment income 0.66 0.71 0.09
Net realized and unrealized gain/(loss) on investments 0.16 0.38 0.02
Net increase/(decrease) in net asset value from operations 0.82 1.09 0.11
Distributions:
Dividends from net investment income ( 0.68) ( 0.75) ( 0.07)
Distributions in excess of net investment income -- -- --
Distributions from net realized capital gains -- -- --
Distributions in excess of net realized capital gains ( 0.04) ( 0.03) --
Distributions from capital -- -- --
Total dividends and distributions ( 0.72) ( 0.78) ( 0.07)
Net asset value, end of period $ 10.46 $ 10.36 $ 10.05
Total return++ 8.18% 11.18%+++ 1.07%+++
Ratios to average net assets/ supplemental data:
Net assets, end of period (in 000's) $15,354 $3,326 $ 661
Ratio of operating expenses to average net assets 1.00% 1.31% 1.35%+
Ratio of net investment income to average net assets 6.52% 6.90% 7.22%+
Portfolio turnover rate 103% 130% 5%
Ratio of operating expenses to average net assets without waivers and/or
expense reimbursements 1.15% 1.97% 1.94%+++
</TABLE>
* Nations Government Securities Fund Investor A Shares commenced operations on
April 17, 1991.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# Per share net investment income has been calculated using the monthly
average share method.
(a) Fiscal year ended changed to March 31. Prior to this, the fiscal year ended
was May 31.
(b) Amount represents less than $0.01.
(c) The effect of interest expense on the operating expense ratio was less than
0.01%.
(d) The effect of the credits allowed by the custodian on the operating expense
ratio, with and without waivers and/or expense reimbursements, was less
than 0.01%.
42
<PAGE>
FOR AN INVESTOR B SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations Government Securities Fund
<TABLE>
<CAPTION>
YEAR
ENDED
Investor B Shares 03/31/98
<S> <C>
Operating performance:
Net asset value, beginning of period $ 9.39
Net investment income 0.47
Net realized and unrealized gain/(loss) on
investments 0.51
Net increase/(decrease) in net asset value from
operations 0.98
Distributions:
Dividends from net investment income (0.47)
Distributions in excess of net investment income --
Distributions in excess of net realized capital gains --
Distributions from capital --
Total dividends and distributions (0.47)
Net asset value, end of period $ 9.90
Total return++ 10.78%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $32,391
Ratio of operating expenses to average net assets 1.63%(c)(d)
Ratio of net investment income to average net assets 4.85%
Portfolio turnover rate 303%
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 1.77%(d)
<CAPTION>
YEAR PERIOD YEAR PERIOD
ENDED ENDED ENDED ENDED
Investor B Shares 03/31/97# 03/31/96(b)# 05/31/95# 05/31/94*
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 9.67 $ 9.86 $ 9.80 $ 10.49
Net investment income 0.54 0.47 0.58 0.54
Net realized and unrealized gain/(loss) on
investments (0.30) (0.19) 0.06 ( 0.64)
Net increase/(decrease) in net asset value from
operations 0.24 0.28 0.64 ( 0.10)
Distributions:
Dividends from net investment income $ (0.52) (0.45) (0.54) ( 0.49)
Distributions in excess of net investment income -- (0.02) -- ( 0.01)
Distributions in excess of net realized capital gains -- -- -- ( 0.05)
Distributions from capital $ (0.00)(a) -- (0.04) ( 0.04)
Total dividends and distributions $ (0.52) (0.47) (0.58) ( 0.59)
Net asset value, end of period $ 9.39 $ 9.67 $ 9.86 $ 9.80
Total return++ 2.51% 2.85% 6.86% ( 1.09)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $38,807 $50,958 $56,155 $56,313
Ratio of operating expenses to average net assets 1.45% 1.45%+ 1.41% 1.38%+
Ratio of net investment income to average net assets 5.63% 5.71%+ 6.04% 5.43%+
Portfolio turnover rate 468% 199% 413% 56%
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 1.59% 1.60%+ 1.59% 1.59%+
</TABLE>
* Nations Government Securities Fund Investor B Shares commenced operations on
June 7, 1993.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
# Per share net investment income has been calculated using the monthly
average share method.
(a) Amount represents less than $0.01.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
May 31.
(c) The effect of interest expense on the operating expense ratio was less than
0.01%.
(d) The effect of the credits allowed by the custodian on the operating expense
ratio, with and without waivers and/or expense reimbursements, was less
than 0.01%.
43
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations Strategic Fixed Income Fund
<TABLE>
<CAPTION>
YEAR YEAR
Investor A ENDED ENDED
Shares 03/31/98 03/31/97#
<S> <C> <C>
Operating performance:
Net asset value,
beginning of period $ 9.62 $ 9.93
Net investment income 0.56 0.56
Net realized and
unrealized gain/(loss)
on investments 0.41 (0.20)
Net increase/(decrease) in
net asset value from
operations 0.97 0.36
Distributions:
Dividends from net
investment income ( 0.56) (0.56)
Distributions in excess of
net investment income -- --
Distributions from net
realized capital gains -- (0.11)
Distributions from capital -- $(0.00)(b)
Total dividends and
distributions ( 0.56) (0.67)
Net asset value, end of
period $ 10.03 $ 9.62
Total return++ 10.30% 3.70%
Ratios to average net
assets/supplemental
data:
Net assets, end of period
(in 000's) $26,054 $6,345
Ratio of operating
expenses to average net
assets 0.92%(c)(d) 0.91%(c)
Ratio of net investment
income to average net
assets 5.66% 5.78%
Portfolio turnover rate 244% 368%
Ratio of operating
expenses to average net
assets without waivers
and/or expense
reimbursements 1.03%(d) 1.01%(d)
<CAPTION>
PERIOD YEAR YEAR YEAR PERIOD
Investor A ENDED ENDED ENDED ENDED ENDED
Shares 03/31/96(a) 11/30/95 11/30/94 11/30/93 11/30/92*
<S> <C> <C> <C> <C> <C>
Operating performance:
Net asset value,
beginning of period $ 10.22 $ 9.32 $ 10.55 $ 9.94 $ 9.99
Net investment income 0.18 0.57 0.51 0.54 0.01
Net realized and
unrealized gain/(loss)
on investments ( 0.29) 0.90 ( 0.89) 0.62 (0.06)
Net increase/(decrease) in
net asset value from
operations ( 0.11) 1.47 ( 0.38) 1.16 (0.05)
Distributions:
Dividends from net
investment income ( 0.18) ( 0.57) ( 0.49) ( 0.54) --
Distributions in excess of
net investment income -- -- ( 0.02) -- --
Distributions from net
realized capital gains -- -- ( 0.34) ( 0.01) --
Distributions from capital -- -- -- -- --
Total dividends and
distributions ( 0.18) ( 0.57) ( 0.85) ( 0.55) --
Net asset value, end of
period $ 9.93 $ 10.22 $ 9.32 $ 10.55 $ 9.94
Total return++ ( 1.11)% 16.22% ( 3.76)% 11.88% (0.49)%+++
Ratios to average net
assets/supplemental
data:
Net assets, end of period
(in 000's) $6,440 $6,662 $ 967 $1,138 $ 113
Ratio of operating
expenses to average net
assets 0.92%+ 0.91% 0.86% 0.76% 0.40%+
Ratio of net investment
income to average net
assets 5.29%+ 5.85% 5.25% 5.25% 6.00%+
Portfolio turnover rate 133% 228% 307% 161% 12%
Ratio of operating
expenses to average net
assets without waivers
and/or expense
reimbursements 1.03%+ 1.01% 0.94% 0.92% 1.00%+
</TABLE>
* Nations Strategic Fixed Income Fund Investor A Shares commenced operations
on November 19, 1992.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# Per share net investment income has been calculated using the monthly
average share method.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
(b) Amount represents less than $0.01.
(c) The effect of the fees reduced by credits allowed by the custodian on the
operating expense ratio, with and without waivers and/or expense
reimbursements, was less than 0.01%.
(d) The effect of interest expense on the operating expense ratio was less than
0.01%.
44
<PAGE>
FOR AN INVESTOR B SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations Strategic Fixed Income Fund
<TABLE>
<CAPTION>
YEAR YEAR PERIOD YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED ENDED
Investor B Shares 03/31/98 03/31/97# 03/31/96(a) 11/30/95 11/30/94 11/30/93*
<S> <C> <C> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 9.62 $ 9.93 $ 10.22 $ 9.32 $ 10.55 $ 10.39
Net investment income 0.51 0.52 0.16 0.53 0.47 0.21
Net realized and unrealized
gain/(loss) on investments 0.41 (0.20) ( 0.29) 0.90 ( 0.89) 0.17
Net increase/(decrease) in net asset
value from operations 0.92 0.32 ( 0.13) 1.43 ( 0.42) 0.38
Distributions:
Dividends from net investment
income ( 0.51) (0.52) ( 0.16) ( 0.53) ( 0.45) ( 0.21)
Distributions in excess of net
investment income -- -- -- -- ( 0.02) --
Distributions of net realized capital
gains -- (0.11) -- -- ( 0.34) ( 0.01)
Distributions from capital -- (0.00)(b) -- -- -- --
Total dividends and distributions ( 0.51) (0.63) ( 0.16) ( 0.53) ( 0.81) ( 0.22)
Net asset value, end of period $ 10.03 $ 9.62 $ 9.93 $ 10.22 $ 9.32 $ 10.55
Total return++ 9.73% 3.23% ( 1.26)% 15.70% ( 4.21)% 3.64%
Ratios to average net
assets/supplemental data:
Net assets, end of period
(in 000's) $2,662 $2,109 $2,496 $2,578 $2,145 $1,620
Ratio of operating expenses to
average net assets 1.47%(c)(d) 1.36%(c) 1.37%+ 1.36% 1.33% 1.26%+
Ratio of net investment income to
average net assets 5.11% 5.33% 4.84%+ 5.40% 4.78% 4.75%+
Portfolio turnover rate 244% 368% 133% 228% 307% 161%
Ratio of operating expenses to
average net assets without waivers
and/or expense reimbursements 1.58%(d) 1.46%(d) 1.48%+ 1.46% 1.41% 1.42%+
</TABLE>
* Nations Strategic Fixed Income Fund Investor B Shares commenced operations
on June 7, 1993.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
# Per share net investment income has been calculated using the monthly
average share method.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
(b) Amount represents less than $0.01.
(c) The effect of the credits allowed by the custodian on the operating expense
ratio, with and without waivers and/or expense reimbursements was less
than 0.01%.
(d) The effect of interest expense on the operating expense ratio was less than
0.01%.
45
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations Diversified Income Fund
<TABLE>
<CAPTION>
YEAR YEAR PERIOD
Investor A ENDED ENDED ENDED
Shares 03/31/98 03/31/97# 03/31/96(a)
<S> <C> <C> <C>
Operating performance:
Net asset value,
beginning of period $ 10.11 $ 10.42 $ 10.82
Net investment income 0.63 0.66 0.22
Net realized and
unrealized gain/(loss)
on investments 0.44 ( 0.18) ( 0.40)
Net increase/(decrease) in
net asset value from
operations 1.07 0.48 ( 0.18)
Distributions:
Dividends from net
investment income ( 0.63) ( 0.66) ( 0.22)
Distributions from net
realized capital gains -- ( 0.13) --
Total dividends and
distributions ( 0.63) ( 0.79) ( 0.22)
Net asset value, end of
period $ 10.55 $ 10.11 $ 10.42
Total return++ 10.80% 4.71% ( 1.67)%
Ratios to average net
assets/supplemental
data:
Net assets, end of period
(in 000's) $11,946 $11,662 $13,332
Ratio of operating
expenses to average net
assets 0.98%(b) 1.00%(b) 1.02%+
Ratio of net investment
income to average net
assets 6.02% 6.48% 6.24%+
Portfolio turnover rate 203% 278% 69%
Ratio of operating
expenses to average net
assets without waivers
and/or expense
reimbursements 1.08%(b) 1.10%(b) 1.12%+
<CAPTION>
YEAR YEAR YEAR PERIOD
Investor A ENDED ENDED ENDED ENDED
Shares 11/30/95 11/30/94# 11/30/93# 11/30/92*
<S> <C> <C> <C> <C>
Operating performance:
Net asset value,
beginning of period $ 9.67 $ 10.88 $ 9.96 $ 10.02
Net investment income 0.71 0.72 0.76 0.01
Net realized and
unrealized gain/(loss)
on investments 1.15 ( 1.06) 0.92 ( 0.06)
Net increase/(decrease) in
net asset value from
operations 1.86 ( 0.34) 1.68 ( 0.05)
Distributions:
Dividends from net
investment income ( 0.71) ( 0.72)(c) ( 0.76) ( 0.01)
Distributions from net
realized capital gains -- ( 0.15) -- --
Total dividends and
distributions ( 0.71) ( 0.87) ( 0.76) ( 0.01)
Net asset value, end of
period $ 10.82 $ 9.67 $ 10.88 $ 9.96
Total return++ 19.82% ( 3.26)% 17.32% ( 0.49)%+++
Ratios to average net
assets/supplemental
data:
Net assets, end of period
(in 000's) $13,150 $10,819 $13,291 $ 18
Ratio of operating
expenses to average net
assets 1.05% 0.96% 0.70% 0.40%+
Ratio of net investment
income to average net
assets 6.78% 7.09% 6.87% 7.61%+
Portfolio turnover rate 96% 144% 86% 46%
Ratio of operating
expenses to average net
assets without waivers
and/or expense
reimbursements 1.18% 1.17% 1.10% 1.00%+
</TABLE>
* Nations Diversified Income Fund Investor A Shares commenced operations on
November 25, 1992.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# Per share net investment income has been calculated using the monthly
average share method.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
(b) The effect of the fees reduced by credits allowed by the custodian on the
operating expense ratio, with and without waivers and/or expense
reimbursements, was less than 0.01%.
(c) Includes distributions in excess of less than 0.01 per share.
46
<PAGE>
FOR AN INVESTOR B SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations Diversified Income Fund
<TABLE>
<CAPTION>
YEAR YEAR PERIOD YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED ENDED
Investor B Shares 03/31/98 03/31/97# 03/31/96(b) 11/30/95 11/30/94# 11/30/93#*
<S> <C> <C> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 10.11 $ 10.42 $ 10.82 $ 9.67 $ 10.88 $ 10.59
Net investment income 0.57 0.61 0.21 0.66 0.67 0.30
Net realized and unrealized
gain/(loss) on investments 0.44 ( 0.18) ( 0.40) 1.15 ( 1.06) 0.29
Net increase/(decrease) in net asset
value from operations 1.01 0.43 ( 0.19) 1.81 ( 0.39) 0.59
Distributions:
Dividends from net investment
income ( 0.57) ( 0.61) ( 0.21) ( 0.66) ( 0.67)(a) ( 0.30)
Distributions from net realized
capital gains -- ( 0.13) -- -- ( 0.15) --
Total dividends and distributions ( 0.57) ( 0.74) ( 0.21) ( 0.66) ( 0.82) ( 0.30)
Net asset value, end of period $ 10.55 $ 10.11 $ 10.42 $ 10.82 $ 9.67 $ 10.88
Total return++ 10.18% 4.18% ( 1.83)% 19.22% ( 3.77)% 5.58%
Ratios to average net
assets/supplemental data:
Net assets, end of period
(in 000's) $65,248 $70,631 $84,692 $90,887 $55,058 $24,630
Ratio of operating expenses to
average net assets 1.55%(c) 1.50%(c) 1.52%+ 1.55% 1.49% 1.30%+
Ratio of net investment income to
average net assets 5.45% 5.98% 5.74%+ 6.28% 6.56% 6.27%+
Portfolio turnover rate 203% 278% 69% 96% 144% 86%
Ratio of operating expenses to
average net assets without waivers
and/or expense reimbursements 1.65%(c) 1.60%(c) 1.62%+ 1.68% 1.70% 1.70%+
</TABLE>
* Nations Diversified Income Fund Investor B Shares commenced operations on
June 7, 1993.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
# Per share net investment income has been calculated using the monthly
average share method.
(a) Includes distribution in excess of less than $0.01 per share.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
(c) The effect of the fees reduced by credits allowed by the custodian on the
operating expense ratio, with and without waivers and/or expense
reimbursements was less than 0.01%.
47
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations U.S. Government Bond Fund
<TABLE>
<CAPTION>
PERIOD YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
Investor A Shares* 03/31/98 05/16/97 08/31/96 08/31/95(b)
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, at the beginning of the period $ 10.20 $ 10.54 $ 11.19 $ 10.48
Net investment income 0.46 0.39 0.59 0.37
Net realized and unrealized gain/(loss) on investments 0.30 0.17 ( 0.20) 0.71
Net increase in net asset value from operations 0.76 0.56 0.39 1.08
Distributions:
Dividends from net investment income ( 0.46) ( 0.39) ( 0.59) ( 0.37)
Distributions from net realized capital gains ( 0.13) ( 0.51) ( 0.45) --
Total dividends and distributions ( 0.59) ( 0.90) ( 1.04) ( 0.37)
Net asset value, end of the period $ 10.37 $ 10.20 $ 10.54 $ 11.19
Total return ++ 7.51% 5.44% 3.44% 10.41%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $1,927 $ 734 $ 632 $ 87
Ratio of operating expenses to average net assets 0.85%(a)+ 0.87%+ 0.85% 0.82%+
Ratio of net investment income to average net assets 5.01%+ 5.35%+ 5.44% 5.76%+
Portfolio turnover rate 188% 58% 87% 132%
Ratio of expenses to average net assets (without waivers or
expense reimbursements) 1.11%(a)+ 1.07%+ 1.07% 1.12%+
</TABLE>
* The financial information for the fiscal periods prior to May 23, 1997
reflects the financial information for the Pilot U.S. Government Securities
Fund's Class A Shares, which were reorganized into the Investor A Shares of
Nations U.S. Government Bond Fund as of May 23, 1997.
+ Annualized
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
(a) The effect of the fees reduced by the credits allowed by the custodian on
the expense ratio, with and without waivers and/or expense reimbursements,
was less than 0.01%.
(b) Investor A Shares commenced operations on February 7, 1995.
48
<PAGE>
FOR AN INVESTOR B SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations U.S. Government Bond Fund
<TABLE>
<CAPTION>
PERIOD PERIOD YEAR PERIOD
ENDED ENDED ENDED ENDED
Investor B Shares* 03/31/98 05/16/97 08/31/96 08/31/95(b)
<S> <C> <C> <C> <C>
Operating performance:
Net asset value at the beginning of the period $ 10.19 $ 10.52 $ 11.19 $ 10.05
Net investment income 0.41 0.34 0.51 0.46
Net realized and unrealized gain/(loss) on investments 0.31 0.18 ( 0.22) 1.14
Net increase in net asset value from operations 0.72 0.52 0.29 1.60
Distributions:
Dividends from net investment income ( 0.41) ( 0.34) ( 0.51) ( 0.46)
Distributions from net realized capital gains ( 0.13) ( 0.51) ( 0.45) --
Total dividends and distributions ( 0.54) ( 0.85) ( 0.96) ( 0.46)
Net asset value at the end of the period $ 10.37 $ 10.19 $ 10.52 $ 11.19
Total return++ 7.14% 4.99% 2.43% 16.19%
Ratios to average net assets/supplemental data:
Net assets at end of period (in 000's) $1,004 $1,529 $1,237 $ 146
Ratio of operating expenses to average net assets 1.40%(a)+ 1.62%+ 1.65% 1.62%+
Ratio of net investment income to average net assets 4.46%+ 4.60%+ 4.60% 5.19%+
Portfolio turnover rate 188% 58% 87% 132%
Ratio of operating expenses to average net assets without waivers
and/or expense reimbursements 1.66%(a)+ 1.77%+ 1.82% 1.87%+
</TABLE>
* The financial information for the fiscal periods prior to May 23, 1997
reflects the financial information for the Pilot U.S. Government Securities
Fund's Class B Shares which were reorganized into the Nations U.S.
GovernmentBond Fund Investor B Shares as of May 23, 1997.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
(a) The effect of the fees reduced by credits allowed by the custodian on the
operating expense ratio, with and without waivers and/or expense
reimbursements was less than 0.01%.
(b) Investor B Shares commenced operations on November 10, 1994.
49
<PAGE>
Appendix A -- Portfolio Securities
The following are summary descriptions of certain types of instruments in which
a Fund may invest. The "How Objectives Are Pursued" section of this Prospectus
identifies each Fund's permissible investments, and the SAI contains more
information concerning such investments.
Asset-Backed Securities: Asset-backed securities arise through the grouping by
governmental, government-related, and private organizations of loans,
receivables, or other assets originated by various lenders. Asset-backed
securities consist of both mortgage- and non-mortgage-backed securities.
Interests in pools of these assets may differ from other forms of debt
securities, which normally provide for periodic payment of interest in fixed
amounts with principal paid at maturity or specified call dates. Conversely,
asset-backed securities provide periodic payments which may consist of both
interest and principal payments.
The life of an asset-backed security varies depending upon rate of the
prepayment of the underlying debt instruments. The rate of such prepayments
will be a function of current market interest rates and other economic and
demographic factors. For example, falling interest rates generally result in an
increase in the rate of prepayments of mortgage loans while rising interest
rates generally decrease the rate of prepayments. An acceleration in
prepayments in response to sharply falling interest rates will shorten the
security's average maturity and limit the potential appreciation in the
security's value relative to a conventional debt security. Consequently,
asset-backed securities may not be as effective in locking in high, long-term
yields. Conversely, in periods of sharply rising rates, prepayments are
generally slow, increasing the security's average life and its potential for
price depreciation.
Mortgage-Backed Securities: Mortgage-backed securities represent an ownership
interest in a pool of mortgage loans.
Mortgage pass-through securities may represent participation interests in pools
of residential mortgage loans originated by U.S. governmental or private
lenders and guaranteed, to the extent provided in such securities, by the U.S.
Government or one of its agencies, authorities or instrumentalities. Such
securities, which are ownership interests in the underlying mortgage loans,
differ from conventional debt securities, which provide for periodic payment of
interest in fixed amounts (usually semi-annually) and principal payments at
maturity or on specified call dates. Mortgage pass-through securities provide
for monthly payments that are a "pass-through" of the monthly interest and
principal payments (including any prepayments) made by the individual borrowers
on the pooled mortgage loans, net of any fees paid to the guarantor of such
securities and the servicer of the underlying mortgage loans.
The guaranteed mortgage pass-through securities in which a Fund may invest may
include those issued or guaranteed by the Government National Mortgage
Association ("GNMA"), the Federal National Mortgage Association ("FNMA") and
the Federal Home Loan Mortgage Corporation ("FHLMC"). Such Certificates are
mortgage-backed securities which represent a partial ownership interest in a
pool of mortgage loans issued by lenders such as mortgage bankers, commercial
banks and savings and loan associations. Such mortgage loans may have fixed or
adjustable rates of interest.
The average life of a mortgage-backed security is likely to be substantially
less than the original maturity of the mortgage pools underlying the
securities. Prepayments of principal by mortgagors and mortgage foreclosures
will usually result in the return of the greater part of principal invested far
in advance of the maturity of the mortgages in the pool.
The yield which will be earned on mortgage-backed securities may vary from
their coupon rates for the following reasons: (i) Certificates may be issued at
a premium or discount, rather than at par; (ii) Certificates may trade in the
secondary market at a premium or discount after issuance; (iii) interest is
earned and compounded monthly
50
<PAGE>
which has the effect of raising the effective yield earned on the Certificates;
and (iv) the actual yield of each Certificate is affected by the prepayment of
mortgages included in the mortgage pool underlying the Certificates and the
rate at which principal so prepaid is reinvested. In addition, prepayment of
mortgages included in the mortgage pool underlying a GNMA Certificate purchased
at a premium may result in a loss to the Fund.
Mortgage-backed securities issued by private issuers, whether or not such
obligations are subject to guarantees by the private issuer, may entail greater
risk than obligations directly or indirectly guaranteed by the U.S. Government.
Collateralized mortgage obligations or "CMOs," are debt obligations
collateralized by mortgage loans or mortgage pass-through securities
(collateral collectively hereinafter referred to as "Mortgage Assets").
Multi-class pass-through securities are interests in a trust composed of
Mortgage Assets and all references herein to CMOs will include multi-class
pass-through securities. Payments of principal of and interest on the Mortgage
Assets, and any reinvestment income thereon, provide the funds to pay debt
service on the CMOs or make scheduled distribution on the multi-class
pass-through securities.
Moreover, principal prepayments on the Mortgage Assets may cause the CMOs to be
retired substantially earlier than their stated maturities or final
distribution dates, resulting in a loss of all or part of the premium if any
has been paid. Interest is paid or accrues on all classes of the CMOs on a
monthly, quarterly or semiannual basis.
The principal and interest payments on the Mortgage Assets may be allocated
among the various classes of CMOs in several ways. Typically, payments of
principal, including any prepayments, on the underlying mortgages are applied
to the classes in the order of their respective stated maturities or final
distribution dates, so that no payment of principal is made on CMOs of a class
until all CMOs of other classes having earlier stated maturities or final
distribution dates have been paid in full.
Stripped mortgage-backed securities ("SMBS") are derivative multi-class
mortgage securities. A Fund will only invest in SMBS that are obligations
backed by the full faith and credit of the U.S. Government. SMBS are usually
structured with two classes that receive different proportions of the interest
and principal distributions from a pool of mortgage assets. A Fund will only
invest in SMBS whose mortgage assets are U.S. Government Obligations.
A common type of SMBS will be structured so that one class receives some of the
interest and most of the principal from the Mortgage Assets, while the other
class receives most of the interest and the remainder of the principal. If the
underlying Mortgage Assets experience greater than anticipated prepayments of
principal, a Fund may fail to fully recoup its initial investment in these
securities. The market value of any class which consists primarily or entirely
of principal payments generally is unusually volatile in response to changes in
interest rates.
The average life of mortgage-backed securities varies with the maturities of
the underlying mortgage instruments. The average life is likely to be
substantially less than the original maturity of the mortgage pools underlying
the securities as the result of mortgage prepayments, mortgage refinancings, or
foreclosures. The rate of mortgage prepayments, and hence the average life of
the certificates, will be a function of the level of interest rates, general
economic conditions, the location and age of the mortgage and other social and
demographic conditions. Such prepayments are passed through to the registered
holder with the regular monthly payments of principal and interest and have the
effect of reducing future payments. Estimated average life will be determined
by the Adviser and used for the purpose of determining the average weighted
maturity and duration of the Funds. For additional information concerning
mortgage-backed securities, see the SAI.
The mortgage-backed securities in which the Funds invest are subject to
extension risk. This is the risk that when interest rates rise, prepayments of
the underlying obligations slow thereby lengthening duration and potentially
reducing the value of these securities. The debt securities held by the Funds
also may be subject to credit risk. Credit risk is the risk that the issuers of
securities in which a Fund invests may default in the payment of principal
and/or interest. Any such defaults or adverse changes in an issuers financial
condition or credit
51
<PAGE>
rating may adversely affect the value of the Funds' portfolio investments and,
hence, the value of your investment in the corresponding Fund.
Non-Mortgage Asset-Backed Securities: Non- mortgage asset-backed securities
include interests in pools of receivables, such as motor vehicle installment
purchase obligations and credit card receivables. Such securities are generally
issued as pass- through certificates, which represent undivided fractional
ownership interests in the underlying pools of assets. Such securities also may
be debt instruments, which are also known as collateralized obligations and are
generally issued as the debt of a special purpose entity organized solely for
the purpose of owning such assets and issuing such debt. Such securities also
may include instruments issued by certain trusts, partnerships or other special
purpose issuers, including pass-through certificates representing
participations in, or debt instruments backed by, the securities and other
assets owned by such issuers.
Non-mortgage backed securities are not issued or guaranteed by the U.S.
Government or its agencies or instrumentalities; however, the payment of
principal and interest on such obligations may be guaranteed up to certain
amounts and for a certain time period by a letter of credit issued by a
financial institution (such as a bank or insurance company) unaffiliated with
the issuers of such securities.
The purchase of non-mortgage-backed securities raises considerations unique to
the financing of the instruments underlying such securities. For example, most
organizations that issue asset backed securities relating to motor vehicle
installment purchase obligations perfect their interests in their respective
obligations only by filing a financing statement and by having the servicer of
the obligations, which is usually the originator, take custody thereof. In such
circumstances, if the servicer were to sell the same obligations to another
party, in violation of its duty not to do so, there is a risk that such party
could acquire an interest in the obligations superior to that of the holders of
the asset-backed securities. Also, although most such obligations grant a
security interest in the motor vehicle being financed, in most states the
security interest in a motor vehicle must be noted on the certificate of title
to perfect such security interest against competing claims of other parties.
Due to the larger number of vehicles involved, however, the certificate of
title to each vehicle financed, pursuant to the obligations underlying the
asset-backed securities, usually is not amended to reflect the assignment of
the seller's security interest for the benefit of the holders of the
asset-backed securities. Therefore, there is the possibility that recoveries on
repossessed collateral may not, in some cases, be available to support payments
on those securities. In addition, various state and Federal laws give the motor
vehicle owner the right to assert against the holder of the owner's obligation
certain defenses such owner would have against the seller of the motor vehicle.
The assertion of such defenses could reduce payments on the related asset-backed
securities. Insofar as credit card receivables are concerned, credit card
holders are entitled to the protection of a number of state and Federal
consumer credit laws, many of which give such holders the right to set off
certain amounts against balances owed on the credit card, thereby reducing the
amounts paid on such receivables. In addition, unlike most other asset-backed
securities, credit card receivables are unsecured obligations of the card
holder.
Bank Instruments: Bank instruments consist mainly of certificates of deposit,
time deposits and bankers' acceptances. Each Fund will limit its investments in
bank obligations so they do not exceed 25% of its total assets at the time of
purchase.
U.S. dollar-denominated obligations issued by foreign branches of domestic
banks ("Eurodollar" obligations) and domestic branches of foreign banks
("Yankee dollar" obligations) and other foreign obligations involve special
investment risks, including the possibility that liquidity could be impaired
because of future political and economic developments, the obligations may be
less marketable than comparable domestic obligations of domestic issuers, a
foreign jurisdiction might impose withholding taxes on interest income payable
on such obligations, deposits may be seized or nationalized, foreign
governmental restrictions such as exchange controls may be adopted which might
adversely affect the payment of principal of and interest on such obligations,
the selection of foreign obligations may be more difficult because there may be
less publicly available information concerning for-
52
<PAGE>
eign issuers, there may be difficulties in enforcing a judgment against a
foreign issuer or the accounting, auditing and financial reporting standards,
practices and requirements applicable to foreign issuers may differ from those
applicable to domestic issuers. In addition, foreign banks are not subject to
examination by U.S. Government agencies or instrumentalities.
Borrowings: When a Fund borrows money, the net asset value of a share may be
subject to greater fluctuation until the borrowing is paid off. The Funds may
borrow money from banks for temporary purposes in amounts of up to one-third of
their respective total assets, provided that borrowings in excess of 5% of the
value of the Funds' total assets must be repaid prior to the purchase of
portfolio securities. Pursuant to line of credit arrangements with BONY, the
Funds may borrow primarily for temporary or emergency purposes, including the
meeting of redemption requests that otherwise might require the untimely
disposition of securities.
Reverse repurchase agreements and dollar roll transactions may be considered to
be borrowings. When a Fund invests in a reverse repurchase agreement, it sells
a portfolio security to another party, such as a bank or broker/dealer, in
return for cash, and agrees to buy the security back at a future date and
price. Reverse repurchase agreements may be used to provide cash to satisfy
unusually heavy redemption requests without having to sell portfolio
securities, or for other temporary or emergency purposes. Generally, the effect
of such a transaction is that the Funds can recover all or most of the cash
invested in the portfolio securities involved during the term of the reverse
repurchase agreement, while they will be able to keep the interest income
associated with those portfolio securities. Such transactions are only
advantageous if the interest cost to the Funds of the reverse repurchase
transaction is less than the cost of obtaining the cash otherwise.
At the time a Fund enters into a reverse repurchase agreement, it may establish
a segregated account with its custodian bank in which it will maintain cash,
U.S. Government Securities or other liquid high grade debt obligations equal in
value to its obligations in respect of reverse repurchase agreements. Reverse
repurchase agreements involve the risk that the market value of the securities
the Funds are obligated to repurchase under the agreement may decline below the
repurchase price. In the event the buyer of securities under a reverse
repurchase agreement files for bankruptcy or becomes insolvent, the Funds' use
of proceeds of the agreement may be restricted pending a determination by the
other party, or its trustee or receiver, whether to enforce the Funds'
obligation to repurchase the securities. In addition, there is a risk of delay
in receiving collateral or securities or in repurchasing the securities covered
by the reverse repurchase agreement or even of a loss of rights in the
collateral or securities in the event the buyer of the securities under the
reverse repurchase agreement files for bankruptcy or becomes insolvent. The
Fund only enters into reverse repurchase agreements (and repurchase agreements)
with counterparties that are deemed by the Adviser to be creditworthy. Reverse
repurchase agreements are speculative techniques involving leverage, and are
subject to asset coverage requirements if the Funds do not establish and
maintain a segregated account (as described above). Under the requirements of
the 1940 Act, the Funds are required to maintain an asset coverage (including
the proceeds of the borrowings) of at least 300% of all borrowings. Depending
on market conditions, the Funds' asset coverage and other factors at the time
of a reverse repurchase, the Funds may not establish a segregated account when
the Adviser believes it is not in the best interests of the Funds to do so. In
this case, such reverse repurchase agreements will be considered borrowings
subject to the asset coverage described above.
Dollar roll transactions consist of the sale by a Fund of mortgage-backed or
other asset-backed securities, together with a commitment to purchase similar,
but not identical, securities at a future date, at the same price. In addition,
a Fund is paid a fee as consideration for entering into the commitment to
purchase. If the broker/dealer to whom a Fund sells the security becomes
insolvent, the Fund's right to purchase or repurchase the security may be
restricted; the value of the security may change adversely over the term of the
dollar roll; the security that the Fund is required to repurchase may be worth
less than the security that the Fund originally held, and the return earned by
the Fund with the proceeds of a dollar roll may not exceed transaction costs.
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Commercial Instruments: Commercial instruments consist of short-term U.S.
dollar-denominated obligations issued by domestic corporations or foreign
corporations and foreign commercial banks.
Investments by a Fund in commercial paper will consist of issues rated in a
manner consistent with such Fund's investment policies and objectives. In
addition, a Fund may acquire unrated commercial paper and corporate bonds that
are determined by the Adviser at the time of purchase to be of comparable
quality to rated instruments that may be acquired by a Fund. Commercial
instruments include variable rate master demand notes, which are unsecured
instruments that permit the indebtedness thereunder to vary and provide for
periodic adjustments in the interest rate, and variable- and floating-rate
instruments.
Convertible Securities, Preferred Stock, and Warrants: Each Fund may invest in
debt securities convertible into or exchangeable for equity securities,
preferred stocks or warrants. Preferred stocks are securities that represent an
ownership interest in a corporation providing the owner with claims on a
company's earnings and assets before common stock owners, but after bond or
other debt security owners. Warrants are options to buy a stated number of
shares of common stock at a specified price any time during the life of the
warrants.
Fixed Income Investing: The performance of the fixed income debt component of a
Fund's portfolio depends primarily on interest rate changes, the average
weighted maturity of the portfolio and the quality of the securities held. The
debt component of a Fund's portfolio will tend to decrease in value when
interest rates rise and increase when interest rates fall. A Fund's share price
and yield depend, in part, on the maturity and quality of its debt instruments.
Foreign Currency Transactions: Each Fund may enter into foreign currency
exchange transactions to convert foreign currencies to and from the U.S.
dollar. A Fund either enters into these transactions on a spot (I.E., cash)
basis at the spot rate prevailing in the foreign currency exchange market, or
uses forward contracts to purchase or sell foreign currencies. A forward
foreign currency exchange contract is an obligation by a Fund to purchase or
sell a specific currency at a future date, which may be any fixed number of
days from the date of the contract.
Foreign currency hedging transactions are an attempt to protect a Fund against
changes in foreign currency exchange rates between the trade and settlement
dates of specific securities transactions or changes in foreign currency
exchange rates that would adversely affect a portfolio position or an
anticipated portfolio position. Although these transactions tend to minimize
the risk of loss due to a decline in the value of the hedged currency, at the
same time they tend to limit any potential gain that might be realized should
the value of the hedged currency increase. Neither spot transactions nor
forward foreign currency exchange contracts eliminate fluctuations in the
prices of a Fund's portfolio securities or in foreign exchange rates, or
prevent loss if the prices of these securities should decline.
A Fund will generally enter into forward currency exchange contracts only under
two circumstances: (i) when such Fund enters into a contract for the purchase
or sale of a security denominated in a foreign currency, to "lock" in the U.S.
dollar price of the security; and (ii) when the Adviser believes that the
currency of a particular foreign country may experience a substantial movement
against another currency. Under certain circumstances, a Fund may commit a
substantial portion of its portfolio to the execution of these contracts. The
Adviser will consider the effects such a commitment would have on the
investment program of such Fund and the flexibility of such Fund to purchase
additional securities. Although forward contracts will be used primarily to
protect a Fund from adverse currency movements, they also involve the risk that
anticipated currency movements will not be accurately predicted.
In addition, the Euro will become the single currency in at least 11 European
nations used in many financial transactions. Accordingly, the German mark,
French franc and other national currencies will no longer be used. Although the
impact of implementing the Euro is not possible to predict, the transition
could have an effect on the financial markets and economic environment in
Europe and other parts of the world. For example, investors may begin to view
those countries participating in the Economic Monetary Union as a single
combined entity
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and may alter their investment behavior accordingly. In response to any such
effect of the Euro implementation, the Adviser may need to adapt its investment
policies and strategy.
Foreign Securities: Foreign securities include debt and equity obligations
(dollar- and non-dollar-denominated) of foreign corporations and banks as well
as obligations of foreign governments and their political subdivisions (which
will be limited to direct government obligations and government-guaranteed
securities). Such investments may subject a Fund to special investment risks,
including future political and economic developments, the possible imposition
of withholding taxes on income (including interest, distributions and
disposition proceeds), possible seizure or nationalization of foreign deposits,
the possible establishment of exchange controls, or the adoption of other
foreign governmental restrictions which might adversely affect the payment of
principal and interest on such obligations. In addition, foreign issuers in
general may be subject to different accounting, auditing, reporting, and record
keeping standards than those applicable to domestic companies, and securities
of foreign issuers may be less liquid and their prices more volatile than those
of comparable domestic issuers.
Investments in foreign securities may present additional risks, whether made
directly or indirectly, including the political or economic instability of the
issuer or the country of issue and the difficulty of predicting international
trade patterns. In addition, there may be less publicly available information
about a foreign company than about a U.S. company. Further, foreign securities
markets are generally not as developed or efficient as those in the U.S., and
in most foreign markets volume and liquidity are less than in the United
States. Fixed commissions on foreign securities exchanges are generally higher
than the negotiated commissions on U.S. exchanges, and there is generally less
government supervision and regulation of foreign securities exchanges, brokers,
and companies than in the United States. With respect to certain foreign
countries, there is a possibility of expropriation or confiscatory taxation,
limitations on the removal of funds or other assets, or diplomatic developments
that could affect investments within those countries. Because of these and
other factors, securities of foreign companies acquired by a Fund may be
subject to greater fluctuation in price than securities of domestic companies.
The Funds may invest indirectly in the securities of foreign issuers through
sponsored or unsponsored ADRs, American Depositary Shares ("ADSs"), Global
Depositary Receipts ("GDRs") and EDRs or other securities representing
securities of companies based in countries other than the United States.
Transactions in these securities may not necessarily be settled in the same
currency as the underlying securities which they represent. Ownership of
unsponsored ADRs, ADSs, GDRs and EDRs may not entitle the Funds to financial or
other reports from the issuer, to which it would be entitled as the owner of
sponsored ADRs, ADSs, GDRs or EDRs. Generally, ADRs and ADSs in registered
form, are designed for use in the U.S. securities markets. GDRs are designed
for use in both the U.S. and European securities markets. EDRs, in bearer form,
are designed for use in European securities markets. ADRs, ADSs, GDRs and EDRs
also involve certain risks of other investments in foreign securities.
Futures, Options and Other Derivative Instruments: Each Fund may attempt to
reduce the overall level of investment risk of particular securities and
attempt to protect a Fund against adverse market movements by investing in
futures, options and other derivative instruments. These include the purchase
and writing of options on securities (including index options) and options on
foreign currencies, and investing in futures contracts for the purchase or sale
of instruments based on financial indices, including interest rate indices or
indices of U.S. or foreign government, equity or fixed income securities
("futures contracts"), options on futures contracts, forward contracts and
swaps and swap-related products such as equity swap contracts, interest rate
swaps, currency swaps, caps, collars and floors.
The use of futures, options, forward contracts and swaps exposes a Fund to
additional investment risks and transaction costs. If the Adviser incorrectly
analyzes market conditions or does not employ the appropriate strategy with
respect to these instruments, a Fund could be left in a less favorable
position. Additional risks inherent in the use of futures, options, forward
contracts and swaps include: imperfect correlation between the price of
futures, options
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and forward contracts and movements in the prices of the securities or
currencies being hedged; the possible absence of a liquid secondary market for
any particular instrument at any time; and the possible need to defer closing
out certain hedged positions to avoid adverse tax consequences. A Fund may not
purchase put and call options which are traded on a national stock exchange in
an amount exceeding 5% of its net assets. Further information on the use of
futures, options and other derivative instruments, and the associated risks, is
contained in the SAI.
Illiquid Securities: Certain securities may be sold only pursuant to certain
legal restrictions, and may be difficult to sell. The Funds will not hold more
than 15% of the value of their respective net assets in securities that are
illiquid. Repurchase agreements, time deposits and guaranteed investment
contracts that do not provide for payment to a Fund within seven days after
notice, and illiquid restricted securities are subject to the limitation on
illiquid securities.
If otherwise consistent with their investment objectives and policies, the
Funds may purchase securities that are not registered under the Securities Act
of 1933, as amended (the "1933 Act") but 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
Directors/Trustees or the Adviser, acting under guidelines approved and
monitored by such Fund's Board of Directors/Trustees, after considering trading
activity, availability of reliable price information and other relevant
information, that an adequate trading market exists for that security. To the
extent that, for a period of time, qualified institutional or other buyers
cease purchasing such restricted securities pursuant to Rule 144A or otherwise,
the level of illiquidity of a Fund holding such securities may increase during
such period.
Interest Rate Transactions: In order to attempt to protect the value of their
portfolios from interest rate fluctuations, certain of the Funds may enter into
various hedging transactions, such as interest rate swaps and the purchase or
sale of interest rate caps and floors. Interest rate swaps involve the exchange
by a Fund with another party of their respective commitments to pay or receive
interest, E.G., an exchange of floating-rate payments for fixed-rate payments.
A Fund will enter into a swap transaction on a net basis, i.e., the payment
obligations of the Fund and the counterparty will be netted out with the Fund
receiving or paying, as the case may be, only the net amount of the two payment
obligations. A Fund will segregate, on a daily basis, cash or liquid high
quality debt securities with a value at least equal to the Fund's net
obligations, if any, under a swap agreement.
The purchase of an interest rate cap entitles the purchaser, to the extent that
a specified index exceeds a predetermined interest rate, to receive payments of
interest on a notional principal amount from the party selling such interest
rate cap. The purchase of an interest rate floor entitles the purchaser, to the
extent a specified index is below a predetermined interest rate, to receive
payments of interest on a notional principal amount from the party selling such
interest rate floor. The Adviser expects to enter into these transactions on
behalf of a Fund primarily to preserve a return or spread on a particular
investment or portion of its portfolio or to protect against any increase in
the price of securities the Fund anticipated purchasing at a later date rather
than for speculative purposes. A Fund will not sell interest rate caps or
floors that it does not own.
Lower-Rated Debt Securities: Nations Diversified Income Fund may invest in
lower-rated debt securities. Lower rated, high-yielding securities are those
rated "Ba" or "B" by Moody's or "BB" or "B" by S&P which are commonly referred
to as "junk bonds." These bonds provide poor protection for payment of
principal and interest. Lower-quality bonds involve greater risk of default or
price changes due to changes in the issuer's creditworthiness than securities
assigned a higher quality rating. These securities are considered to have
speculative characteristics and indicate an aggressive approach to income
investing. Each Fund that may invest in lower-rated debt securities intends to
limit their investments in lower-quality debt securities to 35% of assets.
The market for lower-rated securities may be thinner and less active than that
for higher quality securities, which can adversely affect the price at which
these securities can be sold. If market quo-
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tations are not available, these lower-rated securities will be valued in
accordance with procedures established by the Board of Directors/ Trustees of
the Funds, including the use of outside pricing services. Adverse publicity and
changing investor perceptions may affect the ability of outside pricing
services used by a Fund to value its portfolio securities, and a Fund's ability
to dispose of these lower-rated bonds.
The market prices of lower-rated securities may fluctuate more than
higher-rated securities and may decline significantly in periods of general
economic difficulty which may follow periods of rising interest rates. During
an economic downturn or a prolonged period of rising interest rates, the
ability of issuers of lower quality debt to service their payment obligations,
meet projected goals, or obtain additional financing may be impaired.
Since the risk of default is higher for lower-rated securities, the Adviser
will try to minimize the risks inherent in investing in lower-rated debt
securities by engaging in credit analysis, diversification, and attention to
current developments and trends affecting interest rates and economic
conditions. The Adviser will attempt to identify those issuers of high-yielding
securities whose financial condition is adequate to meet future obligations,
have improved, or are expected to improve in the future.
Unrated securities are not necessarily of lower quality than rated securities,
but they may not be attractive to as many buyers. Each Fund's policies
regarding lower-rated debt securities is not fundamental and may be changed at
any time without shareholder approval.
Money Market Instruments: The term "money market instruments" refers to
instruments with remaining maturities of one year or less. Money market
instruments may include, among other instruments, certain U.S. Treasury
Obligations, U.S. Government Obligations, bank instruments, commercial
instruments, repurchase agreements and municipal securities. Such instruments
are described in this Appendix A.
Municipal Securities: The two principal classifications of municipal securities
are "general obligation" securities and "revenue" securities. General
obligation securities are secured by the issuer's pledge of its full faith,
credit, and taxing power for the payment of principal and interest. Revenue
securities are payable only from the revenues derived from a particular
facility or class of facilities or, in some cases, from the proceeds of a
special excise tax or other specific revenue source such as the user of the
facility being financed. Private activity bonds held by a Fund are in most
cases revenue securities and are not payable from the unrestricted revenues of
the issuer. Consequently, the credit quality of private activity bonds is
usually directly related to the credit standing of the corporate user of the
facility involved.
Municipal securities may include "moral obligation" bonds, which are normally
issued by special purpose public authorities. If the issuer of moral obligation
bonds is unable to meet its debt service obligations from current revenues, it
may draw on a reserve fund, the restoration of which is a moral commitment but
not a legal obligation of the state or municipality which created the issuer.
Municipal securities may include variable- or floating-rate instruments issued
by industrial development authorities and other governmental entities. While
there may not be an active secondary market with respect to a particular
instrument purchased by a Fund, a Fund may demand payment of the principal and
accrued interest on the instrument or may resell it to a third party as
specified in the instruments. The absence of an active secondary market,
however, could make it difficult for a Fund to dispose of the instrument if the
issuer defaulted on its payment obligation or during periods the Fund is not
entitled to exercise its demand rights, and the Fund could, for these or other
reasons, suffer a loss.
Some of these instruments may be unrated, but unrated instruments purchased by
a Fund will be determined by the Adviser to be of comparable quality at the
time of purchase to instruments rated "high quality" by any major rating
service. Where necessary to ensure that an instrument is of comparable "high
quality," a Fund will require that an issuer's obligation to pay the principal
of the note may be backed by an unconditional bank letter or line of credit,
guarantee, or commitment to lend.
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Municipal securities may include participations in privately arranged loans to
municipal borrowers, some of which may be referred to as "municipal leases,"
and units of participation in trusts holding pools of tax exempt leases. Such
loans in most cases are not backed by the taxing authority of the issuers and
may have limited marketability or may be marketable only by virtue of a
provision requiring repayment following demand by the lender. Such loans made
by a Fund may have a demand provision permitting the Fund to require payment
within seven days. Participations in such loans, however, may not have such a
demand provision and may not be otherwise marketable. To the extent these
securities are illiquid, they will be subject to each Fund's limitation on
investments in illiquid securities. As it deems appropriate, the Adviser will
establish procedures to monitor the credit standing of each such municipal
borrower, including its ability to meet contractual payment obligations.
Municipal participation interests may be purchased from financial institutions,
and give the purchaser an undivided interest in one or more underlying
municipal securities. To the extent that municipal participation interests are
considered to be "illiquid securities," such instruments are subject to each
Fund's limitation on the purchase of illiquid securities.
In addition, certain of the Funds may acquire "stand-by commitments" from banks
or broker/ dealers with respect to municipal securities held in their
portfolios. Under a stand-by commitment, a dealer would agree to purchase at a
Fund's option specified municipal securities at a specified price. A Fund will
acquire stand-by commitments solely to facilitate portfolio liquidity and do
not intend to exercise their rights thereunder for trading purposes.
Although the Funds do not presently intend to do so on a regular basis, each
may invest more than 25% of its total assets in municipal securities the
interest on which is paid solely from revenues of similar projects if such
investment is deemed necessary or appropriate by the Adviser. To the extent
that more than 25% of a Fund's total assets are invested in Municipal
Securities that are payable from the revenues of similar projects, a Fund will
be subject to the peculiar risks presented by such projects to a greater extent
than it would be if its assets were not so concentrated.
Other Investment Companies: Each Fund may invest in securities issued by other
investment companies to the extent that such investments are consistent with
the Fund's investment objective and policies and permissible under the 1940
Act. As a shareholder of another investment company, a Fund would bear, along
with other shareholders, its pro rata portion of the other investment company's
expenses, including advisory fees. These expenses would be in addition to the
advisory and other expenses that a Fund bears directly in connection with its
own operations. Pursuant to an exemptive order issued by the SEC, the Nations
Funds' non-money market funds may purchase shares of Nations Funds' money
market funds.
Repurchase Agreements: A repurchase agreement involves the purchase of a
security by a Fund and a simultaneous agreement (generally with a bank or
broker/dealer) to repurchase that security from the Fund at a specified price
and date or upon demand. This technique offers a method of earning income on
uninvested cash. A risk associated with repurchase agreements is the failure of
the seller to repurchase the securities as agreed, which may cause a Fund to
suffer a loss if the market value of such securities declines before they can
be liquidated on the open market. Repurchase agreements with a maturity of more
than seven days are considered illiquid securities and are subject to the limit
stated above. A Fund may enter into joint repurchase agreements jointly with
other investment portfolios of Nations 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 creditworthy 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
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exceed 33% of the value of its total assets, which may include cash collateral
received for securities loans. Cash collateral received by a Nations Fund may
be invested in a Nations Funds' money market fund.
Stock Index, Interest Rate and Currency Futures Contracts: The Funds may
purchase and sell futures contracts and related options with respect to
non-U.S. stock indices, non-U.S. interest rates and foreign currencies, that
have been approved by the CFTC for investment by U.S. investors, for the
purpose of hedging against changes in values of a Fund's securities or changes
in the prevailing levels of interest rates or currency exchange rates. The
contracts entail certain risks, including but not limited to the following: no
assurance that futures contracts transactions can be offset at favorable
prices; possible reduction of a Fund's total return due to the use of hedging;
possible lack of liquidity due to daily limits on price fluctuation; imperfect
correlation between the contracts and the securities or currencies being
hedged; and potential losses in excess of the amount invested in the futures
contracts themselves.
Trading on foreign commodity exchanges presents additional risks. Unlike
trading on domestic commodity exchanges, trading on foreign commodity exchanges
is not regulated by the CFTC and may be subject to greater risks than trading
on domestic exchanges. For example, some foreign exchanges are principal
markets for which no common clearing facility exists and a trader may look only
to the broker for performance of the contract. In addition, unless a Fund
hedges against fluctuations in the exchange rate between the U.S. dollar and
the currencies in which trading is done on foreign exchanges, any profits that
such Fund might realize could be eliminated by adverse changes in the exchange
rate, or the Fund could incur losses as a result of those changes.
U.S. Government Obligations: U.S. Government Obligations consist of marketable
securities and instruments issued or guaranteed by the U.S. Government or any
of its agencies, authorities or instrumentalities. Direct obligations are
issued by the U.S. Treasury and include all U.S. Treasury instruments. U.S.
Treasury obligations differ only in their interest rates, maturities and time
of issuance. Obligations of U.S. Government agencies, authorities and
instrumentalities are issued by government-sponsored agencies and enterprises
acting under authority of Congress. Although obligations of federal agencies,
authorities and instrumentalities are not debts of the U.S. Treasury, some are
backed by the full faith and credit of the U.S. Treasury, such as direct
pass-through certificates of the GNMA; some are supported by the right of the
issuer to borrow from the U.S. Government, such as obligations of Federal Home
Loan Banks, and some are backed only by the credit of the issuer itself, such
as obligations of the FNMA. No assurance can be given that the U.S. Government
would provide financial support to government-sponsored instrumentalities if it
is not obligated to do so by law.
The market value of U.S. Government Obligations may fluctuate due to
fluctuations in market interest rates. As a general matter, the value of debt
instruments, including U.S. Government Obligations, declines when market
interest rates increase and rises when market interest rates decrease. Certain
types of U.S. Government Obligations are subject to fluctuations in yield or
value due to their structure or contract terms.
Variable- and Floating-Rate Instruments:
Certain instruments issued, guaranteed or sponsored by the U.S. Government or
its agencies, state and local government issuers, and certain debt instruments
issued by domestic and foreign banks and corporations may carry variable or
floating rates of interest. Such instruments bear interest rates which are not
fixed, but which vary with changes in specified market rates or indices, such
as a Federal Reserve composite index. A variable-rate demand instrument is an
obligation with a variable or floating interest rate and an unconditional right
of demand on the part of the holder to receive payment of unpaid principal and
accrued interest. An instrument with a demand period exceeding seven days may
be considered illiquid if there is no secondary market for such security.
When-Issued, Delayed Delivery and Forward Commitment Securities: The purchase
of new issues of securities on a "when-issued," "delayed delivery" or "forward
commitment" basis occurs when the payment for and delivery of secu-
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rities take place at a future date. Because actual payment for and delivery of
such securities generally take place 15 to 45 days after the purchase date,
purchasers of such securities bear the risk that interest rates on debt
securities at the time of delivery may be higher or lower than those contracted
for on the security purchased.
Appendix B -- Description Of Ratings
The following summarizes the highest eight ratings used by S&P for corporate
and municipal bonds. The first four ratings denote investment grade securities.
AAA -- This is the highest rating assigned by S&P to a debt obligation
and indicates an extremely strong capacity to pay interest and repay
principal.
AA -- Debt rated AA is considered to have a very strong capacity to pay
interest and repay principal and differs from AAA issues only in a small
degree.
A -- Debt rated A has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than debt in
higher-rated categories.
BBB -- Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than for those in
higher-rated categories.
BB, B -- Bonds rated BB and B are regarded, on balance, as predominantly
speculative with respect to capacity to pay interest and repay principal
in accordance with the terms of the obligation. BB represents the lowest
degree of speculation and B a higher degree of speculation. While such
bonds will likely have some quality and protective characteristics,
these are outweighed by large uncertainties or major risk exposures to
adverse conditions.
CCC, CC -- An obligation rated CCC is vulnerable to nonpayment and is
dependent upon favorable business, financial, and economic conditions
for the obligor to meet its financial commitment on the obligation. In
the event of adverse conditions, the obligor is not likely to have the
capacity to meet its financial commitments on the obligation; an
obligation rated CC is highly vulnerable to nonpayment.
To provide more detailed indications of credit quality, the AA, A, BBB and CCC
ratings may be modified by the addition of a plus or minus sign to show
relative standing within these major rating categories.
The following summarizes the highest eight ratings used by Moody's for
corporate and municipal bonds. The first four ratings denote investment grade
securities.
Aaa -- Bonds that are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally
referred to as "gilt edge." Interest payments are protected by a large
or by an exceptionally stable margin and principal is secure. While the
various protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position
of such issues.
Aa -- Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities
or fluctuation of protective elements may be of greater amplitude or
there may be other elements present which make the long-term risks
appear somewhat larger than in Aaa securities.
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A -- Bonds that are rated A possess many favorable investment attributes
and are to be considered upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in
the future.
Baa -- Bonds that are rated Baa are considered medium grade obligations,
I.E., they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics
as well.
Ba -- Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection
of interest and principal payments may be very moderate and thereby not
well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time
may be small.
Caa, Ca -- Bonds that are rated Caa are of poor standing. Such issues
may be in default or there may be present elements of danger with
respect to principal or interest. Bonds that are rated Ca represent
obligations that are speculative in a high degree. Such issues are often
in default or have other marked shortcomings.
Moody's applies numerical modifiers (1, 2 and 3) with respect to corporate
bonds rated Aa through B. The modifier 1 indicates that the bond being rated
ranks in the higher end of its generic rating category; the modifier 2
indicates a mid-range ranking; and the modifier 3 indicates that the bond ranks
in the lower end of its generic rating category. With regard to municipal
bonds, those bonds in the Aa, A and Baa groups which Moody's believes possess
the strongest investment attributes are designated by the symbols Aa1, A1 or
Baa1, respectively.
The following summarizes the highest four ratings used by D&P for bonds, each
of which denotes that the securities are investment grade:
AAA -- Bonds that are rated AAA are of the highest credit quality. The
risk factors are considered to be negligible, being only slightly more
than for risk-free U.S. Treasury debt.
AA -- Bonds that are rated AA are of high credit quality. Protection
factors are strong. Risk is modest, but may vary slightly from time to
time because of economic conditions.
A -- Bonds that are rated A have protection factors which are average
but adequate. However, risk factors are more variable and greater in
periods of economic stress.
BBB -- Bonds that are rated BBB have below average protection factors
but still are considered sufficient for prudent investment. Considerable
variability in risk exists during economic cycles.
To provide more detailed indications of credit quality, the AA, A and BBB
ratings may be modified by the addition of a plus or minus sign to show
relative standing within these major categories.
The following summarizes the highest four ratings used by Fitch for bonds, each
of which denotes that the securities are investment grade:
AAA -- "AAA" ratings denote the lowest expectation of credit risk. They
are assigned only in case of exceptionally strong capacity for timely
payment of financial commitments. This capacity is highly unlikely to be
adversely affected by foreseeable events.
AA -- "AA" ratings denote a very low expectation of credit risk. They
indicate very strong capacity for timely payment of financial
commitments. This capacity is not significantly vulnerable to
foreseeable events.
A -- "A" ratings denote a low expectation of credit risk. The capacity
for timely payment of financial commitments is considered strong. This
capacity may, nevertheless, be more vul-
61
<PAGE>
nerable to changes in circumstances or in economic conditions than is
the case for higher ratings.
BBB -- "BBB" ratings indicate that there is currently a low expectation
of credit risk. The capacity for timely payment of financial commitments
is considered adequate, but adverse changes in circumstances and in
economic conditions are more likely to impair this capacity. This is the
lowest investment-grade category.
The following summarizes the two highest ratings used by Moody's for short-term
municipal notes and variable-rate demand obligations:
MIG-1/VMIG-1 -- Obligations bearing these designations are of the best
quality, enjoying strong protection from established cash flows,
superior liquidity support or demonstrated broad-based access to the
market for refinancing.
MIG-2/VMIG-2 -- Obligations bearing these designations are of high
quality, with ample margins of protection although not so large as in
the preceding group.
The following summarizes the two highest ratings used by S&P for short-term
municipal notes:
SP-1 -- Very strong or strong capacity to pay principal and interest.
Those issues determined to possess overwhelming safety characteristics
are given a "plus" (+) designation.
SP-2 -- Satisfactory capacity to pay principal and interest.
The three highest rating categories of D&P for short-term debt, each of which
denotes that the securities are investment grade, are D-1, D-2 and D-3. D&P
employs three designations, D-1+, D-1 and D-1-, within the highest rating
category. D-1+ indicates highest certainty of timely payment. Short-term
liquidity, including internal operating factors and/or access to alternative
sources of funds, is judged to be "outstanding, and safety is just below
risk-free U.S. Treasury short-term obligations." D-1 indicates very high
certainty of timely payment. Liquidity factors are excellent and supported by
good fundamental protection factors. Risk factors are considered to be minor.
D-1- indicates high certainty of timely payment. Liquidity factors are strong
and supported by good fundamental protection factors. Risk factors are very
small. D-2 indicates good certainty of timely payment. Liquidity factors and
company fundamentals are sound. Although ongoing funding needs may enlarge
total financing requirements, access to capital markets is good. Risk factors
are small. D-3 indicates satisfactory liquidity and other protection factors
which qualify the issue as investment grade. Risk factors are larger and
subject to more variation. Nevertheless, timely payment is expected.
The following summarizes the two highest rating categories used by Fitch for
short-term obligations:
F1+ securities possess exceptionally strong credit quality. Issues
assigned this rating are regarded as having the strongest degree of
assurance for timely payment.
F1 securities possess very strong credit quality. Issues assigned this
rating reflect an assurance of timely payment only slightly less in
degree than issues rated F1+.
Commercial paper rated A-1 by S&P indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted A-1+. Capacity for timely payment on
commercial paper rated A-2 is satisfactory, but the relative degree of safety
is not as high as for issues designated A-1. Commercial paper rated A-3
exhibits adequate protection parameters. However, adverse economic conditions
or changing circumstances are more likely to lead to a weakened capacity of the
obligor to meet its financial commitment on the obligation. Commercial paper
rated A-3 or B correlates with the S&P Bond rankings (described above) of BBB/
BBB- and BB+, respectively.
The rating Prime-1 is the highest commercial paper rating assigned by Moody's.
Issuers rated Prime-1 (or related supporting institutions) are considered to
have a superior capacity for repayment of senior short-term obligations.
Issuers rated Prime-2 (or related supporting institutions) are considered to
have a strong capacity for repayment of senior short-term obligations. This
will normally be evidenced by many of the characteristics of issu-
62
<PAGE>
ers rated Prime-1, but to a lesser degree. Earnings trends and coverage ratios,
while sound, will be more subject to variation. Capitalization characteristics,
while still appropriate, may be more affected by external conditions. Ample
alternate liquidity is maintained. Issuers rated Prime-3 have an acceptable
ability for repayment of senior short-term obligations. The effect of industry
characteristics and market compositions may be more pronounced. Variability in
earnings and profitability may result in changes in the level of debt
protection measurements and may require relatively high financial leverage.
Adequate alternate liquidity is maintained.
For commercial paper, D&P uses the short-term debt ratings described above.
For commercial paper, Fitch uses the short-term debt ratings described above.
BankWatch ratings are based upon a qualitative and quantitative analysis of all
segments of the organization including, where applicable, holding company and
operating subsidiaries. BankWatch ratings do not constitute a recommendation to
buy or sell securities of any of these companies. Further, BankWatch does not
suggest specific investment criteria for individual clients.
BankWatch long-term ratings apply to specific issues of long-term debt and
preferred stock. The long-term ratings specifically assess the likelihood of
untimely payment of principal or interest over the term to maturity of the
rated instrument. The following are the four investment grade ratings used by
BankWatch for long-term debt:
AAA -- The highest category; indicates ability to repay principal and
interest on a timely basis is extremely high.
AA -- The second highest category; indicates a very strong ability to
repay principal and interest on a timely basis with limited incremental
risk versus issues rated in the highest category.
A -- The third highest category; indicates the ability to repay
principal and interest is strong. Issues rated "A" could be more
vulnerable to adverse developments (both internal and external) than
obligations with higher ratings.
BBB -- The lowest investment grade category; indicates an acceptable
capacity to repay principal and interest. Issues rated "BBB" are,
however, more vulnerable to adverse developments (both internal and
external) than obligations with higher ratings.
The BankWatch short-term ratings apply to commercial paper, other senior
short-term obligations and deposit obligations of the entities to which the
rating has been assigned. The BankWatch short-term ratings specifically assess
the likelihood of an untimely payment of principal or interest.
TBW-1 -- The highest category; indicates a very high likelihood that
principal and interest will be paid on a timely basis.
TBW-2 -- The second highest category; while the degree of safety
regarding timely repayment of principal and interest is strong, the
relative degree of safety is not as high as for issues rated "TBW-1".
TBW-3 -- The lowest investment grade category; indicates that while more
susceptible to adverse developments (both internal and external) than
obligations with higher ratings, capacity to service principal and
interest in a timely fashion is considered adequate.
TBW-4 -- The lowest rating category; this rating is regarded as
non-investment grade and therefore speculative.
63
<PAGE>
(This Page Left Blank Intentionally)
<PAGE>
Prospectus
Investor A Shares and
Investor B Shares
August 1, 1998
as supplemented on
November 15, 1998
This Prospectus describes the investment portfolios listed in the column to the
right (each a "Fund") of Nations Fund Trust, Nations Fund, Inc., and Nations
Fund Portfolios, Inc. ("Nations Portfolios"), each an open-end management
investment company in the Nations Funds Family ("Nations Funds" or "Nations
Funds Family"). This Prospectus describes two classes of shares of each Fund --
Investor A Shares and Investor B Shares.
This Prospectus sets forth concisely the information about each Fund that a
prospective purchaser of Investor A Shares and Investor B Shares should
consider before investing. Investors should read this Prospectus and retain it
for future reference. Additional information about Nations Fund Trust, Nations
Fund, Inc., and Nations Portfolios is contained in 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 for Nations Funds, dated August 1, 1998, is incorporated by
reference in its entirety into this Prospectus. The SEC maintains a Web site
(http://www.sec.gov) that contains the SAI, material incorporated by reference
in this Prospectus and other information regarding registrants that file
electronically with the SEC. NationsBanc Advisors, Inc. ("NBAI") is the
investment adviser to each of the Funds. Gartmore Global Partners ("Gartmore")
is the investment sub-adviser to Nations International Equity Fund, Nations
Emerging Markets Fund, Nations Pacific Growth Fund and Nations International
Growth Fund. Brandes Investment Partners, L.P. ("Brandes") is the investment
sub-adviser to Nations International Value Fund and Marsico Capital Management,
LLC ("Marsico Capital") is the investment sub-adviser to Nations Marsico
Focused Equities Fund and Nations Marsico Growth & Income Fund. TradeStreet
Investment Associates, Inc. ("TradeStreet") is the investment sub-adviser to
all other Nations Funds. As used herein the term "Adviser" shall mean NBAI,
Tradestreet, Gartmore, Brandes and/or Marsico Capital as the context may
require, see "How The Funds Are Managed."
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 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.
EQUITY FUNDS:
Nations Value Fund
Nations Equity Income Fund
Nations Emerging Growth Fund
Nations Small Company Growth Fund
Nations Disciplined Equity Fund
Nations Capital Growth Fund
Nations Marsico Focused Equities Fund
Nations Marsico Growth & Income Fund
Nations International Equity Fund
Nations International Growth Fund
Nations International Value Fund
Nations Emerging Markets Fund
Nations Pacific Growth Fund
BALANCED FUND:
Nations Balanced Assets Fund
For Fund information call:
1-800-321-7854
Nations Funds
c/o Stephens Inc.
One NationsBank Plaza
33rd Floor
Charlotte, NC 28255
[LOGO APPEARS HERE)
NSI-96144-11/98
<PAGE>
Table Of Contents
Prospectus Summary 3
-----------------------------------------------------
About The
Expenses Summary 5
-----------------------------------------------------
Funds
Objectives 12
-----------------------------------------------------
How Objectives Are Pursued 13
-----------------------------------------------------
How Performance Is Shown 27
-----------------------------------------------------
How The Funds Are Managed 30
-----------------------------------------------------
Organization And History 35
-----------------------------------------------------
How To Buy Shares 37
-----------------------------------------------------
About Your
Investor A Shares -- Charges and Features 40
-----------------------------------------------------
Investment
Investor B Shares -- Charges and Features 43
-----------------------------------------------------
How To Redeem Shares 45
-----------------------------------------------------
How To Exchange Shares 46
-----------------------------------------------------
Shareholder Servicing And Distribution Plans 48
-----------------------------------------------------
How The Funds Value Their Shares 51
-----------------------------------------------------
How Dividends And Distributions Are Made;
Tax Information 51
-----------------------------------------------------
Financial Highlights 53
-----------------------------------------------------
Appendix A -- Portfolio Securities 81
-----------------------------------------------------
Appendix B -- Description Of Ratings 91
-----------------------------------------------------
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
o TYPE OF COMPANIES: Open-end management investment companies.
o INVESTMENT OBJECTIVES AND POLICIES:
o EQUITY FUNDS:
o Nations Value Fund's investment objective is to seek growth of capital by
investing in companies that are believed to be undervalued.
o Nations Equity Income Fund's investment objective is to seek current income
and growth of capital by investing primarily in companies with
above-average dividend yields.
o Nations Emerging Growth Fund's investment objective is to seek capital
appreciation by investing in emerging growth companies that are believed
to have superior long-term earnings growth prospects.
o Nations Small Company Growth Fund's investment objective is to seek
long-term capital growth by investing primarily in equity securities.
o Nations Disciplined Equity Fund's investment objective is to seek growth of
capital by investing in companies that are expected to produce significant
increases in earnings per share.
o Nations Capital Growth Fund's investment objective is to seek growth of
capital by investing in companies that are believed to have superior
earnings growth potential.
o Nations Marsico Focused Equities Fund's investment objective is to seek
long-term growth of capital. It is a non-diversified fund that pursues its
objective by normally investing in a core position of 20-30 common stocks.
o Nations Marsico Growth & Income Fund's investment objective is to seek
long-term growth of capital with a limited emphasis on income. Under
normal circumstances, the Fund pursues its objective by investing up to
75% of its assets in equity securities selected primarily for their growth
potential and at least 25% of its assets in securities that have income
potential.
o Nations International Equity Fund's investment objective is to seek
long-term capital growth by investing primarily in equity securities of
non-United States companies in Europe, Australia, the Far East and other
regions, including developing countries.
o Nations International Growth Fund's investment objective is to seek
long-term capital growth by investing primarily in equity securities of
companies domiciled in countries outside the United States and listed on
major stock exchanges primarily in Europe and the Pacific Basin.
o Nations International Value Fund's investment objective is to seek long-term
capital growth by investing primarily in equity securities of foreign
issuers, including emerging markets countries.
o Nations Emerging Markets Fund's investment objective is to seek long-term
capital growth by investing primarily in equity securities of companies in
emerging markets countries, such as those in Latin America, Eastern
Europe, the Pacific Basin, the Far East, Africa and India.
3
<PAGE>
o Nations Pacific Growth Fund's investment objective is to seek long-term
capital growth by investing primarily in equity securities of companies in
the Pacific Basin and the Far East (excluding Japan).
o BALANCED FUND:
o Nations Balanced Assets Fund's investment objective is to seek total return
by investing in equity and fixed income securities.
o INVESTMENT ADVISER: NationsBanc Advisors, Inc. serves as the investment
adviser to the Funds. NBAI provides investment management services to more
than 60 investment company portfolios in the Nations Funds Family.
TradeStreet Investment Associates, Inc., an affiliate of NBAI, Gartmore
Global Partners, provides investment sub-advisory services to Nations
International Equity Fund, Nations Emerging Markets Fund, Nations Pacific
Growth Fund and Nations International Growth Fund, Brandes Investment
Partners, L.P. provides investment sub-advisory services to Nations
International Value Fund and Marsico Capital Management, LLC provides
investment sub-advisory services to Nations Marsico Focused Equities Fund
and Nations Marsico Growth & Income Fund. For more information about the
investment adviser and investment sub-advisers to the Nations Funds, see
"How The Funds Are Managed."
o DIVIDENDS AND DISTRIBUTIONS: Dividends from net investment income are
declared and paid monthly by Nations Capital Growth Fund, Nations
Disciplined Equity Fund, Nations Equity Income Fund, Nations Value Fund and
Nations Small Company Growth Fund. Dividends from net investment income are
declared and paid annually by Nations International Growth Fund and Nations
International Value Fund. All other Equity Funds and the Balanced 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.
o RISK FACTORS: Although NBAI, together with the sub-advisers, seek to achieve
the investment objective of each Fund, there is no assurance that they will
be able to do so. Investments in a Fund are not insured against loss of
principal. Investments by a Fund in common stocks and other equity
securities are subject to stock market risk, which is the risk that the
value of the stocks the Fund holds may decline over short or even extended
periods. The U.S. stock markets tend to be cyclical, with periods when
stock prices generally rise and periods when prices generally decline. As
of the date of this Prospectus, the stock markets, as measured by the S&P
500 Index (as defined below) and other commonly used indices, were trading
at or close to record levels. There can be no guarantee that these levels
will continue. In addition, certain of the Funds may invest in securities
of smaller and newer issuers. Investments in such companies may present
greater opportunities for capital appreciation because of high potential
earnings growth, but also present greater risks than investments in more
established companies with longer operating histories and greater financial
capacity. Investments by a Fund in debt securities are subject to interest
rate risk, which is the risk that increases in market interest rates will
adversely affect a Fund's investments in debt securities. The value of a
Fund's investments in debt securities, including U.S. Government
Obligations (as defined below), will tend to decrease when interest rates
rise and increase when interest rates fall. In general, longer-term debt
instruments tend to fluctuate in value more than shorter-term debt
instruments in response to interest rate movements. In addition, debt
securities which are not issued or guaranteed by the U.S. Government are
subject to credit risk, which is the risk that the issuer may not be able
to pay principal and/or interest when due. Certain of the Funds'
investments may constitute derivative securities. Certain types of
derivative securities can, under particular circumstances, significantly
increase an investor's exposure to market and other risks. Certain of the
Funds invest in foreign securities which present additional risks
associated with international investing, including, among others,
heightened economic and political risk, as well as foreign currency risk.
For a discussion of these and other fac-
4
<PAGE>
tors, see "How Objectives Are Pursued -- Risk Considerations", "How
Objectives Are Pursued -- Special Risk Considerations Relevant to an
Investment in the International Funds" and "Appendix A."
o MINIMUM PURCHASE: $1,000 minimum initial investment per record holder except
that the minimum initial investment is: $500 for Individual Retirement
Account ("IRA") investors; $250 for non-working spousal IRAs; and $100 for
investors participating on a monthly basis in the Systematic Investment
Plan. There is no minimum investment amount for investments by certain
401(k) and employee pension plans or salary reduction. The minimum
subsequent investment is $100, except for investments pursuant to the
Systematic Investment Plan. See "How To Buy Shares."
Expenses Summary
Expenses are one of several factors to consider when investing in the Funds.
The following tables summarize shareholder transaction and operating expenses
for Investor A Shares and Investor B Shares of the Funds. The Examples show the
cumulative expenses attributable to a hypothetical $1,000 investment in the
Funds over specified periods.
NATIONS FUNDS EQUITY FUNDS INVESTOR A SHARES
- --------------------------------------------
<TABLE>
<CAPTION>
Nations Nations Nations Small Nations
Shareholder Transaction Nations Equity Emerging Company Disciplined
Expenses Value Fund Income Fund Growth Fund Growth Fund Equity Fund
- -------- ---------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Maximum Sales Load Imposed on Purchases (as a
percentage of offering price) 5.75% 5.75% 5.75% 5.75% 5.75%
Maximum Deferred Sales Charge (as a percentage of
the lower of the original purchase price or
redemption proceeds)1 1.00% 1.00% 1.00% 1.00% 1.00%
Redemption Fees Payable to the Fund None(2) None(2) None(2) None(2) None(2)
Annual Fund Operating
Expenses
(as a percentage of average net assets)
Management Fees (After Fee Waivers) .75% .63% .75% .75% .75%
Rule 12b-1 Fees (Including Shareholder Servicing
Fees) .25% .25% .25% .25% .25%
Other Expenses (After Expense Reimbursements) .19% .23% .23% .20% .23%
Total Operating Expenses (After Fee Waivers and
Expense Reimbursements) 1.19% 1.11% 1.23% 1.20% 1.23%
</TABLE>
1 Certain Investor A Shares that are purchased at net asset value are subject
to a Deferred Sales Charge if redeemed within two years of purchase. See
"Sales Charges".
2 There is a 1% redemption fee retained by the Fund or Funds which is imposed
only on certain redemptions by investors investing $1 million or more
("Substantial Investors") in Investor A Shares held less than 18 months and
purchased between July 31, 1997 and November 15, 1998. See "How To Redeem
Shares -- Redemption Fee."
5
<PAGE>
NATIONS FUNDS EQUITY FUNDS INVESTOR A SHARES
--------------------------------------------
<TABLE>
<CAPTION>
Nations Nations
Nations Marsico Marsico
Shareholder Transac- Capital Focused Growth &
tion Expenses Growth Fund Equities Fund Income Fund
- ------------- ----------- ------------- -----------
<S> <C> <C> <C>
Maximum Sales Load Imposed on
Purchases (as a percentage of offering
price) 5.75% 5.75% 5.75%
Maximum Deferred Sales Charge (as a
percentage of the lower of the original
purchase price or redemption
proceeds)(1) 1.00% 1.00% 1.00%
Redemption Fees Payable to the Fund None(2) None(2) None(2)
Annual Fund Operating
Expenses
(as a percentage of average net
assets)
Management Fees (After Fee Waivers) .75% .85% .85%
Rule 12b-1 Fees (Including Shareholder
Servicing Fees) .25% .25% .25%
Other Expenses (After Expense
Reimbursements) .20% .40% .40%
Total Operating Expenses (After Fee
Waivers and Expense
Reimbursements) 1.20% 1.50% 1.50%
<CAPTION>
Nations Nations Nations
------- ------- -------
Shareholder Transac- International International International
- -------------------- ------------- ------------- -------------
tion Expenses Equity Fund Growth Fund Value Fund
- ------------- ----------- ----------- ----------
<S> <C> <C> <C>
Maximum Sales Load Imposed on
Purchases (as a percentage of offering
price) 5.75% 5.75% 5.75%
Maximum Deferred Sales Charge (as a
percentage of the lower of the original
purchase price or redemption
proceeds)1 1.00% 1.00% 1.00%
Redemption Fees Payable to the Fund None(2) None(2) None(2)
Annual Fund Operating
Expenses
(as a percentage of average net
assets)
Management Fees (After Fee Waivers) .90% .90% .90%
Rule 12b-1 Fees (Including Shareholder
Servicing Fees) .25% .25% .25%
Other Expenses (After Expense
Reimbursements) .24% .22% .22%
Total Operating Expenses (After Fee
Waivers and Expense
Reimbursements) 1.39% 1.37% 1.37%
</TABLE>
1 Certain Investor A Shares that are purchased at net asset value are subject
to a Deferred Sales Charge if redeemed within two years of purchase. See
"Sales Charges".
2 There is a 1% redemption fee retained by the Fund or Funds which is imposed
only on certain redemptions by investors investing $1 million or more
("Substantial Investors") in Investor A Shares held less than 18 months and
purchased between July 31, 1997 and November 15, 1998. See "How To Redeem
Shares -- Redemption Fee."
6
<PAGE>
NATIONS FUNDS EQUITY/BALANCED FUNDS INVESTOR A SHARES
-----------------------------------------------------
<TABLE>
<CAPTION>
Nations Nations Nations
Emerging Pacific Balanced
Shareholder Transaction Expenses Markets Fund Growth Fund Assets Fund
- -------------------------------- ------------ ----------- -----------
<S> <C> <C> <C>
Maximum Sales Load Imposed on Purchases (as a percentage of offering price) 5.75% 5.75% 5.75%
Maximum Deferred Sales Charge (as a percentage of the lower of the original
purchase price or redemption proceeds)1 1.00% 1.00% 1.00%
Redemption Fees Payable to the Fund None(2) None(2) None(2)
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management Fees (After Fee Waivers) 1.10% .90% .75%
Rule 12b-1 Fees (Including Shareholder Servicing Fees) (After Fee Waivers) .25% .25% .25%
Other Expenses (After Expense Reimbursements) .47% .47% .33%
Total Operating Expenses (After Fee Waivers and Expense Reimbursements) 1.82% 1.62% 1.33%
</TABLE>
1 Certain Investor A Shares that are purchased at net asset value are subject
to a Deferred Sales Charge if redeemed within two years of purchase. See
"Sales Charges".
2 There is a 1% redemption fee retained by the Fund or Funds which is imposed
only on certain redemptions by investors investing $1 million or more
("Substantial Investors") in Investor A Shares held less than 18 months and
purchased between July 31, 1997 and November 15, 1998. See "How To Redeem
Shares -- Redemption Fee."
7
<PAGE>
NATIONS FUNDS EQUITY FUNDS INVESTOR B SHARES
<TABLE>
<CAPTION>
Nations Nations Nations
Nations Nations Small Nations Nations Marsico Marsico
Shareholder Nations Equity Emerging Company Disciplined Capital Focused Growth &
Transaction Value Income Growth Growth Equity Growth Equities Income
Expenses Fund Fund Fund Fund Fund Fund Fund Fund
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales Load Imposed on
Purchases None None None None None None None None
- -----------------------------------------------------------------------------------------------------------------------
Maximum Deferred Sales
Charge
(as a percentage of the lower
of the original purchase price
or redemption proceeds)(1) 5.00% 5.00% 5.00% 5.00% 5.00% 5.00% 5.00% 5.00%
Annual Fund
Operating
Expenses
(as a percentage of average
net assets)
Management Fees (After Fee
Waivers) .75% .63% .75% .75% .75% .75% .85% .85%
Rule 12b-1 Fees .75% .75% .75% .75% .75% .75% .75% .75%
Shareholder Servicing Fees .25% .25% .25% .25% .25% .25% .25% .25%
Other Expenses
(After Expense
Reimbursements) .19% .23% .23% .20% .23% .20% .40% .40%
Total Operating Expenses
(After Fee Waivers
and Expense
Reimbursements) 1.94% 1.86% 1.98% 1.95% 1.98% 1.95% 2.25% 2.25%
</TABLE>
1 Investor B Shares purchased prior to January 1, 1996 or after July 31, 1997
are subject to the Deferred Sales Charge as set forth in the applicable
schedule. The Maximum Deferred Sales Charge is 5.00% in the first year after
purchase, declining to 1.00% in the sixth year after purchase and eliminated
thereafter. For the applicable Deferred Sales Charge schedule see "How to
Redeem Shares -- Contingent Deferred Sales Charge."
8
<PAGE>
NATIONS FUNDS EQUITY/BALANCED FUNDS INVESTOR B SHARES
<TABLE>
<CAPTION>
Nations Nations Nations Nations Nations Nations
International International International Emerging Pacific Balanced
Equity Growth Value Markets Growth Assets
Fund Fund Fund Fund Fund Fund
<S> <C> <C> <C> <C> <C> <C>
Shareholder
Transaction Expenses
Sales Load Imposed on Purchases None None None None None None
- ----------------------------------------------------------------------------------------------------------------------------
Maximum Deferred Sales Charge (as a
percentage of the lower of the original
purchase price or redemption proceeds)(1) 5.00% 5.00% 5.00% 5.00% 5.00% 5.00%
Annual Fund
Operating Expenses
(as a percentage of average
net assets)
Management Fees .90% .90% .90% 1.10% .90% .75%
Rule 12b-1 Fees (After Fee Waivers) .75% .75% .75% .75% .75% .75%
Shareholder Servicing Fees .25% .25% .25% .25% .25% .25%
Other Expenses (After Expense
Reimbursements) .24% .22% .22% .47% .47% .33%
Total Operating Expenses (After Fee
Waivers and Expense Reimbursements) 2.14% 2.12% 2.12% 2.57% 2.37% 2.08%
</TABLE>
1 Investor B Shares purchased prior to January 1, 1996 or after July 31, 1997
are subject to the Deferred Sales Charge as set forth in the applicable
schedule. The Maximum Deferred Sales Charge is 5.00% in the first year after
purchase, declining to 1.00% in the sixth year after purchase and eliminated
thereafter. For the applicable Deferred Sales Charge schedule see "How to
Redeem Shares -- Contingent Deferred Sales Charge."
Examples: You would pay the following expenses on a $1,000 investment in
Investor A Shares of the indicated Fund, assuming (1) a 5% annual return and
(2) redemption at the end of each time period.
<TABLE>
<CAPTION>
Nations Nations
Nations Marsico Marsico
Nations Nations Small Nations Nations Focused Growth &
Nations Equity Emerging Company Disciplined Capital Equities Income
Value Fund Income Fund Growth Fund Growth Fund Equity Fund Growth Fund Fund Fund
------------ ------------- ------------- ------------- ------------- ------------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 Year $ 69 $ 68 $ 69 $ 69 $ 69 $ 69 $ 72 $ 72
3 Years $ 93 $ 91 $ 94 $ 93 $ 94 $ 93 $102 $102
5 Years $119 $115 $121 $120 $121 $120 $135 $135
10 Years $194 $185 $198 $195 $198 $195 $226 $226
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
Nations
International Nations Nations Nations Nations Nations
Equity International International Emerging Pacific Balanced
Fund Growth Fund Value Fund Markets Fund Growth Fund Assets Funds
--------------- --------------- --------------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
1 Year $ 71 $ 71 $ 71 $ 75 $ 73 $ 70
3 Years $ 99 $ 98 $ 98 $111 $106 $ 97
5 Years $129 $128 $128 $150 $141 $126
10 Years $215 $213 $213 $259 $239 $208
</TABLE>
You would pay the following expenses on a $1,000 investment in Investor B
Shares of the indicated Fund, assuming (1) a 5% annual return and (2)
redemption at the end of each time period.
<TABLE>
<CAPTION>
Nations Nations Nations
Nations Nations Small Nations Nations Marsico Marsico
Nations Equity Emerging Company Disciplined Capital Focused Growth &
Value Income Growth Growth Equity Growth Equities Income
Fund Fund Fund Fund Fund Fund Fund Fund
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 Year $ 70 $ 69 $ 70 $ 70 $ 70 $ 70 $ 73 $ 73
3 Years $ 91 $ 88 $ 92 $ 91 $ 92 $ 91 $100 $100
5 Years $125 $121 $127 $ 125 $127 $125 $140 $140
10 Years $207 $198 $211 $ 208 $211 $208 $240 $240
</TABLE>
<TABLE>
<CAPTION>
Nations Nations Nations Nations Nations
International International Nations Emerging Pacific Balanced
Equity Growth International Markets Growth Assets
Fund Fund Value Fund Fund Fund Fund
<S> <C> <C> <C> <C> <C> <C>
1 Year $ 72 $ 72 $ 72 $ 76 $ 74 $ 71
3 Years $ 97 $ 96 $ 96 $110 $104 $ 95
5 Years $135 $134 $134 $157 $147 $132
10 Years $228 $226 $226 $272 $252 $222
</TABLE>
You would pay the following expenses on a $1,000 investment in Investor B
Shares of the indicated Fund, assuming a 5% annual return and no redemption.
<TABLE>
<CAPTION>
Nations Nations Nations
Nations Nations Small Nations Nations Marsico Marsico
Nations Equity Emerging Company Disciplined Capital Focused Growth
Value Income Growth Growth Equity Growth Equities & Income
Fund Fund Fund Fund Fund Fund Fund Fund
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 Year $ 20 $ 19 $ 20 $ 20 $ 20 $ 20 $ 23 $ 23
3 Years $ 61 $ 58 $ 62 $ 61 $ 62 $ 61 $ 70 $ 70
5 Years $105 $101 $107 $105 $107 $105 $120 $120
10 Years $207 $198 $211 $208 $211 $208 $240 $240
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
Nations Nations Nations Nations Nations
International International Nations Emerging Pacific Balanced
Equity Growth International Markets Growth Assets
Fund Fund Value Fund Fund Fund Funds
<S> <C> <C> <C> <C> <C> <C>
1 Year $ 22 $ 22 $ 22 $ 26 $ 24 $ 21
3 Years $ 67 $ 66 $ 66 $ 80 $ 74 $ 65
5 Years $115 $114 $114 $137 $127 $112
10 Years $228 $226 $226 $272 $252 $222
</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 and Investor B Shares will bear either directly or
indirectly. The figures contained in the above tables are based on amounts
incurred during each Fund's most recent fiscal year and have been adjusted as
necessary to reflect current service provider fees. There is no assurance that
any fee waivers and/or reimbursements will continue. In particular, to the
extent Other Expenses are less than those shown, waivers and/or reimbursements
of Management Fees, if any, may decrease. Shareholders will be notified of any
decrease that materially increases Total Operating Expenses. If fee waivers
and/or expense reimbursements are decreased or discontinued, the amounts
contained in the "Examples" above may increase. Long-term shareholders of the
Funds could pay more in sales charges than the economic equivalent of the
maximum front-end sales charges applicable to mutual funds sold by members of
the National Association of Securities Dealers, Inc. For more complete
descriptions of the Funds' operating expenses, see "How The Funds Are Managed."
For a more complete description of the Rule 12b-1 and shareholder servicing
fees payable by the Funds, see "Shareholder Servicing And Distribution Plan."
Absent fee waivers, "Management Fees" and "Total Operating Expenses" for
Investor A Shares of the indicated Fund would have been as follows: Nations
International Value Fund 1.00% and 1.47%, respectively.
Absent expense reimbursements, "Other Expenses" and "Total Operating Expenses"
for Investor A Shares of the indicated Fund would have been as follows: Nations
Value Fund -- .20% and 1.20%, respectively; Nations International Growth --
.27% and 1.42%, respectively; Nations Marsico Focused Equities Fund -- .67% and
1.77%, respectively; and Nations Marsico Growth & Income Fund -- 1.12% and
2.22%.
Absent fee waivers and expense reimbursements, "Management Fees," "Other
Expenses" and "Total Operating Expenses" for Investor A Shares of the indicated
Fund would have been as follows: Nations Small Company Growth Fund -- 1.00%,
.26% and 1.51%, respectively.
Absent fee waivers, "Management Fees" and "Total Operating Expenses" for
Investor B Shares of Nations International Value Fund would have been 1.00% and
2.22%, respectively.
Absent expense reimbursements, "Other Expenses" and "Total Operating Expenses"
for Investor B Shares of the indicated Fund would have been as follows: Nations
Value Fund -- .20% and 1.95%, respectively; Nations International Growth --
.27% and 2.17%, respectively; Nations Marsico Focused Equities Fund -- .67% and
2.52%, respectively; and Nations Marsico Growth & Income Fund -- 1.12% and
2.97%, respectively.
Absent fee waivers and expense reimbursements, "Management Fees, " "Other
Expenses" and "Total Operating Expenses" for Investor B Shares of Nations Small
Company Growth Fund would have been 1.00%, .26% and 2.26%, respectively.
Effective May 1999, it is anticipated that certain voluntary Total Operating
Expenses limits put in place in connection with the reorganization of The Pilot
Funds into the Nations Funds will terminate with
11
<PAGE>
respect to the following Funds: Nations Value Fund, Nations Equity Income Fund,
Nations Disciplined Equity Fund, Nations Small Company Growth Fund and Nations
International Growth Fund. For more information, see the SAI.
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
Equity Funds:
NATIONS VALUE FUND: Nations Value Fund's investment objective is to seek growth
of capital by investing in companies that are believed to be undervalued.
NATIONS EQUITY INCOME FUND: Nations Equity Income Fund's investment objective
is to seek current income and growth of capital by investing primarily in
companies with above-average dividend yields.
NATIONS EMERGING GROWTH FUND: Nations Emerging Growth Fund's investment
objective is to seek capital appreciation by investing in emerging growth
companies that are believed to have superior long-term earnings growth
prospects.
NATIONS SMALL COMPANY GROWTH FUND: Nations Small Company Growth Fund's
investment objective is to seek long-term capital growth by investing primarily
in equity securities.
NATIONS DISCIPLINED EQUITY FUND: Nations Disciplined Equity Fund's investment
objective is to seek growth of capital by investing in companies that are
expected to produce significant increases in earnings per share.
NATIONS CAPITAL GROWTH FUND: Nations Capital Growth Fund's investment objective
is to seek growth of capital by investing in companies that are believed to
have superior earnings growth potential.
NATIONS MARSICO FOCUSED EQUITIES FUND:
Nations Marsico Focused Equities Fund's investment objective is to seek
long-term growth of capital.
NATIONS MARSICO GROWTH & INCOME FUND:
Nations Marsico Growth & Income Fund's investment objective is to seek
long-term growth of capital with a limited emphasis on income.
NATIONS INTERNATIONAL EQUITY FUND: Nations International Equity Fund's
investment objective is to seek long-term capital growth by investing primarily
in equity securities of non-United States companies in Europe, Australia, the
Far East and other regions, including developing countries.
NATIONS INTERNATIONAL GROWTH FUND: Nations International Growth Fund's
investment objective is to seek long-term capital growth by investing primarily
in equity securities of companies domiciled in countries outside the United
States and listed on major stock exchanges primarily in Europe and the Pacific
Basin.
NATIONS INTERNATIONAL VALUE FUND: Nations International Value Fund's investment
objective is to seek long-term capital appreciation by investing primarily in
equity securities of foreign issuers, including emerging markets countries.
NATIONS EMERGING MARKETS FUND: Nations Emerging Markets Fund's investment
objective is to seek long-term capital growth by investing primarily in equity
securities of companies in emerging market countries, such as those in Latin
America, Eastern Europe, the Pacific Basin, the Far East, Africa and India.
NATIONS PACIFIC GROWTH FUND: Nations Pacific Growth Fund's investment objective
is to seek long-term capital growth by investing primarily in equity securities
of companies in the Pacific Basin and the Far East (excluding Japan).
BALANCED FUND:
NATIONS BALANCED ASSETS FUND: Nations Balanced Assets Fund's investment
objective is to seek total return by investing in equity and fixed income
securities.
Although the Adviser seeks to achieve the investment objective of each Fund,
there is no assur-
12
<PAGE>
ance that it will be able to do so. No single Fund should be considered, by
itself, to provide a complete investment program for any investor. The net
asset value of the shares of the Funds will fluctuate based on market
conditions. Therefore, investors should not rely upon the Funds for short-term
financial needs nor are the Funds meant to provide a vehicle for participating
in short-term swings in the stock market. Investments in the Funds are not
insured against loss of principal.
HOW OBJECTIVES ARE PURSUED
EQUITY FUNDS:
NATIONS VALUE FUND: The Fund invests in stocks drawn from a broad universe of
companies monitored by the Adviser. The Adviser closely monitors these
companies, rating them for quality and projecting their future earnings and
dividends as well as other factors. To qualify for purchase, an issuer would
normally have a market capitalization of $500 million or more and have an
average daily trading volume of at least $3 million. These requirements are
generally considered by the Adviser to be adequate to support normal purchase
and sale activity without materially affecting prevailing market prices of the
issuer's shares. The Adviser also analyzes key financial ratios that measure
the growth, profitability, and leverage of such issuers that it believes will
help maintain a portfolio of above-average quality.
Stocks are selected from this universe based on the Adviser's judgment of their
total return potential. The Adviser buys stocks that it believes are
undervalued relative to the overall stock market. The principal factor
considered by the Adviser in making these determinations is the ratio of a
stock's price-to-earnings relative to corresponding ratios of other stocks
issued by companies in the same industry or economic sector. The Adviser
believes that companies with lower price-to-earnings ratios are more likely to
provide better opportunities for capital appreciation. This "value" approach
typically produces a dividend yield greater than the market average. The
Adviser will attempt to temper risk by broad diversification among economic
sectors and industries. Through this strategy, the Fund pursues above-average
returns while seeking to avoid above-average risks.
The Fund invests under normal market conditions at least 65% of its total
assets in common stocks. In addition to common stocks, the Fund also may invest
in preferred stocks, securities convertible into common stock, and other types
of securities having common stock characteristics (such as rights and warrants
to purchase equity securities). Although the Fund invests primarily in
publicly-traded common stocks of companies incorporated in the United States,
the Fund may invest up to 20% of its assets in foreign securities. The Fund
also may hold up to 20% of its total assets in obligations issued or guaranteed
as to payment of principal and interest by the U.S. Government, its agencies or
instrumentalities ("U.S. Government Obligations"), and investment grade
securities of domestic companies. Obligations with the lowest investment grade
rating (E.G. rated "BBB" by Standard & Poor's Corporation ("S&P") or "Baa" by
Moody's Investor's Service, Inc. ("Moody's")) have speculative characteristics,
and changes in economic conditions or other circumstances are more likely to
lead to a weakened capacity to make principal and interest payments than is the
case with higher grade debt obligations. Subsequent to its purchase by the
Fund, an issue of securities may cease to be rated or its rating may be reduced
below the minimum rating required for purchase by the Fund. The Adviser will
consider such an event in determining whether the Fund should continue to hold
the obligation. Unrated obligations may be acquired by the Fund if they are
determined by the Adviser to be of comparable quality at the time of purchase
to rated obligations that may be acquired.
The Fund may invest in various money market instruments and repurchase
agreements. The Fund may invest without limitation in such instruments pending
investment, to meet anticipated redemption requests, or as a temporary
defensive measure if market conditions warrant.
Nations Equity Income Fund: The investment program of the Fund is based on
several premises. First, dividends are normally a more stable
13
<PAGE>
and predictable source of return than capital appreciation. While the price of
a company's stock generally increases or decreases in response to short-term
earnings and market fluctuations, its dividends are generally less volatile.
Second, diversifying equity holdings in a manner that includes every major
economic sector contributes to reduced volatility, without a commensurate
reduction in expected investment return. Finally, investing in dividend paying
stocks in all the economic sectors can provide greater income than provided by
the stocks in Standard & Poor's 500 Composite Stock Price Index ("S&P 500
Index")1 with less volatility. Collectively, these traits may be combined in
such a fashion as to produce returns in excess of the market (S&P 500 Index) on
a comparable risk basis.
New purchases for the Fund will generally be made in equity securities that:
o are income producing;
o appear undervalued relative to the S&P 500 Index on a risk adjusted basis;
and
o have favorable trends in personal stock ownership by the underlying company's
officers and/or directors.
To achieve its objective, the Fund, under normal circumstances, will invest at
least 65% of its assets in income-producing common stocks, including securities
convertible into or ultimately exchangeable for common stock (I.E., convertible
bonds or convertible preferred stock), whose prospects for dividend growth and
capital appreciation are considered favorable by the Adviser. The securities
held by the Fund generally will be listed on a national exchange or, if not so
listed, will usually have an established over-the-counter market.
In order to further enhance its income, the Fund also may invest its assets in
fixed-income securities (corporate and government bonds of various maturities),
preferred stocks and warrants. The Fund may invest in debt securities that are
considered investment grade (E.G. securities rated in one of the top four
investment categories by S&P or Moody's, or if not rated, are of equivalent
investment quality as determined by the Adviser). Obligations rated in the
lowest of the top four investment grade rating categories (E.G., rated "BBB" by
S&P or "Baa" by Moody's) have speculative characteristics and changes in
economic conditions or other circumstances are more likely to lead to a weakened
capacity to make principal and interest payments than is the case with higher
grade debt obligations. The Fund also may invest up to 5% of its assets in debt
securities that are rated below investment grade (E.G. rated "BB" by S&P or
"Baa" by Moody's), or if not rated, are of equivalent investment quality as
determined by the Adviser. Non- investment grade debt securities, sometimes
referred to as "high yield bonds" or "junk bonds" tend to have speculative
characteristics, generally involve more risk of principal and income than higher
rated securities, and have yields and market values that tend to fluctuate more
than higher quality securities. The Fund will invest in such high-yield debt
securities only when the Adviser believes that the issue presents minimal credit
risk. For a description of corporate debt ratings, see "Appendix B." Although
the Fund invests primarily in securities of U.S. issuers, the Fund may invest up
to 20% of its total assets in foreign securities. The Fund will treat foreign
securities as illiquid unless there is an active and substantial secondary
market for such securities.
The Fund may invest in various money market instruments and repurchase
agreements. The Fund may invest without limitation in such instruments pending
investment, to meet anticipated redemption requests, or as a temporary
defensive measure if market conditions warrant.
NATIONS EMERGING GROWTH FUND: The Fund will invest in equity securities,
consisting of common stocks, preferred stocks and convertible securities, such
as warrants, rights and securities convertible into common stocks, selected
from a universe of emerging growth companies monitored by the Adviser. Most of
the companies will have revenues between $50 million and $1.5 billion and a
debt ratio of less than 50% of capitalization. The universe focuses on
companies with above average earnings growth rates and profit margins, yet the
portfolio may include positions of special situation companies whose growth is
expected to accelerate. These companies are believed to offer significant
opportunities for capital appreciation and the Adviser will attempt to identify
these oppor-
- ---------------------
1"Standard & Poor's" and "Standard & Poor's 500" are trademarks of The
McGraw-Hill Companies, Inc.
14
<PAGE>
tunities before their potential is recognized by investors in general.
In managing the Fund, the Adviser applies a disciplined process with rigorous
fundamental analysis providing the basis for stock selection. Its methodology
combines fundamental, valuation and momentum-based disciplines in portfolio
construction. First, the Adviser evaluates nearly 1500 stocks by using
quantitative modeling techniques. Companies within this universe are analyzed
using the following criteria: earnings growth trends, earnings momentum,
earnings estimate trends, relative price performance and importantly, valuation
or price/earnings ratios relative to forecasted earnings growth. Next, the
Adviser conducts a bottom-up, fundamental analysis of each candidate company.
This process, which involves using both internal and external research and
conducting one on one conversations with senior company executives, requires
several steps: gaining an understanding of the business, evaluating its growth
potential, risks and competitive strengths, discussing its growth strategy with
company management, and validating that strategy with third parties and the
Adviser's network of regional brokerage research resources. Stocks are selected
after this rigorous analysis only when their valuation is attractive relative
to forecasted growth.
Under normal market conditions, the Fund invests at least 65% of its total
assets in common stocks. The Fund may invest in various money market
instruments and repurchase agreements. The Fund may invest without limitation
in such instruments pending investment, to meet anticipated redemption
requests, or as a temporary defensive measure if market conditions warrant.
The volatility of emerging growth stocks is greater than that of larger
companies. Many of these stocks trade over-the-counter and may not have
widespread interest among institutional investors. These securities may have
larger potential for gains but also carry more risk if unexpected company
developments adversely affect the stock prices. To help reduce risk, the Fund
is diversified and typically invests in 75 to 130 companies which represent a
broad range of industries and sectors, both in the United States and abroad.
Although the Fund invests primarily in securities of U.S. issuers, it may
invest up to 20% of its total assets in foreign securities.
NATIONS SMALL COMPANY GROWTH FUND: In pursuing its investment objective, under
normal market conditions, the Fund will invest at least 65% of its total assets
in equity securities, consisting of common stocks, preferred stocks and
convertible securities, such as warrants, rights and convertible debt. In
addition, the Fund will invest at least 65% of its total assets in companies
with a market capitalization of $1 billion or less.
The investment philosophy of the Small Company Growth Fund is based on the
premise that stock prices are driven by earnings growth and that superior stock
market returns occur when a company experiences rapid and accelerating earnings
growth due to improving fundamentals.
In managing the Fund, the Adviser applies a disciplined process with rigorous
fundamental analysis providing the basis for stock selection. Its methodology
combines fundamental, valuation and momentum-based disciplines in portfolio
construction. First, the Adviser evaluates nearly 5000 stocks by using
quantitative modeling techniques. Companies with a market capitalization of
less than $1 billion are analyzed using the following criteria: earnings growth
trends, earnings momentum, earnings estimate trends, relative price performance
and importantly, valuation or price/ earnings ratios relative to forecasted
earnings growth. Next, the Adviser conducts a bottom-up, fundamental analysis
of each candidate company. This process, which involves using both internal and
external research and conducting one on one conversations with senior company
executives, requires several steps: gaining an understanding of the business,
evaluating its growth potential, risks and competitive strengths, discussing
the growth strategy with company management, and validating that strategy with
third parties and the Adviser's network of regional brokerage research
resources.
Overall, the Fund's strategy is to own those investments offering both
attractive fundamental valuation and relatively good prospects for earnings
improvement. Typically, two types of companies are candidates for purchase: (i)
mature companies which may have fallen from a larger market value due to
business difficulties, but which now exhibit improving prospects; and (ii)
smaller or younger companies which are experiencing strong
15
<PAGE>
trends in earnings growth, but remain reasonably valued and therefore offer
premium growth at a discount in comparison to other companies.
The Fund's weighted median capitalization generally is not expected to exceed
125% of the weighted median capitalization of the Russell 2000 Small Stock
Index (the "Russell 2000") as measured on a quarterly basis, although this may
vary from time to time. The volatility of the small cap growth stocks in which
the Fund invests is greater than that of larger companies. Many of these stocks
trade over-the-counter and may not have widespread interest among institutional
investors. These securities may have larger potential for gains but also carry
more risk if unexpected company developments adversely affect the stock prices.
To help reduce risk, the Fund is diversified and typically invests in 75 to 130
companies which represent a broad range of industries and sectors, both in the
United States and abroad.
The Fund may invest up to 35% of its total assets in securities of issuers with
a market capitalization greater than $1 billion and in debt securities.
However, the Fund will not invest more than 10% of its total assets in debt
securities, unless the Fund assumes a temporary defensive position as discussed
below. Debt securities, if any, purchased by the Fund will be rated "AA" or
above by S&P or "Aa" or above by Moody's or, if unrated, determined by the
Adviser to be of comparable quality. For temporary defensive purposes, the Fund
may invest up to 100% of its total assets in debt securities. Debt securities
in which the Fund may invest include short-term and intermediate-term
obligations of corporations, the U.S. and foreign governments and international
organizations (such as the International Bank for Reconstruction and
Development (the "World Bank")), and money market instruments.
The Fund may invest in common stocks (including securities convertible into
common stocks) of foreign issuers and rights to purchase common stock, options
and futures contracts on securities, securities indexes and foreign currencies,
securities lending, forward foreign exchange contracts and repurchase
agreements. The Fund currently intends to limit any investment in foreign
securities to 20% of total assets.
NATIONS DISCIPLINED EQUITY FUND: The investment philosophy of the Fund is based
on the premise that companies with positive earnings trends also should
experience positive trends in their share price. Based on this philosophy, the
Fund invests primarily in the common stocks of companies that the Adviser
believes are likely to experience significant increases in earnings. By
pursuing this investment philosophy, the Fund seeks to provide investors with
long-term capital appreciation which exceeds that of the S&P 500 Index.
In selecting stocks for the Fund, the Adviser utilizes quantitative analysis
and optimization tools. This approach seeks to identify companies with
improving profit potential through analysis of earnings forecasts issued by
investment banks, broker/ dealers and other investment professionals. The
Adviser believes that companies experiencing such earnings trends have the
potential to generate significant increases in per share earnings. The Adviser
also believes that companies with increasing earnings should experience
positive trends in their stock price. The quantitative analysis also includes
ranking the attractiveness of equity securities according to a multi-factor
valuation model. Both value and growth 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 growth characteristics
such as price momentum, earnings growth and earnings acceleration measure a
stock relative to others in the same industry. The objective is to maintain a
broadly diversified portfolio which ranks in the top quartile on earnings
momentum and in the top third on valuation. This approach generally produces a
dividend yield less than the market average. Although this Fund seeks to invest
in attractively priced securities with increasing earnings, its investment
objective focuses on long-term capital appreciation; income is not an objective
of this Fund.
Under normal market conditions, the Fund invests at least 65% of its total
assets in common stocks of domestic issuers. With respect to the remainder of
the Fund's assets, the Fund may invest in a broad range of equity and debt
instruments, including preferred stocks, securities (debt and preferred stock)
convertible into common stock, warrants and rights to purchase common stocks,
options,
16
<PAGE>
U.S. government and corporate debt securities and various money market
instruments. The Fund will invest primarily in medium- and large-sized
companies (I.E. companies with market capitalizations of $1 billion or greater)
that are determined to have favorable price-to-earnings ratios. The Fund also
may invest in securities issued by companies with market capitalizations of
less than $1 billion. The volatility of small-capitalization stocks is
typically greater than that of larger companies. To help reduce risk, the Fund
will invest in the securities of companies representing a broad range of
industries and economic sectors.
The Fund's investments in debt securities, including convertible securities,
will be limited to securities rated investment grade (E.G. securities rated in
one of the top four investment categories by a nationally recognized
statistical rating organization "NRSRO" or, if not rated, are of equivalent
quality as determined by the Adviser). Obligations rated in the lowest of the
top four investment grade rating categories have speculative characteristics
and changes in economic conditions or other circumstances are more likely to
lead to a weakened capacity to make principal and interest payments than is the
case with higher grade debt obligations.
The Fund may invest up to 20% of its total assets in foreign securities. For
temporary defensive purposes if market conditions warrant, the Fund may invest
without limitation in preferred stocks, investment grade debt instruments,
money market instruments and repurchase agreements.
NATIONS CAPITAL GROWTH FUND: The investment philosophy of the Fund is based on
the belief that companies with superior growth characteristics selling at
reasonable prices will, over time, outperform the market. Therefore, the Fund
will generally seek to invest in larger capitalization, high-quality companies
which possess above average earnings growth potential.
The Fund's equity investments will generally be made in companies which share
some of the following characteristics:
o above-average earnings growth relative to the S&P 500 Index;
o established operating histories, strong balance sheets and favorable
financial characteristics; and
o above-average return on equity relative to the S&P 500 Index.
In addition, the Fund's investment program enables it to invest in the
following types of companies:
o companies that generate or apply new technologies, new and improved
distribution techniques, or new services, such as those in the business
equipment, electronics, specialty merchandising and health service
industries;
o companies that own or develop natural resources, such as energy exploration
companies;
o companies that may benefit from changing consumer demands and lifestyles,
such as financial service organizations and telecommunication companies;
o foreign companies, including those in countries with more rapid economic
growth than the U.S.;
o companies whose earnings growth is projected at a pace in excess of the
average company (I.E., growth companies); and
o companies whose earnings are temporarily depressed and are currently out of
favor with most investors.
Through intensive research, visits to many companies each year, and efficient
response to changing market conditions, the Adviser seeks to make the most of
the Fund's flexible charter.
Under normal market conditions, the Fund invests at least 65% of its total
assets in common stocks. In addition to common stocks, the Fund also may invest
in preferred stocks, securities convertible into common stocks and other types
of securities having common stock characteristics (such as rights and warrants
to purchase equity securities). Although the Fund invests primarily in publicly
traded common stocks of companies incorporated in the United States, the Fund
may invest up to 20% of its total assets in foreign securities.
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The Fund also may invest in various money market instruments and repurchase
agreements. The Fund may invest without limitation in such instruments pending
investment, to meet anticipated redemption requests, or as a temporary
defensive measure if market conditions warrant.
NATIONS MARSICO FOCUSED EQUITIES FUND:
Nations Marsico Focused Equities Fund is a non-diversified fund that pursues
its objective by normally investing in a core position of 20-30 common stocks.
Under normal circumstances, the Fund invests at least 65% of its total assets
in large capitalization common stocks selected for their growth potential. The
Fund may invest to a lesser degree in other types of securities, including
preferred stock, warrants, convertible securities and debt securities.
In building the portfolio, the Adviser seeks to identify individual companies
with earnings growth potential that may not be recognized by the market at
large. To identify such opportunities, the Adviser looks for a combination of
four characteristics:
o Change -- The Adviser believes that extraordinary growth derives from
products, markets and technologies that are in flux.
o Franchise -- The Adviser looks for strong brand franchises that can be
leveraged in a changing global environment.
o Global reach -- The Adviser selects securities without geographic bias in the
belief that the global market is both a source of growth opportunity and a
hedge against fluctuations and dislocations of local markets.
o Themes -- The Adviser seeks companies that are moving with, not against, the
major social, economic and cultural shifts taking place in the world.
Once an opportunity is identified, it is subjected to a disciplined analytic
process including both "top-down" element and "bottom-up" elements. The "top-
down" element of the process takes into consideration such macroeconomic
factors as interest rates, inflation, the regulatory environment and the global
competitive landscape, and also analyzes such factors as the most attractive
global opportunities, industry consolidation and the sustainability of economic
trends. With respect to the "bottom-up" element, the Adviser considers company
fundamentals such as commitment to research, market franchise and management's
strength and vision to determine the present and future value of the company as
an investment.
Realization of income is not a significant investment consideration. Any income
realized on the Fund's investments will be incidental to its objective.
NATIONS MARSICO GROWTH & INCOME FUND:
Under normal circumstances, Nations Marsico Growth & Income Fund pursues its
objective by investing up to 75% of its total assets in equity securities
selected primarily for their growth potential and at least 25% of its total
assets in securities that have income potential. The Fund typically emphasizes
the growth component. However, in adverse market conditions, the Fund may
reduce the growth component of its portfolio to 25% of its total assets. The
Fund may invest in any combination of common stock, preferred stock, warrants,
convertible securities and debt securities. However, it is expected that the
Fund will emphasize investments in large capitalization common stocks. The Fund
may shift assets between the growth and income components of its portfolio
based on the Adviser's analysis of relevant market, financial and economic
conditions. If the Adviser believes that growth securities will provide better
returns than the yields then available or expected on income-producing
securities, then the Fund will place a greater emphasis on the growth
component. In building the portfolio, the Adviser seeks to identify individual
companies with earnings growth potential that may not be recognized by the
market at large. To identify such opportunities, the Adviser looks for a
combination of four characteristics:
o Change -- The Adviser believes that extra-ordinary growth derives from
products, markets and technologies that are in flux.
o Franchise -- The Adviser looks for strong brand franchises that can be
leveraged in a changing global environment.
o Global reach -- The Adviser selects securities without geographic bias in
the belief that the global market is both a source of growth opportunity
and a hedge against fluctuations and dislocations of local markets.
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o Themes -- The Adviser seeks companies that are moving with, not against,
the major social, economic and cultural shifts taking place in the world.
Once an opportunity is identified, it is subjected to a disciplined analytic
process including both "top-down" and "bottom-up" elements. The "top-down"
element of the process takes into consideration such macroeconomic factors as
interest rates, inflation, the regulatory environment and the global
competitive landscape, and also analyzes such factors as the most attractive
global opportunities, industry consolidation and the sustainability of economic
trends. With respect to the "bottom-up" element, the Adviser considers company
fundamentals such as commitment to research, market franchise and management's
strength and vision to determine the present and future value of the company as
an investment.
Because income is a part of the investment objective of the Fund, the Adviser
may also consider dividend-paying characteristics in selecting equity
securities for the Fund. The Fund may also find opportunities for capital
growth from debt securities because of anticipated changes in interest rates,
credit standing, currency relationships or other factors. Investors in the Fund
should keep in mind that the Fund is not designed to produce a consistent level
of income.
Nations International Equity Fund: The Fund intends to diversify investments
broadly among countries and to normally invest in securities representing at
least three different countries. The Fund may invest in companies in the Far
East and Western Europe as well as Australia, Canada, and other areas
(including developing countries). Under unusual circumstances, however, the
Fund may invest substantially all of its assets in companies in one or two
countries.
In seeking to achieve its objective, the Fund will invest at least 65% of its
assets in common stocks of established non-United States companies that the
Adviser believes have potential for growth of capital. The Fund may invest up
to 35% of its assets in any other type of security including: convertible
securities; preferred stocks; bonds, notes and other debt securities (including
Eurodollar securities); and obligations of domestic or foreign governments and
their political subdivisions.
The Fund also may invest in American Depository Receipts ("ADRs"), Global
Depositary Receipts ("GDRs"), European Depository Receipts ("EDRs"), American
Depository Shares ("ADSs"), bonds, notes, other debt securities of foreign
issuers, securities of foreign investment funds or trusts and real estate
investment trust securities. For defensive purposes, the Fund may temporarily
invest substantially all of its assets in U.S. financial markets or in U.S.
dollar-denominated instruments.
NATIONS INTERNATIONAL GROWTH FUND: In pursuing its investment objective, under
normal market conditions, the Fund will invest at least 65% of its total assets
in foreign equity securities listed on major exchanges, consisting of common
stocks, preferred stocks and convertible securities, such as warrants, rights
and convertible debt. The Fund may purchase the stock of small-, mid- and
large-capitalization companies.
The Fund may invest up to 35% of its total assets in securities of issuers
domiciled in developing countries. These countries are generally located in
Eastern Europe, the Asia-Pacific region, Latin and South America, Africa and,
subject to approval by the Board of Directors, the former Soviet Union and the
Middle East. Debt securities, if any, purchased by the Fund will be rated in
the top two categories by an NRSRO or, if unrated, determined by the Adviser to
be of comparable quality. For temporary defensive purposes, the Fund may invest
up to 100% of its assets in debt and equity securities of U.S. issuers. Debt
securities in which the Fund may invest include short-term and
intermediate-term obligations of corporations, foreign governments and
international organizations (such as the World Bank), including money market
instruments.
The Fund may invest in common stocks (including securities convertible into
common stocks) of foreign issuers and rights to purchase common stock, options
and futures contracts on securities, securities indexes and foreign currencies,
securities lending and repurchase agreements. The Fund also may invest in ADRs,
GDRs, EDRs and ADSs.
For defensive purposes, the Fund may temporarily invest substantially all of
its assets in U.S. financial markets or in U.S. dollar-denominated instruments.
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NATIONS INTERNATIONAL VALUE FUND: The Fund will pursue its investment
objective, under normal market conditions, by investing its assets in the
securities of issuers located in at least three different foreign countries.
Although the Fund may earn income from dividends, interest and other sources,
income will be incidental to the Fund's investment objective. The Fund
emphasizes investments in established companies, although it may invest in
companies of various sizes as measured by assets, sales and capitalization.
The Fund intends to invest at least 65% of its total assets in equity
securities of non-United States issuers whose market capitalizations exceed $1
billion at the time of purchase. These securities may include common stocks,
preferred stocks, securities convertible into common stocks, shares of closed-
end investment companies, ADRs, EDRs, and/or GDRs. Although the Fund intends to
invest primarily in equity securities listed on stock exchanges, the Fund may
also invest in equity securities traded in over the counter markets and in
private placements. The Fund is not subject to any specific geographic
diversification requirements. Countries in which the Fund may invest include,
but are not limited to, the nations of Western Europe, North and South America,
Australia, Africa, and Asia.
The Adviser's approach in selecting investments for the Fund is oriented to
individual stock selection and is value driven as described below. Typically,
no more than 5% of total Fund assets will be invested in any one equity
security at the time of purchase. With respect to Fund investments in any
particular country or industry, the Fund may typically invest up to the greater
of either (a) 20% of its total assets in any particular country or industry at
the time of purchase or (b) 150% of the weighting of such country or industry
as represented in the Morgan Stanley Capital International ("MSCI") EAFE Index
at the time of purchase, but in no event may the Fund invest more than 25% of
its total assets, calculated at the time of purchase and taken at market value,
in any one industry (other than U.S. Government securities). Generally, no more
than 20% of the value of the Fund's total assets, measured at the time of
purchase, may be invested in securities of companies located in emerging or
developing countries. As used in this Prospectus, the term "emerging" or
"developing" country applies to any country which is generally considered to be
an emerging or developing country by the international financial community,
which includes the World Bank and the International Finance Corporation. There
are currently over 130 countries which are generally considered to be emerging
or developing countries by the international financial community, approximately
40 of which currently have stock markets. These countries generally include
every nation in the world except the United States, Canada, Japan, Australia,
New Zealand, Hong Kong, Singapore and most nations located in Western Europe.
Currently, investing in many emerging countries is not feasible or may involve
unacceptable political risks. Emerging markets securities pose greater
liquidity and other risks than securities of companies located in developed
countries and traded in more established markets.
The Adviser to the Fund is committed to the use of the Graham and Dodd-style
value investing approach as introduced in the classic book SECURITY ANALYSIS.
Using this philosophy, the Adviser views stocks as small pieces of businesses
which are for sale. It seeks to purchase a diversified group of these
businesses at prices its research indicates are below their true long-term, or
intrinsic, value. By purchasing stocks whose current prices are believed to be
below their intrinsic values, the Adviser seeks to secure not only a possible
margin of safety against price declines, but also an attractive opportunity for
profit over the business cycle.
In analyzing a company's long-term value, the Adviser uses sources of
information such as company reports, filings with the SEC, computer databases,
industry publications, general and business publications, brokerage firm
research reports, and interviews with company management. Its focus is on
fundamental characteristics of a company, including, but not limited to, book
value, cash flow and capital structure, as well as management's record and
broad industry issues. Once the intrinsic value of a company is estimated, this
value is compared to the current price of the stock. If the price is
appreciably lower than the indicated intrinsic value, the stock may be
purchased.
During temporary defensive periods in response to unusual and adverse
conditions affecting the equity markets, the Fund's assets may be invested
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without limitation in short-term debt instruments and in securities of United
States issuers. In addition, when the Fund experiences large cash inflows from
the issuance of new shares or the sale of portfolio securities, and desirable
equity securities that are consistent with the Fund's investment objective are
unavailable in sufficient quantities, the Fund may hold more than 35% of its
assets in short-term debt instruments for a limited time pending availability
of suitable equity securities. During normal market conditions, no more than
35% of the Fund's total assets will be invested in short-term debt instruments.
Subject to applicable securities regulations, the Fund may, for the purpose of
hedging its portfolio, purchase and write covered call options on specific
portfolio securities and may purchase and write put and call options on foreign
stock indices listed on foreign and domestic stock exchanges. See "Appendix A"
for additional information concerning the investment practices of the Fund.
NATIONS EMERGING MARKETS FUND: In seeking to achieve its objective, the Fund
will invest under normal market conditions at least 65% of its total assets in
equity securities of companies in emerging markets.
The Fund considers countries with emerging markets to include the following:
(i) countries with an emerging stock market as defined by the International
Finance Corporation; (ii) countries with low- to middle-income economies
according to the World Bank; and (iii) countries listed in World Bank
publications as developing. The Adviser seeks to identify and invest in those
emerging markets that have a relatively low gross national product per capita,
compared to the world's major economies, and which exhibit potential for rapid
economic growth. The Adviser believes that investment in equity securities of
emerging market issuers offers significant potential for long-term capital
appreciation.
Emerging market countries include, but are not limited to: Argentina, Brazil,
Chile, China, the Czech Republic, Colombia, Ecuador, Greece, Hong Kong,
Indonesia, India, Malaysia, Mexico, the Philippines, Poland, Portugal, Peru,
Russia, Singapore, South Africa, Thailand, Taiwan and Turkey.
A company will be considered in a country, market or region if it conducts its
principal business activities in the country, market or region. A company will
be considered to conduct its principal business activities in a country, market
or region if it derives a significant portion (at least 50%) of its revenues or
profits from goods produced or sold, investments made, or services performed in
such country, market or region or has at least 50% of its total assets situated
in such country, market or region.
Equity securities of emerging market issuers may include common stocks,
preferred stocks (including convertible preferred stocks) and warrants; bonds,
notes and debentures convertible into common or preferred stock; equity
interests in foreign investment funds or trusts and real estate investment
trust securities. The Fund may invest in ADRs, GDRs, EDRs, and ADSs of such
issuers.
The Fund also may invest in other types of instruments, including debt
obligations. Debt obligations acquired by the Fund will be rated investment
grade at the time of purchase by Moody's or S&P or, if unrated, determined by
the Adviser to be comparable in quality to instruments so rated. Obligations
with the lowest investment grade rating (E.G., rated "Baa" by Moody's or "BBB"
by S&P) have speculative characteristics, and changes in economic conditions or
other circumstances are more likely to lead to a weakened capacity to make
principal and interest payments than is the case with higher grade debt
obligations. See "Appendix B" for a description of these ratings designations.
The Fund is a diversified fund that intends, under normal market conditions, to
invest in at least three different countries, although it may, from time to
time, invest all of its assets in a single country. If the Fund invests all or
a significant portion of its assets at any time in a single country, events
occurring in such country are more likely to affect the Fund's investments. For
additional information concerning risk, see "Special Risk Considerations
Relevant to an Investment in the International Funds," below. When allocating
investments among individual countries, the Adviser will consider various
criteria, such as the relative economic growth potential of the various
economies and securities markets, expected levels of inflation, government
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policies influencing business conditions and the outlook for currency
relationships.
For defensive purposes, the Fund may temporarily invest substantially all of
its assets in U.S. financial markets or in U.S. dollar-denominated instruments.
NATIONS PACIFIC GROWTH FUND: The Fund seeks to achieve its objective by
investing primarily in securities of issuers in the regions known as the
Pacific Basin and the Far East. An issuer will be considered in a region if it
conducts its principal business activities in the region. An issuer will be
considered to conduct its principal business activities in a region if it
derives a significant portion (at least 50%) of its revenues or profits from
goods produced or sold, investments made, or services performed in such region
or has at least 50% of its assets situated in such region. The Pacific Basin
and Far East include Australia, Hong Kong, India, Indonesia, South Korea,
Malaysia, New Zealand, Pakistan, the People's Republic of China, the
Philippines, Singapore, Sri Lanka, Taiwan and Thailand and may include other
markets that develop in the region. The Fund will not invest in securities of
issuers in Japan.
The Fund will focus on equity securities, but may also invest in debt
obligations. Such equity securities may include common stocks, preferred stocks
(including convertible preferred stocks) and warrants; bonds, notes and
debentures convertible into common or preferred stock; equity interests in
foreign investment funds or trusts and real estate investment trust securities.
Debt obligations acquired by the Fund will be rated investment grade at the
time of purchase by Moody's or S&P or, if unrated, determined by the Adviser to
be comparable in quality to instruments so rated. Obligations with the lowest
investment grade rating (E.G., rated "Baa" by Moody's or "BBB" by S&P) have
speculative characteristics, and changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity to make principal
and interest payments than is the case with higher grade debt obligations. See
"Appendix B" for a description of these ratings designations.
In seeking to achieve its objective, the Fund will invest under normal market
conditions at least 65% of its total assets in securities of issuers that
conduct their principal business activities in countries of the Pacific Basin
and Far East, except for Japan. Although the Fund may not invest in securities
issued by companies that conduct their principal business activities in Japan,
the Fund may invest in securities that are listed on a Japanese exchange.
The Fund is a diversified fund that intends, under normal market conditions, to
invest in at least three different countries, although it may, from time to
time, invest all of its assets in a single country. If the Fund invests all or
a significant portion of its assets at any time in a single country, events
occurring in such country are more likely to affect the Fund's investments. For
additional information concerning risk, see "Special Risk Considerations
Relevant to an Investment in the International Funds" below. When allocating
investments among individual countries, the Adviser will consider various
criteria, such as the relative economic growth potential of the various
economies and securities markets, expected levels of inflation, government
policies influencing business conditions and the outlook for currency
relationships.
The Fund may invest in ADRs, GDRs, EDRs and ADSs. For defensive purposes, the
Fund may temporarily invest substantially all of its assets in U.S. financial
markets or in U.S. dollar-denominated instruments.
BALANCED FUND:
NATIONS BALANCED ASSETS FUND: In pursuing the Fund's objective, the Adviser
will allocate the Fund's assets based upon its judgment of the relative
valuation and the expected returns of the three major asset classes in which
the Fund principally invests: common stocks, fixed income securities and cash
equivalents. In assessing relative value and expected returns, the Adviser will
evaluate current economic and financial market conditions (both domestically
and internationally), current interest rate trends, earnings and dividend
prospects for common stocks, and overall financial market stability. These
asset classes are actively managed in an effort to maximize total return. In
general, the Adviser believes that common stocks offer the best opportunity for
long-term capital appreciation.
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The Fund invests in common and preferred stocks of U.S. corporations and of
foreign issuers, as well as securities convertible into common stocks, and
other types of securities having common stock characteristics (such as rights
and warrants to purchase equity securities) that meet the Adviser's stringent
criteria. Fundamental research and valuation analysis are emphasized in the
stock selection process. Stock holdings are typically those of seasoned,
financially strong companies with favorable industry positioning.
Under normal circumstances, at least 25% of the total value of the Fund's
assets will be invested in fixed income securities. The Fund may invest in
government, corporate and municipal debt securities, as well as mortgage-backed
and asset-backed securities. Most obligations acquired by the Fund will be
issued by companies or governmental entities located within the United States.
Debt obligations acquired by the Fund will be rated investment grade at the
time of purchase by S&P, Moody's, Duff & Phelps Credit Rating Co. ("D&P"),
Fitch IBCA ("Fitch") or Thomson BankWatch, Inc. ("BankWatch") or, if unrated,
determined by the Adviser to be comparable in quality to instruments so rated.
S&P, Moody's, D&P, Fitch and BankWatch are nationally recognized statistical
rating organizations (collectively "NRSROs"). Obligations with the lowest
investment grade rating (E.G. rated "BBB" by S&P or "Baa" by Moody's) have
speculative characteristics, and changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity to make principal
and interest payments than is the case with higher grade debt obligations. See
"Appendix B" for a description of these ratings designations. Subsequent to its
purchase by the Fund, an issue of securities may cease to be rated or its
rating may be reduced below the minimum rating required for purchase by the
Fund. The Adviser will consider such an event in determining whether the Fund
should continue to hold the obligation. Unrated obligations may be acquired by
the Fund if they are determined by the Adviser to be of comparable quality at
the time of purchase to rated obligations that may be acquired.
Although the Fund invests primarily in securities of U.S. issuers, the Fund may
invest up to 25% of its total assets in foreign securities.
The Fund may invest in various money market instruments and repurchase
agreements. The Fund may invest without limitation in such instruments pending
investment, to meet anticipated redemption requests, or as a temporary
defensive measure if market conditions warrant.
GENERAL: Each Equity Fund may invest in certain specified derivative
securities, including: exchange-traded options; over-the-counter options
executed with primary dealers, including long calls and puts and covered calls
to enhance return; and U.S. and foreign exchange-traded financial futures
approved by the Commodity Futures Trading Commission (the "CFTC") and options
thereon for market exposure risk management. Nations Balanced Assets Fund also
may engage in reverse repurchase agreements and dollar roll transactions. Each
Fund may lend its portfolio securities to qualified institutional investors and
may invest in repurchase agreements, restricted, private placement and other
illiquid securities. Each Equity Fund also may invest in real estate investment
trust securities. In addition, each Equity Fund may invest in securities issued
by other investment companies, consistent with the Fund's investment objective
and policies and repurchase agreements. Nations International Equity Fund,
Nations International Growth Fund, Nations International Value Fund, Nations
Pacific Growth Fund and Nations Emerging Markets Fund (collectively the
"International Funds") may invest in forward foreign exchange contracts. For
more information concerning these and other investments in which the Funds may
invest and their investment practices, see "Appendix A."
Nations Value Fund, Nations Equity Income Fund, Nations Capital Growth Fund,
Nations Emerging Growth Fund, Nations Small Company Growth Fund and Nations
Disciplined Equity Fund are managed with careful consideration to the overall
tax implications of portfolio activity.
The Adviser considers employing various techniques to minimize the distribution
of capital gains to shareholders. These techniques, which the Adviser uses when
consistent with each Fund's overall objectives and policies, may include:
o MANAGING PORTFOLIO TURNOVER. By appropriately limiting the number of buy
and sell transactions, each Fund attempts to effectively manage its
distribution of capital gains.
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o SELLING SHARE LOTS THAT GENERATE THE LOWEST TAX BURDEN TO THE SHAREHOLDER.
After the decision is made to sell a specific security, each Fund will
endeavor to sell the shares that create the lowest potential tax burden to
shareholders, as a general matter.
o OFFSETTING CAPITAL GAINS WITH CAPITAL LOSSES. Each Fund may, when prudent,
sell securities in order to realize capital losses. Capital losses can be
used to offset capital gains thus reducing capital gains distributions.
While each Fund seeks to minimize the distribution of capital gains, consistent
with its investment objective, there can be no assurance that all taxable
distributions to shareholders can be avoided. In addition, the ability to
utilize these tax management techniques may be reduced or eliminated by future
legislation, regulation, administrative interpretations or court decisions.
For more information concerning these and other instruments in which the Funds
may invest and their investment practices, see "Appendix A."
PORTFOLIO TURNOVER: Generally, the Funds will purchase portfolio securities for
capital appreciation or investment income, or both, and not for short-term
trading profits. If a Fund's annual portfolio turnover rate exceeds 100%, it
may result in higher brokerage costs and possible tax consequences for the Fund
and its shareholders. For the Funds' portfolio turnover rates, see "Financial
Highlights."
RISK CONSIDERATIONS: Investments by a Fund in common stocks and other equity
securities are subject to stock market risk. The value of the stocks that a
Fund holds, like the broader stock market, may decline over short or even
extended periods. The U.S. stock markets tend to be cyclical, with periods when
stock prices generally rise and periods when prices generally decline. As of
the date of this Prospectus, the stock markets, as measured by the S&P 500
Index and other commonly used indices, were trading at or close to record
levels. There can be no guarantee that these levels will continue.
The value of a Fund's investments in debt securities, including U.S. Government
Obligations, will tend to decrease when interest rates rise and increase when
interest rates fall. In general, longer-term debt instruments tend to fluctuate
in value more than short-term debt instruments in response to interest rate
movements. In addition, debt securities that are not backed by the U.S.
Government are subject to credit risk, which is the risk that the issuer may
not be able to pay principal and/or interest when due.
Certain of the Funds' investments constitute derivative securities, which are
securities whose value is derived, at least in part, from an underlying index
or reference rate. There are certain types of derivative securities that can,
under certain circumstances, significantly increase a purchaser's exposure to
market or other risks. The Adviser, however, only purchases derivative
securities in circumstances where it believes such purchases are consistent
with a Fund's investment objective and do not unduly increase the Fund's
exposure to market or other risks. For additional risk information regarding
the Funds' investments in particular instruments, see "Appendix A."
Certain of the Funds may invest in securities of smaller and newer issuers.
Investments in such companies may present greater opportunities for capital
appreciation because of high potential earnings growth, but also present
greater risks than investments in more established companies with longer
operating histories and greater financial capacity.
SPECIAL RISK CONSIDERATIONS RELEVANT TO AN INVESTMENT IN NATIONS MARSICO
FOCUSED EQUITIES FUND AND NATIONS MARSICO GROWTH & INCOME FUND: Nations Marsico
Focused Equities Fund, as a non-diversified fund, may invest in fewer issuers
than a diversified fund, such as Nations Marsico Growth & Income Fund.
Therefore, appreciation or depreciation of an investment in a single issuer
could have a greater impact on the Fund's net asset value. Nations Marsico
Focused Equities Fund reserves the right to become a diversified fund by
limiting the investments in which more than 5% of its total assets are
invested. The techniques employed by the Adviser in managing this Fund
generally result in a portfolio of fewer holdings than that of other equity
mutual funds. As a result, the net asset value of a share in the Fund tends to
fluctuate more greatly than would otherwise be the case with an equity fund
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that invested more broadly. In other words, an investment in the Fund
represents both greater risks and potential rewards than may be the case with
an equity fund whose portfolio is more diversified.
Nations Marsico Focused Equities Fund and Nations Marsico Growth & Income Fund
(together the "Marsico Funds") may also invest up to 25% of their assets in
mortgage- and asset-backed securities, up to 10% of their assets in zero
coupon, pay-in-kind and step coupon securities, and may invest without limit in
indexed/structured securities. The Marsico Funds will invest no more than 35%
of their assets in high-yield/high-risk securities. The Marsico Funds may also
purchase high-grade commercial paper, certificates of deposit, and repurchase
agreements. The Marsico Funds may also invest in short-term debt securities as
a means of receiving a return on idle cash. See "Appendix B" for a description
of ratings.
When the Adviser believes that market conditions are not favorable for
profitable investing or when the Adviser is otherwise unable to locate
favorable investment opportunities, the Marsico Funds may hold cash or cash
equivalents and invest without limit in U.S. Government Obligations and short-
term debt securities or money market instruments if the Adviser determines that
a temporary defensive position is advisable or to meet anticipated redemption
requests. In other words, the Funds do not always stay fully invested in stocks
and bonds. Cash or similar investments are a residual -- they represent the
assets that remain after the Adviser has committed available assets to
desirable investment opportunities. When the Marsico Funds' cash position
increases, it may not participate in stock market advances or declines to the
extent that it would if it remained more fully invested in common stocks.
The Marsico Funds may invest up to 25% of their assets in foreign equity and
debt securities. The Funds may invest directly in foreign securities
denominated in a foreign currency and not publicly traded in the United States.
Other ways of investing in foreign securities include depositary receipts or
shares, and passive foreign investment companies. Foreign securities are
generally selected on a company-by-company basis without regard to any defined
allocation among countries or geographic regions. However, certain factors such
as expected levels of inflation, government policies influencing business
conditions, the outlook for currency relationships, and prospects for economic
growth among countries, regions or geographic areas may warrant greater
consideration in selecting foreign securities. The Marsico Funds may use
options, futures, forward currency contracts and other types of derivatives for
hedging purposes. The Marsico Funds may purchase securities on a when-issued,
delayed delivery or forward commitment basis.
SPECIAL RISKS CONSIDERATIONS RELEVANT TO AN INVESTMENT IN THE INTERNATIONAL
FUNDS: Investors should understand and consider carefully the special risks
involved in foreign investing. Such risks include, but are not limited to: (1)
restrictions on foreign investment and repatriation of capital; (2)
fluctuations in currency exchange rates, which can significantly affect a
Fund's share price; (3) costs of converting foreign currency into U.S. dollars
and U.S. dollars into foreign currencies; (4) greater price volatility and less
liquidity; (5) settlement practices, including delays, which may differ from
those customary in U.S. markets; (6) exposure to political and economic risks,
including the risk of nationalization, expropriation of assets and war; (7)
possible impositions of foreign taxes and exchange control and currency
restrictions; (8) lack of uniform accounting, auditing and financial reporting
standards; (9) less governmental supervision of securities markets, brokers and
issuers of securities; (10) less financial information available to investors;
and (11) difficulty in enforcing legal rights outside the United States.
The expenses to individual investors of investing directly in foreign
securities are very high relative to similar costs for investing in U.S.
securities. While the International Funds offer a more efficient way for
individual investors to participate in foreign markets, their expenses,
including custodial fees, are also typically higher than those of domestic
equity mutual funds.
Certain of the risks associated with investments by the International Funds in
foreign securities are heightened with respect to investment in developing
countries and emerging markets countries. Political and economic structures in
many emerging markets countries may be undergoing significant evolution and
rapid development, and may
25
<PAGE>
lack the social, political and economic stability characteristic of more
developed countries. Investing in emerging markets securities also involves
risks which are in addition to the usual risks inherent in foreign investments.
Some emerging markets countries may have fixed or managed currencies that are
not free-floating against the U.S. dollar. Further, certain currencies may not
be traded internationally and some countries with emerging securities markets
have sustained long periods of substantially high inflation or rapid
fluctuation in inflation rates which can have negative effects on a country's
economy or securities markets.
In addition to the general risks inherent in foreign investing, investors
should understand and consider carefully the special risks involved in
investing in Eastern Europe, the Pacific Basin and the Far East. Economic and
political reforms in Eastern Europe are still in their infancy. As a result,
investment in such countries could be deemed to be highly speculative and could
result in losses to the Fund and, thus, to its shareholders. Countries in the
Pacific Basin and Far East are in various stages of economic development,
ranging from emerging markets to mature economies, but each has unique risks.
Most countries in this region are heavily dependent on international trade, and
some are especially vulnerable to recessions in other countries. Many of these
countries are also sensitive to world commodity prices. Some countries that
have experienced rapid growth may still have obsolete financial systems,
economic problems or archaic legal systems. In addition, many of these nations
are experiencing political and social uncertainties. See "Appendix A" for
additional discussion of the risks associated with an investment in the
International Funds.
YEAR 2000 ISSUE: Many computer programs employed throughout the world use two
digits to identify the year. Unless modified, these programs may not correctly
handle the change from "99" to "00" on January 1, 2000, and may not be able to
perform necessary functions. Any failure to adapt these programs in time could
hamper the Funds' operations. The Funds' principal service providers have
advised the Funds that they have been actively working on implementing
necessary changes to their systems, and that they expect that their systems
will be adapted in time, although there can be no assurance of success. Because
the Year 2000 issue affects virtually all organizations, the companies or
governmental entities in which the Funds invest could be adversely impacted by
the Year 2000 issue, although the extent of such impact cannot be predicted. To
the extent the impact on a portfolio holding is negative, a Fund's return could
be adversely affected.
INVESTMENT LIMITATIONS: Each Fund is subject to a number of investment
limitations. The following investment limitations are matters of fundamental
policy and may not be changed without the affirmative vote of the holders of a
majority of the Fund's outstanding shares. Other investment limitations that
cannot be changed without such a vote of shareholders are described in the SAI.
Each Fund (except Nations International Value Fund) may not:
1. Purchase any securities which would cause 25% or more of the value of the
Fund's total assets at the time of such purchase to be invested in the
securities of one or more issuers conducting their principal activities in the
same industry. (For purposes of this limitation, U.S. Government securities and
tax-exempt securities issued by state or municipal governments and their
political subdivisions are not considered members of any industry.)
2. Make loans, except that a Fund may purchase and hold debt instruments
(whether such instruments are part of a public offering or privately placed),
may enter into repurchase agreements and may lend portfolio securities in
accordance with its investment policies.
3. Except for Nations Marsico Focused Equities Fund, purchase securities of
any one issuer (other than securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities) if, immediately after such
purchase, more than 5% of the value of such Fund's total assets would be
invested in the securities of such issuer, except that up to 25% of the value
of the Fund's total assets may be invested without regard to these limitations
and with respect to 75% of such Fund's assets, such Fund will not hold more
than 10% of the voting securities of any issuer.
26
<PAGE>
Nations Marsico Focused Equities Fund may not:
Purchase securities of any one issuer (other than securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities) if,
immediately after such purchase, more than 25% of the value of a Fund's total
assets would be invested in the securities of one issuer, and with respect to
50% of such Fund's total assets, more than 5% of its assets would be invested
in the securities of one issuer.
Nations International Growth Fund may not:
Borrow money except as a temporary measure and then only in amounts not
exceeding 5% of the value of the Fund's total assets or from banks or in
connection with reverse repurchase agreements provided that immediately after
such borrowing, all borrowings of the Fund do not exceed one-third of the
Fund's total assets and no purchases of portfolio instruments will be made
while the Fund has borrowings outstanding in an amount exceeding 5% of its
total assets.
Nations Small Company Growth Fund may not:
Borrow money except as a temporary measure for extraordinary or emergency
purposes or except in connection with reverse repurchase agreements and
mortgage rolls; provided that the Fund will maintain asset coverage of 300% for
all borrowings.
Nations International Value Fund may not:
1. Invest 25% or more of its total assets in one or more issuers conducting
their principal business activities in the same industry (with certain
exceptions).
2. Purchase securities of any one issuer (with certain exceptions, including
U.S. Government securities) if more than 5% of the Fund's total assets will be
invested in the securities of any one issuer, except that up to 25% of the
value of the Fund's total assets may be invested without regard to the 5%
limitation. The Fund may not purchase more than 10% of the outstanding voting
securities of any issuer subject, however, to the foregoing 25% exception.
3. Borrow money except for temporary purposes in amounts up to one-third of the
value of its total assets at the time of such borrowing. Whenever borrowings
exceed 5% of the Fund's total assets, the Fund will not make any investments.
If a percentage limitation has been met at the time an investment is made, a
subsequent change in that percentage that is the result of a change in value of
a Fund's portfolio securities does not mean that the limitation has been
violated.
The investment objective and policies of each Fund, unless otherwise specified,
are non-fundamental and may be changed without shareholder approval.
Shareholders of Nations Small Company Growth Fund and Nations International
Growth Fund, however, must receive at least 30 days' prior written notice in
the event an investment objective is changed. If the investment objective or
policies of a Fund change, shareholders should consider whether the Fund
remains an appropriate investment in light of their then current positions and
needs.
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 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 a Fund's advertisement) that would
equate an initial amount invested at the beginning of a stated period to the
ending redeemable value of the investment (reflecting the deduction of any
applicable contingent deferred sales charge ("CDSC")), assuming the
reinvestment of all dividend and capital gain distributions. Aggregate total
return reflects the total percentage change in the value of the investment over
the measuring period again assuming the reinvestment of all dividends and
capital gain
27
<PAGE>
distributions. Total return may also be presented for other periods or may not
reflect a deduction of any applicable CDSC.
"Yield" is calculated by dividing the annualized net investment income per
share during a recent 30-day (or one month) period of a class of shares of a
Fund by the maximum public offering price per share on the last day of that
period. The yield on a class of shares does not reflect deduction of any
applicable CDSC.
BRANDES COMPOSITE PERFORMANCE: Set forth below is certain performance data
relating to the composite of certain international equity accounts of clients
of Brandes and the Brandes Institutional International Equity Fund, an open-end
management investment company (the "Brandes Composite"); and the Morgan Stanley
Capital International European, Australasian and Far Eastern Index (the "MSCI
EAFE Index"). The performance data for the Brandes Composite is deemed relevant
because the accounts and mutual fund in the Brandes Composite have investment
objectives and policies that are substantially similar to those of Nations
International Value Fund, and are managed by Brandes using substantially
similar, but not identical, investment strategies, policies and techniques as
those used in managing Nations International Value Fund. The data below
regarding the Brandes Composite and the MSCI EAFE Index should not be
considered as an indication of future performance of Nations International
Value Fund or of Brandes. The accounts that are included in the Brandes
Composite are not subject to the same types of expenses to which Nations
International Value Fund is subject nor to the diversification requirements,
specific tax restrictions and investment limitations imposed on Nations
International Value Fund by the 1940 Act or Subchapter M of the Internal
Revenue Code. Consequently, the performance results for the Brandes Composite
could have been adversely affected if the accounts included in the Brandes
Composite had been regulated as investment companies or subject to the Fund's
expenses. In addition, the results presented below for the Brandes Composite
may not necessarily equate with the return experienced by any particular
account of Brandes.
AVERAGE ANNUAL TOTAL RETURN FOR THE PERIODS INDICATED THROUGH
MARCH 31, 1998
<TABLE>
<CAPTION>
One Five Since
Year Three Year Year Inception
<S> <C> <C> <C> <C>
Brandes
Composite* 32.81% 23.15% 18.85% 18.56%
- -----------------------------------------------------------------
MSCI EAFE
Index** 18.61% 10.57% 11.93% 6.98%
</TABLE>
ANNUAL TOTAL RETURNS
<TABLE>
<CAPTION>
MSCI
Brandes EAFE
Year Composite* Index**
<S> <C> <C>
1997 20.00% 1.78%
1996 16.34% 6.05%
1995 13.75% 11.21%
1994 -2.98% 7.78%
1993 40.86% 32.56%
1992 6.28% -12.17%
1991 40.17% 12.13%
</TABLE>
* The returns above were calculated on a time- and asset-weighted total
return basis, assuming reinvestment of all dividends, interest and income,
realized and unrealized gains or losses and are net of all applicable
expenses, including investment advisory fees, brokerage commission and
execution costs, custodial fees and any applicable foreign withholding
taxes, without provision of any federal or state income taxes. The Brandes
Composite results include all actual, fee-paying and non-fee-paying, fully
discretionary accounts under management by Brandes for at least one month
beginning July 1, 1990, having substantially the same investment
objectives, policies, techniques and restrictions, other than client
accounts denominated in currencies other than U.S. dollars. The Brandes
Composite results also include performance data relating to the Brandes
Institutional International Equity Fund since its inception on January 2,
1997.
** The MSCI EAFE Index is an unmanaged index consisting of securities listed
on exchanges in European, Australasian and Far Eastern markets and includes
dividends and distributions, but does not reflect fees, brokerage
commissions or other expenses of investing.
MARSICO PRIOR PERFORMANCE: Mr. Thomas Marsico is responsible for the investment
program of the Marsico Funds. Prior to forming Marsico Capital, Mr. Marsico
served as Portfolio Manager of the Janus Twenty Fund from January 31, 1988
through August 11, 1997, and served in the same capacity for the Janus Growth
and Income Fund from May 31, 1991, (inception) through August 11, 1997. The
average annual returns for the Janus Twenty Fund and the Janus Growth and
Income Fund ("Janus
28
<PAGE>
Funds") from the date on which Mr. Marsico began serving as Portfolio Manager
of each Janus Fund through August 7, 1997 were 22.38% and 21.19%, respectively.
On August 11, 1997, the date on which Mr. Marsico ceased serving as the
Portfolio Manager to both the Janus Twenty Fund and the Janus Growth and Income
Fund, the Janus Twenty Fund had approximately $6 billion in net assets, and the
Janus Growth and Income Fund had approximately $1.7 billion in net assets. As
Executive Vice President and Portfolio Manager of the Janus Twenty Fund and the
Janus Growth and Income Fund, Mr. Marsico had full discretionary authority over
the selection of investments for those funds. Average annual returns for the
one-year, three-year and five-year periods ended August 7, 1997, and for the
period during which Mr. Marsico managed those funds compared with the
performance of the S&P 500 Index were:
<TABLE>
<CAPTION>
Janus Janus
Twenty Growth and S&P 500
Fund (a) Income Fund (a) Index (b)
<S> <C> <C> <C>
- ------------------------------------------------------------------------
One Year 48.21% 47.77% 46.41%
(8/8/96 - 8/7/97)
- ------------------------------------------------------------------------
Three Years 32.07% 31.13% 30.63%
(8/11/94 - 8/7/97)
- ------------------------------------------------------------------------
Five Years 20.02% 21.16% 20.98%
(8/13/92 - 8/7/97)
- ------------------------------------------------------------------------
During Period of 22.38% 21.19% Janus Twenty:
Management by 18.20%(c)
Mr. Marsico Janus Growth
(through 8/7/97) and Income:
18.59%(d)
</TABLE>
(a) Average annual total return reflects changes in share prices and
reinvestment of dividends and distributions and is net of fund expenses.
(b) The S&P 500 Index is adjusted to reflect reinvestment of dividends.
(c) This figure represents the average annual return of the S&P 500 Index
during the period that Mr. Marsico managed the Janus Twenty Fund through
August 7, 1997.
(d) This figure represents the average annual return of the S&P 500 Index
during the period that Mr. Marsico managed the Janus Growth and Income
Fund through August 7, 1997.
The Janus Twenty Fund has substantially similar investment policies,
strategies, and objectives as those of Nations Marsico Focused Equities Fund,
while the investment policies, strategies, and objectives of the Janus Growth
and Income Fund are substantially similar to those of Nations Marsico Growth &
Income Fund. Historical performance is not indicative of future performance.
For a majority of the periods shown above, the expenses of the Janus Twenty
Fund and the Janus Growth and Income Fund were lower than the anticipated
expenses of Nations Marsico Focused Equities Fund and Nations Marsico Growth &
Income Fund, respectively. Higher expenses, of course, would have resulted in
lower performance. The Janus Twenty Fund and the Janus Growth and Income Fund
are separate funds and their historical performance is not indicative of the
potential performance of Nations Marsico Focused Equities Fund and Nations
Marsico Growth & Income Fund, respectively. The Janus Twenty Fund and the Janus
Growth and Income Fund were the only investment vehicles that Mr. Marisco
managed during the period he was employed at Janus Capital Corporation that
have substantially similar objectives, policies, and strategies as those of the
Funds. Share prices and investment returns will fluctuate reflecting market
conditions, as well as changes in company-specific fundamentals of portfolio
securities.
Investment performance, which will vary, is based on many factors, including
market conditions, the composition of a Fund's portfolios 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 the Funds with bank
deposits, savings accounts, and similar investment alternatives which often
provide an agreed-upon or guaranteed fixed yield for a stated period of time.
Any fees charged by 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.
In addition to Investor A and Investor B Shares, the Funds generally offer
Primary A, Primary B and Investor C Shares. Certain Funds, however, do not
offer shares in every class. 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
29
<PAGE>
each class of a Fund's shares. Any quotation of total return or yield not
reflecting CDSCs would be reduced if such sales charges were reflected. Each
Fund's annual report contains additional performance information and is
available upon request without charge from the Funds' distributor or an
investors' Agent (as defined below) or by calling Nations Funds at the
toll-free number indicated on the cover of this Prospectus.
HOW THE FUNDS ARE MANAGED
The business and affairs of Nations Fund Trust, Nations Fund, Inc. and Nations
Portfolios are managed under the direction of their Board of Trustees and
Boards of Directors, respectively. The SAI contains the names of and general
background information concerning each Director/Trustee of Nations Fund, Inc.,
Nations Portfolios and Nations Fund Trust, respectively.
As described below, each Fund is advised by NBAI which is responsible for the
overall management and supervision of the investment management of each Fund.
Each Fund also is sub-advised by a separate investment sub-adviser, which as a
general matter is responsible for the day-to-day investment decisions for the
respective Fund.
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.
NationsBank Corporation, the parent company of NationsBank, has signed an
agreement to merge with BankAmerica Corporation. The proposed merger is subject
to certain regulatory approvals and must be approved by shareholders of both
holding companies. The merger is expected to close in the second half of 1998.
NationsBank and NBAI have advised the Funds that the merger will not reduce the
level or quality of advisory and other services provided to the Funds.
INVESTMENT ADVISER: NationsBanc Advisors, Inc., serves as investment adviser to
the Funds. NBAI is an indirect wholly owned subsidiary of NationsBank, which in
turn is a wholly owned banking subsidiary of NationsBank Corporation, a bank
holding company organized as a North Carolina corporation. NBAI has its
principal offices at One NationsBank Plaza, Charlotte, North Carolina 28255.
TradeStreet Investment Associates, Inc. with principal offices at One
NationsBank Plaza, Charlotte, North Carolina 28255, serves as investment
sub-adviser to all of the Funds except for those Funds listed below, for which
Gartmore, Brandes or Marsico capital serve as investment sub-adviser.
TradeStreet is a wholly owned subsidiary of NationsBank. TradeStreet provides
investment management services to individuals, corporations and institutions.
Gartmore Global Partners, with principal offices at One NationsBank Plaza,
Charlotte, North Carolina 28255, serves as investment sub-adviser to certain of
Nations International Equity Fund, Nations Emerging Markets Fund, Nations
Pacific Growth Fund and Nations International Growth Fund, pursuant to
investment sub-advisory agreements. Gartmore is a joint venture structured as a
general partnership between NB Partner Corp., a wholly owned subsidiary of
NationsBank, and Gartmore U.S. Limited, an indirect, wholly owned subsidiary of
Gartmore Investment Management plc ("Gartmore plc"), a UK company which is the
holding company for a leading UK based international fund management group of
companies. National Westminster Bank plc and affiliated entities (collectively,
"NatWest") own 100% of the equity of Gartmore plc.
Brandes Investment Partners, L.P., with principal offices at 12750 High Bluff
Drive, San Diego, California 92130, serves as investment sub-adviser to Nations
International Value Fund pursuant to an investment sub-advisory agreement.
Marsico Capital Management, LLC, located at 1200 17th Street, Suite 1300,
Denver, Colorado 80202, serves as the investment sub-adviser to the Marsico
30
<PAGE>
Funds pursuant to an investment sub-advisory agreement. NationsBank has an
option to purchase up to 50% of Marsico Capital.
Subject to the general supervision of Nations Fund Trust's Board of Trustees,
and Nations Fund, Inc.'s and Nations Portfolios' Boards of Directors, and in
accordance with each Fund's investment policies, the Adviser formulates
guidelines and lists of approved investments for each Fund, makes decisions
with respect to and places orders for each Fund's purchases and sales of
portfolio securities and maintains records relating to such purchases and
sales. 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 transactions and the commissions are comparable to what they
would be with other qualified brokerage firms. From time to time, to the extent
consistent with its investment objective, policies and restrictions, each Fund
may invest in securities of companies with which NationsBank has a lending
relationship.
For the services provided and expenses assumed pursuant to various investment
advisory agreements, NBAI is entitled to receive advisory fees, computed daily
and paid monthly, at the annual rates of: .75% of the average daily net assets
of each of Nations Capital Growth Fund, Nations Emerging Growth Fund, Nations
Disciplined Equity Fund, Nations Value Fund and Nations Balanced Assets Fund;
1.00% each of the average daily net assets of Nations Small Company Growth
Fund; and Nations International Value Fund; .90% of each of Nations
International Equity Fund's, Nations International Growth Fund's and Nations
Pacific Growth Fund's average daily net assets; 1.10% of the average daily net
assets of Nations Emerging Markets Fund; .85% each of the average daily net
assets of Nations Marsico Focused Equities Fund and Nations Marsico Growth &
Income Fund; and .75% of the first $100 million of Nations Equity Income Fund's
average daily net assets, plus .70% of the Fund's average daily net assets in
excess of $100 million and up to $250 million, plus .60% of the Fund's average
daily net assets in excess of $250 million.
For the services provided pursuant to investment sub-advisory agreements, NBAI
will pay TradeStreet sub-advisory fees, computed daily and paid monthly, at the
annual rates of: .20% of Nations Equity Income Fund's average daily net assets
and .25% of Nations Value Fund's, Nations Balanced Assets Fund's, Nations
Capital Growth Fund's, Nations Emerging Growth Fund's, Nations Small Company
Growth Fund's and Nations Disciplined Equity Fund's average daily net assets.
For services provided pursuant to investment sub-advisory agreements, NBAI will
pay Gartmore sub-advisory fees, computed daily and paid monthly, at the annual
rates of: .70% of Nations International Equity Fund's, Nations Pacific Growth
Fund's and Nations International Growth Fund's average daily net assets; and
.85% of Nations Emerging Markets Fund's average daily net assets.
For services provided pursuant to an investment sub-advisory agreement, NBAI
will pay Brandes sub-advisory fees, computed daily and paid monthly, at the
annual rate of .50% of Nations International Value Fund's average daily net
assets.
For the services provided pursuant to an investment sub-advisory agreement,
NBAI will pay Marsico Capital sub-advisory fees, computed daily and paid
monthly, at the annual rate of .45% of the average of Nations Marsico Focused
Equities Fund's daily net assets and .45% of Nations Marsico Growth & Income
Fund's average daily net assets.
From time to time, NationsBank (and/or TradeStreet, Gartmore, Brandes or
Marsico Capital) may waive or reimburse (either voluntarily or pursuant to
applicable state limitations) advisory fees and/or expenses payable by a Fund.
For the fiscal period from April 1, 1997 to March 31, 1998, after waivers,
Nations Fund Trust paid NBAI under the investment advisory agreement, advisory
fees at the indicated rates of the following Funds' average daily net assets:
Nations Value Fund -- .75%, Nations Capital Growth Fund -- .75%, Nations
Emerging Growth Fund -- .75%, Nations Disciplined Equity Fund -- .75%, and
Nations Balanced Assets Fund -- .75%.
31
<PAGE>
For the fiscal period from December 31, 1997 to March 31, 1998, after waivers,
Nations Fund Trust paid NBAI under the investment advisory agreement, advisory
fees at the indicated rates of the following Funds' average daily net assets:
Nations Marsico Focused Equities Fund -- .85% and Nations Marsico Growth &
Income Fund -- .00%.
For the fiscal period from April 1, 1997 to March 31, 1998, after waivers,
Nations Fund, Inc. paid NBAI under the investment advisory agreement, advisory
fees at the indicated rate of the following Funds' average daily net assets:
Nations International Equity Fund -- .90%, Nations International Growth Fund --
.87%, Nations Equity Income -- .64%, and Nations Small Company Growth Fund --
.70%.
For the fiscal period from April 1, 1997 to March 31, 1998, after waivers,
Nations Portfolios paid NBAI under the investment advisory agreement, advisory
fees at the indicated rates of the following Funds' average daily net assets:
Nations Emerging Markets Fund -- 1.10% and Nations Pacific Growth Fund -- .90%.
For the fiscal period from December 1, 1997 to May 15, 1998, after waivers, the
Emerald Funds paid Barnett Capital Advisors, Inc. ("Barnett"), under a previous
investment advisory agreement, advisory fees of .90% of the Nations
International Value Fund's average daily net assets (formerly called the
Emerald International Equity Fund).
For the fiscal period from April 1, 1997 to March 31, 1998, after waivers, NBAI
paid TradeStreet under the investment sub-advisory agreements, sub-advisory
fees at the indicated rates of the following Funds' average daily net assets:
Nations Value Fund -- .25%, Nations Capital Growth Fund -- .25%, Nations
Emerging Growth Fund -- .25%, Nations Disciplined Equity Fund -- .25%, Nations
Balanced Assets Fund -- .25% and Nations Equity Income Fund -- .20%.
For the fiscal period from December 31, 1997 to March 31, 1998, after waivers,
NBAI paid Marsico Capital under the sub-advisory agreement, sub-advisory fees
at the indicated rates of the following Funds' average daily net assets:
Nations Focused Equities Fund -- .45% and Nations Marsico Growth & Income Fund
- -- .45%.
For the fiscal period from April 1, 1997 to March 31, 1998, after waivers, NBAI
paid Gartmore under the sub-advisory agreements, sub-advisory fees at the
indicated rates of the following Funds' average daily net assets: Nations
Emerging Markets Fund -- .85%, Nations Pacific Growth Fund -- .70%, Nations
International Equity Fund -- .70% and Nations International Growth Fund --
.70%.
For the fiscal period from December 1, 1997 to May 15, 1998, after waivers,
Barnett paid Brandes, under a previous investment sub-advisory agreement, sub-
advisory fees of .50% of Nations International Value Fund's average daily net
assets.
The Structured Products Management Team of TradeStreet is responsible for the
day-to-day management of Nations Disciplined Equity Fund.
The Value Management Team of TradeStreet is responsible for the day-to-day
management of Nations Value Fund, Nations Balanced Assets Fund and Nations
Equity Income Fund.
The Core Growth Management Team of TradeStreet is responsible for the
day-to-day management of Nations Capital Growth Fund.
The Strategic Growth Management Team of TradeStreet is responsible for the
day-to-day management of Nations Emerging Growth Fund and Nations Small Company
Growth Fund.
Philip Ehrmann is Co-Portfolio Manager of Nations International Equity Fund,
responsible for the Fund's investments in developing countries (since June
1998). Mr. Ehrmann is also Principal Portfolio Manager of Nations Emerging
Markets Fund (since 1995) and is Head of the Gartmore Emerging Markets Team.
Prior to joining Gartmore in 1995, Mr. Ehrmann was the Director of Emerging
Markets for Invesco in London. He began his career in 1981 as an institutional
stockbroker with Rowe & Pitman Inc. and also spent a brief period with
Prudential Bache Securities as an institutional salesman before joining Invesco
in 1984. Mr. Ehrmann graduated from the London School of Economics with a
degree in Economics, Industry and Trade.
Seok Teoh is Co-Portfolio Manager of Nations International Equity Fund,
responsible for the Fund's investments in Asia (since June 1998). Ms. Teoh is
also Principal Portfolio Manager of Nations Pacific
32
<PAGE>
Growth Fund (since that Fund's inception in June 1995). She has been with
Gartmore since 1990 as the London based manager of its Far East Team.
Previously, Ms. Teoh managed four equity funds for Rothschild Asset Management
in Tokyo and in Singapore. She was also responsible for Singaporean and
Malaysian equity sales at Overseas Union Bank Securities in Singapore. Ms.
Teoh, who is native to Singapore, is fluent in Mandarin and Cantonese and
received an Economics degree from the University of Durham.
Mark Fawcett is Co-Portfolio Manager of Nations International Equity Fund,
responsible for the Fund's investments in Japan (since June 1998). He is also
Senior Investment Manager for the Gartmore Japanese Equities Team. Mr. Fawcett
joined Gartmore as an investment manager on the Japanese Equity Team in 1991
and has specific responsibility for large stock research. Before joining
Gartmore in Tokyo he worked on the Far East desk of Provident Mutual, a major
London-based Life Assurance company, managing funds invested in Japan. Mr.
Fawcett graduated from Oxford University in 1986 with an honours degree in
Mathematics and Philosophy.
Stephen Jones is Co-Portfolio Manager of Nations International Equity Fund,
responsible for the Fund's investments in Europe (since June 1998). He is also
the Head of Gartmore European Equities. Mr. Jones joined Gartmore as a senior
investment manager in the European Equities Team in 1994 and was appointed Head
of the European Equity Team in 1995. He began his career at the Prudential in
1984, spending a year as a business analyst before becoming the personal
assistant to the Group Chief Executive. In 1987, he became a European equities
investment manager focusing primarily on France, Belgium and Switzerland. Mr.
Jones graduated from Manchester University in 1984 with an honours degree in
Economics.
Stephen Watson is Co-Portfolio Manager for Nations International Equity Fund,
responsible for allocating the Fund's assets among the various regions in which
it invests, as well as determining the Fund's investments in regions not
covered by the other Co-Portfolio Managers (since June 1998). Mr. Watson had
been the sole Portfolio Manager of the Fund since February 1995. He joined
Gartmore as a Global Fund Manager in 1993 and currently holds the position of
Chief Investment Officer of Gartmore Global Partners and is a member of
Gartmore's Global Policy Group. Previously, Mr. Watson was a director and
global fund manager with James Capel Fund Managers, London, as well as Client
Services Manager for international clients. From 1980 to 1987 he was with
Capel-Cure Myers in their Portfolio Management Division. He began his career in
1976 when he joined the investment division at Samuel Motagu. Mr. Watson is a
member of the Securities Institute.
Brian O'Neill is the Principal Senior Investment Manager of the Gartmore Global
Portfolio Team and has been the Portfolio Manager of Nations International
Growth Fund since July, 1997. Mr. O'Neill joined Gartmore as a Senior
Investment Manager on the Global Portfolio Team in 1981 with responsibility for
a variety of specialized global funds, including resource funds. Mr. O'Neill
began his career with Royal Insurance in 1970 as an investment analyst
specializing in United Kingdom research. He then expanded his field of
expertise to include management of global equities, and in 1978 he moved to
Antony Gibbs & Sons where he was appointed as a fund manager, specializing in
global equities. Mr. O'Neill graduated from Glasgow University in 1969 with an
MA Honours degree in Political Economy.
Brandes' Investment Committee is responsible for the day-to-day management of
Nations International Value Fund.
Thomas F. Marsico is the Chief Executive Officer of Marsico Capital and has
been the Portfolio Manager of both Nations Marsico Focused Equities Fund and
Nations Marsico Growth & Income Fund since each Fund's respective inception.
Prior to forming Marsico Capital, Mr. Marsico was a manager with Janus Funds
for 11 years and was responsible for the day-to-day management of Janus Twenty
Fund and Janus Growth and Income Fund. Overall, Mr. Marsico had 18 years of
experience as a securities analyst/portfolio manager before becoming the
Portfolio Manager of the Marsico Funds.
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 various investment
advisory agree-
33
<PAGE>
ments, 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 administration agreements. Pursuant to the terms of
the administration agreements, Stephens provides various administrative and
corporate secretarial services to the Funds, including providing general
oversight of other service providers, office space, utilities and various legal
and administrative services in connection with the satisfaction of various
regulatory requirements applicable to the Funds.
First Data Investor Services Group, Inc. ("First Data"), 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 co-administration agreements. Under the co-administration
agreements, First Data provides various administrative and accounting services
to the Funds including performing the calculations necessary to determine the
net asset value per share and dividends of each class of shares of the Funds,
preparing tax returns and financial statements and maintaining the portfolio
records and certain of the general accounting records for the Funds.
For the services rendered pursuant to the administration and co-administration
agreements, Stephens and First Data are entitled to receive a combined fee at
the annual rate of up to .10% of each Fund's average daily net assets.
For the fiscal period from April 1, 1997 to March 31, 1998, after waivers,
Nations Fund Trust paid its administrators combined fees at the indicated rates
of the following Funds' average daily net assets: Nations Value Fund -- .10%,
Nations Capital Growth Fund -- .10%, Nations Emerging Growth Fund -- .10%,
Nations Disciplined Equity Fund -- .10% and Nations Balanced Assets Fund --
.10%.
For the fiscal period from December 31, 1997 to March 31, 1998, after waivers,
Nations Fund Trust paid its administrators combined fees at the indicated rates
of the following Funds' average daily net assets: Nations Focused Equities Fund
- -- .10% and Nations Growth & Income Fund -- .10%.
For the fiscal period from April 1, 1997 to March 31, 1998, after waivers,
Nations Fund, Inc. paid its administrators combined fees at the indicated rates
of the following Funds' average daily net assets: Nations Equity Income Fund --
.10%, Nations International Equity Fund -- .10%, Nations Small Company Growth
Fund -- .10% and Nations International Growth Fund -- .10%.
For the fiscal period from April 1, 1997 to March 31, 1998, after waivers,
Nations Portfolios paid its administrators combined fees at the indicated rates
of the following Funds' average daily net assets: Nations Emerging Markets Fund
- -- .10% and Nations Pacific Growth Fund -- .10%.
NBAI serves as sub-administrator for the Funds pursuant to a sub-administration
agreement. Pursuant to the terms of the sub-administration agreement, NBAI
assists Stephens in supervising, coordinating and monitoring various aspects of
the Funds' administrative operations. For providing such services, NBAI shall
be entitled to receive a monthly fee from Stephens based on an annual rate of
.01% of the Funds' average daily net assets.
Shares of the Funds are sold on a continuous basis by Stephens, as the Funds'
sponsor and distributor. Stephens is a registered broker/dealer, Nations Funds
has entered into distribution agreements with Stephens which provide that
Stephens has
34
<PAGE>
the exclusive right to distribute shares of the Funds. Stephens may pay, out of
its own resources, service fees or commissions to selling agents which assist
customers in purchasing Investor B Shares of the Funds. See "Shareholder
Servicing and Distribution Plans."
The Bank of New York ("BONY" or the "Custodian") located at 90 Washington
Street, New York, New York 10286, provides custodial services for the assets of
all Nations Funds except the International Funds. In return for providing
custodial services to the Nations Funds Family, BONY is entitled to 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 Funds' non-money
market funds up to $10 billion; and (ii) 1/2 of one basis point on the excess,
including all Nations Funds' money market funds.
BONY, located at Avenue des Arts, 35 1040 Brussels, Belgium, provides custodial
services for the assets of the International Funds.
First Data serves as transfer agent (the "Transfer Agent") for the Funds'
Investor B Shares. The Transfer Agent is located at One Exchange Place, Boston,
Massachusetts 02109.
PricewaterhouseCoopers LLP serves as independent accountants to Nations Funds.
Their address is 160 Federal Street, Boston, Massachusetts 02110.
Expenses: The accrued expenses of each Fund are deducted from the Funds'
accrued income before dividends are declared. These expenses include, but are
not limited to: fees paid to the Adviser, Stephens and First Data; interest;
fees (including fees paid to Nations Funds' Directors, Trustees and officers);
federal and state securities registration and qualification fees; brokerage
fees and commissions; costs of preparing and printing prospectuses for
regulatory purposes and for distribution to existing shareholders; charges of
the Custodian and Transfer Agent; certain insurance premiums; outside auditing
and legal expenses; costs of shareholder reports and shareholder meetings;
other expenses which are not expressly assumed by the Adviser, Stephens or
First Data under their respective agreements with Nations Funds; and any
extraordinary expenses. Investor A and Investor B Shares may bear certain class
specific expenses and also bear certain additional shareholder service and
sales support costs. Any general expenses of Nations Fund Trust, Nations Fund,
Inc. and/or Nations Portfolios that are not readily identifiable as belonging
to a particular investment portfolio are allocated among all portfolios in the
proportion that the assets of a portfolio bears to the assets of Nations Fund
Trust, Nations Fund, Inc. and Nations Portfolios or in such other manner as the
Board of Trustees or Board of Directors deems appropriate.
ORGANIZATION AND HISTORY
The Funds are members of the Nations Funds Family, which consists of Nations
Fund Trust, Nations Fund, Inc., Nations Fund Portfolios, Inc., Nations
Institutional Reserves, Nations Annuity Trust and Nations LifeGoal Funds, Inc.
The Nations Funds Family currently has more than 60 distinct investment
portfolios and total assets in excess of $40 billion.
NATIONS FUND TRUST: Nations Fund Trust was organized as a Massachusetts
business trust on May 6, 1985. Nations Fund Trust's fiscal year end is March
31; prior to 1996, Nations Fund Trust's fiscal year end was November 30. The
Funds currently offer five classes of shares -- Primary A Shares, Primary B
Shares, Investor A Shares, Investor B Shares and Investor C Shares. Certain
funds, however do not offer shares in every class. This Prospectus relates only
to the Investor A and Investor B Shares of the following Funds of Nations Fund
Trust: Nations Capital Growth Fund, Nations Emerging Growth Fund, Nations
Disciplined Equity Fund, Nations Value Fund, Nations Balanced Assets Fund,
Nations Marsico Growth & Income Fund and Nations Marsico Focused Equities 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 in Nations Fund Trust is without par value, represents an equal
proportionate interest in the related fund with other shares of the same class,
and is entitled to such dividends and distri-
35
<PAGE>
butions out of the income earned on the assets belonging to such fund as are
declared in the discretion of Nations Fund Trust's Board of Trustees. Nations
Fund Trust's Declaration of Trust authorizes the Board of Trustees to classify
or reclassify any class of shares into one or more series of shares.
Shareholders are entitled to one vote for each full share held and a
proportionate fractional vote for each fractional share held. Shareholders of
each fund of Nations Fund Trust will vote in the aggregate and not by fund, and
shareholders of each fund will vote in the aggregate and not by class except as
otherwise expressly required by law or when the Board of Trustees determines
that the matter to be voted on affects only the interests of shareholders of a
particular fund or class. See the SAI for examples of when the Investment
Company Act of 1940, as amended (the "1940 Act") requires voting by fund.
As of August 1, 1998, NationsBank and its affiliates possessed or shared power
to dispose or vote with respect to more than 25% of the outstanding shares of
Nations Fund Trust and therefore could be considered to be a controlling person
of Nations Fund Trust for purposes of the 1940 Act. For more detailed
information concerning the percentage of each class or series of shares over
which NationsBank and its affiliates possessed or shared power to dispose or
vote as of a certain date, see the SAI.
Nations Fund Trust does not presently intend to hold annual meetings except as
required by the 1940 Act. Shareholders will have the right to remove Trustees.
Nations Fund Trust's Code of Regulations provides that special meetings of
shareholders shall be called at the written request of the shareholders
entitled to vote at least 10% of the outstanding shares of Nations Fund Trust
entitled to be voted at such meeting.
NATIONS FUND, INC.: Nations Fund, Inc. was incorporated in Maryland on December
13, 1983, but had no operations prior to December 15, 1986. Nations Fund,
Inc.'s fiscal year end is March 31; prior to 1996, Nations Fund, Inc.'s fiscal
year end was May 31. As of the date of this Prospectus, the authorized capital
stock of Nations Fund, Inc. consists of 460,000,000,000 shares of common stock,
par value of $.001 per share, which are divided into series or funds each of
which consists of separate classes of shares. This Prospectus relates only to
the Investor A and Investor B Shares of the following Funds of Nations Fund,
Inc.: Nations Equity Income Fund, Nations Small Company Growth Fund,
NationsInternational Equity Fund, Nations International Growth Fund, and
Nations International Value Fund. To obtain additional information regarding
the Fund's other classes of shares which may be available to you, contact your
Agent (as defined below) or Nations Funds at 1-800-321-7854.
Shares of each fund and class have equal rights with respect to voting, except
that the holders of shares of a particular fund or class will have the
exclusive right to vote on matters affecting only the rights of the holders of
such fund or class. In the event of dissolution or liquidation, holders of each
class will receive pro rata, subject to the rights of creditors, (a) the
proceeds of the sale of that portion of the assets allocated to that class held
in the respective fund of Nations Fund, Inc., less (b) the liabilities of
Nations Fund, Inc. attributable to the respective fund or class or allocated
among the funds or classes based on the respective liquidation value of each
fund or class.
Shareholders of Nations Fund, Inc. do not have cumulative voting rights, and
therefore the holders of more than 50% of the outstanding shares of all funds
voting together for election of directors may elect all of the members of the
Board of Directors of Nations Fund, Inc. Meetings of shareholders may be called
upon the request of 10% or more of the outstanding shares of Nations Fund, Inc.
There are no preemptive rights applicable to any of Nations Fund, Inc.'s
shares. Nations Fund, Inc.'s shares, when issued, will be fully paid and
non-assessable.
As of August 1, 1998, NationsBank and its affiliates possessed or shared power
to dispose of or vote with respect to more than 25% of the outstanding shares
of Nations Fund, Inc. and therefore could be considered to be a controlling
person of Nations Fund, Inc. for purposes of the 1940 Act. For more detailed
information concerning the percentage of each class or series over which
NationsBank and its affiliates possessed or shared power to dispose or vote as
of a certain date, see the SAI. It is anticipated that Nations Fund, Inc. will
not hold annual shareholder meetings on a regular basis unless required by the
1940 Act or Maryland law.
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<PAGE>
NATIONS PORTFOLIOS: Nations Portfolios was incorporated in Maryland on January
28, 1995. Nations Portfolios' fiscal year end is March 31. As of the date of
this Prospectus, the authorized capital stock of Nations Portfolios consists of
150,000,000,000 shares of common stock, par value of $.001 per share, which are
divided into series or funds each of which consists of separate classes of
shares. This Prospectus relates only to the Investor A and Investor B Shares of
the following Funds of Nations Portfolios: Nations Emerging Markets Fund and
Nations Pacific Growth 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.
Shares of a fund and class have equal rights with respect to voting, except
that the holders of shares of a fund or class will have the exclusive right to
vote on matters affecting only the rights of the holders of such fund or class.
In the event of dissolution or liquidation, holders of each class will receive
pro rata, subject to the rights of creditors, (a) the proceeds of the sale of
that portion of the assets allocated to that class held in the respective fund
of Nations Portfolios, less (b) the liabilities of Nations Portfolios
attributable to the respective fund or class or allocated among the funds or
classes based on the respective liquidation value of each fund or class.
Shareholders of Nations Portfolios do not have cumulative voting rights, and
therefore the holders of more than 50% of the outstanding shares of all funds
voting together for election of directors may elect all of the members of the
Board of Directors of Nations Portfolios. Meetings of shareholders may be
called upon the request of 10% or more of the outstanding shares of Nations
Portfolios. There are no preemptive rights applicable to any of Nations
Portfolios' shares. Nations Portfolios' shares, when issued, will be fully paid
and non-assessable.
As of August 1, 1998, NationsBank and its affiliates possessed or shared power
to dispose of or vote with respect to more than 25% of the outstanding shares
of Nations Portfolios and, therefore, could be considered to be a controlling
person of Nations Portfolios for purposes of the 1940 Act. For more detailed
information concerning the percentage of each class or series over which
NationsBank and its affiliates possessed or shared power to dispose or vote as
of a certain date, see the SAI. It is anticipated that Nations Portfolios will
not hold annual shareholder meetings on a regular basis unless required by the
1940 Act or Maryland law.
Because this Prospectus combines disclosure on three separate investment
companies, there is a possibility that one investment company could become
liable for a misstatement, inaccuracy or incomplete disclosure in this
Prospectus concerning another investment company, Nations Fund Trust and
Nations Fund, Inc. have entered into an indemnification agreement that creates
a right of indemnification from the investment company responsible for any such
misstatement, inaccuracy or incomplete disclosure that may appear in this
Prospectus.
ABOUT YOUR INVESTMENT
HOW TO BUY SHARES
This Prospectus offers two classes of shares to the general public. Investor A
Shares are sold with an initial sales charge and are subject to a contingent
deferred sales charge ("CDSC") upon certain redemptions; Investor B Shares are
sold without an initial sales charge and are subject to a CDSC upon certain
redemptions. Investments greater than $250,000 (including current holdings in
the Nations Funds Family) are not eligible to purchase Investor B Shares but
may be directed to Investor A Shares. See "Factors to Consider When Selecting
Investor A Shares or Investor B Shares" for a discussion of issues to consider
in selecting which class
37
<PAGE>
of shares to purchase. Contact your Agent or Nations Funds at 1-800-321-7854
for further information.
The Funds have established various procedures for purchasing Investor A Shares
and Investor B Shares in order to accommodate different investors. Purchase
orders may be placed through banks, broker/dealers or other financial
institutions (including certain affiliates of NationsBank) that have entered
into a shareholder servicing agreement ("Servicing Agreement") with NationsBank
("Servicing Agents") sales support agreement ("Sales Support Agreement") with
Stephens ("Selling Agents"). In addition, under certain circumstances, Investor
A Shares may be purchased directly from the Funds.
There is a minimum initial investment of $1,000 in the Funds, except that the
minimum initial investment is:
o $500 for IRA investors;
o $250 for non-working spousal IRAs;
o $250 for accounts established with certain fee-based investment advisers or
financial planners, including wrap fee accounts and other managed
agency/asset allocation accounts; and
o $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"), Savings Incentives Method Plans for
Employees ("SIMPLE IRAs"), salary reduction-Individual Retirement Accounts
("SAR-IRAs") or similar types of accounts. However, the assets of such plans
must reach an asset value of $1,000 ($500 for SEPs, SAR-SEPs, SIMPLE IRAs, 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 plus any applicable sales
charge. Investor B Shares are purchased at net asset value per share without
the imposition of a sales charge, but are subject to a CDSC if redeemed within
a specified period after purchase. 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 A and Investor B 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 and Stephens reserve the right to reject any purchase order. The
issuance of Investor A and Investor B Shares is recorded on the books of the
Funds, and share certificates are not issued unless expressly requested in
writing. Certificates are not issued for fractional shares.
EFFECTIVE TIME OF PURCHASES: Purchase orders for Investor A Shares and Investor
B Shares in the Funds which are received by Stephens, the Transfer Agent or
their respective agents before the close of regular trading 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. In the event that the Exchange
closes early, purchase orders received prior to closing will be priced as of
the time the Exchange closes and purchase orders received after the Exchange
closes will be deemed received on the next Business Day and priced according to
the net asset value determined on the next Business Day. Purchase orders 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 the receipt of the order, as
determined above. If funds are not received by such date, the order will not be
accepted and notice thereof will be given to the Agent placing the order.
Payment for orders which are not received or accepted will be returned after
prompt inquiry to the sending Agent.
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<PAGE>
The Agents are responsible for transmitting orders for purchases of Investor A
and Investor B 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 A or Investor B
Shares. On a bi-monthly, monthly or quarterly basis, shareholders may direct
cash to be transferred automatically from their checking or savings account at
any bank which is a member of the Automated Clearing House to their Fund
account. Transfers will occur on or about the 15th and/or the last day of the
applicable month. Subject to certain exceptions for employees of NationsBank
and its affiliates and pre-existing SIP accounts, the systematic investment
amount may be in any amount from $50 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 the telephone transaction
feature after opening an account, a signature guarantee will be required.
Shareholders should be aware that by using the telephone transaction feature,
such shareholders may be giving up a measure of security that they may have if
they were to request such transactions in writing. A shareholder may bear the
risk of any resulting losses from a telephone transaction. Nations 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. Shareholders should be aware that during periods of
significant economic or market change, telephone transactions may be difficult
to complete.
CONVERSION FEATURE: Investor B Shares purchased after November 15, 1998, will
automatically convert to Investor A Shares at the end of the month in which the
eighth anniversary of such share purchase occurs.
Investor B Shares purchased between August 1, 1997 and November 15, 1998, that
have been outstanding for the number of years set forth in the schedule below
will, at the end of the month in which the anniversary of such share purchase
occurs, automatically convert to Investor A Shares.
CONVERSION SCHEDULE
<TABLE>
<CAPTION>
Amount of Purchase Year of Conversion
<S> <C>
$ 0-$249,000 9th
$250,000-$499,999 6th
$500,000-$999,999 5th
</TABLE>
Investor B Shares purchased prior to August 1, 1997, will automatically convert
to Investor A Shares at the end of the month in which the ninth anniversary of
such share purchase occurs.
Upon conversion, shareholders will receive Investor A Shares having a total
dollar value equal to the total dollar value of their Investor B Shares,
without the imposition of any sales chage or other charge. The operating
expenses applicable to Investor A Shares, which are lower than those applicable
to Investor B Shares, shall thereafter be applied to such newly converted
shares. Shareholders holding converted shares will benefit from the lower
annual operating expenses of Investor A Shares, which will have a positive
effect on total returns. In each case, shareholders have the right to decline
an automatic conversion by notifying their Agent or the Transfer Agent within
90 days before a conversion that they do not desire such conversion.
Reinvestments of dividends and distributions in Investor B Shares will be
considered a new pur-chase for purposes of the conversion period. If a
shareholder effects one or more exchanges among Investor B Shares of the
Non-Money Market Funds of Nations Funds during such period, the holding period
for shares so exchanged will be counted toward such period.
FACTORS TO CONSIDER WHEN SELECTING INVESTOR A SHARES OR INVESTOR B SHARES:
Before purchasing Investor A Shares or Investor B Shares, investors should
consider whether, during the anticipated life of their investment in the Funds,
the initial sales charge, accumulated distribution and
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<PAGE>
shareholder servicing fee and potential CDSC (if applicable) on Investor A
Shares would be less than the accumulated shareholder servicing and
distribution fees and potential CDSC on Investor B Shares. Over time, the
cumulative expense of the annual shareholder servicing and distribution fees on
the Investor B Shares may equal or exceed the initial sales chage and combined
distribution and servicing fee applicable to Investor A Shares.
Because holders of Investor A Shares are subject to a lower fee for
distribution and shareholder services, they can be expected to earn
correspondingly higher dividends per share. However, because initial sales
charges are deducted at the time of purchase, purchasers of Investor A Shares
that do not qualify for waivers of or reductions in the initial sales charge
would have less of their purchase price initially invested in the Funds than
purchasers of Investor B Shares. Any positive investment return on the
additional invested amount for Investor B Shares, however, would be partially
or wholly offset by the expected higher annual expenses borne by Investor B
Shares.
INVESTOR A SHARES -- CHARGES AND FEATURES
The public offering price of Investor A Shares in the Funds is the sum of the
net asset value per share of the shares being purchased plus any applicable
sales charge. No sales charge will be assessed on the reinvestment of dividends
or other distributions.
The following schedule of sales charges will be assessed on Investor A Shares
of the Funds.
<TABLE>
<CAPTION>
Dealers'
--------
Total Sales Charge Reallowance
------------------ -----------
As a % of As a % of As a % of
--------- --------- ----------
Offering Net Asset Offering
-------- --------- --------
Amount of Price Value Price
- --------- ----- ----- -----
Transaction Per Share Per Share Per Share
- ----------- --------- --------- ---------
<S> <C> <C> <C>
$ 0-$50,000 5.75 6.10 5.00
- ------------------------------------------------------------
$ 50,000-$99,999 4.50 4.71 3.75
- ------------------------------------------------------------
$100,000-$249,999 3.50 3.63 2.75
- ------------------------------------------------------------
$250,000-$499,999 2.50 2.56 2.00
- ------------------------------------------------------------
$500,000-$999,999 2.00 2.04 1.75
- ------------------------------------------------------------
$1,000,000 and over 0.00* 0.00* 0.00**
- ------------------------------------------------------------
</TABLE>
* Subject to certain waivers specified below, Investor A Shares that are
purchased in amounts of $1 million or more at net asset value will be
subject to a Contingent Deferred Sales Charge ("CDSC") of 1.00% if redeemed
within one year of purchase, declining to 0.50% in the second year after
purchase and eliminated thereafter.
** 1.00% on first $3,000,000, plus 0.50% on the next $47,000,000, plus 0.25%
on amounts over $50,000,000. Stephens will pay the Dealers' Reallowance in
connection with the purchase of shares in amounts of $1 million or more,
for which it may be reimbursed out of the CDSC if such shares are redeemed
within two years of purchase.
The Dealers' Reallowance, which may be changed from time to time, is paid to
Agents.
INVESTOR A SHARES CONTINGENT DEFERRED SALES CHARGE: Subject to certain waivers
specified below, Investor A Shares of the Funds that are purchased at net asset
value in amounts of $1 million or more will be subject to a CDSC equal to 1.00%
of the lesser of the market value or the purchase price of the shares being
redeemed if such shares are redeemed within one year of purchase, declining to
0.50% in the second year after purchase and eliminated thereafter. No CDSC is
imposed on increases in net asset value above the initial purchase price,
including shares acquired by reinvestment of distributions.
In determining whether a CDSC is payable on any redemption, the Fund will first
redeem shares not subject to any charge, and then shares resulting in the
lowest possible CDSC. Solely for purposes of determining the number of years
from the date of purchase of shares, all purchases are deemed to have been made
on the trade date of the transaction.
The CDSC will be waived on redemptions of Investor A Shares (i) following the
death or disability (as defined in the Internal Revenue Code of 1986, as
amended (the "Code")) of a shareholder (including a registered joint owner),
(ii) in connection with the following retirement plan distributions: (a) lump-
sum or other distributions from a qualified corporate or self-employed
retirement plan following
40
<PAGE>
retirement (or in the case of a "key employee" of a "top heavy" plan, following
attainment of age 59 1/2); (b) distributions from an IRA, or Custodial Account
under Section 403(b)(7) of the Code, following attainment of age 59 1/2; (c) a
tax-free return of an excess contribution to an IRA; and (d) distributions from
a qualified retirement plan that are not subject to the 10% additional Federal
withdrawal tax pursuant to Section 72(t)(2) of the Code, (iii) payments made to
pay medical expenses which exceed 7.5% of income and distributions to pay for
insurance by an individual who has separated from employment and who has
received unemployment compensation under a federal or state program for at
least 12 weeks, (iv) effected pursuant to Nations Funds' right to liquidate a
shareholder's account, including instances where the aggregate net asset value
of the Investor A Shares held in the account is less than the minimum account
size, (v) in connection with the combination of Nations Funds with any other
registered investment company by a merger, acquisition of assets or by any
other transaction, and (vi) effected pursuant to the Automatic Withdrawal Plan
discussed below, provided that such redemptions do not exceed, on an annual
basis, 12% of the net asset value of the Investor A Shares in the account. In
addition, the CDSC will be waived on Investor A Shares purchased before
September 30, 1994 by current or retired employees of NationsBank and its
affiliates or by current or former Trustees or Directors of Nations Funds or
other management companies managed by NationsBank. Shareholders are responsible
for providing evidence sufficient to establish that they are eligible for any
waiver of the CDSC. Nations Fund may terminate any waiver of the CDSC by
providing notice in the Funds' Prospectus, but any such termination would only
affect shares purchased after such termination.
REDEMPTION FEE: A redemption fee of 1% of the current net asset value will be
assesed on certain Investor A Shares purchased between July 31, 1997 and
November 15, 1998 and redeemed within 18 months of the date of purchase by a
Substantial Investor (as defined in the footnotes to the "Expenses Summary").
In addition, a 1% redemption fee will be assesed on Investor A Shares purchased
between July 31, 1997 and November 15, 1998 by an employee benefit plan that
(i) made its initial investment between July 31, 1997 and November 15, 1998 and
(ii) redeemed such shares within 18 months of purchase in connection with a
complete liquidation of such plan's holdings in the Nations Funds Family. This
fee is retained by the Fund or Funds for the benefit of the remaining
shareholders and is intended to encourage long-term investment in the Funds and
to avoid transaction and other expenses associated with short-term investments.
The Funds reserve the right to modify the terms of or terminate this fee at any
time.
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. Investor A Shares redeemed under the AWP will not be subject
to a CDSC, provided that the shares so redeemed do not exceed, on an annual
basis, 12% of the net asset value of the Investor A Shares in the account.
Otherwise, any applicable CDSC will be imposed on shares redeemed under the
AWP. Shareholders who elect to establish an AWP may receive a monthly,
quarterly or annual check or automatic transfer to a checking or savings
account in a stated amount of not less than $25 on or about the 10th or 25th
day of the applicable month of withdrawal. Investor A Shares will be redeemed
(net of any applicable CDSC) as necessary to meet withdrawal payments.
Withdrawals may reduce principal and will eventually deplete the shareholder's
account. If a shareholder desires to establish an AWP after opening an account,
a signature guarantee will be required. AWPs may be terminated by shareholders
on 30 days' written notice to their Selling Agent or by Nations Funds at any
time.
REDUCED SALES CHARGE: AN INVESTOR MAY BE ENTITLED TO REDUCED SALES CHARGES ON
INVESTOR A SHARES THROUGH RIGHTS OF ACCUMULATION, A LETTER OF INTENT, OR
QUANTITY DISCOUNTS.
To qualify for a reduced sales charge, an investor must notify the Agent
through which the Investor A Shares are purchased, which in turn must notify
Stephens, the Transfer Agent or their respective agents at the time of
purchase. Reduced sales charges may be modified or terminated at any time.
Investors are responsible for providing evidence sufficient to establish that
they are eligible for any reduction in sales charges.
41
<PAGE>
RIGHTS OF ACCUMULATION: An investor who has previously purchased Investor A,
Investor B, or Investor C Shares in the Nations Funds (excluding Nations Funds
money market and index funds, Nations Short-Term Income Fund and Nations
Short-Term Municipal Income Fund) may aggregate investments in such shares with
current purchases to determine the applicable sales charge for current
purchases. An investor's aggregate investment in Investor A, Investor B and
Investor C Shares in such Funds is the total value (based on the higher of
current net asset value or the public offering price originally paid) of: (a)
current purchases, and (b) Investor A, Investor B and Investor C Shares that
are already beneficially owned by the investor.
LETTER OF INTENT: A Letter of Intent provides an opportunity for an investor to
obtain a reduced sales charge by aggregating the investments over a 13-month
period to determine the sales charge as outlined in the preceding table. The
size of investment shown in the preceding table also includes purchases of
shares of the participating Funds over a 13-month period based on the total
amount of intended purchases plus the value of all shares of the participating
Funds previously purchased and still owned. An investor may elect to compute
the 13-month period starting up to 90 days before the date of execution of a
Letter of Intent. Each investment made during the period receives the reduced
sales charge applicable to the total amount of the investment goal. If the goal
is not achieved within the period, the investor must pay the difference between
the charges applicable to the purchases made and the charges previously paid.
The initial purchase must be for an amount equal to at least five percent of
the minimum total purchase amount of the level selected. If trades not
initially made under a Letter of Intent subsequently qualify for a lower sales
charge through the 90-day back-dating provisions, an adjustment will be made at
the expiration of the Letter of Intent to give effect to the lower charge. Such
adjustments in sales charge will be used to purchase additional shares for the
shareholder at the applicable discount category.
QUANTITY DISCOUNTS: As shown in the table under "Sales Charges," larger
purchases may reduce the sales charge paid on Investor A Shares. Purchases of
Investor A Shares in the non-money market funds of the Nations Funds Family
that are made on the same day by the investor, his/her spouse, and his/her
children under age 21 will be combined when calculating the sales charge. For
the purpose of calculating the amount of the transaction, certain distributions
or payments from dissolution of certain qualified plans are permitted to
aggregate plan participant's investments.
Purchases of shares at net asset value:
o Full-time employees and retired employees of NationsBank Corporation (and
its predecessors), its affiliates and subsidiaries and the immediate
families of such persons may purchase Investor A Shares in the Funds at net
asset value.
o Individuals receiving a distribution from a NationsBank trust or other
fiduciary account may use the proceeds of such distribution to purchase
Investor A Shares of the Funds at net asset value, provided that the
proceeds are invested through a trust account established with another
trustee and invested in the Funds within 90 days. Those investors who
transfer their proceeds to a fiduciary account with another trustee may
continue to purchase shares in the Funds at net asset value.
o Nations Fund's Trustees and Directors also may purchase Investor A Shares
at net asset value.
o Registered broker/dealers that have entered into a Nations Fund dealer
agreement with Stephens may purchase Investor A Shares at net asset value
for their investment account only.
o Registered personnel and employees of such broker/dealers also may purchase
Investor A Shares at net asset value in accordance with the internal
policies and procedures of the employing broker/dealer provided such
purchases are made for their own investment purposes.
o Employees of the Transfer Agent may purchase Investor A Shares of the Funds
at net asset value.
o Former shareholders of Class B Shares of the Special Equity Portfolio of
The Capitol Mutual Funds who held such shares as of January 31, 1994 or
received Investor A Shares of Nations Disciplined Equity Fund in connection
with the reorganization of the Special Equity Portfolio
42
<PAGE>
into Nations Disciplined Equity Fund may purchase Investor A Shares of
Nations Disciplined Equity Fund at net asset value.
o Investors who purchase through accounts established with certain fee-based
investment advisers or financial planners, including Nations Funds Personal
Investment Planner accounts, wrap fee accounts and other managed
agency/asset allocation accounts may purchase Investor A Shares at net
asset value.
Investor A Shares also may be purchased at net asset value by (i) pension,
profit sharing or other employee benefit plans established under Section 401 or
Section 457 of the Internal Revenue Code of 1986, as amended (the "Code"), or
(ii) employee benefit plans created pursuant to Section 403(b) of the Code and
sponsored by a non-profit organization qualified under Section 501(c)(3) of the
Code, provided that, in either case, the plan (a) has at least $500,000
invested in Investor A Shares of the Nations Fund non-money market funds, (b)
has signed a letter of intent indicating that the plan intends to purchase at
least $500,000 of Investor A Shares of the Nations Fund non-money market funds,
(c) is an employer-sponsored plan with at least 100 eligible participants (a
"Qualified Plan") or (d) is a participant in an alliance program that has
entered into an agreement with an Agent. Stephens may pay Agents or other
financial service firms up to 1.00% of the net asset value of Investor A Shares
purchased without a sales charge, for which it may be reimbursed out of any
applicable CDSC.
REINSTATEMENT PRIVILEGE: Investor A Shares in a Fund may be purchased at net
asset value, without any sales charge, by persons who have redeemed Investor A
Shares of the same Fund within the previous 120 days. 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 reinstatement privilege. In order to exercise this
privilege, a written order for the purchase of Investor Shares must be received
by the Transfer Agent, Stephens or their respective agents within 120 days
after the redemption.
Investor A Shares may be purchased at net asset value, without a sales charge,
to the extent such a purchase, which must be at least $1,000, is paid for with
the proceeds from the redemption of shares of a nonaffiliated mutual fund. A
qualifying purchase of Investor A Shares must occur within 45 days of the prior
redemption and Nations Funds must receive a copy of the confirmation of the
redemption transaction. Stephens may compensate dealers in connection with such
purchases. This privilege may be revoked at any time.
Nations Funds may terminate any waiver of or reduction in the sales charge by
providing notice in the Fund's Prospectus, but any such termination would only
affect future purchases of shares. For more information about reduced sales
charge, contact an Agent or Stephens.
INVESTOR B SHARES -- CHARGES AND FEATURES
INVESTOR B SHARES CONTINGENT DEFERRED SALES CHARGE: Subject to certain waivers
specified below, Investor B Shares purchased prior to January 1, 1996 and after
July 31, 1997, may be subject to a CDSC if such shares are redeemed within the
years designated in the applicable CDSC schedule set forth below. No CDSC is
imposed on increases in net asset value above the initial purchase price, or
shares acquired by reinvestment of distributions. Subject to the waivers
described below, the amount of the CDSC is determined as a percentage of the
lesser of the market value or the purchase price of the shares being redeemed.
The amount of the CDSC will depend on the number of years since you invested,
according to the following table:
43
<PAGE>
CDSC SCHEDULES
SHARES PURCHASED AFTER NOVEMBER 15, 1998*
<TABLE>
<CAPTION>
CDSC as a
---------
Percentage of Dollar
--------------------
Year Since Purchase Made Amount Subject to Charge
------------------------ ------------------------
<S> <C>
First 5.0%
Second 4.0%
Third 3.0%
Fourth 2.0%
Fifth 2.0%
Sixth 1.0%
Seventh and thereafter None
</TABLE>
* Investor B Shares are not available to purchasers desiring to invest $250,000
or more, however, investors desiring to invest $250,000 or more may be
eligible to purchase Investor A Shares.
SHARES PURCHASED BETWEEN AUGUST 1, 1997 AND NOVEMBER 15, 1998 IN AMOUNT OF $0
- -- $249,999
<TABLE>
<CAPTION>
CDSC as a
---------
Percentage of Dollar
--------------------
Year Since Purchase Made Amount Subject to Charge
------------------------ ------------------------
<S> <C>
First 5.0%
Second 4.0%
Third 3.0%
Fourth 3.0%
Fifth 2.0%
Sixth 1.0%
Seventh and thereafter None
</TABLE>
SHARES PURCHASED BETWEEN AUGUST 1, 1997 AND NOVEMBER 15, 1998 IN AMOUNT OF
$250,000 -- $499,999
<TABLE>
<CAPTION>
CDSC as a
---------
Percentage of Dollar
--------------------
Year Since Purchase Made Amount Subject to Charge
------------------------ ------------------------
<S> <C>
First 3.0%
Second 2.0%
Third 1.0%
Fourth None
</TABLE>
SHARES PURCHASED BETWEEN AUGUST 1, 1997 AND NOVEMBER 15, 1998 IN AMOUNT OF
$500,000 -- $999,999
<TABLE>
<CAPTION>
CDSC as a
---------
Percentage of Dollar
--------------------
Year Since Purchase Made Amount Subject to Charge
------------------------ ------------------------
<S> <C>
First 2.0%
Second 1.0%
Third None
</TABLE>
SHARES PURCHASED PRIOR TO JANUARY 1, 1996
<TABLE>
<CAPTION>
CDSC as a
---------
Percentage of Dollar
--------------------
Year Since Purchase Made Amount Subject to Charge
------------------------ ------------------------
<S> <C>
First 5.0%
Second 4.0%
Third 3.0%
Fourth 2.0%
Fifth 2.0%
Sixth 1.0%
Seventh and thereafter None
</TABLE>
In determining whether a CDSC is payable on any redemption, the Funds will
first redeem shares not subject to any charge, and then shares resulting in the
lowest possible CDSC. Solely for purposes of determining the number of years
from the date of purchase of shares, all purchases are deemed to have been made
on the trade date of the transaction.
The CDSC will be waived on redemptions of Investor B Shares (i) following the
death or disability (as defined in the Internal Revenue Code of 1986, as
amended (the "Code")) of a shareholder (including a registered joint owner),
(ii) in connection with the following retirement plan distributions: (a) lump-
sum or other distributions from a qualified corporate or self-employed
retirement plan following retirement (or in the case of a "key employee" of a
"top heavy" plan, following attainment of age 59 1/2); (b) distributions from
an IRA, or Custodial Account under Section 403(b)(7) of the Code, following
attainment of age 59 1/2; (c) a tax-free return of an excess contribution to an
IRA; and (d) distributions from a qualified retirement plan that are not
subject to the 10% additional Federal withdrawal tax pursuant to Section
72(t)(2) of the Code, (iii) payments made to pay medical expenses which
44
<PAGE>
exceed 7.5% of income and distributions to pay for insurance by an individual
who has separated from employment and who has received unemployment
compensation under a federal or state program for at least 12 weeks, (iv)
effected pursuant to Nations Funds' right to liquidate a shareholder's account,
including instances where the aggregate net asset value of the Investor B
shares held in the account is less than the minimum account size, (v) in
connection with the combination of Nations Funds with any other registered
investment company by a merger, acquisition of assets or by any other
transaction, and (vi) 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 B Shares in the account. In
addition, the CDSC will be waived on Investor B Shares purchased before
September 30, 1994 by current or retired employees of NationsBank and its
affiliates or by current or former Trustees or Directors of Nations Funds or
other management companies managed by NationsBank. Shareholders are responsible
for providing evidence sufficient to establish that they are eligible for any
waiver of the CDSC.
REINSTATEMENT PRIVILEGE: Within 120 days after a redemption of Investor B
Shares of a Fund, a shareholder may reinvest any portion of the proceeds of
such redemption in Investor B 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 B Shares must be
received by the Transfer Agent or by Stephens within 120 days after the
redemption.
AUTOMATIC WITHDRAWAL PLAN: An Automatic Withdrawal Plan ("AWP") may be
established by a new or existing shareholder of the Funds if the value of the
Investor B 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 B 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 B 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 B Shares will be redeemed
(net of any applicable CDSC) as necessary to meet withdrawal payments.
Withdrawals will reduce principal and may eventually deplete the shareholder's
account. If a shareholder desires to establish an AWP after opening an account,
a signature guarantee will be required. An AWP may be terminated by a
shareholder on 30 days' written notice to his/her Selling Agent or by Nations
Funds at any time.
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 for
Investor A or Investor B Shares of the Funds which are received by Stephens,
the Transfer Agent or their respective agents before the close of regular
trading on the Exchange (currently 4:00 p.m., Eastern time) on any Business Day
are priced according to the net asset value next determined after acceptance of
the order. In the event that the Exchange closes early, redemption orders
received prior to closing will be priced as of the time the Exchange closes and
redemption orders received after the Exchange closes will be deemed received on
the next Business Day and priced according to the net asset value determined on
the next Business Day. Redemption orders are effected at the net asset value
per share next determined
45
<PAGE>
after receipt of the order by Stephens, the Transfer Agent or their respective
agents, less any applicable CDSC. The Agents are responsible for redemption
orders to Stephens, the Transfer Agent or their respective agents 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.
Redemption proceeds are normally wired to the redeeming Agent within three
Business Days after receipt of the order by Stephens, the Transfer Agent or
their respective agents. 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 A or Investor B Shares upon
60 days' written notice if the balance in the shareholder's account drops below
$500 as a result of redemptions. Share balances also may be redeemed at the
direction of an Agent pursuant to arrangements between the Agent and its
Customers. Nations 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 or Investor B Shares represented
by certificates, the Transfer Agent must have received such certificates at its
principal office. All such certificates must be endorsed by the redeeming
shareholder or accompanied by a signed stock power, in each instance with the
signature guaranteed by a commercial bank or a member of a major stock
exchange, unless other arrangements satisfactory to Nations Funds have
previously been made. Nations Funds may require any additional information
reasonably necessary to evidence that a redemption has been duly authorized.
how to exchange shares
INVESTOR A SHARES: The exchange feature enables a shareholder of a fund of
Nations Funds (other than an index fund) to acquire shares of the same class
that are offered by another fund (other than an index fund) of Nations Funds
when the shareholder believes that a shift between funds is an appropriate
investment decision. A qualifying exchange is based on the next calculated net
asset value per share of each fund after the exchange order is received.
No CDSC will be imposed in connection with an exchange of Investor A Shares
that meets the requirements discussed in this section. If Investor A Shares of
a Fund are exchanged for shares of the same class of another fund, any CDSC
applicable to the shares exchanged will be applied upon the redemption of the
acquired shares. The holding period of such Investor A Shares (for purposes of
determining whether a CDSC is applicable upon redemption) will be computed from
the time of the initial purchase of the Investor A Shares of the Fund.
Shareholders who have paid a front-end sales charge on purchases of Investor A
Shares of one of Nations Fund's non-money market funds (including Investor A
Shares acquired through the reinvestment of dividends and distributions on such
shares) may exchange those Investor A Shares at net asset value without any
sales charge for Investor A Shares available under the exchange privilege
described herein, provided that the maximum sales charge applicable to the
acquired Investor A Shares is equal to or less than the "maximum sales charge
applicable" to the Investor A Shares being exchanged. For purposes of
determining the "maximum sales charge applicable" to the Investor A Shares
being exchanged, a shareholder may include any sales charge paid on shares of
the same class offered by one of Nations Fund's other funds that were
previously exchanged to acquire the subject Investor A Shares then being
exchanged, provided that notification of such prior exchange is made to the
Transfer Agent, Stephens or their respective agents.
If the Investor A Shares being acquired are subject to a higher maximum
front-end sales charge than the Investor A Shares being exchanged, then the
shareholder must pay a "sales charge differ-
46
<PAGE>
ential," which is the difference between the maximum front-end sales charge
applicable to those Investor A Shares being exchanged and those being acquired.
However, a shareholder would not have to pay a sales charge differential to the
extent such shareholder is eligible for a reduced or waived sales charge on the
Investor A Shares being acquired. In addition, a shareholder of Investor A
Shares of a non-money market fund would not have to pay a sales charge
differential upon an exchange if the shareholder has owned such shares for at
least 90 days.
Investor A Shares of Nations Short-Term Municipal Income Fund acquired directly
or indirectly through an exchange from Investor B Shares of another non-money
market fund may be re-exchanged only for Investor B Shares of another non-money
market fund, Investor C Shares of a Nations Funds money market fund or Investor
A Shares of Nations Short-Term Income Fund. Such shares (and any Investor A or
Investor C Shares acquired through the exchange of such shares) will remain
subject to the CDSC schedule applicable to the Investor B Shares originally
purchased. The holding period (for the purpose of determining the applicable
rate of the CDSC) does not accrue while the shares owned are Investor A Shares
of Nations Short-Term Municipal Income Fund or Nations Short-Term Income Fund
or Investor C Shares of a Nations Funds money market fund. The CDSC that is
ultimately charged upon redemption is based upon the total period of time the
shareholder holds Investor B Shares of any fund that charges a CDSC.
If Investor A Shares are exchanged for shares of the same class of another
fund, any redemption fee applicable to the original shares purchased will be
assessed upon the redemption of the acquired shares. The holding period of such
shares (for purposes of determining whether a redemption fee is applicable)
will be computed from the time of the initial purchase of the Investor A Shares
of a fund, except that the holding period will not accrue while the shares
owned are Investor A Shares of Nations Short-Term Municipal Income Fund,
Nations Short-Term Income Fund or a Nations Funds' money market fund. If a
redemption fee ultimately is charged, it will be retained by the initial Fund
purchased.
AUTOMATIC EXCHANGE FEATURE: Under the Funds' Automatic Exchange Feature ("AEF")
a shareholder of Investor A Shares 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 the
last 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 Nations Funds.
INVESTOR B SHARES: The exchange feature enables a shareholder to exchange funds
as specified below when the shareholder believes that a shift between funds is
an appropriate investment decision. The exchange feature enables a shareholder
of Investor B Shares of a fund offered by Nations Funds to acquire shares of
the same class that are offered by another fund of Nations Funds (except
Nations Short-Term Income Fund and Nations Short-Term Municipal Income Fund),
Investor A Shares of Nations Short-Term Income Fund or Nations Short-Term
Municipal Income Fund or Investor C Shares of a Nations Funds money market
fund. A qualifying exchange is based on the next calculated net asset value per
share of each fund after the exchange order is received.
No CDSC will be imposed in connection with an exchange of Investor B Shares
that meets the requirements discussed in this section. If a shareholder
acquires Investor B Shares of another fund through an exchange, any CDSC
schedule applicable (CDSCs may apply to shares purchased prior to January 1,
1996 or after July 31, 1997) to the original shares purchased will be applied
to any redemption of the acquired shares. If a shareholder exchanges Investor B
Shares of a fund for Investor C Shares of a money market fund or Investor A
Shares of Nations Short-Term Income Fund or Nations Short-Term Municipal Income
Fund, the acquired shares will remain subject to the CDSC schedule applicable
to the Investor B Shares exchanged. The holding period (for purposes of
determining the applicable rate of the CDSC) does not accrue while the shares
owned are Investor C Shares of a Nations Funds money market fund or Inves-
47
<PAGE>
tor A Shares of Nations Short-Term Income Fund or Nations Short-Term Municipal
Income Fund. As a result, the CDSC that is ultimately charged upon a redemption
is based upon the total holding period of Investor B Shares of a fund that
charges a CDSC.
GENERAL: For shareholders who maintain an account directly with a Fund,
exchange requests should be communicated to the Fund by calling Nations Funds
at 1-800-321-7854 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), provided that the exchange feature may be terminated or materially
revised without notice under certain unusual circumstances.
The current prospectus for each Fund describes its investment objective and
policies, and shareholders should obtain a copy and examine it carefully before
investing. Exchanges are subject to the minimum investment requirement and any
other conditions imposed by each fund. In the case of any shareholder holding a
share certificate or certificates, no exchanges may be made until all
applicable share certificates have been received by the Transfer Agent and
deposited in the shareholder's account. An exchange will be treated for Federal
income tax purposes the same as a redemption of shares, on which the
shareholder may realize a capital gain or loss. However, the ability to deduct
capital losses on an exchange may be limited in situations where there is an
exchange of shares within 90 days after the shares are purchased.
Nations Funds and Stephens reserve 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.
The Investor A Shares and Investor B Shares exchanged must have a current value
of at least $1,000. Nations Funds and Stephens reserve the right to reject any
exchange request. Only shares that may legally be sold in the state of the
investor's residence may be acquired in an exchange. Only shares of a class
that is accepting investments generally may be acquired in an exchange. An
investor may telephone an exchange request by calling the investor's Selling
Agent which is responsible for transmitting such request to Stephens or to the
Transfer Agent.
During periods of significant economic or market change, telephone exchanges
may be difficult to complete. In such event, shares may be exchanged by mailing
the request directly to the Selling Agent through which the original shares
were purchased. An investor should consult his/her Selling Agent or Stephens
for further information regarding exchanges.
shareholder servicing and distribution plans
Investor A Shares: The Funds' Shareholder Servicing and Distribution Plan (the
"Investor A Plan"), adopted pursuant to Rule 12b-1 under the 1940 Act, permits
each Fund to compensate (i) Servicing Agents and Selling Agents for services
provided to their Customers that own Investor A Shares and (ii) Stephens for
distribution-related expenses incurred in connection with Investor A Shares.
Nations Short-Term Municipal Income Fund, however, may not pay for shareholder
services under the Investor A Plan. Aggregate payments under the Investor A
Plan are calculated daily and paid monthly at a rate or rates set from time to
time by each Fund, provided that the annual rate may not exceed .25% of the
average daily net asset value of the Investor A Shares of the Fund.
48
<PAGE>
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, the
Transfer Agent or their respective agents; (ii) providing Customers with a
service that invests the assets of their accounts in Investor A Shares pursuant
to specific or preauthorized instructions; (iii) processing dividend and
distribution payments from a Fund on behalf of Customers; (iv) providing
information periodically to Customers showing their positions in Investor A
Shares; (v) arranging for bank wires; and (vi) providing general shareholder
liaison services. Nations Short-Term Municipal Income Fund, however, may not
pay for shareholder services under the Investor A Plan. The fees payable to
Selling Agents are used primarily to compensate or reimburse Selling Agents for
providing sales support assistance in connection with the sale of Investor A
Shares to Customers, 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.
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 Agreements and Sales
Support Agreements. See the SAI for more details on the Investor A Plan.
In addition, the Trustees and Directors have approved a Shareholder Servicing
Plan (the "Servicing Plan") with respect to the Investor A Shares of Nations
Short-Term Municipal Income Fund. Pursuant to its Servicing Plan, Nations
Short-Term Municipal Income Fund may pay Servicing Agents that have entered
into a Servicing Agreement with Nations Funds for certain shareholder support
services that are provided by the Servicing Agents. Payments under the Fund's
Servicing Plan may not exceed .25% of the average daily net asset value of the
Fund's Investor A Shares. The shareholder services provided by Servicing Agents
include, but are not limited to, those listed above with respect to the
Investor A Plan.
Nations 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.
INVESTOR B SHARES:
SHAREHOLDER SERVICING PLAN: The Funds' shareholder servicing plan ("Servicing
Plan") permits the Funds to compensate Servicing Agents for services provided
to their Customers that own Investor B Shares. Payments under the Servicing
Plan are calculated daily and paid monthly at a rate or rates set from time to
time by the Funds, provided that the annual rate may not exceed .25% of the
average daily net asset value of the Investor B 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 B 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 B 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 B 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
49
<PAGE>
Servicing Agreements. See the SAI for more details on the Servicing Plan.
DISTRIBUTION PLAN: Pursuant to Rule 12b-1 under the 1940 Act, the Trustees and
Directors have approved a Distribution Plan with respect to Investor B 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 B Shares. Payments under the Distribution
Plan will be calculated daily and paid monthly at a rate or rates set from time
to time by the Trustees and Directors provided that the annual rate may not
exceed .75% of the average daily net asset value of the Funds' Investor B
Shares.
The fees payable under the Distribution Plan are used primarily to compensate
or reimburse Stephens for distribution services provided by it, and related
expenses incurred, including payments by Stephens to compensate or reimburse
Selling Agents for sales support services provided, and related expenses
incurred, by such Selling Agents. Payments under the Distribution Plan may be
made with respect to the following expenses: the cost of preparing, printing
and distributing prospectuses, sales literature and advertising materials,
commissions, incentive compensation or other compensation to, and expenses of,
account executives or other employees of Stephens or the Selling Agents;
overhead and other office expenses; opportunity costs relating to the
foregoing; and any other costs and expenses relating to distribution or sales
support activities. The overhead and other office expenses referenced above may
include, without limitation, (i) the expenses of operating Stephens' or the
Selling Agents' offices in connection with the sale of Fund shares, including
rent, the salaries and employee benefit costs of administrative, operations and
support personnel, utility costs, communications costs and the costs of
stationery and supplies, (ii) the costs of client sales seminars and travel
related to distribution and sales support activities, and (iii) other expenses
relating to distribution and sales support activities.
Nations 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
Agreements between Selling Agents and Stephens. See the SAI for more details on
the Distribution Plan.
GENERAL: Nations Funds understands that Agents may charge fees to their
Customers who are the owners of Investor A or Investor B Shares for various
services provided in connection with a Customer's account. These fees would be
in addition to any amounts received by a Selling Agent under its Sales Support
Agreement with Stephens or by a Servicing Agent under its Servicing Agreement
with Nations 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.
The Adviser may also pay out of its own assets amounts to Stephens or other
broker/dealers in connection with the provision of administrative and/or
distribution related services to shareholders. In addition, Stephens may, from
time to time, at its expense or as an expense for which it may be reimbursed
under the plan adopted pursuant to Rule 12b-1 under the 1940 Act, pay a bonus
or other consideration or incentive to Selling Agents who sell a minimum dollar
amount of shares of the Funds during a specified period of time. Stephens may
also from time to time, pay additional consideration to Selling Agents not to
exceed 1.00% of the offering price per share on all sales of Investor A Shares
and 4.00% of the offering price per share on all sales of Investor B Shares as
an expense of Stephens or for which Stephens may be reimbursed under the plan
adopted pursuant to Rule 12b-1 or upon receipt of a CDSC. Any such additional
consideration or incentive program may be terminated at any time by Stephens.
Stephens has also 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.
50
<PAGE>
HOW THE FUNDS VALUE THEIR SHARES
The Funds calculate the net asset value of a share of each class by dividing
the total value of its assets, less liabilities, by the number of shares in the
class outstanding. Shares of the Funds are valued as of the close of regular
trading on the Exchange (currently 4:00 p.m., Eastern time) on each Business
Day. In the event that the Exchange closes early, shares of the Funds will be
priced as of the time the Exchange closes. Currently, the days on which the
Exchange is closed (other than weekends) are: New Year's Day, Martin Luther
King, Jr. Day, Presidents' Day, Good Friday, Memorial Day (observed),
Independence Day, Labor Day, Thanksgiving Day and Christmas Day. Portfolio
securities for which market quotations are readily available are valued at
market value. Short-term investments that will mature in 60 days or less are
valued at amortized cost, which approximates market value. All other securities
and assets are valued at their fair value following procedures approved by the
Directors or Trustees.
HOW DIVIDENDS AND DISTRIBUTIONS ARE MADE; TAX INFORMATION
DIVIDENDS AND DISTRIBUTIONS: Dividends from net investment income are declared
and paid monthly by Nations Capital Growth Fund, Nations Disciplined Equity
Fund, Nations Equity Income Fund, Nations Value Fund and Nations Small Company
Growth Fund. Nations Balanced Assets Fund, Nations Emerging Growth Fund,
Nations Marsico Growth & Income Fund, Nations Marsico Focused Equities Fund,
Nations International Equity Fund, Nations Emerging Markets Fund and Nations
Pacific Growth Fund distribute any net investment income each calendar quarter.
Dividends from net investment income are declared and paid annually by Nations
International Value Fund and Nations International Growth Fund. The Funds
distribute any net realized capital gains (including net short-term capital
gains) at least annually. Distributions from capital gains are made after
applying any available capital loss carryovers. Distributions paid by the Funds
with respect to one class of shares may be greater or less than those paid with
respect to another class of shares due to the different expenses of the
different classes.
Investor A and Investor 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 Investor A and Investor B Shares will be reduced by the
amount of any dividend or distribution. Accordingly, dividends and
distributions on newly purchased shares represent, in substance, a return of
capital. However, such dividends and distributions would nevertheless be
taxable. Certain Selling Agents may provide for the reinvestment of dividends
in the form of additional Investor A or Investor B Shares of the same Fund.
Dividends and distributions are paid in cash within five Business Days of the
end of the month, quarter or year to which the payment 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 or
Investor B Shares.
TAX INFORMATION: Each Fund intends to continue to qualify as a "regulated
investment company" under the Internal Revenue Code of 1986, as amended (the
"Code"). Such qualification relieves the Funds of liability for Federal income
taxes on amounts distributed in accordance with the Code.
Each Fund intends to distribute substantially all of its net investment income
each taxable year. Distributions by a Fund of its net investment income
51
<PAGE>
(including net foreign currency gains) and the excess, if any, of its net
short-term capital gain over its net long-term capital loss generally are
taxable as ordinary income to shareholders, whether such income is received in
cash or reinvested in additional shares.
Corporate investors in the Funds may be entitled to the dividends received
deduction on a portion of such Funds' dividends paid by these Funds to the
extent that a Fund's income is derived from dividends received from domestic
corporations.
Substantially all of the Funds' net realized long-term capital gains will be
distributed at least annually. The Funds will generally have no tax liability
with respect to such gains, and the distributions generally will be taxable to
shareholders as net capital gains, regardless of how long the shareholders have
held the Funds' shares and whether such distributions are received in cash or
reinvested in additional shares. Noncorporate shareholders may be taxed on such
distributions at preferential rates.
Each year, shareholders will be notified as to the amount and Federal tax
status of all dividends and capital gain distributions paid during the prior
year. Such dividends and capital gain distributions may be subject to state and
local taxes.
Dividends and distributions declared in October, November, or December of any
year payable to shareholders of record on a specified date in such months will
be deemed to have been received by shareholders and paid by the Funds on
December 31 of such year in the event such dividends and distributions are
actually paid during January of the following year.
Federal law requires Nations Funds to withhold 31% from any distributions paid
by Nations Funds and/or redemptions (including exchanges and redemptions
in-kind) that occur in certain shareholder accounts if the shareholder has not
properly furnished a certified correct Taxpayer Identification Number and has
not certified that withholding does not apply, or if the Internal Revenue
Service has notified Nations 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 tax on dividends paid to
certain foreign shareholders.
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 foreign, state and local taxes. Further
tax information is contained in the SAI.
52
<PAGE>
FINANCIAL HIGHLIGHTS
The following financial information has been derived from the audited financial
statements of Nations Fund Trust, Nations Fund, Inc. and Nations Portfolios.
PricewaterhouseCoopers LLP is the independent accountant to Nations Fund Trust,
Nations Fund, Inc. and Nations Portfolios. The reports of
PricewaterhouseCoopers LLP for the most recent fiscal period of Nations Fund
Trust, Nations Fund, Inc. and Nations Portfolios accompany the financial
statements for such period and are incorporated by reference in the SAI, which
is available upon request. For more information see "Organization And History."
Shareholders of the Funds will receive unaudited semi-annual reports describing
the Funds' investment operations and annual financial statements audited by the
Funds' independent accountant.
The following financial highlights for Investor A Shares of Nations
International Value Fund have been derived from the audited financial
statements of the Emerald International Equity Fund (the predecessor
portfolio). KPMG Peat Marwick LLP were the independent auditors for the Emerald
International Equity Fund for the fiscal period December 1, 1997 through May
15, 1998 and for the fiscal year ended November 30, 1997.
PricewaterhouseCoopers LLP was the independent accountant for the Emerald
International Equity Fund for the fiscal period from December 27, 1995 through
November 30, 1996. The reports of KPMG Peat Marwick LLP for the fiscal period
December 1, 1997 through May 15, 1997 and for the fiscal year ended November
30, 1997 of the Emerald International Equity Fund accompany the financial
statements for such periods and are incorporated in the SAI, which is available
upon request. Financial Highlights for Investor B Shares of Nations
International Value Fund are not provided below because this Fund had not yet
commenced operations during the period indicated below.
53
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS VALUE FUND
<TABLE>
<CAPTION>
YEAR YEAR
ENDED ENDED
Investor A Shares 03/31/98# 03/31/97
<S> <C> <C>
Operating performance:
Net asset value, beginning of period $ 17.87 $ 16.60
Net investment income 0.15 0.21
Net realized and unrealized gain/(loss) on investments 5.98 2.70
Net increase/(decrease) in net asset value from operations 6.13 2.91
Distributions:
Dividends from net investment income (0.14) (0.22)
Distributions from net realized capital gains (3.94) (1.42)
Total dividends and distributions (4.08) (1.64)
Net asset value, end of period $ 19.92 $ 17.87
Total return++ 38.22% 17.80%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $149,167 $70,305
Ratio of operating expenses to average net assets 1.20%(b) 1.22%(b)
Ratio of net investment income to average net assets 0.79% 1.26%
Portfolio turnover rate 79% 47%
Ratio of operating expenses to average net assets without waivers
and/or expense reimbursements 1.20%(b) 1.22%(b)
<CAPTION>
PERIOD YEAR YEAR
ENDED ENDED ENDED
INVESTOR A SHARES 03/31/96(a) 11/30/95 11/30/94
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 16.21 $ 12.98 $ 13.72
Net investment income 0.05 0.23 0.20
Net realized and unrealized gain/(loss) on investments 1.06 3.92 ( 0.20)
Net increase/(decrease) in net asset value from operations 1.11 4.15 0.00
Distributions:
Dividends from net investment income (0.10) (0.25) (0.20)
Distributions from net realized capital gains (0.62) (0.67) (0.54)
Total dividends and distributions (0.72) (0.92) (0.74)
Net asset value, end of period $ 16.60 $ 16.21 $ 12.98
Total return++ 7.07% 34.22% (0.17)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $54,341 $48,440 $35,445
Ratio of operating expenses to average net assets 1.21%+ 1.19% 1.18%
Ratio of net investment income to average net assets 1.05%+ 1.65% 1.60%
Portfolio turnover rate 12% 63% 75%
Ratio of operating expenses to average net assets without waivers
and/or expense reimbursements 1.21%+ 1.19% 1.18%
</TABLE>
<TABLE>
<CAPTION>
YEAR YEAR
ENDED ENDED
INVESTOR A SHARES 11/30/93 11/30/92
<S> <C> <C>
Operating performance:
Net asset value, beginning of period $ 12.45 $ 11.16
Net investment income 0.22 0.26
Net realized and unrealized gain/(loss) on investments 1.35 1.59
Net increase/(decrease) in net asset value from operations 1.57 1.85
Distributions:
Dividends from net investment income (0.21) (0.27)
Distributions from net realized capital gains (0.09) (0.29)
Total dividends and distributions (0.30) (0.56)
Net asset value, end of period $ 13.72 $ 12.45
Total return++ 12.80% 16.96%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $32,607 $24,536
Ratio of operating expenses to average net assets 1.21% 1.06%
Ratio of net investment income to average net assets 1.73% 2.15%
Portfolio turnover rate 64% 60%
Ratio of operating expenses to average net assets without waivers and/or expense
reimbursements 1.22% 1.15%
<CAPTION>
YEAR PERIOD
ENDED ENDED
Investor A Shares 11/30/91 11/30/90*
<S> <C> <C>
Operating performance:
Net asset value, beginning of period $ 9.71 $ 10.04
Net investment income 0.34 0.35
Net realized and unrealized gain/(loss) on investments 1.47 (0.36)
Net increase/(decrease) in net asset value from operations 1.81 (0.01)
Distributions:
Dividends from net investment income (0.36) (0.32)
Distributions from net realized capital gains -- --
Total dividends and distributions (0.36) (0.32)
Net asset value, end of period $ 11.16 $ 9.71
Total return++ 18.79%+++ (0.16)%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $13,514 $ 7,020
Ratio of operating expenses to average net assets 0.53% 0.21%+
Ratio of net investment income to average net assets 3.33% 4.19%+
Portfolio turnover rate 51% 24%
Ratio of operating expenses to average net assets without waivers and/or expense
reimbursements 0.99% 1.11%+
</TABLE>
* Nations Value Fund Investor A Shares commenced operations on December 6,
1989.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# Per share net investment has been calculated using the monthly average
share method.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
(b) The effect of the fees reduced by credits allowed by the custodian on the
operating expense ratio, with and without waivers and/or expense
reimbursements, was less than 0.01%.
54
<PAGE>
FOR AN INVESTOR B SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS VALUE FUND
<TABLE>
<CAPTION>
YEAR YEAR PERIOD YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED ENDED
INVESTOR B SHARES 03/31/98# 3/31/97 03/31/96(a) 11/30/95 11/30/94 11/30/93*
<S> <C> <C> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 17.81 $ 16.55 $ 16.15 $ 12.94 $ 13.71 $ 13.08
Net investment income 0.02 0.14 0.03 0.17 0.15 0.11
Net realized and unrealized
gain/(loss) on investments 5.96 2.68 1.05 3.89 (0.22) 0.63
Net increase/(decrease) in net asset
value from operations 5.98 2.82 1.08 4.06 (0.07) 0.74
Distributions:
Dividends from net investment
income (0.04) (0.14) (0.06) (0.18) (0.16) (0.11)
Distributions from net realized
capital gains (3.94) (1.42) (0.62) (0.67) (0.54) --
Total dividends and distributions (3.98) (1.56) (0.68) (0.85) (0.70) (0.11)
Net asset value, end of period $ 19.81 $ 17.81 $ 16.55 $ 16.15 $ 12.94 $ 13.71
Total return++ 37.29% 17.21% 6.90% 33.55% (0.69)% 5.65%
Ratios to average net
assets/supplemental data:
Net assets, end of period (in 000's) $149,635 $99,999 $88,861 $83,699 $42,530 $10,449
Ratio of operating expenses to
average net assets 1.87%(b) 1.72%(b) 1.71%+ 1.69% 1.68% 1.71%+
Ratio of net investment income to
average net assets 0.12% 0.76% 0.55%+ 1.15% 1.10% 1.23%+
Portfolio turnover rate 79% 47% 12% 63% 75% 64%
Ratio of operating expenses to
average net assets without waivers
and/or expense reimbursements 1.87%(b) 1.72%(b) 1.71%+ 1.69% 1.68% 1.72%+
</TABLE>
* Nations Value Fund Investor B Shares commenced operations on June 7, 1993.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
# Per share net investment income has been calculated using the monthly
average share method.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
(b) The effect of the fees reduced by credits allowed by the custodian on the
operating expense ratio, with and without waivers and/or expense
reimbursements, was less than 0.01%.
55
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS EQUITY INCOME FUND
<TABLE>
<CAPTION>
YEAR YEAR PERIOD
Investor A ENDED ENDED ENDED
Shares 03/31/98# 03/31/97 03/31/96(a)
<S> <C> <C> <C>
Operating performance:
Net asset value,
beginning of period $ 12.26 $ 13.11 $ 11.78
Net investment income 0.26 0.36 0.27
Net realized and
unrealized gain on
investments 3.77 1.58 1.77
Net increase in net
asset value from
operations 4.03 1.94 2.04
Distributions:
Dividends from net
investment income (0.24) (0.38) (0.34)
Distributions from net
realized capital gains (2.16) (2.41) (0.37)
Total dividends and
distributions (2.40) (2.79) (0.71)
Net asset value, end of
period $ 13.89 $ 12.26 $ 13.11
Total return++ 36.92% 15.30% 17.75%
Ratios to average net
assets/supplemental
data:
Net assets, end of
period (in 000's) $68,006 $47,891 $42,606
Ratio of operating
expenses to average
net assets 1.11%(b) 1.16%(b) 1.15%+
Ratio of net investment
income to average net
assets 1.97% 2.84% 2.59%+
Portfolio turnover rate 74% 102% 59%
Ratio of operating
expenses to average
net assets without
waivers and/or
expense
reimbursements 1.11%(b) 1.16%(b) 1.15%+
<CAPTION>
YEAR YEAR YEAR YEAR PERIOD
Investor A ENDED ENDED ENDED ENDED ENDED
Shares 05/31/95 05/31/94 05/31/93 05/31/92 05/31/91*
<S> <C> <C> <C> <C> <C>
Operating performance:
Net asset value,
beginning of period $ 11.41 $ 12.02 $ 11.40 $ 10.19 $ 10.04
Net investment income 0.40 0.37 0.34 0.29 0.05
Net realized and
unrealized gain on
investments 1.10 0.21 1.05 1.27 0.10
Net increase in net
asset value from
operations 1.50 0.58 1.39 1.56 0.15
Distributions:
Dividends from net
investment income (0.40) (0.38) (0.32) (0.28) --
Distributions from net
realized capital gains (0.73) (0.81) (0.45) (0.07) --
Total dividends and
distributions (1.13) (1.19) (0.77) (0.35) --
Net asset value, end of
period $ 11.78 $ 11.41 $ 12.02 $ 11.40 $ 10.19
Total return++ 14.53% 4.74% 12.78% 15.59%+++ 1.49%+++
Ratios to average net
assets/supplemental
data:
Net assets, end of
period (in 000's) $35,538 $33,691 $32,760 $3,418 $ 497
Ratio of operating
expenses to average
net assets 1.17% 1.19% 1.17% 1.35% 1.37%+
Ratio of net investment
income to average net
assets 3.50% 3.16% 3.12% 2.90% 3.40%+
Portfolio turnover rate 158% 116% 55% 84% 9%
Ratio of operating
expenses to average
net assets without
waivers and/or
expense
reimbursements 1.18% 1.20% 1.29% 2.46% 15.09%+
</TABLE>
* Nations Equity Income Fund Investor A Shares commenced operations on April
16, 1991.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges
+++ Unaudited.
# Per share net investment income has been calculated using the monthly
average share method.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
May 31.
(b) The effect of the fees reduced by credits allowed by the custodian on the
operating expense ratio, with and without waivers and/or expense
reimbursements, was less than 0.01%.
56
<PAGE>
FOR AN INVESTOR B SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS EQUITY INCOME FUND
<TABLE>
<CAPTION>
YEAR YEAR PERIOD YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED
Investor B Shares 03/31/98# 03/31/97 03/31/96(a) 05/31/95 05/31/94*
<S> <C> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 12.25 $ 13.10 $ 11.77 $ 11.40 $ 11.98
Net investment income 0.17 0.31 0.22 0.34 0.37
Net realized and unrealized gain on
investments 3.77 1.57 1.76 1.11 0.22
Net increase in net asset value from
operations 3.94 1.88 1.98 1.45 0.59
Distributions:
Dividends from net investment income (0.16) (0.32) (0.28) (0.35) (0.36)
Distributions from net realized capital gains (2.16) (2.41) (0.37) (0.73) (0.81)
Total dividends and distributions (2.32) (2.73) (0.65) (1.08) (1.17)
Net asset value, end of period $ 13.87 $ 12.25 $ 13.10 $ 11.77 $ 11.40
Total return++ 36.02% 14.76% 17.21% 14.03% 4.84%
Ratios to average net assets/supplemental
data:
Net assets, end of period (in 000's) $144,929 $108,055 $104,026 $75,371 $46,043
Ratio of operating expenses to average net
assets 1.78%(b) 1.66%(b) 1.65%+ 1.67% 1.69%+
Ratio of net investment income to average
net assets 1.30% 2.34% 2.09%+ 3.00% 2.66%+
Portfolio turnover rate 74% 102% 59% 158% 116%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 1.78%(b) 1.66%(b) 1.65%+ 1.68% 1.70%+
</TABLE>
* Nations Equity Income Investor B Shares commenced operations on June 7,
1993.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated
and does not reflect the deduction of any applicable sales charges.
# Per share net investment income has been calculated using the monthly
average share method.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
May 31.
(b) The effect of the fees reduced by credits allowed by the custodian on the
operating expense ratio, with and without waivers and/or expense
reimbursements, was less than 0.01%.
57
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS EMERGING GROWTH FUND
<TABLE>
<CAPTION>
YEAR YEAR PERIOD YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED ENDED
Investor A Shares 03/31/98# 03/31/97# 03/31/96#(a) 11/30/95 11/30/94# 11/30/93*
<S> <C> <C> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 12.69 $ 13.91 $ 14.17 $ 11.35 $ 10.85 $ 9.87
Net investment income/(loss) (0.10) (0.07) (0.01) (0.01) (0.06) (0.03)
Net realized and unrealized
gain/(loss) on investments 5.50 0.19 1.25 3.23 0.70 1.02
Net increase/(decrease) in net asset
value from operations 5.40 0.12 1.24 3.22 0.64 0.99
Distributions:
Distributions from net realized
capital gains (1.79) (1.34) (1.50) (0.40) (0.14) (0.01)
Total dividends and distributions (1.79) (1.34) (1.50) (0.40) (0.14) (0.01)
Net asset value, end of period $ 16.30 $ 12.69 $ 13.91 $ 14.17 $ 11.35 $ 10.85
Total return++ 44.86% .18% 9.80% 29.65% 5.90% 9.99%
Ratios to average net
assets/supplemental data:
Net assets, end of period (in 000's) $21,591 $12,126 $ 7,802 $ 5,765 $ 3,234 $ 2,095
Ratio of operating expenses to
average net assets 1.23%(b) 1.23%(b) 1.24%+ 1.23% 1.26% 1.05%+
Ratio of net investment income/(loss)
to average net assets (0.67)% (0.51)% (0.31)%+ (0.17)% (0.54)% (0.40)%+
Portfolio turnover rate 76% 93% 39% 139% 129% 159%
Ratio of operating expenses to
average net assets without waivers
and/or expense reimbursement 1.23%(b) 1.23%(b) 1.24%+ 1.23% 1.26% 1.26%+
</TABLE>
* Nations Emerging Growth Fund Investor A Shares commenced operations on
December 10, 1992.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
# Per share net investment income/(loss) has been calculated using the
monthly average share method.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
(b) The effect of the fees reduced by credits allowed by the custodian on the
operating expense ratio, with and without waivers and/or expense
reimbursements, was less than 0.01%.
58
<PAGE>
FOR AN INVESTOR B SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS EMERGING GROWTH FUND
<TABLE>
<CAPTION>
YEAR YEAR PERIOD YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED ENDED
INVESTOR B SHARES 03/31/98# 03/31/97# 03/31/96#(a) 11/30/95 11/30/94# 11/30/93*
<S> <C> <C> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 12.29 $ 13.61 $ 13.93 $ 11.24 $ 10.82 $ 9.88
Net investment income/(loss) (0.20) (0.18) (0.05) (0.07) (0.14) (0.02)
Net realized and unrealized
gain/(loss) on investments 5.28 0.20 1.23 3.16 0.70 0.96
Net increase/(decrease) in net asset
value from operations 5.08 0.02 1.18 3.09 0.56 0.94
Distributions:
Distributions from net realized
capital gains (1.79) (1.34) (1.50) (0.40) (0.14) --
Total dividends and distributions (1.79) (1.34) (1.50) (0.40) (0.14) --
Net asset value, end of period $ 15.58 $ 12.29 $ 13.61 $ 13.93 $ 11.24 $ 10.82
Total return++ 43.64% (0.57)% 9.52% 28.75% 5.17% 9.51%
Ratios to average net
assets/supplemental data:
Net assets, end of period (in 000's) $45,451 $33,342 $34,989 $32,349 $15,909 $ 3,594
Ratio of operating expenses to
average net assets 1.98%(b) 1.98%(b) 1.99%+ 1.98% 2.01% 1.80%+
Ratio of operating expenses to
average net assets including
interest expense 1.99% N/A N/A N/A N/A N/A
Ratio of net investment income/(loss)
to average net assets (1.42)% (1.26)% (1.06)%+ (0.92)% (1.29)% (1.15)%+
Portfolio turnover rate 76% 93% 39% 139% 129% 159%
Ratio of operating expenses to
average net assets without waivers
and/or expense reimbursements 1.98%(b) 1.98%(b) 1.99%+ 1.98% 2.01% 2.01%+
</TABLE>
* Nations Emerging Growth Fund Investor B Shares commenced operations on June
7, 1993.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
# Per share net investment income has been calculated using the monthly
average share method.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
(b) The effect of the fees reduced by credits allowed by the custodian on the
operating expense ratio, with and without waivers and/or expense
reimbursements, was less than 0.01%.
59
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS SMALL COMPANY GROWTH FUND
<TABLE>
<CAPTION>
PERIOD PERIOD PERIOD
ENDED ENDED ENDED
Investor A Shares* 03/31/98* 05/16/97* 08/31/96*(b)
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of the period $ 12.05 $ 10.64 $ 10.00
Net investment income (0.02) 0.03 0.05
Net realized and unrealized gain on investments 4.42 1.46 0.64
Net increase in net asset value from operations 4.40 1.49 0.69
Dividends from net investment income -- (0.03) (0.05)
Distributions from net realized capital gains (0.71) (0.05) --
Total dividends and distributions (0.71) (0.08) (0.05)
Net asset value, the end of the period $ 15.74 $ 12.05 $ 10.64
Total return++ 37.02% 13.98% 6.88%
Net assets at end of period (in 000's) $ 6,772 $ 3,697 $ 2,611
Ratio of operating expenses to average net assets 1.20%+(a) 1.23%+ 1.25%+
Ratio of operating expenses to average net assets including interest expense 1.20%+ -- --
Ratio of net investment income/loss to average net assets (0.20)%+ 0.30%+ 0.66%+
Portfolio turnover rate 59% 48% 31%
Ratio of expenses to average net assets without waivers and/or expense
reimbursements 1.51%+(a) 1.66%+ 1.65%+
</TABLE>
* The financial information for the fiscal periods prior to May 23, 1997
reflects the financial information for the Pilot Small Capitalization
Equity Fund's Class A Shares, which were reorganized into Nations Small
Company Growth Fund Investor A Shares as of the close of business on May
23, 1997. Prior to May 23, 1997, the investment adviser to Nations Small
Company Growth Fund was Boatmen's Trust Company. Effective May 23, 1997 the
investment adviser to Nations Small Company Growth Fund is TradeStreet
Investment Associates, Inc.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
(a) The effect of the fees reduced by credits allowed by the custodian on the
operating expense ratio, with and without waivers and/or expense
reimbursements, was less than 0.01%.
(b) Represents the period from December 12, 1995 (commencement of operations)
to August 31, 1996.
60
<PAGE>
FOR AN INVESTOR B SHARES OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS SMALL COMPANY GROWTH FUND
<TABLE>
<CAPTION>
PERIOD PERIOD PERIOD
ENDED ENDED ENDED
INVESTOR B SHARES* 03/31/98* 05/16/97* 08/31/96*(b)
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of the period $ 12.03 $ 10.65 $ 10.00
Net investment income (loss) (0.08) (0.03) 0.01
Net realized and unrealized gain on investments 4.35 1.46 0.65
Net increase in net asset value from operations 4.27 1.43 0.66
Distributions:
Dividends from net investment income -- -- (0.01)
Distributions from net realized capital gains (0.71) (0.05) --
Total dividends and distributions (0.71) (0.05) (0.01)
Net asset value, end of the period $ 15.59 $ 12.03 $ 10.65
Total return ++ 36.06% 13.43% 6.65%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 3,384 $ 2,635 $ 1,878
Ratio of operating expenses to average net assets 1.87%+(a) 1.97%+ 2.01%+
Ratio of operating expenses to average net assets including interest expense 1.88%+ -- --
Ratio of net investment income/loss to average net assets (0.87)%+ (0.45)%+ (0.07)%+
Portfolio turnover rate 59% 48% 31%
Ratio of operating expenses to average net assets without waivers and/or
expense reimbursements 2.18%+(a) 2.41%+ 2.44%+
</TABLE>
* The financial information for the fiscal periods prior to May 23, 1997
reflects the financial information for the Pilot Small Capitalization
Equity Fund's Class B Shares, which were reorganized into the Investor B
Shares of Nations Small Company Growth Fund as of May 23, 1997. Prior to
May 23, 1997, the investment adviser to Nations Small Company Growth Fund
was Boatman's Trust Company. Effective May 23, 1997, the investment adviser
to Nations Small Company Growth Fund was TradeStreet Investment Associates,
Inc.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charge.
(a) The effect of the fees reduced by credits allowed by the custodian on the
operating expense ratio, with and without waivers and/or expense
reimbursements, was 0.01%.
(b) Represents the period from December 12, 1995 (commencement of operations)
to August 31, 1996.
61
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS DISCIPLINED EQUITY FUND
<TABLE>
<CAPTION>
YEAR YEAR PERIOD YEAR PERIOD PERIOD
ENDED ENDED ENDED ENDED ENDED ENDED
Investor A Shares 03/31/98## 03/31/97 03/31/96(a) 11/30/95 11/30/94* 04/29/94*
<S> <C> <C> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of
period $ 18.44 $ 17.16 $ 17.04 $ 13.06 $ 13.30 $ 14.94
Net investment income/(loss) 0.02 0.08 0.04 0.09 0.00 (b) (0.04)
Net realized and unrealized
gain/(loss) on investments 7.87 2.80 0.35 3.96 (0.23)# 1.35
Net increase/(decrease) in net
asset value from operations 7.89 2.88 0.39 4.05 (0.23) 1.31
Distributions:
Dividends from net investment
income (0.01) (0.09) (0.04) (0.07) (0.01) --
Distributions from net realized
capital gains (4.23) (1.51) (0.23) -- -- (2.95)
Return of capital -- -- -- -- (0.00)(b) --
Total dividends and
distributions (4.24) (1.60) (0.27) (0.07) (0.01) (2.95)
Net asset value, end of period $ 22.09 $ 18.44 $ 17.16 $ 17.04 $ 13.06 $ 13.30
Total return++ 48.28% 16.76% 2.35% 31.05% (1.71)% 8.31%
Ratios to average net
assets/supplemental data:
Net assets, end of period
(in 000's) $21,725 $ 6,837 $ 4,722 $ 3,234 $ 252 $ 165
Ratio of operating expenses to
average net assets 1.23%(c)(d) 1.29%(c) 1.12%+ 1.40% 1.23%+ 1.30%+
Ratio of net investment
income/(loss) to average net
assets 0.12% 0.45% 0.72%+ 0.75% 0.02%+ (0.62)%+
Portfolio turnover rate 79% 120% 47% 124% 177% 475%
Ratio of operating expenses to
average net assets without
waivers and/or expense
reimbursements 1.23%(c)(d) 1.29% 1.12%+ 1.40% 1.66%+ 1.74%+
</TABLE>
* The period for Nations Disciplined Equity Investor A Shares reflects
operations from April 30, 1994 through November 30, 1994. The financial
information for the fiscal periods through April 29, 1994 is based on the
financial information for The Capitol Mutual Funds Special Equity Portfolio
Class B Shares, which were reorganized into Investor A Shares of Nations
Disciplined Equity Fund (then named Nations Special Equity Fund) as of the
close of business on April 29, 1994. The Capitol Mutual Funds Special
Equity Portfolio Class B Shares commenced operations on July 26, 1993.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
# The amount shown at this caption for each share outstanding throughout the
period may not accord with the change in the aggregate gains and losses in
the portfolio securities for the period because of the timing of purchases
and withdrawals of shares in relation to the fluctuating market value of
the portfolio.
## Per share net investment income has been calculated using the monthly
average share method.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
(b) Amount represents less than $0.01 per share.
(c) The effect of interest expense on the operating expense ratio was less than
0.01%.
(d) The effect of the fees reduced by credits allowed by the custodian on the
operating expense ratio with and without waivers and/or expense
reimbursements, was less than 0.01%.
62
<PAGE>
FOR AN INVESTOR B SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS DISCIPLINED EQUITY FUND
<TABLE>
<CAPTION>
YEAR
ENDED YEAR ENDED
Investor B Shares 03/31/98# 03/31/97
<S> <C> <C>
Operating performance:
Net asset value, beginning of period $ 18.20 $ 17.00
Net investment income/(loss) (0.12) (0.05)
Net realized and unrealized gain/(loss) on
investments 7.72 2.76
Net increase/(decrease) in net asset value
from operations 7.60 2.71
Distributions:
Dividends from net investment income -- --
Distributions from net realized capital gains (4.23) (1.51)
Return of capital -- --
Total dividends and distributions (4.23) (1.51)
Net asset value, end of period $ 21.57 $ 18.20
Total return++ 47.14% 15.86%
Ratios to average net assets/supplemental
data:
Net assets, end of period (in 000's) $38,079 $20,257
Ratio of operating expenses to average net
assets 1.98%(c)(d) 2.04%(c)
Ratio of net investment income/(loss) to
average net assets (0.63)% (0.30)%
Portfolio turnover rate 79% 120%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 1.98%(c)(d) 2.04%
<CAPTION>
PERIOD PERIOD
ENDED YEAR ENDED ENDED
INVESTOR B SHARES 03/31/96(a) 11/30/95 11/30/94*
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 16.89 $ 13.02 $ 12.77
Net investment income/(loss) (0.01) 0.03 (0.02)
Net realized and unrealized gain/(loss) on
investments 0.35 3.87 0.28
Net increase/(decrease) in net asset value
from operations 0.34 3.90 0.26
Distributions:
Dividends from net investment income -- (0.03) (0.01)
Distributions from net realized capital gains (0.23) -- --
Return of capital -- -- (0.00)(b)
Total dividends and distributions (0.23) (0.03) (0.01)
Net asset value, end of period $ 17.00 $ 16.89 $ 13.02
Total return++ 2.08% 29.94% 2.02%
Ratios to average net assets/supplemental
data:
Net assets, end of period (in 000's) $18,412 $ 16,874 $ 177
Ratio of operating expenses to average net
assets 2.02%+ 2.30% 2.09%+
Ratio of net investment income/(loss) to
average net assets (0.18)%+ (0.15)% (0.84)%+
Portfolio turnover rate 47% 124% 177%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 2.02%+ 2.30% 2.52%+
</TABLE>
* Nations Disciplined Equity Fund Investor B Shares commenced operations on
May 20, 1994.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
# Per share net investment income has been calculated using the monthly
average share method.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
(b) Amount represents less than $0.01 per share.
(c) The effect of interest expense on the operating expense ratio was less than
0.01%.
(d) The effect of fees reduced by credits allowed by the custodian on the
operating expense ratio, with and without waivers and/or expense
reimbursements, was less than 0.01%.
63
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS CAPITAL GROWTH FUND
<TABLE>
<CAPTION>
YEAR YEAR PERIOD
ENDED ENDED ENDED
Investor A Shares 03/31/98## 03/31/97## 03/31/96(a)
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of
period $ 11.67 $ 13.41 $ 14.22
Net investment income/(loss) (0.01) 0.02 0.01
Net realized and unrealized
gain on investments 5.28 1.65 0.38
Net increase in net asset value
from operations 5.27 1.67 0.39
Distributions:
Dividends from net investment
income -- (0.02) (0.01)
Distributions from net realized
capital gains (3.68) (3.39) (1.19)
Total dividends and
distributions (3.68) (3.41) (1.20)
Net asset value, end of period $ 13.26 $ 11.67 $ 13.41
Total return++ 53.83% 11.58% 3.02%
Ratios to average net
assets/supplemental data:
Net assets, end of period
(in 000's) $43,380 $20,465 $18,311
Ratio of operating expenses to
average net assets 1.20%(c)(d) 1.21%(d) 1.21%+
Ratio of net investment
income/(loss) to average net
assets (0.12)% 0.14% 0.13%+
Portfolio turnover rate 113% 75% 25%
Ratio of operating expenses to
average net assets without
waivers and/or expense
reimbursements 1.20%(c) 1.21% 1.21%+
<CAPTION>
YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
Investor A Shares 11/30/95 11/30/94 11/30/93 11/30/92*
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of
period $ 11.21 $ 11.06 $ 10.67 $ 10.00
Net investment income/(loss) 0.06 0.07 0.07 0.01
Net realized and unrealized
gain on investments 3.28 0.14 0.41 0.66 #
Net increase in net asset value
from operations 3.34 0.21 0.48 0.67
Distributions:
Dividends from net investment
income (0.07) (0.06) (0.08) --
Distributions from net realized
capital gains (0.26) (0.00)(b) (0.01) --
Total dividends and
distributions (0.33) (0.06) (0.09) --
Net asset value, end of period $ 14.22 $ 11.21 $ 11.06 $ 10.67
Total return++ 30.70% 1.93% 4.56% 6.70%+++
Ratios to average net
assets/supplemental data:
Net assets, end of period
(in 000's) $16,770 $11,038 $11,182 $1,225
Ratio of operating expenses to
average net assets 1.23% 1.15% 1.05% 0.55%+
Ratio of net investment
income/(loss) to average net
assets 0.46% 0.60% 0.59% 1.08%+
Portfolio turnover rate 80% 56% 81% 7%
Ratio of operating expenses t
average net assets without
waivers and/or expense
reimbursements 1.23% 1.16% 1.14% 1.30%+
</TABLE>
* Nations Capital Growth Fund Investor A Shares commenced operations on
October 2, 1992.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges. +++
Unaudited.
# The amount shown at this caption for each share outstanding throughout the
period may not accord with the change in the aggregate gains and losses in
the portfolio securities for the period because of the timing of purchases
and withdrawals of shares in relation to the fluctuating market value of
the portfolio.
## Per share net investment income has been calculated using the monthly
average share method.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
(b) Amount represents less than $0.01 per share.
(c) The effect of the fees reduced by the credits allowed by the custodian on
the operating expense ratio, with and without waivers and/or expense
reimbursements, was less than 0.01%.
(d) The effect of interest expense on the operating expense ratio was less than
0.01%.
64
<PAGE>
FOR AN INVESTOR B SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS CAPITAL GROWTH FUND
<TABLE>
<CAPTION>
YEAR PERIOD YEAR YEAR PERIOD
ENDED YEAR ENDED ENDED ENDED ENDED ENDED
INVESTOR B SHARes 03/31/98# 03/31/97# 03/31/96(a) 11/30/95 11/30/94 11/30/93*
<S> <C> <C> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of
period $ 11.47 $ 13.31 $ 14.15 $ 11.17 $ 11.05 $ 10.55
Net investment income/(loss) (0.10) (0.08) (0.02) (0.03) (0.01) (0.01)
Net realized and unrealized
gain on investments 5.14 1.63 0.37 3.27 0.13 0.53
Net increase in net asset value
from operations 5.04 1.55 0.35 3.24 0.12 0.52
Distributions:
Dividends from net investment
income -- -- -- -- -- (0.02)
Distributions from net realized
capital gains (3.68) (3.39) (1.19) (0.26) (0.00)(b) --
Total dividends and
distributions (3.68) (3.39) (1.19) (0.26) ( 0.00)(b) (0.02)
Net asset value, end of period $ 12.83 $ 11.47 $ 13.31 $ 14.15 $ 11.17 $ 11.05
Total return++ 52.52% 10.68% 2.77% 29.80% 1.12% 4.95%
Ratios to average net
assets/supplemental data:
Net assets, end of period (in
000's) $59,496 $41,933 $41,045 $40,868 $23,591 $9,511
Ratio of operating expenses to
average net assets 1.95%(c)(d) 1.96%(d) 1.96%+ 1.98% 1.90% 1.80%+
Ratio of net investment
income/(loss) to average net
assets (0.87)% (0.61)% (0.62)%+ (0.29)% (0.15)% (0.16)%+
Portfolio turnover rate 113% 75% 25% 80% 56% 81%
Ratio of operating expenses to
average net assets without
waivers and/or expense
reimbursements 1.95%(c) 1.96% 1.96%+ 1.98% 1.91% 1.89%+
</TABLE>
* Nations Capital Growth Fund Investor B Shares commenced operations on June
7, 1993.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
# Per share net investment income has been calculated using the monthly
average share method.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
(b) Amount represents less than $0.01 per share.
(c) The effect of the fees reduced by credits allowed by the custodian on the
operating expense ratio, with and without waivers and/or expense
reimbursements, was less than 0.01%.
(d) The effect of interest expense on the operating expense ratio was less than
0.01%.
65
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
NATIONS MARSICO FOCUSED EQUITIES FUND
<TABLE>
<CAPTION>
PERIOD
ENDED
INVESTOR A SHARES 03/31/98*#
<S> <C>
Operating performance:
Net asset value at the beginning of the period $ 10.00
Net investment income/(loss) (0.01)
Net realized and unrealized capital gain on investments 2.15
Net increase in net asset value from operations 2.14
Distributions:
Dividends from net investment income 0.00
Distributions from net realized capital gains 0.00
Total dividends and distributions 0.00
Net asset value, the end of the period $ 12.14
Total return++ 21.40%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 6,056
Ratio of operating expenses to average net assets 1.77%+(a)
Ratio of net investment income/(loss) to average net assets (0.55)%+
Portfolio turnover rate 25%
Ratio of operating expenses to average net assets without waivers and/or expense 1.77%+(a)
reimbursements
</TABLE>
* Nations Marsico Focused Equities Fund Investor A Shares commenced
operations on December 31, 1997.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
# Per share net investment income has been calculated using the monthly
average share method.
(a) The effect of the fees reduced by credits allowed by the custodian on the
operating expense ratio, with and without waivers and/or expense
reimbursements, was 0.01%.
66
<PAGE>
FOR AN INVESTOR B SHARE OUTSTANDING THROUGHOUT THE PERIOD
NATIONS MARSICO FOCUSED EQUITIES FUND
<TABLE>
<CAPTION>
PERIOD
ENDED
Investor B Shares 03/31/98*#
<S> <C>
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income/(loss) (0.04)
Net realized and unrealized gain/(loss) on investments 2.17
Net increase/(decrease) in net asset value from operations 2.13
Distributions:
Dividends from net investment income 0.00
Distributions from net realized capital gains 0.00
Total dividends and distributions 0.00
Net asset value, end of period $ 12.13
Total return ++ 21.30%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $20,446
Ratio of operating expenses to average net assets 2.52%+(a)
Ratio of net investment income/(loss) to average net assets (1.30)%+
Portfolio turnover rate 25%
Ratio of operating expenses to average net assets without waivers and/or expense 2.52%+(a)
reimbursements
</TABLE>
* Nations Marsico Focused Equities Fund Investor B Shares commenced
operations on December 31, 1997.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
# Per share net investment income has been calculated using the monthly
average share method.
(a) The effect of the fees reduced by credits allowed by the custodian on the
operating expense ratio, with and without waivers and/or expense
reimbursements, was 0.01%.
67
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
NATIONS MARSICO GROWTH & INCOME FUND
<TABLE>
<CAPTION>
PERIOD
ENDED
Investor A Shares 03/31/98*#
<S> <C>
Operating performance:
Net asset value at the beginning of the period $ 10.00
Net investment income 0.00 (b)
Net realized and unrealized gain on investments 2.02
Net increase in net asset value from operations 2.02
Dividends from net investment income 0.00
Distributions from net realized capital gains 0.00
Total dividends and distributions 0.00
Net asset value, end of the period $ 12.02
Total return++ 20.20%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 1,141
Ratio of operating expenses to average net assets 1.34 +(a)
Ratio of net investment income/(loss) to average net assets 0.13 +
Portfolio turnover rate 22%
Ratio of operating expenses to average net assets without fee waivers and/or expense 2.22 +(a)
reimbursements
</TABLE>
* Nations Marsico Growth & Income Fund Investor A Shares commenced operations
on December 31, 1997.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
# Per share net investment income has been calculated using the monthly
average share method.
(a) The effect of the fees reduced by credits allowed by the custodian on the
operating expense ratio, with and without waivers and/or expense
reimbursements, was 0.01%.
(b) Amount represents less than $0.01 per share.
68
<PAGE>
FOR AN INVESTOR B SHARE OUTSTANDING THROUGHOUT THE PERIOD
NATIONS MARSICO GROWTH & INCOME FUND
<TABLE>
<CAPTION>
PERIOD
ENDED
Investor B Shares 03/31/98*#
<S> <C>
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income (0.02)
Net realized and unrealized gain on investments 2.04
Net increase in net asset value from operations 2.02
Distributions:
Dividends from net investment income 0.00
Distributions from net realized capital gains 0.00
Total dividends and distributions 0.00
Net asset value, end of period $ 12.02
Total return++ 20.20%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 7,907
Ratio of operating expenses to average net assets 2.09%+(a)
Ratio of net investment income/loss to average net assets (0.62)%+
Portfolio turnover rate 22%
Ratio of operating expenses to average net assets without waivers and/or expense 2.97%+(a)
reimbursements
</TABLE>
* Nations Marsico Growth & Income Fund Investor B Shares commenced operations
on December 31, 1997.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
# Per share net investment income has been calculated using the monthly
average share method.
(a) The effect of the fees reduced by credits allowed by the custodian on the
operating expense ratio, with and without waivers and/or expense
reimbursements, was 0.01%.
69
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
nations international equity fund
<TABLE>
<CAPTION>
YEAR YEAR PERIOD YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED ENDED
Investor A Shares 03/31/98# 03/31/97# 03/31/96(a)# 05/31/95# 05/31/94# 05/31/93*#
<S> <C> <C> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 13.01 $ 13.39 $ 11.67 $ 12.00 $ 10.56 $ 10.38
Net investment income/(loss) 0.07 0.05 0.04 0.11 0.06 0.07
Net realized and unrealized
gain/(loss) on investments 1.94 0.11 1.78 (0.20) 1.44 0.21
Net increase/(decrease) in net asset
value from operations 2.01 0.16 1.82 (0.09) 1.50 0.28
Distributions:
Dividends from net investment
income (0.15) (0.09) (0.04) (0.02) (0.04) (0.08)
Distributions in excess of net
investment income (0.04) (0.00)(b) (0.04) -- -- --
Distributions from net realized
capital gains (0.16) (0.42) (0.02) (0.12) (0.02) (0.02)
Distributions in excess of net realized
capital gains -- (0.03) -- (0.10) -- --
Total dividends and distributions (0.35) (0.54) (0.10) (0.24) (0.06) (0.10)
Net asset value, end of period $ 14.67 $ 13.01 $ 13.39 $ 11.67 $ 12.00 $ 10.56
Total return++ 15.77% 1.08% 15.66% (0.69)% 14.00% 2.91%
Ratios to average net
assets/supplemental data:
Net assets, end of period (in 000's) $13,477 $ 9,443 $ 7,643 $ 4,877 $ 3,219 $ 839
Ratio of operating expenses to
average net assets 1.39% 1.41% 1.42%+ 1.28% 1.42% 1.55%+
Ratio of net investment income/(loss)
to average net assets 0.51% 0.37% 0.40%+ 0.92% 0.50% 0.78%+
Portfolio turnover rate 64% 36% 26% 92% 39% 41%
Ratio of operating expenses to
average net assets without waivers
and/or expense reimbursements 1.39% 1.41% 1.43%+ 1.29% 1.43% 1.62%+
</TABLE>
* Nations International Equity Fund Investor A Shares commenced operations on
June 3, 1992.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated
and does not reflect the deduction of any applicable sales charges.
# Per share net investment income/(loss) has been calculated using the
monthly average share method.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
May 31.
(b) Amount represents less than $0.01 per share.
70
<PAGE>
FOR AN INVESTOR B SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS INTERNATIONAL EQUITY FUND
<TABLE>
<CAPTION>
YEAR YEAR PERIOD YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED
Investor B Shares 03/31/98# 03/31/97# 03/31/96(a)# 05/31/95# 05/31/94*#
<S> <C> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 12.83 $ 13.27 $ 11.56 $ 11.96 $ 10.51
Net investment income/(loss) (0.03) (0.05) (0.02) 0.05 (0.00)**
Net realized and unrealized gain/(loss) on
investments 1.92 0.10 1.78 (0.22) 1.51
Net increase/(decrease) in net asset value
from operation 1.89 0.05 1.76 (0.17) 1.51
Distributions:
Dividends from net investment income -- (0.04) -- (0.01) (0.04)
Distributions in excess of net investment
income -- (0.00)** (0.03) -- --
Distributions from net realized capital gains (0.16) (0.42) (0.02) (0.12) (0.02)
Distributions in excess of net realized
capital gains -- (0.03) -- (0.10) --
Total dividends and distributions (0.16) (0.49) (0.05) (0.23) (0.06)
Net asset value, end of period $ 14.56 $ 12.83 $ 13.27 $ 11.56 $ 11.96
Total return++ 14.93% 0.28% 15.25% (1.30)% 14.32%
Ratios to average net assets/supplemental
data:
Net assets, end of period (in 000's): $34,119 $36,698 $40,426 $31,372 $17,349
Ratio of operating expenses to average net
assets 2.14% 2.16% 1.99%+ 1.78% 1.92%+
Ratio of net investment income/(loss) to
average net assets (0.24)% (0.38)% (0.17)%+ 0.42% (0.00)%+##
Portfolio turnover rate 64% 36% 26% 92% 39%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 2.14% 2.16% 2.00%+ 1.79% 1.93%+
</TABLE>
* Nations International Equity Fund Investor B Shares commenced operations on
June 7, 1993.
** Amount represents less than $0.01 per share.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated
and does not reflect the deduction of any applicable sales charges.
# Per share net investment income/(loss) has been calculated using the
monthly average share method.
## Amount represents less than 0.01%.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
May 31.
71
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS INTERNATIONAL GROWTH FUND
<TABLE>
<CAPTION>
YEAR PERIOD YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED ENDED
INVESTOR A SHARES* 03/31/98# 05/16/97 08/31/96 08/31/95# 08/31/94# 08/31/93#(a)
<S> <C> <C> <C> <C> <C> <C>
Operating performance:
Net asset value at the beginning of
the period $ 18.27 $ 16.90 $ 16.14 $ 16.29 $ 14.13 $ 11.85
Net investment income/(loss) (0.01) (0.05) 0.04 0.08 0.07 0.02
Net realized and unrealized
gain/(loss) on investments 1.29 1.90 1.57 0.17 2.24 2.26
Net income/(loss) from operations 1.28 1.85 1.61 0.25 2.31 2.28
Dividends from net investment
income -- (0.14) (0.46) (0.11) -- --
Distributions from net realized
capital gain (0.34) (0.34) (0.39) (0.29) (0.15) --
Total dividends and distributions (0.34) (0.48) (0.85) (0.40) (0.15) --
Net asset value, end of the period $ 19.21 $ 18.27 $ 16.90 $ 16.14 $ 16.29 $ 14.13
Total return++ 7.18% 11.14% 10.40% 1.77% 16.48% 19.24%
Ratios to average net
assets/supplemental data:
Net assets, end of period (in 000's) $24,353 $26,730 $26,730 $27,625 $44,990 $55,816
Ratio of operating expenses to
average net assets 1.40%+ 1.42%+ 1.32% 1.42% 1.37% 2.17%+
Ratio of operating expenses to
average net assets without waivers 1.42%+ 1.42%+ 1.32% 1.42% 1.37% 2.17%+
Ratio of net investment income/(loss)
to average net assets (0.04)%+ 0.29%+ 0.48% 0.50% 0.48% 0.25%+
Portfolio turnover rate 11%+ 34% 22% 36% 35% 27%(b)
</TABLE>
* The financial information for the fiscal periods through May 23, 1997
reflect the financial information for the Pilot International Equity Funds'
Class A Shares which were reorganized into the Nations International Growth
Fund Investor A Shares as of May 23, 1997. Prior to July 1997, the
investment adviser to Nations International Growth Fund was Kleinwort
Benson. Effective July 1997 the investment adviser to Nations International
Growth Fund was NBAI.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
# Per share net investment income/(loss) has been calculated using the
monthly average share method.
(a) Prior to a tax-free reorganization into Pilot Administration Shares
(subsequently renamed Class A Shares) effective July 12, 1993, the Pilot
Kleinwort Benson International Equity Portfolio (subsequently renamed the
Pilot International Equity Fund) was a separate portfolio of Kleinwort
Benson Investment Strategies known as Kleinwort Benson International Equity
Fund. The predecessor portfolio was advised by Kleinwort Benson
International Investment Limited and had a December 31 year end.
(b) Excludes transfer of assets effective August 6, 1993 from a collective
trust for which Boatmen's Trust Company served as Trustee.
72
<PAGE>
FOR AN INVESTOR B SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS INTERNATIONAL GROWTH FUND
<TABLE>
<CAPTION>
PERIOD PERIOD YEAR
ENDED ENDED ENDED
INVESTOR B SHARES* 03/31/98# 05/16/97 08/31/96(a)
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of the period $ 18.32 $ 17.04 $ 17.54
Net investment income/(loss) (0.11) (0.05) --
Net realized and unrealized gain/(loss) on investments 1.24 1.79 (0.50)
Net increase/(decrease) in net asset value from operations 1.13 1.74 (0.50)
Distributions:
Dividends from net investment income -- (0.12) --
Distributions from net realized capital gains (0.34) (0.34) --
Total dividends and distributions (0.34) (0.46) --
Net asset value, end of the period $ 19.11 $ 18.32 $ 17.04
Total return++ 6.34% 10.37% (2.85)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 500 $ 560 $ 184
Ratio of operating expenses to average net assets 2.15%+ 2.18%+ 2.06%+
Ratio of operating expenses to average net assets without waivers 2.17%+ 2.18%+ 2.06%+
Ratio of net investment income (loss) to average net assets (0.79)%+ (0.61)%+ (0.32)%+
Portfolio turnover rate 11% 34% 22%
</TABLE>
* The financial information for the fiscal periods prior to May 23, 1997
reflects the financial information for the Pilot International Equity
Fund's Class B Shares, which were reorganized into Nations International
Growth Fund Investor B Shares as of May 23, 1997. Prior to May 23, 1997,
the investment adviser to Nations International Growth Fund was Kleinwort
Benson. Effective July, 1997, the investment adviser to Nations
International Growth Fund is Gartmore Global Partners.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the duration of any applicable sales charges.
# Per share net investment income/(loss) has been calculated using the
monthly average share method.
(a) Shares were initially issued on July 1, 1996.
73
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS INTERNATIONAL VALUE FUND
<TABLE>
<CAPTION>
PERIOD YEAR PERIOD
ENDED ENDED ENDED
INVESTOR A SHARES* 5/15/98 11/30/97 11/30/96**(a)
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 13.13 $ 11.29 $ 10.00
Net investment income 0.08 0.01 0.04
Net realized and unrealized gains on securities 2.52 1.91 1.31
Total income from investment operations 2.60 1.92 1.35
Less dividends and distributions:
Dividends from net investment income -- (0.01) (0.04)
Dividends in excess of net investment income -- (0.05) --
Distributions from net realized gains on securities (0.29) (0.02) (0.02)
Total dividends and distributions (0.29) (0.08) (0.06)
Net change in net asset value 2.31 1.84 1.29
Net asset value, end of period $ 15.44 $ 13.13 $ 11.29
Total return 20.22%++ 17.11% 13.54%++
Ratios to average net assets supplemental data:
Net assets, end of period (000s) $5,128 $4,259 $ 115
Ratio of expenses to average net assets 1.81%+ 1.73% 0.00%+
Ratio of net investment income to average net assets 1.21%+ 0.26% 1.83%+
Ratio of expenses to average net assets*** 1.82%+ 1.93% 57.40%+
Ratio of net investment income (loss) to average net assets*** 1.20%+ 0.06% (55.57%)+
Portfolio turnover 88%++ 29% 50%++
</TABLE>
* Investor A Shares of Nations International Value Fund were formerly Retail
Shares of the Emerald International Equity Fund, a predecessor portfolio.
** For the period December 27, 1995 (commencement of operations) through
November 30, 1996.
*** During the period, certain fees were voluntarily reduced and/or reimbursed
reimbursements had not occurred, the ratios would have been as indicated.
(a) Effective August 19, 1996, Brandes became the Fund's Investment
Sub-Adviser.
+ Annualized.
++ Not annualized.
74
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS EMERGING MARKETS FUND
<TABLE>
<CAPTION>
YEAR YEAR PERIOD
ENDED ENDED ENDED
Investor A Shares 03/31/98# 03/31/97# 03/31/96*#
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 11.39 $ 10.32 $ 10.00
Net investment income/(loss) 0.01 (0.01) (0.05)
Net realized and unrealized gain/(loss) on investments (0.75) 1.21 0.37
Net increase/(decrease) in net asset value from operations (0.74) 1.20 0.32
Distributions:
Dividends from net investment income (0.08) (0.02) --
Distributions in excess of net investment income -- (0.05) --
Distributions from net realized capital gains -- (0.06) --
Total dividends and distributions (0.08) (0.13) --
Net asset value, end of period $ 10.57 $ 11.39 $ 10.32
Total return++ (6.60)% 11.74% 3.20%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 652 $ 894 $ 477
Ratio of operating expenses to average net assets 1.82% 1.99% 2.38%+
Ratio of net investment income to average net assets 0.11% (0.12%) (0.63)%+
Portfolio turnover rate 63% 31% 17%
</TABLE>
* Nations Emerging Markets Fund Investor A Shares commenced operations on
June 30, 1995.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
# Per share net investment income/(loss) has been calculated using the
monthly average share method.
75
<PAGE>
FOR AN INVESTOR B SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS EMERGING MARKETS FUND
<TABLE>
<CAPTION>
YEAR YEAR PERIOD
ENDED ENDED ENDED
INVESTOR B SHARES 03/31/98# 03/31/97# 03/31/96*#
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 11.31 $ 10.26 $ 10.00
Net investment income/(loss) (0.07) ( 0.09) (0.11)
Net realized and unrealized gain/(loss) on investments (0.75) 1.20 0.37
Net increase/(decrease) in net asset value from operations (0.82) 1.11 0.26
Distributions:
Dividends from net investment income -- -- --
Distributions in excess of net investment income -- -- --
Distributions from net realized capital gains -- (0.06) --
Total dividends and distributions 0.00 (0.06) --
Net asset value, end of period $ 10.49 $ 11.31 $ 10.26
Total return++ (7.25)% 10.88% 2.60%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's): $ 1,247 $ 1,499 $ 1,209
Ratio of operating expenses to average net assets 2.57% 2.74% 3.13%+
Ratio of net investment loss to average net assets (0.64)% (0.87)% (1.38)%+
Portfolio turnover rate 63% 31% 17%
</TABLE>
* Nations Emerging Markets Fund Investor B Shares commenced operations on
June 30, 1995.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
# Per share net investment income/(loss) has been calculated using the monthly
average share method.
76
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations Pacific Growth Fund
<TABLE>
<CAPTION>
YEAR YEAR PERIOD
ENDED ENDED ENDED
Investor A Shares 03/31/98# 03/31/97 03/31/96*#
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 10.37 $ 10.23 $ 10.00
Net investment income/(loss) 0.07 0.00** (0.04)
Net realized and unrealized gain/(loss) on investments (2.98) 0.19 0.29
Net increase/(decrease) in net asset value from operations (2.91) 0.19 0.25
Distributions:
Dividends from net investment income (0.17) (0.03) --
Distributions in excess of net investment income -- (0.02) (0.02)
Total dividends and distributions (0.17) (0.05) (0.02)
Net asset value, end of period $ 7.29 $ 10.37 $ 10.23
Total return++ (28.59)% 1.86% 2.52%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's): $ 871 $2,480 $1,375
Ratio of operating expenses to average net assets 1.62% 1.67% 2.01%+
Ratio of net investment income/(loss) to average net assets 0.69% 0.14% (0.52)%+
Portfolio turnover rate 123% 78% 23%
</TABLE>
* Nations Pacific Growth Fund Investor A Shares commenced operations on June
30, 1995.
** Amount represents less than $0.01 per share.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
# Per share net investment income/(loss) has been calculated using the
monthly average share method.
77
<PAGE>
FOR AN INVESTOR B SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS PACIFIC GROWTH FUND
<TABLE>
<CAPTION>
YEAR YEAR PERIOD
ENDED ENDED ENDED
INVESTOR B SHARES 03/31/98# 03/31/97 03/31/96*#
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 10.30 $ 10.18 $ 10.00
Net investment income/(loss) (0.01) (0.05) (0.10)
Net realized and unrealized gain/(loss) on investments (2.98) 0.19 0.29
Net increase/(decrease) in net asset value from operations (2.99) 0.14 0.19
Distributions:
Dividends from net investment income (0.03) (0.01) --
Distributions in excess of net investment income -- (0.01) (0.01)
Total dividends and distributions (0.03) (0.02) (0.01)
Net asset value, end of period $ 7.28 $ 10.30 $ 10.18
Total return++ (29.04)% 1.18% 1.88%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's): $ 1,195 $ 2,367 $ 2,324
Ratio of operating expenses to average net assets 2.37% 2.42% 2.76%
Ratio of net investment income/(loss) to average net assets (0.06)% (0.61)% (1.27)%
Portfolio turnover rate 123% 78% 23%
</TABLE>
* Nations Pacific Growth Fund Investor B Shares commenced operations on June
30, 1995.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
# Per share net investment income/(loss) has been calculated using the
monthly average share method.
78
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS BALANCED ASSETS FUND
<TABLE>
<CAPTION>
YEAR YEAR
ENDED PERIOD
INVESTOR A SHARES 03/31/98 03/31/97
<S> <C> <C>
Operating performance:
Net asset value, beginning of
period $ 11.13 $ 11.64
Net investment income 0.27 0.34
Net realized and unrealized
gain/(loss) on investments 2.68 1.05
Net increase/(decrease) in net
asset value from operations 2.95 1.39
Distributions:
Dividends from net investment
income (0.27) (0.36)
Distributions from net realized
capital gains (2.34) (1.54)
Total dividends and
distributions (2.61) (1.90)
Net asset value, end of period $ 11.47 $ 11.13
Total return++ 30.13% 12.18%
Ratios to average net
assets/supplemental data:
Net assets, end of period (in
000's) $16,009 $ 9,075
Ratio of operating expenses to
average net assets 1.33%(b)(c) 1.25%(b)
Ratio of net investment income
to average net assets 2.45% 3.06%
Portfolio turnover rate 276% 264%
Ratio of operating expenses to
average net assets without
waivers and/or expense
reimbursements 1.33%(b) 1.25%(b)
<CAPTION>
PERIOD YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED
Investor A Shares 03/31/96(a) 11/30/95 11/30/94 11/30/93 11/30/92*
<S> <C> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of
period $ 12.66 $ 10.42 $ 10.86 $ 10.24 $ 10.00
Net investment income 0.11 0.34 0.22 0.29 0.01
Net realized and unrealized
gain/(loss) on investments 0.45 2.23 (0.44) 0.62 0.23 #
Net increase/(decrease) in net
asset value from operations 0.56 2.57 (0.22) 0.91 0.24
Distributions:
Dividends from net investment
income (0.17) (0.31) (0.22) (0.29) --
Distributions from net realized
capital gains (1.41) (0.02) -- -- --
Total dividends and
distributions (1.58) (0.33) (0.22) (0.29) --
Net asset value, end of period $ 11.64 $ 12.66 $ 10.42 $ 10.86 $ 10.24
Total return++ 4.86% 25.01% (2.02)% 8.93% 2.40%+++
Ratios to average net
assets/supplemental data:
Net assets, end of period (in
000's) $ 6,261 $ 5,276 $ 4,881 $ 5,191 $ 547
Ratio of operating expenses to
average net assets 1.25%+ 1.24% 1.23% 1.15% 0.55%+
Ratio of net investment income
to average net assets 2.66%+ 3.00% 2.06% 2.57% 3.60%+
Portfolio turnover rate 83% 174% 156% 50% 79%
Ratio of operating expenses to
average net assets without
waivers and/or expense
reimbursements 1.25%+ 1.24% 1.24% 1.22% 1.30%+
</TABLE>
* Nations Balanced Assets Fund Investor A Shares commenced operations on
October 2, 1992.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# The amount shown at this caption for each share outstanding throughout the
period may not accord with the change in the aggregate gains and losses in
the portfolio securities for the period because of the timing of purchases
and withdrawals of shares in relation to the fluctuating market value of
the portfolio.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
(b) The effect of the fees reduced by credits allowed by the custodian on the
operating expense ratio, with and without waivers and/or expense
reimbursements, was less than 0.01%.
(c) The effect of interest expense on the operating expense ratio was less than
0.01%.
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FOR AN INVESTOR B SHARE OUTSTANDING THROUGHOUT EACH PERIOD
nations balanced assets fund
<TABLE>
<CAPTION>
YEAR PERIOD PERIOD
ENDED YEAR ENDED ENDED YEAR ENDED YEAR ENDED ENDED
INVESTOR B SHARES 03/31/98 03/31/97 03/31/96(a) 11/30/95 11/30/94 11/30/93*
<S> <C> <C> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of
period $ 11.11 $ 11.62 $ 12.63 $ 10.40 $ 10.85 $ 10.61
Net investment income 0.19 0.29 0.09 0.28 0.17 0.14
Net realized and unrealized
gain/(loss) on investments 2.68 1.04 0.45 2.22 (0.44) 0.23
Net increase/(decrease) in net
asset value from operations 2.87 1.33 0.54 2.50 (0.27) 0.37
Distributions:
Dividends from net investment
income (0.19) (0.30) (0.14) (0.25) (0.18) (0.13)
Distributions from net realized
capital gains (2.34) (1.54) (1.41) (0.02) -- --
Total dividends and
distributions (2.53) (1.84) (1.55) (0.27) (0.18) (0.13)
Net asset value, end of period $ 11.45 $ 11.11 $ 11.62 $ 12.63 $ 10.40 $ 10.85
Total return++ 29.35% 11.62% 4.69% 24.35% (2.51)% 3.45%
Ratios to average net
assets/supplemental data:
Net assets, end of period (in
000's) $78,813 $64,058 $65,764 $65,275 $52,905 $27,982
Ratio of operating expenses to
average net assets 2.00%(b)(c) 1.75%(b) 1.75%+ 1.74% 1.73% 1.65%+
Ratio of net investment income
to average net assets 1.78% 2.56% 2.16%+ 2.50% 1.56% 2.07%+
Portfolio turnover rate 276% 264% 83% 174% 156% 50%
Ratio of operating expenses to
average net assets without
waivers and/or expense
reimbursements 2.00%(b) 1.75%(b) 1.75%+ 1.74% 1.74% 1.72%+
</TABLE>
* Nations Balanced Assets Fund Investor B Shares commenced operations on June
7, 1993.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
(b) The effect of the fees reduced by credits allowed by the custodian on the
operating expense ratio, with and without waivers and/or expense
reimbursements, was less than 0.01%.
(c) The effect of interest expense on the operating expense ratio was less than
0.01%.
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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.
ASSET-BACKED SECURITIES: Asset-backed securities arise through the grouping by
governmental, government-related, and private organizations of loans,
receivables, or other assets originated by various lenders. Asset-backed
securities consist of both mortgage- and non-mortgage-backed securities.
Interests in pools of these assets may differ from other forms of debt
securities, which normally provide for periodic payment of interest in fixed
amounts with principal paid at maturity or specified call dates. Conversely,
asset-backed securities provide periodic payments which may consist of both
interest and principal payments.
Mortgage-backed securities represent an ownership interest in a pool of
residential mortgage loans, the interest in which is in most cases issued and
guaranteed by an agency or instrumentality of the U.S. Government, though not
necessarily by the U.S. Government itself.
Mortgage-backed securities include mortgage pass-through securities,
collateralized mortgage obligations ("CMOs"), parallel pay CMOs, planned
amortization class CMOs ("PAC Bonds") and stripped mortgage-backed securities
("SMBS"), including interest-only and principal-only SMBS. SMBS may be more
volatile than other debt securities. For additional information concerning
mortgage-backed securities, see the SAI.
Non-mortgage asset-backed securities include interests in pools of receivables,
such as motor vehicle installment purchase obligations and credit card
receivables. Such securities are generally issued as pass-through certificates,
which represent undivided fractional ownership interests in the underlying
pools of assets. Such securities also may be debt instruments, which are also
known as collateralized obligations and are generally issued as the debt of a
special purpose entity organized solely for the purpose of owning such assets
and issuing such debt.
MORTGAGE-BACKED SECURITIES: Mortgage-backed securities represent an ownership
interest in a pool of mortgage loans.
Mortgage pass-through securities may represent participation interests in pools
of residential mortgage loans originated by U.S. governmental or private
lenders and guaranteed, to the extent provided in such securities, by the U.S.
Government or one of its agencies, authorities or instrumentalities. Such
securities, which are ownership interests in the underlying mortgage loans,
differ from conventional debt securities, which provide for periodic payment of
interest in fixed amounts (usually semi-annually) and principal payments at
maturity or on specified call dates. Mortgage pass-through securities provide
for monthly payments that are a "pass-through" of the monthly interest and
principal payments (including any prepayments) made by the individual borrowers
on the pooled mortgage loans, net of any fees paid to the guarantor of such
securities and the servicer of the underlying mortgage loans.
The guaranteed mortgage pass-through securities in which a Fund may invest may
include those issued or guaranteed by the Government National Mortgage
Association ("GNMA"), by the Federal National Mortgage Association ("FNMA") and
by the Federal Home Loan and Mortgage Corporation ("FHLMC"). Such Certificates
are mortgage-backed securities which represent a partial ownership interest in
a pool of mortgage loans issued by lenders such as mortgage bankers, commercial
banks and savings and loan associations. Such mortgage loans may have fixed or
adjustable rates of interest.
The average life of a mortgage-backed security is likely to be substantially
less than the original maturity of the mortgage pools underlying the
securities. Prepayments of principal by mortgagors and mortgage foreclosures
will usually result in the
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return of the greater part of principal invested far in advance of the maturity
of the mortgages in the pool.
The yield which will be earned on mortgage-backed securities may vary from
their coupon rates for the following reasons: (i) Certificates may be issued at
a premium or discount, rather than at par; (ii) Certificates may trade in the
secondary market at a premium or discount after issuance; (iii) interest is
earned and compounded monthly which has the effect of raising the effective
yield earned on the Certificates; and (iv) the actual yield of each Certificate
is affected by the prepayment of mortgages included in the mortgage pool
underlying the Certificates and the rate at which principal so prepaid is
reinvested. In addition, prepayment of mortgages included in the mortgage pool
underlying a GNMA Certificate purchased at a premium may result in a loss to a
Fund.
Mortgage-backed securities issued by private issuers, whether or not such
obligations are subject to guarantees by the private issuer, may entail greater
risk than obligations directly or indirectly guaranteed by the U.S. Government.
Collateralized Mortgage Obligations or "CMOs" are debt obligations
collateralized by mortgage loans or mortgage pass-through securities
(collateral collectively hereinafter referred to as "Mortgage Assets").
Multi-class pass-through securities are interests in a trust composed of
Mortgage Assets and all references herein to CMOs will include multi-class
pass-through securities. Payments of principal of and interest on the Mortgage
Assets, and any reinvestment income thereon, provide the funds to pay debt
service on the CMOs or make scheduled distribution on the multi-class
pass-through securities.
Moreover, principal prepayments on the Mortgage Assets may cause the CMOs to be
retired substantially earlier than their stated maturities or final
distribution dates, resulting in a loss of all or part of the premium if any
has been paid. Interest is paid or accrues on all classes of the CMOs on a
monthly, quarterly or semiannual basis.
The principal and interest payments on the Mortgage Assets may be allocated
among the various classes of CMOs in several ways. Typically, payments of
principal, including any prepayments, on the underlying mortgages are applied
to the classes in the order of their respective stated maturities or final
distribution dates, so that no payment of principal is made on CMOs of a class
until all CMOs of other classes having earlier stated maturities or final
distribution dates have been paid in full.
Stripped mortgage-backed securities ("SMBS") are derivative multi-class
mortgage securities. A Fund will only invest in SMBS that are obligations
backed by the full faith and credit of the U.S. Government. SMBS are usually
structured with two classes that receive different proportions of the interest
and principal distributions from a pool of mortgage assets. A Fund will only
invest in SMBS whose mortgage assets are U.S. Government Obligations.
A common type of SMBS will be structured so that one class receives some of the
interest and most of the principal from the Mortgage Assets, while the other
class receives most of the interest and the remainder of the principal. If the
underlying Mortgage Assets experience greater than anticipated prepayments of
principal, a Fund may fail to fully recoup its initial investment in these
securities. The market value of any class which consists primarily or entirely
of principal payments generally is unusually volatile in response to changes in
interest rates.
The average life of mortgage-backed securities varies with the maturities of
the underlying mortgage instruments. The average life is likely to be
substantially less than the original maturity of the mortgage pools underlying
the securities as the result of mortgage prepayments, mortgage refinancings, or
foreclosures. The rate of mortgage prepayments, and hence the average life of
the certificates, will be a function of the level of interest rates, general
economic conditions, the location and age of the mortgage and other social and
demographic conditions. Such prepayments are passed through to the registered
holder with the regular monthly payments of principal and interest and have the
effect of reducing future payments. Estimated average life will be determined
by the Adviser and used for the purpose of determining the average
dollar-weighted maturity and duration of the Funds. For additional information
concerning mortgage backed securities, see the SAI.
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The mortgage-backed securities in which the Funds invest are subject to
extension risk. This is the risk that when interest rates rise, prepayments of
the underlying obligations slow thereby lengthening duration and potentially
reducing the value of these securities. The debt securities held by the Funds
also may be subject to credit risk. Credit risk is the risk that the issuers of
securities in which a Fund invests may default in the payment of principal
and/or interest. Any such defaults or adverse changes in an issuer's financial
condition or credit rating may adversely affect the value of the Funds'
portfolio investments and, hence, the value of your investment in the
corresponding Fund.
NON-MORTGAGE ASSET-BACKED SECURITIES: Non-mortgage asset-backed securities
include interests in pools of receivables, such as motor vehicle installment
purchase obligations and credit card receivables. Such securities are generally
issued as pass-through certificates, which represent undivided fractional
ownership interests in the underlying pools of assets. Such securities also may
be debt instruments, which are also known as collateralized obligations and are
generally issued as the debt of a special purpose entity organized solely for
the purpose of owning such assets and issuing such debt. Such securities also
may include instruments issued by certain trusts, partnerships or other special
purpose issuers, including pass-through certificates representing
participations in, or debt instruments backed by, the securities and other
assets owned by such issuers.
Non-mortgage-backed securities are not issued or guaranteed by the U.S.
Government or its agencies or instrumentalities; however, the payment of
principal and interest on such obligations may be guaranteed up to certain
amounts and for a certain time period by a letter of credit issued by a
financial institution (such as a bank or insurance company) unaffiliated with
the issuers of such securities.
The purchase of non-mortgage-backed securities raises considerations unique to
the financing of the instruments underlying such securities. For example, most
organizations that issue asset-backed securities relating to motor vehicle
installment purchase obligations perfect their interests in their respective
obligations only by filing a financing statement and by having the servicer of
the obligations, which is usually the originator, take custody thereof. In such
circumstances, if the servicer were to sell the same obligations to another
party, in violation of its duty not to do so, there is a risk that such party
could acquire an interest in the obligations superior to that of the holders of
the asset-backed securities. Also, although most such obligations grant a
security interest in the motor vehicle being financed, in most states the
security interest in a motor vehicle must be noted on the certificate of title
to perfect such security interest against competing claims of other parties.
Due to the larger number of vehicles involved, however, the certificate of
title to each vehicle financed, pursuant to the obligations underlying the
asset-backed securities, usually is not amended to reflect the assignment of
the seller's security interest for the benefit of the holders of the
asset-backed securities. Therefore, there is the possibility that recoveries on
repossessed collateral may not, in some cases, be available to support payments
on those securities. In addition, various state and Federal laws give the motor
vehicle owner the right to assert against the holder of the owner's obligation
certain defenses such owner would have against the seller of the motor vehicle.
The assertion of such defenses could reduce payments on the related asset-backed
securities. Insofar as credit card receivables are concerned, credit card
holders are entitled to the protection of a number of state and Federal
consumer credit laws, many of which give such holders the right to set off
certain amounts against balances owed on the credit card, thereby reducing the
amounts paid on such receivables. In addition, unlike most other asset-backed
securities, credit card receivables are unsecured obligations of the card
holder.
BANK INSTRUMENTS: Bank instruments consist mainly of certificates of deposit,
time deposits and bankers' acceptances. The Funds will limit their investments
in bank obligations so they do not exceed 25% of each Fund's total assets at
the time of purchase.
U.S. dollar-denominated obligations issued by foreign branches of domestic
banks ("Eurodollar" obligations) and domestic branches of foreign banks
("Yankee dollar" obligations), and other foreign obligations involve special
investment risks, including the possibility that liquidity could be impaired
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because of future political and economic developments, the obligations may be
less marketable than comparable domestic obligations of domestic issuers, a
foreign jurisdiction might impose withholding taxes on interest income payable
on such obligations, deposits may be seized or nationalized, foreign
governmental restrictions such as exchange controls may be adopted which might
adversely affect the payment of principal of and interest on such obligations,
the selection of foreign obligations may be more difficult because there may be
less publicly available information concerning foreign issuers, there may be
difficulties in enforcing a judgment against a foreign issuer or the
accounting, auditing and financial reporting standards, practices and
requirements applicable to foreign issuers may differ from those applicable to
domestic issuers. In addition, foreign banks are not subject to examination by
U.S. Government agencies or instrumentalities.
BORROWINGS: When a Fund borrows money, the net asset value of a share may be
subject to greater fluctuation until the borrowing is paid off. The Funds may
borrow money from banks for temporary purposes in amounts of up to one-third of
their respective total assets, provided that borrowings in excess of 5% of the
value of the Funds' total assets must be repaid prior to the purchase of
portfolio securities. Pursuant to line of credit arrangements with BONY, the
Funds may borrow primarily for temporary or emergency purposes, including the
meeting of redemption requests that otherwise might require the untimely
disposition of securities.
Reverse repurchase agreements and dollar roll transactions may be considered to
be borrowings. When a Fund invests in a reverse repurchase agreement, it sells
a portfolio security to another party, such as a bank or broker/dealer, in
return for cash, and agrees to buy the security back at a future date and
price. Reverse repurchase agreements may be used to provide cash to satisfy
unusually heavy redemption requests without having to sell portfolio
securities, or for other temporary or emergency purposes. Generally, the effect
of such a transaction is that the Funds can recover all or most of the cash
invested in the portfolio securities involved during the term of the reverse
repurchase agreement, while they will be able to keep the interest income
associated with those portfolio securities. Such transactions are only
advantageous if the interest cost to the Funds of the reverse repurchase
transaction is less than the cost of obtaining the cash otherwise.
At the time a Fund enters into a reverse repurchase agreement, it may establish
a segregated account with its custodian bank in which it will maintain cash,
U.S. Government securities or other liquid high grade debt obligations equal in
value to its obligations in respect of reverse repurchase agreements. Reverse
repurchase agreements involve the risk that the market value of the securities
a Fund is obligated to repurchase under the agreement may decline below the
repurchase price. In the event the buyer of securities under a reverse
repurchase agreement files for bankruptcy or becomes insolvent, the Fund's use
of proceeds of the agreement may be restricted pending a determination by the
other party, or its trustee or receiver, whether to enforce the Fund's
obligation to repurchase the securities. In addition, there is a risk of delay
in receiving collateral or securities or in repurchasing the securities covered
by the reverse repurchase agreement or even of a loss of rights in the
collateral or securities in the event the buyer of the securities under the
reverse repurchase agreement files for bankruptcy or becomes insolvent. The
Funds only enter into reverse repurchase agreements (and repurchase agreements)
with counterparties that are deemed by the Adviser to be credit worthy. Reverse
repurchase agreements are speculative techniques involving leverage, and are
subject to asset coverage requirements if the Funds do not establish and
maintain a segregated account (as described above). Under the requirements of
the 1940 Act, the Funds are required to maintain an asset coverage (including
the proceeds of the borrowings) of at least 300% of all borrowings. Depending
on market conditions, the Fund's asset coverage and other factors at the time
of a reverse repurchase, the Funds may not establish a segregated account when
the Adviser believes it is not in the best interests of the Funds to do so. In
this case, such reverse repurchase agreements will be considered borrowings
subject to the asset coverage described above.
Dollar roll transactions may be considered to be borrowings. Dollar roll
transactions consist of the sale by a Fund of mortgage-backed or other asset-
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backed securities, together with a commitment to purchase similar, but not
identical, securities at a future date, at the same price. In addition, a Fund
is paid a fee as consideration for entering into the commitment to purchase. If
the broker/dealer to whom a Fund sells the security becomes insolvent, the
Fund's right to purchase or repurchase the security may be restricted; the
value of the security may change adversely over the term of the dollar roll;
the security that the Fund is required to repurchase may be worth less than the
security that the Fund originally held, and the return earned by the Fund with
the proceeds of a dollar roll may not exceed transaction costs.
COMMERCIAL INSTRUMENTS: Commercial instruments consist of short-term U.S.
dollar-denominated obligations issued by domestic corporations or foreign
corporations and foreign commercial banks.
Investments by a Fund in commercial paper will consist of issues rated in a
manner consistent with such Fund's investment policies and objective. In
addition, a Fund may acquire unrated commercial paper and corporate bonds that
are determined by the Adviser at the time of purchase to be of comparable
quality to rated instruments that may be acquired by a Fund. Commercial
instruments include variable-rate master demand notes, which are unsecured
instruments that permit the indebtedness thereunder to vary and provide for
periodic adjustments in the interest rate, and variable- and floating-rate
instruments.
CONVERTIBLE SECURITIES, PREFERRED STOCK, AND WARRANTS: Each Fund may invest in
debt securities convertible into or exchangeable for equity securities,
preferred stocks or warrants. Preferred stocks are securities that represent an
ownership interest in a corporation providing the owner with claims on a
company's earnings and assets before common stock owners, but after bond or
other debt security owners. Warrants are options to buy a stated number of
shares of common stock at a specified price any time during the life of the
warrants.
FIXED INCOME INVESTING: The performance of the fixed income debt component of a
Fund's portfolio depends primarily on interest rate changes, the average
weighted maturity of the portfolio and the quality of the securities held. The
debt component of a Fund's portfolio will tend to decrease in value when
interest rates rise and increase when interest rates fall. A Fund's share price
and yield depend, in part, on the maturity and quality of its debt instruments.
FOREIGN CURRENCY TRANSACTIONS: To the extent provided under "How Objectives Are
Pursued," the Funds may enter into foreign currency exchange transactions to
convert foreign currencies to and from the U.S. dollar. A Fund either enters
into these transactions on a spot (I.E., cash) basis at the spot rate
prevailing in the foreign currency exchange market, or uses forward contracts
to purchase or sell foreign currencies. A forward foreign currency exchange
contract is an obligation by a Fund to purchase or sell a specific currency at
a future date, which may be any fixed number of days from the date of the
contract.
Foreign currency hedging transactions are an attempt to protect a Fund against
changes in foreign currency exchange rates between the trade and settlement
dates of specific securities transactions or changes in foreign currency
exchange rates that would adversely affect a portfolio position or an
anticipated portfolio position. Although these transactions tend to minimize
the risk of loss due to a decline in the value of the hedged currency, at the
same time they tend to limit any potential gain that might be realized should
the value of the hedged currency increase. Neither spot transactions nor
forward foreign currency exchange contracts eliminate fluctuations in the
prices of a Fund's portfolio securities or in foreign exchange rates, or
prevent loss if the prices of these securities should decline.
A Fund will generally enter into forward currency exchange contracts only under
two circumstances: (i) when the Fund enters into a contract for the purchase or
sale of a security denominated in a foreign currency, to "lock" in the U.S.
dollar price of the security; and (ii) when the Adviser believes that the
currency of a particular foreign country may experience a substantial movement
against another currency. Under certain circumstances, the Fund may commit a
substantial portion of its portfolio to the execution of these contracts. The
Adviser will consider the effects such a commitment would have on the
investment program of the Fund and the flexibility of the Fund to purchase
additional securities. Although for-
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ward contracts will be used primarily to protect the Fund from adverse currency
movements, they also involve the risk that anticipated currency movements will
not be accurately predicted.
In addition, the Euro will become the single currency in at least 11 European
nations used in many financial transactions. Accordingly, the German mark,
French franc and other national currencies will no longer be used. Although the
impact of implementing the Euro is not possible to predict, the transition
could have an effect on the financial markets and economic environment in
Europe and other parts of the world. For example, investors may begin to view
those countries participating in the Economic Monetary Union as a single
combined entity and may alter their investment behavior accordingly. In
response to any such effect of the Euro implementation, the Adviser may need to
adapt its investment policies and strategy.
FOREIGN SECURITIES: Foreign securities include debt and equity obligations
(dollar- and non-dollar-denominated) of foreign corporations and banks as well
as obligations of foreign governments and their political subdivisions (which
will be limited to direct government obligations and government-guaranteed
securities). Such investments may subject a Fund to special investment risks,
including future political and economic developments, the possible imposition
of withholding taxes on income (including interest, distributions and
disposition proceeds), possible seizure or nationalization of foreign deposits,
the possible establishment of exchange controls, or the adoption of other
foreign governmental restrictions which might adversely affect the payment of
principal and interest on such obligations. In addition, foreign issuers in
general may be subject to different accounting, auditing, reporting, and record
keeping standards than those applicable to domestic companies, and securities
of foreign issuers may be less liquid and their prices more volatile than those
of comparable domestic issuers.
Investments in foreign securities may present additional risks, whether made
directly or indirectly, including the political or economic instability of the
issuer or the country of issue and the difficulty of predicting international
trade patterns. In addition, there may be less publicly available information
about a foreign company than about a U.S. company. Further, foreign securities
markets are generally not as developed or efficient as those in the U.S., and
in most foreign markets volume and liquidity are less than in the United
States. Fixed commissions on foreign securities exchanges are generally higher
than the negotiated commissions on U.S. exchanges, and there is generally less
government supervision and regulation of foreign securities exchanges, brokers,
and companies than in the United States. With respect to certain foreign
countries, there is a possibility of expropriation or confiscatory taxation,
limitations on the removal of funds or other assets, or diplomatic developments
that could affect investments within those countries. Because of these and
other factors, securities of foreign companies acquired by a Fund may be
subject to greater fluctuation in price than securities of domestic companies.
The Funds may invest indirectly in the securities of foreign issuers through
sponsored or unsponsored ADRs, ADSs, GDRs and EDRs or other securities
representing securities of companies based in countries other than the United
States. Transactions in these securities may not necessarily be settled in the
same currency as the underlying securities which they represent. Ownership of
unsponsored ADRs, ADSs, GDRs and EDRs may not entitle the Funds to financial or
other reports from the issuer, to which it would be entitled as the owner of
sponsored ADRs, ADSs, GDRs or EDRs. Generally, ADRs and ADSs in registered
form, are designed for use in the U.S. securities markets. GDRs are designed
for use in both the U.S. and European securities markets. EDRs, in bearer form,
are designed for use in European securities markets. ADRs, ADSs, GDRs and EDRs
also involve certain risks of other investments in foreign securities.
FUTURES, OPTIONS AND OTHER DERIVATIVE INSTRUMENTS: To the extent provided under
"How Objectives Are Pursued" the Funds may attempt to reduce the overall level
of investment risk of particular securities and attempt to protect a Fund
against adverse market movements by investing in futures, options and other
derivative instruments. These include the purchase and writing of options on
securities (including index options) and options on foreign currencies, and
investing in futures contracts for the purchase or sale of instruments based on
financial indices, including interest rate indices or indices of U.S. or
foreign government, equity or fixed income securities ("futures
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contracts"), options on futures contracts, forward contracts and swaps and
swap-related products such as interest rate swaps, currency swaps, caps,
collars and floors.
The use of futures, options, forward contracts and swaps exposes a Fund to
additional investment risks and transaction costs. If the Adviser incorrectly
analyzes market conditions or does not employ the appropriate strategy with
respect to these instruments, a Fund could be left in a less favorable
position. Additional risks inherent in the use of futures, options, forward
contracts and swaps include: imperfect correlation between the price of
futures, options and forward contracts and movements in the prices of the
securities or currencies being hedged; the possible absence of a liquid
secondary market for any particular instrument at any time; and the possible
need to defer closing out certain hedged positions to avoid adverse tax
consequences. A Fund may not purchase put and call options which are traded on
a national stock exchange in an amount exceeding 5% of its net assets. Further
information on the use of futures, options and other derivative instruments,
and the associated risks, is contained in the SAI.
ILLIQUID SECURITIES: Certain securities may be sold only pursuant to certain
legal restrictions, and may be difficult to sell. The Funds will not hold more
than 15% (10% with respect to Nations International Value Fund) of the value of
their respective net assets in securities that are illiquid. Repurchase
agreements, time deposits and guaranteed investment contracts that do not
provide for payment to a Fund within seven days after notice, and illiquid
restricted securities, are subject to the limitation on illiquid securities.
If otherwise consistent with their investment objectives and policies, certain
Funds may purchase securities that are not registered under the Securities Act
of 1933, as amended (the "1933 Act") but 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
Directors/Trustees or the Adviser, acting under guidelines approved and
monitored by the Fund's Board of Directors/Trustees, 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.
INDEXED/STRUCTURED SECURITIES:
structured securities are typically short- to intermediate-term debt securities
whose value at maturity or interest rate is linked to currencies, interest
rates, equity securities, indices, commodity prices or other financial
indicators. Such securities may be positively or negatively indexed (i.e.,
their value may increase or decrease if the reference index or instrument
appreciates). Indexed/ structured securities may have return characteristics
similar to direct investments in the underlying instruments and may be more
volatile than the underlying instruments. A Fund bears the market risk of an
investment in the underlying instruments, as well as the credit risk of the
issuer.
INTEREST RATE TRANSACTIONS: In order to attempt to protect the value of their
portfolios from interest rate fluctuations, certain of the Funds may enter into
various hedging transactions, such as interest rate swaps and the purchase or
sale of interest rate caps and floors. Interest rate swaps involve the exchange
by a Fund with another party of their respective commitments to pay or receive
interest, E.G., an exchange of floating-rate payments for fixed-rate payments.
A Fund will enter into a swap transaction on a net basis, I.E. the payment
obligations of the Fund and the counterparty will be netted out with the Fund
receiving or paying, as the case may be, only the net amount of the two payment
obligations. A Fund will segregate, on a daily basis, cash or liquid high
quality debt securities with a value at least equal to the Fund's net
obligations, if any, under a swap agreement.
The purchase of an interest rate cap entitles the purchaser, to the extent that
a specified index exceeds a predetermined interest rate, to receive payments of
interest on a notional principal amount from the party selling such interest
rate cap. The purchase of an interest rate floor entitles the purchaser, to the
extent a specified index is below a predetermined interest rate, to receive
payments of interest on a notional principal amount from
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the party selling such interest rate floor. The Adviser expects to enter into
these transactions on behalf of a Fund primarily to preserve a return or spread
on a particular investment or portion of its portfolio or to protect against
any increase in the price of securities the Fund anticipated purchasing at a
later date rather than for speculative purposes. A Fund will not sell interest
rate caps or floors that it does not own.
LOWER-RATED DEBT SECURITIES: Nations Equity Income Fund may invest in
lower-rated debt securities. Lower-rated, high-yielding securities are those
rated "Ba" or "B" by Moody's or "BB" or "B" by S&P which are commonly referred
to as "junk bonds." These bonds provide poor protection for payment of
principal and interest. Lower-quality bonds involve greater risk of default or
price changes due to changes in the issuer's creditworthiness than securities
assigned a higher quality rating. These securities are considered to have
speculative characteristics and indicate an aggressive approach to income
investing.
The market for lower-rated securities may be thinner and less active than that
for higher quality securities, which can adversely affect the price at which
these securities can be sold. If market quotations are not available, these
lower-rated securities will be valued in accordance with procedures established
by the Boards of Directors/ Trustees of the Funds, including the use of
outside pricing services. Adverse publicity and changing investor perceptions
may affect the ability of outside pricing services used by the Fund to value
its portfolio securities, and the Fund's ability to dispose of these
lower-rated bonds.
MONEY MARKET INSTRUMENTS: The term "money market instruments" refers to
instruments with remaining maturities of one year or less. Money market
instruments may include, among other instruments, certain U.S. Treasury
Obligations, U.S. Government Obligations, bank instruments, commercial
instruments, repurchase agreements and municipal securities. Such instruments
are described in this Appendix A.
MUNICIPAL SECURITIES: The two principal classifications of municipal securities
are "general obligation" securities and "revenue" securities. General
obligation securities are secured by the issuer's pledge of its full faith,
credit, and taxing power for the payment of principal and interest. Revenue
securities are payable only from the revenues derived from a particular
facility or class of facilities or, in some cases, from the proceeds of a
special excise tax or other specific revenue source such as the user of the
facility being financed. Private activity bonds held by a Fund are in most
cases revenue securities and are not payable from the unrestricted revenues of
the issuer. Consequently, the credit quality of private activity bonds is
usually directly related to the credit standing of the corporate user of the
facility involved.
Municipal securities may include "moral obligation" bonds, which are normally
issued by special purpose public authorities. If the issuer of moral obligation
bonds is unable to meet its debt service obligations from current revenues, it
may draw on a reserve fund, the restoration of which is a moral commitment but
not a legal obligation of the state or municipality which created the issuer.
Municipal securities may include variable- or floating-rate instruments issued
by industrial development authorities and other governmental entities. While
there may not be an active secondary market with respect to a particular
instrument purchased by a Fund, a Fund may demand payment of the principal and
accrued interest on the instrument or may resell it to a third party as
specified in the instruments. The absence of an active secondary market,
however, could make it difficult for a Fund to dispose of the instrument if the
issuer defaulted on its payment obligation or during periods the Fund is not
entitled to exercise its demand rights, and the Fund could, for these or other
reasons, suffer a loss.
Some of these instruments may be unrated, but unrated instruments purchased by
a Fund will be determined by the Adviser to be of comparable quality at the
time of purchase to instruments rated "high quality" by any major rating
service. Where necessary to ensure that an instrument is of comparable "high
quality," a Fund will require that an issuer's obligation to pay the principal
of the note may be backed by an unconditional bank letter or line of credit,
guarantee, or commitment to lend.
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Municipal securities may include participations in privately arranged loans to
municipal borrowers, some of which may be referred to as "municipal leases,"
and units of participation in trusts holding pools of tax-exempt leases. Such
loans in most cases are not backed by the taxing authority of the issuers and
may have limited marketability or may be marketable only by virtue of a
provision requiring repayment following demand by the lender. Such loans made
by a Fund may have a demand provision permitting the Fund to require payment
within seven days. Participations in such loans, however, may not have such a
demand provision and may not be otherwise marketable. To the extent these
securities are illiquid, they will be subject to each Fund's limitation on
investments in illiquid securities. As it deems appropriate, the Adviser will
establish procedures to monitor the credit standing of each such municipal
borrower, including its ability to meet contractual payment obligations.
Municipal participation interests may be purchased from financial institutions,
and give the purchaser an undivided interest in one or more underlying
municipal security. To the extent that municipal participation interests are
considered to be "illiquid securities," such instruments are subject to each
Fund's limitation on the purchase of illiquid securities.
In addition, certain of the Funds may acquire "stand-by commitments" from banks
or broker/ dealers with respect to municipal securities held in their
portfolios. Under a stand-by commitment, a dealer would agree to purchase at a
Fund's option specified municipal securities at a specified price. A Fund will
acquire stand-by commitments solely to facilitate portfolio liquidity and do
not intend to exercise their rights thereunder for trading purposes.
Although the Funds do not presently intend to do so on a regular basis, a Fund
may invest more than 25% of its total assets in municipal securities the
interest on which is paid solely from revenues of similar projects if such
investment is deemed necessary or appropriate by the Adviser. To the extent
that more than 25% of a Fund's total assets are invested in municipal
securities that are payable from the revenues of similar projects, a Fund will
be subject to the peculiar risks presented by such projects to a greater extent
than it would be if its assets were not so concentrated.
OTHER INVESTMENT COMPANIES: Each Fund may invest in securities issued by other
investment companies to the extent that such investments are consistent with
the Fund's investment objective and policies and permissible under the 1940
Act. As a shareholder of another investment company, a Fund would bear, along
with other shareholders, its pro rata portion of the other investment company's
expenses, including advisory fees. These expenses would be in addition to the
advisory and other expenses that a Fund bears directly in connection with its
own operations. Pursuant to an exemptive order, the Nations Funds' non-money
market funds may purchase shares of Nations Funds' money market funds.
PASSIVE FOREIGN INVESTMENT COMPANIES: Passive foreign investment companies
("PFICs") are any foreign corporations which generate certain amounts of
passive income or hold certain amounts of assets for the production of passive
income. Passive income includes dividends, interest, royal ties, rents and
annuities. Income tax regulations may require the Fund to recognize income
associated with the PFIC prior to the actual receipt of any such income.
Pay-in-Kind Bonds: Pay-in-kind bonds are debt securities that normally give the
issuer an option to pay cash at a coupon payment date or give the holder of the
security a similar bond with the same coupon rate and a face value equal to the
amount of the coupon payment that would have been made.
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
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REITs are dependent upon management skill and may not be diversified. REITs
also may be subject to heavy cash flow dependency, defaults by borrowers,
self-liquidation, and the possibility of failing to qualify for tax-free
pass-through of income under the Code.
REPURCHASE AGREEMENTS: A repurchase agreement involves the purchase of a
security by a Fund and a simultaneous agreement (generally with a bank or
broker/dealer) to repurchase that security from the Fund at a specified price
and date or upon demand. This technique offers a method of earning income on
uninvested cash. A risk associated with repurchase agreements is the failure of
the seller to repurchase the securities as agreed, which may cause a Fund to
suffer a loss if the market value of such securities declines before they can
be liquidated on the open market. Repurchase agreements with a maturity of more
than seven days are considered illiquid securities and are subject to the limit
stated above. A Fund may enter into joint repurchase agreements jointly with
other investment portfolios of Nations 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 33% of the
value of its total assets, which may include cash collateral received for
securities loans. Cash collateral received by a Nations Fund may be invested in
a Nations Funds' money market fund.
STEP COUPON BONDS: Step coupon bonds are debt securities that trade at a
discount from their face value and pay coupon interest. The discount from the
face value depends on the time remaining until cash payments begin, prevailing
interest rates, liquidity of the security and the perceived credit quality of
the issuer.
STOCK INDEX, INTEREST RATE AND CURRENCY FUTURES CONTRACTS: Each Fund may
purchase and sell futures contracts and related options with respect to
non-U.S. stock indices, non-U.S. interest rates and foreign currencies, that
have been approved by the CFTC for investment by U.S. investors, for the
purpose of hedging against changes in values of a Fund's securities or changes
in the prevailing levels of interest rates or currency exchange rates. The
contracts entail certain risks, including but not limited to the following: no
assurance that futures contracts transactions can be offset at favorable
prices; possible reduction of a Fund's total return due to the use of hedging;
possible lack of liquidity due to daily limits on price fluctuation; imperfect
correlation between the contracts and the securities or currencies being
hedged; and potential losses in excess of the amount invested in the futures
contracts themselves.
Trading on foreign commodity exchanges presents additional risks. Unlike
trading on domestic commodity exchanges, trading on foreign commodity exchanges
is not regulated by the CFTC and may be subject to greater risks than trading
on domestic exchanges. For example, some foreign exchanges are principal
markets for which no common clearing facility exists and a trader may look only
to the broker for performance of the contract. In addition, unless a Fund
hedges against fluctuations in the exchange rate between the U.S. dollar and
the currencies in which trading is done on foreign exchanges, any profits that
such Fund might realize could be eliminated by adverse changes in the exchange
rate, or the Fund could incur losses as a result of those changes.
U.S. GOVERNMENT OBLIGATIONS: U.S. Government Obligations consist of marketable
securities and instruments issued or guaranteed by the U.S. Government or any
of its agencies, authorities or instrumentalities. Direct obligations are
issued by the U.S. Treasury and include all U.S. Treasury instruments. U.S.
Treasury Obligations differ only in their interest rates, maturities and time
of issuance. Obligations of U.S. Government agencies, authorities and
instrumentalities are issued by government-sponsored agencies and enterprises
acting under authority of Congress. Although obligations of federal agencies,
authorities and instrumentalities are not debts of the U.S. Treasury, some
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are backed by the full faith and credit of the U.S. Treasury, such as direct
pass-through certificates of the GNMA; some are supported by the right of the
issuer to borrow from the U.S. Government, such as obligations of Federal Home
Loan Banks, and some are backed only by the credit of the issuer itself, such
as obligations of the FNMA. 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.
ZERO COUPON BONDS: Zero coupon bonds are debt securities that do not pay
interest at regular intervals, but are issued at a discount from face value.
The discount approximates the total amount of interest the security will accrue
from the date of issuance to maturity. The market value of these securities
generally fluctuates more in response to changes in interest rates than
interest-paying securities of comparable maturity.
APPENDIX B -- DESCRIPTION OF RATINGS
The following summarizes the highest eight ratings used by S&P for corporate
and municipal bonds. The first four ratings denote investment grade securities.
AAA -- This is the highest rating assigned by S&P to a debt obligation
and indicates an extremely strong capacity to pay interest and repay
principal.
AA -- Debt rated AA is considered to have a very strong capacity to pay
interest and repay principal and differs from AAA issues only in a small
degree.
A -- Debt rated A has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than debt in
higher-rated categories.
BBB -- Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than for those in
higher-rated categories.
BB, B -- Bonds rated BB and B are regarded, on balance, as predominantly
speculative with respect to capacity to pay interest and repay principal
in accordance with the terms of the obligation. BB represents the lowest
degree of speculation and B a higher degree of speculation. While such
bonds will likely have some quality and protective characteristics,
these are outweighed by large uncertainties or major risk exposures to
adverse conditions.
CCC, CC -- An obligation rated CCC is vulnerable to nonpayment and is
dependent upon favorable business, financial, and economic conditions
for the obligor to meet its financial com-
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mitment on the obligation. In the event of adverse conditions, the
obligor isnot likely to have the capacity to meet its financial
commitments on the obligation; an obligation rated CC is highly
vulnerable to nonpayment.
To provide more detailed indications of credit quality, the AA, A, BBB and CCC
ratings may be modified by the addition of a plus or minus sign to show
relative standing within these major rating categories.
The following summarizes the highest eight ratings used by Moody's for
corporate and municipal bonds. The first four ratings denote investment grade
securities.
Aaa -- Bonds that are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally
referred to as "gilt edge." Interest payments are protected by a large
or by an exceptionally stable margin and principal is secure. While the
various protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position
of such issues.
Aa -- Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities
or fluctuation of protective elements may be of greater amplitude or
there may be other elements present which make the long-term risks
appear somewhat larger than in Aaa securities.
A -- Bonds that are rated A possess many favorable investment attributes
and are to be considered upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in
the future.
Baa -- Bonds that are rated Baa are considered medium grade obligations,
I.E., they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics
as well.
Ba -- Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection
of interest and principal payments may be very moderate and thereby not
well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time
may be small.
Caa, Ca -- Bonds that are rated Caa are of poor standing. Such issues
may be in default or there may be present elements of danger with
respect to principal or interest. Bonds that are rated Ca represent
obligations that are speculative in a high degree. Such issues are often
in default or have other marked shortcomings.
Moody's applies numerical modifiers (1, 2 and 3) with respect to corporate
bonds rated Aa through B. The modifier 1 indicates that the bond being rated
ranks in the higher end of its generic rating category; the modifier 2
indicates a mid-range ranking; and the modifier 3 indicates that the bond ranks
in the lower end of its generic rating category. With regard to municipal
bonds, those bonds in the Aa, A and Baa groups which Moody's believes possess
the strongest investment attributes are designated by the symbols Aa1, A1 or
Baa1, respectively.
The following summarizes the highest four ratings used by D&P for bonds, each
of which denotes that the securities are investment grade:
AAA -- Bonds that are rated AAA are of the highest credit quality. The
risk factors are considered to be negligible, being only slightly more
than for risk-free U.S. Treasury debt.
AA -- Bonds that are rated AA are of high credit quality. Protection
factors are strong. Risk is
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modest, but may vary slightly from time to time because of economic
conditions.
A -- Bonds that are rated A have protection factors which are average
but adequate. However, risk factors are more variable and greater in
periods of economic stress.
BBB -- Bonds that are rated BBB have below average protection factors
but still are considered sufficient for prudent investment. Considerable
variability in risk exists during economic cycles.
To provide more detailed indications of credit quality, the AA, A and BBB
ratings may be modified by the addition of a plus or minus sign to show
relative standing within these major categories.
The following summarizes the highest four ratings used by Fitch IBCA ("Fitch")
for bonds, each of which denotes that the securities are investment grade:
AAA -- "AAA" ratings denote the lowest expectation of credit risk. They
are assigned only in case of exceptionally strong capacity for timely
payment of financial commitments. This capacity is highly unlikely to be
adversely affected by foreseeable events.
AA -- "AA" ratings denote a very low expectation of credit risk. They
indicate very strong capacity for timely payment of financial
commitments. This capacity is not significantly vulnerable to
foreseeable events.
A -- "A" ratings denote a low expectation of credit risk. The capacity
for timely payment of financial commitments is considered strong. This
capacity may, nevertheless, be more vulnerable to changes in
circumstances or in economic conditions than is the case for higher
ratings.
BBB -- "BBB" ratings indicate that there is currently a low expectation
of credit risk. The capacity for timely payment of financial commitments
is considered adequate, but adverse changes in circumstances and in
economic conditions are more likely to impair this capacity. This is the
lowest investment-grade category.
The following summarizes the two highest ratings used by Moody's for short-term
municipal notes and variable-rate demand obligations:
MIG-1/VMIG-1 -- Obligations bearing these designations are of the best
quality, enjoying strong protection from established cash flows,
superior liquidity support or demonstrated broad-based access to the
market for refinancing.
MIG-2/VMIG-2 -- Obligations bearing these designations are of high
quality, with ample margins of protection although not so large as in
the preceding group.
The following summarizes the two highest ratings used by S&P for short-term
municipal notes:
SP-1 -- Very strong or strong capacity to pay principal and interest.
Those issues determined to possess overwhelming safety characteristics
are given a "plus" (+) designation.
SP-2 -- Satisfactory capacity to pay principal and interest.
The three highest rating categories of D&P for short-term debt, each of which
denotes that the securities are investment grade, are D-1, D-2 and D-3. D&P
employs three designations, D-1+, D-1 and D-1-, within the highest rating
category. D-1+ indicates highest certainty of timely payment. Short-term
liquidity, including internal operating factors and/or access to alternative
sources of funds, is judged to be "outstanding, and safety is just below
risk-free U.S. Treasury short-term obligations." D-1 indicates very high
certainty of timely payment. Liquidity factors are excellent and supported by
good fundamental protection factors. Risk factors are considered to be minor.
D-1- indicates high certainty of timely payment. Liquidity factors are strong
and supported by good fundamental protection factors. Risk factors are very
small. D-2 indicates good certainty of timely payment. Liquidity factors and
company fundamentals are sound. Although ongoing funding needs may enlarge
total financing requirements, access to capital markets is good. Risk factors
are small. D-3 indicates satisfactory liquidity and other protection factors
which qualify the issue as investment grade. Risk factors are larger and
subject to more variation. Nevertheless, timely payment is expected.
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The following summarizes the two highest rating categories used by Fitch for
short-term obligations:
F1+ securities possess exceptionally strong credit quality. Issues
assigned this rating are regarded as having the strongest degree of
assurance for timely payment.
F1 securities possess very strong credit quality. Issues assigned this
rating reflect an assurance of timely payment only slightly less in
degree than issues rated F-1+.
Commercial paper rated A-1 by S&P indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted A-1+. Capacity for timely payment on
commercial paper rated A-2 is satisfactory, but the relative degree of safety
is not as high as for issues designated A-1. Commercial paper rated A-3
exhibits adequate protection parameters. However, adverse economic conditions
or changing circumstances are more likely to lead to a weakened capacity of the
obligor to meet its financial commitment on the obligation. Commercial paper
rated A-3 or B correlates with the S&P Bond rankings (described above) of BBB/
BBB- and BB+, respectively.
The rating Prime-1 is the highest commercial paper rating assigned by Moody's.
Issuers rated Prime-1 (or related supporting institutions) are considered to
have a superior capacity for repayment of senior short-term obligations.
Issuers rated Prime-2 (or related supporting institutions) are considered to
have a strong capacity for repayment of senior short-term obligations. This
will normally be evidenced by many of the characteristics of issuers rated
Prime-1, but to a lesser degree. Earnings trends and coverage ratios, while
sound, will be more subject to variation. Capitalization characteristics, while
still appropriate, may be more affected by external conditions. Ample alternate
liquidity is maintained. Issuers rated Prime-3 have an acceptable ability for
repayment of senior short-term obligations. The effect of industry
characteristics and market compositions may be more pronounced. Variability in
earnings and profitability may result in changes in the level of debt
protection measurements and may require relatively high financial leverage.
Adequate alternate liquidity is maintained.
For commercial paper, D&P uses the short-term debt ratings described above.
For commercial paper, Fitch uses the short-term debt ratings described above.
BankWatch ratings are based upon a qualitative and quantitative analysis of all
segments of the organization including, where applicable, holding company and
operating subsidiaries. BankWatch ratings do not constitute a recommendation to
buy or sell securities of any of these companies. Further, BankWatch does not
suggest specific investment criteria for individual clients.
BankWatch long-term ratings apply to specific issues of long-term debt and
preferred stock. The long-term ratings specifically assess the likelihood of
untimely payment of principal or interest over the term to maturity of the
rated instrument. The following are the four investment grade ratings used by
BankWatch for long-term debt:
AAA -- The highest category; indicates ability to repay principal and
interest on a timely basis is extremely high.
AA -- The second highest category; indicates a very strong ability to
repay principal and interest on a timely basis with limited incremental
risk versus issues rated in the highest category.
A -- The third highest category; indicates the ability to repay
principal and interest is strong. Issues rated "A" could be more
vulnerable to adverse developments (both internal and external) than
obligations with higher ratings.
BBB -- The lowest investment grade category; indicates an acceptable
capacity to repay principal and interest. Issues rated "BBB" are,
however, more vulnerable to adverse developments (both internal and
external) than obligations with higher ratings.
The BankWatch short-term ratings apply to commercial paper, other senior
short-term obligations and deposit obligations of the entities to which the
rating has been assigned. The BankWatch short-
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term ratings specifically assess the likelihood of an untimely payment of
principal or interest.
TBW-1 -- The highest category; indicates a very high likelihood that
principal and interest will be paid on a timely basis.
TBW-2 -- The second highest category; while the degree of safety
regarding timely repayment of principal and interest is strong, the
relative degree of safety is not as high as for issues rated "TBW-1".
TBW-3 -- The lowest investment grade category; indicates that while more
susceptible to adverse developments (both internal and external) than
obligations with higher ratings, capacity to service principal and
interest in a timely fashion is considered adequate.
TBW-4 -- The lowest rating category; this rating is regarded as
non-investment grade and therefore speculative.
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Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
PRELIMINARY PROSPECTUS SUBJECT
TO COMPLETION DATED SEPTEMBER 1, 1998
Prospectus
Primary B Shares
November , 1998
This Prospectus describes the investment portfolios listed in the column to the
right (each a "Fund") of Nations Fund Trust and Nations Fund, Inc., each 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 each Fund -- Primary B Shares.
This Prospectus sets forth concisely the information about each Fund that a
prospective purchaser of Primary B Shares should consider before investing.
Investors should read this Prospectus and retain it for future reference.
Additional information about Nations Fund Trust and Nations Fund, Inc. 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 for Nations Funds, dated
November 1, 1998, is incorporated by reference in its entirety into this
Prospectus. The SEC maintains a Web site (http://www.sec.gov) that contains the
SAI, material incorporated by reference in this Prospectus and other information
regarding registrants that file electronically with the SEC. NationsBanc
Advisors, Inc. ("NBAI") is the investment adviser to each of the Funds. Marsico
Capital Management, LLC ("Marsico Capital") is the investment sub-adviser to
Nations Marsico Focused Equities Fund and Nations Marsico Growth & Income Fund.
Brandes Investment Partners, L.P. ("Brandes") is the investment sub-adviser to
Nations International Value Fund. As used herein the term "Adviser" shall mean
NBAI, Marsico Capital and/or Brandes as the context may require, see "How The
Funds Are Managed."
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 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 Marsico Focused Equities Fund
Nations Marsico Growth & Income Fund
Nations International Value Fund
For Fund information call:
1-800-621-2192
Nations Funds
c/o Stephens Inc.
One NationsBank Plaza
33rd Floor
Charlotte, NC 28255
[NATIONSBANK LOGO GOES HERE.]
<PAGE>
Table Of Contents
Prospectus Summary 3
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About The
Expenses Summary 4
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Funds
Objectives 5
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How Objectives Are Pursued 5
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How Performance Is Shown 9
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How The Funds Are Managed 11
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Organization And History 13
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How To Buy Shares 15
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About Your
How To Redeem Shares 15
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Investment
How To Exchange Shares 16
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Shareholder Servicing Arrangements 16
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How The Funds Value Their Shares 17
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How Dividends And Distributions Are Made;
Tax Information 18
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Appendix A -- Portfolio Securities 19
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Appendix B -- Description Of Ratings 26
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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.
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About The Funds
Prospectus Summary
o Type of Companies: Open-end management investment companies.
o Investment Objectives and Policies:
o Nations Marsico Focused Equities Fund's investment objective is to seek
long-term growth of capital. It is a non-diversified fund that pursues its
objective by normally investing in a core position of 20-30 common stocks.
o Nations Marsico Growth & Income Fund's investment objective is to seek
long-term growth of capital with a limited emphasis on income. Under normal
circumstances, the Fund pursues its objective by investing up to 75% of its
assets in equity securities selected primarily for their growth potential
and at least 25% of its assets in securities that have income potential.
o Nations International Value Fund's investment objective is to seek long-term
capital appreciation by investing primarily in equity securities of foreign
issuers, including emerging markets countries.
o Investment Adviser: NationsBanc Advisors, Inc. serves as the investment
adviser to the Funds. NBAI provides investment management services to more
than 60 investment company portfolios in the Nations Funds Family. Marsico
Capital Management, LLC provides investment sub-advisory services to Nations
Marsico Focused Equities Fund and Nations Marsico Growth & Income Fund.
Brandes Investment Partners, L.P. provides investment sub-advisory services
to Nations International Value Fund. For more information about the
investment adviser and investment sub-advisers to the Nations Funds, see
"How The Funds Are Managed."
o Dividends and Distributions: Dividends from net investment income are
declared and paid each calendar quarter by Nations Marsico Focused Equities
Fund and Nations Marsico Growth & Income Fund. Dividends from net investment
income are declared and paid annually by Nations International Value Fund.
Each Fund's net realized capital gains, including net short-term capital
gains, are distributed at least annually.
o Risk Factors: Although NBAI, together with the sub-advisers, seek to
achieve the investment objective of each Fund, there is no assurance that
they will be able to do so. Investments in a Fund are not insured against
loss of principal. Investments by a Fund in common stocks and other equity
securities are subject to stock market risk, which is the risk that the
value of the stocks the Fund holds may decline over short or even extended
periods. The U.S. stock markets tend to be cyclical, with periods when
stock prices generally rise and periods when prices generally decline. As
of the date of this Prospectus, the stock markets, as measured by the S&P
500 Index (as defined below) and other commonly used indices, were trading
at or close to record levels. There can be no guarantee that these levels
will continue. In addition, certain of the Funds may invest in securities
of smaller and newer issuers. Investments in such companies may present
greater opportunities for capital appreciation because of high potential
earnings growth, but also present greater risks than investments in more
established companies with longer operating histories and greater financial
capacity. Investments by a Fund in debt securities are subject to interest
rate risk, which is the risk that increases in market interest rates will
adversely affect a Fund's investments in debt securities. The value of a
Fund's investments in debt securities, including U.S. Government
Obligations (as defined below), will tend to decrease when interest rates
rise and increase when interest rates fall. In general, longer-term debt
instruments tend to fluctuate in value more than shorter-term debt
instruments in response to interest rate movements. In addition, debt
securities which are not issued or guaranteed by the U.S. Government are
subject to credit risk, which is the risk that the issuer may not not be
able to pay principal and/or interest when due. Certain of the Funds'
investments may constitute derivative securities. Certain types of
derivative securities can, under particular circumstances, significantly
increase an investor's exposure to market and other risks. The Funds invest
in foreign securities, which present additional risks associated with
international investing including, among others, heightened economic and
political risk, as well as foreign currency risk. For a discussion of these
and other factors, see "How Objectives Are Pursued -- Risk Considerations",
"How Objectives Are Pursued -- Special Risk Considerations Relevant to an
Investment in Nations Marsico Focused Equities Fund and Nations Marsico
Growth & Income Fund", "How Objectives are Pursued -- Special Risk
Considerations Relevant to Foreign Investing" and "Appendix A."
o Minimum Purchase: $1,000 minimum initial investment per record holder. See
"How To Buy Shares."
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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 B Shares of the Funds. The Examples show the cumulative expenses
attributable to a hypothetical $1,000 investment in the Funds over specified
periods.
NATIONS FUNDS PRIMARY B SHARES
<TABLE>
<CAPTION>
Nations Nations
Marsico Marsico Nations
Focused Growth & International
Equities Income Value
Shareholder Transaction Expenses Fund Fund Fund
<S> <C> <C> <C>
Sales Load Imposed on Purchases None None None
Deferred Sales Charge None None None
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management Fees
(After Fee Waivers) .85% .85% .90%
Other Expenses
(After Expense Reimbursements) .65% .65% .47%
Total Operating Expenses (After Fee Waivers and Expense
Reimbursements) 1.50% 1.50% 1.37%
</TABLE>
Examples: You would pay the following expenses on a $1,000 investment in Primary
B Shares of the indicated Fund, assuming (1) a 5% annual return and (2)
redemption at the end of each time period.
<TABLE>
<CAPTION>
Nations Nations
Marsico Marsico Nations
Focused Growth & International
Equities Income Value
Fund Fund Fund
<S> <C> <C> <C>
1 Year $ 15 $ 15 $ 14
3 Years $ 47 $ 47 $ 43
5 Years $ 82 $ 82 $ 75
10 Years $179 $179 $165
</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 figures contained
in the above tables are based on amounts incurred during each Fund's most recent
fiscal year and have been adjusted as necessary to reflect current service
provider fees. There is no assurance that any fee waivers and/or reimbursements
will continue. In particular, to the extent Other Expenses are less than those
shown, waivers and/or reimbursements of Management Fees, if any, may decrease.
Shareholders will be notified of any decrease that materially increases Total
Operating Expenses. If fee waivers and/or reimbursements are decreased or
discontinued, the amounts contained in the "Examples" above may increase.
Long-term shareholders of the Funds could pay more in sales charges than the
economic equivalent of the maximum front-end sales charges applicable to mutual
funds sold by members of the National Association of Securities Dealers, Inc.
For more complete descriptions of the Funds' operating expenses, see "How The
Funds Are Managed."
Absent fee waivers and expense reimbursements, "Other Expenses" and "Total
Operating Expenses" for Primary B Shares of the indicated Fund would be as
follows: Nations Marsico Focused Equities Fund -- 1.27% and 2.12%, respectively;
Nations Marsico Growth & Income Fund -- 1.72% and 2.57%, respectively.
Absent fee waivers, "Advisory Fees," "Other Expenses" and "Total Operating
Expenses" for Primary B Shares of the Nations International Value Fund would be
1.00%, .82% and 1.82%, respectively.
THE FOREGOING SHOULD NOT BE CONSIDERED TO BE AN ACTUAL REPRESENTATION OF PAST
OR FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES AND RATES OF RETURN MAY BE
GREATER OR LESS THAN THOSE SHOWN.
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Objectives
Nations Marsico Focused Equities Fund: Nations Marsico Focused Equities Fund's
investment objective is to seek long-term growth of capital.
Nations Marsico Growth & Income Fund: Nations Marsico Growth & Income Fund's
investment objective is to seek long-term growth of capital with a limited
emphasis on income.
Nations International Value Fund: Nations International Value Fund's investment
objective is to seek long-term capital appreciation by investing primarily in
equity securities of foreign issuers, including emerging markets countries.
Although the Adviser seeks to achieve the investment objective of each Fund,
there is no assurance that it will be able to do so. No single Fund should be
considered, by itself, to provide a complete investment program for any
investor. The net asset value of the shares of each Fund will fluctuate based on
market conditions. Therefore, investors should not rely upon the Funds for
short-term financial needs nor are the Funds meant to provide a vehicle for
participating in short-term swings in the stock market. Investments in the Funds
are not insured against loss of principal.
How Objectives Are Pursued
Nations Marsico Focused Equities Fund: Nations Marsico Focused Equities Fund is
a non-diversified fund that pursues its objective by normally investing in a
core position of 20-30 common stocks. Under normal circumstances, the Fund
invests at least 65% of its assets in large capitalization common stocks
selected for their growth potential. The Fund may invest to a lesser degree in
other types of securities, including preferred stock, warrants, convertible
securities and debt securities.
In building the portfolio, the Adviser seeks to identify individual companies
with earnings growth potential that may not be recognized by the market at
large. To identify such opportunities, the Adviser looks for a combination of
four characteristics:
o Change -- The Adviser believes that extraordinary growth derives from
products, markets and technologies that are in flux.
o Franchise -- The Adviser looks for strong brand franchises that can be
leveraged in a changing global environment.
o Global reach -- The Adviser selects securities without geographic bias
in the belief that the global market is both a source of growth
opportunity and a hedge against fluctuations and dislocations of local
markets.
o Themes -- The Adviser seeks companies that are moving with, not against,
the major social, economic and cultural shifts taking place in the
world.
Once an opportunity is identified, it is subjected to a disciplined analytic
process including both "top-down" and "bottom-up" elements. The "top-down"
element of the process takes into consideration such macroeconomic factors as
interest rates, inflation, the regulatory environment and the global competitive
landscape, and also analyzes such factors as the most attractive global
opportunities, industry consolidation and the sustainability of economic trends.
With respect to the "bottom-up" element, the Adviser considers company
fundamentals such as commitment to research, market franchise and management's
strength and vision to determine the present and future value of the company as
an investment.
Realization of income is not a significant investment consideration. Any income
realized on the Fund's investments will be incidental to its objective.
Nations Marsico Growth & Income Fund: Under normal circumstances, Nations
Marsico Growth & Income Fund pursues its objective by investing up to 75% of its
assets in equity securities selected primarily for their growth potential and at
least 25% of its assets in securities that have income potential. The Fund
typically emphasizes the growth component. However, in adverse market
conditions, the Fund may reduce the growth component of its portfolio to 25% of
its assets. The Fund may invest in any combination of common stock, preferred
stock, warrants, convertible securities and debt securities. However, it is
expected that the Fund will emphasize investments in large capitalization common
stocks. The Fund may shift assets between the growth and income components of
its portfolio based on the Adviser's analysis of relevant market, financial and
economic conditions. If the Adviser believes that growth securities will provide
better returns than the yields then available or expected on income-producing
securities, then the Fund will place a greater emphasis on the growth component.
In building the portfolio, the Adviser seeks to identify individual companies
with earnings growth potential that may not be recognized by the market at
large. To identify such opportunities, the Adviser looks for a combination of
four characteristics:
o Change -- The Adviser believes that extraordinary growth derives from
products, markets and technologies that are in flux.
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<PAGE>
o Franchise -- The Adviser looks for strong brand franchises that can be
leveraged in a changing global environment.
o Global reach -- The Adviser selects securities without geographic bias
in the belief that the global market is both a source of growth
opportunity and a hedge against fluctuations and dislocations of local
markets.
o Themes -- The Adviser seeks companies that are moving with, not against,
the major social, economic and cultural shifts taking place in the
world.
Once an opportunity is identified, it is subjected to a disciplined analytic
process including both "top-down" and bottom-up" elements. The "top-down"
element of the process takes into consideration such macroeconomic factors as
interest rates, inflation, the regulatory environment and the global competitive
landscape, and also analyzes such factors as the most attractive global
opportunities, industry consolidation and the sustainability of economic trends.
With respect to the "bottom-up" element, the Adviser considers company
fundamentals such as commitment to research, market franchise and management's
strength and vision to determine the present and future value of the company as
an investment.
Because income is a part of the investment objective of the Fund, the Adviser
may also consider dividend-paying characteristics in selecting equity securities
for the Fund. The Fund may also find opportunities for capital growth from debt
securities because of anticipated changes in interest rates, credit standing,
currency relationships or other factors. Investors in the Fund should keep in
mind that the Fund is not designed to produce a consistent level of income.
Nations International Value Fund: The Fund will pursue its investment objective,
under normal market conditions, by investing its assets in the securities of
issuers located in at least three different foreign countries. Although the Fund
may earn income from dividends, interest and other sources, income will be
incidental to the Fund's investment objective. The Fund emphasizes investments
in established companies, although it may invest in companies of various sizes
as measured by assets, sales and capitalization.
The Fund intends to invest at least 65% of its total assets in equity securities
of non-United States issuers whose market capitalizations exceed $1 billion at
the time of purchase. These securities may include common stocks, preferred
stocks, securities convertible into common stocks, shares of closed-end
investment companies, American Depository Receipts ("ADRs"), European Depository
Receipts ("EDRs"), and/or Global Depository Receipts ("GDRs"). Although the Fund
intends to invest primarily in equity securities listed on stock exchanges, the
Fund may also invest in equity securities traded in over the counter markets and
in private placements. The Fund is not subject to any specific geographic
diversification requirements. Countries in which the Fund may invest include,
but are not limited to, the nations of Western Europe, North and South America,
Australia, Africa, and Asia.
The Adviser's approach in selecting investments for the Fund is oriented to
individual stock selection and is value driven as described below. Typically, no
more than 5% of total Fund assets will be invested in any one equity security at
the time of purchase. With respect to Fund investments in any particular country
or industry, the Fund may typically invest up to the greater of either (a) 20%
of its total assets in any particular country or industry at the time of
purchase or (b) 150% of the weighting of such country or industry as represented
in the Morgan Stanley Capital International ("MSCI") EAFE Index at the time of
purchase, but in no event may the Fund invest more than 25% of its total assets,
calculated at the time of purchase and taken at market value, in any one
industry (other than U.S. Government securities). Generally, no more than 20% of
the value of the Fund's total assets, measured at the time of purchase, may be
invested in securities of companies located in emerging or developing countries.
As used in this Prospectus, the term "emerging" or "developing" country applies
to any country which is generally considered to be an emerging or developing
country by the international financial community, which includes the World Bank
and the International Finance Corporation. There are currently over 130
countries which are generally considered to be emerging or developing countries
by the international financial community, approximately 40 of which currently
have stock markets. These countries generally include every nation in the world
except the United States, Canada, Japan, Australia, New Zealand, Hong Kong,
Singapore and most nations located in Western Europe. Currently, investing in
many emerging countries is not feasible or may involve unacceptable political
risks. Emerging markets securities pose greater liquidity and other risks than
securities of companies located in developed countries and traded in more
established markets.
The Adviser to the Fund is committed to the use of the Graham and Dodd-style
value investing approach as introduced in the classic book Security Analysis.
Using this philosophy, the Adviser views stocks as small pieces of businesses
which are for sale. It seeks to purchase a diversified group of these businesses
at prices its research indicates are below their true long-term, or intrinsic,
value. By purchasing stocks whose current prices are believed to be below their
intrinsic values, the Adviser seeks to secure not only a possible margin of
safety against price declines, but also an attractive opportunity for profit
over the business cycle.
In analyzing a company's long-term value, the Adviser uses sources of
information such as company reports, filings with the SEC, computer databases,
industry publications, general and business publications, brokerage firm
research reports, and interviews with company management. Its focus is on
fundamental characteristics of a company, including, but not limited to, book
value, cash flow and capital structure, as well as management's record and broad
industry issues. Once the intrinsic value of a company is estimated, this value
is compared to the current price of the
6
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stock. If the price is appreciably lower than the indicated intrinsic value,
the stock may be purchased.
During temporary defensive periods in response to unusual and adverse conditions
affecting the equity markets, the Fund's assets may be invested without
limitation in short-term debt instruments and in securities of United States
issuers. In addition, when the Fund experiences large cash inflows from the
issuance of new shares or the sale of portfolio securities, and desirable equity
securities that are consistent with the Fund's investment objective are
unavailable in sufficient quantities, the Fund may hold more than 35% of its
assets in short-term debt instruments for a limited time pending availability of
suitable equity securities. During normal market conditions, no more than 35% of
the Fund's total assets will be invested in short-term debt instruments.
Subject to applicable securities regulations, the Fund may, for the purpose of
hedging its portfolio, purchase and write covered call options on specific
portfolio securities and may purchase and write put and call options on foreign
stock indices listed on foreign and domestic stock exchanges. See "Appendix A"
for additional information concerning the investment practices of the Fund.
General: The Funds may invest in certain specified derivative securities,
including: exchange-traded options; over-the-counter options executed with
primary dealers, including long calls and puts and covered calls to enhance
return; and U.S. and foreign exchange-traded financial futures approved by the
Commodity Futures Trading Commission (the "CFTC") and options thereon for market
exposure risk management. Each Fund may lend its portfolio securities to
qualified institutional investors and may invest in repurchase agreements,
restricted, private placement and other illiquid securities. Each Fund also may
invest in real estate investment trust securities. In addition, each Fund may
invest in securities issued by other investment companies, consistent with the
Fund's investment objective and policies. Nations International Value Fund may
invest in forward foreign exchange contracts. For more information concerning
these and other investments in which the Funds may invest and their investment
practices, see "Appendix A."
Portfolio Turnover: Generally, the Funds will purchase portfolio securities for
capital appreciation or investment income, or both, and not for short-term
trading profits. If a Fund's annual portfolio turnover rate exceeds 100%, it may
result in higher brokerage costs and possible tax consequences for the Fund and
its shareholders. For the Funds' portfolio turnover rates, see "Financial
Highlights."
Risk Considerations: 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 markets, may decline over short or even
extended periods. The U.S. stock markets tend to be cyclical, with periods when
stock prices generally rise and periods when prices generally rise and
periods when prices generally decline. As of the date of
this Prospectus, the stock markets, as measured by Standard & Poor's 500
Composite Stock Price Index ("S&P 500 Index")1 and other commonly used indices,
were trading at or close to record levels. There can be no guarantee that these
levels will continue.
The value of a Fund's investments in debt securities, including obligations
issued or guaranteed by the U.S. government or its agencies and
instrumentalities ("U.S. Government Obligations"), will tend to decrease when
interest rates rise and increase when interest rates fall. In general,
longer-term debt instruments tend to fluctuate in value more than shorter-term
debt instruments in response to interest rate movements. In addition, debt
securities that are not backed by the United States Government are subject to
credit risk, i.e., that the issuer may not be able to pay principal and/or
interest when due.
Certain of the Funds may invest in securities of smaller and newer issuers.
Investments in such companies may present greater opportunities for capital
appreciation because of high potential earnings growth, but also present greater
risks than investments in more established companies with longer operating
histories and greater financial capacity.
Certain of the Funds' 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 particular types of derivative securities
that can, under certain circumstances, significantly increase a purchaser's
exposure to market or other risks. The Adviser, however, only purchases
derivative securities in circumstances where it believes such purchases are
consistent with the Fund's investment objective and do not unduly increase the
Fund's exposure to market or other risks. For additional risk information
regarding the Funds' investments in particular instruments, see "Appendix A."
Special Risk Considerations Relevant to an Investment in Nations Marsico Focused
Equities and Nations Marsico Growth & Income Fund: Nations Marsico Focused
Equities Fund, as a non-diversified fund, may invest in fewer issuers than
diversified funds, such as Nations Marsico Growth & Income Fund. Therefore,
appreciation or depreciation of an investment in a single issuer could have a
greater impact on the Fund's net asset value. Nations Marsico Focused Equities
Fund reserves the right to become a diversified fund by limiting the investments
in which more than 5% of its total assets are invested. The techniques employed
by the Adviser in managing this Fund generally result in a portfolio of fewer
holdings than that of other equity mutual funds. As a result, the net asset
value of a share in the Fund tends to fluctuate more greatly than would
otherwise be the case with an equity fund that invested more broadly. In other
words, an investment in the Fund represents both greater risks and potential
rewards than may be the case with an equity fund whose portfolio is more
diversified.
- ---------------------------
1 "Standard & Poor's" and "Standard & Poor's 500" are trademarks of The
McGraw-Hill Companies, Inc.
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Nations Marsico Focused Equities Fund and Nations Marsico Growth & Income Fund
(the "Marsico Funds") may also invest up to 25% of their assets in mortgage- and
asset-backed securities, up to 10% of their assets in zero coupon, pay-in-kind
and step coupon securities, and may invest without limit in indexed/structured
securities. The Marsico Funds will invest no more than 35% of their assets in
high-yield/high-risk securities. The Marsico Funds may also purchase high-grade
commercial paper, certificates of deposit, and repurchase agreements. The
Marsico Funds may also invest in short-term debt securities as a means of
receiving a return on idle cash. See "Appendix B" for a description of these
ratings designations.
When the Adviser believes that market conditions are not favorable for
profitable investing or when the Adviser is otherwise unable to locate favorable
investment opportunities, the Marsico Funds may hold cash or cash equivalents
and invest without limit in U.S. Government Obligations and short-term debt
securities or money market instruments if the Adviser determines that a
temporary defensive position is advisable or to meet anticipated redemption
requests. In other words, the Marsico Funds do not always stay fully invested in
stocks and bonds. Cash or similar investments are a residual -- they represent
the assets that remain after the Adviser has committed available assets to
desirable investment opportunities. When the Marsico Funds' cash position
increases, it may not participate in stock market advances or declines to the
extent that it would if it remained more fully invested in common stocks.
The Marsico Funds may invest up to 25% of their assets in foreign equity and
debt securities. The Funds may invest directly in foreign securities denominated
in a foreign currency and not publicly traded in the United States. Other ways
of investing in foreign securities include depositary receipts or shares, and
passive foreign investment companies. Foreign securities are generally selected
on a company-by-company basis without regard to any defined allocation among
countries or geographic regions. However, certain factors such as expected
levels of inflation, government policies influencing business conditions, the
outlook for currency relationships, and prospects for economic growth among
countries, regions or geographic areas may warrant greater consideration in
selecting foreign securities. The Marsico Funds may use options, futures,
forward currency contracts and other types of derivatives for hedging purposes.
The Funds may purchase securities on a when-issued, delayed delivery or forward
commitment basis.
For more information concerning these and other investments in which the Funds
may invest and their investment practices, see "Appendix A."
Special Risks Considerations Relevant to Foreign Investing: Investors should
understand and consider carefully the special risks involved in foreign
investing. Such risks include, but are not limited to: (1) restrictions on
foreign investment and repatriation of capital; (2) fluctuations in currency
exchange rates, which can significantly affect a Fund's share price; (3) costs
of converting foreign currency into U.S. dollars and U.S. dollars into foreign
currencies; (4) greater price volatility and less liquidity; (5) settlement
practices, including delays, which may differ from those customary in United
States markets; (6) exposure to political and economic risks, including the risk
of nationalization, expropriation of assets and war; (7) possible impositions of
foreign taxes and exchange control and currency restrictions; (8) lack of
uniform accounting, auditing and financial reporting standards; (9) less
governmental supervision of securities markets, brokers and issuers of
securities; (10) less financial information available to investors; and (11)
difficulty in enforcing legal rights outside the United States.
The expenses to individual investors of investing directly in foreign securities
are very high relative to similar costs for investing in U.S. securities. While
the Funds offer a more efficient way for individual investors to participate in
foreign markets, their expenses, including custodial fees, are also typically
higher than those of domestic equity mutual funds.
Certain of the risks associated with investments by the Funds in foreign
securities are heightened with respect to investment in developing countries and
emerging markets countries. Political and economic structures in many emerging
markets countries may be undergoing significant evolution and rapid development,
and may lack the social, political and economic stability characteristic of more
developed countries. Investing in emerging markets securities also involves
risks which are in addition to the usual risks inherent in foreign investments.
Some emerging markets countries may have fixed or managed currencies that are
not free-floating against the U.S. dollar. Further, certain currencies may not
be traded internationally and some countries with emerging securities markets
have sustained long periods of substantially high inflation or rapid fluctuation
in inflation rates which can have negative effects on a country's economy or
securities markets.
In addition to the general risks inherent in foreign investing, investors should
understand and consider carefully the special risks involved in investing in
Eastern Europe, the Pacific Basin and the Far East. Economic and political
reforms in Eastern Europe are still in their infancy. As a result, investment in
such countries could be deemed to be highly speculative and could result in
losses to a Fund and, thus, to its shareholders. Countries in the Pacific Basin
and Far East are in various stages of economic development, ranging from
emerging markets to mature economies, but each has unique risks. Most countries
in this region are heavily dependent on international trade, and some are
especially vulnerable to recessions in other countries. Many of these countries
are also sensitive to world commodity prices. Some countries that have
experienced rapid growth may still have obsolete financial systems, economic
problems or archaic legal systems. In addition, many of these nations are
experiencing political and social uncertainties. See "Appendix A" for additional
discussion of the risks associated with an investment in the Funds.
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Year 2000 Issue: Many computer programs employed throughout the world use two
digits to identify the year. Unless modified, these programs may not correctly
handle the change from "99" to "00" on January 1, 2000, and may not be able to
perform necessary functions. Any failure to adapt these programs in time could
hamper the Funds' operations. The Funds' principal service providers have
advised the Funds that they have been actively working on implementing necessary
changes to their systems, and that they expect that their systems will be
adapted in time, although there can be no assurance of success. Because the Year
2000 issue affects virtually all organizations, the companies or governmental
entities in which the Funds invest could be adversely impacted by the Year 2000
issue, although the extent of such impact cannot be predicted. To the extent the
impact on a portfolio holding is negative, a Fund's return could be adversely
affected.
Investment Limitations: Each Fund is subject to a number of investment
limitations. The following investment limitations are matters of fundamental
policy and may not be changed without the affirmative vote of the holders of a
majority of the Fund's outstanding shares. Other investment limitations that
cannot be changed without such a vote of shareholders are described in the SAI.
The Marsico Funds may not:
1. Purchase any securities which would cause 25% or more of the value of the
Fund's total assets at the time of such purchase to be invested in the
securities of one or more issuers conducting their principal activities in the
same industry, provided that this limitation does not apply to investments U.S.
Government Obligations.
2. Make loans, except that a Fund may purchase and hold debt instruments
(whether such instruments are part of a public offering or privately placed),
may enter into repurchase agreements and may lend portfolio securities in
accordance with its investment policies.
Nations Marsico Growth & Income Fund may not:
1. Purchase securities of any one issuer (other than U.S. Government
Obligations) 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 total
assets, such Fund will not hold more than 10% of the voting securities of any
issuer.
Nations Marsico Focused Equities Fund may not:
1. Purchase securities of any one issuer (other than U.S. Government
Obligations) if, immediately after such purchase, more than 25% of the value of
a Fund's total assets would be invested in the securities of one issuer, and
with respect to 50% of such Fund's total assets, more than 5% of its assets
would be invested in the securities of one issuer.
Nations International Value Fund may not:
1. Invest 25% or more of its total assets in one or more issuers conducting
their principal business activities in the same industry (with certain
exceptions).
2. Purchase securities of any one issuer (with certain exceptions, including
U.S. Government securities) if more than 5% of the Fund's total assets will be
invested in the securities of any one issuer, except that up to 25% of the value
of the Fund's total assets may be invested without regard to the 5% limitation.
The Fund may not purchase more than 10% of the outstanding voting securities of
any issuer subject, however, to the foregoing 25% exception.
3. Borrow money except for temporary purposes in amounts up to one-third of the
value of its total assets at the time of such borrowing. Whenever borrowings
exceed 5% of the Fund's total assets, the Fund will not make any investments.
If a percentage limitation has been met at the time an investment is made, a
subsequent change in that percentage that is the result of a change in value of
a Fund's portfolio securities does not mean that the limitation has been
violated.
The investment objective and policies of each Fund, unless otherwise specified,
are non-fundamental and may be changed without shareholder approval. If the
investment objective or policies of a Fund change, shareholders should consider
whether the Fund remains an appropriate investment in light of their then
current position and needs.
How Performance Is Shown
From time to time, the Funds may advertise the "total return" and "yield" on a
class of shares. Total return and yield figures are based on historical data and
are not intended to indicate future performance. The "total return" of a class
of shares of a Fund may be calculated on an average annual total return basis or
an aggregate total return basis. Average annual total return refers to the
average annual compounded rates of return over one-, five-, and ten-year periods
or the life of the Fund (as stated in a Fund's 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.
9
<PAGE>
Marsico Prior Performance: Mr. Thomas Marsico is responsible for the investment
program of the Marsico Funds. Prior to forming Marsico Capital, Mr. Marsico
served as Portfolio Manager of the Janus Twenty Fund from January 31, 1988
through August 11, 1997, and served in the same capacity for the Janus Growth
and Income Fund from May 31, 1991 (inception) through August 11, 1997. The
average annual returns for the Janus Twenty Fund and the Janus Growth and Income
Fund ("Janus Funds") from the date on which Mr. Marsico began serving as
Portfolio Manager of each Janus Fund through August 7, 1997 were 22.38% and
21.19%, respectively. On August 11, 1997, the date on which Mr. Marsico ceased
serving as the Portfolio Manager to both the Janus Twenty Fund and the Janus
Growth and Income Fund, the Janus Twenty Fund had approximately $6 billion in
net assets, and the Janus Growth and Income Fund had approximately $1.7 billion
in net assets. As Executive Vice President and Portfolio Manager of the Janus
Twenty Fund and the Janus Growth and Income Fund, Mr. Marsico had full
discretionary authority over the selection of investments for those funds.
Average annual returns for the one-year, three-year and five-year periods ended
August 7, 1997, and for the period during which Mr. Marsico managed those funds
compared with the performance of the S&P 500 Index were:
<TABLE>
<CAPTION>
Janus Janus
Twenty Growth and S&P 500
Fund (a) Income Fund (a) Index (b)
<S> <C> <C> <C>
One Year (8/8/96-8/7/97) 48.21% 47.77% 46.41%
Three Years (8/11/94-8/7/97) 32.07% 31.13% 30.63%
Five Years (8/13/92-8/7/97) 20.02% 21.16% 20.98%
During Period of 22.38% 21.19% Janus Twenty:
Management by 18.20%(c)
Mr. Marsico Janus Growth
(through 8/7/97) and Income:
18.59%(d)
</TABLE>
(a) Average annual total return reflects changes in share prices and
reinvestment of dividends and distributions and is net of fund expenses.
(b) The S&P 500 Index is adjusted to reflect reinvestment of dividends.
(c) This figure represents the average annual return of the S&P 500 Index
during the period that Mr. Marsico managed the Janus Twenty Fund through
August 7, 1997.
(d) This figure represents the average annual return of the S&P 500 Index
during the period that Mr. Marsico managed the Janus Growth and Income Fund
through August 7, 1997.
The Janus Twenty Fund has substantially similar investment policies, strategies,
and objectives as those of Nations Marsico Focused Equities Fund, while the
investment policies, strategies, and objectives of the Janus Growth and Income
Fund are substantially similar to those of Nations Marsico Growth & Income Fund.
Historical performance is not indicative of future performance. For a majority
of the periods shown above, the expenses of the Janus Twenty Fund and the Janus
Growth and Income Fund were lower than the anticipated expenses of Nations
Marsico Focused Equities Fund and Nations Marsico Growth & Income Fund,
respectively. Higher expenses, of course, would have resulted in lower
performance. The Janus Twenty Fund and the Janus Growth and Income Fund are
separate funds and their historical performance is not indicative of the
potential performance of Nations Marsico Focused Equities Fund and Nations
Marsico Growth & Income Fund, respectively. The Janus Twenty Fund and the Janus
Growth and Income Fund were the only investment vehicles that Mr. Marsico
managed during the period he was employed at Janus Capital Corporation that have
substantially similar objectives, policies, and strategies as those of the
Funds. Share prices and investment returns will fluctuate reflecting market
conditions, as well as changes in company-specific fundamentals of portfolio
securities.
Brandes Composite Performance: Set forth below is certain performance data
relating to Nations International Value Fund; the composite of certain
international equity accounts of clients of Brandes and the Brandes
Institutional International Equity Fund, an open-end management investment
company (the "Brandes Composite"); and the Morgan Stanley Capital International
European, Australasian and Far Eastern Index (the "MSCI EAFE Index"). The
performance data for the Brandes Composite is deemed relevant because the
accounts and mutual fund in the Brandes Composite have investment objectives and
policies that are substantially similar to those of Nations International Value
Fund, and are managed by Brandes using substantially similar, but not identical,
investment strategies, policies and techniques as those used in managing Nations
International Value Fund. The data below regarding Nations International Value
Fund, the Brandes Composite and the MSCI EAFE Index should not be considered as
an indication of future performance of Nations International Value Fund or of
Brandes. The accounts that are included in the Brandes Composite are not subject
to the same types of expenses to which Nations International Value Fund is
subject nor to the diversification requirements, specific tax restrictions and
investment limitations imposed on Nations International Value Fund by the 1940
Act or Subchapter M of the Internal Revenue Code. Consequently, the performance
results for the Brandes Composite could have been adversely affected if the
accounts included in the Brandes Composite had been regulated as investment
companies or subject to the Fund's expenses. In addition, the results presented
below for the Brandes Composite may not necessarily equate with the return
experienced by any particular account of Brandes.
Average Annual Total Returns for the
Periods Indicated through
March 31, 1998
<TABLE>
<CAPTION>
One Three Five Since
Year Years Years Inception
<S> <C> <C> <C> <C>
Nations
International
Value Fund* 34.29% N/A N/A 24.08%
Brandes
Composite** 32.81% 23.15% 18.85% 18.56%
MSCI EAFE
Index*** 18.61% 10.57% 11.93% 6.98%
</TABLE>
10
<PAGE>
Annual Total Returns
<TABLE>
<CAPTION>
Nations MSCI
International Brandes EAFE
Value Fund Composite** Index***
<S> <C> <C> <C>
1997 20.41% 20.00% 1.78%
1996 15.32% 16.34% 6.05%
1995 N/A 13.75% 11.21%
1994 N/A -2.98% 7.78%
1993 N/A 40.86% 32.56%
1992 N/A 6.28% -12.17%
1991 N/A 40.17% 12.13%
</TABLE>
* For the periods indicated, the prior performance for Nations International
Value Fund reflects the performance for the Emerald International Equity
Fund, (inception December 27, 1995), managed by Brandes and having
substantially the same investment objectives, policies, techniques and
restrictions, which was reorganized into Nations International Value Fund on
May 22, 1998.
** The returns above were calculated on a time- and asset-weighted total return
basis, assuming reinvestment of all dividends, interest and income, realized
and unrealized gains or losses and are net of all applicable expenses,
including investment advisory fees, brokerage commission and execution
costs, custodial fees and any applicable foreign withholding taxes, without
provision for any federal or state income taxes. The Brandes Composite
results include all actual, fee-paying and non-fee-paying, fully
discretionary accounts under management by Brandes for at least one month
beginning July 1, 1990, having substantially the same investment objectives,
policies, techniques and restrictions, other than client accounts
denominated in currencies other than U.S. dollars. The Brandes Composite
results also include performance data relating to the Brandes Institutional
International Equity Fund since its inception on January 2, 1997.
*** The MSCI EAFE index is an unmanaged index consisting of securities listed
on exchanges in European, Australasian and Far Eastern markets and includes
dividends and distributions, but does not reflect fees, brokerage
commissions or other expenses of investing.
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 the Funds with bank
deposits, savings accounts, and similar investment alternatives which often
provide an agreed-upon or guaranteed fixed yield for a stated period of time.
Any fees charged by 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.
In addition to Primary B Shares, the Funds offer Primary A, Investor A, Investor
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. Performance
quotations will be computed separately for each class of a Fund's shares. Each
Fund's annual report contains additional performance information and is
available upon request without charge from the Funds' distributor or an
Investor's Institution, as defined below, or by calling Nations Funds at the
toll-free number indicated on the cover.
How The Funds Are Managed
The business and affairs of each of Nations Fund Trust and Nations Fund, Inc.
are managed under the direction of their Board of Trustees and Board of
Directors, respectively. The SAI contains the names of and general background
information concerning each Director/Trustee of Nations Fund, Inc. and Nations
Fund Trust, respectively.
As described below, each Fund is advised by NBAI which is responsible for the
overall management and supervision of the investment management of each Fund.
Each Fund also is sub-advised by a separate investment sub-adviser, which as a
general matter is responsible for the day-to-day investment decisions for the
respective Fund.
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.
NationsBank Corporation, the parent company of NationsBank, has signed an
agreement to merge with BankAmerica Corporation. The proposed merger is subject
to certain regulatory approvals and must be approved by shareholders of both
holding companies. The merger is expected to close in the second half of 1998.
NationsBank and NBAI have advised the Funds that the merger will not reduce the
level or quality of advisory and other services provided to the Funds.
Investment Adviser: NationsBanc Advisors, Inc. serves as investment adviser to
the Funds. NBAI is a wholly owned subsidiary of NationsBank, which in turn is a
wholly owned banking subsidiary of NationsBank Corporation, a bank holding
company organized as a North Carolina corporation. NationsBank has its
principal offices at One NationsBank Plaza, Charlotte, North Carolina 28255.
Marsico Capital Management, LLC, located at 1200 17th Street, Suite 1300,
Denver, Colorado 80202, serves as the investment sub-adviser to Nations Marsico
Growth & Income Fund and Nations Marsico Focused Equities Fund pursuant to an
investment sub-advisory agreement. NationsBank has an option to purchase up to
50% of Marsico Capital.
Brandes Investment Partners, L.P., with principal offices at 12750 High Bluff
Drive, San Diego, California 92130, serves as investment sub-adviser to Nations
International Value Fund pursuant to an investment sub-advisory agreement.
Subject to the general supervision of Nations Fund Trust's Board of Trustees and
Nations Fund, Inc.'s Board of Directors, and in accordance with each Fund's
investment poli-
11
<PAGE>
cies, the Adviser formulates guidelines and lists of approved investments for
each Fund, makes decisions with respect to and places orders for each Fund's
purchases and sales of portfolio securities and maintains records relating to
such purchases and sales. The Adviser is authorized to allocate purchase and
sale orders for portfolio securities to certain financial institutions,
including, in the case of agency transactions, financial institutions, which are
affiliated with the Adviser or which have sold shares in the Funds, if the
Adviser believes that the quality of the transactions and the commissions are
comparable to what they would be with other qualified brokerage firms. From time
to time, to the extent consistent with its investment objective, policies and
restrictions, each Fund may invest in securities of companies with which
NationsBank has a lending relationship.
For the services provided and expenses assumed pursuant to various investment
advisory agreements, NBAI is entitled to receive advisory fees computed daily
and paid monthly, at the annual rate of .85% of the average daily net assets of
Nations Marsico Focused Equities Fund and Nations Marsico Growth & Income Fund;
and 1.00% of the average daily net assets of Nations International Value Fund.
For the services provided pursuant to an investment sub-advisory agreement, NBAI
will pay Marsico Capital sub-advisory fees, computed daily and paid monthly, at
the annual rate of .45% of Nations Marsico Focused Equities Fund's average daily
net assets and .45% of Nations Marsico Growth & Income Fund's average daily net
assets.
For services provided and expenses assumed pursuant to an investment
sub-advisory agreement, NBAI will pay Brandes sub-advisory fees, computed daily
and paid monthly, at the annual rate of .50% of Nations International Value
Fund's average daily net assets.
From time to time, NBAI (and/or Marsico Capital or Brandes) may waive or
reimburse (either voluntarily or pursuant to applicable state limitations)
advisory or sub-advisory fees and/or expenses payable by a Fund.
For the fiscal period from December 31, 1997 to March 31, 1998, after waivers,
Nations Fund Trust paid NBAI under the investment advisory agreement, advisory
fees at the indicated rates of the following Funds' average daily net assets:
Nations Marsico Focused Equities Fund -- .85% and Nations Marsico Growth &
Income Fund -- .00%.
For the fiscal period from December 1, 1997 to May 15, 1998, after waivers, the
Emerald Funds paid Barnett Capital Advisors, Inc., ("Barnett") under a previous
investment advisory agreement, advisory fees of .90% of the Nations
International Value Fund's average daily net assets (formerly called the Emerald
International Equity Fund).
For the fiscal period from December 31, 1997 to March 31, 1998, after waivers,
NBAI paid Marsico Capital under the investment sub-advisory agreement, sub-
advisory fees at the indicated rates of the following Funds' average daily net
assets: Nations Marsico Focused Equities Fund -- .45% and Nations Marsico
Growth & Income Fund -- .45%.
For the fiscal period from December 1, 1997 to May 15, 1998, after waivers,
Barnett paid Brandes, under a previous investment sub-advisory agreement,
sub-advisory fees of .50% of Nations International Value Fund.
Thomas F. Marsico is the Chief Executive Officer of Marsico Capital and has been
the Portfolio Manager of both Nations Marsico Focused Equities Fund and Nations
Marsico Growth & Income Fund since each Fund's respective inception. Prior to
forming Marsico Capital, Mr. Marsico was a portfolio manager with Janus Funds
for 11 years and was responsible for the day-to-day management of Janus Twenty
Fund and Janus Growth and Income Fund. Overall, Mr. Marsico had 18 years of
experience as a securities analyst/portfolio manager before becoming the
Portfolio Manager of Nations Marsico Focused Equities Fund and Nations Marsico
Growth & Income Fund.
Brandes' Investment Committee is responsible for the day-to-day management of
Nations International Value Fund.
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 various investment
advisory agreements, and this Prospectus without violation of the Glass-Steagall
Act. Such counsel has pointed out, however, that there are no controlling
judicial or administrative interpretations or decisions and that future judicial
or administrative interpretations of, or decisions relating to, present federal
or state statutes, and regulations relating to the permissible activities of
banks and their subsidiaries or affiliates, as well as future changes in federal
or state statutes, including the Glass-Steagall Act, and regulations and
judicial or administrative decisions or interpretations thereof, could prevent
such entities from continuing to perform, in whole or in part, such services. If
any such entity were prohibited from performing any such services, it is
expected that new agreements would be proposed or entered into with another
entity or entities qualified to perform such services.
Other Service Providers: Stephens Inc. ("Stephens"), with principal offices at
111 Center Street, Little Rock, Arkansas 72201, serves as the administrator of
Nations Funds pursuant to administration agreements. Pursuant to the terms of
the administration agreements, Stephens provides various administrative and
corporate secretarial services to the Funds, including providing general
oversight of other service providers, office space, utilities and various legal
and administrative services in connection with the satisfaction of various
regulatory requirements applicable to the Funds.
First Data Investor Services Group, Inc. ("First Data"), 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
12
<PAGE>
Funds pursuant to co-administration agreements. Under the co-administration
agreements, First Data provides various administrative and accounting services
to the Funds including performing the calculations necessary to determine the
net asset value per share and dividends of each class of the Funds, preparing
tax returns and financial statements and maintaining the portfolio records and
certain of the general accounting records for the Funds. For the services
rendered pursuant to the administration and co-administration agreements,
Stephens and First Data are entitled to receive a combined fee at the annual
rate of up to .10% of each Fund's average daily net assets.
For the fiscal period from December 31, 1997 to March 31, 1998, after waivers,
Nations Fund Trust paid its administrators combined fees at the indicated rates
of the following Funds' average daily net assets: Nations Marsico Focused
Equities Fund -- .10% and Nations Growth & Income Fund -- .10%.
NBAI serves as sub-administrator for the Funds pursuant to sub-administration
agreements. Pursuant to the terms of the sub-administration agreements, NBAI
assists Stephens in supervising, coordinating and monitoring various aspects of
the Funds' administrative operations. For providing such services, NBAI shall be
entitled to receive a monthly fee from Stephens based on an annual rate of .01%
of the Funds' average daily net assets.
Shares of the Funds are sold on a continuous basis by Stephens, as the Funds'
sponsor and distributor. Stephens is a registered broker/dealer. 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.
The Bank of New York ("BNY" or the "Custodian"), located at 90 Washington
Street, New York, New York 10286, provides custodial services for the assets of
all Nations Funds, except the international funds. In return for providing
custodial services to the Nations Funds Family, BNY is entitled to 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 Funds' non-money
market funds up to $10 billion; and (ii) 1/2 of one basis point on the excess,
including all Nations Funds' money market funds.
BNY, located at Avenue des Arts, 35 1040 Brussels, Belgium, provides custodial
services for the assets of Nations International Value Fund.
First Data serves as transfer agent (the "Transfer Agent") for the Funds'
Primary B Shares. NationsBank serves as the sub-transfer agent for each Fund's
Primary B Shares and is entitled to receive an annual fee of $251,000 from First
Data for performing such services.
PricewaterhouseCoopers LLP serves as independent accountants to Nations Funds.
Their 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, Stephens and First Data; taxes;
interest; fees (including fees paid to Nations Funds' Directors, Trustees and
officers); federal and state securities registration and qualification fees;
brokerage fees and commissions; costs of preparing and printing prospectuses for
regulatory purposes and for distribution to existing shareholders; charges of
the Custodians and Transfer Agent; certain insurance premiums; outside auditing
and legal expenses; costs of shareholder reports and shareholder meetings; other
expenses, which are not expressly assumed by the Adviser, Stephens or First Data
under their respective agreements with Nations Funds; and any extraordinary
expenses. Primary B Shares also bear certain shareholder servicing and
shareholder administration costs. Any general expenses of Nations Fund Trust
and/or Nations Fund, Inc. that are not readily identifiable as belonging to a
particular investment portfolio are allocated among all portfolios in the
proportion that the assets of a portfolio bears to the assets of Nations Fund
Trust and/or Nations Fund, Inc. or in such other manner as the Board of Trustees
or the Board of Directors 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., Nations
Institutional Reserves, Nations Annuity Trust and Nations LifeGoal Funds, Inc.
The Nations Funds Family currently has more than 60 distinct investment
portfolios and total assets in excess of $40 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 Marsico Funds
currently offer five classes of shares -- Primary A Shares, Primary B Shares,
Investor A Shares, Investor B Shares, Investor C Shares. This Prospectus relates
only to the Primary B Shares of the following Funds of Nations Fund Trust:
Nations Marsico Focused Equities Fund and Nations Marsico Growth & Income Fund.
To obtain additional information regarding the Funds' other classes of shares
which may be available to you, contact your Institution (as defined below) or
Nations Funds at 1-800-621-2192.
Each share of Nations Fund Trust is without par value, represents an equal
proportionate interest in the related fund with other shares of the same class,
and is entitled to such dividends and distributions out of the income earned on
the assets belonging to such fund as are declared in the
13
<PAGE>
discretion of Nations Fund Trust's Board of Trustees. Nations Fund Trust's
Declaration of Trust authorizes the Board of Trustees to classify or reclassify
any class of shares into one or more series of shares.
Shareholders are entitled to one vote for each full share held and a
proportionate fractional vote for each fractional share held. Shareholders of
each fund of Nations Fund Trust will vote in the aggregate and not by fund, and
shareholders of each fund will vote in the aggregate and not by class except as
otherwise expressly required by law or when the Board of Trustees determines
that the matter to be voted on affects only the interests of shareholders of a
particular fund or class. See the SAI for examples of when the Investment
Company Act of 1940, as amended (the "1940 Act") requires voting by fund.
As of November , 1998, NationsBank and its affiliates possessed or shared power
to dispose or vote with respect to more than 25% of the outstanding shares of
Nations Fund Trust and, therefore, could be considered to be a controlling
person of Nations Fund Trust for purposes of the 1940 Act. For more detailed
information concerning the percentage of each class or series of shares over
which NationsBank and its affiliates possessed or shared power to dispose or
vote as of a certain date, see the SAI.
Nations Fund Trust does not presently intend to hold annual meetings except as
required by the 1940 Act. Shareholders will have the right to remove Trustees.
Nations Fund Trust's Code of Regulations provides that special meetings of
shareholders shall be called at the written request of the shareholders entitled
to vote at least 10% of the outstanding shares of Nations Fund Trust entitled to
be voted at such meeting.
Nations Fund, Inc.: Nations Fund, Inc. was incorporated in Maryland on December
13, 1983, but had no operations prior to December 15, 1986. Nations Fund, Inc.'s
fiscal year end is March 31; prior to 1996, Nations Fund, Inc.'s fiscal year end
was May 31. As of the date of this Prospectus, the authorized capital stock of
Nations Fund, Inc. consists of 470,000,000,000 shares of common stock, par value
of $.001 per share, which are divided into series or funds each of which
consists of separate classes of shares. This Prospectus relates only to the
Primary B Shares of the following Fund of Nations Fund, Inc.: Nations
International Value Fund. To obtain additional information regarding the Funds'
other classes of shares which may be available to you, contact your Institution
(as defined below) or Nations Funds at 1-800-621-2192.
Shares of each fund and class have equal rights with respect to voting, except
that the holders of shares of a particular fund or class will have the exclusive
right to vote on matters affecting only the rights of the holders of such fund
or class. In the event of dissolution or liquidation, holders of each class will
receive pro rata, subject to the rights of creditors, (a) the proceeds of the
sale of that portion of the assets allocated to that class held in the
respective fund of Nations Fund, Inc., less (b) the liabilities of Nations Fund,
Inc. attributable to the respective fund or class or allocated among the funds
or classes based on the respective liquidation value of each fund or class.
Shareholders of Nations Fund, Inc. do not have cumulative voting rights, and,
therefore, the holders of more than 50% of the outstanding shares of all funds
voting together for election of directors may elect all of the members of the
Board of Directors of Nations Fund, Inc. Meetings of shareholders may be called
upon the request of 10% or more of the outstanding shares of Nations Fund, Inc.
There are no preemptive rights applicable to any of Nations Fund, Inc.'s shares.
Nations Fund, Inc.'s shares, when issued, will be fully paid and non-assessable.
As of November , 1998, NationsBank and its affiliates possessed or shared power
to dispose of or vote with respect to more than 25% of the outstanding shares of
Nations Fund, Inc. and therefore could be considered to be a controlling person
of Nations Fund, Inc. for purposes of the 1940 Act. For more detailed
information concerning the percentage of each class or series over which
NationsBank and its affiliates possessed or shared power to dispose or vote as
of a certain date, see the SAI. It is anticipated that Nations Fund, Inc. will
not hold annual shareholder meetings on a regular basis unless required by the
1940 Act or Maryland law.
Because this Prospectus combines disclosure on two separate investment
companies, there is a possibility that one investment company could become
liable for a misstatement, inaccuracy or incomplete disclosure in this
Prospectus concerning another investment company. Nations Fund Trust and Nations
Fund, Inc. have entered into an indemnification agreement that creates a right
of indemnification from the investment company responsible for any such
misstatement, inaccuracy or incomplete disclosure that may appear in this
Prospectus.
14
<PAGE>
About Your Investment
How To Buy Shares
There is a minimum initial investment of $1,000 for each record holder; there is
no minimum subsequent investment.
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") or a shareholder servicing agreement (a
"Servicing Agreement") with Nations Funds and/or a selling agreement with
Stephens.
The Funds reserve the right, in their discretion, to make Primary B Shares
available to other categories of investors, including those who become eligible
in connection with a merger or reorganization.
Primary B Shares are sold at net asset value without the imposition of a sales
charge, according to procedures established by the Institution. 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 in connection with the purchase of shares.
Purchases of the Funds may be effected on days on which the New York Stock
Exchange (the "Exchange") is open for business (an "Exchange Business Day").
Unless otherwise specified, the term "Business Day" in this Prospectus refers to
a Exchange Business Day with respect to a Fund.
Pursuant to the Administration and Servicing 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 and Stephens reserve the right to reject any purchase order. The
issuance of Primary B Shares is recorded on the books of the Funds, and share
certificates are not issued. It is the responsibility of Institutions, when
applicable, 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 in the Funds
which are received by Stephens, the Transfer Agent or their respective agents
before the close of regular trading 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. In the event that the Exchange closes early, purchase
orders received prior to closing will be priced as of the time the Exchange
closes and purchase orders received after the Exchange closes will be deemed
received on the next Business Day and priced according to the net asset value
determined on the next Business Day. Purchase orders are not executed until 4:00
p.m., Eastern time, on the Business Day on which immediately available funds in
payment of the purchase price are received by the Fund's Custodian. Such payment
must be received no later than 4:00 p.m., Eastern time, by the third Business
Day following the receipt of the order, as determined above. 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 or investor.
Primary B Shares are purchased at the net asset value per share next determined
after receipt of the order by Stephens, the Transfer Agent or their respective
agents. 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. Institutions should be aware that during periods of
significant economic or market change, telephone transactions may be difficult
to complete.
How To Redeem Shares
Redemption orders for Primary B Shares of the Funds which are received by
Stephens, the Transfer Agent or their respective agents before the close of
regular trading on the Exchange (currently 4:00 p.m., Eastern time) on any
Business Day are priced according to the net asset value next determined after
acceptance of the order. In the event that the Exchange closes early, redemption
orders received prior to closing will be priced as of the time the Exchange
closes and redemption orders received after the Exchange closes will be deemed
received on the next Business Day and priced according to the net asset value
determined on the next Business Day.
Redemption proceeds are normally remitted in federal funds wired to the
redeeming Institution within three Business Days following receipt of the order.
Institutions are responsible for transmitting redemption orders to Stephens, the
Transfer Agent or by their respective agents and for crediting their Customers'
accounts
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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 B 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, the Transfer
Agent or by their respective agents.
Nations Funds may redeem a shareholder's Primary B Shares if the balance in such
shareholder's account drops below $500 as a result of redemptions, and the
shareholder does not increase his or her balance to at least $500 on 60 days'
written notice. Share balances may also be redeemed at the direction of an
Institution pursuant to arrangements between the Institution and its customers.
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 Nations 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.
Primary B Shares may be exchanged by directing a request directly to the
Institution, if any, through which the original Primary B Shares were purchased
or in other cases Stephens, the Transfer Agent or their respective agents.
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.
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 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 and Stephens reserve the right to reject any exchange request.
Only shares that may legally be sold in the state of the investor's residence
may be acquired in an exchange. Only shares of a class that is accepting
investments generally may be acquired in an exchange. During periods of
significant economic or market change, telephone exchanges may be difficult to
complete. In such event, shareholders should consider communicating their
exchange requests by mail.
Provided that your Institution allows telephone exchanges such telephone
exchanges may be difficult to complete during periods of significant economic or
market change. 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 Servicing Arrangements
The Funds have adopted a Shareholder Administration Plan (the "Administration
Plan") pursuant to which Institutions provide shareholder administration
services to their Customers who from time to time beneficially own Primary B
Shares. Payments under the Administration Plan are calculated daily and paid
monthly at a rate or rates set from time to time by the Funds, provided that the
annual rate may not exceed .60% of the average daily net asset value of the
Primary B Shares beneficially owned by Customers with whom the Institutions have
a servicing rela-
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tionship. 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
.25% of the average daily net asset value of such Primary B Shares of a Fund.
Holders of Primary B Shares will bear all fees paid to Institutions under the
Administration Plan.
Such shareholder administration services supplement the services provided by
Stephens, First Data and the Transfer Agent to shareholders of record. The
shareholder administration services provided by Institutions may include: (i)
aggregating and processing purchase and redemption requests for Primary B Shares
from Customers and transmitting promptly net purchase and redemption orders to
Stephens or the Transfer Agent; (ii) providing Customers with a service that
invests the assets of their accounts in Primary B Shares pursuant to specific or
pre-authorized instructions; (iii) processing dividend and distribution payments
from the Funds on behalf of Customers; (iv) providing information periodically
to Customers showing their positions in Primary B Shares; (v) arranging for bank
wires; (vi) responding to Customers' inquiries concerning their investment in
Primary B Shares; (vii) providing sub-accounting with respect to Primary B
Shares beneficially owned by Customers or the information necessary for
sub-accounting; (viii) if required by law, forwarding shareholder communications
(such as proxies, shareholder reports, annual and semi-annual financial
statements and dividend, distribution and tax notices) to Customers; (ix)
forwarding to Customers proxy statements and proxies containing any proposals
regarding the Administration Agreement; (x) employee benefit plan recordkeeping,
administration, custody and trustee services; (xi) general shareholder liaison
services; and (xii) providing such other similar services as may be reasonably
requested.
Nations Funds may suspend or reduce payments under the Servicing or
Administration Plan at any time, and payments are subject to the continuation of
the Servicing or Administration Plan described above and the terms of the
Servicing or Administration Agreement ,as the case may be, between Institutions
and Nations Funds. See the SAI for more details on the Servicing or
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.
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 Servicing or Administration Agreement with Nations
Funds. The Servicing or 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.
The Adviser may also put out of its own assets amounts to Stephens or other
broker/dealers in connection with the provision of administrative and/or
distribution related services to shareholders.
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.
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
hours on the Exchange (currently 4:00 p.m., Eastern time) on each Business Day.
In the event that the Exchange closes early, shares of the Funds will be priced
as of the time the Exchange closes. Currently, the days on which the Exchange is
closed (other than weekends) are: New Year's Day, Martin Luther King, Jr. Day,
Presidents' Day, Good Friday, Memorial Day (observed), Independence Day, Labor
Day, Thanksgiving Day and Christmas Day.
Portfolio securities for which market quotations are readily available are
valued at market value. Short-term investments that will mature in 60 days or
less are valued at amortized cost, which approximates market value. All other
securities and assets are valued at their fair value following procedures
approved by the Trustees or Directors.
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How Dividends And Distributions Are Made; Tax Information
Dividends from net investment income are declared and paid each calendar quarter
by the Marsico Funds. Dividends from net investment income are declared and paid
annually by Nations International Value Fund. Each Fund's net realized capital
gains (including net short-term capital gains) are distributed at least
annually. Distributions from capital gains are made after applying any available
capital loss carryovers. Distributions paid by the Funds with respect to one
class of shares may be greater or less than those paid with respect to another
class of shares due to the different expenses of the different classes.
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. Accordingly, dividends and distributions on newly
purchased shares represent, in substance, a return of capital. Dividends and
distributions are paid in cash within five Business Days of the end of the
month, quarter or year to which the payment relates. However, such dividends and
distributions would nevertheless be taxable. Dividends and distributions payable
to a shareholder are paid in cash within five Business Days after a
shareholder's complete redemption of his or her Primary B Shares in a Fund. Each
Fund's net investment income available for distribution to the holders of
Primary B Shares will be reduced by the amount of administration fees payable to
Institutions under the Administration Agreements.
Tax Information: Each Fund intends to continue 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 net investment income
each taxable year. Except as provided below, 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
generally will be taxable as ordinary income to shareholders, whether such
income is received in cash or reinvested in additional shares.
Corporate shareholders in the Funds may be entitled to the dividends-received
deduction for distributions from those Funds investing in the stock of domestic
corporations to the extent of the total qualifying dividends received by the
distributing Fund.
Substantially all of the net realized long-term capital gains of the Funds, if
any, will be distributed at least annually to such Funds' shareholders. The
Funds generally will have no tax liability with respect to such gains, and the
distributions will be taxable to such shareholders as net capital gain,
regardless of how long the shareholders have held such Funds' shares and whether
such distributions are received in cash or reinvested in additional shares.
Noncorporate shareholders may be taxed on such distributions at preferential
rates.
Portions of each Fund's investment income may be subject to foreign income tax
withheld at their source. Tax conventions between certain countries and the
United States may reduce or eliminate such taxes. Generally, if more than 50% of
the value of the total assets of each Fund consists of securities it may elect
to "pass through" to its shareholders these foreign taxes, if any. Upon such an
election, each shareholder will be required to include his or her pro rata
portion thereof in his or her gross income, but will be able to deduct or
(subject to various limitations) claim a foreign tax credit against U.S. income
tax for such amount.
Each year, shareholders will be notified as to the amount and Federal tax status
of all dividends and distributions paid during the prior year.
Dividends and distributions 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 and distributions are actually paid
during January of the following year.
Federal law requires Nations Funds to withhold 31% from any distributions (other
than exempt-interest dividends) paid by Nations Funds and/or redemptions
(including exchanges and redemptions in-kind) 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, the Fund is required by the Internal Revenue Service to withhold
31% of any dividend (other than exempt-interest dividends) and/or redemption
(including exchange redemptions). Amounts withheld are applied to the
shareholder's Federal tax liability, and a refund may be obtained from the
Internal Revenue Service if withholding results in overpayment of taxes. Federal
law also requires the Funds to withhold tax on dividends paid to certain foreign
shareholders.
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The foregoing discussion is based on tax laws and regulations which were in
effect as of the date of this Prospectus and summarizes only some of the
important 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 foreign, 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 this Prospectus
identifies each Fund's permissible investments, and the SAI contains more
information concerning such investments.
Asset-Backed Securities: Asset-backed securities arise through the grouping by
governmental, government-related, and private organizations of loans,
receivables, or other assets originated by various lenders. Asset-backed
securities consist of both mortgage- and non-mortgage-backed securities (see
below). Interests in pools of these assets may differ from other forms of debt
securities, which normally provide for periodic payment of interest in fixed
amounts with principal paid at maturity or specified call dates. Conversely,
asset-backed securities provide periodic payments which may consist of both
interest and principal payments.
The life of an asset-backed security varies depending upon the rate of the
prepayment of the underlying debt instruments. The rate of such prepayments will
be a function of current market interest rates and other economic and
demographic factors. For example, falling interest rates generally result in an
increase in the rate of prepayments of mortgage loans while rising interest
rates generally decrease the rate of prepayments. An acceleration in prepayments
in response to sharply falling interest rates will shorten the security's
average maturity and limit the potential appreciation in the security's value
relative to a conventional debt security. Consequently, asset-backed securities
may not be as effective in locking in high, long-term yields. Conversely, in
periods of sharply rising rates, prepayments are generally slow, increasing the
security's average life and its potential for price depreciation.
Mortgage-Backed Securities: Mortgage-backed securities represent an ownership
interest in a pool of mortgage loans.
Mortgage pass-through securities may represent participation interests in pools
of residential mortgage loans originated by U.S. governmental or private lenders
and guaranteed, to the extent provided in such securities, by the U.S.
Government or one of its agencies, authorities or instrumentalities. Such
securities, which are ownership interests in the underlying mortgage loans,
differ from conventional debt securities, which provide for periodic payment of
interest in fixed amounts (usually semi-annually) and principal payments at
maturity or on specified call dates. Mortgage pass-through securities provide
for monthly payments that are a "pass-through" of the monthly interest and
principal payments (including any prepayments) made by the individual borrowers
on the pooled mortgage loans, net of any fees paid to the guarantor of such
securities and the servicer of the underlying mortgage loans.
The guaranteed mortgage pass-through securities in which a Fund may invest may
include those issued or guaranteed by the Government National Mortgage
Association ("GNMA"), by the Federal National Mortgage Association ("FNMA") and
the Federal Home Loan and Mortgage Corporation ("FHLMC"). Such Certificates are
mortgage-backed securities which represent a partial ownership interest in a
pool of mortgage loans issued by lenders such as mortgage bankers, commercial
banks and savings and loan associations. Such mortgage loans may have fixed or
adjustable rates of interest.
The average life of a mortgage-backed security is likely to be substantially
less than the original maturity of the mortgage pools underlying the securities.
Prepayments of principal by mortgagors and mortgage foreclosures will usually
result in the return of the greater part of principal invested far in advance of
the maturity of the mortgages in the pool.
The yield which will be earned on mortgage-backed securities may vary from their
coupon rates for the following reasons: (i) Certificates may be issued at a
premium or discount, rather than at par; (ii) Certificates may trade in the
secondary market at a premium or discount after issuance; (iii) interest is
earned and compounded monthly which has the effect of raising the effective
yield earned on the Certificates; and (iv) the actual yield of each Certificate
is affected by the prepayment of mortgages included in the mortgage pool
underlying the Certificates and the rate at which principal so prepaid is
reinvested. In addition, prepayment of mortgages included in the mortgage pool
underlying a GNMA Certificate purchased at a premium may result in a loss to the
Fund.
Mortgage-backed securities issued by private issuers, whether or not such
obligations are subject to guarantees by the private issuer, may entail greater
risk than obligations directly or indirectly guaranteed by the U.S. Government.
Collateralized Mortgage Obligations or "CMOs" are debt obligations
collateralized by mortgage loans or mortgage pass-through securities (collateral
collectively hereinafter referred to as "Mortgage Assets"). Multi-class
pass-through securities are interests in a trust composed of Mortgage Assets and
all references herein to CMOs will include multi-class pass-through securities.
Payments of princi-
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pal of and interest on the Mortgage Assets, and any reinvestment income thereon,
provide the funds to pay debt service on the CMOs or make scheduled distribution
on the multi-class pass-through securities.
Moreover, principal prepayments on the Mortgage Assets may cause the CMOs to be
retired substantially earlier than their stated maturities or final distribution
dates, resulting in a loss of all or part of the premium if any has been paid.
Interest is paid or accrues on all classes of the CMOs on a monthly, quarterly
or semiannual basis.
The principal and interest payments on the Mortgage Assets may be allocated
among the various classes of CMOs in several ways. Typically, payments of
principal, including any prepayments, on the underlying mortgages are applied to
the classes in the order of their respective stated maturities or final
distribution dates, so that no payment of principal is made on CMOs of a class
until all CMOs of other classes having earlier stated maturities or final
distribution dates have been paid in full.
Stripped mortgage-backed securities ("SMBS") are derivative multi-class mortgage
securities. A Fund will only invest in SMBS that are obligations backed by the
full faith and credit of the U.S. Government. SMBS are usually structured with
two classes that receive different proportions of the interest and principal
distributions from a pool of Mortgage Assets. A Fund will only invest in SMBS
whose Mortgage Assets are U.S. Government obligations.
A common type of SMBS will be structured so that one class receives some of the
interest and most of the principal from the Mortgage Assets, while the other
class receives most of the interest and the remainder of the principal. If the
underlying Mortgage Assets experience greater than anticipated prepayments of
principal, a Fund may fail to fully recoup its initial investment in these
securities. The market value of any class which consists primarily or entirely
of principal payments generally is unusually volatile in response to changes in
interest rates.
The average life of mortgage-backed securities varies with the maturities of the
underlying mortgage instruments, which have maximum maturities of 40 years. The
average life is likely to be substantially less than the original maturity of
the mortgage pools underlying the securities as the result of mortgage
prepayments, mortgage refinancings, or foreclosures. The rate of mortgage
prepayments, and hence the average life of the certificates, will be a function
of the level of interest rates, general economic conditions, the location and
age of the mortgage and other social and demographic conditions. Such
prepayments are passed through to the registered holder with the regular monthly
payments of principal and interest and have the effect of reducing future
payments. Estimated average life will be determined by the Adviser and used for
the purpose of determining the average dollar-weighted maturity and duration of
the Funds. For additional information concerning mortgage-backed securities, see
the SAI.
The mortgage-backed securities in which the Funds invest are subject to
extension risk. This is the risk that when interest rates rise, prepayments of
the underlying obligations slow thereby lengthening duration and potentially
reducing the value of these securities. The debt securities held by the Funds
also may be subject to credit risk. Credit risk is the risk that the issuers of
securities in which a Fund invests may default in the payment of principal
and/or interest. Any such defaults or adverse changes in an issuer's financial
condition or credit rating may adversely affect the value of the Funds'
portfolio investments and, hence, the value of your investment in the
corresponding Fund.
Non-Mortgage Asset-Backed Securities: Non-mortgage asset-backed securities
include interests in pools of receivables, such as motor vehicle installment
purchase obligations and credit card receivables. Such securities are generally
issued as pass-through certificates, which represent undivided fractional
ownership interests in the underlying pools of assets. Such securities also may
be debt instruments, which are also known as collateralized obligations and are
generally issued as the debt of a special purpose entity organized solely for
the purpose of owning such assets and issuing such debt. Such securities also
may include instruments issued by certain trusts, partnerships or other special
purpose issuers, including pass-through certificates representing participations
in, or debt instruments backed by, the securities and other assets owned by such
issuers.
Non-mortgage-backed securities are not issued or guaranteed by the U.S.
Government or its agencies or instrumentalities; however, the payment of
principal and interest on such obligations may be guaranteed up to certain
amounts and for a certain time period by a letter of credit issued by a
financial institution (such as a bank or insurance company) unaffiliated with
the issuers of such securities.
The purchase of non-mortgage-backed securities raises considerations unique to
the financing of the instruments underlying such securities. For example, most
organizations that issue asset-backed securities relating to motor vehicle
installment purchase obligations perfect their interests in their respective
obligations only by filing a financing statement and by having the servicer of
the obligations, which is usually the originator, take custody thereof. In such
circumstances, if the servicer were to sell the same obligations to another
party, in violation of its duty not to do so, there is a risk that such party
could acquire an interest in the obligations superior to that of the holders of
the asset-backed securities. Also, although most such obligations grant a
security interest in the motor vehicle being financed, in most states the
security interest in a motor vehicle must be noted on the certificate of title
to perfect such security interest against competing claims of other parties. Due
to the larger number of vehicles involved, however, the certificate of title to
each vehicle financed, pursuant to the obligations underlying the asset-backed
securities, usually is not amended to reflect the assignment of the seller's
security interest for the benefit of the holders of the asset-backed securities.
Therefore, there is the possibility
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that recoveries on repossessed collateral may not, in some cases, be available
to support payments on those securities. In addition, various state and Federal
laws give the motor vehicle owner the right to assert against the holder of the
owner's obligation certain defenses such owner would have against the seller of
the motor vehicle. The assertion of such defenses could reduce payments on the
related asset-backed securities. Insofar as credit card receivables are
concerned, credit card holders are entitled to the protection of a number of
state and Federal consumer credit laws, many of which give such holders the
right to set off certain amounts against balances owed on the credit card,
thereby reducing the amounts paid on such receivables. In addition, unlike most
other asset-backed securities, credit card receivables are unsecured obligations
of the card holder.
Bank Instruments: Bank instruments consist mainly of certificates of deposit,
time deposits and bankers' acceptances. Each Fund will limit their investments
in bank obligations so they do not exceed 25% of each Fund's total assets at the
time of purchase.
U.S. dollar-denominated obligations issued by foreign branches of domestic banks
("Eurodollar" obligations) and domestic branches of foreign banks ("Yankee
dollar" obligations) and other foreign obligations involve special investment
risks, including the possibility that liquidity could be impaired because of
future political and economic developments, the obligations may be less
marketable than comparable domestic obligations of domestic issuers, a foreign
jurisdiction might impose withholding taxes on interest income payable on such
obligations, deposits may be seized or nationalized, foreign governmental
restrictions such as exchange controls may be adopted which might adversely
affect the payment of principal of and interest on such obligations, the
selection of foreign obligations may be more difficult because there may be less
publicly available information concerning foreign issuers, there may be
difficulties in enforcing a judgment against a foreign issuer or the accounting,
auditing and financial reporting standards, practices and requirements
applicable to foreign issuers may differ from those applicable to domestic
issuers. In addition, foreign banks are not subject to examination by U.S.
Government agencies or instrumentalities.
Borrowings: When a Fund borrows money, the net asset value of a share may be
subject to greater fluctuation until the borrowing is paid off. Reverse
repurchase agreements may be considered to be borrowings. The Funds may borrow
money from banks for temporary purposes in amounts of up to one-third of their
respective total assets, provided that borrowings in excess of 5% of the value
of the Funds' total assets must be repaid prior to the purchase of portfolio
securities. Pursuant to line of credit arrangements with BONY, the Funds may
borrow primarily for temporary or emergency purposes, including the meeting of
redemption requests that otherwise might require the untimely disposition of
securities. Under the requirements of the 1940 Act, a Fund is required to
maintain an asset coverage (including the proceeds of the borrowings) of at
least 300% of all borrowings.
Dollar roll transactions may be considered to be borrowings. Dollar roll
transactions consist of the sale by a Fund of mortgage-backed or other
asset-backed securities, together with a commitment to purchase similar, but not
identical, securities at a future date, at the same price. In addition, a Fund
is paid a fee as consideration for entering into the commitment to purchase. If
the broker/dealer to whom a Fund sells the security becomes insolvent, the
Fund's right to purchase or repurchase the security may be restricted; the value
of the security may change adversely over the term of the dollar roll; the
security that the Fund is required to repurchase may be worth less than the
security that the Fund originally held, and the return earned by the Fund with
the proceeds of a dollar roll may not exceed transaction costs.
Commercial Instruments: Commercial instruments consist of short-term U.S.
dollar-denominated obligations issued by domestic corporations or foreign
corporations and foreign commercial banks. Investments by a Fund in commercial
paper will consist of issues rated "Prime-1" by Moody's Investors Services, Inc.
("Moody's") or "A-1" by S&P. 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.
Fixed Income Investing: The performance of the fixed income debt component of a
Fund's portfolio depends primarily on interest rate changes, the average
weighted maturity of the portfolio and the quality of the securities held. The
debt component of a Fund's portfolio will tend to decrease in value when
interest rates rise and increase when interest rates fall. A Fund's share price
and yield depend, in part, on the maturity and quality of its debt instruments.
Foreign Currency Transactions: The Funds may enter into foreign currency
exchange transactions to convert foreign currencies to and from the U.S. dollar.
A Fund either enters into these transactions on a spot (i.e., cash) basis at the
spot rate prevailing in the foreign currency exchange market, or uses forward
contracts to purchase or sell foreign currencies. A forward foreign currency
exchange contract is an obligation by a Fund to purchase or sell a specific
currency at a future date, which may be any fixed number of days from the date
of the contract.
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Foreign currency hedging transactions are an attempt to protect a Fund against
changes in foreign currency exchange rates between the trade and settlement
dates of specific securities transactions or changes in foreign currency
exchange rates that would adversely affect a portfolio position or an
anticipated portfolio position. Although these transactions tend to minimize the
risk of loss due to a decline in the value of the hedged currency, at the same
time they tend to limit any potential gain that might be realized should the
value of the hedged currency increase. Neither spot transactions nor forward
foreign currency exchange contracts eliminate fluctuations in the prices of a
Fund's portfolio securities or in foreign exchange rates, or prevent loss if the
prices of these securities should decline.
A Fund will generally enter into forward currency exchange contracts only under
two circumstances: (i) when the Fund enters into a contract for the purchase or
sale of a security denominated in a foreign currency, to "lock" in the U.S.
dollar price of the security; and (ii) when the Adviser believes that the
currency of a particular foreign country may experience a substantial movement
against another currency. Under certain circumstances, the Fund may commit a
substantial portion of its portfolio to the execution of these contracts. The
Adviser will consider the effects such a commitment would have on the investment
program of the Fund and the flexibility of the Fund to purchase additional
securities. Although forward contracts will be used primarily to protect the
Fund from adverse currency movements, they also involve the risk that
anticipated currency movements will not be accurately predicted.
In addition, the Euro will become the single currency in at least 11 European
nations used in many financial transactions. Accordingly, the German mark,
French franc and other national currencies will no longer be used. Although the
impact of implementing the Euro is not possible to predict, the transition could
have an effect on the financial markets and economic environment in Europe and
other parts of the world. For example, investors may begin to view those
countries participating in the Economic Monetary Union as a single combined
entity and may alter their investment behavior accordingly. In response to any
such effect of the Euro implementation, the Adviser may need to adapt its
investment policies and strategy.
Foreign Securities: Foreign securities include debt and equity obligations
(dollar- and non-dollar-denominated) of foreign corporations and banks as well
as obligations of foreign governments and their political subdivisions (which
will be limited to direct government obligations and government-guaranteed
securities). Such investments may subject a Fund to special investment risks,
including future political and economic developments, the possible imposition of
withholding taxes on income (including interest, distributions and disposition
proceeds), possible imposition of withholding taxes on interest income, possible
seizure or nationalization of foreign deposits, the possible establishment of
exchange controls, or the adoption of other foreign governmental restrictions
which might adversely affect the payment of principal and interest on such
obligations. In addition, foreign issuers in general may be subject to different
accounting, auditing, reporting, and record keeping standards than those
applicable to domestic companies, and securities of foreign issuers may be less
liquid and their prices more volatile than those of comparable domestic issuers.
Investments in foreign securities may present additional risks, whether made
directly or indirectly, including the political or economic instability of the
issuer or the country of issue and the difficulty of predicting international
trade patterns. In addition, there may be less publicly available information
about a foreign company than about a U.S. company. Further, foreign securities
markets are generally not as developed or efficient as those in the U.S., and in
most foreign markets volume and liquidity are less than in the United States.
Fixed commissions on foreign securities exchanges are generally higher than the
negotiated commissions on U.S. exchanges, and there is generally less government
supervision and regulation of foreign securities exchanges, brokers, and
companies than in the United States. With respect to certain foreign countries,
there is a possibility of expropriation or confiscatory taxation, limitations on
the removal of funds or other assets, or diplomatic developments that could
affect investments within those countries. Because of these and other factors,
securities of foreign companies acquired by a Fund may be subject to greater
fluctuation in price than securities of domestic companies.
The Funds may invest indirectly in the securities of foreign issuers through
sponsored or unsponsored ADRs, American Depository Shares ("ADSs"), GDRs and
EDRs or other securities representing securities of companies based in countries
other than the United States. Transactions in these securities may not
necessarily be settled in the same currency as the underlying securities which
they represent. Ownership of unsponsored ADRs, ADSs, GDRs and EDRs may not
entitle the Funds to financial or other reports from the issuer, to which it
would be entitled as the owner of sponsored ADRs, ADSs, GDRs or EDRs. Generally,
ADRs and ADSs in registered form, are designed for use in the U.S. securities
markets. GDRs are designed for use in both the U.S. and European securities
markets. EDRs, in bearer form, are designed for use in European securities
markets. ADRs, ADSs, GDRs and EDRs also involve certain risks of other
investments in foreign securities.
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 options on foreign
currencies, and investing in futures contracts for the purchase or sale of
instruments based on financial indices, including interest rate indices or
indices of U.S. or foreign government, equity or fixed income securities
("futures contracts"), options on futures contracts, forward contracts and swaps
and swap-related products such as equity
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swap contracts, interest rate swaps, currency swaps, caps, collars and floors.
The use of futures, options, forward contracts and swaps exposes a Fund to
additional investment risks and transaction costs. If the Adviser incorrectly
analyzes market conditions or does not employ the appropriate strategy with
respect to these instruments, a Fund could be left in a less favorable position.
Additional risks inherent in the use of futures, options, forward contracts and
swaps include: imperfect correlation between the price of futures, options and
forward contracts and movements in the prices of the securities or currencies
being hedged; the possible absence of a liquid secondary market for any
particular instrument at any time; and the possible need to defer closing out
certain hedged positions to avoid adverse tax consequences. A Fund may not
purchase put and call options which are traded on a national stock exchange in
an amount exceeding 5% of its net assets. Further information on the use of
futures, options and other derivative instruments, and the associated risks, is
contained in the SAI.
Illiquid Securities: Certain securities may be sold only pursuant to certain
legal restrictions, and may be difficult to sell. The Marsico Funds will not
hold more than 15% of the value of their respective net assets in securities
that are illiquid. Nations International Value Fund will not hold more than 10%
of the value of its net assets in securities that are illiquid or such lower
percentage as may be required by the states in which the Fund sells its shares.
Repurchase agreements, time deposits and GICs that do not provide for payment to
a Fund within seven days after notice, and illiquid restricted securities, are
subject to the limitation on illiquid securities.
If otherwise consistent with their investment objectives and policies, certain
Funds may purchase securities that are not registered under the Securities Act
of 1933, as amended (the "1933 Act") but which can be sold to "qualified
institutional buyers" in accordance with Rule 144A under the 1933 Act, or which
are issued under Section 4(2) of the 1933 Act. Any such security will not be
considered illiquid so long as it is determined by a Fund's Board of Trustees or
Board of Directors or the Adviser, acting under guidelines approved and
monitored by such Fund's Board of Directors/Trustees, 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.
Indexed/Structured Securities: Indexed/structured securities are typically
short- to intermediate-term debt securities whose value at maturity or interest
rate is linked to currencies, interest rates, equity securities, indices,
commodity prices or other financial indicators. Such securities may be
positively or negatively indexed (i.e., their value may increase or decrease if
the reference index or instrument appreciates). Indexed/structured securities
may have return characteristics similar to direct investments in the underlying
instruments and may be more volatile than the underlying instruments. A Fund
bears the market risk of an investment in the underlying instruments, as well as
the credit risk of the issuer.
Interest Rate Transactions: In order to attempt to protect the value of its
portfolio from interest rate fluctuations, certain of the Funds may enter into
various hedging transactions, such as interest rate swaps and the purchase or
sale of interest rate caps and floors. Interest rate swaps involve the exchange
by a Fund with another party of their respective commitments to pay or receive
interest, e.g., an exchange of floating-rate payments for fixed-rate payments. A
Fund will enter into a swap transaction on a net basis, i.e. the payment
obligations of the Fund and the counterparty will be netted out with the Fund
receiving or paying, as the case may be, only the net amount of the two payment
obligations. A Fund will segregate, on a daily basis, cash or liquid high
quality debt securities with a value at least equal to the Fund's net
obligations, if any, under a swap agreement.
The purchase of an interest rate cap entitles the purchaser, to the extent that
a specified index exceeds a predetermined interest rate, to receive payments of
interest on a notional principal amount from the party selling such interest
rate cap. The purchase of an interest rate floor entitles the purchaser, to the
extent that a specified index is below a predetermined interest rate, to receive
payments of interest on a notional principal amount from the party selling such
interest rate floor. The Adviser expects to enter into these transactions on
behalf of a Fund primarily to preserve a return or spread on a particular
investment or portion of its portfolio or to protect against any increase in the
price of securities the Fund anticipated purchasing at a later date rather than
for speculative purposes. A Fund will not sell interest rate caps or floors that
it does not own.
Lower-Rated Debt Securities: The Marsico Funds may invest in lower-rated debt
securities. Lower-rated, high-yielding securities are those rated "Ba" or "B" by
Moody's or "BB" or "B" by S&P which are commonly referred to as "junk bonds."
These bonds provide poor protection for payment of principal and interest.
Lower-quality bonds involve greater risk of default or price changes due to
changes in the issuer's creditworthiness than securities assigned a higher
quality rating. These securities are considered to have speculative
characteristics and indicate an aggressive approach to income investing. The
Marsico Funds will not purchase debt securities rated below "CCC-" by S&P or
"Caa" by Moody's. Subsequent to its purchase by a Fund, an issue of debt
securities may cease to be rated, or its ratings may be reduced below the
minimum rating required for purchase by a Fund. The Adviser will consider such
an event in determining whether a Fund should continue to hold the security.
The Marsico Funds may also purchase unrated bonds of foreign and domestic
issuers.
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The market for lower-rated securities may be thinner and less active than that
for higher quality securities, which can adversely affect the price at which
these securities can be sold. If market quotations are not available, these
lower-rated securities will be valued in accordance with procedures established
by the Funds' Board, including the use of outside pricing services. Adverse
publicity and changing investor perceptions may affect the ability of outside
pricing services used by a Fund to value its portfolio securities, and a Fund's
ability to dispose of these lower-rated bonds.
The market prices of lower-rated securities may fluctuate more than higher-rated
securities and may decline significantly in periods of general economic
difficulty which may follow periods of rising interest rates. During an economic
downturn or a prolonged period of rising interest rates, the ability of issuers
of lower quality debt to service their payment obligations, meet projected
goals, or obtain additional financing may be impaired.
Since the risk of default is higher for lower-rated securities, the Adviser will
try to minimize the risks inherent in investing in lower-rated debt securities
by engaging in credit analysis, diversification, and attention to current
developments and trends affecting interest rates and economic conditions. The
Adviser will attempt to identify those issuers of high-yielding securities whose
financial condition is adequate to meet future obligations, have improved, or
are expected to improve in the future.
Unrated securities are not necessarily of lower quality than rated securities,
but they may not be attractive to as many buyers. Each Fund's policies regarding
lower-rated debt securities is not fundamental and may be changed at any time
without shareholder approval.
Money Market Instruments: 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.
Pursuant to an exemptive order issued by the SEC, the Nations Funds' non-money
market funds may purchase shares of Nations Funds' money market funds. Nations
International Value Fund may also purchase shares of investment companies
investing primarily in foreign securities, including so-called "country funds".
Country funds have portfolios consisting exclusively of securities of issuers
located in one foreign country.
Passive Foreign Investment Companies: Passive foreign investment companies
("PFICs") are any foreign corporations which generate certain amounts of passive
income or hold certain amounts of assets for the production of passive income.
Passive income includes dividends, interest, royalties, rents and annuities.
Income tax regulations may require the Fund to recognize income associated with
the PFIC prior to the actual receipt of any such income.
Pay-in-Kind Bonds: Pay-in-kind bonds are debt securities that normally give the
issuer an option to pay cash at a coupon payment date or give the holder of the
security a similar bond with the same coupon rate and a face value equal to the
amount of the coupon payment that would have been made.
Real Estate Investment Trusts: A real estate investment trust ("REIT") is a
managed portfolio of real estate investments which may include office buildings,
apartment complexes, hotels and shopping malls. An Equity REIT holds equity
positions in real estate, and it seeks to provide its shareholders with income
from the leasing of its properties, and with capital gains from any sales of
properties. A Mortgage REIT specializes in lending money to developers of
properties, and passes any interest income it may earn to its shareholders.
REITs may be affected by changes in the value of the underlying property owned
or financed by the REIT, while Mortgage REITs also may be affected by the
quality of credit extended. Both Equity and Mortgage REITs are dependent upon
management skill and may not be diversified. REITs also may be subject to heavy
cash flow dependency, defaults by borrowers, self-liquidation, and the
possibility of failing to qualify for tax-free pass-through of income under the
Code.
Repurchase Agreements: A repurchase agreement involves the purchase of a
security by a Fund and a simultaneous agreement (generally with a bank or
broker/ dealer) to repurchase that security from the Fund at a specified price
and date or upon demand. This technique offers a method of earning income on
uninvested cash. A risk associated with repurchase agreements is the failure of
the seller to repurchase the securities as agreed, which may cause a Fund to
suffer a loss if the market value of such securities declines before they can be
liquidated on the open market. Repurchase agreements with a maturity of more
than seven days are considered illiquid securities and are subject to the limit
stated above. A Fund may enter into joint repurchase agreements jointly with
other investment portfolios of Nations 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 of creditworthy and when, in their
judgment, the income to
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be earned from the loan justifies the attendant risks. The aggregate of all
outstanding loans of a Fund may not exceed 33% of the value of its total assets,
which may include cash collateral received for securities loans. Cash collateral
received by a Nations Fund may be invested in a Nations Funds' money market
fund.
Step Coupon Bonds: Step coupon bonds are debt securities that trade at a
discount from their face value and pay coupon interest. The discount from the
face value depends on the time remaining until cash payments begin, prevailing
interest rates, liquidity of the security and the perceived credit quality of
the issuer.
Stock Index, Interest Rate and Currency Futures Contracts: The Funds may
purchase and sell futures contracts and related options with respect to non-U.S.
stock indices, non-U.S. interest rates and foreign currencies, that have been
approved by the CFTC for investment by U.S. investors, for the purpose of
hedging against changes in values of a Fund's securities or changes in the
prevailing levels of interest rates or currency exchange rates. These contracts
entail certain risks, including but not limited to the following: no assurance
that futures contracts transactions can be offset at favorable prices; possible
reduction of a Fund's total return due to the use of hedging; possible lack of
liquidity due to daily limits on price fluctuation; imperfect correlation
between the contracts and the securities or currencies being hedged; and
potential losses in excess of the amount invested in the futures contracts
themselves.
Trading on foreign commodity exchanges presents additional risks. Unlike trading
on domestic commodity exchanges, trading on foreign commodity exchanges is not
regulated by the CFTC and may be subject to greater risks than trading on
domestic exchanges. For example, some foreign exchanges are principal markets
for which no common clearing facility exists and a trader may look only to the
broker for performance of the contract. In addition, unless a Fund hedges
against fluctuations in the exchange rate between the U.S. dollar and the
currencies in which trading is done on foreign exchanges, any profits that such
Fund might realize could be eliminated by adverse changes in the exchange rate,
or the Fund could incur losses as a result of those changes.
U.S. Government Obligations: U.S. Government Obligations consist of marketable
securities and instruments issued or guaranteed by the U.S. Government or any of
its agencies, authorities or instrumentalities. Direct obligations are issued by
the U.S. Treasury and include all U.S. Treasury instruments. U.S. Treasury
Obligations differ only in their interest rates, maturities and time of
issuance. Obligations of U.S. Government agencies, authorities and
instrumentalities are issued by government-sponsored agencies and enterprises
acting under authority of Congress. Although obligations of federal agencies,
authorities and instrumentalities are not debts the U.S. Treasury, some are
backed by the full faith and credit of the U.S. Treasury, such as direct
pass-through certificates of the Government National Mortgage Association; some
are supported by the right of the issuer to borrow from the U.S. Government,
such as obligations of Federal Home Loan Banks and some are backed only by the
credit of the issuer itself, such as obligations of the Federal National
Mortgage Association. No assurance can be given that the U.S. Government would
provide financial support to government-sponsored instrumentalities if it is not
obligated to do so by law.
The market value of U.S. Government Obligations may fluctuate due to
fluctuations in market interest rates. As a general matter, the value of debt
instruments, including U.S. Government Obligations, declines when market
interest rates increase and rises when market interest rates decrease. Certain
types of U.S. Government Obligations are subject to fluctuations in yield or
value due to their structure or contract terms.
Variable- and Floating-Rate Instruments: Certain instruments issued, guaranteed
or sponsored by the U.S. Government or its agencies, state and local government
issuers, and certain debt instruments issued by domestic and foreign banks and
corporations may carry variable or floating rates of interest. Such instruments
bear interest rates which are not fixed, but which vary with changes in
specified market rates or indices, such as a Federal Reserve composite index. A
variable-rate demand instrument is an obligation with a variable or floating
interest rate and an unconditional right of demand on the part of the holder to
receive payment of unpaid principal and accrued interest. An instrument with a
demand period exceeding seven days may be considered illiquid if there is no
secondary market for such security.
When-Issued, Delayed Delivery and Forward Commitment Securities: The purchase of
new issues of securities on a "when-issued," "delayed delivery" or "forward
commitment" basis occurs when the payment for and delivery of securities takes
place at a future date. Because actual payment for and delivery of such
securities generally take place 15 to 45 days after the purchase date,
purchasers of such securities bear the risk that interest rates on debt
securities at the time of delivery may be higher or lower than those contracted
for on the security purchased.
Zero Coupon Bonds: Zero coupon bonds are debt securities that do not pay
interest at regular intervals, but are issued at a discount from face value. The
discount approximates the total amount of interest the security will accrue from
the date of issuance to maturity. The market value of these securities generally
fluctuates more in response to changes in interest rates than interest-paying
securities of comparable maturity.
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Appendix B -- Description Of Ratings
The following summarizes the highest eight ratings used by S&P for corporate and
municipal bonds. The first four ratings denote investment grade securities.
AAA -- This is the highest rating assigned by S&P to a debt obligation and
indicates an extremely strong capacity to pay interest and repay
principal.
AA -- Debt rated AA is considered to have a very strong capacity to pay
interest and repay principal and differs from AAA issues only in a small
degree.
A -- Debt rated A has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse effects
of changes in circumstances and economic conditions than debt in higher-
rated categories.
BBB -- Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than for those in
higher-rated categories.
BB, B -- Bonds rated BB and B are regarded, on balance, as predominantly
speculative with respect to capacity to pay interest and repay principal
in accordance with the terms of the obligation. BB represents the lowest
degree of speculation and B a higher degree of speculation. While such
bonds will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
CCC, CC -- An obligation rated CCC is vulnerable to nonpayment and is
dependent upon favorable business, financial, and economic conditions for
the obligor to meet its financial commitment on the obligation. In the
event of adverse conditions, the obligor is not likely to have the
capacity to meet its financial commitments on the obligation; an
obligation rated CC is highly vulnerable to nonpayment.
To provide more detailed indications of credit quality, the AA, A, BBB and CCC
ratings may be modified by the addition of a plus or minus sign to show relative
standing within these major rating categories.
The following summarizes the highest eight ratings used by Moody's for corporate
and municipal bonds. The first four ratings denote investment grade securities.
Aaa -- Bonds that are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to
as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position
of such issues.
Aa -- Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there
may be other elements present which make the long-term risks appear
somewhat larger than in Aaa securities.
A -- Bonds that are rated A possess many favorable investment attributes
and are to be considered upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in
the future.
Baa -- Bonds that are rated Baa are considered medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics as
well.
Ba -- Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time
may be small.
Caa, Ca -- Bonds that are rated Caa are of poor standing. Such issues may
be in default or there may be present elements of danger with respect to
principal or interest. Bonds that are rated Ca represent obligations that
are speculative in a high degree. Such issues are often in default or have
other marked shortcomings.
Moody's applies numerical modifiers (1, 2 and 3) with respect to corporate bonds
rated Aa through B. The modifier 1 indicates that the bond being rated ranks in
the higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates that the bond ranks in the lower
end of its generic rating category.
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With regard to municipal bonds, those bonds in the Aa, A and Baa groups which
Moody's believes possess the strongest investment attributes are designated by
the symbols Aa1, A1 or Baa1, respectively.
Commercial paper rated A-1 by S&P indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted A-1+. Capacity for timely payment on
commercial paper rated A-2 is satisfactory, but the relative degree of safety is
not as high as for issues designated A-1. Commercial paper rated A-3 exhibits
adequate protection parameters. However, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity of the obligor to
meet its financial commitment on the obligation. Commercial paper rated A-3 or B
correlates with the S&P Bond rankings (described above) of BBB/BBB- and BB+,
respectively.
The rating Prime-1 is the highest commercial paper rating assigned by Moody's.
Issuers rated Prime-1 (or related supporting institutions) are considered to
have a superior capacity for repayment of senior short-term obligations. Issuers
rated Prime-2 (or related supporting institutions) are considered to have a
strong capacity for repayment of senior short-term obligations. This will
normally be evidenced by many of the characteristics of issuers rated Prime-1,
but to a lesser degree. Earnings trends and coverage ratios, while sound, will
be more subject to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample alternate
liquidity is maintained. Issuers rated Prime-3 have an acceptable ability for
repayment of senior short-term obligations. The effect of industry
characteristics and market compositions may be more pronounced. Variability in
earnings and profitability may result in changes in the level of debt protection
measurements and may require relatively high financial leverage.
Adequate alternate liquidity is maintained.
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STATEMENT OF ADDITIONAL INFORMATION
NATIONS FUND PORTFOLIOS, INC.
Nations Emerging Markets Fund
Nations Pacific Growth Fund
Nations Global Government Income Fund
NATIONS FUND, INC.
Nations Prime Fund
Nations Treasury Fund
Nations Equity Income Fund
Nations Government Securities Fund
Nations International Equity Fund
Nations International Growth Fund
Nations International Value Fund
Nations Small Company Growth Fund
Nations U.S. Government Bond Fund
NATIONS FUND 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 Managed Value Index Fund
Nations Managed SmallCap Value Index Fund
Nations Marsico Growth & Income Fund
Nations Marsico Focused Equities Fund
Nations Disciplined Equity Fund
Nations Balanced Assets Fund
Nations Short-Intermediate Government Fund
Nations Short-Term Income Fund
Nations Diversified Income Fund
Nations Strategic Fixed Income Fund
Nations Municipal Income Fund
Nations Short-Term Municipal Income Fund
Nations Intermediate Municipal Bond Fund
Nations Florida Intermediate Municipal Bond Fund
Nations Florida Municipal Bond Fund
Nations Georgia Intermediate Municipal Bond Fund
Nations Georgia Municipal Bond Fund
Nations Maryland Intermediate Municipal Bond Fund
Nations Maryland Municipal Bond Fund
Nations North Carolina Intermediate Municipal Bond Fund
Nations North Carolina Municipal Bond Fund
Nations South Carolina Intermediate Municipal Bond Fund
Nations South Carolina Municipal Bond Fund
Nations Tennessee Intermediate Municipal Bond Fund
Nations Tennessee Municipal Bond Fund
Nations Texas Intermediate Municipal Bond Fund
Nations Texas Municipal Bond Fund
Nations Virginia Intermediate Municipal Bond Fund
Nations Virginia Municipal Bond Fund
INVESTOR SHARES, PRIMARY SHARES AND DAILY SHARES
August 1, 1998
<PAGE>
This Statement of Additional Information ("SAI") provides supplementary
information pertaining to the classes of shares representing interests in the
above listed forty nine investment portfolios of Nations Fund Portfolios, Inc.,
Nations Fund, Inc., and Nations Fund Trust (individually, a "Fund" and
collectively, the "Funds"). This SAI is not a prospectus, and should be read
only in conjunction with the current prospectuses for the aforementioned Funds
related to the class or series of shares in which one is interested, dated
August 1, 1998 (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 without charge by
writing Nations Funds c/o Stephens Inc., One NationsBank Plaza, 33rd Floor,
Charlotte, North Carolina 28255, or by calling Nations Funds at (800) 321-7854.
<PAGE>
TABLE OF CONTENTS
Page
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INTRODUCTION .................................................. 1
ADDITIONAL INFORMATION ON FUND INVESTMENTS .................... 2
General................................................... 2
Additional Investment Limitations ........................ 2
Asset-Backed Securities................................... 7
Borrowings................................................ 8
Commercial Instruments.................................... 10
Combined Transactions..................................... 10
Convertible Securities.................................... 10
Corporate Debt Securities................................. 11
Custodial Receipts........................................ 12
Currency Swaps............................................ 12
Delayed Delivery Transactions............................. 12
Dollar Roll Transactions ................................. 12
Equity Swap Contracts .................................... 13
Foreign Currency Transactions ............................ 13
Futures, Options and Other Derivative
Instruments .......................................... 15
Risk Factors Associated with Futures and Options
Transactions.......................................... 21
Guaranteed Investment Contracts........................... 23
Insured Municipal Securities ............................. 23
Interest Rate Transactions ............................... 23
Lower Rated Debt Securities............................... 24
Municipal Securities ..................................... 25
Options on Currencies..................................... 42
Other Investment Companies................................ 42
Participation Interests and Company Receipts.............. 43
Real Estate Investment Trusts............................. 43
Repurchase Agreements .................................... 43
Reverse Repurchase Agreements ............................ 44
Securities Lending........................................ 44
Short Sales............................................... 44
Special Situations........................................ 44
Stand-by Commitments ..................................... 45
Stripped Securities....................................... 45
U.S. and Foreign Bank Obligations......................... 46
U.S. Government Obligations............................... 47
Use of Segregated and Other Special Accounts.............. 47
Variable and Floating Rate Instruments ................... 48
Warrants.................................................. 48
When-Issued Purchases and Forward Commitments ........... 48
NET ASSET VALUE................................................ 49
Purchases and Redemptions................................. 49
Investment Strategy....................................... 49
Money Market Funds........................................ 50
Non-Money Market Funds.................................... 50
Exchanges................................................. 51
DESCRIPTION OF SHARES.......................................... 52
Dividends and Distributions of NFI........................ 52
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Dividends and Distributions of NFP........................ 53
Dividends and Distributions of NFT........................ 53
ADDITIONAL INFORMATION CONCERNING TAXES........................ 54
General................................................... 54
Excise Tax ............................................... 55
Private Letter Ruling..................................... 55
Taxation of Fund Investments.............................. 55
Foreign Taxes ............................................ 56
Capital Gain Distribution................................. 56
Other Distributions....................................... 57
Disposition of Fund Shares................................ 57
Federal Income Tax Rates.................................. 57
Corporate Shareholders.................................... 58
Foreign Shareholders...................................... 58
Backup Withholding........................................ 58
Tax Deferred Plans........................................ 58
Special Tax Consideration................................. 58
Other Matters............................................. 60
FUND TRANSACTIONS AND BROKERAGE................................ 61
General Brokerage Policy.................................. 61
BROKERAGE COMMISSIONS.......................................... 63
Section 28(e) Standards................................... 64
DIRECTORS AND OFFICERS......................................... 64
Nations Funds Retirement Plan............................. 68
Nations Funds Deferred Compensation Plan ................ 68
Compensation Table........................................ 69
Shareholder and Trustee Liability ........................ 70
INVESTMENT ADVISORY, ADMINISTRATION, CUSTODY,
TRANSFER AGENCY, SHAREHOLDER SERVICING AND
DISTRIBUTION AGREEMENTS ....................................... 70
The Company and Its Common Stock.......................... 70
Investment Adviser........................................ 72
Advisory Fees............................................. 75
Sub-Advisory Fees......................................... 79
Investment Styles......................................... 81
Administrator, Co-Administrator and Sub-Administrator..... 87
Distribution Plans and Shareholder Servicing
Arrangements for Investor Shares...................... 92
Fees Paid Pursuant to Shareholder Servicing/
Distribution Plans - Investor A Shares................ 101
Fees Paid Pursuant to Distribution Plans
Investor B Shares - Money Market Funds................ 102
Investor-C Shares - Money Market Funds
Investor B Shares - Non-Money Market Funds............ 104
Shareholder Servicing Agreements-Money Market Funds
(Primary B Shares).................................... 107
Shareholder Administration Plan-Non-Money Market Funds
(Primary B Shares).................................... 107
Expenses.................................................. 108
Transfer Agents and Custodians............................ 109
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DISTRIBUTOR.................................................... 109
INDEPENDENT ACCOUNTANTS AND
REPORTS........................................................ 110
COUNSEL........................................................ 110
ADDITIONAL INFORMATION ON PERFORMANCE.......................... 110
Yield Calculations........................................ 110
Total Return Calculations................................. 121
MISCELLANEOUS.................................................. 134
Certain Record Holders.................................... 134
SUITABILITY OF NATIONS TREASURY FUND FOR
INVESTMENT BY MUNICIPAL
INVESTORS...................................................... 165
SCHEDULE A - Description of
Ratings........................................................ A-1
SCHEDULE B - Additional Information Concerning Options &
Futures........................................................ B-1
SCHEDULE C - Additional Information Concerning Mortgage
Backed Securities.............................................. C-1
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INTRODUCTION
Nations Fund Portfolios, Inc. ("NFP"), Nations Fund, Inc. ("NFI") and
Nations Fund Trust ("NFT") (individually a "Company", and collectively, the
"Companies") are mutual funds. The rules and regulations of the United States
Securities and Exchange Commission (the "SEC") require all mutual funds to
furnish prospective investors with certain information concerning the activities
of the mutual fund being considered for investment. This information about each
Company is included in various Prospectuses.
NFP currently consists of three different investment portfolios. This SAI
pertains to the Primary A, Primary B, Investor A, Investor B and Investor C
Shares of Nations Emerging Markets Fund (the "Emerging Markets Fund"), Nations
Pacific Growth Fund (the "Pacific Growth Fund") and Nations Global Government
Income Fund (the "Global Government Income Fund") (each, a "Fund" and
collectively, the "NFP Funds").
NFI currently consists of nine different investment portfolios. This SAI
pertains to the Primary A, Primary B, Investor A, Investor B, Investor C and
Daily Shares of Nations Prime Fund (the "Prime Fund") and Nations Treasury Fund
(the "Treasury Fund") (collectively referred to as the "NFI Money Market
Funds"), and the Primary A, Primary B, Investor A, Investor B and Investor C
Shares of Nations Equity Income Fund (the "Equity Income Fund"), Nations
Government Securities Fund (the "Government Securities Fund"), Nations Small
Company Growth Fund (the "Small Company Growth Fund"), Nations U.S. Government
Bond Fund (the "U.S. Government Bond Fund"), Nations International Equity Fund
(the "International Equity Fund"), Nations International Growth Fund (the
"International Growth Fund") and Nations International Value Fund (the
"International Value Fund").
NFT currently consists of thirty-seven different investment portfolios.
This SAI pertains to the Primary A, Primary B, Investor A, Investor B, Investor
C and Daily Shares of Nations Government Money Market Fund ("Government Money
Market Fund") and Nations Tax Exempt Fund ("Tax Exempt Fund") (collectively,
also referred to as the "NFT Money Market Funds") and the Primary A, Primary B,
Investor A, Investor B and Investor C Shares of Nations Value Fund ("Value
Fund"), Nations Capital Growth Fund ("Capital Growth Fund"), Nations Emerging
Growth Fund ("Emerging Growth Fund"), Nations Equity Index Fund ("Equity Index
Fund"), Nations Managed Index Fund ("Managed Index Fund"), Nations Managed
SmallCap Index Fund ("Managed SmallCap Index Fund"), Nations Managed Value Index
Fund ("Managed Value Index Fund"), Nations Managed SmallCap Value Index Fund
("Managed SmallCap Value Index Fund"), Nations Marsico Growth & Income Fund (the
"Marsico Growth & Income Fund"), Nations Marsico Focused Equities Fund (the
"Marsico Focused Equities Fund"), Nations Disciplined Equity Fund ("Disciplined
Equity Fund"), Nations Balanced Assets Fund ("Balanced Assets Fund"), Nations
Short-Intermediate Government Fund ("Short-Intermediate Government Fund"),
Nations Short-Term Income Fund ("Short-Term Income Fund"), Nations Diversified
Income Fund ("Diversified Income Fund"), Nations Strategic Fixed Income Fund
("Strategic Fixed Income Fund"), Nations Municipal Income Fund ("Municipal
Income Fund"), Nations Short-Term Municipal Income Fund ("Short-Term Municipal
Income Fund"), Nations Intermediate Municipal Bond Fund ("Intermediate Municipal
Bond Fund"), Nations Florida Intermediate Municipal Bond Fund ("Florida
Intermediate Municipal Bond Fund"), Nations Georgia Intermediate Municipal Bond
Fund ("Georgia Intermediate Municipal Bond Fund"), Nations Maryland Intermediate
Municipal Bond Fund ("Maryland Intermediate Municipal Bond Fund"), Nations North
Carolina Intermediate Municipal Bond Fund ("North Carolina Intermediate
Municipal Bond Fund"), Nations South Carolina Intermediate Municipal Bond Fund
("South Carolina Intermediate Municipal Bond Fund"), Nations Tennessee
Intermediate Municipal Bond Fund ("Tennessee Intermediate Municipal Bond Fund"),
Nations Texas Intermediate Municipal Bond Fund ("Texas Intermediate Municipal
Bond Fund"), Nations Virginia Intermediate Municipal Bond Fund ("Virginia
Intermediate Municipal Bond Fund"), Nations Florida Municipal Bond Fund
("Florida Municipal Bond Fund"), Nations Georgia Municipal Bond Fund ("Georgia
Municipal Bond Fund"), Nations Maryland Municipal Bond Fund ("Maryland Municipal
Bond Fund"), Nations North Carolina Municipal Bond Fund ("North Carolina
Municipal Bond Fund"), Nations South Carolina Municipal Bond Fund ("South
Carolina Municipal Bond Fund"), Nations Tennessee Municipal Bond Fund
("Tennessee Municipal Bond Fund"), Nations Texas Municipal Bond Fund ("Texas
Municipal Bond Fund"), and Nations Virginia Municipal Bond Fund ("Virginia
Municipal Bond Fund"). The Florida Intermediate Municipal Bond Fund, Georgia
Intermediate Municipal Bond Fund, Maryland Intermediate Municipal Bond Fund,
North Carolina Intermediate Municipal Bond Fund, South Carolina Intermediate
Municipal Bond Fund, Tennessee Intermediate Municipal Bond Fund, Texas
Intermediate Municipal Bond Fund and Virginia Intermediate Municipal Bond Fund
are sometimes collectively referred to herein as the "State Intermediate
Municipal Bond Funds". The
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Florida Municipal Bond Fund, Georgia Municipal Bond Fund, Maryland Municipal
Bond Fund, North Carolina Municipal Bond Fund, South Carolina Municipal Bond
Fund, Tennessee Municipal Bond Fund, Texas Municipal Bond Fund and Virginia
Municipal Bond Fund are sometimes collectively referred to herein as the "State
Municipal Bond Funds".
The NFI Money Market Funds and the NFT Money Market Funds are collectively
referred to herein as the "Money Market Funds". All other Funds of NFP, NFI and
NFT are referred to as "Non-Money Market Funds". The Primary A and Primary B
Shares are collectively referred to herein as "Primary Shares" and the Investor
A, Investor B, Investor C, and Daily Shares are referred to as "Investor
Shares."
NationsBanc Advisors, Inc. ("NBAI") is the investment adviser to the
Funds. Gartmore Global Partners ("Gartmore") is the investment sub-adviser
to the International Equity Fund, Nations Emerging Markets Fund, Nations
Pacific Growth Fund and Nations International Growth Fund. Boatmen's Capital
Management, Inc. ("Boatmen's") is the investment sub-adviser to the U.S.
Government Bond Fund. Brandes Investment Partners, L.P. ("Brandes") is the
investment sub-adviser to the International Value Fund. Marsico Capital
Management, LLC ("Marsico Capital") is investment sub-adviser to the Marsico
Focused Equities Fund and Marsico Growth & Income Fund. TradeStreet
Investment Associates, Inc. ("TradeStreet") is the investment sub-adviser to
all other Funds. As used herein the term "Adviser" shall mean NBAI,
TradeStreet, Gartmore, Boatmen's, Brandes and/or Marsico Capital as the
context may require.
This SAI is intended to furnish prospective investors with additional
information concerning the Companies and the Funds. Some of the information
required to be in this SAI is also included in the Funds' current Prospectuses,
and, in order to avoid repetition, reference will be made to sections of the
Prospectuses. Additionally, the Prospectuses and this SAI omit certain
information contained in the registration statement filed with the SEC. Copies
of the registration statement, including items omitted from the Prospectuses and
this SAI, may be obtained from the SEC by paying the charges prescribed under
its rules and regulations. No investment in Primary Shares or Investor Shares
should be made without first reading the related Prospectuses.
ADDITIONAL INFORMATION ON FUND INVESTMENTS
GENERAL
Information concerning each Fund's investment objective is set forth in
each of the Prospectuses under the headings "About the Funds--Objectives." There
can be no assurance that the Funds will achieve their objectives. The principal
features of the Funds' investment programs and the primary risks associated with
those investment programs are discussed in the Prospectuses under the heading
"About the Funds--How Objectives Are Pursued" and "Appendix A--Portfolio
Securities." The securities in which the Money Market Funds invest may not yield
as high a level of current income as longer term or lower grade securities,
which generally have less liquidity and greater fluctuation in value. The values
of the securities in which the Funds invest fluctuate based upon interest rates,
foreign currency rates, the financial stability of the issuer and market
factors.
ADDITIONAL INVESTMENT LIMITATIONS
Significant investment restrictions applicable to the Funds' investment
programs are set forth in the Prospectuses under the heading "How Objectives Are
Pursued - Investment Limitations." Additionally, as a matter of fundamental
policy which may not be changed without a majority vote of a Fund's shareholders
(as that term is defined under the heading "Investment Advisory, Administration,
Custody, Transfer Agency, Shareholder Servicing and Distribution Agreements --
"The Company and Its Common Stock" in this SAI), each Fund (except with respect
to certain Funds whose restrictions are enumerated separately) will not:
1. Borrow money or issue senior securities as defined in the Investment
Company Act of 1940, as amended (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
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excess of 5% of the value of such Fund's total assets will be repaid prior
to the purchase of additional portfolio securities by such Fund, (b) a
Fund may enter into commitments to purchase securities in accordance with
the Fund's investment program, including delayed delivery and when-issued
securities, which commitments may be considered the issuance of senior
securities, and (c) a Fund may issue multiple classes of shares in
accordance with SEC regulations or exemptions under the 1940 Act. The
purchase or sale of futures contracts and related options shall not be
considered to involve the borrowing of money or issuance of senior
securities. Each Fund may enter into reverse repurchase agreements or
dollar roll transactions. The purchase or sale of futures contracts and
related options shall not be considered to involve the borrowing of money
or issuance of senior securities.
2. Purchase any securities on margin (except for such short-term credits as
are necessary for the clearance of purchases and sales of portfolio
securities) or sell any securities short (except against the box.) For
purposes of this restriction, the deposit or payment by the Fund of
initial or maintenance margin connection with futures contracts and
related options and options on securities is not considered to be the
purchase of a security on margin.
3. Underwrite securities issued by any other person, except to the extent
that the purchase of securities and the later disposition of such
securities in accordance with the Fund's investment program may be deemed
an underwriting. This restriction shall not limit a Fund's ability to
invest in securities issued by other registered investment companies.
4. Invest in real estate or real estate limited partnership interests. (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).
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, as a matter of fundamental policy, the Small Company Growth
Fund and the Government Bond Fund may not:
1. Purchase securities of any one issuer (other than securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalists or
certificates of deposit for any such securities) if, immediately after
such purchase, more than 5% of the value of the Fund's total assets
would be invested in the securities of such issuer, or more than 10% of
the issuer's outstanding voting securities would be owned by the Fund
or the Company; except that up to 25% of the value of a Fund's total
assets may be invested without regard to the foregoing limitations.
For purposes of this limitation, (a) a security is considered to be
issued by the entity (or entities) whose assets and revenues back the
security and (b) a guarantee of a security shall not be deemed to be a
security issued by the guarantor when the value of securities issued
and guaranteed by the guarantor, and owned by the Fund, does not exceed
10% of the value of the Fund's total assets. Each Fund will maintain
asset coverage of 300% or maintain 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 borrowing.
2. Purchase any securities which would cause 25% or more of the value of
the Fund's total assets at the time of purchase to be invested in the
securities of one or more issuers conducting their principal business
activities in the same industry, provided that: (a) there is no
limitation with respect to (i) instruments issued or guaranteed by the
United States, any state, territory or possession of the United States,
the District of Columbia or any of their authorities, agencies,
instrumentalities or political subdivisions and (ii) repurchase
agreements secured by the instruments described in clause (i); (b)
wholly-owned finance companies will be
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considered to be in the industries of their parents if their activities
are primarily related to financing the activities of the parents; and (c)
utilities will be divided according to their services, for example, gas,
gas transmission, electric and gas, electric and telephone will each be
considered a separate industry or (iii) with respect to the Small Company
Growth Fund, instruments issued by domestic branches of U.S. Banks.
In addition, certain non-fundamental investment restrictions are also
applicable to various investment portfolios, including the following:
1. No Fund will purchase or retain the securities of any issuer if the
officers, or directors of the Company, its advisers, or managers owning
beneficially more than one half of one percent of the securities of each
issuer together own beneficially more than five percent of such
securities.
2. No Fund will 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 this limitation, issuers include predecessors, sponsors,
controlling persons, general partners, guarantors and originators of
underlying assets which have less than three years of continuous
operation or relevant business experience.
3. No Fund will purchase puts, calls, straddles, spreads and any
combination thereof if by reason thereof the value of its aggregate
investment in such classes of securities will exceed 5% of its total
assets except that: (a) this restriction shall not apply to standby
commitments, (b) this restriction shall not apply to a Fund's
transactions in futures contracts and related options, and (c) a Fund
may obtain short-term credit as may be necessary for the clearance of
purchases and sales of portfolio securities.
4. No Fund will invest in warrants, valued at the lower of cost or market, in
excess of 5% of the value of such Fund's assets, and no more than 2% of
the value of the Fund's net assets may be invested in warrants that are
not listed on the New York or American Stock Exchange (for purposes of
this undertaking, warrants acquired by a Fund in units or attached to
securities will be deemed to have no value).
5. No Money Market Fund may purchase securities of any one issuer (other
than obligations issued or guaranteed by the U.S. government, its
agencies, authorities or instrumentalities and repurchase agreements
fully collateralized by such obligations) if, immediately after such
purchase, more than 5% of the value of the Fund's assets would be
invested in the securities of such issuer. Notwithstanding the
foregoing, up to 25% of each Fund's total assets may be invested for a
period of three business days in the first tier securities of a single
issuer without regard to such 5% limitation.
6. No Fund will purchase securities of companies for the purpose of
exercising control.
7. No Money Market Fund will invest more than 10% of the value of its net
assets in illiquid securities, including repurchase agreements, time
deposits and GICs with maturities in excess of seven days, illiquid
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 and
Section 4(2) of the Securities Act of 1933 that the Board of Directors,
or its delegate, determines to be liquid, based upon the trading
markets for the specific security.
8. No Non-Money Market Fund will invest more than 15% of the value of its
net assets in illiquid securities, including repurchase agreements,
time deposits and GICs with maturities in excess of seven days,
illiquid 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 and Section 4(2) of the Securities Act of 1933 that the Board
of Directors, or its delegate, determines to be liquid, based upon the
trading markets for the specific security.
9. No Fund will mortgage, pledge or hypothecate any assets except to
secure permitted borrowings and then only in an amount up to one-third
of the value of the Fund's total assets at the time of borrowing. For
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purposes of this limitation, collateral arrangements with respect to
the writing of options, futures contracts, options on futures
contracts, and collateral arrangements with respect to initial and
variation margin are not considered to be a mortgage, pledge or
hypothecation of assets.
10. No Fund will invest in securities of other investment companies, except as
they may be acquired as part of a merger, consolidation or acquisition of
assets and except to the extent otherwise permitted by the 1940 Act.
11. No Fund will purchase oil, gas or mineral leases or other interests (a
Fund may, however, purchase and sell the securities of companies engaged
in the exploration, development, production, refining, transporting and
marketing of oil, gas or minerals).
As a matter of non-fundamental policy, the Small Company Growth Fund and
Government Bond Fund may not:
1. Lend its securities if collateral values are not continuously maintained
at no less than 100% by market to market daily.
In addition, as a matter of non-fundamental policy, the Government Bond Fund may
not:
1. Purchase equity securities of issuers that are not readily marketable if
the value of a Fund's aggregate investment in such securities will exceed
5% of its total assets.
2. Purchase securities of issuers restricted as to disposition if the value
of its aggregate investment in such classes of securities will exceed 10%
of its total assets.
For purposes of the foregoing limitations, any limitation that involves a
maximum percentage shall not be considered violated unless an excess over the
percentage occurs immediately after, and is caused by, an acquisition or
encumbrance of securities or assets of, or borrowings on behalf of, a Fund.
For purposes of the foregoing fundamental and non-fundamental limitations,
any limitation that involves a maximum percentage shall not be considered
violated unless an excess over the percentage occurs immediately after, and is
caused by, an acquisition or encumbrance of securities or assets of, or
borrowings on behalf of, the Funds.
Pursuant to a fundamental investment restriction (see "How Objectives are
Pursued" "Investment Limitations" in the Companies' Prospectuses), the Companies
do not have authority to purchase any securities which would cause more than 25%
of the value of any Fund's total assets at the time of such purchase to be
invested in the securities of one or more issuers conducting their principal
business activities in the same industry, provided that, there is no limitation
with respect to investments in obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities and further provided that with
respect to the Money Market Funds only, there is no limitation with respect to
investments in obligations by banks. The position of the staff of the SEC is
that the exclusion with respect to banks may only be applied to domestic banks.
For this purpose, the staff also takes the position that United States branches
of foreign banks and foreign branches of domestic banks may, if certain
conditions are met, be treated as "domestic banks." The Companies currently
intend to consider only obligations of "domestic banks" to be within the
exclusion with respect to banks. For this purpose, "domestic banks" will be
construed by the Companies to include: (a) United States branches of foreign
banks, to the extent they are subject to the same regulation as United States
banks; and (b) foreign branches of domestic banks with respect to which the
domestic bank would be unconditionally liable in the event that the foreign
branch failed to pay on its instruments for any reason.
For purposes of the foregoing limitations, any limitation that involves a
maximum percentage shall not be considered violated unless an excess over the
percentage occurs immediately after, and is caused by, an acquisition or
encumbrance of securities or assets of, or borrowings on behalf of, a Fund.
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Additional information on the particular types of securities in which
certain Funds may invest is set forth below.
ASSET-BACKED SECURITIES
IN GENERAL. Asset-backed securities arise through the grouping by
governmental, government-related, and private organizations of loans,
receivables, or other assets originated by various lenders. Asset-backed
securities consist of both mortgage- and non-mortgage-backed securities.
Interests in pools of these assets may differ from other forms of debt
securities, which normally provide for periodic payment of interest in fixed
amounts with principal paid at maturity or specified call dates. Conversely,
asset-backed securities provide periodic payments which may consist of both
interest and principal payments.
The life of an asset-backed security varies depending upon rate of the
prepayment of the underlying debt instruments. The rate of such prepayments will
be a function of current market interest rates, and other economic and
demographic factors. For example, falling interest rates generally result in an
increase in the rate of prepayments of mortgage loans while rising interest
rates generally decrease the rate of prepayments. An acceleration in prepayments
in response to sharply falling interest rates will shorten the security's
average maturity and limit the potential appreciation in the security's value
relative to a conventional debt security. Consequently, asset-backed securities
may not be as effective in locking in high, long-term yields. Conversely, in
periods of sharply rising rates, prepayments are generally slow, increasing the
security's average life and its potential for price depreciation.
MORTGAGE-BACKED SECURITIES. Mortgage-backed securities represent an
ownership interest in a pool of mortgage loans.
Mortgage pass-through securities may represent participation interests in
pools of residential mortgage loans originated by U.S. governmental or private
lenders and guaranteed, to the extent provided in such securities, by the U.S.
Government or one of its agencies, authorities or instrumentalities. Such
securities, which are ownership interests in the underlying mortgage loans,
differ from conventional debt securities, which provide for periodic payment of
interest in fixed amounts (usually semi-annually) and principal payments at
maturity or on specified call dates. Mortgage pass-through securities provide
for monthly payments that are a "pass-through" of the monthly interest and
principal payments (including any prepayments) made by the individual borrowers
on the pooled mortgage loans, net of any fees paid to the guarantor of such
securities and the servicer of the underlying mortgage loans.
The guaranteed mortgage pass-through securities in which a Fund may invest
may include those issued or guaranteed by Ginnie Mae, Fannie Mae or Freddie Mac.
Such Certificates are mortgage-backed securities which represent a partial
ownership interest in a pool of mortgage loans issued by lenders such as
mortgage bankers, commercial banks and savings and loan associations. Such
mortgage loans may have fixed or adjustable rates of interest.
The average life of a mortgage-backed security is likely to be
substantially less than the original maturity of the mortgage pools underlying
the securities. Prepayments of principal by mortgagors and mortgage foreclosures
will usually result in the return of the greater part of principal invested far
in advance of the maturity of the mortgages in the pool.
The yield which will be earned on mortgage-backed securities may vary from
their coupon rates for the following reasons: (i) Certificates may be issued at
a premium or discount, rather than at par; (ii) Certificates may trade in the
secondary market at a premium or discount after issuance; (iii) interest is
earned and compounded monthly, which has the effect of raising the effective
yield earned on the Certificates; and (iv) the actual yield of each Certificate
is affected by the prepayment of mortgages included in the mortgage pool
underlying the Certificates and the rate at which principal so prepaid is
reinvested. In addition, prepayment of mortgages included in the mortgage pool
underlying a GNMA Certificate purchased at a premium may result in a loss to the
Fund.
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Mortgage-backed securities issued by private issuers, whether or not such
obligations are subject to guarantees by the private issuer, may entail greater
risk than obligations directly or indirectly guaranteed by the U.S.
Government.
Collateralized mortgage obligations or "CMOs" are debt obligations
collateralized by mortgage loans or mortgage pass-through securities (collateral
collectively hereinafter referred to as "Mortgage Assets"). Multi-class
pass-through securities are interests in a trust composed of Mortgage Assets and
all references herein to CMOs will include multi-class pass-through securities.
Payments of principal of and interest on the Mortgage Assets, and any
reinvestment income thereon, provide the funds to pay debt service on the CMOs
or make scheduled distribution on the multi-class pass-through securities.
Moreover, principal prepayments on the Mortgage Assets may cause the CMOs
to be retired substantially earlier than their stated maturities or final
distribution dates, resulting in a loss of all or part of the premium if any has
been paid. Interest is paid or accrues on all classes of the CMOs on a monthly,
quarterly or semiannual basis.
The principal and interest payments on the Mortgage Assets may be
allocated among the various classes of CMOs in several ways. Typically, payments
of principal, including any prepayments, on the underlying mortgages are applied
to the classes in the order of their respective stated maturities or final
distribution dates, so that no payment of principal is made on CMOs of a class
until all CMOs of other classes having earlier stated maturities or final
distribution dates have been paid in full.
Stripped mortgage-backed securities ("SMBS") are derivative multi-class
mortgage securities. A Fund will only invest in SMBS that are obligations backed
by the full faith and credit of the U.S. Government. SMBS are usually structured
with two classes that receive different proportions of the interest and
principal distributions from a pool of mortgage assets. A Fund will only invest
in SMBS whose mortgage assets are U.S. Government obligations.
A common type of SMBS will be structured so that one class receives some
of the interest and most of the principal from the mortgage assets, while the
other class receives most of the interest and the remainder of the principal. If
the underlying mortgage assets experience greater than anticipated prepayments
of principal, a Fund may fail to fully recoup its initial investment in these
securities. The market value of any class which consists primarily or entirely
of principal payments generally is unusually volatile in response to changes in
interest rates.
The average life of mortgage-backed securities varies with the maturities
of the underlying mortgage instruments. The average life is likely to be
substantially less than the original maturity of the mortgage pools underlying
the securities as the result of mortgage prepayments, mortgage refinancings, or
foreclosures. The rate of mortgage prepayments, and hence the average life of
the certificates, will be a function of the level of interest rates, general
economic conditions, the location and age of the mortgage and other social and
demographic conditions. Such prepayments are passed through to the registered
holder with the regular monthly payments of principal and interest and have the
effect of reducing future payments. Estimated average life will be determined by
the Adviser and used for the purpose of determining the average weighted
maturity and duration of the Funds.
NON-MORTGAGE ASSET-BACKED SECURITIES. Non-mortgage asset-backed securities
include interests in pools of receivables, such as motor vehicle installment
purchase obligations and credit card receivables. Such securities are generally
issued as pass-through certificates, which represent undivided fractional
ownership interests in the underlying pools of assets. Such securities also may
be debt instruments, which are also known as collateralized obligations and are
generally issued as the debt of a special purpose entity organized solely for
the purpose of owning such assets and issuing such debt. Such securities also
may include instruments issued by certain trusts, partnerships or other special
purpose issuers, including pass-through certificates representing participations
in, or debt instruments backed by, the securities and other assets owned by such
issuers.
Non-mortgage-backed securities are not issued or guaranteed by the U.S.
Government or its agencies or instrumentalities; however, the payment of
principal and interest on such obligations may be guaranteed up to certain
amounts and for a certain time period by a letter of credit issued by a
financial institution (such as a bank or insurance company) unaffiliated with
the issuers of such securities.
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The purchase of non-mortgage-backed securities raises considerations
peculiar to the financing of the instruments underlying such securities. For
example, most organizations that issue asset-backed securities relating to motor
vehicle installment purchase obligations perfect their interests in their
respective obligations only by filing a financing statement and by having the
servicer of the obligations, which is usually the originator, take custody
thereof. In such circumstances, if the servicer were to sell the same
obligations to another party, in violation of its duty not to do so, there is a
risk that such party could acquire an interest in the obligations superior to
that of the holders of the Asset-backed Securities. Also, although most such
obligations grant a security interest in the motor vehicle being financed, in
most states the security interest in a motor vehicle must be noted on the
certificate of title to perfect such security interest against competing claims
of other parties. Due to the larger number of vehicles involved, however, the
certificate of title to each vehicle financed, pursuant to the obligations
underlying the Asset-backed Securities, usually is not amended to reflect the
assignment of the seller's security interest for the benefit of the holders of
the Asset-backed Securities. Therefore, there is the possibility that recoveries
on repossessed collateral may not, in some cases, be available to support
payments on those securities. In addition, various state and Federal laws give
the motor vehicle owner the right to assert against the holder of the owner's
obligation certain defenses such owner would have against the seller of the
motor vehicle. The assertion of such defenses could reduce payments on the
related Asset-backed Securities. Insofar as credit card receivables are
concerned, credit card holders are entitled to the protection of a number of
state and Federal consumer credit laws, many of which give such holders the
right to set off certain amounts against balances owed on the credit card,
thereby reducing the amounts paid on such receivables. In addition, unlike most
other Asset-backed Securities, credit card receivables are unsecured obligations
of the card holder.
While the market for Asset-backed Securities is becoming increasingly
liquid, the market for mortgage-backed securities issued by certain private
organizations and non-mortgage-backed securities is not as well developed. As
stated above, the Adviser intends to limit its purchases of mortgage-backed
securities issued by certain private organizations and non-mortgage-backed
securities to securities that are readily marketable at the time of purchase.
BORROWINGS
NFT, NFI and NFP participate in an uncommitted line of credit provided by
The Bank of New York under a line of credit agreement (the "Agreement").
Advances under the Agreement are taken primarily for temporary or emergency
purposes, including the meeting of redemption requests that otherwise might
require the untimely disposition of securities. Interest on borrowings is
payable at the federal funds rate plus .50% on an annualized basis. The
Agreement requires, among other things, that each participating Fund maintain a
ratio of no less than 4 to 1 net assets (not including funds borrowed pursuant
to the Agreement) to the aggregate amount of indebtedness pursuant to the
Agreement. Specific borrowings by a Fund under the Agreement over the last
fiscal year, if any, can by found in the Funds' Annual Reports for the year
ended March 31, 1998.
COMMERCIAL INSTRUMENTS
Commercial Instruments consist of short-term U.S. dollar-denominated
obligations issued by domestic corporations or issued in the U.S. by foreign
corporations and foreign commercial banks. The Nations Prime Fund will limit
purchases of commercial instruments to instruments which: (a) if rated by at
least two Nationally Rated Statistical Rating Organizations ("NRSROs"), are
rated in the highest rating category for short-term debt obligations given by
such organizations, or if only rated by one such organization, are rated in the
highest rating category for short-term debt obligations given by such
organization; or (b) if not rated, are (i) comparable in priority and security
to a class of short-term instruments of the same issuer that has such rating(s),
or (ii) of comparable quality to such instruments as determined by NFI's Board
of Directors on the advice of the Adviser.
Investments by a Fund in commercial paper will consist of issues rated in
a manner consistent with such Fund's investment policies and objectives. 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 such Funds as previously
described.
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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 similar criteria to that set forth above with respect to the issuers of
commercial paper purchasable by the Nations Prime Fund are met. 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. See also the discussion of variable- and
floating-rate instruments in this SAI.
Variable- and floating-rate instruments are unsecured instruments that
permit the indebtedness thereunder to vary. While there may be no active
secondary market with respect to a particular variable or floating rate
instrument purchased by a Fund, a Fund may, from time to time as specified in
the instrument, demand payment of the principal or may resell the instrument to
a third party. The absence of an active secondary market, however, could make it
difficult for a Fund to dispose of an instrument if the issuer defaulted on its
payment obligation or during periods when a Fund is not entitled to exercise its
demand rights, and a Fund could, for these or other reasons, suffer a loss. A
Fund may invest in variable and floating rate instruments only when the Adviser
deems the investment to involve minimal credit risk. If such instruments are not
rated, the Adviser will consider the earning power, cash flows, and other
liquidity ratios of the issuers of such instruments and will continuously
monitor their financial status to meet payment on demand. In determining average
weighted portfolio maturity, an instrument will be deemed to have a maturity
equal to the longer of the period remaining to the next interest rate adjustment
or the demand notice period specified in the instrument.
Certain Funds also may purchase short-term participation interests in
loans extended by banks to companies, provided that both such banks and such
companies meet the quality standards set forth above. In purchasing a loan
participation or assignment, the Fund acquires some or all of the interest of a
bank or other lending institution in a loan to a corporate borrower. Many such
loans are secured and most impose restrictive covenants which must be met by the
borrower and which are generally more stringent than the covenants available in
publicly traded debt securities. However, interests in some loans may not be
secured, and the Fund will be exposed to a risk of loss if the borrower
defaults. Loan participations also may be purchased by the Fund when the
borrowing company is already in default. In purchasing a loan participation, the
Fund may have less protection under the federal securities laws than it has in
purchasing traditional types of securities. The Fund's ability to assert its
rights against the borrower will also depend on the particular terms of the loan
agreement among the parties.
COMBINED TRANSACTIONS
Certain Funds may enter into multiple transactions, including multiple
options transactions, multiple futures transactions, multiple forward foreign
currency exchange contracts and any combination of futures, options and forward
foreign currency exchange contracts ("component" transactions), instead of a
single transaction, as part of a single hedging strategy when, in the opinion of
the Adviser, it is in the best interest of a Fund to do so and where underlying
hedging strategies are permitted by a Fund's investment policies. A combined
transaction, while part of a single hedging strategy, may contain elements of
risk that are present in each of its component transactions. (See above for the
risk characteristics of certain transactions.)
CONVERTIBLE SECURITIES
Certain Funds may invest in convertible securities, such as bonds, notes,
debentures, preferred stocks and other securities that may be converted into
common stock. All convertible securities purchased by the Fund will be rated in
the top two categories by an Nationally Recognized Statistical Rating
Organization ("NRSRO") or, if unrated, determined by the Adviser to be of
comparable quality. Investments in convertible securities can provide income
through interest and dividend payments, as well as, an opportunity for capital
appreciation by virtue of their conversion or exchange features.
The convertible securities in which a Fund may invest include fixed-income
and zero coupon debt securities, and preferred stock that may be converted or
exchanged at a stated or determinable exchange ratio into underlying shares of
common stock. The exchange ratio for any particular convertible security may be
adjusted from time to time due to stock splits, dividends, spin-offs, other
corporate distributions or scheduled changes in the
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exchange ratio. Convertible debt securities and convertible preferred stocks,
until converted, have general characteristics similar to both debt and equity
securities. Although to a lesser extent than with debt securities, generally,
the market value of convertible securities tends to decline as interest rates
increase and, conversely, tends to increase as interest rates decline. In
addition, because of the conversion exchange feature, the market value of
convertible securities typically changes as the market value of the underlying
common stock changes, and, therefore, also tends to follow movements in the
general market for equity securities. A unique feature of convertible securities
is that as the market price of the underlying common stock declines, convertible
securities tend to trade increasingly on a yield basis, and so may not
experience market value declines to the same extent as the underlying common
stock. When the market price of the underlying common stock increases, the price
of a convertible security tends to rise as a reflection of the value of the
underlying common stock, although typically not as much as the price of the
underlying common stock. While no securities investments are without risk,
investments in convertible securities generally entail less risk than
investments in common stock of the same issuer.
As debt securities, convertible securities are investments which provide
for a stream of income or, in the case of zero coupon securities, accretion of
income with generally higher yields than common stocks. Of course, like all debt
securities, there can be no assurance of income or principal payments because
the issuers of the convertible securities may default on their obligations.
Convertible securities generally offer lower yields than non-convertible
securities of similar quality because of their conversion exchange features.
Convertible securities generally are subordinated to other similar debt
securities but not to non-convertible securities of the same issuer. Convertible
bonds, as corporate debt obligations, are senior in right of payment to all
equity securities, and convertible preferred stock is senior to common stock, of
the same issuer. However, convertible bonds and convertible preferred stock
typically have lower coupon rates than similar non-convertible securities.
Convertible securities may be issued as fixed income obligations that pay
current income or as zero coupon notes and bonds, including Liquid Yield Option
Notes ("LYONs"). Zero coupon securities pay no cash income and are sold at
substantial discounts from their value at maturity. When held to maturity, their
entire income, which consists of accretion of discount, comes from the
difference between the issue price and their value at maturity. Zero coupon
convertible securities offer the opportunity for capital appreciation because
increases (or decreases) in the market value of such securities closely follow
the movements in the market value of the underlying common stock. Zero coupon
convertible securities generally are expected to be less volatile than the
underlying common stocks because they usually are issued with short maturities
(15 years or less) and are issued with options and/or redemption features
exercisable by the holder of the obligation entitling the holder to redeem the
obligation and receive a defined cash payment.
CORPORATE DEBT SECURITIES
Certain Funds may invest in corporate debt securities of domestic issuers
of all types and maturities, such as bonds, debentures, notes and commercial
paper. Corporate debt securities may involve equity features, such as conversion
or exchange rights or warrants for the acquisition of stock of the same or a
different issuer, participation based on revenue, sales or profit, or the
purchase of common stock or warrants in a unit transaction (where corporate debt
obligations and common stock are offered as a unit). Each Fund may also invest
in corporate debt securities of foreign issuers.
The corporate debt securities in which the Funds will invest will be rated
investment grade by at least one NRSRO (E.G., BBB or above by Standard & Poor's
Corporation ("S&P") or Baa or above by Moody's Investors Services, Inc.
("Moody's")). Commercial paper purchased by the Funds will be rated in the top
two categories by a NRSRO. Corporate debt securities that are not rated may be
purchased by such Funds if they are determined by the Adviser to be of
comparable quality under the direction of the Board of Directors of the Company.
If the rating of any corporate debt security held by a Fund falls below such
ratings or if the Adviser determines that an unrated corporate debt security is
no longer of comparable quality, then such security shall be disposed of in an
orderly manner as quickly as possible. A description of these ratings is
attached as Schedule A to this Statement of Additional Information.
CUSTODIAL RECEIPTS
Certain Funds may also acquire custodial receipts that evidence ownership
of future interest payments, principal payments or both on certain U.S.
Government notes or bonds. Such notes and bonds are held in custody by
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a bank on behalf of the owners. These custodial receipts are known by various
names, including "Treasury Receipts," "Treasury Investors Growth Receipts" and
"Certificates of Accrual on Treasury Securities." Although custodial receipts
are not considered U.S. Government securities, they are indirectly issued or
guaranteed as to principal and interest by the U.S. Government, its agencies,
authorities or instrumentalities. Custodial receipts will be treated as illiquid
securities.
CURRENCY SWAPS
Certain Funds also may enter into currency swaps for hedging purposes and
to seek to increase total return. In as much as swaps are entered into for good
faith hedging purposes or are offset by a segregated account as described below,
the Fund and the Adviser believe that swaps do not constitute senior securities
as defined in the 1940 Act and, accordingly, will not treat them as being
subject to the Fund's borrowing restrictions. The net amount of the excess, if
any, of the Fund's obligations over its entitlement with respect to each
currency swap will be accrued on a daily basis and an amount of cash or liquid
high grade debt securities (i.e., securities rated in one of the top three
ratings categories by an NRSRO, or, if unrated, deemed by the Adviser to be of
comparable credit quality) having an aggregate net asset value at least equal to
such accrued excess will be maintained in a segregated account by the Fund's
custodian. The Fund will not enter into any currency swap unless the credit
quality of the unsecured senior debt or the claims-paying ability of the other
party thereto is considered to be investment grade by the Adviser.
DELAYED DELIVERY TRANSACTIONS
In a delayed delivery transaction, the Fund relies on the other party to
complete the transaction. If the transaction is not completed, the Fund may miss
a price or yield considered to be advantageous. In delayed delivery
transactions, delivery of the securities occurs beyond normal settlement
periods, but a Fund would not pay for such securities or start earning interest
on them until they are delivered. However, when a Fund purchases securities on
such a delayed delivery basis, it immediately assumes the risk of ownership,
including the risk of price fluctuation. Failure by a counterparty to deliver a
security purchased on a delayed delivery basis may result in a loss or missed
opportunity to make an alternative investment. Depending upon market conditions,
a Fund's delayed delivery purchase commitments could cause its net asset value
to be more volatile, because such securities may increase the amount by which
the Fund's total assets, including the value of when-issued and delayed delivery
securities held by the Fund, exceed its net assets.
DOLLAR ROLL TRANSACTIONS
Certain Funds may enter into "dollar roll" transactions, which consist of
the sale by a Fund to a bank or broker/dealer (the "counterparty") of GNMA
certificates or other mortgage-backed securities together with a commitment to
purchase from the counterparty similar, but not identical, securities at a
future date, at the same price. The counterparty receives all principal and
interest payments, including prepayments, made on the security while it is the
holder. A Fund receives a fee from the counterparty as consideration for
entering into the commitment to purchase. Dollar rolls may be renewed over a
period of several months with a different repurchase price and a cash settlement
made at each renewal without physical delivery of securities. Moreover, the
transaction may be preceded by a firm commitment agreement pursuant to which the
Fund agrees to buy a security on a future date. If the broker/dealer to whom a
Fund sells the security becomes insolvent, the Fund's right to purchase or
repurchase the security may be restricted; the value of the security may change
adversely over the term of the dollar roll; the security that the Fund is
required to repurchase may be worth less than the security that the Fund
originally held, and the return earned by the Fund with the proceeds of a dollar
roll may not exceed transaction costs.
The entry into dollar rolls involves potential risks of loss that are
different from those related to the securities underlying the transactions. For
example, if the counterparty becomes insolvent, the Fund's right to purchase
from the counterparty might be restricted. Additionally, the value of such
securities may change adversely before the Fund is able to purchase them.
Similarly, the Fund may be required to purchase securities in connection with a
dollar roll at a higher price than may otherwise be available on the open
market. Since, as noted above, the counterparty is required to deliver a
similar, but not identical security to the Fund, the security that the Fund is
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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.
EQUITY SWAP CONTRACTS
Certain Funds may from time to time enter into equity swap contracts. The
counterparty to an equity swap contract will typically be a bank, investment
banking firm or broker/dealer. For example, the counterparty will generally
agree to pay a Fund the amount, if any, by which the notional amount of the
Equity Swap Contract would have increased in value had it been invested in the
stocks comprising the S&P 500 Index in proportion to the composition of the
Index, plus the dividends that would have been received on those stocks. A Fund
will agree to pay to the counterparty a floating rate of interest (typically the
London Inter Bank Offered Rate) on the notional amount of the Equity Swap
Contract plus the amount, if any, by which that notional amount would have
decreased in value had it been invested in such stocks. Therefore, the return to
a Fund on any Equity Swap Contract should be the gain or loss on the notional
amount plus dividends on the stocks comprising the S&P 500 Index less the
interest paid by the Fund on the notional amount. A Fund will only enter into
Equity Swap Contracts on a net basis, i.e., the two parties' obligations are
netted out, with the Fund paying or receiving, as the case may be, only the net
amount of any payments. Payments under the Equity Swap Contracts may be made at
the conclusion of the contract or periodically during its term.
If there is a default by the counterparty to an Equity Swap Contract, a
Fund will be limited to contractual remedies pursuant to the agreements related
to the transaction. There is no assurance that Equity Swap Contract
counterparties will be able to meet their obligations pursuant to Equity Swap
Contracts or that, in the event of default, a Fund will succeed in pursuing
contractual remedies. A Fund thus assumes the risk that it may be delayed in or
prevented from obtaining payments owed to it pursuant to Equity Swap Contracts.
A Fund will closely monitor the credit of Equity Swap Contract counterparties in
order to minimize this risk.
Certain Funds may from time to time enter into the opposite side of Equity
Swap Contracts (i.e., where a Fund is obligated to pay the increase (net of
interest) or receive the decrease (plus interest) on the contract to reduce the
amount of the Fund's equity market exposure consistent with the Fund's
objective. These positions are sometimes referred to as Reverse Equity Swap
Contracts.
Equity Swap Contracts will not be used to leverage a Fund. A Fund will not
enter into any Equity Swap Contract or Reverse Equity Swap Contract unless, at
the time of entering into such transaction, the unsecured senior debt of the
counterparty is rated at least A by Moody's or S&P. Since the SEC considers
Equity Swap Contracts and Reverse Equity Swap Contracts to be illiquid
securities, a Fund will not invest in Equity Swap Contracts or Reverse Equity
Swap Contracts if the total value of such investments together with that of all
other illiquid securities which a Fund owns would exceed 15% of the Fund's total
assets.
The Adviser does not believe that a Fund's obligations under Equity Swap
Contracts or Reverse Equity Swap Contracts are senior securities and,
accordingly, the Fund will not treat them as being subject to its borrowing
restrictions. However, the net amount of the excess, if any, of a Fund's
obligations over its respective entitlements with respect to each Equity Swap
Contract and each Reverse Equity Swap Contract will be accrued on a daily basis
and an amount of cash, U.S. Government securities or other liquid high quality
debt securities having an aggregate market value at least equal to the accrued
excess will be maintained in a segregated account by the Fund's custodian.
FOREIGN CURRENCY TRANSACTIONS
As described in the Prospectuses, certain Funds may invest in foreign
currency transactions. Foreign securities involve currency risks. The U.S.
dollar value of a foreign security tends to decrease when the value of the U.S.
dollar rises against the foreign currency in which the security is denominated,
and tends to increase when the value of the U.S. dollar falls against such
currency. A Fund may purchase or sell forward foreign currency exchange
contracts ("forward contracts") to attempt to minimize the risk to the Fund from
adverse changes in the relationship between the U.S. dollar and foreign
currencies. A Fund may also purchase and sell foreign currency futures contracts
and related options (see "Purchase and Sale of Currency Futures Contracts and
Related Options"). A
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forward contract is an obligation to purchase or sell a specific currency for
an agreed price at a future date that is individually negotiated and privately
traded by currency traders and their customers.
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. A Fund
will direct its custodian to segregate 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.
A Fund may enter into a forward contract, for example, when it enters into
a contract for the purchase or sale of a security denominated in a foreign
currency in order to "lock in" the U.S. dollar price of the security (a
"transaction hedge"). In addition, when the Adviser believes that a foreign
currency may suffer a substantial decline against the U.S. dollar, it may enter
into a forward sale contract to sell an amount of that foreign currency
approximating the value of some or all of the Fund's securities denominated in
such foreign currency, or when the Adviser believes that the U.S. dollar may
suffer a substantial decline against the foreign currency, it may enter into a
forward purchase contract to buy that foreign currency for a fixed dollar amount
(a "position hedge").
A Fund may, however, enter into a forward contract to sell a different
foreign currency for a fixed U.S. dollar amount where the Adviser believes that
the U.S. dollar value of the currency to be sold pursuant to the forward
contract will fall whenever there is a decline in the U.S. dollar value of the
currency in which the fund securities are denominated (a "cross-hedge").
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.
The Fund's custodian will segregate cash, U.S. Government securities or
other high-quality debt securities having a value equal to the aggregate amount
of the Fund's commitments under forward contracts entered into with respect to
position hedges and cross-hedges. If the value of the segregated securities
declines, additional cash or securities will be segregated on a daily basis so
that the value of the segregated securities will equal the amount of the Fund's
commitments with respect to such contracts. As an alternative to segregating all
or part of such securities, the Fund may purchase a call option permitting the
Fund to purchase the amount of foreign currency being hedged by a forward sale
contract at a price no higher than the forward contract price or the Fund may
purchase a put option permitting the Fund to sell the amount of foreign currency
subject to a forward purchase contract at a price as high or higher than the
forward contract price.
The Funds are dollar-denominated mutual funds and therefore consideration
is given to hedging part or all of the portfolio back to U.S. dollars from
international currencies. All decisions to hedge are based upon an analysis of
the relative value of the U.S. dollar on an international purchasing power
parity basis (purchasing power parity is a method for determining the relative
purchasing power of different currencies by comparing the amount of each
currency required to purchase a typical bundle of goods and services to domestic
markets) and an estimation of short-term interest rate differentials (which
affect both the direction of currency movements and also the cost of hedging).
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FUTURES, OPTIONS AND OTHER DERIVATIVE INSTRUMENTS
FUTURES CONTRACTS IN GENERAL. A futures contract is an agreement between
two parties for the future delivery of fixed income securities or equity
securities or for the payment or acceptance of a cash settlement in the case of
futures contracts on an index of fixed income or equity securities. A "sale" of
a futures contract means the contractual obligation to deliver the securities at
a specified price on a specified date, or to make the cash settlement called for
by the contract. Futures contracts have been designed by exchanges which have
been designated "contract markets" by the Commodity Futures Trading Commission
("CFTC") and must be executed through a brokerage firm, known as a futures
commission merchant, which is a member of the relevant contract market. Futures
contracts trade on these markets, and the exchanges, through their clearing
organizations, guarantee that the contracts will be performed as between the
clearing members of the exchange. Presently, futures contracts are based on such
debt securities as long-term U.S. Treasury Bonds, Treasury Notes, GNMA modified
pass-through mortgage-backed securities, three-month U.S. Treasury Bills, bank
certificates of deposit, and on indices of municipal, corporate and government
bonds.
While futures contracts based on securities do provide for the delivery
and acceptance of securities, such deliveries and acceptances are seldom made.
Generally, a futures contract is terminated by entering into an offsetting
transaction. A Fund will incur brokerage fees when it purchases and sells
futures contracts. At the time such a purchase or sale is made, a Fund must
provide cash or money market securities as a deposit known as "margin." The
initial deposit required will vary, but may be as low as 2% or less of a
contract's face value. Daily thereafter, the futures contract is valued through
a process known as "marking to market," and a Fund that engages in futures
transactions may receive or be required to pay "variation margin" as the futures
contract becomes more or less valuable. At the time of delivery of securities
pursuant to a futures contract based on securities, adjustments are made to
recognize differences in value arising from the delivery of securities with a
different interest rate than the specific security that provides the standard
for the contract. In some (but not many) cases, securities called for by a
futures contract may not have been issued when the contract was written.
Futures contracts on indices of securities are settled through the making
and acceptance of cash settlements based on changes in value of the underlying
rate or index between the time the contract is entered into and the time it is
liquidated.
FUTURES CONTRACTS ON FIXED INCOME SECURITIES AND RELATED INDICES. As noted
in their respective Prospectuses, certain Funds may enter into transactions in
futures contracts for the purpose of hedging a relevant portion of their
portfolios. A Fund may enter into transactions in futures contracts that are
based on U.S. Government obligations, including any index of government
obligations that may be available for trading. Such transactions will be entered
into where movements in the value of the securities or index underlying a
futures contract can be expected to correlate closely with movements in the
value of securities held in a Fund. For example, a Fund may sell futures
contracts in anticipation of a general rise in the level of interest rates,
which would result in a decline in the value of its fixed income securities. If
the expected rise in interest rates occurs, the Fund may realize gains on its
futures position, which should offset all or part of the decline in value of
fixed income fund securities. A Fund could protect against such decline by
selling fixed income securities, but such a strategy would involve higher
transaction costs than the sale of futures contracts and, if interest rates
again declined, the Fund would be unable to take advantage of the resulting
market advance without purchases of additional securities.
The purpose of the purchase or sale of a futures contract on government
securities and indices of government securities, in the case of the
above-referenced Funds, which hold or intend to acquire long-term debt
securities, is to protect a Fund from fluctuations in interest rates without
actually buying or selling long-term debt securities. For example, if long-term
bonds are held by a Fund, and interest rates were expected to increase, the Fund
might enter into futures contracts for the sale of debt securities. Such a sale
would have much the same effect as selling an equivalent value of the long-term
bonds held by the Fund. If interest rates did increase, the value of the debt
securities in the Fund would decline, but the value of the futures contracts to
the Fund would increase at approximately the same rate thereby keeping the net
asset value of the Fund from declining as much as it otherwise would have. When
a Fund is not fully invested and a decline in interest rates is anticipated,
which would increase the cost of fixed income securities that the Fund intends
to acquire, it may purchase futures contracts. In the event that the projected
decline in interest rates occurs, the increased cost of the securities acquired
by the Fund should be
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offset, in whole or part, by gains on the futures contracts by entering into
offsetting transactions on the contract market on which the initial purchase was
effected. In a substantial majority of transactions involving futures contracts
on fixed income securities, a Fund will purchase the securities upon termination
of the long futures positions, but under unusual market conditions, a long
futures position may be terminated without a corresponding purchase of
securities.
Similarly, when it is expected that interest rates may decline, futures
contracts on fixed income securities and indices of government securities may be
purchased for the purpose of hedging against anticipated purchases of long-term
bonds at higher prices. Since the fluctuations in the value of such futures
contracts should be similar to that of long-term bonds, a Fund could take
advantage of the anticipated rise in the value of long-term bonds without
actually buying them until the market had stabilized. At that time, the futures
contracts could be liquidated and the Fund's cash reserves could then be used to
buy long-term bonds in the cash market. Similar results could be accomplished by
selling bonds with long maturities and investing in bonds with short maturities
when interest rates are expected to increase. However, since the futures market
is more liquid than the cash market, the use of these futures contracts as an
investment technique allows a Fund to act in anticipation of such an interest
rate decline without having to sell its portfolio securities. To the extent a
Fund enters into futures contracts for this purpose, the segregated assets
maintained by a Fund will consist of cash, cash equivalents or high quality debt
securities of the Fund in an amount equal to the difference between the
fluctuating market value of such futures contract and the aggregate value of the
initial deposit and variation margin payments made by the Fund with respect to
such futures contracts.
STOCK INDEX FUTURES CONTRACTS. As described in the Prospectuses, certain
Funds may sell stock index futures contracts in order to offset a decrease in
market value of its securities that might otherwise result from a market
decline. A 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 securities to be sold. Conversely, a Fund may purchase stock index
futures contracts in order to protect against anticipated increases in the cost
of securities to be acquired.
In addition, a Fund may utilize stock index futures contracts in
anticipation of changes in the composition of its portfolio. For example, in the
event that a Fund expects to narrow the range of industry groups represented in
its portfolio, 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. As such securities
are acquired, a Fund's futures positions would be closed out. A Fund may also
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 its portfolio will decline prior to the time of sale.
OPTIONS ON FUTURES CONTRACTS. As described in the Prospectuses, an option
on a futures contract gives the purchaser (the "holder") the right, but not the
obligation, to purchase a position in the underlying futures contract (i.e., a
purchase of such futures contract) in the case of an option to purchase (a
"call" option), or a "short" position in the underlying futures contract (i.e.,
a sale of such futures contract) in the case of an option to sell (a "put"
option), at a fixed price (the "strike price") up to a stated expiration date.
The holder pays a non-refundable purchase price for the option, known as the
"premium." The maximum amount of risk the purchase of the option assumes is
equal to the premium plus related transaction costs, although this entire amount
may be lost. Upon exercise of the option by the holder, the exchange clearing
corporation establishes a corresponding long position in the case of a put
option. In the event that an option is exercised, 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.
OPTIONS ON FUTURES CONTRACTS ON FIXED INCOME SECURITIES AND RELATED
INDICES. As described in the Prospectuses, certain Funds may purchase put
options on futures contracts in which such Funds are permitted to invest for the
purpose of hedging a relevant portion of their portfolios against an anticipated
decline in the values of portfolio securities resulting from increases in
interest rates, and may purchase call options on such futures contracts as a
hedge against an interest rate decline when they are not fully invested. A Fund
would write options on these futures contracts primarily for the purpose of
terminating existing positions.
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OPTIONS ON STOCK INDEX FUTURES CONTRACTS, OPTIONS ON STOCK INDICES AND
OPTIONS ON EQUITY SECURITIES. As described in the Prospectuses, certain Funds
may purchase put options on stock index futures contracts, stock indices or
equity securities for the purpose of hedging the relevant portion of their
portfolio securities against an anticipated market-wide decline or against
declines in the values of individual portfolio securities, and they may purchase
call options on such futures contracts as a hedge against a market advance when
they are not fully invested. A Fund would write options on such futures
contracts primarily for the purpose of terminating existing positions. In
general, options on stock indices will be employed in lieu of options on stock
index futures contracts only where they present an opportunity to hedge at lower
cost. With respect to options on equity securities, a Fund may, under certain
circumstances, purchase a combination of call options on such securities and
U.S. Treasury bills. The Adviser believes that such a combination may more
closely parallel movements in the value of the security underlying the call
option than would the option itself.
Further, while a Fund generally would not write options on individual
portfolio securities, it may do so under limited circumstances known as
"targeted sales" and "targeted buys," which involve the writing of call or put
options in an attempt to purchase or sell portfolio securities at specific
desired prices. A Fund would receive a fee, or a "premium," for the writing of
the option. For example, where the Fund seeks to sell portfolio securities at a
"targeted" price, it may write a call option at that price. In the event that
the market rises above the exercise price, it would receive its "targeted"
price, upon the exercise of the option, as well as the premium income. Also,
where it seeks to buy portfolio securities at a "targeted" price, it may write a
put option at that price for which it will receive the premium income. In the
event that the market declines below the exercise price, a Fund would pay its
"targeted" price upon the exercise of the option. In the event that the market
does not move in the direction or to the extent anticipated, however, the
targeted sale or buy might not be successful and a Fund could sustain a loss on
the transaction that may not be offset by the premium received. In addition, a
Fund may be required to forego the benefit of an intervening increase or decline
in value of the underlying security.
OPTIONS AND FUTURES STRATEGIES. As described in the Prospectuses, the
Adviser may seek to increase the current return of certain Funds by writing
covered call or put options. In addition, through the writing and purchase of
options and the purchase and sale of U.S. and certain foreign stock index
futures contracts, interest rate futures contracts, foreign currency futures
contracts and related options on such futures contracts, the Adviser may at
times seek to hedge against a decline in the value of securities included in the
Fund or an increase in the price of securities that it plans to purchase for the
Fund. Expenses and losses incurred as a result of such hedging strategies will
reduce the Fund's current return. A Fund's investment in foreign stock index
futures contracts and foreign interest rate futures contracts, and related
options on such futures contracts, are limited to only those contracts and
related options that have been approved by the CFTC for investment by U.S.
investors. Additionally, with respect to a Fund's investment in foreign options,
unless such options are specifically authorized for investment by order of the
CFTC or meet the definition of trade options as set forth in CFTC Rule 32.4, a
Fund will not make these investments.
The ability of a Fund to engage in the options and futures strategies
described below will depend on the availability of liquid markets in such
instruments. Markets in options and futures with respect to stock indices,
foreign government securities and foreign currencies are relatively new and
still developing. It is impossible to predict the amount of trading interest
that may exist in various types of options or futures. Therefore, no assurance
can be given that a Fund will be able to utilize these instruments effectively
for the purposes stated below. Furthermore, a Fund's ability to engage in
options and futures transactions may be limited by tax considerations. Although
a Fund will only engage in options and futures transactions for limited
purposes, these activities will involve certain risks which are described below
under "Risk Factors Associated with Futures and Options Transactions." A Fund
will not engage in options and futures transactions for leveraging purposes.
WRITING COVERED OPTIONS ON SECURITIES. Certain Funds may write covered
call options and covered put options on securities in which it is permitted to
invest from time to time as the Adviser determines is appropriate in seeking to
attain its objective. Call options written by a Fund give the holder the right
to buy the underlying securities from a Fund at a stated exercise price; put
options give the holder the right to sell the underlying security to the Fund at
a stated price.
A Fund may write only covered options, which means that, so long as the
Fund is obligated as the writer of a call option, it will own the underlying
securities subject to the option (or comparable securities satisfying the cover
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requirements of securities exchanges). In the case of put options, a Fund will
maintain in a separate account cash or short-term U.S. Government securities
with a value equal to or greater than the exercise price of the underlying
securities. A Fund may also write combinations of covered puts and calls on the
same underlying security.
A Fund will receive a premium from writing a put or call option, which
increases the Fund's return 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 market price of the underlying security to the
exercise price of the option, the term of the option and the volatility of the
market price of the underlying security. 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, the Fund assumes the risk that it may be required to purchase the
underlying security for an exercise price higher than its then current market
value, resulting in a potential capital loss if the purchase price exceeds the
market value plus the amount of the premium received, 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 it purchases an option
having the same terms as the option written. A Fund will realize a profit or
loss from such transaction if the cost of such transaction is less or more than
the premium received from the writing of the option. In the case of a put
option, any loss so incurred may be partially or entirely offset by the premium
received from a simultaneous or subsequent sale of a different put option.
Because increases in the market price of a call option will generally reflect
increases in the market price of the underlying security, any loss resulting
from the repurchase of a call option is likely to be offset in whole or in part
by unrealized appreciation of the underlying security owned by a Fund.
PURCHASING PUT AND CALL OPTIONS ON SECURITIES. A Fund may purchase put
options to protect its portfolio holdings in an underlying security against a
decline in market value. Such hedge protection is provided during the life of
the put option since a Fund, as holder of the put option, is able to sell the
underlying security at the put exercise price regardless of any decline in the
underlying security's market price. In order for a put option to be profitable,
the market price of the underlying security must decline sufficiently below the
exercise price to cover the premium and transaction costs. By using put options
in this manner, a Fund will reduce any profit it might otherwise have realized
in its underlying security by the premium paid for the put option and by
transaction costs.
A Fund may also purchase call options to hedge against an increase in
prices of securities that it wants ultimately to buy. Such hedge protection is
provided during the life of the call option since the Fund, as holder of the
call option, is able to buy the underlying security at the exercise price
regardless of any increase in the underlying security's market price. In order
for a call option to be profitable, the market price of the underlying security
must rise sufficiently above the exercise price to cover the premium and
transaction costs. By using call options in this manner, a Fund will reduce any
profit it might have realized had it bought the underlying security at the time
it purchased the call option by the premium paid for the call option and by
transaction costs.
PURCHASE AND SALE OF OPTIONS AND FUTURES ON STOCK INDICES. A Fund may
purchase and sell options on non-U.S. stock indices and stock index futures
as a hedge against movements in the equity markets.
Options on stock indices are similar to options on specific securities
except that, rather than the right to take or make delivery of the specific
security at a specific price, an option on a stock index gives the holder the
right to receive, upon exercise of the option, an amount of cash if the closing
level of that stock index is greater than, in the case of a call, or less than,
in the case of a put, the exercise price of the option. This amount of cash is
equal to such difference between the closing price of the index and the exercise
price of the option expressed in dollars multiplied by a specified multiple. The
writer of the option is obligated, in return for the premium received, to make
delivery of this amount. Unlike options on specific securities, all settlements
of options on stock indices are in cash and gain or loss depends on general
movements in the stocks included in the index rather than price movements in
particular stocks. A stock index futures contract is an agreement in which one
party agrees to deliver to the other an amount of cash equal to a specific
amount multiplied by the difference between the value of a specific stock index
at the close of the last trading day of the contract and the price at which the
agreement is made. No physical delivery of securities is made.
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If the Adviser expects general stock market prices to rise, a Fund might
purchase a call option on a stock index or a futures contract on that index as a
hedge against an increase in prices of particular equity securities it wants
ultimately to buy. If in fact the stock index does rise, the price of the
particular equity securities intended to be purchased may also increase, but
that increase would be offset in part by the increase in the value of a Fund's
index option or futures contract resulting from the increase in the index. If,
on the other hand, the Adviser expects general stock market prices to decline, a
Fund might purchase a put option or sell a futures contract on the index. If
that index does in fact decline, the value of some or all of the equity
securities in a Fund may also be expected to decline, but that decrease would be
offset in part by the increase in the value of the Fund's position in such put
option or futures contract.
PURCHASE AND SALE OF INTEREST RATE FUTURES. A Fund may purchase and sell
interest rate futures contracts on foreign government securities including, but
not limited to, debt securities of the governments and central banks of France,
Germany, Denmark and Japan for the purpose of hedging fixed income and interest
sensitive securities against the adverse effects of anticipated movements in
interest rates.
A Fund may sell interest rate futures contracts in anticipation of an
increase in the general level of interest rates. Generally, as interest rates
rise, the market value of the fixed income securities held by a Fund will fall,
thus reducing the net asset value of the Fund. This interest rate risk can be
reduced without employing futures as a hedge by selling long-term fixed income
securities and either reinvesting the proceeds in securities with shorter
maturities or by holding assets in cash. This strategy, however, entails
increased transaction costs to a Fund in the form of dealer spreads and
brokerage commissions.
The sale of interest rate futures contracts provides an alternative means
of hedging against rising interest rates. As rates increase, the value of a
Fund's short position in the futures contracts will also tend to increase, thus
offsetting all or a portion of the depreciation in the market value of a Fund's
investments that are being hedged. While a Fund will incur commission expenses
in selling and closing out futures positions (which is done by taking an
opposite position which operates to terminate the position in the futures
contract), commissions on futures transactions are lower than transaction costs
incurred in the purchase and sale of portfolio securities.
OPTIONS ON STOCK INDEX FUTURES CONTRACTS AND INTEREST RATE FUTURES
CONTRACTS. A Fund may purchase and write call and put options on non-U.S. stock
index and interest rate futures contracts. A Fund may use such options on
futures contracts in connection with its hedging strategies in lieu of
purchasing and writing options directly on the underlying securities or stock
indices or purchasing and selling the underlying futures. For example, a Fund
may purchase put options or write call options on stock index futures, or
interest rate futures, rather than selling futures contracts, in anticipation of
a decline in general stock market prices or rise in interest rates,
respectively, or purchase call options or write put options on stock index or
interest rate futures, rather than purchasing such futures, to hedge against
possible increases in the price of equity securities or debt securities,
respectively, which the Fund intends to purchase.
PURCHASE AND SALE OF CURRENCY FUTURES CONTRACTS AND RELATED OPTIONS. In
order to hedge its portfolio and to protect it against possible variations in
foreign exchange rates pending the settlement of securities transactions, a Fund
may buy or sell currency futures contracts and related options. If a fall in
exchange rates for a particular currency is anticipated, a Fund may sell a
currency futures contract or a call option thereon or purchase a put option on
such futures contract as a hedge. If it is anticipated that exchange rates will
rise, a Fund may purchase a currency futures contract or a call option thereon
or sell (write) a put option to protect against an increase in the price of
securities denominated in a particular currency a Fund intends to purchase.
These futures contracts and related options thereon will be used only as a hedge
against anticipated currency rate changes, and all options on currency futures
written by a Fund will be covered.
A currency futures contract sale creates an obligation by a Fund, as
seller, to deliver the amount of currency called for in the contract at a
specified future time for a special price. A currency futures contract purchase
creates an obligation by a Fund, as purchaser, to take delivery of an amount of
currency at a specified future time at a specified price. Although the terms of
currency futures contracts specify actual delivery or receipt, in most instances
the contracts are closed out before the settlement date without the making or
taking of delivery of the currency. Closing
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out of a currency futures contract is effected by entering into an offsetting
purchase or sale transaction. Unlike a currency futures contract, which requires
the parties to buy and sell currency on a set date, an option on a currency
futures contract entitles its holder to decide on or before a future date
whether to enter into such a contract. If the holder decides not to enter into
the contract, the premium paid for the option is fixed at the point of sale.
The Fund will write (sell) only covered put and call options on currency
futures. This means that a Fund will provide for its obligations upon exercise
of the option by segregating sufficient cash or short-term obligations or by
holding an offsetting position in the option or underlying currency future, or a
combination of the foregoing. A Fund will, so long as it is obligated as the
writer of a call option on currency futures, own on a contract-for-contract
basis an equal long position in currency futures with the same delivery date or
a call option on stock index futures with the difference, if any, between the
market value of the call written and the market value of the call or long
currency futures purchased maintained by a Fund in cash, Treasury bills, or
other high grade short-term obligations in a segregated account with its
custodian. If at the close of business on any day the market value of the call
purchased by a Fund falls below 100% of the market value of the call written by
the Fund, a Fund will so segregate an amount of cash, Treasury bills or other
high grade short-term obligations equal in value to the difference.
Alternatively, a Fund may cover the call option through segregating with the
custodian an amount of the particular foreign currency equal to the amount of
foreign currency per futures contract option times the number of options written
by a Fund. In the case of put options on currency futures written by the Fund,
the Fund will hold the aggregate exercise price in cash, Treasury bills, or
other high grade short-term obligations in a segregated account with its
custodian, or own put options on currency futures or short currency futures,
with the difference, if any, between the market value of the put written and the
market value of the puts purchased or the currency futures sold maintained by a
Fund in cash, Treasury bills or other high grade short-term obligations in a
segregated account with its custodian. If at the close of business on any day
the market value of the put options purchased or the currency futures by a Fund
falls below 100% of the market value of the put options written by the Fund, a
Fund will so segregate an amount of cash, Treasury bills or other high grade
short-term obligations equal in value to the difference.
If other methods of providing appropriate cover are developed, a Fund
reserves the right to employ them to the extent consistent with applicable
regulatory and exchange requirements. In connection with transactions in stock
index options, stock index futures, interest rate futures, foreign currency
futures and related options on such futures, a Fund will be required to deposit
as "initial margin" an amount of cash or short-term government securities equal
to from 5% to 8% of the contract amount. Thereafter, subsequent payments
(referred to as "variation margin") are made to and from the broker to reflect
changes in the value of the futures contract.
LIMITATIONS ON PURCHASE OF OPTIONS. 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 15% of a Fund's assets. 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 15% test imposed by
the SEC staff.
Risk Factors Associated with Futures and Options Transactions
The effective use of options and futures strategies depends on, among
other things, a Fund's ability to terminate options and futures positions at
times when its the Adviser deems it desirable to do so. Although a Fund will not
enter into an option or futures position unless the Adviser believes that a
liquid secondary market exists for such option or future, there is no assurance
that a Fund will be able to effect closing transactions at any particular time
or at an acceptable price. A Fund generally expects that its options and futures
transactions will be conducted
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on recognized U.S. and foreign securities and commodity exchanges. In certain
instances, however, a Fund may purchase and sell options in the over-the-counter
market. A Fund's ability to terminate option positions established in the
over-the-counter market may be more limited than in the case of exchange-traded
options and may also involve the risk that securities dealers participating in
such transactions would fail to meet their obligations to the Fund.
Options and futures markets can be highly volatile and transactions of
this type carry a high risk of loss. Moreover, a relatively small adverse market
movement with respect to these types of transactions may result not only in loss
of the original investment but also in unquantifiable further loss exceeding any
margin deposited.
The use of options and futures involves the risk of imperfect correlation
between movements in options and futures prices and movements in the price of
securities which are the subject of the hedge. Such correlation, particularly
with respect to options on stock indices and stock index futures, is imperfect,
and such risk increases as the composition of a Fund diverges from the
composition of the relevant index. The successful use of these strategies also
depends on the ability of the Adviser to correctly forecast interest rate
movements, currency rate movements and general stock market price movements.
In addition to certain risk factors described above, the following sets
forth certain information regarding the potential risks associated with the
Funds' futures and options transactions.
RISK OF IMPERFECT CORRELATION. 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
securities. If the values of the securities being hedged do not move in the same
amount or direction as the underlying security or index, the hedging strategy
for a Fund might not be successful and the Fund could sustain losses on its
hedging transactions which would not be offset by gains on its portfolio. It is
also possible that there may be a negative correlation between the security or
index underlying a futures or option contract and the portfolio securities being
hedged, which could result in losses both on the hedging transaction and the
fund securities. In such instances, a Fund's overall return could be less than
if the hedging transactions had not been undertaken. Stock index futures or
options based on a narrower index of securities may present greater risk than
options or futures based on a broad market index, as a narrower index is more
susceptible to rapid and extreme fluctuations resulting from changes in the
value of a small number of securities. A Fund would, however, effect
transactions in such futures or options only for hedging purposes.
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. The anticipated spread between the prices may
be distorted due to differences in the nature of the markets, such as
differences in margin requirements, the liquidity of such markets and the
participation of speculators in the futures and options market. The purchase of
an option on a futures contract also involves the risk that changes in the value
of underlying futures contract will not be fully reflected in the value of the
option purchased. The risk of imperfect correlation, however, generally tends to
diminish as the maturity date of the futures contract or termination date of the
option approaches. The risk incurred in purchasing an option on a futures
contract is limited to the amount of the premium plus related transaction costs,
although it may be necessary under certain circumstances to exercise the option
and enter into the underlying futures contract in order to realize a profit.
Under certain extreme market conditions, it is possible that a Fund will not be
able to establish hedging positions, or that any hedging strategy adopted will
be insufficient to completely protect the Fund.
A Fund will purchase or sell futures contracts or options only if, in the
Adviser's judgment, there is expected to be a sufficient degree of correlation
between movements in the value of such instruments and changes in the value of
the relevant portion of the Fund's portfolio for the hedge to be effective.
There can be no assurance that the Adviser's judgment will be accurate.
POTENTIAL LACK OF A LIQUID SECONDARY MARKET. The ordinary spreads between
prices in the cash and futures markets, due to differences in the natures of
those markets, are subject to distortions. First, all participants in the
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futures market are subject to initial deposit and variation margin requirements.
This could require a Fund to post additional cash or cash equivalents as the
value of the position fluctuates. Further, rather than meeting additional
variation margin requirements, investors may close futures contracts through
offsetting transactions which could distort the normal relationship between the
cash and futures markets. Second, the liquidity of the futures or options market
may be lacking. Prior to exercise or expiration, a futures or option position
may be terminated only by entering into a closing purchase or sale transaction,
which requires a secondary market on the exchange on which the position was
originally established. While a Fund will establish a futures 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 the Fund to purchase or sell
the instrument underlying the position, make or receive a cash settlement, or
meet ongoing variation margin requirements. The inability to close out futures
or option positions also could have an adverse impact on a Fund's ability
effectively to hedge its securities, or the relevant portion thereof.
The liquidity of a secondary market in a futures contract or an option on
a futures contract may be adversely affected by "daily price fluctuation limits"
established by the exchanges, which limit the amount of fluctuation in the price
of a contract during a single trading day and prohibit trading beyond such
limits once they have been reached. The trading of futures and options contracts
also is subject to the risk of trading halts, suspensions, exchange or clearing
house equipment failures, government intervention, insolvency of the brokerage
firm or clearing house or other disruptions of normal trading activity, which
could at times make it difficult or impossible to liquidate existing positions
or to recover excess variation margin payments.
RISK OF PREDICTING INTEREST RATE MOVEMENTS. 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. For example, if a Fund has been
hedged against the possibility of an increase in interest rates which would
adversely affect the price of bonds held in its portfolio and interest rates
decrease instead, the Fund will lose part or all of the benefit of the increased
value of its bonds which have been hedged because it will have offsetting losses
in its futures positions. In addition, in such situations, if a Fund has
insufficient cash, it may have to sell bonds from its portfolio to meet daily
variation margin requirements, possibly at a time when it may be disadvantageous
to do so. Such sale of bonds may be, but will not necessarily be, at increased
prices which reflect the rising market.
TRADING AND POSITION LIMITS. Each contract market on which futures and
option contracts are traded has established a number of limitations governing
the maximum number of positions which may be held by a trader, whether acting
alone or in concert with others. The Adviser does not believe that these trading
and position limits will have an adverse impact on the hedging strategies
regarding the Funds' investments.
REGULATIONS ON THE USE OF FUTURES AND OPTIONS CONTRACTS. Regulations of
the CFTC require that the Funds enter into transactions in futures contracts and
options thereon for hedging purposes only, in order to assure that they are not
deemed to be a "commodity pool" under such regulations. In particular, CFTC
regulations require that all short futures positions be entered into for the
purpose of hedging the value of investment securities held by a Fund, and that
all long futures positions either constitute bona fide hedging transactions, as
defined in such regulations, or have a total value not in excess of an amount
determined by reference to certain cash and securities positions maintained for
the Fund, and accrued profits on such positions. In addition, a Fund may not
purchase or sell such instruments if, immediately thereafter, the sum of the
amount of initial margin deposits on its existing futures positions and premiums
paid for options on futures contracts would exceed 5% of the market value of the
Fund's total assets.
When a Fund purchases a futures contract, an amount of cash or cash
equivalents or high quality debt securities will be segregated with the Fund's
custodian so that the amount so segregated, plus the initial deposit and
variation margin held in the account of its broker, will at all times equal the
value of the futures contract, thereby insuring that the use of such futures is
unleveraged.
The Funds' ability to engage in the hedging transactions described herein
may be limited by the current federal income tax requirement that a Fund derive
less than 30% of its gross income from the sale or other
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disposition of stock or securities held for less than three months. The Funds
may also further limit their ability to engage in such transactions in response
to the policies and concerns of various Federal and state regulatory agencies.
Such policies may be changed by vote of the Board of Directors/Trustees.
GUARANTEED INVESTMENT CONTRACTS
Guaranteed investment contracts, investment contracts or funding
agreements (each referred to as a "GIC") are investment instruments issued by
highly rated insurance companies. Pursuant to such contracts, a Fund may make
cash contributions to a deposit fund of the insurance company's general or
separate accounts. The insurance company then credits to a Fund guaranteed
interest. The insurance company may assess periodic charges against a GIC for
expense and service costs allocable to it, and the charges will be deducted from
the value of the deposit fund. The purchase price paid for a GIC generally
becomes part of the general assets of the issuer, and the contract is paid from
the general assets of the issuer.
A Fund will only purchase GICs from issuers which, at the time of
purchase, meet quality and credit standards established by the Adviser.
Generally, GICs are not assignable or transferable without the permission of the
issuing insurance companies, and an active secondary market in GICs does not
currently exist. Also, a Fund may not receive the principal amount of a GIC from
the insurance company on seven days' notice or less, at which point the GIC may
be considered to be an illiquid investment.
A Money Market Fund will acquire GlCs so that they, together with other
instruments in such Fund's portfolio which are not readily marketable, will not
exceed applicable limitations on such Fund's investments in illiquid securities.
A Money Market Fund will restrict its investments in GlCs to those having a term
of 397 days or less. In determining average weighted portfolio maturity, a GIC
will be deemed to have a maturity equal to the period of time remaining under
the next readjustment of the guaranteed interest rate.
INSURED MUNICIPAL SECURITIES
Certain of the Municipal Securities held by the Funds may be insured at
the time of issuance as to the timely payment of principal and interest. The
insurance policies will usually be obtained by the issuer of the Municipal
Securities at the time of its original issuance. In the event that the issuer
defaults with respect to interest or principal payments, the insurer will be
notified and will be required to make payment to the bondholders. There is,
however, no guarantee that the insurer will meet its obligations. In addition,
such insurance will not protect against market fluctuations caused by changes in
interest rates and other factors.
INTEREST RATE TRANSACTIONS
Among the strategic transactions into which certain Funds may enter are
interest rate swaps and the purchase or sale of related caps and floors. The
Funds expect to enter into these transactions primarily to preserve a return or
spread on a particular investment or portion of its portfolio, to protect
against currency fluctuations, as a duration management technique or to protect
against any increase in the price of securities the Fund anticipates purchasing
at a later date. A Fund intends to use these transactions as hedges and not as
speculative investments and will not sell interest rate caps or floors where it
does not own securities or other instruments providing the income stream the
Fund may be obligated to pay. Interest rate swaps involve the exchange by a Fund
with another party of their respective commitments to pay or receive interest,
e.g. an exchange of floating rate payments for fixed rate payments 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. In as much as these swaps, caps and
floors are entered into for good
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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 and 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 Standard & Poor's Corporation or
Moody's Investors Service, Inc. or has an equivalent rating from a Nationally
Recognized Statistical Rating Organization ("NRSRO") or is determined to be of
equivalent credit quality by the Adviser. If there is a default by the
counterparty, the Fund may have contractual remedies pursuant to the agreements
related to the transaction. The swap market has grown substantially in recent
years with a large number of banks and investment banking firms acting both as
principals and as agents utilizing standardized swap documentation. As a result,
the swap market has become relatively liquid. Caps and floors are more recent
innovations for which standardized documentation has not yet been fully
developed and, accordingly, they are less liquid than swaps.
With respect to swaps, a Fund will accrue the net amount of the excess, if
any, of its obligations over its entitlements with respect to each swap on a
daily basis and will segregate an amount of cash or liquid high grade securities
having a value equal to the accrued excess. Caps and floors require segregation
of assets with a value equal to the Fund's net obligation, if any.
LOWER RATED DEBT SECURITIES
The yields on lower rated debt and comparable unrated fixed-income
securities generally are higher than the yields available on higher-rated
securities. However, investments in lower rated debt and comparable unrated
securities generally involve greater volatility of price and risk of loss of
income and principal, including the probability of default by or bankruptcy of
the issuers of such securities. Lower rated debt and comparable unrated
securities (a) will likely have some quality and protective characteristics
that, in the judgment of the rating organization, are outweighed by large
uncertainties or major risk exposures to adverse conditions and (b) are
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal in accordance with the terms of the obligation. Accordingly,
it is possible that these types of factors could, in certain instances, reduce
the value of securities held in a Fund's portfolio, with a commensurate effect
on the value of the Fund's shares. Therefore, an investment in the Fund should
not be considered as a complete investment program and may not be appropriate
for all investors.
The market prices of lower rated securities may fluctuate more than higher
rated securities and may decline significantly in periods of general economic
difficulty which may follow periods of rising interest rates. During an economic
downturn or a prolonged period of rising interest rates, the ability of issuers
of lower quality debt to service their payment obligations, meet projected
goals, or obtain additional financing may be impaired.
Since the risk of default is higher for lower rated securities, the
Adviser will try to minimize the risks inherent in investing in lower rated debt
securities by engaging in credit analysis, diversification, and attention to
current developments and trends affecting interest rates and economic
conditions. The Adviser will attempt to identify those issuers of high-yielding
securities whose financial condition is adequate to meet future obligations,
have improved, or are expected to improve in the future.
Unrated securities are not necessarily of lower quality than rated
securities, but they may not be attractive to as may buyers. Each Fund's
policies regarding lower rated debt securities is not fundamental and may be
changed at any time without shareholder approval.
While the market values of lower rated debt and comparable unrated
securities tend to react less to fluctuations in interest rate levels than the
market values of higher-rated securities, the market values of certain lower
rated debt and comparable unrated securities also tend to be more sensitive to
individual corporate developments and changes in economic conditions than
higher-rated securities. In addition, lower rated debt securities and comparable
unrated securities generally present a higher degree of credit risk. Issuers of
lower rated debt and comparable unrated securities often are highly leveraged
and may not have more traditional methods of financing available to them so that
their ability to service their debt obligations during an economic downturn or
during sustained periods of rising interest rates may be impaired. The risk of
loss due to default by such issuers is significantly greater
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because lower rated debt and comparable unrated securities generally are
unsecured and frequently are subordinated to the prior payment of senior
indebtedness. A Fund may incur additional expenses to the extent that it is
required to seek recovery upon a default in the payment of principal or interest
on its portfolio holdings. The existence of limited markets for lower rated debt
and comparable unrated securities may diminish a Fund's ability to (a) obtain
accurate market quotations for purposes of valuing such securities and
calculating its net asset value and (b) sell the securities at fair value either
to meet redemption requests or to respond to changes in the economy or in
financial markets.
Fixed-income securities, including lower rated debt securities and
comparable unrated securities, frequently have call or buy-back features that
permit their issuers to call or repurchase the securities from their holders,
such as a Fund. If an issuer exercises these rights during periods of declining
interest rates, a Fund may have to replace the security with a lower yielding
security, thus resulting in a decreased return to a Fund.
The market for certain lower rated debt and comparable unrated securities
is relatively new and has not weathered a major economic recession. The effect
that such a recession might have on such securities is not known. Any such
recession, however, could disrupt severely the market for such securities and
adversely affect the value of such securities. Any such economic downturn also
could adversely affect the ability of the issuers of such securities to repay
principal and pay interest thereon.
MUNICIPAL SECURITIES
GENERALLY. The two principal classifications of municipal securities are
"general obligation" securities and "revenue" securities. General obligation
securities are secured by the issuer's pledge of its full faith, credit, and
taxing power for the payment of principal and interest. Revenue securities are
payable only from the revenues derived from a particular facility or class of
facilities or, in some cases, from the proceeds of a special excise tax or other
specific revenue source such as the user of the facility being financed. Private
activity bonds held by a Fund are in most cases revenue securities and are not
payable from the unrestricted revenues of the issuer. Consequently, the credit
quality of private activity bonds is usually directly related to the credit
standing of the corporate user of the facility involved.
Municipal securities may include "moral obligation" bonds, which are
normally issued by special purpose public authorities. If the issuer of moral
obligation bonds is unable to meet its debt service obligations from current
revenues, it may draw on a reserve fund, the restoration of which is a moral
commitment but not a legal obligation of the state or municipality which created
the issuer.
Municipal securities may include variable- or floating- rate instruments
issued by industrial development authorities and other governmental entities.
While there may not be an active secondary market with respect to a particular
instrument purchased by a Fund, a Fund may demand payment of the principal and
accrued interest on the instrument or may resell it to a third party as
specified in the instruments. The absence of an active secondary market,
however, could make it difficult for a Fund to dispose of the instrument if the
issuer defaulted on its payment obligation or during periods the Fund is not
entitled to exercise its demand rights, and the Fund could, for these or other
reasons, suffer a loss.
Some of these instruments may be unrated, but unrated instruments
purchased by a Fund will be determined by the Adviser to be of comparable
quality at the time of purchase to instruments rated "high quality" by any major
rating service. Where necessary to ensure that an instrument is of comparable
"high quality," a Fund will require that an issuer's obligation to pay the
principal of the note may be backed by an unconditional bank letter or line of
credit, guarantee, or commitment to lend.
Municipal securities may include participations in privately arranged
loans to municipal borrowers, some of which may be referred to as "municipal
leases." Generally such loans are unrated, in which case they will be determined
by the Adviser to be of comparable quality at the time of purchase to rated
instruments that may be acquired by a Fund. Frequently, privately arranged loans
have variable interest rates and may be backed by a bank letter of credit. In
other cases, they may be unsecured or may be secured by assets not easily
liquidated. Moreover,
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such loans in most cases are not backed by the taxing authority of the issuers
and may have limited marketability or may be marketable only by virtue of a
provision requiring repayment following demand by the lender. Such loans made by
a Fund may have a demand provision permitting the Fund to require payment within
seven days. Participations in such loans, however, may not have such a demand
provision and may not be otherwise marketable.
Although lease obligations do not constitute general obligations of the
municipality for which the municipality's taxing power is pledged, a lease
obligation is ordinarily backed by the municipality's covenant to budget for,
appropriate, and make the payments due under the lease obligation. However,
certain lease obligations contain "non-appropriation" clauses which provide that
the municipality has no obligation to make lease or installment purchase
payments in future years unless money is appropriated for such purpose on a
yearly basis. In addition to the "non-appropriation" risk, these securities
represent a relatively new type of financing that has not yet developed the
depth of marketability associated with more conventional bonds. In the case of a
"non-appropriation" lease, the Funds' ability to recover under the lease in the
event of non-appropriation or default will be limited solely to the repossession
of the leased property in the event foreclosure might prove difficult.
The Funds will not invest more than 5% of their total investment assets in
lease obligations that contain "non-appropriation" clauses where (1) the nature
of the leased equipment or property is such that its ownership or use is
essential to a governmental function of the municipality, (2) the lease payments
will commence amortization of principal at an early date resulting in an average
life of seven years or less for the lease obligation, (3) appropriate covenants
will be obtained from the municipal obligor prohibiting the substitution or
purchase of similar equipment if lease payments are not appropriated, (4) the
lease obligor has maintained good market acceptability in the past, (5) the
investment is of a size that will be attractive to institutional investors, and
(6) the underlying leased equipment has elements of probability and/or use that
enhance its marketability in the event foreclosure on the underlying equipment
were ever required. The Funds have not imposed any percentage limitations with
respect to their investment in lease obligations not subject to the
"non-appropriation" risk. To the extent municipal leases are illiquid, they will
be subject to each Fund's limitation on investments in illiquid securities.
Recovery of an investment in any such loan that is illiquid and payable on
demand may depend on the ability of the municipal borrower to meet an obligation
for full repayment of principal and payment of accrued interest within the
demand period, normally seven days or less (unless a Fund determines that a
particular loan issue, unlike most such loans, has a readily available market).
As it deems appropriate, the Adviser will establish procedures to monitor the
credit standing of each such municipal borrower, including its ability to meet
contractual payment obligations.
In evaluating the credit quality of a municipal lease obligation and
determining whether such lease obligation will be considered "liquid," the
Adviser for each Fund will consider: (1) whether the lease can be canceled; (2)
what assurance there is that the assets represented by the lease can be sold;
(3) the strength of the lessee's general credit (e.g., its debt, administrative,
economic, and financial characteristics); (4) the likelihood that the
municipality will discontinue appropriating funding for the leased property
because the property is no longer deemed essential to the operations of the
municipality (e.g., the potential for an "event of non-appropriation"); and (5)
the legal recourse in the event of failure to appropriate.
Municipal securities may include units of participation in trusts holding
pools of tax-exempt leases. Municipal participation interests may be purchased
from financial institutions, and give the purchaser an undivided interest in one
or more underlying municipal security. To the extent that municipal
participation interests are considered to be "illiquid securities," such
instruments are subject to each Fund's limitation on the purchase of illiquid
securities. Municipal leases and participating interests therein, which may take
the form of a lease or an installment sales contract, are issued by state and
local governments and authorities to acquire a wide variety of equipment and
facilities. Interest payments on qualifying leases are exempt from Federal
income taxes.
In addition, certain of the Funds may acquire "stand-by commitments" from
banks or broker/dealers with respect to municipal securities held in their
portfolios. Under a stand-by commitment, a dealer would agree to purchase at a
Fund's option specified Municipal Securities at a specified price. The Funds
will acquire stand-by commitments solely to facilitate portfolio liquidity and
do not intend to exercise their rights thereunder for trading purposes.
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Although the Funds do not presently intend to do so on a regular basis,
each may invest more than 25% of its total assets in municipal securities the
interest on which is paid solely from revenues of similar projects if such
investment is deemed necessary or appropriate by the Adviser. To the extent that
more than 25% of a Fund's total assets are invested in Municipal Securities that
are payable from the revenues of similar projects, a Fund will be subject to the
peculiar risks presented by such projects to a greater extent than it would be
if its assets were not so concentrated.
There are, of course, variations in the quality of Municipal Securities,
both within a particular classification and between classifications, and the
yields on Municipal Securities depend upon a variety of factors, including
general money market conditions, the financial condition of the issuer, general
conditions of the municipal bond market, the size of a particular offering, the
maturity of the obligation, and the rating of the issue. The ratings of
nationally recognized statistical rating organizations represent their opinions
as to the quality of Municipal Securities. It should be emphasized, however,
that these ratings are general and are not absolute standards of quality, and
Municipal Securities with the same maturity, interest rate, and rating may have
different yields while Municipal Securities of the same maturity and interest
rate with different ratings may have the same yield. Subsequent to its purchase
by a Fund, an issue of Municipal Securities may cease to be rated, or its rating
may be reduced below the minimum rating required for purchase by that Fund. The
Adviser will consider such an event in determining whether a Fund should
continue to hold the obligation.
Opinions relating to the validity of Municipal Securities and to the
exemption of interest thereon from regular Federal income tax or state income
tax are rendered by counsel to the issuer or bond counsel at the time of
issuance. Neither the Funds nor the Adviser will review the proceedings relating
to the issuance of Municipal Securities or the bases for opinions relating to
the validity of such issuance.
The payment of principal and interest on most securities purchased by a
Fund will depend upon the ability of the issuers to meet their obligations. Each
state, each of their political subdivisions, municipalities, and public
authorities, as well as the District of Columbia, Puerto Rico, Guam, and the
Virgin Islands are a separate "issuer" as that term is used in the Prospectuses
and this SAI. The non-governmental user of facilities financed by private
activity bonds is also considered to be an "issuer." An issuer's obligations
under its Municipal Securities are subject to the provisions of bankruptcy,
insolvency, and other laws affecting the rights and remedies of creditors, such
as the Federal Bankruptcy Code, and laws, if any, which may be enacted by
Federal or state legislatures extending the time for payment of principal or
interest, or both, or imposing other constraints upon enforcement of such
obligations or upon the ability of municipalities to levy taxes. The power or
ability of an issuer to meet its obligations for the payment of interest on and
principal of its Municipal Securities may be materially adversely affected by
litigation or other conditions.
Although the Municipal Income Fund and the State Municipal Bond Funds
invest primarily in Municipal Securities with long-term maturities, the
Intermediate Municipal Bond Fund and the State Intermediate Municipal Bond Funds
invest primarily in Municipal Securities with intermediate-term maturities, they
may also purchase short-term General Obligation Notes, Tax Anticipation Notes,
Bond Anticipation Notes, Revenue Anticipation Notes, Tax-Exempt Commercial
Paper, Construction Loan Notes, and other forms of short-term loans. Such
instruments are issued with a short-term maturity in anticipation of the receipt
of tax funds, the proceeds of bond placements, or other revenues. The State
Intermediate Municipal Bond Funds may also invest in long-term tax-exempt
instruments.
Certain types of Municipal Securities (private activity bonds) have been
or are issued to obtain funds to provide, among other things, privately operated
housing facilities, pollution control facilities, convention or trade show
facilities, mass transit, airport, port or parking facilities, and certain local
facilities for water supply, gas, electricity, or sewage or solid waste
disposal. Private activity bonds are also issued for privately held or publicly
owned corporations in the financing of commercial or industrial facilities. Most
governments are authorized to issue private activity bonds for such purposes in
order to encourage corporations to locate within their communities. The
principal and interest on these obligations may be payable from the general
revenues of the users of such facilities.
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From time to time, proposals have been introduced before Congress for the
purpose of restricting or eliminating the Federal income tax exemption for
interest on Municipal Securities. Moreover, with respect to Municipal Securities
issued by Florida, Georgia, Maryland, North Carolina, South Carolina, Tennessee,
Texas, or Virginia issuers, NFT cannot predict which legislation, if any, may be
proposed in the state legislatures or which proposals, if any, might be enacted.
Such proposals, while pending or if enacted, might materially and adversely
affect the availability of Municipal Securities generally, or Florida, Georgia,
Maryland, North Carolina, South Carolina, Tennessee, Texas, or Virginia
Municipal Securities specifically, for investment by one of these Funds and the
liquidity and value of such portfolios. In such an event, a Fund impacted would
re-evaluate its investment objective and policies and consider possible changes
in its structure or possible dissolution.
The following information relating to the State Intermediate Municipal
Bond Funds and the State Municipal Bond Funds supplements information relevant
to each of those Funds in the related Prospectuses.
FLORIDA. Florida is the fourth most populous state with an estimated 1997
population of 14,700,000. By the year 2000, population will likely exceed 15.5
million. Population growth has historically been driven by retirement migration
with local economies weighted heavily in tourism and agriculture. Over the past
twenty years, retirement, agriculture and tourism have been complemented by high
technology jobs, service sector jobs and international trade. In the meantime,
the three traditional industries have taken on a global character. Trade and
tourism have become international and this has fueled foreign retirement
migration. The character and dynamism of Florida has changed considerably in
recent decades and the state is considered a bellwether indicator for the health
of national economic trends.
The health of the national economy plays an important role in Florida's
fiscal soundness and economic development. Today, as this country enters its
eighth year of economic expansion, population growth in Florida exceeds 250,000
per year.
The emergence of Florida as one of the most populous states in the United
States has placed significant pressure on state and local government to provide
infrastructure and municipal and urban services. During the 1980's growth was so
rapid that a significant backlog of need emerged which, today, is still being
filled. Across the state, construction of new highway systems, airport
expansions, local school and university systems, hospitals and jails are being
put in place. Much of this growth is being funded by bonded revenues secured by
the expanding real property tax base. As of 1997, real property values exceed
$724 billion. Residential property values account for over $400 billion in
value. Despite the rapid population growth and resulting increases in improved
residential properties, commercial and industrial valuations have also grown
consistently. Today these values still account for 17 percent of Florida
property values as they did a decade ago. There is now over $100 billion in real
property value in commercial and industrial properties in Florida.
One reason commercial and industrial values have increased is the
strategic nature of the industries that have located and grown in the state. The
Florida industrial base is concentrated in high technology industries such as
electronics, medical equipment, laser optics, computer simulation and space
travel. As a result, while defense contract spending has declined nationally by
over 20 percent from 1985-1994, Florida's value of defense contracts has
increased 12 percent to nearly $6 billion over the same period.
With increasing demands for services and comparatively low taxes, Florida
has experienced a rapid growth in the volume of bond debt. Because of rapid
population growth however, per capita State debt remains well below the national
average. In 1996, the outstanding state debt, among all states, was $1,690 per
capita compared with $1,077 in Florida.
The Growth Management Act of 1985 and the concurrency rule has affected
Florida's economic growth and development in some regions of the state and could
continue to impact the economy in the future. In addition, the location of new
development will be more carefully scrutinized with respect to environmental
sensitivity and natural resource limitations. Growth management legislation will
affect all areas of the state with varying degrees of impact depending on the
specific local conditions such as, existing infrastructure capacity, local
environmental constraints, and limitations on natural resources such as potable
water and habitat preservation. Having now experienced ten
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years subject to growth management rules, it appears that The Growth Management
Act of 1985 has, on balance, been beneficial. Growth management has helped
improve quality of life, ease infrastructure shortfalls and focused the State
agenda on preserving quality of life through growth management regulation and
other state funded environmental land preservation programs.
At the regional level, local economies within Florida perform differently
according to their urban or rural qualities and level of economic
diversification. The spectrum of local economies spans dense urban centers such
as Miami and Tampa to rural agricultural regions of citrus, cattle ranching and
sugar cane production.
Southeast Florida includes Miami, Fort Lauderdale, West Palm Beach and the
Florida Keys. This area is highly urban and economically diverse. Tourism,
retirement, high technology computer manufacturing, medical industries,
international trade, winter vegetable crops and sugar cane production are the
prominent features of this regional economy. The area accounts for just under
one-third of the state's population. Hurricane Andrew struck South Dade County
in fall, 1992. Some 80,000 homes were destroyed along with local businesses.
Since the hurricane, approximately 80 to 90 percent of the homes have been
restored. The restoration and rebuilding process is now essentially complete.
Over the long term, the effects of the hurricane may speed the suburbanization
of South Florida. Other factors helping to diminish agriculture locally include
environmental preservation efforts in sugarcane lands, and the effect of foreign
competition due to NAFTA on local winter fruit and vegetable growers. In 1996,
Florida led the nation in housing starts. The demand for new single and
multi-family homes should remain robust. Across the State, new construction and
renovations to existing structures is fueling the construction industry. Naples,
in southwest Florida, led the nation in the highest per capita number of
building permits. Ongoing redevelopment in downtown Jacksonville and the new
construction of public schools in the Orlando area, for instance, are worthy
examples of infrastructure meeting the demands of increasing population.
In Broward and Palm Beach Counties, in particular, growth management's
concurrency requirements have played a significant role in limiting economic
expansion as compared with other regions of the state because of the lack of
infrastructure capacity. Community consensus based long range planning efforts
recently have been undertaken in northern Palm Beach County. These efforts are a
recognition of the pause in growth that has occurred and over time will help the
area accommodate new development. More recently improved infrastructure and
access in Southwest Broward has fueled development there.
Southwest Florida has emerged as a strong growth market. Traditionally
very retirement oriented, the region's economy has begun to diversify through
increased employment opportunities and migration southward of citrus production.
Increased employment opportunity has occurred due to the overall size of the
market and improvements in infrastructure capacity. The improvement in
transportation access also has helped tourism and as a result indirectly buoyed
population growth rates by providing exposure and increased awareness of the
region as a retirement destination among visitors. The State of Florida has
begun building its tenth public university in Lee County, near the Fort Myers
airport. The university will accommodate 10,000 students within a decade and
provide opportunities for synergy between industry and education.
Central Florida is a premier world-class resort/vacation destination. The
presence of Disney World, studio theme parks and other tourist oriented
recreational parks drives the Central Florida economy. While the total size of
the market has grown rapidly, the economy is dependent on tourism and population
growth. Locally, the tourism industry has been more stable and seen better
growth over the past three decades than either the manufacturing or services
section. Two additional local industry concentrations, the laser/optical
research node and motion picture industries are helping to diversify the local
economy. Universal Studios has began to expand its motion picture and theme park
facilities. Disney World has also financed and begun construction of its fourth
theme park covering 500 acres and adjacent residential and commercial
developments. Strong growth in tourism and large land areas available for
expansion suggest this region will lead the state in population growth through
the end of the century. International tourism has fueled the growth of an
international retirement and second home market throughout Florida. Today, in
the tourist areas of the market, one fifth of new homes built are sold to
foreign retirees or vacation home owners. Places of origin include England,
Germany, South America, and Puerto Rico. International retirement markets are
also growing in Southwest and Southeast Florida. There were over 37 million
visitors to the Orlando market in 1977.
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North Florida is rural in many areas. Jacksonville is the major city in
North Florida. The local economy is dominated by the logging and paper
industries, defense and retirement. The insurance industry also has a strong
presence in Jacksonville. Growth in North Florida peaked in the mid-1980s,
coinciding with the military defense buildup, prior to the full implementation
of growth management legislation. As urbanization and living costs increase in
the south and central parts of the state, population growth from national
retirement migration sources are increasing.
The Florida Panhandle is quite rural with reliance on tourism, defense and
state government for employment opportunities. This areas of the state has the
lowest per capita incomes and the smallest volume of population growth. With the
uncertainty of state budget funding in recent years and continuing defense
cutbacks, strong growth in this region of the state is not expected. Coastal
counties, however, remain attractive to continued economic development and
retirement migration because of the pristine beaches along the Gulf of Mexico.
In general, pursuant to the Florida Constitution and certain statutory
provisions, there are two basic types of obligations that may be issued in the
State of Florida: general obligation bonds and revenue bonds.
General obligation bonds are also known as full faith and credit bonds
because their repayment is based on the general credit and taxing power of the
borrowing government. The ad valorem tax is the most common source of revenue
pledged for the repayment of general obligation bonds. Being tax-supported,
general obligation bonds are typically used to finance the capital portion of
tax supported general purpose governmental projects, with public buildings,
roads, criminal justice facilities, and schools being the most common. Only
units of local government with taxing power can levy and collect ad valorem
taxes. The State of Florida has no ad valorem taxing power. General obligation
bonds payable from ad valorem taxes and maturing more than twelve months (other
than certain refunding bonds) after issuance may be issued to finance capital
projects authorized by law and only if the issuance of such bonds is approved by
the qualified electors.
Revenue bonds are obligations of a unit of government payable solely from
the revenues of a particular enterprise, such as a water and sewer system, or
from the revenues derived from a particular facility or user, or from non-ad
valorem revenues, such as the sales tax, or from other special funds authorized
to be pledged as additional security. Revenue bonds may also be payable from
non-specific revenues budgeted each year by the issuer. Unlike general
obligation bonds, revenue bonds do not constitute a debt of the issuing unit or
a pledge of its faith and credit, and they are not backed by the issuer's taxing
power.
A test was developed by the Florida Supreme Court for analyzing the
constitutional ability of an issuer to issue revenue bonds where a significant
portion of the proceeds would be used for private or non-governmental benefit.
Generally, these types of securities are referred to as industrial revenue bonds
or private activity bonds. Unless a particular use for the proceeds of a private
activity bond has been constitutionally or legislatively sanctioned (such as
multifamily and single family housing revenue bonds) or tested in the courts, a
determination must be made that the project to be financed with the proceeds of
the private activity bond will serve a paramount public purpose. The paramount
public purpose doctrine is designed to protect public funds from being exploited
in assisting or promoting private ventures when the public would be, at the
most, only incidentally benefited. Generally, an issuer may pledge something
less than all of its available non-ad valorem revenues without voter approval,
subject to the parameters established by the Florida Supreme Court.
The Florida courts have validated debt obligations commonly referred to as
certificates of participation or "COPS." In a typical COPS transaction, the
issuer leases either real or personal property from a special purpose
corporation. The special purpose corporation assigns its rights to the lease
payments to a corporate trustee who in turn issues certificates evidencing an
undivided proportionate interest of the owners of such certificates to receive
the lease payments. The lease payments made by the issuer may be derived from
both ad valorem and non-ad valorem revenues of the issuer. Although ad valorem
taxes can be used to make the lease payments, the Florida Supreme Court has held
that a referendum is not required because the obligation to make lease payments
is an annual obligation subject to renewal each year. If the issuing body elects
not to renew its lease for the next succeeding year and therefore fails to
appropriate the necessary moneys to make lease payments, the holders of the COPS
would be
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limited to the remedies available under the lease. At least one Florida court
has upheld the right of a governmental unit to not exercise the annual renewal
option of its lease.
When a mortgage, with a right of foreclosure, on real or personal property
(owned by a unit of government) is given to secure a bond, the Florida courts
have held that a pledge of such mortgage requires voter approval. In effect, ad
valorem taxes are indirectly pledged because, as the Florida Supreme Court
reasoned, the legislative body affected by such foreclosure might feel "morally
compelled" to levy taxes to prevent the loss of assets through foreclosure. As a
result, the majority of revenue bonds issued in the State of Florida are not
additionally secured by a mortgage on the governmental property being financed.
This prohibition is applicable even if the issuer has no taxing power.
In Florida, the Division of Bond Finance has authority over the issuance
of State bonds pledging the full faith and credit of the State and the issuance
of revenue bonds payable solely from funds derived from sources other than State
tax revenues or rents or fees paid from State tax revenues.
Pursuant to the Florida Constitution, moneys sufficient to pay debt
service on State bonds must be appropriated as the same become due. Furthermore,
to the extent necessary, all State tax revenues, other than trust funds, must be
available for such appropriation purposes.
At the November 1994 general election, voters in the State approved an
amendment to the Florida Constitution limiting the amount of taxes, fees,
licenses and charges imposed by the State and collected during any fiscal year
to the amount of revenues allowed for the prior fiscal year, plus an adjustment
for growth. Growth is defined as the amount equal to the average annual rate of
growth in Florida personal income over the most recent twenty quarters times the
State revenues allowed for the prior fiscal year. The revenues allowed for any
fiscal year can be increased by a two-thirds vote of the State Legislature. The
limit is effective starting with fiscal year 1995-1996. Any excess revenues
generated will be deposited in the budget stabilization fund until it is fully
funded and then refunded to taxpayers. Included among the categories of revenues
which are exempt from the proposed revenue limitation, however, are revenues
pledged to state bonds and charges for services imposed by local, regional or
school district governing bodies.
The total outstanding principal of State bonds pledging the full faith and
credit of the State may not exceed fifty percent of the total tax revenues of
the State for the two preceding fiscal years, excluding any tax revenues held in
trust.
State bonds pledging the full faith and credit of the State, except
certain refunding bonds, generally may be issued only to finance or refinance
the cost of State fixed capital outlay projects subject to approval by a vote of
the electors. However, State bonds pledging the full faith and credit of the
State may be issued without a referendum to finance the construction of air and
water pollution control and abatement and solid waste disposal facilities to be
operated by a political subdivision of the State or by an agency of the State.
All forms of taxation other than ad valorem taxes are preempted to the
State, except as provided by general law. The State is prohibited from
collecting ad valorem taxes, which are taxes that are levied on real estate or
tangible personal property.
Revenue bonds may be issued by the State of Florida or its agencies
without voter approval only to finance or refinance the cost of state capital
projects payable solely from funds derived from sources other than state tax
revenues or rents or fees paid from state tax revenues.
Bonds issued pursuant to the State Bond Act must be validated in
accordance with Florida Statutes. Once an issuer decides to finance a project
with bonds issued pursuant to the State Bond Act, a bond validation proceeding
is held in circuit court to determine whether the proposed bond issuance
complies with Florida law. The court makes findings on the questions of whether
the issuing body had the power to incur bonded debt and whether it exercised
that power in accordance with the law. The court may not weigh the fiscal
feasibility of the proposed bonds in the validation determination. The circuit
court judgment is final on all matters, other than constitutional issues, raised
at
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the validation hearing after time for appeal to the Supreme Court of Florida has
elapsed. Refunding bonds and bonds issued to finance or refinance capital outlay
projects for the system of public education are not required to be validated.
The legislature has the power to confer on political subdivisions the
power to issue bonds, notes and other forms of indebtedness, except as otherwise
restricted by State and federal constitutional provisions, and such power is
conferred on municipal corporations, cities, counties and a variety of other
specially created districts and authorities. The bond validation process
described above is also available to such units of local government. In most
cases, bond validations are not statutorily mandated and many general obligation
and revenue bond issues have not been validated.
Generally, the Florida Constitution and Florida Statutes require that the
budget of the State and that of the units of local government in the State be
kept in balance from currently available revenues during each fiscal year. If
revenues collected during a fiscal year are less than anticipated, expenditures
must be reduced in order to comply with the balanced budget requirement.
Florida Statutes provide for a statewide maximum bond interest rate which
is flexible with the bond market and from which are exempted bonds rated in one
of the three highest ratings by nationally recognized rating services.
Nevertheless, upon request of a governmental unit, the State Board of
Administration may authorize a rate of interest in excess of the maximum rate,
provided relevant financial data and information relating to the sale of the
bonds is submitted to the State Board.
The Florida Sunshine Law, among other things, precludes public officials
from meeting with respect to the issuance of bonds other than at duly noticed
public meetings of the governmental entity. These provisions apply to all
meetings of any board or commission of any State agency or authority, or of any
county, municipal corporation, or political subdivision. No resolution, rule, or
formal action is considered binding except as taken at such duly noticed public
meetings.
GEORGIA. The state government of Georgia has one of the lowest debt
levels, per capita, of all states in the United States, which is reflective of
the very conservative fiscal approach taken by elected state officials, even
through the state has enjoyed a strong economy over the past few years.
Typically, general obligation bonds of the state are issued pursuant to the
powers granted under Article VII, Section IV of the Constitution of the State of
Georgia (the "Georgia Constitution"), which provides that the bonds are the
direct and general obligations of the state. The key language is provided under
Article VII, Section IV, Paragraph VI of the Georgia Constitution which provides
as follows:
"The full faith, credit and taxing power of the state are hereby
pledged to the payment of all public debt incurred under this article and
all such debt and the interest on the debt shall be exempt from taxation
(emphasis added). Such debt may be validated by judicial proceedings in
the manner provided by law. Such validation shall be incontestable and
conclusive."
The Georgia Constitution further mandates that the General Assembly "shall
raise by taxation and appropriate each fiscal year . . . such amounts as are
necessary to pay debt service requirements in such fiscal year on all general
obligation debt." The Georgia Constitution further provides for the
establishment of a special trust fund which is designated the "State of Georgia
General Obligation Debt Sinking Fund" which is used for the payment of annual
debt service requirements on all general obligation debt.
There are debt limitations provided under Article VII, Section IV,
Paragraph II(b)-(e) of the Georgia Constitution which essentially provide that
the cumulative annual debt service for both general obligation debt and
guaranteed revenue debt shall not exceed 10% of the total revenue receipts, less
refunds paid to the state treasury in the fiscal year immediately preceding the
proposed issuance of any new debt. The Georgia Constitution prohibits state
departments and agencies from circumventing the debt limitation provisions by
not allowing such agencies to execute contracts which may be deemed to
constitute a security for bonds or other public obligations. (See Article VII,
Section IV, Paragraph IV of the Georgia Constitution.)
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The State of Georgia may incur: "Public debt to supply a temporary deficit
in the state treasury in any fiscal year created by a delay in collecting the
taxes of that year. Such debt shall not exceed, in the aggregate, 5% of the
total revenue receipts, less refunds, of the state treasury in the fiscal year
immediately preceding the year in which such debt is incurred." (See Georgia
Constitution, Article VII, Section IV, Paragraph I(b).) Since this provision of
the Constitution was enacted, there has been no temporary debt incurred by the
state.
Virtually all debt obligations represented by bonds issued by the State of
Georgia, counties or municipalities or other public subdivisions, and public
authorities require validation by a judicial proceeding prior to the issuance of
such obligation. The judicial validation makes these obligations incontestable
and conclusive, as provided under the Georgia Constitution.
The State of Georgia operates on a fiscal year beginning on July 1 and
ending on June 30. Each year the State Economist, the Governor and the State
Revenue Commissioner jointly prepare a revenue forecast upon which is based the
state budget which is considered, amended and approved by the Georgia General
Assembly. On June 30, 1996 the state had a revenue shortfall reserve fund of
$313,385,534. Total net revenue collections for the fiscal year ended on June
30, 1996 were $11,166,835,592, which represented a 8.3890 increase over fiscal
year 1995 collections of $10,303,573,061. Additionally, Georgia received
$558,473,887 in revenue from the Georgia Lottery Corporation in fiscal year
1996; all lottery revenues are earmarked for educational expenditures.
Georgia has a very bright economic future highlighted by a $3 billion
stimulus to the economy which occurred by reason of Atlanta's hosting of the
1996 Summer Olympic Games. Manufacturing activity, particularly in the textile,
apparel and carpet sectors, has increased dramatically as a result of increased
home building. The real estate/construction industry is thriving and has emerged
from a recession that had been caused by over-building of commercial office
space and industrial parks in the late 1980s. In recent years, Georgia has
enjoyed the economic stimulus caused by a number of major corporate relocations
led by United Parcel Service of America, Inc. and Holiday Inn Worldwide. In
1996, Paragon Trade Brands, Inc., moved its headquarters to Atlanta from
Seattle, Washington.
On December 6, 1994, the United States Supreme Court reversed the Georgia
Supreme Court's decision in Reich v. Collins, 263 Ga. 602 (1993) and held that
Georgia resident federal retirees were entitled to refunds of pre-1989 taxes on
federal retirement pension benefits. In response, the Governor signed H.B. 90 on
February 1, 1995, permitting federal retirees who file timely claims to receive
refunds for such taxes for tax years 1985-1988. Total potential liability is
approximately $110,000,000 which is now being paid in four equal annual
installments, the first of which occurred on October 15, 1995. The Reich case
has now been dismissed.
On August 2, 1995, a petition was filed in Dekalb County Superior Court
(Civil Action File No. 95-10114-4) by the Lombard Corporation against Marcus
Collins, Commissioner of the Georgia Department of Revenue, and Tom Scott, Tax
Commissioner for Dekalb County. This petition attacked the constitutionality of
the Georgia intangibles tax and sought a refund for previously paid intangibles
taxes. During the 1996 Session of the Georgia General Assembly, the Georgia
intangibles tax was legislatively repealed. On November 5, 1996, a
constitutional amendment was approved by the voters of Georgia, which also
repealed the intangibles tax, retroactively effective to January 1, 1996.
There have been two other cases filed seeking refunds of the
intangibles tax, Charles Pero v. T. Jerry Jackson, Civil Action No. E-47722,
and Jack W. Shemaria v. T. Jerry Jackson, Civil Action No. 96-11005-4.
Regardless of the outcome of these refund cases, the financial impact on the
State of Georgia will be marginal since the intangibles taxes were paid to
city and county governments and local boards of education, which historically
received approximately $40 million per year in intangibles tax revenues.
The above-referenced information is based on available public documents
and oral representations made by officials at the state Attorney General's
Office, Georgia Department of Revenue, and participants in the pending cases, as
well as representations made as "Significant Contingent Liabilities" provided in
the Official Statement dated April 1, 1997 for the issuance of $307,195,000
General Obligation Bonds (1997-A) by the State of Georgia.
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MARYLAND. The public indebtedness of the State of Maryland and its
instrumentalities is divided into four basic categories. The State issues
general obligation bonds, to the payment of which the State ad valorem property
tax is exclusively pledged, for capital improvements and for various
State-sponsored projects. The Maryland Department of Transportation issues
limited, special obligation bonds for transportation purposes payable primarily
from specific, fixed-rate excise taxes and other revenues related mainly to
highway use. The Maryland Stadium Authority issues limited special obligation
bonds and votes for purposes of financing stadiums and conference centers
payable primarily from fixed rate financing of facility bonds using a
combination of variable rate refunding obligations and forward interest rate
exchange agreements. Certain authorities issue obligations payable solely from
specific non-tax, enterprise fund revenues, and for which the State has no
liability and has given no moral obligation assurance. The State and certain of
its agencies also have entered into a variety of lease purchase agreements to
finance the acquisition of capital assets. These lease agreements specify that
payments thereunder are subject to annual appropriation by the General Assembly.
At least since the end of the Civil War, the State has paid the principal
of and interest on its general obligation bonds when due. Neither the Maryland
Constitution nor the public general laws of Maryland impose any general debt
limit. Although the State has the authority to make short-term borrowings in
anticipation of taxes and other receipts up to a maximum of $100 million, the
State in the past has not issued short-term tax anticipation notes or made any
other similar short-term borrowings for cash flow purposes. The State has not
issued bond anticipation notes except in connection with a State program to
ameliorate the impact of the failure of certain State-chartered savings and loan
associations in 1985; all such notes were redeemed without the issuance of debt.
The State Constitution prohibits the contracting of State debt unless
authorized by a law providing for the collection of an annual tax or taxes
sufficient to pay the interest when due and to discharge the principal within 15
years of the date of debt issuance. The Constitution also provides that the
taxes levied for this purpose may not be repealed or applied to any other
purpose until the debt is fully discharged. As a matter of practice, general
obligation bonds, other than small denomination bonds and refunding bonds, are
issued to mature in serial installments designed to provide payment of interest
only during the first two years and an approximately level annual amortization
of principal and interest over the remaining years.
The State has financed and expects to continue to finance the construction
and acquisition of various facilities and equipment through conditional
purchase, sale-leaseback, and similar transactions. All of the lease payments
under these arrangements are subject to annual appropriation by the General
Assembly. In the event that appropriations are not made, the State may not be
held contractually liable for the payments. These transactions are subject to
approval by the Board of Public Works.
When the 1996 Budget was enacted, it was estimated that the general fund
surplus on a budgetary basis at June 30, 1996, would be approximately $7.8
million; it is currently estimated to be $1.0 million. At its December 12, 1995,
meeting, the Board of Revenue Estimates lowered the estimate of fiscal year 1996
general fund revenues by $92 million. The Governor has proposed a plan to
address this change that principally includes: (1) additional reversions for
Medicaid and Nonpublic Special Education Placements of $22 million; (2)
reduction of current general fund appropriations of $26 million; (3) transfer
from the Revenue Stabilization Account of $18 million; and (4) use of
unanticipated fiscal year 1995 surplus of $26 million. It is anticipated that
the balance of the Revenue Stabilization Account after the transfer at June 30,
1996, will be $500 million.
1997 Budget--On April 3, 1996, the General Assembly approved the budget
for fiscal year 1997. The Budget includes, among other things: (i) sufficient
funds to meet all specific statutory funding requirements; (ii) sufficient funds
to meet the actuarial recommended contributions for the seven retirement
systems, determined on a basis consistent with prior years' practice; (iii)
sufficient general funds for the Annuity Bond Fund to maintain the State
property tax rate at $.21 per $100 of assessed valuation; (iv) $2.9 billion in
aid to local governments (reflecting a $121.5 million increase over fiscal year
1996 that provides for increases in education, health and police aid); and (v)
$13.2 million in general fund deficiency appropriations.
Legislation enacted by the 1996 General Assembly reorganized the State's
personnel system and reformed the welfare and Medicaid programs; estimated
fiscal year 1997 savings of $29 million ($19.5 million general funds)
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are incorporated into the fiscal year 1997 Budget. The legislation establishes a
decentralized personnel management system, replacing the classified and
unclassified services with skilled, professional, management, and executive
services; a pay for performance plan; and early retirement during fiscal year
1997 for certain groups of employees. The welfare reform legislation limits
welfare recipients to 60 months of cumulative cash assistance and requires
adults to be in a State-defined work activity in order to receive more than 24
months of benefits; federal permission must be obtained before the new welfare
program can be implemented. The Medicaid reform authorized the establishment of
a mandatory managed care program for Medicaid recipients (consistent with
federal law or federal waivers). The legislation requires managed care
organizations to meet certain performance, access, and quality standards; it is
anticipated the organizations will be paid prospectively.
The operating budget is to be funded with $7,412 million in general funds,
$4,112 million in special and higher education funds, and $3,117 million in
federal funds.
The State's fiscal year 1997 capital program is to be funded with $400
million in general obligation bonds (net of $12.1 million of prior year
authorizations to be deauthorized), $66.8 million general funds appropriated in
the operating budget, $1,297 million in special and federal funds (of which
$1,099 million is appropriated to the Department of Transportation, including
$71 million for infrastructure improvements related to the construction of
Redskins Stadium in Prince George's County) and $69.8 million in revenue bonds
other than those issued by the Department of Transportation. The general
obligation bond financed program includes $229 million for education, $23
million for the environment, $41 million for business and job creation, $41
million for public safety, and $63 million for various other projects.
Based on the 1997 Budget, it is estimated that the general fund surplus on
a budgetary basis at June 30, 1997, will be approximately $0.8 million. It is
also estimated that the balance in the Revenue Stabilization Account of the
State Reserve Fund at June 30, 1997, will be $465 million.
The Adviser believes that the information summarized above describes some
of the more significant matters relating to the Maryland Intermediate Municipal
Bond Fund and Maryland Municipal Bond Fund. The sources of the information are
the official statements of issuers located in Maryland, other publicly available
documents, and oral statements from various state agencies. The Adviser has not
independently verified any of the information contained in the official
statements, other publicly available documents, or oral statements from various
state agencies.
NORTH CAROLINA. The North Carolina Constitution requires that the total
expenditures of the State for the fiscal period covered by the budget not exceed
the total receipts during the fiscal period plus any surplus remaining in the
State Treasury at the beginning of the period. The State operates on a fiscal
year ending June 30th.
The State of North Carolina is the tenth most populous state. Its economy
is a combination of manufacturing, agriculture, services and tourism. The
State's seasonally adjusted unemployment rate in December 1997 was 3.6%. In
recent years, the State has moved from an agricultural economy to a service and
goods producing economy. The State leads the nation in the production of
textiles, tobacco products, furniture and fiberoptic cable and is among the
largest producers of pharmaceuticals, electronics and telecommunications
equipment. The principal agricultural products are poultry, pork and tobacco.
Charlotte is now the second largest financial center in the nation, based on the
assets of banks headquartered there.
The ending fund balance for the State's General Fund at June 30, 1997 was
$1,307.5 million. The growth in tax and other revenues exceeded expectations
since that date which, with existing reserves, provides sufficient funds to pay
intangibles tax refunds required by the Fulton case described below and the
income tax refunds required by the Bailey case described below. The budget for
the fiscal year ending June 30, 1998 projects an ending General Fund balance of
$622.2 million.
The following are cases pending in which the State faces the risk of
either a loss of revenue or an unanticipated expenditure. In the Opinion of the
Department of State Treasurer, however, any such loss of revenue or expenditure
would not materially adversely affect the State's ability to meet its financial
obligations.
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Leandro, et al. v. State of North Carolina and State Board of Education.
On May 25, 1994, students and boards of education in five counties filed suit
requesting a declaration that the public education system of North Carolina
violates the State constitution by failing to provide adequate or substantially
equal education opportunities, and by denying due process of law. The
defendants' motion to dismiss was denied. However, the North Carolina Supreme
Court upheld the present funding system and remanded the case for trial on the
claim for relief based on the conclusion that the constitution guarantees every
child the opportunity to obtain a sound basic education. Five other counties
intervened and now allege claims for relief on behalf of their students' rights
to a sound basic education on the basis of the high proportion of at-risk
students in their counties' systems.
Francisco case. On August 10, 1994, a class action lawsuit was filed
against the Superintendent of Public Instruction and the State Board of
Education on behalf of a class of parents and their children who are
characterized as limited English proficient. The complaint alleges that the
State has failed to provide funding for the education of these students and has
failed to supervise local school systems in administering programs for them. The
complaint asks the Court to order the defendants to fund a comprehensive program
to ensure equal educational opportunities for limited English proficient
children.
Bailey case. State and local government retirees filed a class action suit
in 1990 as a result of the repeal of the income tax exemptions for state and
local government retirement benefits.
Patton case. Federal retirees filed a class action suit in 1995 seeking
monetary relief for taxes paid since 1989 on federal government retirement
benefits.
On May 8, 1998, the North Carolina Supreme Court ruled that it was
unconstitutional for the State of North Carolina to collect taxes on the
pensions of retired federal, state and local government employees. The required
refunds were estimated to be $1.1 billion. However, a settlement has been
reached and a Consent Order signed in which the State will pay a total of $799
million with $400 million to be paid beginning as early as July 1998 and the
balance by July 1999.
Faulkenbury v. Teachers' and State Employees' Retirement System, Peele v.
Teachers' and State Employees' Retirement System, and Woodard v. Local
Governmental Employees' Retirement System. Plaintiffs are disability retirees
who brought class actions in state court challenging changes in the formula for
payment of disability retirement benefits and claiming impairment of contract
rights, breach of fiduciary duty, violation of other federal constitutional
rights and violation of state constitutional and statutory rights. The North
Carolina Court of Appeals and Supreme Court dismissed the fiduciary claims and
certain of the constitutional claims. The primary claim for unconstitutional
impairment of contract was tried in Superior Court in May, 1995, and the court
issued an order in favor of the plaintiffs. In April of 1997, the North Carolina
Supreme Court upheld the trial court's ruling. A determination of the actual
amount of liability and the payment process is being made by the parties. The
plaintiffs have submitted documentation to the court asserting that the cost and
damages and higher prospective benefit payments to the plaintiffs and class
members would amount to $407 million. These amounts would be payable from the
funds of the State's retirement system. The plaintiffs also have filed actions
in federal court asserting the same claims, along with claims for violations of
constitutional rights in the taxation of disability benefits.
Smith case. This class action is related to litigation in Fulton v.
Faulkner brought by a single taxpayer and decided by the United States Supreme
Court in 1996 which held that certain intangibles taxes previously collected by
the State of North Carolina on intangible personal property were
unconstitutional. In 1995, the Smith class action was commenced on behalf of all
taxpayers who had complied with the refund requirements of the North Carolina
statute who would be entitled to refunds if Fulton prevailed on its refund
claim. A second group of plaintiffs was added consisting of taxpayers who paid
the intangibles tax but failed to comply with the tax refund statute. Refunds
were ordered for those plaintiffs who had complied with the requirements of the
North Carolina tax refund statute and the court dismissed the claims of those
who had not complied. Refunds totaling approximately $120 million have been paid
with interest. The appeal of the plaintiffs who did not comply with the tax
refund statute is pending in the North Carolina Court of Appeals. A separate
class action was filed in January 1998 on behalf of the plaintiffs who did not
comply with the tax refund requirements.
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Fulton case. The State's intangible personal property tax levied on
certain shares of stock has been challenged by the plaintiff on the grounds that
it violates the U.S. Constitution's commerce clause by discriminating against
stock issued by corporations that do all or part of their business outside the
State. The plaintiff in the action is a North Carolina corporation that paid the
tax on stock it owned in companies that did all or part of their business
outside the State. Plaintiff sought to invalidate the tax in its entirety and to
recover tax paid on the value of its shares in such corporations. The North
Carolina Court of Appeals invalidated the taxable percentage deduction and
excised it from the statute beginning with the 1994 tax year; however, the North
Carolina Supreme Court reversed the Court of Appeals and reinstated the trial
court's ruling, which had upheld the tax as constitutional, including the
taxable percentage deduction. The plaintiff's petition for certiorari to the
U.S. Supreme Court was granted, and on February 21, 1996, the U.S. Supreme Court
declared the State's intangibles tax to be unconstitutional under the commerce
clause and remanded the case to the North Carolina Supreme Court for its
determination of the appropriate remedy for taxes improperly collected in years
prior to the repeal of the tax.
In February of 1997, the North Carolina Supreme Court ruled that the
unconstitutional portion of the statute is severable and referred the matter to
the North Carolina General Assembly for legislative action. This action may
include paying refunds to taxpayers who paid the tax, but took appropriate steps
to claim that a refund was due. The estimated cost of paying such refunds is
approximately $150 million.
The Adviser believes that the information summarized above describes some
of the more significant matters relating to the North Carolina Intermediate
Municipal Bond Fund and North Carolina Municipal Bond Fund. The sources of the
information are the official statements of the Department of State Treasurer of
North Carolina, other publicly available documents and oral statements from
various State agencies. The Adviser has not independently verified any of the
information contained in the official statements, other publicly available
documents, or oral statements from various State agencies.
SOUTH CAROLINA. The South Carolina Constitution mandates a balanced
budget. If a deficit appears likely, the State Budget and Control Board may
reduce appropriations during the current fiscal year as necessary to prevent the
deficit. If it is determined that a fiscal year has ended with an operating
deficit, the State Constitution requires that monies appropriated from the
Capital Reserve Fund must be reduced to the extent necessary and applied to the
year end operating deficit before withdrawing monies from the General Reserve
Fund for such purpose.
The State Constitution limits annual increases in State appropriations to
the average growth rate of the economy of the State and annual increases in the
number of State employees to the average growth of the population of the State;
provided, however, that these two limitations are subject to suspension for any
one fiscal year by a special vote in each House of the General Assembly.
The State Constitution requires a General Reserve fund that equals three
percent of General Fund Revenue for the latest completed fiscal year. Funds may
be withdrawn from the General Reserve Fund only for the purpose of covering
operating deficits. The State Constitution also requires a Capital Reserve Fund
equal to two percent of General Fund Revenue for the latest completed fiscal
year.
The State Constitution requires that the General Assembly provide that, if
revenue forecasts before March 1 project that revenues for the current fiscal
year will be less than expenditures authorized by appropriation for the current
fiscal year, the current fiscal year's appropriation to the Capital Reserve Fund
shall first be reduced to the extent necessary before any reduction is made in
operating appropriations.
After March 1, monies from the Capital Reserve Fund may be appropriated by
a special vote of the General Assembly to finance previously authorized capital
improvement bond projects, to retire principal or interest on bonds previously
issued, and to pay for capital improvements or other nonrecurring purposes.
Monies in the Capital Reserve Fund not appropriated or any appropriation for a
particular project or item that has been reduced due to application of the
monies to a year-end deficit must go back to the General Fund.
The State operates on a fiscal year beginning July 1 and ending June 30.
For the fiscal year ended June 30, 1997, the State had a budgetary surplus of
$297,700,000, and the Capital Reserve Fund and General Reserve Fund
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were fully funded at the combined 5% level. The South Carolina General Assembly
recently passed the Fiscal Year 1997-98 Appropriations Act that enacted a
balanced budget where most of the new revenue was allocated to property tax
relief, health and human services and education.
A lawsuit, Glen E. Kennedy, et al vs. the South Carolina Retirement System
and South Carolina Budget and Control Board, has been filed against the South
Carolina Retirement Systems (Systems) by a group of retired participants in the
Systems which challenges the Systems' treatment of annual leave calculation of
participants' retirement payments. The Systems' liability in the event of an
unfavorable outcome would be approximately $340 million for current retirees,
and $800 million for current active members of the South Carolina Retirement
System and the Police Officers' Retirement System. The Circuit Court determined
that the State has been providing retirement benefits to its members in
accordance with the law. The Circuit Court decision has been appealed to the
State Supreme Court and the State continues to defend its position and believes
it is meritorious.
The Adviser believes that the information summarized above describes some
of the more significant matters relating to the South Carolina Intermediate
Municipal Bond Fund and South Carolina Municipal Bond Fund. The sources of the
information are the official statements of issuers located in South Carolina,
other publicly available documents, or oral statements from various State
agencies. The adviser has not independently verified any of the information
contained in the official statements, other publicly available documents, or
oral statements from various state agencies.
TENNESSEE. The Constitution of the State of Tennessee forbids the
expenditure of the proceeds of any debt obligation for a purpose other than the
purpose for which it was authorized by statute. The Constitution also forbids
the authorization of any debt obligation, except as shall be repaid within the
fiscal year of issuance, for current operation of any state service or program.
Under Tennessee law, the term of the State's bonds cannot exceed the life of the
projects being financed. Furthermore, the amount of debt obligations of the
State of Tennessee cannot exceed the amount authorized by the Tennessee General
Assembly. The procedure for funding State of Tennessee debt is provided by
Chapter 9 of Title 9, Tennessee Code Annotated. The Funding Board of the State
of Tennessee is the entity authorized to issue general obligation indebtedness
of the State of Tennessee. Pursuant to Section 9-9-106, Tennessee Code
Annotated, the Funding Board of the State of Tennessee has a lien on the taxes,
fees and revenues from certain designated revenue sources for the full amount
required to service the State's general obligation indebtedness. Certain other
agencies and authorities in Tennessee issue obligations, payable solely from
specific non-tax enterprise fund revenues and which are not debts or liabilities
of the State of Tennessee nor is the full faith and credit pledged to the
payment thereof.
Under current state statutes, the State of Tennessee's general obligation
bonded debt issuances are subject to an annual legal debt service limitation
based on a pledged portion of certain current year revenues. As of June 30,
1997, the State of Tennessee's annual legal debt service limit of $463 million
was well above the debt service required of $110 million, with a legal debt
service margin of $353 million. Debt per capita equaled $163, and the ratio of
net general long-term bonded debt to assessed property valuation was 1.55
percent.
The Constitution of the State of Tennessee requires a balanced budget. As
required by law, the legislature enacted a balanced budget for fiscal year
1996-97. During fiscal year 1997, Tennessee continued several programs that were
designed to position the State to remain competitive in attracting new jobs
while addressing several problem areas for the State. The State continued its
Basic Education Program which is designed to achieve salary equalization in
teachers' salaries and to provide funding for enrollment growth. The State also
extended coverage under Ten Care to all Tennessee children who do not otherwise
have access to health insurance, enhanced all services to children under the
newly established Department of Children's Services and continued enhancement of
industrial growth and strengthening services for the continued success of the
Families First Program of welfare reform.
The economic outlook for Tennessee remains favorable. The State's economic
diversity has improved substantially over the last twelve years. Investments
announced in new and expanding business exceeded one billion dollars in each of
those years and exceeded three billion in the last two years. The $3.4 billion
in announced capital investments in 1996 was the largest year in Tennessee
history. This growth created 20,863 new jobs in Tennessee
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for the year ended June 1997. As of June 1997, the State's unemployment rate was
4.8%, below the national average of 5.6%. Based on current projections, the
State's overall growth is expected to exceed the national average into the next
century according to the Comprehensive Annual Financial Report for the State of
Tennessee for the year ended June 1997.
TEXAS. Except as specifically authorized, the Texas Constitution generally
prohibits the creation of debt by or on behalf of the State, with only limited
exceptions. In addition, the Constitution prohibits the Legislature from lending
the credit of the State to any person, including municipalities, or pledging the
credit of the State in any manner for the payment of the liabilities of any
individual, association of individuals, corporation or municipality. The
limitations of the Constitution do not prohibit the issuance of revenue bonds,
since the Texas courts (like the courts of most states) have held that certain
obligations do not create a "debt" within the meaning of the Constitution. The
State and various State agencies have issued revenue bonds payable from the
revenues produced by various facilities or from lease payments appropriated by
the Legislature. Furthermore, obligations which are payable from funds expected
to be available during the current budget period, do not constitute "debt"
within the meaning of the constitutional prohibition.
Texas Revised Civil Statutes Article 717k-7(8) prohibits the Legislature
from authorizing additional state debt payable from general revenues, including
authorized but unissued bonds and lease purchase contracts in excess of $250,000
or for a term of greater than five years, if the resulting annual debt service
exceeds five percent of an amount equal to the average amount of general revenue
for the three immediately preceding years, excluding revenues constitutionally
dedicated for purposes other than payment of debt service. Self-supporting
general obligation bonds, although backed by the full faith and credit of the
State, are reasonably expected to be paid from other revenue sources and are not
expected to create a general revenue draw. On November 4, 1997, Texas voters
approved a constitutional amendment pursuant to Proposition 11 in order to add
the provisions of Article 717k-7(8) to the Constitution. The State has long been
identified with the oil and gas industry, but the Texas economy has diversified,
particularly with the growth of the computer and electronics industries. Oil and
gas related industries currently account for only 10% of the State's economy.
Service-producing sectors (which include transportation and public utilities;
finance and insurance and real estate; trade; services; and government) are the
major sources of job growth in Texas although the rate of growth of
goods-producing jobs has been about the same as that of service-producing jobs
since 1995. Texas' location and transportation and accessibility have made it a
distribution center for the southwestern United States as well as a growing
international market for export trade. With leadership provided by a strong
high-technology sector and the growth of exports, manufacturing job growth is
expected to remain a significant part of Texas' economic future. The State
Comptroller of Public Accounts has predicted that the overall Texas economy will
slightly outpace national economic growth in the long term.
The State generally can be divided into six geo-economic regions. The east
region is a largely non-metropolitan region, in which the economy is dependent
on agricultural activities and the production and processing of coal, petroleum
and wood. The Dallas-Ft. Worth metroplex region is mostly metropolitan, with
diversified manufacturing, financial and commercial sectors. The panhandle,
Permian basin and Concho Valley regions are relatively populated areas of the
State, with an economy drawing heavily from petroleum production and
agriculture. The border region stretching from El Paso to Brownsville is
characterized by its economic ties to Mexico, tourism and agriculture. The gulf
coast region is the most populous region in the State and has an economy
centered on energy services, petro-chemical industries and commercial activities
resulting from agriculture and seaport trade. The economy of the central
corridor is based upon the public and private service sector, recreation/tourism
and high-technology manufacturing. Because the economic base is different from
region to region, economic developments, such as the strength of the U.S.
economy, shifting export markets or changes in oil prices or defense spending,
can be expected to affect the economy of each region differently.
In 1997, total nonfarm employment growth was 4.2%. Most new jobs created
in the past year have been in the service sector with most of the growth in the
health, business and miscellaneous services sectors. Employment during the past
year also increased in the wholesale and retail trade, government,
transportation, communications, public utilities, manufacturing and construction
industries. Oil and gas mining added jobs since the beginning of 1996, but
experienced a tapering off in hiring during the last few months of 1997. The
State's per capita personal
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income growth has exceeded the nation's each year since 1989. Per capita
personal income has since increased to approximately 91% of U.S. per capita
income as of 1997.
The State's general revenue fund provides an indication of the State's
financial condition. Effective as of the beginning of fiscal 1994, numerous
state funds were merged into the general revenue fund providing for a one-time
gain of approximately $1.2 billion for the fund. In the fiscal year 1997, the
general revenue fund accounted for most of the state's net revenue. Due to the
state's expansion in Medicaid spending and other Health and Human Services
programs requiring federal matching revenues, federal receipts were the state's
number one source of income in fiscal 1997. Sales tax, which had been the main
source of revenue for the previous 12 years prior to fiscal 1993, was second.
Licenses, fees, fines and penalties are now the third largest source of revenue
to the state, with motor fuels taxes and motor vehicle sales/rental taxes
following as fourth largest and fifth largest, respectively. The remainder of
the state's revenues are derived primarily from interest and investment income,
lottery proceeds, cigarette and tobacco, franchise, oil and gas severance and
other taxes. The state has no personal or corporate income tax, although the
state does impose a corporate franchise tax based on the amount of a
corporation's capital and "earned surplus," which includes corporate net income
and officers' and directors' compensation. For each of the fiscal years ended
August 31, 1993, 1994, 1995, 1996 and 1997, the general revenue fund contained a
cash surplus of approximately $1.633 billion, $2.239 billion, $2.110 billion,
$2.271 billion and $2.685 billion, respectively.
VIRGINIA. The Constitution of Virginia, in Section 9 of Article X provides
for the issuance of debt by or on behalf of the Commonwealth. Sections 9(a), (b)
and (c) provide for the issuance of debt to which the Commonwealth's full faith
and credit is pledged and Section 9(d) provides for the issuance of debt not
secured by the full faith and credit of the Commonwealth, but which may be
supported by and paid from Commonwealth tax collections. The Commonwealth may
also enter into leases and contracts that are classified on its financial
statements as long-term indebtedness. Debt may also be issued by certain
authorities and institutions of the Commonwealth.
Section 9(a) of Article X authorizes general obligation debt to meet
certain types of emergencies, to meet casual deficits in the revenue or in
anticipation of the collection of revenues of the Commonwealth (subject to
limits on the amount and duration of the debt), and to redeem a previous debt
obligation of the Commonwealth. Total indebtedness issued to meet casual
deficits may not exceed thirty percent of an amount equal to 1.15 times the
annual tax revenues "derived from taxes on income and retail sales, as certified
by the Auditor of Public Accounts, for the preceding fiscal year."
Section 9(b) of Article X authorizes general obligation debt for capital
projects. The outstanding amount of Section 9(b) debt is limited in the
aggregate to an amount equal to 1.15 times the average annual tax revenues
"derived from taxes on income and retail sales, as certified by the Auditor of
Public Accounts," for the three immediately preceding fiscal years less the
total amounts of bonds outstanding. The amount of Section 9(b) debt that the
General Assembly may authorize for the current fiscal year is further limited to
25% of the aggregate Section 9(b) debt limit less Section 9(b) debt authorized
in the current and prior three fiscal years. Also, the debt must be authorized
by a vote of a majority of the members of each house of the General Assembly and
approved in a state-wide election.
Section 9(c) of Article X authorizes general obligation debt for
revenue-producing capital projects. The outstanding amount of Section 9(c) debt
is limited in the aggregate to an amount equal to 1.15 times the average annual
tax revenues "derived from taxes on income and retail sales, as certified by the
Auditor of Public Accounts," for the three immediately preceding fiscal years.
This debt must be approved by a vote of two-thirds of the members of each house
of the General Assembly and approved by the Governor. The Governor must certify
before the enactment of the bond legislation and again before the issuance of
the bonds that the net revenues pledged are expected to be sufficient to pay
principal and interest on the bonds issued to finance the projects.
The phrase "taxes on income and retail sales" is not defined in the
Constitution or by statute. The record made in the process of adopting the
Constitution, however, suggests an intention to include only income taxes
payable by individuals, fiduciaries and corporations and the state sales and use
tax.
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Section 9(d) of Article X provides that the restrictions of Section 9 are
not applicable to any obligation increased by the Commonwealth or any of its
institutions, agencies or authorities if the full faith and credit of the
Commonwealth is not pledged or committed to the payment of such obligation.
Various types of Section 9(d) revenue bonds are issued for which the
Commonwealth's full faith and credit is not pledged. Certain of these bonds,
however, are paid in whole or in part from revenues received as appropriations
by the General Assembly from general tax revenues, while others are paid solely
from the revenues derived from enterprises related to the operation of financed
capital projects.
The Commonwealth is involved in numerous agreements to lease buildings and
equipment. These lease agreements are for various terms, and each lease contains
a nonappropriation clause indicting that continuation of the lease is subject to
funding by the General Assembly.
The Commonwealth also finances the acquisition of certain personal
property and equipment through installment purchase agreements. The length of
the agreements and the interest rates charged vary. In most cases, the
agreements are collateralized by the personal property and equipment acquired.
Installment purchase agreements contain nonappropriation clauses indicating that
continuation of the installment purchase is subject to funding by the General
Assembly.
On December 18, 1995, the Governor presented to the General Assembly the
Budget Bill for the 1996-98 biennium. The 1996-98 Budget Bill focused on three
key areas: education, public safety, and economic development. The Budget Bill
provided about $1,4119.9 million in spending increases above the level necessary
to continue FY 1996 workloads and costs. Of these increases, $107.2 million
resulted from the deposits to the Revenue Stabilization Fund ($66.6 million is
scheduled for deposit on June 30, 1997 and an estimated $40.6 million is
scheduled for deposit on June 30, 1998). The remainder provided the state share
of Standards of Quality for public schools, proposed increases in higher
education, increased spending for adult and juvenile corrections, proposed
expansion of economic development activities in several areas, and mandated
increases in several entitlement programs in health and human resources,
primarily for Medicaid. The proposed budget included more than $200 million to
cover installment payments on the settlement and the recent ruling by the
Virginia Supreme Court in favor of retirees who did not settle in the Harper v.
Virginia Department of Taxation.
The 1996 General Assembly Session ended on March 11, 1996. The 1996-98
Budget Bill, as amended by the General Assembly, was submitted to the Governor
for approval. The Governor then returned the 1996-98 Budget Bill to the General
Assembly for consideration at its one-day reconvened session held on April 17,
1996. The General Assembly re-submitted the 1996-98 Budget Bill, as amended, to
the Governor for his final approval. The 1996-98 Budget Bill, as amended, became
effective as Chapter 912 of the 1996 Acts of Assembly (the 1996-98 Appropriation
Act) on April 17, 1996.
The Virginia Intermediate Municipal Bond Fund and Virginia Municipal Bond
Fund also invest in debt obligations issued by local governments. Local
government in the Commonwealth is comprised of approximately 95 counties, 41
incorporated cities, and 190 incorporated towns. The Commonwealth is unique in
that cities and counties are independent and their land areas do not overlap.
Cities and counties each levy and collect their own taxes and provide their own
services. Towns, which are units of local government and which continue to be
part of the counties in which they are located, levy and collect taxes for town
purposes but their residents are also subject to county taxes. Generally, the
largest expenditure by local governments in the Commonwealth is for public
education. Each county and city in the Commonwealth, with few exceptions,
constitutes a separate school district. Counties, cities and towns typically
also provide such services such as water and sewer services, police and fire
protection, and recreational facilities.
In Davis v. Michigan (decided March 28, 1989), the United States Supreme
Court ruled unconstitutional states' exempting from state income tax the
retirement benefits paid by the state or local governments without exempting
retirement benefits paid by the federal government. At that time, Virginia
exempted state and local retirement benefits but not federal retirement
benefits. At a Special Session held in April 1989, the General Assembly repealed
the exemption of state and local retirement benefits. Following DAVIS, at least
five suits, some
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with multiple plaintiffs, for refunds of Virginia income taxes, were filed by
federal retirees. These suits were consolidated under the name of Harper v.
Virginia Department of Taxation.
In a Special Session, the Virginia General Assembly on July 9, 1994 passed
emergency legislation to provide payments to federal retirees in settlement of
the retirees' claims as a result of Davis. The settlement payments are to be
made over a five-year period, commencing March 31, 1995. The total amount of
authorized appropriations for the settlement is $340 million (payment to
participating retirees in installments of $60 million on March 31, 1995, and $70
million on each succeeding March 31 through March 31, 1999, subject to
appropriation by the General Assembly).
On September 15, 1995 the Supreme Court of Virginia rendered its decision
in Harper. The Court reversed the judgment of the trial court and entered final
judgment in favor of the taxpayers, directing that the amounts unlawfully
collected be refunded with statutory interest. The Commonwealth will not seek an
appeal or rehearing of this decision. The Commonwealth issued refund checks on
November 9, 1995, and interest stopped accruing as of November 3, 1995. The cost
of refunding all Virginia income taxes paid on federal government pensions for
taxable years 1985, 1986, 1987 and 1988 to federal government pensioners who
opted out of the settlement was approximately $78.4 million, including interest
earnings. The total cost of refunding all Virginia income taxes paid on federal
government pensions was $418.4 million, $340 million for the settlement and
$78.4 million as a result of the judgment. Of this total amount, $60 million was
paid in March 1995 and $78.4 million was paid in November 1995 leaving a balance
to be paid of $280 million.
Nations Funds believe that the information summarized above describes some
of the more significant matters relating to the Virginia Intermediate Municipal
Bond Fund and Virginia Municipal Bond Fund. The sources of the information are
the official statements of issuers located in the Commonwealth, other publicly
available documents, and oral statements from various state agencies. Nations
Funds have not independently verified any of the information contained in the
official statements, other publicly available documents, or oral statements from
various state agencies.
OPTIONS ON CURRENCIES
Certain Funds may purchase and sell options on currencies to hedge the
value of securities the Fund holds or intends to buy. Options on foreign
currencies may be traded on U.S. and foreign exchanges or over-the-counter.
OTHER INVESTMENT COMPANIES
In seeking to attain their investment objectives, certain Funds may invest
in securities issued by other investment companies within the limits prescribed
by the 1940 Act. Each Fund currently intends to limit its investments so that,
as determined immediately after a securities purchase is made: (a) not more than
5% of the value of its total assets will be invested in the securities of any
one investment company; (b) not more than 10% of the value of its total assets
will be invested in the aggregate in securities of investment companies as a
group; and (c) not more than 3% of the outstanding voting stock of any one
investment company will be owned by the Fund or by the Company as a whole. 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 in connection with its own operations. The
Adviser has agreed to remit to the respective investing Fund fees payable to it
under its respective Investment Advisory Agreement with an affiliated money
market Fund to the extent such fees are based upon the investing Fund's assets
invested in shares of the affiliated money market fund.
PARTICIPATION INTERESTS AND COMPANY RECEIPTS
The Government Bond Fund also may purchase from domestic financial
institutions and trusts created by such institutions participation interests and
trust receipts in high quality debt securities. A participation interest or
receipt gives the Fund an undivided interest in the security in the proportion
that the Fund's participation interest or receipt bears to the total principal
amount of the security. As to certain instruments for which the Fund will be
able
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to demand payment, the Fund intends to exercise its right to do so only upon a
default under the terms of the security, as needed to provide liquidity or to
maintain or improve the quality of its investment portfolio. It is possible that
a participation interest or trust receipt may be deemed to be an extension of
credit by the Fund to the issuing financial institution rather than to the
obligor of the underlying security and may not be directly entitled to the
protection of any collateral security provided by the obligor. In such event,
the ability of the Fund to obtain repayment could depend on the issuing
financial institution.
Participation interests and trust receipts may have fixed, floating or
variable rates of interest, and will have remaining maturities of thirteen
months or less (as defined by the SEC). If a participation interest or trust
receipt is unrated, the Adviser will have determined that the interest or
receipt is of comparable quality to those instruments in which the Fund may
invest pursuant to guidelines approved by the Board of Directors. For certain
participation interests or trust receipts the Fund will have the right to demand
payment, on not more than 30 days' notice, for all or any part of the Fund's
participation interest or trust receipt in the securities involved, plus accrued
interest.
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.
REPURCHASE AGREEMENTS
The repurchase price under any 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 a Company's custodian in a segregated
account or in the Federal Reserve/Treasury book-entry system. Repurchase
agreements are considered to be loans by such Company 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
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case, such reverse repurchase agreements will be considered borrowings subject
to the asset coverage described above.
SECURITIES LENDING
To increase return on portfolio securities, certain Funds may lend their
portfolio securities to broker/dealers and other institutional investors
pursuant to agreements requiring that the loans be continuously secured by
collateral equal at all times in value to at least the market value of the
securities loaned. Collateral for such loans may include cash, securities of the
U.S. Government, its agencies or instrumentalities, an irrevocable letter of
credit issued by (i) a U.S. bank that has total assets exceeding $1 billion and
that is a member of the Federal Deposit Insurance Corporation, or (ii) a foreign
bank that is one of the 75 largest foreign commercial banks in terms of total
assets, or any combination thereof. Such loans will not be made if, as a result,
the aggregate of all outstanding loans of the Fund involved exceeds 33% of the
value of its total assets which may include cash collateral received for
securities loaned. There may be risks of delay in receiving additional
collateral or in recovering the securities loaned or even a loss of rights in
the collateral should the borrower of the securities fail financially. However,
loans are made only to borrowers deemed by the Adviser to be of good standing
and when, in its judgment, the income to be earned from the loan justifies the
attendant risks. Pursuant to the securities loan agreement a Fund is able to
terminate the securities loan upon notice of not more than five business days
and thereby secure the return to the Fund of securities identical to the
transferred securities upon termination of the loan.
SHORT SALES
As described in the Prospectuses, certain Funds may from time to time
enter into short sales transactions. A Fund will not make short sales of
securities nor maintain a short position unless at all times when a short
position is open, such Fund owns an equal amount of such securities or
securities convertible into or exchangeable, without payment of any further
consideration, for securities of the same issue as, and equal in amount to, the
securities sold short. This is a technique known as selling short "against the
box." Such short sales will be used by a Fund for the purpose of deferring
recognition of gain or loss for federal income tax purposes.
SPECIAL SITUATIONS
As described in the Prospectuses, certain Funds may invest in "special
situations." A special situation arises when, in the opinion of the Adviser, the
securities of a particular company will, within a reasonably estimable period of
time, be accorded market recognition at an appreciated value solely by reason of
a development applicable to that company, and regardless of general business
conditions or movements of the market as a whole. Developments creating special
situations might include, among others: liquidations, reorganizations,
recapitalizations, mergers, material litigation, technical breakthroughs and new
management or management policies. Although large and well known companies may
be involved, special situations more often involve comparatively small or
unseasoned companies. Investments in unseasoned companies and special situations
often involve much greater risk than is inherent in ordinary investment
securities.
STAND-BY COMMITMENTS
Certain Funds may acquire "stand-by commitments" with respect to Municipal
Securities held in their portfolios. Under a "stand-by commitment," a dealer
agrees to purchase from a Fund, at a Fund's option, specified Municipal
Securities at a specified price. Stand-by commitments are exercisable by a Fund
at any time before the maturity of the underlying Municipal Securities, and may
be sold, transferred, or assigned by a Fund only with the underlying
instruments.
The amount payable to a Tax-Free Bond Fund upon its exercise of a stand-by
commitment will normally be (i) the Fund's acquisition cost of the Municipal
Securities (excluding any accrued interest which a Tax-Free Bond Fund paid on
their acquisition), less any amortized market premium or plus any amortized
market or original issue discount during the period a Tax-Free Bond Fund owned
the securities, plus (ii) all interest accrued on the securities since the last
interest payment date during that period. Under normal market conditions, in
determining net asset
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value a Tax-Free Bond Fund values the underlying Municipal Securities on an
amortized cost basis. Accordingly, the amount payable by a dealer upon exercise
of a stand-by commitment will normally be substantially the same as the
portfolio value of the underlying Municipal Securities.
A Fund's right to exercise stand-by commitments will be unconditional and
unqualified. A stand-by commitment will not be transferable by a Fund, although
the Fund could sell the underlying Municipal Securities to a third party at any
time. Until a Fund exercises its stand-by commitment, it owns the securities in
its portfolio which are subject to the stand-by commitment.
The Funds expect that stand-by commitments will generally be available
without the payment of any direct or indirect consideration. However, if
necessary or advisable, a Fund may pay for a stand-by commitment either
separately in cash or by paying a higher price for the security being acquired
which will be subject to the commitment (thus reducing the yield to maturity
otherwise available for the same security). When a Fund pays any consideration
directly or indirectly for a stand-by commitment, its cost will be reflected as
unrealized depreciation for the period during which the commitment is held by
that Fund. The Tax-Free Bond Funds will not acquire a stand-by commitment unless
immediately after the acquisition not more than 5% of the Funds' total assets
will be subject to a demand feature, or in stand-by commitments, with the same
institution.
Each Fund intends to enter into stand-by commitments only with banks and
broker/dealers which, in the Adviser's opinion, present minimal credit risks. In
evaluating the credit worthiness of the issuer of a stand-by commitment, the
Adviser will review periodically the issuer's assets, liabilities, contingent
claims, and other relevant financial information.
The Funds would acquire stand-by commitments solely to facilitate
portfolio liquidity and do not intend to exercise their rights thereunder for
trading purposes. Stand-by commitments acquired by a Fund will be valued at zero
in determining net asset value. A Fund's reliance upon the credit of these
dealers, banks, and broker/dealers will be secured by the value of the
underlying Municipal Securities that are subject to the commitment. Thus, the
risk of loss to the Fund in connection with a "stand-by commitment" will not be
qualitatively different from the risk of loss faced by a person that is holding
securities pending settlement after having agreed to sell the securities in the
ordinary course of business.
STRIPPED SECURITIES
Certain Funds may purchase stripped securities issued or guaranteed by the
U.S. Government, where the principal and interest components are traded
independently under the Separate Trading of Registered Interest and Principal of
Securities program ("STRIPS"). Under STRIPS, the principal and interest
components are individually numbered and separately issued by the U.S. Treasury
at the request of depository financial institutions, which then trade the
component parts independently.
In addition, the Fund may purchase stripped mortgage-backed securities
("SMBS") issued by the U.S. Government (or a U.S. Government agency or
instrumentality) or by private issuers such as banks and other institutions. If
the underlying obligations experience greater than anticipated prepayments of
principal, the Fund may fail to fully recover its initial investment. The market
value of the class consisting entirely of principal payments can be extremely
volatile in response to changes in interest rates. The yields on a class of SMBS
that receives all or most of the interest are generally higher than prevailing
market yields on other mortgage-backed obligations because their cash flow
patterns are also volatile and there is a greater risk that the initial
investment will not be full recovered. SMBS issued by the U.S. Government (or a
U.S. Government agency or instrumentality) may be considered liquid under
guidelines established by the Company's Board of Directors if they can be
disposed of promptly in the ordinary course of business at a value reasonably
close to that used in the calculation of the Fund's per share net asset value.
Although stripped securities may not pay interest to holders prior to
maturity, Federal income tax regulations require a Fund to recognize as interest
income a portion of the bond's discount each year. This income must then be
distributed to shareholders along with other income earned by the Fund. To the
extent that any
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shareholders in the Fund elect to receive their dividends in cash rather than
reinvest such dividends in additional Fund shares, cash to make these
distributions will have to be provided from the assets of the Fund or other
sources such as proceeds of sales of Fund shares and/or sales of portfolio
securities. In such cases, the Fund will not be able to purchase additional
income producing securities with cash used to make such distributions and its
current income may ultimately be reduced as a result.
U.S. AND FOREIGN BANK OBLIGATIONS
These obligations include negotiable certificates of deposit, banker's
acceptances and fixed time deposits. Each Fund limits its investments in
domestic bank obligations to banks having total assets in excess of $1 billion
and subject to regulation by the U.S. Government. Each Fund may also invest in
certificates of deposit issued by members of the Federal Deposit Insurance
Corporation ("FDIC") having total assets of less than $1 billion, provided that
the Fund will at no time own more than $100,000 principal amount of certificates
of deposit (or any higher principal amount which in the future may be fully
covered by FDIC insurance) of any one of those issuers. Fixed time deposits are
obligations which are payable at a stated maturity date and bear a fixed rate of
interest. Generally, fixed time deposits may be withdrawn on demand by a Fund,
but they may be subject to early withdrawal penalties which vary depending upon
market conditions and the remaining maturity of the obligation. Although fixed
time deposits do not have a market, there are no contractual restrictions on a
Fund's right to transfer a beneficial interest in the deposit to a third party.
Each Fund limits its investments in foreign bank obligations (i.e.,
obligations of foreign branches and subsidiaries of domestic banks, and domestic
and foreign branches and agencies of foreign banks) to obligations of banks
which at the time of investment are branches or subsidiaries of domestic banks
which meet the criteria in the preceding paragraphs or are branches or agencies
of foreign banks which (i) have more than $10 billion, or the equivalent in
other currencies, in total assets; (ii) in terms of assets are among the 75
largest foreign banks in the world; (iii) have branches or agencies in the
United States; and (iv) in the opinion of the Adviser, pursuant to the
established by the Board of Directors of the Company, are of an investment
quality comparable to obligations of domestic banks which may be purchased by a
Fund. These obligations may be general obligations of the parent bank in
addition to the issuing branch or subsidiary, but the parent bank's obligations
may be limited by the terms of the specific obligation or by governmental
regulation. Each Fund also limits its investments in foreign bank obligations to
banks, branches and subsidiaries located in Western Europe (United Kingdom,
France, Germany, Belgium, The Netherlands, Italy and Switzerland), Scandinavia
(Denmark and Sweden), Australia, Japan, the Cayman Islands, the Bahamas and
Canada. Each Fund will limit its investment in securities of foreign banks to
not more than 20% of total assets at the time of investment.
Each Fund may also make interest-bearing savings deposits in commercial
and savings banks in amounts not in excess of 5% of the total assets of the
Fund.
U.S. GOVERNMENT OBLIGATIONS
Each Fund may invest in U.S. Government obligations. Examples of the types
of U.S. Government obligations that may be held by the Funds include, in
addition to U.S. Treasury bonds, notes and bills, the obligations of the Federal
Home Loan Banks, Federal Farm Credit Banks, Federal Land Banks, Federal Housing
Administration, Farmers Home Administration, Export-Import Bank of the United
States, Small Business Administration, Government National Mortgage Association,
Federal National Mortgage Association, General Services Administration, Student
Loan Marketing Association, Central Bank for Cooperatives, Federal Home Loan
Mortgage Corporation, Federal Intermediate Credit Banks, Tennessee Valley
Authority, Resolution Funding Corporation and Maritime Administration.
Obligations guaranteed as to principal or interest by the U.S. Government, its
agencies, authorities or instrumentalities are deemed to include: (a) securities
for which the payment of principal and interest is backed by an irrevocable
letter of credit issued by the U.S. Government, its agencies, authorities or
instrumentalities and (b) participations in loans made to foreign governments or
their agencies that are so guaranteed. The secondary market for certain of these
participations is limited. If such participations are illiquid they will not be
purchased.
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U.S. Government obligations include principal and interest components of
securities issued or guaranteed by the U.S. Treasury if the components are
traded independently under the Separate Trading of Registered Interest and
Principal of Securities program. Obligations issued or guaranteed as to
principal or interest by the U.S. Government, its agencies, authorities or
instrumentalities may also be acquired in the form of custodial receipts. These
receipts evidence ownership of future interest payments, principal payments or
both on certain notes or bonds issued by the U.S. Government, its agencies,
authorities or instrumentalities.
USE OF SEGREGATED AND OTHER SPECIAL ACCOUNTS
Options, futures and forward foreign currency contracts that obligate a
Fund to provide cash, securities or currencies to complete such transactions
will entail that Fund to either segregate assets in an account with, or on the
books of, the Company's custodian, or otherwise "covering" the transaction as
described below. For example, a call option written by a Fund will require the
Fund to hold the securities subject to the call (or securities convertible into
the needed securities without additional consideration) or liquid assets
sufficient to meet the obligation by purchasing and delivering the securities if
the call is exercised. A call option written on an index will require that Fund
to have portfolio securities that correlate with the index. A put option written
by a Fund also will require that Fund to have available assets sufficient to
purchase the securities the Fund would be obligated to buy if the put is
exercised.
A forward foreign currency contract that obligates a Fund to provide
currencies will require the Fund to hold currencies or liquid securities
denominated in a foreign currency which will equal the Fund's obligations. Such
a contract requiring the purchase of currencies also requires segregation.
Unless a segregated account consists of the securities, cash or currencies
that are the subject of the obligation, a Fund will hold cash, U.S. Government
securities and other high grade liquid debt obligations in a segregated account.
These assets cannot be transferred while the obligation is outstanding unless
replaced with other suitable assets. In the case of an index-based transaction,
a Fund could own securities substantially replicating the movement of the
particular index.
In the case of a futures contract, a Fund must deposit initial margin and
variation margin, as often as daily, if the position moves adversely, sufficient
to meet its obligation to purchase or provide securities or currencies, or to
pay the amount owed at the expiration of an index-based futures contract.
Similarly, options on futures contracts require a Fund to deposit margin to the
extent necessary to meet the Fund's commitments.
In lieu of such assets, such transactions may be covered by other means
consistent with applicable regulatory policies. A Fund may enter into
off-setting transactions so that its combined position, coupled with any
segregated assets, equals its net outstanding obligation in related options and
hedging transactions. For example, a Fund could purchase a put option if the
strike price of that option is the same or higher than the strike price of a put
option sold by that Fund. Moreover, instead of segregating assets if a Fund held
a futures or forward contract, it could purchase a put option on the same
futures or forward contract with a strike price as high or higher than the price
of the contract held. Of course, the off-setting transaction must terminate at
the time of or after the primary transaction.
VARIABLE- AND FLOATING-RATE INSTRUMENTS
Certain 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.
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Variable-rate demand notes held by a Money Market Fund may have maturities of
more than 397 days, provided (i) the Fund is entitled to payment principal on
not more than 30 days' notice, or at specified intervals not exceeding 397 days
(upon not more than 30 days' notice), and (ii) the rate of interest on such note
is adjusted automatically at periodic intervals which may extend up to 397 days.
The variable- and-floating rate demand instruments that the Funds may
purchase include participations in Municipal Securities purchased from and owned
by financial institutions, 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.
WARRANTS
Certain Funds are permitted to invest in warrants. Warrants are privileges
issued by corporations enabling the owner to subscribe to and purchase a
specified number of shares of the corporation at a specified price during a
specified period of time. The prices of warrants do not necessarily correlate
with the prices of the underlying securities. The purchase of warrants involves
the risk that the purchaser could lose the purchase value of the warrant if the
right to subscribe to additional shares is not exercised prior to the warrant's
expiration. Also, the purchase of warrants involves the risk that the effective
price paid for the warrant added to the subscription price of the related
security may exceed the value of the subscribed security's market price such as
when there is no movement in the level of the underlying security.
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 segregate cash, U.S. government securities or
other high quality debt obligations equal to the amount of the commitment.
Normally, the custodian will segregate portfolio securities to satisfy a
purchase commitment, and in such a case a Fund may be required subsequently to
segregate additional assets in order to ensure that the value of the segregated
assets remains equal to the amount of the Fund's commitment. Because a Fund will
segregate 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
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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.
NET ASSET VALUE
PURCHASES AND REDEMPTIONS
See "How To Buy Shares" and "How To Redeem Shares" in the Prospectuses for
a complete description of the manner in which shares of the various classes of
the Funds may be purchased and redeemed.
The Funds also are available for a variety of retirement plans, including
IRAs, that allow investors to shelter some of their income from taxes. Investors
should contact their Selling Agents for details concerning retirement plans.
The right of redemption may be suspended or the date of payment postponed
when (a) trading on the New York Stock Exchange is restricted, as determined by
applicable rules and regulations of the SEC, (b) the New York Stock Exchange is
closed for other than customary weekend and holiday closings, (c) the SEC has by
order permitted such suspension, or (d) an emergency as determined by the SEC
exists making disposal of portfolio securities or the valuation of the net
assets of a Fund of a Company not reasonably practicable. The Exchange is closed
for business on New Years Day, Martin Luther King, Jr. Day, President's Day,
Good Friday, Memorial Day, Independence Day, Labor Day, Veterans Day,
Thanksgiving Day and Christmas Day. The Federal Reserve Bank observes the
following holidays: New Years Day, Martin Luther King Jr's Birthday, Presidents
Day, Memorial Day, Independence Day, Labor Day, Columbus Day, Veteran's Day,
Thanksgiving Day and Christmas Day.
INVESTMENT STRATEGY
Investing the same dollar amount at regular intervals is an investment
strategy known as Dollar Cost Averaging. Using this strategy, investors purchase
a greater number of shares when the fund's price is low and fewer shares when
the price is high. As a result, the average purchase price for shares will be
less than their average cost. Dollar Cost Averaging does not provide assurance
of making a profit or any guarantee against loss in continually declining
markets. Investors should evaluate whether they are able to make regular
investments through periods of declining price levels before deciding to use
this investment technique.
MONEY MARKET FUNDS
The Money Market Funds use the amortized cost method of valuation to value
their shares in such Funds. Pursuant to this method, a security is valued at its
cost initially and thereafter a constant amortization to maturity of any
discount or premium is assumed, regardless of the impact of fluctuating interest
rates on the market value of the security. Where it is not appropriate to value
a security by the amortized cost method, the security will be valued either by
market quotations or by fair value as determined by the Board of Trustees. This
method may result in periods during which value, as determined by amortized
cost, is higher or lower than the price the Fund would receive if it sold the
security.
Each of the Money Market Funds invest only in high quality instruments and
maintain a dollar-weighted average portfolio maturity appropriate to its
objective of maintaining a stable net asset value per share, provided that a
Fund will neither purchase any security deemed to have a remaining maturity of
more than 397 days within the meaning of the 1940 Act nor maintain a
dollar-weighted average portfolio maturity which exceeds 90 days. NFT's NFI's
Board of Directors and NFT's Board of Trustees each have established procedures
reasonably designed, taking into account current market conditions and each
Money Market Fund's investment objective, to stabilize the net asset value per
share of each Money Market Fund for purposes of sales and redemptions at $1.00.
These procedures include review by the Board of Directors/Trustees, at such
intervals as it deems appropriate, to determine the extent, if any, to which the
net asset value per share of each Money Market Fund calculated by using
available market quotations deviates from $1.00 per share. In the event such
deviation exceeds one-half of one percent, the Board of Directors/Trustees will
promptly consider what action, if any, should be initiated. If the Board of
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Directors/Trustees believes that the extent of any deviation from a Fund's $1.00
amortized cost price per share may result in material dilution or other unfair
results to new or existing investors, it has agreed to take such steps as it
considers appropriate to eliminate or reduce, to the extent reasonably
practicable, any such dilution or unfair results. These steps may include
selling portfolio instruments prior to maturity; shortening the average
portfolio maturity; withholding or reducing dividends; redeeming shares in kind;
reducing the number of a Fund's outstanding shares without monetary
consideration; or utilizing a net asset value per share determined by using
available market quotations.
NON-MONEY MARKET FUNDS
With respect to the Non-Money Market Funds, a security listed or traded on
an exchange is valued at its last sales price on the exchange where the security
is principally traded or, lacking any sales on a particular day, the security is
valued at the mean between the closing bid and asked prices on that day. Each
security traded in the over-the-counter market (but not including securities
reported on the NASDAQ National Market System) is valued at the mean between the
last bid and asked prices based upon quotes furnished by market makers for such
securities. Each security reported on the NASDAQ National Market System is
valued at the last sales price on the valuation date. With respect to the Bond
Funds, securities may be valued on the basis of prices provided by an
independent pricing service. Prices provided by the pricing service may be
determined without exclusive reliance on quoted prices, and may reflect
appropriate factors such as yield, type of issue, coupon rate maturity and
seasoning differential. Securities for which prices are not provided by the
pricing service are valued at the mean between the last bid and asked prices
based upon quotes furnished by market makers for such securities.
With respect to the Non-Money Market Funds, 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 Company's officers in a manner
specifically authorized by the Board of Directors/Trustees of the Company.
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 values of such securities used in computing the net asset value of
the shares of the Fund are determined as of such times. Foreign currency
exchange rates are also generally determined prior to the close of the New York
Stock 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 New York Stock 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 directors/trustees.
For purposes of determining the net asset value per share of the
International Funds, all assets and liabilities of the International Funds
initially expressed in foreign currencies will be converted into U.S. dollars at
the mean between the bid and offer prices of such currencies against U.S.
dollars quoted by a major bank that is a regular participant in the foreign
exchange market or on the basis of a pricing service that takes into account the
quotes provided by a number of such major banks.
A Company may redeem shares involuntarily to reimburse the Funds for any
loss sustained by reason of the failure of a shareholder to make full payment
for Investor Shares purchased by the shareholder or to collect any charge
relating to a transaction effected for the benefit of a shareholder which is
applicable to Investor Shares as provided in the related Prospectuses from time
to time. A Company also may make payment for redemptions in readily marketable
securities or other property if it is appropriate to do so in light of such
Company's responsibilities under the 1940 Act.
Under the 1940 Act, the Funds may suspend the right of redemption or
postpone the date of payment for Investor Shares or Primary Shares during any
period when (a) trading on the Exchange is restricted by applicable rules and
regulations of the SEC; (b) the Exchange is closed for other than customary
weekend and holiday closings; (c) the SEC has by order permitted such
suspension; or (d) an emergency exists as determined by the SEC. (The
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Funds may also suspend or postpone the recordation of the transfer of their
shares upon the occurrence of any of the foregoing conditions.)
EXCHANGES
By use of the exchange privilege, the holder of Investor Shares, Daily
Shares and/or Primary Shares authorizes the transfer agent or the shareholder's
financial institution to rely on telephonic instructions from any person
representing himself to be the investor and reasonably believed to be genuine.
The transfer agent's or a financial institution's records of such instructions
are binding. Exchanges are taxable transactions for Federal income tax purposes;
therefore, a shareholder will realize a capital gain or loss depending on
whether the Investor Shares and/or Primary Shares being exchanged have a value
which is more or less than their adjusted cost basis.
A Company 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 Companies 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 Prospectuses for the Investor Shares and Primary Shares of each Fund
describe the exchange privileges available to holders of such Investor Shares
and Primary 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, N.A. ("NationsBank") and its affiliated
and correspondent banks) (collectively, "Institutions") acting on behalf of
customers maintaining a qualified trust account or relationship at the
Institution.
DESCRIPTION OF SHARES
Net investment income for the Funds 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 the Company prorated to a Fund on the basis of
its relative net assets, plus dividend or distribution income on a Fund's
assets.
Prior to purchasing shares in one of the Funds, the impact of dividends or
distributions which are expected to be or have been declared, but not paid,
should be carefully considered. Any dividend or distribution declared shortly
after a purchase of such shares prior to the record date will have the effect of
reducing the per share net asset value by the per share amount of the dividend
or distribution. All or a portion of such dividend or distribution, although in
effect a return of capital, may be subject to tax.
Shareholders receiving a distribution in the form of additional shares
will be treated as receiving an amount equal to the fair market value of the
shares received, determined as of the reinvestment date.
The Funds use the so-called "equalization accounting method" to allocate a
portion of earnings and profits to redemption proceeds. This method permits a
fund to achieve more balanced distributions for both continuing and departing
shareholders. Continuing shareholders should realize tax savings or deferrals
through this method, and departing shareholders will not have their tax
obligations change. Although using this method will not affect a Fund's total
returns, it may reduce the amount that otherwise would be distributable to
continuing shareholders by reducing the effect of redemptions on dividend and
distribution amounts.
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DIVIDENDS AND DISTRIBUTIONS OF NFI
NATIONS PRIME AND TREASURY FUNDS. All of the net investment income earned
by each of the Money Market Funds is declared daily as a dividend to the
shareholders of record of each class of shares of each Fund. The Investor A,
Investor B, Investor C, Daily and Primary B Shares of each such Fund shall
accrue an additional expense not borne by the Primary A Shares as a result of
the Rule 12b-1 Plans and/or the Shareholder Servicing Plans or Shareholder
Administration Plan and/or Shareholder Administration Agreements applicable to
each such class of shares. Consequently, a separate calculation shall be made to
arrive at the dividends of each class of shares. Dividends normally accrue on
the first day that a purchase order is effective but not on the date that a
redemption order is effective. Thus, if a purchase order is accepted prior to
12:00 noon Eastern Standard Time, the shareholder will receive dividends
beginning that day. All dividends declared during a month will be paid in cash
within five business days after the end of the month. If a shareholder of record
redeems all of the shares in its account at any time during the month, all
dividends declared through the date of redemption are paid to the shareholder
along with the proceeds of the redemption within five business days of the
redemption.
EQUITY INCOME FUND, INTERNATIONAL EQUITY FUND AND INTERNATIONAL GROWTH
FUND. Dividends and distributions from net investment income, if any, are
declared and paid quarterly, and capital gains distributions are declared and
paid annually. The Investor A, Investor B, Investor C and Primary B Shares of
the Funds shall accrue an additional expense not borne by the Primary A Shares
as a result of the applicable Rule 12b-1 Plan and/or Shareholder Servicing Plan
or Shareholder Administration Plan and/or Shareholder Administration Agreements.
Consequently, a separate calculation shall be made to arrive at the net asset
value per share and dividends of each class of shares of the Funds.
GOVERNMENT SECURITIES FUND AND GOVERNMENT BOND FUND. Dividends and
distributions from net investment income are declared daily and paid monthly,
and capital gains distributions are declared and paid annually. The Investor A,
Investor B, Investor C and Primary B Shares of the Fund shall accrue an
additional expense not borne by the Primary A Shares as a result of the 12b-1
Plans and the Shareholder Servicing Plan or Shareholder Administration Plan
and/or Shareholder Administration Agreements. Consequently, a separate
calculation shall be made to arrive at the net asset value per share and
dividends of each class of shares of the Funds.
SMALL COMPANY GROWTH FUND AND INTERNATIONAL VALUE FUND. Dividends and
distributions from net investment income, if any, are declared and paid
quarterly, and capital gains distributions are declared and paid annually. The
Investor A, Investor B and Investor C Shares of the Funds shall accrue an
additional expense not borne by the Primary A Shares or Primary B Shares as a
result of the applicable Rule 12b-1 Plan and/or Shareholder Servicing Plan or
Shareholder Administration Plan and/or Shareholder Administration Agreements.
Consequently, a separate calculation shall be made to arrive at the net asset
value per share and dividends of each class of shares of the Funds.
DIVIDENDS AND DISTRIBUTIONS OF NFP
EMERGING MARKETS FUND AND PACIFIC GROWTH FUND. Dividends and distributions
from net investment income, if any, are declared and paid quarterly, and capital
gains distributions are declared and paid annually. The Investor A, Investor B,
Investor C and Primary B Shares of the Funds shall accrue an additional expense
not borne by the Primary A Shares as a result of the applicable Rule 12b-1 Plan,
Shareholder Servicing Plan and/or Shareholder Administration Plan. Consequently,
a separate calculation shall be made to arrive at the net asset value per share
and dividends of each class of shares of the Funds.
GLOBAL GOVERNMENT INCOME FUND. Dividends and distributions from net
investment income are declared daily and paid monthly, and capital gains
distributions are declared and paid annually. The Investor A, Investor B,
Investor C and Primary B Shares of the Fund shall accrue an additional expense
not borne by the Primary A Shares as a result of the 12b-1 Plans, Shareholder
Servicing Plan and Shareholder Administration Plan. Consequently, a
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separate calculation shall be made to arrive at the net asset value per share
and dividends of each class of shares of the Fund.
DIVIDENDS AND DISTRIBUTIONS OF NFT
Dividends from net investment income are declared and paid monthly by the
Capital Growth Fund, the Disciplined Equity Fund, the Managed Index Fund and the
Value Fund. The Short-Intermediate Government Fund, the Short-Term Income Fund,
the Diversified Income Fund, the Strategic Fixed Income Fund, the NFT Money
Market Funds, and the Tax-Free Bond Funds declare dividends daily and pay them
monthly. All other NFT Non-Money Market Funds declare and pay dividends from net
investment income each calendar quarter.
MONEY MARKET FUNDS. All of the net investment income earned by each of the
Money Market Funds is declared daily as a dividend to the shareholders of record
of each class of shares of each Fund. The Investor A, Investor B, Investor C,
Daily and Primary B Shares of each such Fund shall accrue an additional expense
not borne by the Primary A Shares as a result of the Rule 12b-1 Plans and/or the
Shareholder Servicing Plans or Shareholder Administration Plan and/or
Shareholder Administration Agreements applicable to each such class of shares.
Consequently, a separate calculation shall be made to arrive at the dividends of
each class of shares. Dividends normally accrue on the first day that a purchase
order is effective but not on the date that a redemption order is effective.
Thus, if a purchase order is accepted prior to 12:00 noon Eastern Standard Time,
the shareholder will receive dividends beginning that day. All dividends
declared during a month will be paid in cash within five business days after the
end of the month. If a shareholder of record redeems all of the shares in its
account at any time during the month, all dividends declared through the date of
redemption are paid to the shareholder along with the proceeds of the redemption
within five business days of the redemption. Net income for dividend purposes
consists of (i) interest accrued and original issue discount earned on the
Fund's assets, (ii) plus the amortization of market discount (including, in the
case of the Tax Exempt Fund, market discount on tax-exempt obligations purchased
after April 30, 1993) and minus the amortization of market premium on such
assets, (iii) less accrued expenses directly attributable to the Fund and the
general expenses of Nations Funds prorated to a Fund on the basis of its
relative net assets. Shares of the Money Market Funds begin earning dividends on
the day the purchase order is executed and continue earning dividends through
and including the day before the redemption order is executed (e.g., the
settlement date).
NON-MONEY MARKET FUNDS. With respect to the Non-Money Market Funds, net
investment income for dividend purposes consist of items (i), (ii) and (iii)
discussed above with respect to the Money Market Funds and dividend or
distribution income on such assets.
Shares of the Bond Funds are eligible to begin earning dividends that are
declared on the day the purchase order is executed and continue to be eligible
for dividends through and including the day before the redemption order is
executed. Shares of the Equity Funds and the Balanced Fund are eligible to
receive dividends when declared, provided however, that the purchase order 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 information supplements and should be read in conjunction
with the Prospectus section entitled "Tax Information." The Prospectuses of the
Funds describe generally the tax treatment of distributions by the Funds. This
section of the SAI includes additional information concerning Federal income
taxes.
GENERAL
The Companies intend to qualify each Fund as a regulated investment
company under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"), as long as such qualification is in the best interest of the Fund's
shareholders. Each Fund will be treated as a separate entity for tax purposes
and thus, the provisions of the Code applicable to regulated investment
companies generally will be applied to each Fund, rather than to a Company
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as a whole. In addition, net capital gains, net investment income, and operating
expenses will be determined separately for each Fund. As a regulated investment
company, the Funds will not be taxed on net investment income and capital gains
distributed to shareholders.
Qualification as a regulated investment company under the Code requires,
among other things, that (a) each Fund derive at least 90% of its annual 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; and (b) the Fund diversify its holdings
so that, at the end of each quarter of the taxable year, (i) at least 50% of the
market value of the Fund's assets is represented by cash, government securities
and other securities limited in respect of any one issuer to an amount not
greater than 5% of the Fund's assets and 10% of the outstanding voting
securities of such issuer, and (ii) not more than 25% of the value of its assets
is invested in the securities of any one issuer (other than U.S. Government
obligations and the securities of other regulated investment companies), or in
two or more issuers which the Fund controls and which are determined to be
engaged in the same or similar trades or businesses.
Each Fund also must distribute or be deemed to distribute to its
shareholders at least 90% of its net investment income which for this purpose,
includes net short-term capital gains earned in each taxable year. In general,
these distributions must actually or be deemed to be made in the taxable year.
However, in certain circumstances, such distributions may be made in the 12
months following the taxable year. Furthermore, distributions declared in
October, November or December of one taxable year and paid by January 3 of the
following taxable year will be treated as paid by December 31 the first taxable
year. The Funds intend to pay out substantially all of their net investment
income and net realized capital gains (if any) for each year.
In addition, a regulated investment company must, in general, derive less
than 30% of its gross income from the sale or other disposition of securities or
options thereon held for less than three months. However, this restriction has
been repealed with respect to a regulated investment company's taxable years
beginning after August 5, 1997.
EXCISE TAX
A 4% nondeductible excise tax will be imposed on each Fund (other than to
the extent of its tax-exempt interest income) to the extent it does not meet
certain minimum distribution requirements by the end of each calendar year. Each
Fund intends to actually or be deemed to distribute substantially all of its net
investment income and net capital gains by the end of each calendar year and,
thus, expects not to be subject to the excise tax.
PRIVATE LETTER RULING
In order for a Fund to maintain regulated investment company status under
the Code, its dividends, including--for this purpose--capital gain
distributions, must not constitute "preferential dividends," within the meaning
of Section 562(c) of the Code. The Companies have received a private letter
ruling from the Internal Revenue Service ("IRS") generally to the effect that
the following will not give rise to preferential dividends: differing fees
imposed on the different classes of shares with respect to servicing,
distribution and administrative support services, and transfer agency
arrangements; differing sales charges on purchases and redemptions of such
shares; and conversion features resulting in the Companies paying different
dividends or distributions on the different classes of shares.
TAXATION OF FUND INVESTMENTS
Except as provided herein, gains and losses on the sale of portfolio
securities by a Fund will generally be capital gains and losses. Such gains and
losses will ordinarily be long-term capital gains and losses if the securities
have been held by the Fund for more than one year at the time of disposition of
the securities.
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Gains 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 market discount which
accrued, but was not previously recognized pursuant to an available election,
during the term the Fund held the debt obligation.
If an option granted by a Fund lapses or is terminated through a closing
transaction, such as a repurchase by the Fund of the option from its holder, the
Fund will realize a short-term capital gain or loss, depending on whether the
premium income is greater or less than the amount paid by the Fund in the
closing transaction. Some realized capital losses may be deferred if they result
from a position which is part of a "straddle," discussed below. If securities
are sold by a Fund pursuant to the exercise of a call option written by it, the
Fund will add the premium received to the sale price of the securities delivered
in determining the amount of gain or loss on the sale. If securities are
purchased by a Fund pursuant to the exercise of a put option written by it, such
Fund will subtract the premium received from its cost basis in the securities
purchased.
The amount of any gain or loss realized by a Fund on closing out a
regulated futures contract will generally result in a realized capital gain or
loss for Federal income tax purposes. Regulated futures contracts held at the
end of each fiscal year will be required to be "marked to market" for Federal
income tax purposes pursuant to Section 1256 of the Code. In this regard, they
will be deemed to have been sold at market value. Sixty percent (60%) of any net
gain or loss recognized on these deemed sales and sixty percent (60%) of any net
realized gain or loss from any actual sales, will generally be treated as
long-term capital gain or loss, and the remainder will be treated as short-term
capital gain or loss. Transactions that qualify as designated hedges are
excepted from the "mark-to-market" rule and the "60%/40%" rule.
Under Section 988 of the Code, a Fund will generally recognize ordinary
income or loss to the extent gain or loss realized on the disposition of
portfolio securities is attributable to changes in foreign currency exchange
rates. In addition, gain or loss realized 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. The Funds will attempt to monitor Section 988 transactions,
where applicable, to avoid adverse tax impact.
Offsetting positions held by a Fund involving certain financial forward,
futures or options contracts may be considered, for tax purposes, to constitute
"straddles." "Straddles" are defined to include "offsetting positions" in
actively traded personal property. The tax treatment of "straddles" is governed
by Section 1092 of the Code which, in certain circumstances, overrides or
modifies the provisions of Section 1256. If a Fund were treated as entering into
"straddles" by engaging in certain financial forward, futures or option
contracts, such straddles could be characterized as "mixed straddles" if the
futures, forwards, or options comprising a part of such straddles were governed
by Section 1256 of the Code. The Fund may make one or more elections with
respect to "mixed straddles." Depending upon which election is made, if any, the
results with respect to the Fund may differ. Generally, to the extent the
straddle rules apply to positions established by the Fund, losses realized by
the Fund may be deferred to the extent of unrealized gain in any offsetting
positions. Moreover, as a result of the straddle and the conversion transaction
rules, short-term capital loss on straddle positions may be recharacterized as
long-term capital loss, and long-term capital gain may be characterized as
short-term capital gain or ordinary income.
If a Fund enters into a "constructive sale" of any appreciated position in
stock, a partnership interest, or certain debt instruments, the Fund must
recognize gain (but not loss) with respect to that position. For this purpose, a
constructive sale occurs when the Fund enters into one of the following
transactions with respect to the same or substantially identical property: (i) a
short sale; (ii) an offsetting notional principal contract; or (iii) a futures
or forward contract.
If a Fund purchases shares in a "passive foreign investment company"
("PFIC"), the Fund may be subject to Federal income tax and an interest charge
imposed by the IRS upon certain distributions from the PFIC or the Fund's
disposition of its PFIC shares. If the Fund invests in a PFIC, the Fund intends
to make an available election to mark-to-market its interest in PFIC shares.
Under the election, the Fund will be treated as recognizing at the end of each
taxable year the difference, if any, between the fair market value of its
interest in the PFIC shares and its basis in such shares. In some circumstances,
the recognition of loss may be suspended. The Fund will adjust its basis in the
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PFIC shares by the amount of income (or loss) recognized. Although such income
(or loss) will be taxable to the Fund as ordinary income (or loss)
notwithstanding any distributions by the PFIC, the Fund will not be subject to
Federal income tax or the interest charge with respect to its interest in the
PFIC under the election.
FOREIGN TAXES
Income and dividends received by a Fund from sources within foreign
countries may be subject to withholding and other taxes imposed by such
countries. Tax conventions between certain countries and the United States may
reduce or eliminate such taxes. If more than 50% of the value of a Fund's total
assets at the close of its taxable year consists of securities of non-U.S.
corporations, the Fund will be eligible to file an election with the IRS
pursuant to which the regulated investment company may pass-through to its
shareholders foreign taxes paid by the regulated investment company, which may
be claimed either as a credit or deduction by the shareholders. Only the Nations
Emerging Markets Fund, Nations Pacific Growth Fund and Nations Global Government
Income Fund expect to qualify for the election. However, even if a Fund
qualifies for the election, foreign taxes will only pass-through to a Fund
shareholder if (i) the shareholder holds the Fund shares for at least 16 days
during the 30 day period beginning 15 days prior to the date upon which the
shareholder becomes entitled to receive Fund dividends corresponding with the
pass-through of the foreign taxes paid by the Fund, and (ii) with respect to
foreign source dividends received by the Fund on shares giving rise to foreign
tax, the Fund holds the shares for at least 16 days during the 30 day period
beginning 15 days prior to the date upon which the Fund becomes entitled to the
dividend.
For tax years beginning after December 31, 1997, an individual with $300
or less of creditable foreign taxes generally is exempt from foreign source
income and certain other limitations imposed by the Code on claiming a credit
for such taxes. The $300 amount is increased to $600 for joint filers.
CAPITAL GAIN DISTRIBUTIONS
Distributions which are designated by a Fund as capital gain distributions
will be taxed to shareholders as long-term term capital gain (to the extent such
dividends do exceed the Fund's actual net capital gains for the taxable year),
regardless of how long a shareholder has held Fund shares. Such distributions
will be designated as capital gain distributions in a written notice mailed by
the Fund to its shareholders not later than 60 days after the close of the
Fund's taxable year.
OTHER DISTRIBUTIONS
Although dividends will be declared daily based on each Money Market
Fund's and the Government Securities Fund's daily earnings, for Federal income
tax purposes, the Fund's earnings and profits will be determined at the end of
each taxable year and will be allocated pro rata over the entire year. For
Federal income tax purposes, only amounts paid out of earnings and profits will
qualify as dividends. Thus, if during a taxable year a Fund's declared dividends
(as declared daily throughout the year) exceed the Fund's net income (as
determined at the end of the year), only that portion of the year's
distributions which equals the year's earnings and profits will be deemed to
have constituted a dividend. It is expected that each Fund's net income, on an
annual basis, will equal the dividends declared during the year.
DISPOSITION OF FUND SHARES
A disposition of Fund shares pursuant to a redemption (including a
redemption in-kind) or an exchange will ordinarily result in a taxable capital
gain or loss, depending on the amount received for the shares (or are deemed to
be received in the case of an exchange) and the cost of the shares.
If a shareholder exchanges or otherwise disposes of Fund shares within 90
days of having acquired such shares and if, as a result of having acquired those
shares, the shareholder subsequently pays a reduced sales charge on a new
purchase of shares of the Fund or a different regulated investment company, the
sales charge previously incurred in acquiring the Fund's shares shall not be
taken into account (to the extent such previous sales charges do not exceed the
reduction in sales charges on the new purchase) for the purpose of determining
the amount of gain or
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loss on the disposition, but will be treated as having been incurred in the
acquisition of such other shares. Also, any loss realized on a redemption or
exchange of shares of the Fund will be disallowed to the extent that
substantially identical shares are acquired within the 61-day period beginning
30 days before and ending 30 days after the shares are disposed of.
If a shareholder receives a designated capital gain distribution (to be
treated by the shareholder as a long-term capital gain) with respect to any Fund
share and such Fund share is held for six months or less, then (unless otherwise
disallowed) any loss on the sale or exchange of that Fund share will be treated
as a long-term capital loss to the extent of the designated capital gain
distribution. In addition, if a shareholder holds Fund shares for six months or
less, any loss on the sale or exchange of those shares will be disallowed to the
extent of the amount of exempt-interest dividends received with respect to the
shares. The Treasury Department is authorized to issue regulations reducing the
six months holding requirement to a period of not less than the greater of 31
days or the period between regular dividend distributions where a Fund regularly
distributes at least 90% of its net tax-exempt interest, if any. No such
regulations have been issued as of the date of this SAI. The loss disallowance
rules described in this paragraph do not apply to losses realized under a
periodic redemption plan.
FEDERAL INCOME TAX RATES
As of the printing of this SAI, the maximum individual tax rate applicable
to ordinary income is 39.6% (marginal tax rates may be higher for some
individuals to reduce or eliminate the benefit of exemptions and deductions);
the maximum individual marginal tax rate applicable to net capital gain is 20%;
and the maximum corporate tax rate applicable to ordinary income and net capital
gain is 35% (marginal tax rates may be higher for some corporations to reduce or
eliminate the benefit of lower marginal income tax rates). Naturally, the amount
of tax payable by an individual or corporation will be affected by a combination
of tax laws covering, for example, deductions, credits, deferrals, exemptions,
sources of income and other matters.
CORPORATE SHAREHOLDERS
Corporate shareholders of the Funds may be eligible for the
dividends-received deduction on dividends distributed out of a Fund's net
investment income attributable to dividends received from domestic corporations,
which, if received directly by the corporate shareholder, would qualify for such
deduction. A distribution by a Fund attributable to dividends of a domestic
corporation will only qualify for the dividends-received deduction if (i) the
corporate shareholder generally holds the Fund shares upon which the
distribution is made for at least 46 days during the 90 day period beginning 45
days prior to the date upon which the shareholder becomes entitled to the
distribution; and (ii) the Fund generally holds the shares of the domestic
corporation producing the dividend income for at least 46 days during the 90 day
period beginning 45 days prior to the date upon which the Fund becomes entitled
to such dividend income.
FOREIGN SHAREHOLDERS
Under the Code, distributions of net investment income by a Fund to a
nonresident alien individual, foreign trust (i.e., trust which a U.S. court is
able to exercise primary supervision over administration of that trust and one
or more U.S. persons have authority to control substantial decisions of that
trust), foreign estate (i.e., the income of which is not subject to U.S. tax
regardless of source), foreign corporation, or foreign partnership (a "foreign
shareholder") will be subject to U.S. withholding tax (at a rate of 30% or a
lower treaty rate if applicable). Withholding will not apply if a dividend paid
by a Fund to a foreign shareholder is "effectively connected" with a U.S. trade
or business (or, if an income tax treaty applies, is attributable to a U.S.
permanent establishment of the foreign shareholder), in which case the reporting
and withholding requirements applicable to U.S. persons will apply.
Distributions of net long-term capital gains are generally not subject to tax
withholding, and beginning in 2000, the Funds will be permitted to estimate the
portion of their distributions qualifying as capital gain distributions.
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BACKUP WITHHOLDING
The Companies may be required to withhold, subject to certain exemptions,
at a rate of 31% ("backup withholding") on dividends, capital gain
distributions, and redemption proceeds (including proceeds from exchanges and
redemptions in-kind) paid or credited to an individual Fund shareholder, if the
shareholder fails to certify that the Taxpayer Identification Number ("TIN")
provided is correct and that the shareholder is not subject to backup
withholding, or the IRS notifies NFT that the shareholder's TIN is incorrect or
that the shareholder is subject to backup withholding. Such tax withheld does
not constitute any additional tax imposed on the shareholder, and may be claimed
as a tax payment on the shareholder's Federal income tax return. An investor
must provide a valid TIN upon opening or reopening an account. Failure to
furnish a valid TIN to the Companies could subject the investor to penalties
imposed by the IRS.
TAX-DEFERRED PLANS
The Funds are available for a variety of tax-deferred retirement and other
plans, including Individual Retirement Accounts ("IRA"), Simplified Employee
Pension Plans ("SEP-IRA"), Savings Incentive Match Plans for Employees ("SIMPLE
plans"), Roth IRAs, and Education IRAs, which permit investors to defer some of
their income from taxes. A Tax Free Bond Fund, however, is generally not a
suitable investment for tax-deferred plans because such plans, which are
generally tax exempt, would not gain any benefit from the tax-exempt nature of
the Tax Free Bond Fund's dividends. Investors should contact their Selling
Agents for details concerning retirement plans.
SPECIAL TAX CONSIDERATIONS PERTAINING TO THE MUNICIPAL INCOME FUND,
SHORT-TERM MUNICIPAL INCOME FUND, INTERMEDIATE MUNICIPAL BOND FUND, THE STATE
INTERMEDIATE MUNICIPAL BOND FUNDS AND THE STATE MUNICIPAL BOND FUNDS
The Municipal Income Fund, Short-Term Municipal Income Fund, Intermediate
Municipal Bond Fund, the State Intermediate Municipal Bond Funds and the State
Municipal Bond Funds (each, a "Tax-Free Bond Fund" and collectively the
"Tax-Free Bond Funds") are designed to provide investors with a high level of
income exempt from Federal and, with respect to the Florida Intermediate
Municipal Bond Fund and Florida Municipal Bond Fund, Georgia Intermediate
Municipal Bond Fund and Georgia Municipal Bond Fund, Maryland Intermediate
Municipal Bond Fund and Maryland Municipal Bond Fund, North Carolina
Intermediate Municipal Bond Fund and North Carolina Municipal Bond Fund, South
Carolina Intermediate Municipal Bond Fund and South Carolina Municipal Bond
Fund, Tennessee Intermediate Municipal Bond Fund and Tennessee Municipal Bond
Fund, and Virginia Intermediate Municipal Bond Fund and Virginia Municipal Bond
Fund, Florida state intangibles tax, and the Georgia, Maryland, North Carolina,
South Carolina, or Virginia state income tax, and the Tennessee Hall Income Tax
on unearned income, respectively. Florida and Texas do not presently impose any
income tax but Florida currently imposes a state intangibles tax on intangible
personal property.
Each Tax-Free Bond Fund intends that at least 50% of the value of its
total assets at the close of each quarter of its taxable years will consist of
obligations the interest on which is exempt from Federal income tax, so that
they will qualify under the Code to pay "exempt-interest dividends." The portion
of total dividends paid by the Fund with respect to any taxable year that
constitutes exempt-interest dividends will be the same for all shareholders
receiving dividends during such year. Long-term and/or short-term capital gain
distributions will not constitute exempt-interest dividends and will be taxed as
capital gain or ordinary income dividends, respectively. The exemption of
interest income derived from investments in tax-exempt obligations for Federal
income tax purposes may not result in a similar exemption under the laws of a
particular state or local taxing authority.
Not later than 60 days after the close of its taxable year, each
Tax-Exempt Bond Fund will notify its shareholders of the portion of the
dividends paid with respect to such taxable year which constitutes
exempt-interest dividends. The aggregate amount of dividends so designated
cannot exceed the excess of the amount of interest excludable from gross income
under Section 103 of the Code received by the Fund during the taxable year over
any amounts disallowed as deductions under Sections 265 and 171(a)(2) of the
Code. Interest on indebtedness incurred to purchase or carry shares of a Fund
will not be deductible to the extent that the Fund's distributions are exempt
from Federal income tax.
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In addition, the Federal alternative minimum tax ("AMT") rules ensure that
at least a minimum amount of tax is paid by taxpayers who obtain significant
benefit from certain tax deductions and exemptions. Some of these deductions and
exemptions have been designated "tax preference items" which must be added back
to taxable income for purposes of calculating AMT. Among the tax preference
items is tax-exempt interest from "private activity bonds" issued after August
7, 1986. To the extent that a Fund invests in private activity bonds, its
shareholders who pay AMT will be required to report that portion of Fund
dividends attributable to income from the bonds as a tax preference item in
determining their AMT. Shareholders will be notified of the tax status of
distributions made by the Fund. Persons who may be "substantial users" (or
"related persons" of substantial users) of facilities financed by private
activity bonds should consult their tax advisors before purchasing shares in the
Fund. Furthermore, shareholders will not be permitted to deduct any of their
share of the Fund's expenses in computing their AMT. With respect to a corporate
shareholder of such Funds, exempt-interest dividends paid by a Fund is included
in the corporate shareholder's "adjusted current earnings" as part of its AMT
calculation, and may also affect its Federal "environmental tax" liability. As
of the printing of this SAI, individuals are subject to an AMT at a maximum rate
of 28% and corporations at a maximum rate of 20%. Shareholders with questions or
concerns about AMT should consult their tax advisors.
Distributions other than exempt-interest dividends, including
distributions of interest in Municipal Securities issued by other issuers and
all long-term and short-term capital gains will be subject to state income tax
(other than Florida and Texas) unless specifically exempted by statute
including, in the case of Virginia, statutory provisions creating the agency or
political subdivision.
Florida does not impose a personal income tax, but does impose an annual
intangible personal property tax on intangible personal property (including but
not limited to stocks or shares of business trusts or mutual funds) held by
persons domiciled in the State of Florida, regardless of where such property is
kept. Florida counsel has, however, advised the Fund that shares in the Nations
Florida Intermediate Municipal Bond Fund and the Nations Florida Municipal Bond
Fund shall not be subject to Florida's intangible personal property tax if on
January 1 of each tax year the portfolio of such Fund consists exclusively of
obligations of the government of the United States of America, its agencies,
instrumentalities, the Commonwealth of Puerto Rico, the government of Guam, the
government of American Samoa, the government of the Northern Mariana Islands,
the State of Florida, its political subdivisions, municipalities or other taxing
districts. Nations Funds has received a Technical Assistance Advisement from the
Florida Department of Revenue confirming the foregoing.
Although the Nations Florida Intermediate Municipal Bond Fund and Nations
Florida Municipal Bond Fund anticipate that the portfolio will exclusively
contain assets that are exempt from Florida's intangible personal property tax
on January 1 of each tax year, it may be possible that the portfolio will have a
small portion of its assets invested temporarily in assets on such date which
are not exempt from Florida's annual intangible personal property tax. In this
situation, only the portion of the net asset value of the portfolio which is
made up of direct obligations of the United States of America, its agencies,
territories and possessions (as described above) may be removed from the net
asset value for purposes of computing the intangible personal property tax. The
remaining net asset value of the portfolio and hence a portion of the net asset
value of the shares in the Nations Florida Intermediate Municipal Bond Fund and
Nations Florida Municipal Bond Fund would be subject to the intangible personal
property tax. Notice as to the tax status of your shares will be mailed to you
annually. Owners of shares in the Nations Florida Intermediate Municipal Bond
Fund or Nations Florida Municipal Bond Fund should consult their tax advisers
with specific reference to their own tax situation if advised that a portion of
the portfolio of such Funds consisted on January 1 of any year of assets which
are not exempt from Florida's annual intangible personal property tax. Such
annual intangible personal property tax, if any, is due and payable on June 30
of such year in which the tax liability arises.
The Georgia state intangibles tax was legislatively repealed by action of
the General Assembly during the 1996 Session and was also repealed by a
constitutional amendment approved by the voters of Georgia on November 5, 1996.
The repeal of the Georgia intangibles tax was made retroactively effective to
January 1, 1996.
Nations Maryland Intermediate Municipal Bond Fund's and Nations Maryland
Municipal Bond Fund's shareholders who are residents of Maryland must add to
their Federal adjusted gross income 50% of their Federal tax preference items
(which include interest amounts from private activity bonds) the sum total of
which is in excess of $10,000 for an individual return (or $20,000 for a joint
return) when determining their Maryland adjusted gross
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income Shareholders who are nonresidents of Maryland are required to include
only those tax preference items that are based on income taxable in Maryland.
Although any net capital gain recognized with respect to the sale or
exchange of shares of a Fund may be subject to the South Carolina state income
tax, individuals, estates and trusts are entitled to a deduction for South
Carolina taxable income purposes equal to 44% of the net capital gain recognized
from the sale or exchange of an asset which has been held for a period of two or
more years. In the case of estates or trusts, the deduction is applicable only
to income taxed to the estate or trust or individual beneficiaries and not
income passed through to nonindividual beneficiaries.
The Tennessee Hall Income Tax imposes a tax on income received by way of
dividends from stock or interest on bonds. Dividends from a qualified regulated
investment company are exempt from the Hall Income Tax, but only to the extent
attributable to interest on bonds or securities of the U.S. Government or any
agency or instrumentality thereof or on bonds of the State of Tennessee or any
county or any municipality or political subdivision thereof, including any
agency, board, authority or commission of any of the above.
OTHER MATTERS
Investors should be aware that the investments to be made by the Funds may
involve sophisticated tax rules that may result in income or gain recognition by
a Fund without corresponding current cash receipts. Although the Funds will seek
to avoid significant noncash income, such noncash income could be recognized by
a Fund, in which case the Fund may distribute cash derived from other sources in
order to meet the minimum distribution requirements described above.
The foregoing discussion and the discussions in the Prospectus applicable
to each shareholder address only some of the Federal tax considerations
generally affecting investments in the Fund. Each investor is urged to consult
his or her tax advisor regarding specific questions as to Federal, state, local
or foreign taxes.
FUND TRANSACTIONS AND BROKERAGE
GENERAL BROKERAGE POLICY
Subject to policies established by the Board of Directors/Trustees of each
Company, the Adviser is responsible for decisions to buy and sell securities for
each Fund, for the selection of broker/dealers, for the execution of such Fund's
securities transactions, and for the allocation of brokerage fees in connection
with such transactions. The Adviser's primary consideration in effecting a
security transaction is to obtain the best net price and the most favorable
execution of the order. Purchases and sales of securities on a securities
exchange are effected through brokers who charge a negotiated commission for
their services. Orders may be directed to any broker to the extent and in the
manner permitted by applicable law.
In the over-the-counter market, securities are generally traded on a "net"
basis with dealers acting as principal for their own accounts without stated
commissions, although the price of a security usually includes a profit to the
dealer. In underwritten offerings, securities are purchased at a fixed price
that includes an amount of compensation to the underwriter, generally referred
to as the underwriter's concession or discount. On occasion, certain money
market instruments may be purchased directly from an issuer, in which case no
commissions or discounts are paid.
In placing orders for portfolio securities of a Fund, the Adviser is
required to give primary consideration to obtaining the most favorable price and
efficient execution. This means that the Adviser will seek to execute each
transaction at a price and commission, if any, which provide the most favorable
total cost or proceeds reasonably attainable in the circumstances. In seeking
such execution, the Adviser will use its best judgment in evaluating the terms
of a transaction, and will give consideration to various relevant factors,
including, without limitation, the size and type of the transaction, the nature
and character of the market for the security, the confidentiality, speed and
certainty of effective execution required for the transaction, the general
execution and operational capabilities of the
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broker-dealer, the reputation, reliability, experience and financial condition
of the firm, the value and quality of the services rendered by the firm in this
and other transactions and the reasonableness of the spread or commission, if
any. In addition, the Adviser will consider research and investment services
provided by brokers or dealers who effect or are parties to portfolio
transactions of a Fund, the Adviser or its other clients. Such research and
investment services are those which brokerage houses customarily provide to
institutional investors and include statistical and economic data and research
reports on particular companies and industries. Such services are used by the
Adviser in connection with all of its investment activities, and some of such
services obtained in connection with the execution of transactions for a Fund
may be used in managing other investment accounts. Conversely, brokers
furnishing such services may be selected for the execution of transactions of
such other accounts, whose aggregate assets are far larger than those of a Fund.
Services furnished by such brokers may be used by the Adviser in providing
investment advisory and investment management services for the Companies.
Commission rates are established pursuant to negotiations with the broker
based on the quality and quantity of execution services provided by the broker
in the light of generally prevailing rates. The allocation of orders among
brokers and the commission rates paid are reviewed periodically by the
Directors/Trustees of the respective Company. 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 Adviser, 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.
In certain instances there may be securities which are suitable for more
than one Fund as well as for one or more of the other clients of the Adviser.
Investment decisions for each Fund and for the Adviser's other clients are made
with the goal of achieving their respective investment objectives. It may happen
that a particular security is bought or sold for only one client even though it
may be held by, or bought or sold for, other clients. Likewise, a particular
security may be bought for one or more clients when one or more other clients
are selling that same security. Some simultaneous transactions are inevitable
when several clients receive investment advice from the same investment adviser,
particularly when the same security is suitable for the investment objectives of
more than one client. When two or more clients are simultaneously engaged in the
purchase or sale of the same security, the securities are allocated among
clients in a manner believed to be equitable to each. It is recognized that in
some cases this system could have a detrimental effect on the price or volume of
the security in a particular transaction as far as a Fund is concerned. The
Companies believe that over time its ability to participate in volume
transactions will produce superior executions for the Funds.
The portfolio turnover rate for each Fund is calculated by dividing the
lesser of purchases or sales of portfolio securities for the reporting period by
the monthly average value of the portfolio securities owned during the reporting
period. The calculation excludes all securities, including options, whose
maturities or expiration dates at the time of acquisition are one year or less.
Portfolio turnover may vary greatly from year to year as well as within a
particular year, and may be affected by cash requirements for redemption of
shares and by requirements which enable the Funds to receive favorable tax
treatment.
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.
The Companies will not execute portfolio transactions through, or purchase
or sell portfolio securities from or to the distributor, the Adviser, the
administrator, the co-administrator or their affiliates, acting as principal
(including repurchase and reverse repurchase agreements), except to the extent
permitted by applicable law. In addition, the Companies will not give preference
to correspondents of NationsBank or its affiliates, with respect to such
transactions or securities. (However, the Adviser is authorized to allocate
purchase and sale orders for portfolio securities to certain financial
institutions, including, in the case of agency transactions, financial
institutions which are affiliated with NationsBank or its affiliates, and to
take into account the sale of Fund shares if the Adviser believes that the
quality of the transaction and the commission are comparable to what they would
be with other
60
<PAGE>
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, the 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.
Certain affiliates of NationsBank Corporation and its subsidiary banks may
have deposit, loan or commercial banking relationships with the corporate users
of facilities financed by industrial development revenue bonds or private
activity bonds purchased by the Tax Exempt Fund, the Municipal Income Fund, the
Short-Term Municipal Income Fund, the Intermediate Municipal Bond Fund, the
State Intermediate Municipal Bond Funds and the State Municipal Bond Funds (the
"Tax-Free Bond Funds"). NationsBank or certain of its affiliates may serve as
trustee, tender agent, guarantor, placement agent, underwriter, or in some other
capacity, with respect to certain issues of municipal securities. Under certain
circumstances, the Tax-Free Bond Funds may purchase municipal securities from a
member of an underwriting syndicate in which an affiliate of NationsBank is a
member. NFT has adopted procedures pursuant to Rule 10f-3 under the 1940 Act,
and intends to comply with the requirements of Rule 10f-3, in connection with
any purchases of municipal securities that may be subject to such Rule.
Under the 1940 Act, persons affiliated with a Company are prohibited from
dealing with such Company 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.
Investment decisions for each Fund are made independently from those for
each Company'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.
BROKERAGE COMMISSIONS
- ------------------------------------------------------------------------------
FISCAL YEAR FISCAL YEAR FISCAL YEAR
ENDED MARCH ENDED MARCH ENDED MARCH
FUND 31,1998 31,1997 31,1996
- ------------------------------------------------------------------------------
Managed SmallCap Index 143,732 $ 54,486.18 --
- ------------------------------------------------------------------------------
Disciplined Equity 152,295 288,643.86 --
- ------------------------------------------------------------------------------
Equity Index 208,604 115,828.91 --
- ------------------------------------------------------------------------------
Emerging Growth 477,588 554,981.41 --
- ------------------------------------------------------------------------------
Capital Growth Fund 1,392,418 1,584,909.43 --
- ------------------------------------------------------------------------------
Managed Index 119,677 24,684.19 --
- ------------------------------------------------------------------------------
Value 3,142,078 1,784,504.83 --
- ------------------------------------------------------------------------------
Balanced Assets 1,207,000 1,965,293.04 --
- ------------------------------------------------------------------------------
Nations Emerging Markets 284,328 207,518.87 192,107.00
- ------------------------------------------------------------------------------
Nations Pacific Growth 963,416 932,004.34 638,176.00
- ------------------------------------------------------------------------------
Equity Income 1,111,460 1,083,187.32 578,343.00
- ------------------------------------------------------------------------------
International Equity 2,421,975 1,738,165.19 1,251,696.00
- ------------------------------------------------------------------------------
International Growth 1,054,454 0 0
- ------------------------------------------------------------------------------
Managed Small Cap Value
Index 5,469 0 0
- ------------------------------------------------------------------------------
61
<PAGE>
Marsico Focused Equities 25,934 0 0
- ------------------------------------------------------------------------------
Marsico Growth & Income 9,903 0 0
- ------------------------------------------------------------------------------
Small Company Growth 184,948 0 0
- ------------------------------------------------------------------------------
During the fiscal periods ended March 31, 1998, 1997 and 1996, NFT and its
Funds did not pay brokerage commissions to NationsBanc Investments, Inc. (or its
predecessors), NationsBanc Capital Markets, Inc., or Stephens. NFT did pay
$2,368.03 to Nations Montgomery Securities LLC during the fiscal year ended
March 31, 1998.
During the fiscal period ended March 31, 1998 1997 and 1996, NFP did not
pay brokerage commissions to Nations Montgomery Securities LLC, NationsBanc
Investments, Inc. (or its predecessors), NationsBanc Capital
Markets, Inc. or Stephens.
During the fiscal years ended March 31, 1998, 1997 and 1996, NFI did not
pay brokerage commissions to Nations Montgomery Securities LLC, NationsBanc
Investments, Inc. (or its predecessors), NationsBanc Capital
Markets, Inc. or Stephens.
No other Funds of NFP, NFI or NFT paid brokerage fees during the fiscal
years ended March 31, 1998, 1997 and 1996.
SECTION 28(E) STANDARDS
Under Section 28(e) of the Securities Exchange Act of 1934, the 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), the Adviser must make a good faith determination that the
commissions paid are "reasonable in relation to the value of the brokerage and
research services provided ...viewed in terms of either that particular
transaction or its overall responsibilities with respect to the accounts as to
which it exercises investment discretion and that the services provided by a
broker provide an adviser with lawful and appropriate assistance in the
performance of its investment decision making responsibilities." Accordingly,
the price to a Fund in any transaction may be less favorable than that available
from another broker/dealer if the difference is reasonably justified by other
aspects of the portfolio execution services offered.
Broker/dealers utilized by the Adviser may furnish statistical, research
and other information or services which are deemed by the Adviser to be
beneficial to the Funds' investment programs. Research services received from
brokers supplement the Adviser's own research and may include the following
types of information: statistical and background information on industry groups
and individual companies; forecasts and interpretations with respect to U.S and
foreign economies, securities, markets, specific industry groups and individual
companies; information on political developments; fund management strategies;
performance information on securities and information concerning prices of
securities; and information supplied by specialized services to the Adviser and
to the Company's Directors/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 Adviser's staff 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. The Adviser is of the opinion
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
62
<PAGE>
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 fund
transactions of other clients may be of value to the Adviser in fulfilling its
obligations to the Funds. The Adviser is of the opinion that this material is
beneficial in supplementing its research and analysis; and, therefore, it may
benefit the Companies by improving the quality of the Adviser's investment
advice. The advisory fees paid by the Companies 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.
DIRECTORS/TRUSTEES AND OFFICERS
The directors/trustees and executive officers of each Company and their
principal occupations during the last five years are set forth below. The
address of each, unless otherwise indicated, is 111 Center Street, Little Rock,
Arkansas 72201. Those directors who are "interested persons" of a Company (as
defined in the 1940 Act) are indicated by an asterisk(*).
<TABLE>
<CAPTION>
<S> <C>
PRINCIPAL OCCUPATIONS
DURING PAST 5 YEARS
POSITION WITH AND CURRENT
NAME ADDRESS AND AGE THE COMPANIES DIRECTORSHIPS
- -------------------- ------------- -------------
Edmund L. Benson, III, 61 Director/Trustee Director, President and Treasurer,
Saunders & Benson, Inc. Saunders & Benson, Inc. (Insurance);
728 East Main Street Trustee, Nations Institutional
Suite 400 Reserves and NFT, Director, NFI,
Richmond, VA 23219 Nations LifeGoal Funds, Inc., and NFP
James Ermer, 55 Director/Trustee Senior Vice President- Finance, CSX
13705 Hickory Nut Point Corporation (transportation and
Midlothian, VA 23112 natural resources); Director,
National Mine Service; Director,
Lawyers Title Corporation; Trustee,
Nations Institutional Reserves and
NFT; Director, NFI, Nations LifeGoal
Funds, Inc., and NFP
63
<PAGE>
PRINCIPAL OCCUPATIONS
DURING PAST 5 YEARS
POSITION WITH AND CURRENT
NAME ADDRESS AND AGE THE COMPANIES DIRECTORSHIPS
- -------------------- ------------- -------------
William H. Grigg, 65 Director /Trustee Chairman Emeritus, Duke Power Co.,
Duke Power Co. since July, 1997; April 1994 to July
422 South Church Street 1997, Chairman and Chief Executive
PB04G Officer; November 1991 to April 1994,
Charlotte, NC 28242-0001 Vice Chairman, from April 1988 to
November 1991, Executive Vice
President -- Customer Group,
Director, Coltec Industries, Hatteras
Income Securities, Inc., Nations
Government Income Term Trust 2003,
Inc., Nations Government Income Term
Trust 2004, Inc., Nations Balanced
Target Maturity Fund, Inc., NFI,
Nations LifeGoal Funds, Inc. and NFP;
Trustee, Nations Institutional
Reserves and NFT.
Thomas F. Keller, 66 Director/Trustee R.J. Reynolds Industries Professor of
Fuqua School of Business Business Administration and former
P.O. Box 90120 Dean, Fuqua School of Business, Duke
Duke University University; Director, LADD Furniture,
Durham, NC 27708 Inc.; Director, Wendy's International
Inc., American Business Products,
Dimon Inc., Biogen, Inc., Hatteras
Income Securities, Inc., Nations
Government Income Term Trust 2003,
Inc., Nations Government Income Term
Trust 2004, Inc., Nations Balanced
Target Maturity Fund, Inc., NFI,
Nations LifeGoal Funds, Inc., and
NFP; Trustee, Nations Institutional
Reserves, NFT, the Mentor Funds,
Mentor Institutional Trust, Cash
Resource Trust.
Carl E. Mundy, Jr., 63 Director/Trustee Commandant, United States Marine
9308 Ludgate Drive Corps, from July 1991 to July 1995;
Alexandria, VA 22309 Commanding General, Marine Forces
Atlantic, from June 1990 to June
1991; Director, NFI, Nations LifeGoal
Funds, Inc., and NFP; Trustee,
Nations Institutional Reserves and
NFT.
James B. Sommers*, 59 Director/Trustee President, NationsBank Trust, from
237 Cherokee Road January 1992 to September 1996;
Charlotte, NC 28207 Executive Vice President, NationsBank
Corporation, from January 1992 to May
1997; Principal, Bainbridge &
Associates; Partner, Villa LLC;
Chairman, Central Piedmont Community
College Foundation; Trustee, Central
Piedmont Community College; Board of
Commissioners, Charlotte/Mecklenberg
Hospital Authority; Director, NFI,
NFP and Nations LifeGoal Funds, Inc.;
Trustee, Nations Institutional
Reserves and NFT.
A. Max Walker*, 76 President, Financial consultant; Formerly,
4580 Windsor Gate Court Director/Trustee and President, A. Max Walker, Inc.;
Atlanta, GA 30342 Chairman of the Board Director and Chairman of the Board,
Hatteras Income Securities, Inc.,
Nations Government Income Term Trust
2003, Inc., Nations Government Income
Term Trust 2004, Inc., Nations
Balanced Target Maturity Fund, Inc.,
NFI, Nations LifeGoal Funds,
64
<PAGE>
PRINCIPAL OCCUPATIONS
DURING PAST 5 YEARS
POSITION WITH AND CURRENT
NAME ADDRESS AND AGE THE COMPANIES DIRECTORSHIPS
- -------------------- ------------- -------------
Inc., and Nations Fund Portfolios.
Inc.; President and Chairman of the
Board of Trustees, Nations
Institutional Reserves and NFT.
Charles B. Walker, 59 Director/Trustee Since 1989, Director, Executive Vice
Ethyl Corporation President, Chief Financial Officer
330 South Fourth Street and Treasurer, Ethyl Corporation
Richmond, VA 23219 (chemicals, plastics, and aluminum
manufacturing); since 1994, Vice
Chairman, Ethyl Corporation and Vice
Chairman, Chief Financial Officer and
Treasurer, Albemarle Corporation,
Director, NFI, Nations LifeGoal
Funds, Inc, and NFP; Trustee, Nations
Institutional Reserves and NFT.
Thomas S. Word, Jr.*, 60 Director/Trustee Partner, McGuire Woods Battle &
McGuire, Woods, Battle & Boothe (law); Director, Vaughan
Boothe Bassett Furniture Company, Director
One James Center VB Williams Furniture Company, Inc.;
Richmond, VA 23219 Director, NFI, Nations LifeGoal
Funds, Inc., and NFP; Trustee,
Nations Institutional Reserves and
NFT.
Richard H. Blank, Jr., 41 Secretary Since 1994, Vice President of Mutual
Stephens Inc. Fund Services, Stephens Inc. 1990 to
111 Center Street 1994, Manager Mutual Fund Services,
Suite 300 Stephens Inc. 1983 to 1990, Associate
Little Rock, AR 72201 in Corporate Finance Department,
Stephens Inc.; Secretary, Nations
Institutional Reserves, NFT, NFI,
Nations LifeGoal Funds, Inc., and NFP
Michael W. Nolte, 37 Assistant Secretary Associate, Financial Services Group
Stephens Inc. of Stephens Inc.
111 Center Street
Suite 300
Little Rock, AR 72201
Louise P. Newcomb, 45 Assistant Secretary Corporate Syndicate Associate,
Stephens Inc. Stephens Inc.
111 Center Street
Suite 300
Little Rock, AR 72201
James E. Banks, 42 Assistant Secretary Since 1993, Attorney, Stephens Inc.;
Stephens Inc. Associate Corporate Counsel,
111 Center Street Federated Investors; from 1991 to
Suite 300 1993, Staff Attorney, Securities and
Little Rock, AR 72201 Exchange Commission from 1988 to 1991
Richard H. Rose, 43 Treasurer Since 1994, Vice President, Division
First Data Investor Services Manager, First Data Investor Services
Group, Inc. Group, Inc. since 1988, Senior Vice
One Exchange Place President, The Boston Company
Boston, MA 02109 Advisors. Inc.; Treasurer, Nations
Institutional Reserves, NFT, NFI,
Nations LifeGoal Funds, Inc., and NFP
Steven Levy, 33 Assistant Treasurer Since 1997, Vice President of Fund
First Data Investor Services Accounting, First Data Investor
Group, Inc. Services Group, Inc.; Prior to 1997,
One Exchange Place Investment
Operations Manager,
65
<PAGE>
PRINCIPAL OCCUPATIONS
DURING PAST 5 YEARS
POSITION WITH AND CURRENT
NAME ADDRESS AND AGE THE COMPANIES DIRECTORSHIPS
- -------------------- ------------- -------------
Boston, MA 02109 Franklin Templeton Group and
Assistant Vice President of Fund
Accounting, Scudder Stevens and
Clark, Inc.
</TABLE>
Mr. Rose serves as Treasurer to certain other investment companies for
which First Data Investors Services Group, Inc. (the "Co-Administrator") or
its affiliates serve as sponsor, distributor, administrator and/or investment
adviser.
Each Director of NFI is also a Trustee of NFT and Nations Institutional
Reserves and a Director of NFP, each a registered investment company that is
part of the Nations Funds Family. Richard H. Blank, Jr., Richard H. Rose,
Steven Levy, Michael W. Nolte, Louise P. Newcomb and James E. Banks. Jr. also
are officers of NFT, Nations Institutional Reserves and NFP.
Each Director/Trustee receives (i) an annual retainer of $1,000 ($3,000
for the Chairman of the Board) plus $500 for each Fund of each Company, plus
(ii) a fee of $1,000 for attendance at each "in-person" meeting of the Board of
Directors/Trustees (or committee thereof). All Directors/Trustees receive
reimbursements for expenses related to their attendance at meetings of the Board
of Directors/Trustees. Officers receive no direct remuneration in such capacity
from the Companies. No person who is an officer, director, trustee, or employee
of NationsBank or its affiliates serves as an Officer, Director, Trustee or
employee of the company. As of the date of this SAI, the directors and officers
of each Company as a group owned less than 1% of the outstanding shares of each
of the Funds.
Each Company has adopted a Code of Ethics which, among other things,
prohibits each access person of the Company 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 director or officer of a Company, (ii) any
employee of a Company (or any company in a control relationship with a Company)
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 a
Company, and (iii) any natural person in a control relationship with a Company
who obtains information concerning recommendations made to a Company 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 a Company 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 mutual fund shares, money market
instruments and certain U.S. Government securities. To facilitate enforcement,
the Code of Ethics generally requires that a Company's access persons, other
than its "disinterested" directors, submit reports to a Company's designated
compliance person regarding transactions involving securities which are eligible
for purchase by a Fund.
NATIONS FUNDS RETIREMENT PLAN
Under the terms of the Nations Funds Retirement Plan for Eligible
Directors/Trustees (the "Retirement Plan"), each director/trustee may be
entitled to certain benefits upon retirement from the Board of
Directors/Trustees. Pursuant to the Retirement Plan, the normal retirement date
is the date on which the eligible director/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 advised by the Adviser. If a director/trustee
retires before reaching age 65, no benefits are payable. Each eligible
director/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
director's/trustee's fees payable by the Funds during the calendar year in which
the director's/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 director/trustee in
quarterly installments for a period of no more than five years. If an eligible
director/trustee's dies after attaining age
66
<PAGE>
65, the director's/trustees 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 director/trustee if he had not died. The Retirement
Plan is unfunded. The benefits owed to each director/trustee are unsecured and
subject to the general creditors of the Funds.
NATIONS FUNDS DEFERRED COMPENSATION PLAN
Under the terms of the Nations Funds Deferred Compensation Plan for
Eligible Directors (the "Deferred Compensation Plan"), each director/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
director/trustee for that calendar year. An application was submitted to and
approved by the SEC to permit deferring directors/trustees to elect to tie the
rate of return on fees deferred pursuant to the Deferred Compensation Plan to
one or more of certain investment portfolios of certain Funds. Distributions
from the deferring directors'/trusteess deferral accounts will be paid in cash,
in generally equal quarterly installments over a period of five years beginning
on the date the deferring director's/trustees' retirement benefits commence
under the Retirement Plan. The Board of Directors/Trustees, in its sole
discretion, may accelerate or extend such payments after a director's/trustee's
termination of service. If a deferring director/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 director's/trustee's death. If a
deferring director 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 director. Amounts payable under the Deferred Compensation
Plan are not funded or secured in any way and deferring directors/trustees have
the status of unsecured creditors of the Funds from which they are deferring
compensation.
67
<PAGE>
COMPENSATION TABLE
<TABLE>
<CAPTION>
<S> <C>
PENSION OR ESTIMATED TOTAL
AGGREGATE AGGREGATE RETIREMENT ANNUAL COMPENSATION
AGGREGATE COMPENSATION COMPENSATION BENEFITS ACCRUED BENEFITS FROM REGISTRANT
NAME OF PERSON COMPENSATION FROM FROM AS PART OF FUND UPON AND FUND
POSITION (1) FROM NFT (2) NFI (2) NFP (2) EXPENSES RETIREMENT COMPLEX (3)(4)
------------ ------------ ------- ------- -------- ---------- --------------
Edmund L. Benson, III, $24,500.00 $11,000.00 $7,500.00 $4,431.53 $30,000.00 $86,201.07
Trustee
James Ermer $24,500.00 $11,000.00 $7,500.00 $4,431.53 $30,000.00 $59,000.00
Trustee
William H. Grigg $24,500.00 $11,000.00 $7,500.00 $4,431.53 $30,000.00 $117,533.68
Trustee
Thomas F. Keller $24,500.00 $11,000.00 $7,500.00 $4,431.53 $30,000.00 $116,115.17
Trustee
Carl E. Mundy, Jr. $23,500.00 $10,000.00 $6,500.00 $4,431.53 $30,000.00 $54,000.00
Trustee
James Sommers $18,625.00 $8,250.00 $5,375.00 $4,431.53 $30,000.00 $43,875.00
Trustee
A. Max Walker $26,500.00 $13,000.00 $9,500.00 $4,431.53 $35,000.00 $89,000.00
Chairman of the Board
Charles B. Walker $24,500.00 $11,000.00 $7,500.00 $4,431.53 $30,000.00 $59,000.00
Trustee
Thomas S. Word $24,500.00 $11,000.00 $7,500.00 $4,431.53 $30,000.00 $109,255.23
Trustee
</TABLE>
(1) All directors/trustees receive reimbursements for expenses related to
their attendance at meetings of the Board of Directors/Trustees. Officers of the
Companies receive no direct remuneration in such capacity from the Companies.
(2) For the twelve-month period ending March 31, 1998, each Director/
Trustee receives (i) an annual retainer of $1,000 ($3,000 for the Chairman of
the Board) plus $500 for each Fund of the Companies, 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
Directors/Trustees (or Committee thereof).
(3) Messrs. Grigg, Keller and A.M. Walker receive compensation from nine
investment companies that are deemed to be part of the Nations Funds "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, Sommers, Mundy and
Word receive compensation from five investment companies deemed to be part of
the Nations Funds complex.
(4) Total compensation amounts include deferred compensation (including
interest) payable to or accrued for the following Directors/Trustees: Edmund L.
Benson, III $53,201; William H. Grigg $94,534; Thomas F. Keller $93,115; and
Thomas S. Word $102,255.
68
<PAGE>
SHAREHOLDER AND TRUSTEE LIABILITY
NFT is a Massachusetts business trust. 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, NFT's
Declaration of Trust provides that shareholders shall not be subject to any
personal liability for the acts or obligations of NFT, and that every note,
bond, contract, order, or other undertaking made by NFT shall contain a
provision to the effect that the shareholders are not personally liable
thereunder. The Declaration of Trust provides for indemnification out of the
trust property of any shareholder held personally liable solely by reason of his
being or having been a shareholder and not because of his acts or omissions or
some other reason. The Declaration of Trust also provides that NFT shall, upon
request, assume the defense of any claim made against any shareholder for any
act or obligation of NFT 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 NFT itself would be unable to meet its
obligations.
The Declaration of Trust states further that no Trustee, officer, or agent
of NFT 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 NFT; 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 NFT 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 NFT 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 AGREEMENTS
THE COMPANIES AND THEIR COMMON STOCK
NFI is an open-end diversified management investment company organized as
a corporation under the laws of the State of Maryland on December 13, 1983. NFI
had no operations prior to December 15, 1986. Effective October 2, 1989, NFI
changed its name from Silver Star Fund, Inc. to Hatteras Funds, Inc., effective
May 1, 1992 NFI began doing business under the name NFP and effective September
24, 1992 NFI changed its name to Nations Fund, Inc. NFI's fiscal year end is
March 31; prior to 1996, the NFI's fiscal year end was May 31. NFI offers shares
of common stock which represent interests in one of nine separate Funds. Shares
of each Fund of the Company are redeemable at the net asset value (less any
applicable contingent deferred sales charge ("CDSC") thereof at the option of
the holders thereof or in certain circumstances at the option of the Company.
For information concerning the methods of redemption and the rights of share
ownership, consult the Prospectuses under the captions "How To Buy Shares," "How
To Redeem Shares" and "Organization And History."
NFT 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 "NFT." NFT's fiscal year end is March 31; prior to 1996, NFT's
fiscal year end was November 30. NFT'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 NFT 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-seven series of shares which are described in
this SAI. Each Money Market Fund of NFT is divided into six classes of shares:
Investor A Shares, Investor B Shares, Investor C Shares, Daily Shares, Primary A
Shares and Primary B Shares. Each Non-Money Market Fund generally is divided
into five
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classes of shares: Investor A Shares, Investor B Shares, Investor C Shares,
Primary A Shares and Primary B Shares. However, certain Funds issue fewer
classes of shares.
NFP is an open-end diversified management investment company organized as
a corporation under the laws of the State of Maryland on January 23, 1995. NFP
offers shares of common stock which represent interests in one of three separate
Funds. Shares of each Fund of NFP are redeemable at the net asset value (less
any applicable CDSC thereof at the option of the holders thereof or in certain
circumstances at the option of NFP. For information concerning the methods of
redemption and the rights of share ownership, consult the Prospectuses under the
captions "How To Buy Shares," "How To Redeem Shares" and "Organization And
History."
Shares have no preemptive rights and only such conversion or exchange
rights as the Boards may grant in their discretion. When issued for payment as
described in the Prospectuses, Fund shares will be fully paid and
non-assessable. In the event of a liquidation or dissolution of a Company or an
individual Fund, shareholders of a Fund are entitled to receive the assets
available for distribution belonging to the particular Fund, and a proportionate
distribution, based upon the relative asset values of the Company's respective
investment portfolios, of any general assets of the Company not belonging to any
particular investment portfolio which are available for distribution.
Shareholders of a Fund are entitled to participate, in proportion to the net
asset value of the class or series of shares held, in the net distributable
assets of a particular Fund involved in liquidation, based on the number of
shares of the Fund that are held by such shareholders.
As stated in the Prospectuses, shareholders of each of the Funds will vote
in the aggregate and not by class or series, except as otherwise expressly
required by law or when the Boards determine 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 a Company will
vote in the aggregate and not by portfolio, except as otherwise expressly
required by law or when the Board 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 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 Board members may be effectively acted upon by
shareholders of such Company voting together in the aggregate without regard to
a particular investment portfolio.
As used in this SAI and in the Prospectuses, the term "majority of the
outstanding shares" of a Company, a particular Fund or a particular class of
shares of a Fund means, respectively, the vote of the lesser of (i) 67% or more
of the shares of a Company, Fund or class (as appropriate) present at a meeting
of shareholders, if the holders of more than 50% of the outstanding shares
entitled to vote, are present or represented by proxy, or (ii) more than 50% of
the outstanding shares of a Company, Fund or class.
The Boards of Directors/Trustees may classify or reclassify any unissued
shares of a Company into shares of any class, classes or Fund in addition to
those already authorized by setting or changing in any one or more respects,
from time to time, prior to the issuance of such shares, the preferences,
conversion or other rights, voting powers, restrictions, limitations as to
dividends, qualifications, or terms or conditions of redemption, of such shares
and, pursuant to such classification or reclassification to increase or decrease
the number of authorized shares of any Fund or class. Any such classification or
reclassification will comply with the provisions of the 1940 Act. Fractional
shares shall have the same rights as full shares to the extent of their
proportionate interest.
Because certain of the Prospectuses combine disclosure on two separate
open-end management investment companies, there is a possibility that one
investment company might become liable for a misstatement, inaccuracy or
incomplete disclosure in such Prospectuses concerning the other investment
company. NFT and NFI have entered
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into an indemnification agreement that creates a right of indemnification from
the investment company responsible for any such misstatement, inaccuracy or
incomplete disclosure that may appear in such Prospectuses.
INVESTMENT ADVISER
NBAI serves as investment adviser to all of the Funds of the Companies,
pursuant to Investment Advisory Agreements dated January 1, 1996, and amended
thereafter. Brandes serves as investment sub-adviser to the International Value
Fund, pursuant to an Investment Sub-Advisory Agreement dated as of April 8,
1998. Gartmore serves as investment sub-adviser to Funds of NFP and to the
International Equity Fund and International Growth Fund, pursuant to Investment
Sub-Advisory Agreements dated January 1, 1996, and amended thereafter. Boatmen's
serves as investment sub-adviser to the Government Bond Fund, pursuant to an
Investment Sub-Advisory Agreement dated July 31, 1997. Marsico Capital serves as
investment sub-adviser to the Marsico Focused Equities Fund and Marsico Growth &
Income Fund, pursuant to an Investment Sub-Advisory Agreement, dated December
31, 1997. TradeStreet serves as investment sub-adviser to all other Funds of the
NFI and NFT, pursuant to Investment Sub-Advisory Agreements, dated January 1,
1996, and amended thereafter.
NBAI also serves as the investment adviser to the portfolios of Nations
Institutional Reserves, Nations Annuity Trust, Nations LifeGoal Funds, Inc.,
each a registered investment company that is part of the Nations Funds 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 Nations 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 Nations Institutional Reserves, Nations Annuity Trust, Hatteras
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 subsidiaries of Nations Bank,
which in turn is a wholly owned banking subsidiary of NationsBank Corporation, a
bank holding company organized as a North Carolina corporation. Gartmore is a
joint venture structured as a Delaware general partnership between NB Partner
Corp., a wholly owned subsidiary of NationsBank and Gartmore U.S. Limited, an
indirect wholly owned subsidiary of Gartmore Investment Management plc
("Gartmore plc"), a publicly listed U.K. company. National Westminster Bank plc
and affiliated parties (collectively, "NatWest) own 100% of the equity of
Gartmore plc. Gartmore is a registered investment adviser in the United States
and a member of the Investment Management Regulatory Organization Limited, a
U.K. regulatory authority. The respective principal offices of NBAI, TradeStreet
and Gartmore are located at One NationsBank Plaza, Charlotte, N.C. 28255.
Boatmen's is an indirect wholly owned subsidiary of NationsBank Corporation, a
bank holding company organized as a North Carolina corporation. Boatmen's
principal office is located at 100 North Broadway, St. Louis, Missouri 63178.
Marsico Capital is located at 1200 17th Street, Suite 1300, Denver, CO 80202.
NationsBank has an option to purchase up to 50% of Marsico Capital.
Prior to April 10, 1996, the predecessor to Gartmore, Nations Gartmore
Investment Management ("Nations Gartmore"), provided sub-advisory services to
NBAI and Nations International Equity Fund and Nations International Growth
Fund. Nations Gartmore was a joint venture structured as a general partnership
between NB Partner Corp. and Gartmore U.S. Limited. On April 10, 1996, NatWest
purchased control of Gartmore plc from Compagnie de Suez, S.A. and affiliated
entities (collectively, "Compagnie de Suez") through a two-part transaction
involving (1) the direct purchase from Compagnie de Suez of its indirect
subsidiary Indosuez UK Asset Management Limited, which held 75% of the
outstanding voting shares of Gartmore plc; and (2) the acquisition of the
remaining portion of Gartmore plc's shares held by public shareholders through a
tender offer. This acquisition resulted in the change of control of Nations
Gartmore and the creation of a successor entity, Gartmore. On July 17, 1996, the
shareholders of Nations International Equity Fund and Nations International
Growth Fund approved the new sub-advisory arrangements with Gartmore. There were
no material changes to the personnel who provided service to NFP, the
International Equity Fund, or the Nations International Growth Fund, and the
change in ownership did not result in a change in the level of service provided
NFP, the International Equity Fund, or the Nations International Growth Fund or
the level of sub-advisory fees.
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Brandes Investment Partners, Inc. owns a controlling interest in Brandes
Investment Partners, L.P. and serves as its General Partner. Charles Brandes is
the controlling shareholder of Brandes Investment Partners, Inc. The principal
offices of Brandes are located at 12750 High Bluff Drive, San Diego, CA 92130.
Thomas F. Marsico is Chairman and Chief Executive Officer of Marsico
Capital and has voting control of the company. Prior to forming Marsico Capital
in September 1997, Mr. Marsico had 18 years of experience as a securities
analyst/portfolio manager.
Prior to January 1, 1996, NationsBank, through its investment management
division, served as investment adviser to the Funds. NationsBank is successor to
NationsBank of North Carolina, N.A. which was merged with and into NationsBank
of South Carolina, N.A., effective January 3, 1995. The resulting entity was
renamed NationsBank, N.A. (Carolinas). NationsBank is a wholly owned subsidiary
of NationsBank Corporation, a bank holding company. Prior to June 30, 1992,
NationsBank of Georgia, N.A. served as the Investment Adviser to NFT. On
December 31, 1991 an Agreement and Plan of Consolidation between NCNB
Corporation ("NCNB") and C&S Sovran Corporation ("C&S/Sovran") was consummated
whereby C&S/Sovran was merged into and became a wholly owned subsidiary of NCNB
and NCNB changed its name to NationsBank Corporation. In anticipation of this
transaction, the prior investment adviser for NFT was changed from Sovran Bank,
N.A., to C&S/Sovran Trust Company (Georgia), N.A. After the merger of C&S/Sovran
and NCNB was completed, C&S Sovran Trust Company (Georgia), N.A., changed its
name to NationsBank Trust Company (Georgia), N.A., and subsequently merged into
NationsBank of Georgia, N.A. which continued to serve as the investment adviser
to Nations Fund Trust until June 30, 1992. Prior to the merger of NCNB and
C&S/Sovran, NationsBank (formerly NCNB National Bank of North Carolina) served
as investment adviser to all of the Funds of NFT pursuant to an amendment to its
investment advisory agreements.
Since 1874, NationsBank and its predecessors have been managing money for
foundations, universities, corporations, institutions and individuals. Today,
NationsBank affiliates collectively manage in excess of $100 billion, including
the more than $40 billion in mutual fund assets. It is a company dedicated to a
goal of providing responsible investment management and superior service.
NationsBank is recognized for its sound investment approaches, which place it
among the nation's foremost financial institutions. NationsBank and its
affiliates organization makes available a wide range of financial services to
its over 6 million customers through over 1700 banking and investment centers.
Pursuant to the terms of the Investment Advisory Agreements and
Sub-Advisory Agreements (at times, the "Advisory Agreements") with NBAI,
TradeStreet, Gartmore, Boatman's, Brandes and Marsico Capital, subject at all
times to the control of the respective Companies' Boards of Directors/Trustees
and conformance with the stated policies of each Company, NBAI, TradeStreet,
Gartmore, Boatman's, Brandes and Marsico Capital each selects and manages the
investments of the Funds. Each such advisory entity obtains and evaluates
economic, statistical and financial information to formulate and implement
investment policies for the Funds.
The Advisory Agreements for NBAI, TradeStreet, Gartmore, Boatmen's Brandes
and Marsico Capital each provide 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 Company or to any shareholder of the Company for any
act or omission in the course of, or connected with, rendering services under
thereunder or for any losses that may be sustained in the purchase, holding or
sale of any security.
An Investment Advisory Agreement with NBAI shall become effective with
respect to a Fund if and when approved by the Boards of a Company, 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 Company's Board of Directors/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 Company's
Directors/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
Directors of the Company), by votes cast in person at a meeting specifically
called for such purpose. The respective Investment Advisory Agreement will
terminate automatically in the event of its assignment,
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<PAGE>
and is terminable with respect to a Fund at any time without penalty by a
Company (by vote of the Board of Directors/Trustees or by vote of a majority of
the outstanding voting securities of the Fund) or by NBAI on 60 days' written
notice.
A Sub-Advisory Agreement with TradeStreet 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 Company's Board of
Directors (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 Company's Directors 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 Directors of the Company), 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 Company (by vote of
the Board of Directors or by vote of a majority of the outstanding voting
securities of the Fund), or by NBAI, or by TradeStreet on 60 days' written
notice.
The Sub-Advisory Agreement with Gartmore was initially approved by NFP's
Board of Directors on January 26, 1995 and by the initial shareholder on June
30, 1995. The Sub-Advisory Agreement will continue in effect for an initial term
of two years from its effective date and continues in effect from year to year
thereafter only if such continuance is specifically approved at least annually
by the Company's Board of Directors and the affirmative vote of a majority of
the directors who are not parties to the Sub-Advisory Agreement or "interested
persons" of any such party by votes cast in person at a meeting called for such
purpose. The respective Funds, NBAI or Gartmore may terminate the Sub-Advisory
Agreement, on 60 days' written notice without penalty. The Advisory Agreement
terminates automatically in the event of its "assignment," as defined in the
1940 Act. The Sub-Advisory Agreement with Gartmore provides that Gartmore shall
not be liable to the Company or to its shareholders for any act or omission by
Gartmore or for any loss sustained by the Company or by its shareholders except
in the case of Gartmore's willful misfeasance, bad faith, gross negligence or
reckless disregard of duty on the part of Gartmore, as the case may be.
The Sub-Advisory Agreement with Boatmen's became effective on July 31,
1997 and it shall thereafter continue from year to year, provided that such
continuation of the Agreement is specifically approved at least annually by
(a)(i) the Company's Board of Directors 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 Company's Directors
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 Directors of the Company),
by votes cast in person at a meeting specifically called for such purpose. Each
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
Company (by vote of the Board of Directors or by vote of a majority of the
outstanding voting securities of the Fund) or by the Adviser on 60 days' written
notice. The Sub-Advisory Agreement provides that the Adviser shall not be liable
to the Company or to its shareholders for any act or omission by Boatmen's or
for any loss sustained by the Company or by its shareholders except in the case
of such Adviser's willful misfeasance, bad faith, gross negligence or reckless
disregard of duty on the part of such Adviser, as the case may be.
The Sub-Advisory Agreement with Brandes was initially approved by NFI's
Board of Directors on February 4, 1998. The Sub-Advisory Agreement will continue
in effect for an initial term of two years from its effective date and continues
in effect from year to year thereafter only if such continuance is specifically
approved at least annually by the Company's Board of Directors and the
affirmative vote of a majority of the directors who are not parties to the
Sub-Advisory Agreement or "interested persons" of any such party by votes cast
in person at a meeting called for such purpose. The Fund, NBAI or Brandes may
terminate the Sub-Advisory Agreement, on 60 days' written notice without
penalty. The Sub-Advisory Agreement terminates automatically in the event of its
"assignment," as defined in the 1940 Act. The Sub-Advisory Agreement with
Brandes provides that Brandes shall not be liable to the Company or to its
shareholders for any act or omission by Brandes or for any loss sustained by the
Company or by its shareholders except in the case of Brandes' willful
misfeasance, bad faith, gross negligence or reckless disregard of duty on the
part of Brandes, as the case may be.
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The Investment Sub-Advisory Agreement with Marsico Capital was initially
approved by NFT's Board of Trustees on December 7, 1997 and is effective for a
two year period and shall thereafter continue from year to year, provided that
such continuation of the Agreement is specifically approved at least annually by
(a)(i) NFT'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 NFT'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 NFT), by votes cast
in person at a meeting specifically called for such purpose. The Investment
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 NFT (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 for a two-year term
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) NFT'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 NFT'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 NFT), by votes cast in person at a
meeting specifically called for such purpose.
The Funds, in any advertisement or sales literature, may advertise the
names, experience and/or qualifications of the portfolio manager(s) of any Fund,
or if a Fund is managed by team or committee, such Fund may advertise the names,
experience and/or qualifications of any such team or committee member.
The Adviser may waive a portion of its fees; however, any such waiver may
be discontinued at any time. As discussed under the caption "Expenses," NBAI,
TradeStreet and Gartmore will be required to reduce their fees from the Funds,
in direct proportion to the fees payable by the Funds to NBAI, TradeStreet,
Gartmore, Brandes, Boatmen's, Marsico Capital and the Administrator, if the
expenses of the Funds exceed the applicable expense limitation of any state in
which the Funds' shares are registered or qualified for sale.
Subject to reduction in accordance with the expense limitation provisions
which may be imposed by states in which the Funds' shares are qualified for
sale, NBAI received fees from the Funds for its services as outlined in the
following chart, which states the net advisory fees paid to NBAI, the advisory
fees waived and expense reimbursements where applicable for the fiscal year
ended March 31, 1998. The table below also states the advisory fees paid and
waived by Barnett Capital Advisers, Inc. with respect to the Emerald
International Equity Fund (predecessor to the International Value Fund) for the
fiscal period December 1, 1997 through May 15, 1998.
ADVISORY FEES
Net Amount Reimbursed by
Paid Amount Waived Adviser
---- ------------- -------
Prime Fund $9,639,804 $1,588,170 0.00
Treasury Fund 5,843,938 843,672 0.00
Equity Income Fund 4,731,858 0.00 0.00
Government Securities Fund 606,485 160,648 0.00
International Equity Fund 9,260,334 0.00 0.00
International Growth Fund 4,491,759 145,205 0.00
International Value Fund 326,210 0.00 3,902.00
Small Company Growth Fund 959,096 419,890 0.00
U.S. Government Bond Fund 483,931 385,271 0.00
Government Money Market Fund 468,312 954,231 0.00
Tax Exempt Fund 3,482,525 5,239,935 0.00
Value Fund 15,618,802 49,168 0.00
Capital Growth Fund 5,717,424 0.00 0.00
Disciplined Equity Fund 1,236,280 0.00 0.00
Equity Index Fund 1,302,110 2,088,839 0.00
Emerging Growth Fund 2,836,719 0.00 0.00
Managed Index Fund 360,994 449,019 0.00
Managed SmallCap Index Fund 0.00 419,108 0.00
Managed Value Index Fund 670 11,025 0.00
Managed SmallCap Value Index Fund 193 5,901 0.00
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Marsico Growth & Income Fund 0.00 10,919 0.00
Marsico Focused Equities Fund 27,032 0.00 0.00
Balanced Assets Fund 1,493,286 0.00 0.00
Short-Intermediate Gov't Fund 2,708,669 1,354,334 0.00
Short-Term Income Fund 1,006,049 1,006,049 0.00
Diversified Income Fund 1,440,010 288,002 0.00
Strategic Fixed Income Fund 7,389,298 1,760,101 0.00
Municipal Income Fund 1,495,049 865,120 0.00
Short-Term Municipal Income Fund 143,891 357,577 0.00
Intermediate Municipal Bond
Fund 1,814,264 1,420,175 0.00
Florida Intermediate
Municipal Bond Fund 414,266 371,186 0.00
Georgia Intermediate
Municipal Bond Fund 305,490 267,367 0.00
Maryland Intermediate
Municipal Bond Fund 216,531 251,773 0.00
North Carolina Intermediate
Municipal Bond Fund 350,910 325,600 0.00
South Carolina Intermediate
Municipal Bond Fund 532,494 471,252 0.00
Tennessee Intermediate
Municipal Bond Fund 67,179 121,971 0.00
Texas Intermediate Municipal
Bond Fund 688,008 601,927 0.00
Virginia Intermediate
Municipal Bond Fund 631,227 484,093 0.00
Florida Municipal Bond Fund 144,492 123,106 0.00
Georgia Municipal Bond Fund 33,480 66,122 0.00
Maryland Municipal Bond Fund 25,999 82,546 0.00
North Carolina Municipal
Bond Fund 83,208 94,452 0.00
South Carolina Municipal Bond
Funds 42,805 72,257 0.00
Tennessee Municipal Bond Fund 1,873 57,822 0.00
Texas Municipal Bond Fund 26,062 72,988 0.00
Virginia Municipal Bond Fund 56,750 81,176 0.00
Emerging Markets Fund 988,113 0.00 0.00
Pacific Growth Fund 894,307 0.00 0.00
Global Government Income Fund 288,379 0.00 0.00
NBAI received fees from the Funds for its services as outlined in the following
chart, which states the net advisory fees paid to NBAI, the advisory fees waived
and expense reimbursements where applicable for the fiscal year ended March 31,
1997. The table below also states the advisory fees paid and waived by Barnett
Capital Advisers, Inc. with respect to the Emerald International Equity Fund
(predecessor to the International Value Fund) for the period ended December 1,
1996 through November 30, 1997.
ADVISORY FEES
<TABLE>
<CAPTION>
<S> <C>
Net Amt. Amount Reimbsd.
Paid Waived by Advsr.
---- ------ ---------
Government Money Market Fund $ 595,369.00 $ 1,087,306.00 $ 0.00
Tax Exempt Fund 2,307,746.00 3,589,593.00 0.00
Value Fund 9,794,835.00 0.00 0.00
Capital Growth Fund 5,714,094.00 0.00 0.00
Disciplined Equity Fund 1,064,026.00 0.00 0.00
Equity Index Fund 678,564.00 1,534,132.00 0.00
Emerging Growth Fund 2,666,535.00 0.00 0.00
Managed Index Fund 12,069.00 86,414.00 22,720.00
Managed SmallCap Index Fund 13.00 44,990.00 18,619.00
Balanced Assets Fund 1,798,693.00 00.0 0.00
Short-Intermediate Gov't Fund 1,886,178.00 943,089.00 0.00
Short-Term Income Fund 600,834.00 601,326.00 0.00
Diversified Income Fund 1,000,615.00 200,123.00 0.00
Strategic Fixed Income Fund 4,757,641.00 951,528.00 0.00
Municipal Income Fund 323,476.00 305,497.00 0.00
Short-Term Municipal Income Fund 60,734.00 294,153.00 0.00
Intermediate Municipal Bond Fund 189,645.00 277,372.00 0.00
Florida Intermediate Municipal Bond Fund 104,662.00 161,773.00 0.00
Georgia Intermediate Municipal Bond Fund 124,834.00 165,879.00 0.00
Maryland Intermediate Municipal Bond Fund 260,093.00 227,212.00 0.00
North Carolina Intermediate
Municipal Bond Fund 76,726.00 121,064.00 0.00
South Carolina Intermediate
Municipal Bond Fund 152,937.00 197,205.00 0.00
Tennessee Intermediate Municipal Bond Fund 14,485.00 79,715.00 0.00
Texas Intermediate Municipal Bond Fund 54,898.00 104,929.00 0.00
</TABLE>
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<TABLE>
<CAPTION>
<S> <C>
Net Amt. Amount Reimbsd.
Paid Waived by Advsr.
---- ------ ---------
Virginia Intermediate Municipal Bond Fund 614,014.00 520,946.00 0.00
Florida Municipal Bond Fund 112,099.00 117,651.00 0.00
Georgia Municipal Bond Fund 26,675.00 61,249.00 0.00
Maryland Municipal Bond Fund 15,208.00 67,979.00 0.00
North Carolina Municipal Bond Fund 80,159.00 92,926.00 0.00
South Carolina Municipal Bond Funds 40,452.00 67,297.00 0.00
Tennessee Municipal Bond Fund 2,763.00 47,192.00 3,159.00
Texas Municipal Bond Fund 35,113.00 69,111.00 0.00
Virginia Municipal Bond Fund 49,575.00 71,879.00 0.00
Emerging Markets Fund 661,747.00 0.00 0.00
Pacific Growth Fund 1,035,724.00 0.00 0.00
Global Government Income Fund 298,997.00 0.00 0.00
Prime Fund 6,849,130.00 1,579,771.00 0.00
Treasury Fund 4,030,618.00 1,026,792.00 0.00
Equity Income Fund 2,632,510.00 0.00 0.00
International Equity Fund 8,870,691.00 0.00 0.00
International Value Fund 395,837.00 0.00 4,304.00
Government Securities Fund 568,081.00 156,808.00
</TABLE>
The table below states the net advisory fees paid to NationsBank and/or
its wholly-owned affiliate NBAI, the advisory fees waived and expense
reimbursements where applicable for the fiscal period from December 1, 1995 to
March 31, 1996. The table below also states the advisory fees paid to NBAI or
its predecessor under NFP's prior advisory agreement and the advisory fees
waived for the fiscal period from June 1, 1995 to March 31, 1996 for the
Emerging Markets Fund, Pacific Growth Fund and Global Government Income Fund.
The table also states the advisory fees paid and waived by Barnett Capital
Advisors, Inc. with respect to the Emerald International Equity Fund
(predecessor to the International Value Fund) from its commencement on Dec. 27,
1995 through the period ended November 30, 1996.
ADVISORY FEES
<TABLE>
<CAPTION>
<S> <C>
Net Amt. Amount Reimbsd.
Paid Waived by Advsr.
---- ------ ---------
Government Money Market Fund $ 195,815.00 $ 442,122.00 $ 0.00
Tax Exempt Fund 600,930.00 1,248,939.00 0.00
Value Fund 2,808,328.00 0.00 0.00
Capital Growth Fund 2,253,497.00 0.00 0.00
Disciplined Equity Fund 339,082.00 0.00 0.00
Equity Index Fund 64,733.00 0.00 0.00
Emerging Growth Fund 777,193.00 0.00 0.00
Balanced Assets Fund 590,332.00 0.00 0.00
Short-Intermediate Gov't Fund 619,149.00 384,574.00 0.00
Short-Term Income Fund 173,410.00 216,740.00 0.00
Diversified Income Fund 286,700.00 57,340.00 0.00
Strategic Fixed Income Fund 1,388,673.00 294,244.00 0.00
Municipal Income Fund 114,363.00 117,368.00 0.00
Short-Term Municipal Income Fund 12,972.00 99,745.00 0.00
Intermediate Municipal Bond Fund 45,524.00 89,165.00 0.00
Florida Intermediate Municipal Bond Fund 25,169.00 62,242.00 0.00
Georgia Intermediate Municipal Bond Fund 33,891.00 64,182.00 0.00
Maryland Intermediate Municipal Bond Fund 59,770.00 93,011.00 0.00
North Carolina Intermediate
Municipal Bond Fund 17,326.00 47,071.00 0.00
South Carolina Intermediate
Municipal Bond Fund 42,310.00 75,330.00 0.00
Tennessee Intermediate Municipal Bond Fund 0.00 31,491.00 1,332.00
Texas Intermediate Municipal Bond Fund 11,045.00 41,063.00 0.00
Virginia Intermediate Municipal
Bond Fund 196,295.00 215,292.00 0.00
Florida Municipal Bond Fund 34,641.00 44,125.00 0.00
Georgia Municipal Bond Fund 4,774.00 25,162.00 0.00
Maryland Municipal Bond Fund 108.00 27,352.00 0.00
North Carolina Municipal Bond Fund 24,232.00 38,851.00 0.00
South Carolina Municipal Bond Funds 5,358.00 27,497.00 0.00
Tennessee Municipal Bond Fund 0.00 15,588.00 5,817.00
Texas Municipal Bond Fund 6,913.00 28,200.00 0.00
Virginia Municipal Bond Fund 11,162.00 29,711.00 0.00
</TABLE>
76
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<TABLE>
<CAPTION>
<S> <C>
Net Amt. Amount Reimbsd.
Paid Waived by Advsr.
---- ------ ---------
Prime Fund 6,265,471.00 726,242.00 0.00
Treasury Fund 4,417,264.00 552,985.00 0.00
Equity Income Fund 2,329,896.00 0.00 0.00
International Equity Fund 5,291,343.00 84,472.00 0.00
International Value Fund 0.00 0.00 0.00
Government Securities Fund 468,579.00 147,897.00 0.00
Emerging Markets Fund 188,334.00 0.00 0.00
Pacific Growth Fund 307,806.00 0.00 0.00
Global Government Income Fund 1,132,152.00 0.00 0.00
</TABLE>
The Pilot U.S. Government Fund (predecessor to the U.S. Government Bond
Fund) and the Pilot Small Capitalization Equity Fund (predecessor to the Pilot
Small Company Growth Fund) paid and waived the following advisory and
sub-advisory fees under a prior advisory agreement with Boatmen's during the
periods indicated.
ADVISORY AND SUB-ADVISORY FEES PAID
SEPTEMBER 1, 1996 - MAY 16, 1997
Advisory
Fee
Pilot US Government Fund
Advisory Fee $552,504
Advisory Waiver (125,674)
--------
426,830
--------
Pilot Small Capitalization Fund
Advisory Fee $ 731,622
Advisory Waiver $(250,320)
---------
$ 481,302
---------
ADVISORY FEES PAID
SEPTEMBER 1, 1995 - SEPTEMBER 1, 1994 -
AUGUST 31, 1996 AUGUST 31, 1995
--------------- -----------------
Pilot US Government Fund $555,098 $415,164
Pilot Small Capitalization Fund $178,877 $0*
* Fund inception 12/12/95
SUB-ADVISORY FEES PAID
SEPTEMBER 1, 1995 - AUGUST 31, 1994 -
AUGUST 31, 1996 - AUGUST 31, 1995
--------------- -----------------
Pilot US Government Fund N/A N/A
Pilot Small Capitalization Fund N/A N/A
The table below states the net sub-advisory fees paid to TradeStreet for
the fiscal periods indicated. No fees were waived or reimbursed by the Adviser
during this periods.
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<PAGE>
SUB-ADVISORY FEES
Period Ending
3/31/98
Net Amount Paid
---------------
Prime Fund $2,959,571
Treasury Fund 1,763,574
Equity Income Fund 1,478,586
Government Securities Fund 181,945
Small Company Growth Fund 338,212
Government Money Market Fund 186,411
Tax Exempt Fund 1,199,059
Value Fund 5,222,656
Capital Growth Fund 1,905,808
Disciplined Equity Fund 412,093
Equity Index Fund 678,190
Emerging Growth Fund 945,572
Managed Index Fund 162,002
Managed SmallCap Index Fund 83,822
Managed Value Index Fund 2,505
Managed SmallCap Value Index Fund 1,410
Balanced Assets Fund 497,762
Short-Intermediate Gov't Fund 1,015,751
Short-Term Income Fund 503,025
Diversified Income Fund 432,003
Strategic Fixed Income Fund 2,287,350
Municipal Income Fund 275,353
Short-Term Municipal Income Fund 70,205
Intermediate Municipal Bond Fund 452,822
Florida Intermediate
Municipal Bond Fund 109,963
Georgia Intermediate
Municipal Bond Fund 80,200
Maryland Intermediate
Municipal Bond Fund 65,563
North Carolina Intermediate
Municipal Bond Fund 94,711
South Carolina Intermediate
Municipal Bond Fund 140,524
Tennessee Intermediate
Municipal Bond Fund 26,481
Texas Intermediate Municipal
Bond Fund 180,591
Virginia Intermediate
Municipal Bond Fund 156,145
Florida Municipal Bond Fund 31,220
Georgia Municipal Bond Fund 11,621
Maryland Municipal Bond Fund 12,663
North Carolina Municipal
Bond Fund 20,727
South Carolina Municipal Bond
Funds 13,424
Tennessee Municipal Bond Fund 6,964
Texas Municipal Bond Fund 11,556
Virginia Municipal Bond Fund 16,091
Period Ending Period Ending
3/31/97 3/31/96
Net Amt. Net Amt.
Paid Paid
---- ----
Government Money Market Fund $ 231,367.00 $ 65,559.22
Tax Exempt Fund 810,884.00 195,836.30
Value Fund 3,264,945.00 702,508.52
Capital Growth Fund 1,904,698.00 558,981.57
Disciplined Equity Fund 354,675.00 85,311.87
Equity Index Fund 442,539.00 41,386.62
Managed Index Fund 19,717.00 194,888.10
Managed SmallCap Index Fund 9,001.00 146,994.87
Emerging Growth Fund 888,845.00 185,611.41
Balanced Assets Fund 599,564.00 73,671.51
Short-Intermediate Gov't Fund 707,317.00 63,997.63
Short-Term Income Fund 300,416.00 313,681.03
Diversified Income Fund 300,184.00 20,092.35
Strategic Fixed Income Fund 1,427,292.00 11,904.57
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<PAGE>
Period Ending Period Ending
3/31/97 3/31/96
Net Amt. Net Amt.
Paid Paid
---- ----
Municipal Income Fund 73,380.00 14,212.28
Short-Term Municipal Income Fund 49,684.00 9,158.98
Intermediate Municipal Bond Fund 65,382.00 10,161.88
Florida Intermediate Municipal
Bond Fund 37,301.00 15,999.36
Georgia Intermediate Municipal
Bond Fund 40,700.00 6,729.45
Maryland Intermediate Municipal
Bond Fund 59,822.00 12,199.38
North Carolina Intermediate
Municipal Bond Fund 27,691.00 3,812.00
South Carolina Intermediate
Municipal Bond Fund 49,020.00 5,474.20
Tennessee Intermediate
Municipal Bond Fund 13,188.00 42,887.69
Texas Intermediate Municipal
Bond Fund 22,376.00 6,891.65
Virginia Intermediate Municipal
Bond Fund 158,894.00 2,562.42
Florida Municipal Bond Fund 26,804.00 2,390.88
Georgia Municipal Bond Fund 10,258.00 5,475.32
Maryland Municipal Bond Fund 9,705.00 2,870.87
North Carolina Municipal Bond
Fund 20,193.00 1,366.28
South Carolina Municipal Bond
Fund 12,571.00 3,051.30
Tennessee Municipal Bond Fund 5,828.00 3,538.33
Texas Municipal Bond Fund 12,160.00 563,821.51
Virginia Municipal Bond Fund 14,170.00 356,560.15
Emerging Markets Fund 511,350.00 212,221.62
Pacific Growth Fund 805,563.00 0.00
Prime Fund 2,296,435.00 239,405.20
Treasury Fund 1,377,806.00 145,531.05
Equity Income Fund 777,371.00 101,945.98
Government Securities Fund 170,424.00 n/a
The table below states the net sub-advisory fees paid to Gartmore for the
fiscal period indicated. No fees were waived or reimbursed by the Adviser during
this periods.
SUB-ADVISORY FEES
Period Ending Period Ending Period Ending
3/31/98 3/31/97 3/31/97
------- ------- -------
International Equity Fund $9,260,333.98 $6,899,426.00 n/a
International Growth Fund 4,331,994.06 n/a n/a
Emerging Markets Fund 988,113.20 511,350.00 $212,221.62
Pacific Growth Fund 894,306.20 805,563.00 0.00
Global Government Income Fund 288,379.18 230,655.00 47,092.65
The table below states the net sub-advisory fees paid to Marsico for the
fiscal year ended March 31, 1998. No fees were waived or reimbursed by the
Adviser during this periods.
SUB-ADVISORY FEES
Net Amount Paid
---------------
Marsico Focused Equities Fund $14,311
Marsico Growth & Income Fund 5,780
The table below states the net sub-advisory fees paid to Brandes for the
fiscal period indicated. No fees were waived or reimbursed by the Adviser during
this periods.
Period Ending Period Ending Period Ending
5/15/98 11/30/97 11/30/96
------- -------- --------
International Value Fund $177,516.52 $212,631.72 $19,395.00
79
<PAGE>
INVESTMENT STYLES
When you invest in any Fund in the Nations Funds Family, you can be assured
your money is managed according to a disciplined investment style; one that
remains constant regardless of particular styles coming in and out of favor. The
Adviser believes this structured approach to managing portfolio securities may
provide you with consistent performance over time. The Adviser uses various
investment strategies during the process of managing the Funds. These strategies
have been categorized into investment styles which include (i) the Small Company
Growth Style; (ii) the Equity Income Style; (iii) the International Equity
Style; (iv) The International Growth Style; (v) the Fixed Income Style; (vi) the
Growth Style, (vii) the Value Style and (viii) the Balanced Assets Style.
Investment Styles described below relate to the Small Company Growth,
Diversified Income, International Equity, International Growth, Government
Securities, Short-Intermediate Government, Short-Term Income, Strategic Fixed
Income, Intermediate Municipal Bond, Municipal Income, Short-Term Municipal
Income, Capital Growth, Emerging Growth, Value and Balanced Assets Funds and the
State Intermediate Municipal Bond Funds and the State Municipal Bond Funds.
SMALL COMPANY GROWTH STYLE. The Small Company Growth Fund is managed by
the Adviser using the Small Company Growth Style. The Small Company Growth Style
investment philosophy is premised on the belief that a diversified portfolio of
stocks with an above average yield can provide long-term returns, higher than
that of the S&P 500 Index (the "S&P 500") and with less volatility.
This style utilizes a "low volatility" approach to stock selection,
focusing on tested factors of fundamental stock valuation. Volatility is reduced
through selecting stocks with Beta Coefficient ("Beta") of less than 1.0 (Beta
is a measurement of volatility relative to the stock market as a whole, which
has a Beta of 1.0). Small Company Growth Style seeks to maintain a yield on the
portfolio of at least 50% higher than the dividend yield for the S&P 500. The
Adviser reduces risk by investing in both common stocks and convertible
securities.
The Small Company Growth Style stock selection process begins with a team
of in-house research specialists aided by a computerized screening process.
Starting with a 5000 company universe, stocks must first pass a rigorous
screening process that selects companies with a yield one-third less than the
S&P 500 and market capitalization of less than $1 billion. Often stocks with
below average yields grow faster than those with average yields. Therefore, over
time, a portfolio may earn more income by purchasing stocks with below average
yields. Stocks are then ranked relative to other stocks within their industry.
A more sophisticated screening process is then applied to the universe.
Each company is ranked based on the following factor weightings: (i) market
style analyzes correlations between crucial stock characteristics (price/book
ratios, dividends yields, and return on assets) and price performance; (ii)
insider trading looks at filings with the SEC and evaluates them by title, date,
transaction size and historical performance; (iii) earnings expectations
evaluates changes in annual earnings estimates and quarterly earnings surprises,
and (iv) price momentum monitors relative price strength with short term under
performance. The final portfolio of approximately 75 to 130 issues is
constructed by the TradeStreet's Strategic Growth Management Team working
closely with in-house industry specialists, as well as expert Wall Street
sources.
EQUITY INCOME STYLE. The Equity Income Fund is managed by the Adviser using
the Equity Income Style. The Equity Income Style investment philosophy is
premised on the belief that a diversified portfolio of stocks with an above
average yield can provide long-term returns, higher than that of the S&P 500
Index (the "S&P 500") and with less volatility.
This style utilizes a "low volatility" approach to stock selection, focusing
on tested factors of fundamental stock valuation. Volatility is reduced through
selecting stocks with Beta Coefficient ("Beta") of less than 1.0 (Beta is a
measurement of volatility relative to the stock market as a whole, which has a
Beta of 1.0). The Equity Income Style seeks to maintain a yield on the portfolio
of at least 50% higher than the dividend yield for the S&P 500. The Adviser
reduces risk by investing in both common stocks and convertible securities.
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<PAGE>
The Equity Income Style stock selection process begins with a team of
in-house research specialists aided by a computerized screening process.
Starting with a 2000 company universe, stocks must first pass a rigorous
screening process that selects companies with a yield only one-third less than
the S&P 500 and market capitalization greater than $500 million. Often stocks
with below average yields grow faster than those with average yields. Therefore,
over time, a portfolio may earn more income by purchasing stocks with below
average yields. Stocks are then ranked relative to other stocks within their
industry.
A more sophisticated screening process is then applied to the universe. Each
company is ranked based on the following factor weightings: (i) market style
analyzes correlation's between crucial stock characteristics (price/book ratios,
dividends yields, and return on assets) and price performance; (ii) Insider
Trading looks at filings with the SEC and evaluates them by title, date,
transaction size and historical performance; (iii) Earnings Expectations
evaluates changes in annual earnings estimates and quarterly earnings surprises,
and (iv) Price Momentum monitors relative price strength with short term under
performance. The final portfolio of approximately 70 issues is constructed by
the Adviser's Value Management Team working closely with in-house industry
specialists, as well as outside sources.
INTERNATIONAL EQUITY STYLE. The International Equity Fund is managed by the
Adviser using the International Equity Style. The International Equity Style
investment philosophy is premised on the belief that a diversified portfolio of
equity securities of established, non-United States issuers can provide
long-term growth of capital and income.
This style focuses on the country selection process by utilizing macro
economics forecasts to identify areas of the world which will exhibit relatively
strong growth within the context of a modest inflation and low interest rate
environment. The political factors and market liquidity constraints which can
affect stock market valuations are also taken into consideration by the Adviser
prior to making stock selections.
The stock selection process begins with the elimination of equity securities
with a market capitalization of less than $250 million. The next step in the
process is the ranking of each country and industry sector by relative
price/earnings ratio using an historical range of not less than ten years from
an universe of approximately 1000 stocks. In addition to the relative historical
price/earnings ratio the portfolio managers also employ a fundamental analysis
of growth opportunities, management and future direction of these stocks.
The International Equity Fund is a dollar-denominated mutual fund and
therefore, consideration is given to hedging part or all of the portfolio back
to U.S. dollars from international currencies. All decisions to hedge are based
upon an analysis of the relative value of the U.S. dollar on an international
purchasing power parity basis (purchasing power parity is a method for
determining the relative purchasing power of different currencies by comparing
the amount of each currency required to purchase a typical bundle of goods and
services to domestic markets) and an estimation of short-term interest rate
differentials (which affect both the direction of currency movements and also
the cost of hedging).
INTERNATIONAL GROWTH STYLE. The International Growth Fund is managed by the
Adviser using the International Growth Style. The International Growth Style
investment philosophy is premised on the belief that a diversified portfolio of
equity securities of established, non-United States issuers can provide
long-term growth of capital and income.
This style focuses on the country selection process by utilizing
macroeconomic forecasts to identify areas of the world which will exhibit
relatively strong growth within the context of a modest inflation and low
interest rate environment. The political factors and market liquidity
constraints which can affect stock market valuations are also taken into
consideration by the Adviser prior to making stock selections.
The International Growth Fund is a dollar-denominated mutual fund and
therefore, consideration is given to hedging part or all of the portfolio back
to U.S. dollars from international currencies. All decisions to hedge are based
upon an analysis of the relative value of the U.S. dollar on an international
purchasing power parity basis (purchasing power parity is a method for
determining the relative purchasing power of different currencies by
81
<PAGE>
comparing the amount of each currency required to purchase a typical bundle of
goods and services to domestic markets) and an estimation of short-term interest
rate differentials (which affect both the direction of currency movements and
also the cost of hedging).
FIXED INCOME STYLE. The Diversified Income, Government Securities,
Short-Intermediate Government, Short-Term Income, Strategic Fixed Income,
Intermediate Municipal Bond, Municipal Income, Florida Intermediate Municipal
Bond, Georgia Intermediate Municipal Bond, Maryland Intermediate Municipal Bond,
North Carolina Intermediate Municipal Bond, South Carolina Intermediate
Municipal Bond, Tennessee Intermediate Municipal Bond, Texas Intermediate
Municipal Bond, Virginia Intermediate Municipal Bond Fund, Short-Term Municipal
Income Fund and the State Municipal Bond Funds are managed by the Adviser using
the Fixed Income Style. The Fixed Income Style investment philosophy is premised
on the belief that a well diversified portfolio of fixed income securities that
emphasizes a combination of investments strategies will capture relative value
in the bond market.
In order to pursue this goal, the Fixed Income Style includes certain
biases. The Adviser reduces the risk by investing in many different issuers.
This is done by setting a maximum percentage permitted of any single issuer in
any portfolio. Focus on high credit quality is the second bias. Holdings are
concentrated in the upper end of the quality spectrum. Securities of less than
the highest quality are used only when the team of credit analysts support the
conclusion that the quality will remain stable or improve, and that it offers
attractive potential in expected return. The third bias is to de-emphasize
interest rate forecasts. The performance of a portfolio therefore is not held
hostage to the accuracy of a rate forecast.
This philosophy attempts to achieve consistent results while minimizing
risk. Five strategies are also utilized by the Adviser to meet this objective.
Sector Spread Anomalies: When sectors of the bond market are over or under
valued, the allocation in the portfolios is adjusted accordingly. Such decisions
are made based on a sound analysis of historical bond values as well as a review
of current market conditions and its impact on future values.
Yield Curve Anomalies: Unusual shapes in the yield curve or the degree of
steeples in the yield curve provide opportunities to outperform fixed income
indices. Such opportunities are reviewed by our specialists for return
enhancement under a variety of possible interest rate shifts before they are
implemented.
Coupon/Quality Opportunities: High or low coupon securities may represent
investment value based on supply and demand conditions for bonds. There are also
times when upgrading or downgrading of the credit quality of a bond can enhance
a portfolio's return. Funds hold lower quality bonds only when the expected
reward is substantial compared to the potential risks, and credit analysis
supports the conclusion that the credit quality is stable or improving.
Security Analysis: A full staff of credit analysts is dedicated to
supporting fixed income credit decisions. This staff gains additional support
from a substantial equity research team when analyzing bonds from corporate
issuers.
Duration Management: The duration (price volatility of a bond in relation
to interest rate movements) of the portfolios may be altered by 10% shorter or
longer than the portfolios normal benchmark. Changes in duration are made
infrequently and only when they are supported by economic expectations and an
assessment of value.
A final portfolio consists of securities that have been selected by
TradeStreet's Municipal Fixed Income Management Team and Fixed Income Management
Team, as the case may be, in-house industry specialists and outside sources all
working together.
GROWTH STYLE. The Capital Growth and Emerging Growth Funds are managed by
the Adviser using the Growth Style. The Growth Equity Style investment
philosophy seeks companies with superior growth prospects selling at reasonable
prices that, over time, should outperform the market.
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<PAGE>
Emphasis is placed on a "value adjusted for growth" stock selection
process. Essential to this style is the Adviser's belief that absolute valuation
does not capture the powerful effects of inflation. Therefore, relative
price/earnings ranges of stocks going back 5 years are examined rather than
static absolute price/earnings ratio.
Inflation causes the market price/earnings ratio of a stock to expand or
contract. Investors are willing to pay a higher price for stock in a company in
periods of low inflation. The inverse is also true. The premium paid for growth
will increase as inflation declines and decreases as inflation rises.
The stock selection process begins with a universe of financially strong
companies. The selection process selects companies with a market capitalization
greater than $500 million (large, established companies) and a strong price
momentum (growth in share price over the last 18 months). This results in a
universe of approximately 750 companies.
These 750 companies are the universe from which the Adviser's industry
specialists make their final decision for inclusion in an investment portfolio.
In accordance with the Growth Style, the CoreGrowth Management Team (with
respect to Capital Growth Fund) and the Strategy Growth Management Team (with
respect to Growth Fund) those stocks among the universe with the lowest
price/earnings ratio and are in industries with above average earnings growth
potential. The final portfolio of stocks is then constructed by the Adviser, who
works closely with the in-house industry specialists, as well as expert Wall
Street sources.
In summary, the Growth Equity Style seeks to produce a diverse portfolio
of large capitalization growth stocks, that over time, should outperform the
market.
VALUE STYLE. The Value Fund is managed by the Adviser using the Value
Style. The Value Style investment philosophy is premised on the belief that a
well diversified portfolio of undervalued companies exhibiting low
price/earnings ratios will over time outperform the market while incurring lower
than market risk.
This style utilizes a "bottom-up" approach to stock selection, focusing on
well proven factors of fundamental valuation. A low price/earnings ratio and
above market dividend yield are two of the biases which reduce market risk. A
catalyst for earnings improvement is also one of this Style's requirements as it
assists with the "timing" of the purchase of a particular company.
Stock selection process begins with a team of 10 in-house research
specialists aided by a computerized screening model. Starting with approximately
a 2,000 company universe, stocks must first pass a rigorous screening process
that selects only those companies that possess strong financial quality and a
market capitalization greater than $500 million. This results in a universe of
approximately 900 companies, representing all of the 54 major U.S. industries
and approximately 10 economic sectors.
A more sophisticated screening process is then applied to the 900 company
universe. The companies are then ranked based on the following factor
weightings:
The top one-third, or approximately 300 companies, result in the final
universe from which the industry specialists make initial selections for a Fund.
To insure adherence to the discipline, price objectives (buy and sell prices)
are set for each company purchased, based on sound fundamental analysis. A final
diversified portfolio of approximately 65 issues is constructed by the Value
Management Team working closely with in-house industry specialists, as well as
outside sources.
In summary, the low price/earnings ratio, value discipline seeks to
produce a well diversified portfolio of high quality companies, that over time,
should outperform the market, thereby adding value while incurring below-market
risk.
BALANCED ASSETS STYLE. The Balanced Assets Fund is managed by the Adviser
using the NationsBank Balanced Assets Style. The Balanced Assets Style
investment philosophy is premised on the belief that a diversified
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<PAGE>
portfolio of stocks, fixed income, and money market securities will provide
total investment return through a combination of growth of capital and current
income consistent with preservation of capital.
In order to pursue this goal, the Balanced Assets Style utilizes an asset
allocation approach. Asset allocation is a process of allocating a portfolio's
market value among major asset classes (equities, fixed income, and cash
equivalents). Different asset classes have unique return and risk
characteristics. The principle behind asset allocations is that a diversified
portfolio of equities, fixed income, and cash equivalents with different
return/risk characteristics will reduce overall portfolio risk in both up and
down markets.
The asset allocation process begins by making projections for stock, bond
and cash returns and risk profiles. A computer data analysis identifies the
highest expected return and measures it against the minimum return requirements
for the balanced strategy.
Final stock, bond and asset allocation decisions are made by the Value
Management Team, which has the ability to change the portfolio's holdings to
take advantage of changing market conditions, while seeking an optimal balance
of income, stability, and growth. Most stock investments will be made in
companies with above average earnings and dividend prospects and overall
financial market stability. All bond purchases will be investment grade or
above. Cash instruments will provide liquidity.
In summary, the Balanced Assets Style should provide total investment
return through a combination of growth of capital and current income consistent
with preservation of capital.
DISCIPLINED EQUITY STYLE. The Disciplined Equity Fund is managed by the
Adviser using the Disciplined Equity Style. The Disciplined Equity Style
investment philosophy seeks to identify companies which offer future near-term
earnings momentum.
The Adviser pursues this investment philosophy through the use of a
proprietary computerized tracking system (the "Alpha Model") which monitors the
earnings per share estimates of approximately 3,000 Wall Street analysts, and
through conventional security analysis. In utilizing the computerized tracking
system, the Adviser identifies companies with respect to which there has been a
change in the consensus analyst estimate of earnings per share. The Adviser
believes that such a change often signifies the beginning of a trend for the
company, rather than an isolated occurrence, and that such trend ultimately will
be reflected in the share price of the company. The Adviser then buys or sells
stocks for the Fund based on the results of this analysis.
In selecting stocks pursuant to the Disciplined Equity Style, the Adviser
also uses conventional security analysis techniques. Starting with a universe of
approximately 2,000 companies with large market capitalization's, the Adviser
eliminates stocks that have relatively low trading activity, as well as stocks
of companies of poor credit quality and those which, in the opinion of the
Adviser, are overpriced. From the available pool of stocks that meet all of the
criteria, approximately 40 to 50 are selected for inclusion in the Fund's
portfolio.
Other strategies have been categorized into investment styles which
consist of the Emerging Markets and Pacific Growth Funds Style and the Global
Government Income Fund Style. These styles are described below.
EMERGING MARKETS AND PACIFIC GROWTH FUNDS STYLE. The Emerging Markets and
Pacific Growth Funds utilize an investment philosophy that is best characterized
as growth at a reasonable price. This philosophy is applied as appropriate for
each specific region or market in which the Funds invest, with input from the
asset allocation process. This implies a combination of bottom-up stock
selection with risk controlled allocation. For the Emerging Markets Fund the
integration of active stock selection with country allocation is necessary to
optimize the Fund's risk/return characteristics, as emerging markets are fast
changing. The ability to move freely between markets to take advantage of
improving or deteriorating economic fundamentals is important in the pursuit of
an active management style. Therefore emphasis is placed on the larger more
liquid securities available in the markets in which it invests.
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The research for the Emerging Markets Fund focuses on over twenty-five
countries. While many of the countries within this universe share regional
characteristics that influence their capital markets, they each possess unique
political economic and developmental elements. The investable universe is
researched to assess factors such as: (1) political risk; (2) economic growth;
(3) trade balances and (4) stock market value. Country allocations are then made
within previously established risk control guidelines to prevent undue
concentration. The allocations are actively reviewed for market movement and/or
changes in fundamentals.
Stock selection is driven by fundamental research. As a first step, the
Adviser creates a screened universe of approximately 800 small-to
large-capitalization companies. The initial screen focuses on several criteria,
with earnings growth, financial resources and marketability being the most
critical. Companies producing consistently above average earnings growth rates
are featured, as are those with strong balance sheets or producing high levels
of free cash flow. Securities that exhibit very low levels of trading are
eliminated.
Approximately 500 companies evolve from the process as potential
candidates, and are subject to further fundamental analysis. Company visits are
made to verify the corporate and industry factors that have created a record of
growth, and to assess whether these factors are sustainable. Earnings models are
created, which are related to historic and projected levels of valuation in
order to generate expected returns across the universe of emerging market
securities. A preferred list of approximately 80 to 100 stocks in 15 or more
countries are then chosen for inclusion in the Fund. Fund holdings are actively
reviewed to assess whether expected return targets are being met and to confirm
that a company's fundamentals have not changed.
**For the Pacific Growth Fund, local contacts, fundamental research and
seasoned judgment are vital components in capturing attractive issues and
regional growth in the Pacific Basin and Far East. The Fund's investment process
is driven by fundamental research for both macroeconomic factors and stock
analysis with a focus on economic trends, market valuations, and performance
momentum. Overall, research is concentrated on a screened universe of
approximately 600 companies. Quantitative and qualitative screens, are essential
elements of the research process.
Approximately 250 companies will evolve from the process as potential
candidates and will be subject to more stringent analysis seeking to identify:
(1) above-average earnings growth over the medium term; (2) solid financials;
(3) positive cash flow and (4) strength and depth of management.
At this stage company visits are made. These visits are a critical part of
the selection process. Special effort is expended in visiting competitors,
suppliers and customers of the companies in which we are interested. Of
particular importance is a thorough understanding of the management's criteria
for measuring their success in achieving strategic objectives; their motivation,
stability, and succession plan; and critically, their recognition of the need to
create value for external shareholders. A preferred list of approximately 80
Pacific Basin stocks will result and will be chosen for investment in the Fund.
Fund holdings are actively reviewed to assess whether expected return targets
are being met and to confirm that a company's fundamentals have not changed.
The Fund utilizes a twelve month rolling earnings forecasts to generate
country return forecasts. The forecast is based on the assessment of
macro-economic, political and local market factors as well as the composite of
the individual company earnings forecasts. Country allocations are then made
within previously established risk control guidelines to prevent undue
concentration by country. The portfolio is rigorously analyzed in final
screening to monitor industry and sector exposures to prevent undue
concentration, and to consider market influence factors such as political
changes, market rotation or liquidity flows.
GLOBAL GOVERNMENT INCOME FUND STYLE. The Global Government Income Fund
utilizes an investment philosophy that is founded upon the belief that the
analysis of longer term economic trends is the key to successful fixed income
investment management rather than relying on short-term tactical models or
specific issue selection through credit analysis. Therefore, the investment
process is top-down, macroeconomic driven and strategic in nature, relying
primarily on investment in very high credit quality fixed income securities with
the objective of adding value through correct identification of interest rate
and currency trends across global markets.
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The starting point for the fixed income process is a top-down view of key
economic variables across the regions in which it invest. Based on this
fundamental research, a rolling twelve month forecast of interest rates across
the yield curve from three months through thirty years is produced. Currency
rates are also forecast. These forecasts generate a matrix of potential returns
for fixed income securities of every maturity and from each currency base.
Duration management, not security selection, is key to the investment
process. As the forecasting process predicts returns across the yield curve, it
is possible to select the most advantageous maturity and duration of bonds in
which to invest. The screening process encompasses the entire maturity spectrum
of fixed income instruments, from three month deposits to ten year bonds, and up
to thirty year bonds where available. However, under normal market conditions
the dollar-weighted average maturity will not be greater than 15 years.
Investments are primarily made in U.S. and foreign government bonds and high
credit quality corporate bonds, banks and supranatural entities, as very high
emphasis is placed on credit quality and liquidity of investments.
ADMINISTRATOR, CO-ADMINISTRATOR AND SUB-ADMINISTRATOR
Stephens Inc. (the "Administrator") serves as administrator of each Company
and First Data Investors Services Group, Inc. (the "Co-Administrator") serves as
the co-administrator of the Companies.
The Administrator and Co-Administrator serve under an administration
agreement ("Administration Agreement") and co-administration agreement
("Co-Administration Agreement"), respectively, each of which was approved by the
Board of Directors on August 4, 1993. The Administrator receives, as
compensation for its services rendered under the Administration Agreement and as
agent for the Co-Administrator for the services it provides under the
Co-Administration Agreement, an administrative fee, computed daily and paid
monthly, at the annual rate of 0.10% of the average daily net assets of each
Fund.
Pursuant to the Administration Agreement, the Administrator has agreed to,
among other things, (i) maintain office facilities for the Funds, (ii) furnish
statistical and research data, data processing, clerical, and internal executive
and administrative services to each Company, (iii) furnish corporate secretarial
services to each Company, including coordinating the preparation and
distribution of materials for Board of Directors/Trustees meetings, (iv)
coordinate the provision of legal advice to each Company with respect to
regulatory matters, (v) coordinate the preparation of reports to each Company's
shareholders and the SEC, including annual and semi-annual reports, (vi)
coordinating the provision of services to each Company by the Co-Administrator,
the Transfer Agents and the Custodians, and (vii) generally assist in all
aspects of each Company's operations. Additionally, the Administrator is
authorized to receive, as agent for the Co-Administrator, the fees payable to
the Co-Administrator by each Company for its services rendered under the
Co-Administration Agreement. The Administrator bears all expenses incurred in
connection with the performance of its services.
Pursuant to the Co-Administration Agreement, the Co-Administrator has agreed
to, among other things, (i) provide accounting and bookkeeping services for the
Funds, (ii) compute each Fund's net asset value and net income, (iii) accumulate
information required for the Company's reports to shareholders and the SEC, (iv)
prepare and file each Company's federal and state tax returns, (v) perform
monthly compliance testing for the Company, and (vi) prepare and furnish the
Company 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 Directors/Trustees or by the
Administrator or Co-Administrator, respectively, on 60 days' written notice
without penalty. The Administration Agreement and Co-Administration Agreement
are not assignable without the written consent of the other party. Furthermore,
the Administration Agreement and the Co-Administration Agreement provide that
the Administrator and Co-Administrator, respectively, shall not be liable to the
Funds or to their shareholders except in the case of the Administrator's or
Co-Administrator's, respectively, willful misfeasance, bad faith, gross
negligence or reckless disregard of duty.
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<PAGE>
NBAI serves as sub-administrator for the Funds pursuant to
sub-administration agreements. Pursuant to their terms, NBAI assists Stephens in
supervising, coordinating and monitoring various aspects of the Funds'
administrative operations. For providing such services, NBAI is entitled to
receive a monthly fee from Stephens based on an annual rate of 0.01% of the
Funds' average daily net assets.
The table set forth below states the net Administration fees paid to
Stephens and waived for the fiscal year ended March 31, 1998.
ADMINISTRATION FEES
-------------------
Net Fees
Paid Fees Waived
---- -----------
Prime Fund 4,056,997 1,110,297
Treasury Fund 2,423,641 664,082
Equity Income Fund 494,468 0.00
Government Securities Fund 71,126 0.00
International Equity Fund 405,314 0.00
International Growth Fund 230,311 0.00
International Value Fund n/a n/a
Small Company Growth Fund 96,976 0.00
U.S. Government Bond Fund 89,058 0.00
Government Money Market Fund 259,300 71,128
Tax Exempt Fund 1,591,584 436,123
Value Fund 1,408,801 0.00
Capital Growth Fund 503,034 0.00
Disciplined Equity Fund 101,504 0.00
Equity Index Fund 458,619 0.00
Emerging Growth Fund 246,308 0.00
Managed Index Fund 111,133 0.00
Managed SmallCap Index Fund 61,116 0.00
Managed Value Index Fund 1,630 0.00
Managed SmallCap Value Index Fund 848 0.00
Marsico Growth & Income Fund 898 0.00
Marsico Focused Equities Fund 2,227 0.00
Balanced Assets Fund 134,032 0.00
Short-Intermediate Gov't Fund 401,570 0.00
Short-Term Income Fund 203,225 0.00
Diversified Income Fund 173,538 0.00
Strategic Fixed Income Fund 903,615 0.00
Municipal Income Fund 153,482 78,672
Short-Term Municipal Income Fund 38,788 20,059
Intermediate Municipal Bond Fund 254,780 129,378
Florida Intermediate Municipal Bond
Fund 61,898 31,419
Georgia Intermediate Municipal Bond
Fund 44,811 22,914
Maryland Intermediate Municipal
Bond Fund 36,010 26,201
North Carolina Intermediate
Municipal Bond Fund 53,527 27,061
South Carolina Intermediate
Municipal Bond Fund 79,235 40,150
Tennessee Intermediate Municipal
Bond Fund 14,824 7,566
Texas Intermediate Municipal Bond
Fund 102,899 51,598
Virginia Intermediate Municipal
Bond Fund 85,542 44,703
Florida Municipal Bond Fund 17,169 8,920
Georgia Municipal Bond Fund 6,369 3,320
Maryland Municipal Bond Fund 6,978 3,619
North Carolina Municipal Bond Fund 11,379 5,922
South Carolina Municipal Bond Funds 7,376 3,836
Tennessee Municipal Bond Fund 3,826 1,990
Texas Municipal Bond Fund 6,334 3,301
Virginia Municipal Bond Fund 8,843 4,598
Emerging Markets Fund 21,266 0.00
Pacific Growth Fund 30,206 0.00
Global Government Income Fund 21,621 0.00
The table below sets forth the total co-administration fees paid to First
Data Investor Services Group, Inc. ("First Data") and waived by First Data for
the fiscal year ended March 31, 1998.
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<PAGE>
CO-ADMINISTRATION FEES
Net Fees
Paid Fees Waived
---- -----------
Prime Fund 384,193 0.00
Treasury Fund 232,691 0.00
Equity Income Fund 244,825 0.00
Government Securities Fund 50,171 0.00
International Equity Fund 623,612 0.00
International Growth Fund 306,814 0.00
International Value Fund n/a n/a
Small Company Growth Fund 43,762 0.00
U.S. Government Bond Fund 59,434 0.00
Government Money Market Fund 25,208 0.00
Tax Exempt Fund 152,908 0.00
Value Fund 680,262 0.00
Capital Growth Fund 259,289 0.00
Disciplined Equity Fund 63,108 0.00
Equity Index Fund 214,846 0.00
Emerging Growth Fund 131,921 0.00
Managed Index Fund 50,870 0.00
Managed SmallCap Index Fund 22,706 0.00
Managed Value Index Fund 709 0.00
Managed SmallCap Value Index Fund 371 0.00
Marsico Growth & Income Fund 387 0.00
Marsico Focused Equities Fund 953 0.00
Balanced Assets Fund 65,073 0.00
Short-Intermediate Gov't Fund 275,597 0.00
Short-Term Income Fund 132,125 0.00
Diversified Income Fund 114,464 0.00
Strategic Fixed Income Fund 621,285 0.00
Municipal Income Fund 161,207 0.00
Short-Term Municipal Income Fund 41,447 0.00
Intermediate Municipal Bond Fund 262,730 0.00
Florida Intermediate Municipal Bond
Fund 63,773 0.00
Georgia Intermediate Municipal Bond
Fund 46,846 0.00
Maryland Intermediate Municipal
Bond Fund 31,450 0.00
North Carolina Intermediate
Municipal Bond Fund 54,714 0.00
South Carolina Intermediate
Municipal Bond Fund 81,364 0.00
Tennessee Intermediate Municipal
Bond Fund 15,440 0.00
Texas Intermediate Municipal Bond
Fund 103,490 0.00
Virginia Intermediate Municipal
Bond Fund 92,909 0.00
Florida Municipal Bond Fund 18,511 0.00
Georgia Municipal Bond Fund 6,911 0.00
Maryland Municipal Bond Fund 7,494 0.00
North Carolina Municipal Bond Fund 12,309 0.00
South Carolina Municipal Bond Fund 7,965 0.00
Tennessee Municipal Bond Fund 4,133 0.00
Texas Municipal Bond Fund 6,873 0.00
Virginia Municipal Bond Fund 9,547 0.00
Emerging Markets Fund 67,559 0.00
Pacific Growth Fund 69,037 0.00
Global Government Income Fund 19,576 0.00
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The table set forth below states the net Administration fees paid to
Stephens and waived for the fiscal year ended March 31, 1997.
ADMINISTRATION FEES
Net Fees
Paid Fees Waived
---- -----------
Government Money Market Fund $ 281,893.00 $ 39,867.00
Tax Exempt Fund 995,984.00 151,529.00
Value Fund 792,002.00 0.00
Capital Growth Fund 463,687.00 0.00
Disciplined Equity Fund 81,365.00 0.00
Equity Index Fund 270,994.00 0.00
Managed Index Fund 12,195.00 0.00
Managed SmallCap Index Fund 1,626.00 0.00
Emerging Growth Fund 211,748.00 0.00
Balanced Assets Fund 146,269.00 0.00
Short-Intermediate Government Fund 252,303.00 0.00
Short-Term Income Fund 104,245.00 0.00
Diversified Income Fund 103,988.00 0.00
Strategic Fixed Income Fund 510,826.00 0.00
Municipal Income Fund 46,849.00 10,434.00
Short-Term Municipal Income Fund 31,084.00 7,479.00
Intermediate Municipal Bond Fund 40,902.00 9,878.00
Florida Intermediate Municipal Bond Fund 23,525.00 5,513.00
Georgia Intermediate Municipal Bond Fund 25,682.00 5,977.00
Maryland Intermediate Municipal Bond Fund 38,122.00 2,519.00
North Carolina Intermediate Municipal Bond Fund 17,628.00 3,971.00
South Carolina Intermediate Municipal Bond Fund 31,091.00 7,071.00
Tennessee Intermediate Municipal Bond Fund 8,422.00 1,869.00
Texas Intermediate Municipal Bond Fund 14,310.00 3,130.00
Virginia Intermediate Municipal Bond Fund 101,774.00 22,264.00
Florida Municipal Bond Fund 17,082.00 3,824.00
Georgia Municipal Bond Fund 6,500.00 1,497.00
Maryland Municipal Bond Fund 6,151.00 1,408.00
North Carolina Municipal Bond Fund 12,881.00 2,857.00
South Carolina Municipal Bond Fund 7,923.00 1,846.00
Tennessee Municipal Bond Fund 3,695.00 847.00
Texas Municipal Bond Fund 7,747.00 1,724.00
Virginia Municipal Bond Fund 8,995.00 2,043.00
Prime Fund 3,775,833.00 419,503.00
Treasury Fund 2,254,616.00 250,485.00
Equity Income Fund 388,686.00 0.00
International Equity Fund 985,632.00 0.00
Government Securities Fund 113,616.00 0.00
Emerging Markets Fund 60,159.00 0.00
Pacific Growth Fund 115,080 0.00
Global Government Income Fund 42,714.00 0.00
The table below sets forth the total sub-administration fees paid to First
Data and waived by First Data for the fiscal year ended March 31, 1997.
CO-ADMINISTRATION FEES
Net Fees
Paid Fees Waived
---- -----------
Government Money Market Fund $98,906.00 $0.00
Tax Exempt Fund 326,822.00 0.00
Value Fund 513,976.00 0.00
Capital Growth Fund 298,193.00 0.00
Disciplined Equity Fund 60,505.00 0.00
Equity Index Fund 171,545.00 0.00
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Managed Index Fund 7,522.00 0.00
Managed SmallCap Index Fund 7,375.00 0.00
Emerging Growth Fund 143,790.00 0.00
Balanced Assets Fund 93,557.00 0.00
Short-Intermediate Government Fund 219,240.00 0.00
Short-Term Income Fund 96,033.00 0.00
Diversified Income Fund 96,135.00 0.00
Strategic Fixed Income Fund 440,702.00 0.00
Municipal Income Fund 47,546.00 0.00
Short-Term Municipal Income Fund 32,415.00 0.00
Intermediate Municipal Bond Fund 42,623.00 0.00
Florida Intermediate Municipal Bond
Fund 24,249.00 0.00
Georgia Intermediate Municipal Bond
Fund 26,483.00 0.00
Maryland Intermediate Municipal
Bond Fund 38,819.00 0.00
North Carolina Intermediate
Municipal Bond Fund 17,960.00 0.00
South Carolina Intermediate
Municipal Bond Fund 31,867.00 0.00
Tennessee Intermediate Municipal
Bond Fund 8,549.00 0.00
Texas Intermediate Municipal Bond
Fund 14,526.00 0.00
Virginia Intermediate Municipal
Bond Fund 102,954.00 0.00
Florida Municipal Bond Fund 17,385.00 0.00
Georgia Municipal Bond Fund 6,657.00 0.00
Maryland Municipal Bond Fund 6,306.00 0.00
North Carolina Municipal Bond Fund 13,109.00 0.00
South Carolina Municipal Bond Fund 8,189.00 0.00
Tennessee Municipal Bond Fund 3,784.00 0.00
Texas Municipal Bond Fund 7,900.00 0.00
Virginia Municipal Bond Fund 9,205.00 0.00
The table set forth on the following page states the total net
administration fees paid and the total administration fees waived for the fiscal
period ended March 31, 1996.
ADMINISTRATION FEES
FY 1996
-------
Net Fees Fees
Paid Waived
---- ------
Government Money Market Fund $139,341.00 $19,949.00
Tax Exempt Fund 409,267.00 $52,641.00
Value Fund 374,444.00 0.00
Capital Growth Fund 300,466.00 0.00
Emerging Growth Fund 103,626.00 0.00
Disciplined Equity Fund 45,211.00 0.00
Equity Index Fund 53,838.00 0.00
Balanced Assets Fund 78,711.00 0.00
Short-Intermediate Government Fund 167,287.00 0.00
Short-Term Income Fund 65,025.00 0.00
Diversified Income Fund 57,340.00 0.00
Strategic Fixed Income Fund 280,486.00 0.00
Municipal Income Fund 38,622.00 0.00
Short-Term Municipal Income Fund 22,543.00 0.00
Intermediate Municipal Bond Funds 26,938.00 0.00
Florida Intermediate
Municipal Bond Fund 17,482.00 0.00
Georgia Intermediate
Municipal Bond Fund 19,615.00 0.00
Maryland Intermediate
Municipal Bond Fund 30,556.00 0.00
North Carolina Intermediate Municipal
Bond Fund 12,879.00 0.00
South Carolina Intermediate Municipal
Bond Fund 23,528.00 0.00
Tennessee Intermediate Municipal
Bond Fund 6,298.00 0.00
Texas Intermediate
Municipal Bond Fund 10,422.00 0.00
Virginia Intermediate
Municipal Bond Fund 82,317.00 0.00
Florida Municipal Bond Fund 13,127.00 0.00
Georgia Municipal Bond Fund 4,989.00 0.00
Maryland Municipal Bond Fund 4,576.00 0.00
North Carolina Municipal Bond Fund 10,514.00 0.00
South Carolina Municipal Bond Fund 5,476.00 0.00
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FY 1996
-------
Net Fees Fees
Paid Waived
---- ------
Tennessee Municipal Bond Fund 2,598.00 0.00
Texas Municipal Bond Fund 5,852.00 0.00
Virginia Municipal Bond Fund 6,812.00 0.00
Prime Fund 1,924,496.00 1,537,278.00
Treasury Fund 1,405,372.00 1,126,831.00
Equity Income Fund 346,633.00 0.00
International Equity Fund 597,450.00 0.00
Government Securities Fund 96,960.00 0.00
Emerging Markets Fund 17,121.00 0.00
Pacific Growth Fund 34,201.00 0.00
Global Government Income Fund 418,879.00 0.00
The table set forth below states the net Sub-Administration fees paid and
waived to NationsBank, or its affiliate NBAI, for the fiscal year ended March
31, 1998. For the period March 31, 1997 through November 30, 1997, fees were
paid to NationsBank. For the period December 1, 1997 through March 31, 1998,
fees were paid to NBAI.
SUB-ADMINISTRATION FEES
Net Fees
Paid Fees Waived
---- -----------
Prime Fund $555,149 $0
Treasury Fund 332,041 --
Equity Income Fund 73,929 --
Government Securities Fund 12,130 --
International Equity Fund 102,893 --
International Growth Fund 55,097 --
International Value Fund 0 --
Small Company Growth Fund 14,378 --
U.S. Government Bond Fund 15,227 --
Government Money Market Fund 35,564 --
Tax Exempt Fund 218,062 --
Value Fund 208,906 --
Capital Growth Fund 76,232 --
Disciplined Equity Fund 16,484 --
Equity Index Fund 67,819 --
Emerging Growth Fund 37,823 --
Managed Index Fund 16,200 --
Managed SmallCap Index Fund 8,382 --
Managed Value Index Fund 250 --
Managed SmallCap Value Index Fund 141 --
Marsico Growth & Income Fund 128 --
Marsico Focused Equities Fund 318 --
Balanced Assets Fund 19,910 --
Short-Intermediate Gov't Fund 67,717 --
Short-Term Income Fund 33,535 --
Diversified Income Fund 28,800 --
Strategic Fixed Income Fund 152,490 --
Municipal Income Fund 39,336 --
Short-Term Municipal Income Fund 10,029 --
Intermediate Municipal Bond Fund 64,689 --
Florida Intermediate Municipal Bond
Fund 15,709 --
Georgia Intermediate Municipal Bond
Fund 11,457 --
Maryland Intermediate Municipal
Bond Fund 9,366 --
North Carolina Intermediate
Municipal Bond Fund 13,530 --
South Carolina Intermediate
Municipal Bond Fund 20,075 --
Tennessee Intermediate Municipal
Bond Fund 3,783 --
Texas Intermediate Municipal Bond
Fund 25,799 --
Virginia Intermediate Municipal
Bond Fund 22,306 --
Florida Municipal Bond Fund 4,460 --
Georgia Municipal Bond Fund 1,660 --
Maryland Municipal Bond Fund 1,809 --
North Carolina Municipal Bond Fund 2,961 --
South Carolina Municipal Bond Fund 1,918 --
Tennessee Municipal Bond Fund 995 --
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Texas Municipal Bond Fund 1,651 --
Virginia Municipal Bond Fund 2,299 --
Emerging Markets Fund 8,983 --
Pacific Growth Fund 9,937 --
Global Government Income Fund 4,120 --
As discussed under the caption "Expenses," the Administrator will be
required to reduce its fee from the Companies, in direct proportion to the fees
payable to the Adviser and the Administrator by the Companies, if the expenses
of the Companies exceed the applicable expense limitation of any state in which
the Funds' shares are registered or qualified for sale.
DISTRIBUTION PLANS AND SHAREHOLDER SERVICING ARRANGEMENTS FOR INVESTOR SHARES
INVESTOR A SHARES. Each Company has adopted an Amended and Restated
Shareholder Servicing and Distribution Plan (the "Investor A Plan") pursuant to
Rule 12b-1 under the 1940 Act with respect to each Fund's Investor A Shares. The
Investor A Plan provides that each Fund may pay the Distributor or banks,
broker/dealers or other financial institutions that offer shares of the Fund and
that have entered into a Sales Support Agreement with the Distributor ("Selling
Agents") or a Shareholder Servicing Agreement with the respective Company,
("Servicing Agents"), up to 0.10% (on an annualized basis) of the average daily
net asset value of Investor A Shares of the Money Market Funds and up to 0.25%
(on an annualized basis) of the average daily net asset value of the Non-Money
Market Funds.
With respect to the Money Market Funds, such payments may be made to (i)
the Distributor for reimbursements of distribution-related expenses actually
incurred by the Distributor, including, but not limited to, expenses of
organizing and conducting sales seminars, printing of prospectuses and
statements of additional information (and supplements thereto) and reports for
other than existing shareholders, preparation and distribution of advertising
material and sales literature and costs of administering the Investor A Plan, or
(ii) Selling Agents that have entered into a Sales Support Agreement with the
Distributor for providing sales support assistance in connection with the sale
of Investor A Shares of the Money Market Funds. The sales support assistance
provided by a Selling Agent under a Sales Support Agreement may include
forwarding sales literature and advertising provided by the Companies or the
Distributor to their customers and providing such other sales support assistance
as may be requested by the Distributor from time to time. Currently,
substantially all fees paid by the Money Market Funds pursuant to the Investor A
Plan are paid to compensate Selling Agents for providing sales support services,
with any remaining amounts being used by the Distributor to partially defray
other expenses incurred by the Distributor in distributing Investor A Shares.
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.
With respect to the Non-Money Market Funds, (except the Short-Term Income
Fund and the Short-Term Municipal Income Fund) payments under the Investor A
Plan may be made to the Distributor for providing the distribution-related
services described in (i) above or to Servicing Agents that have entered into a
Shareholder Servicing Agreement with each Company for providing shareholder
support services to their Customers which hold of record or beneficially
Investor A Shares of a Non-Money Market Fund. Such shareholder support services
provided by Servicing Agents to holders of Investor A Shares of the Non-Money
Market Funds may include (i) aggregating and processing purchase and redemption
requests for Investor A Shares from their Customers and transmitting promptly
net purchase and redemption orders to our distributor or transfer agent; (ii)
providing their Customers with a service that invests the assets of their
accounts in Investor A Shares pursuant to specific or pre-authorized
instructions; (iii) processing dividend and distribution payments from the
Company 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 sub-accounting with respect to
Investor A Shares beneficially owned by their Customers or the information
necessary to us for sub-accounting; (viii) if required by law, forwarding
shareholder communications from each Company (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
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containing any proposals regarding the Shareholder Servicing Agreement; (x)
providing general shareholder liaison services; and (xi) providing such other
similar services as each Company may reasonably request to the extent the
Selling Agent is permitted to do so under applicable statutes, rules or
regulations. The Money Market Funds, the Short-Term Income Fund and the
Short-Term Municipal Income Fund may not pay for personal services and/or
maintenance of shareholder accounts, as such terms are interpreted by the NASD,
under the Investor A Plan.
Expenses incurred by the Distributor pursuant to the Investor A Plan in any
given year may exceed the sum of the fees received under the Investor A Plan.
Any such excess may be recovered by the Distributor in future years so long as
the Investor A Plan is in effect. If the Investor A Plan were terminated or not
continued, a Fund would not be contractually obligated to pay the Distributor
for any expenses not previously reimbursed by the Fund.
In addition, NFI has adopted an Amended and Restated Shareholder Servicing
Plan for the Investor A Shares of the Money Market Funds (the "Money Market
Investor A Servicing Plan"). Pursuant to the Money Market Investor A Servicing
Plan, which became effective on March 28, 1993, each Money Market Fund may pay
banks, broker/dealers or other financial institutions that have entered into a
Shareholder Servicing Agreement with the Company ("Servicing Agents") up to
0.25% (on an annualized basis) of the average daily net asset value of the
Investor A Shares of each Money Market Fund for providing shareholder support
services. Such shareholder support services provided by Servicing Agents may
include those shareholder support services discussed above with respect to the
Investor A Shares of the Non-Money Market Funds. Fees paid pursuant to the Money
Market Investor A Servicing Plan are calculated daily and paid monthly.
In addition, NFT has adopted an Amended and Restated Shareholder Servicing
Plan for the Investor A Shares of NFT's Money Market Funds, the Short-Term
Income Fund and the Short-Term Municipal Income Fund (the "Investor A Servicing
Plan"). Pursuant to the Investor A Servicing Plan, each such Fund may pay banks,
broker/dealers or other financial institutions that have entered into a
Shareholder Servicing Agreement with NFT ("Servicing Agents") up to 0.25% (on an
annualized basis) of the average daily net asset value of the Investor A Shares
of each Fund for providing shareholder support services. Such shareholder
support services provided by Servicing Agents may include those shareholder
support services discussed above with respect to the Investor A Plan. Fees paid
pursuant to the Investor A Servicing Plan are calculated daily and paid monthly.
During the fiscal period ended March 31, 1996, the Distributor received the
following amounts from Rule 12b-1 fees, front end sales load fees and CDSC fees
in connection with Investor A Shares: $265,899, $12,473 and $0, respectively. Of
these amounts, the Distributor retained $0, $0 and $0, respectively.
During the fiscal year ended March 31,1997, the Distributor received the
following amount from Rule 12b-1 fees in connection with Investor A Shares of
NFT's Money Market Funds: $0. Of this amount, the Distributor retained $0.
During the fiscal year ended March 31,1997, the Distributor received the
following amount from Rule 12b-1 fees in connection with Investor A Shares of
NFT's Non-Money Market Funds: $0. Of this amount, the Distributor retained $0.
During the fiscal year ended March 31,1998, the Distributor received the
following amount from Rule 12b-1 fees in connection with Investor A Shares of
NFT's Money Market Funds: $0. Of this amount, the Distributor retained $0.
During the fiscal year ended March 31,1998, the Distributor received the
following amount from Rule 12b-1 fees in connection with Investor A Shares of
NFT's Non-Money Market Funds: $0. Of this amount, the Distributor retained $0.
During the fiscal period ended March 31,1996, the Distributor received the
following amounts from Rule 12b-1 fees, front end sales load fees and CDSC fees
in connection with Investor A Shares of the NFI Money Market Funds: $972,685 and
$35,670, respectively. Of these amounts, the prior Distributor retained $0 and
$6,728.76.
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During the fiscal year ended March 31,1997, the Distributor received the
following amount from Rule 12b-1 fees in connection with Investor A Shares of
the NFI Non-Money Market Funds: $0. Of this amount, the Distributor retained $0.
During the fiscal year ended March 31,1997, the Distributor received the
following amount from Rule 12b-1 fees in connection with Investor A Shares of
the NFI Money Market Funds: $0. Of this amount, the Distributor retained $0.
During the fiscal year ended March 31,1998, the Distributor received the
following amount from Rule 12b-1 fees in connection with Investor A Shares of
the NFI Non-Money Market Funds: $0. Of this amount, the Distributor retained $0.
During the fiscal year ended March 31,1998, the Distributor received the
following amount from Rule 12b-1 fees in connection with Investor A Shares of
the NFI Money Market Funds: $0. Of this amount, the Distributor retained $0.
Expenses incurred by the Distributor pursuant to the Investor A Plan in any
given year may exceed the sum of the fees received under the Investor A Plan.
Any such excess may be recovered by the Distributor in future years so long as
the Investor A Plan is in effect. If the Investor A Plan were terminated or not
continued, a Fund would not be contractually obligated to pay the Distributor
for any expenses not previously reimbursed by the Fund.
During the fiscal period ended March 31, 1996 the Distributor received
$7,579 from 12b-1 fees and $1,533 from front end sales load fees in connection
with the NFP Investor A Shares. Of this amount, the Distributor retained $0 of
the 12b-1 fees and $224.17 of the front end sales load fees and paid the balance
to selling dealers.
During the fiscal year ended March 31,1997, the Distributor received the
following amounts from Rule 12b-1 fees and front end sales load fees in
connection with Investor A Shares of the NFP Funds: $0 and $0, respectively. Of
these amounts, the Distributor retained $0 and $0, respectively.
During the fiscal year ended March 31,1998, the Distributor received the
following amounts from Rule 12b-1 fees and front end sales load fees in
connection with Investor A Shares of the NFP Funds: $0 and $0, respectively. Of
these amounts, the Distributor retained $0 and $0, respectively.
INVESTOR B SHARES OF THE MONEY MARKET FUNDS AND INVESTOR C SHARES OF THE
NON-MONEY MARKET FUNDS. The Directors/Trustees of the Companies have approved an
Amended and Restated Distribution Plan in accordance with Rule 12b-1 under the
1940 Act for the Investor B Shares of Money Market Funds and Investor C Shares
of the Non-Money Market Funds (the "Investor B/C Plan"). Pursuant to the
Investor B/C Plan, each Fund may pay the Distributor for certain expenses that
are incurred in connection with the distribution of shares. Payments under the
Investor B/C Plan will be calculated daily and paid monthly at a rate set from
time to time by the Board of Directors provided that the annual rate may not
exceed 0.75% of the average daily net asset value of Investor C Shares of a
Non-Money Market Fund and 0.10% of the average daily net asset value of Investor
B Shares of a Money Market Fund. Payments to the Distributor pursuant to the
Investor B/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 B or Investor C Shares, for promotional
activities intended to result in the sale of Investor B or Investor C Shares
such as to pay for the preparation, printing and distribution of prospectuses to
other than current shareholders, and (iii) to compensate Selling Agents for
providing sales support services with respect to their Customers who are, from
time to time, beneficial and record holders of Investor B or Investor C Shares.
Currently, substantially all fees paid pursuant to the Investor B/C Plan are
paid to compensate Selling Agents for providing the services described in (i)
and (iii) above, with any remaining amounts being used by the Distributor to
partially defray other expenses incurred by the Distributor in distributing
Investor B or Investor C Shares. Fees received by the Distributor pursuant to
the Investor B/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.
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Pursuant to the Investor B/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 B Shares of
the Money Market Funds and Investor C Shares of the non-Money Market 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 Non-Money Market
Funds, and up to 0.10% of the average daily net asset value of the Investor B
Shares of the Money Market Funds held of record or beneficially by such
Customers. The sales support services provided by Setting 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 B/C Plan are accrued daily and paid
monthly, and are charged as expenses of the relevant shares of a Fund as
accrued. Expenses incurred by the Distributor pursuant to the Investor B/C Plan
in any given year may exceed the sum of the fees received under the Investor B/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 B/C Plan is in effect. If the Investor B/C Plan were terminated or not
continued, a Fund would not be contractually obligated to pay the Distributor
for any expenses not previously reimbursed by the Fund or recovered through
contingent deferred sales charges.
In addition, the Directors have approved an Amended and Restated
Shareholder Servicing Plan ("Servicing Plan") with respect to the Investor B
Shares of the Money Market Funds and Investor C Shares of the Non-Money Market
Funds (the "Investor B/C Servicing Plan"). Pursuant to the Investor B/C
Servicing Plan, each Fund may pay banks, broker/dealers or other financial
institutions that have entered into a Shareholder Servicing Agreement with
Nations Funds ("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 Investor B/C Servicing Plan
will be calculated daily and paid monthly at a rate set from time to time by the
Board of Directors, provided that the annual rate may not exceed 0.25% of the
average daily net asset value of the Money Market Funds' Investor B Shares and
the Non-Money Market Funds' Investor C Shares. The shareholder services provided
by the Servicing Agents may include (i) aggregating and processing purchase and
redemption requests for such Investor B or Investor C Shares 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 such Investor B or Investor C Shares pursuant to specific
or pre-authorized instructions; (iii) dividend and distribution payments from
the Company on behalf of Customers; (iv) providing information periodically to
Customers showing their positions in such Investor B or Investor C Shares; (v)
arranging for bank wires; (vi) responding to Customers' inquiries concerning
their investment in such Investor B or Investor C Shares; (vii) providing
sub-accounting with respect to such Investor B or Investor C Shares beneficially
owned by Customers or providing the information to us necessary for
sub-accounting; (viii) if required by law, forwarding shareholder communications
from the Company (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 Company may reasonably request to the extent the Servicing Agent is
permitted to do so under applicable statutes, rules or regulations.
During the fiscal period ended March 31,1996, the Distributor received the
following amounts from Rule 12b-1 fees and CDSC fees in connection with Investor
B Shares of the NFI Money Market Funds: $1,982,677.43 and $65,117 respectively.
Of these amounts, the prior distributor retained $13,780.21 and $456.62,
respectively.
During the fiscal period ended March 31, 1996, the Distributor received the
following amounts from Rule 12b-1 fees and CDSC fees in connection with Investor
C Shares of the NFI Non-Money Market Funds: $226,162.84 and $5,086,
respectively. Of these amounts, the Distributor retained $15,749.93 and
$1,394.24, respectively.
During the fiscal year ended March 31,1997, the Distributor received the
following amount from Rule 12b-1 fees in connection with Investor B Shares of
the NFI Money Market Funds: $4,403,155.44. Of this amount, the Distributor
retained $302.33.
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During the fiscal year ended March 31,1997, the Distributor received the
following amounts from Rule 12b-1 fees and CDSC fees in connection with Investor
C Shares of the NFI Non-Money Market Funds: $38,342.90 and $587.17,
respectively. Of these amounts, the Distributor retained $4,441.52 and $587.17,
respectively.
During the fiscal year ended March 31,1997, the Distributor received the
following amount from Rule 12b-1 fees in connection with Investor B Shares of
the NFT Money Market Funds: $488,455.68. Of this amount, the Distributor
retained $369.80.
During the fiscal year ended March 31,1997, the Distributor received the
following amounts from Rule 12b-1 fees and CDSC fees in connection with Investor
C Shares of the NFT Non-Money Market Funds: $252,094.80 and $6,716.67,
respectively. Of these amounts, the Distributor retained $43,497.58 and
$6,716.67, respectively.
During the fiscal year ended March 31,1998, the Distributor received the
following amount from Rule 12b-1 fees in connection with Investor B Shares of
the NFI Money Market Funds: $3,466,866.65. Of this amount, the Distributor
retained $7,743.41.
During the fiscal year ended March 31,1998, the Distributor received the
following amounts from Rule 12b-1 fees and CDSC fees in connection with Investor
C Shares of the NFI Non-Money Market Funds: $98,350.80 and $18,143.54
respectively. Of these amounts, the Distributor retained $33,051.16 and
$18,143.54, respectively.
During the fiscal year ended March 31,1998, the Distributor received the
following amount from Rule 12b-1 fees in connection with Investor B Shares of
the NFT Money Market Funds: $562,681.69. Of this amount, the Distributor
retained $730.94.
During the fiscal year ended March 31,1998, the Distributor received the
following amounts from Rule 12b-1 fees and CDSC fees in connection with Investor
C Shares of the NFT Non-Money Market Funds: $369,785.35 and $18,619.52,
respectively. Of these amounts, the Distributor retained $148,710.43 and
$18,619.52, respectively.
During the fiscal year ended March 31,1998, the Distributor received the
following amounts from Rule 12b-1 fees and CDSC fees in connection with Investor
C Shares of the NFP Non-Money Market Funds: $2,682.36 and $14.74, respectively.
Of these amounts, the Distributor retained $1,646.52 and $14.74, respectively.
INVESTOR C SHARES OF THE MONEY MARKET FUNDS AND INVESTOR B SHARES OF THE
NON-MONEY MARKET FUNDS. The Directors/Trustees of each Company have approved a
Distribution Plan (the "Investor B Distribution Plan") with respect to Investor
B Shares of the Non-Money Market Funds. Pursuant to the Investor B Distribution
Plan, a Non-Money Market Fund may compensate or reimburse the Distributor for
any activities or expenses primarily intended to result in the sale of the
Fund's Investor B Shares, including for sales related services provided by
banks, broker/dealers or other financial institutions that have entered into a
Sales Support Agreement relating to the Investor B Shares with the Distributor
("Selling Agents"). Payments under a Fund's Investor B Distribution Plan will be
calculated daily and paid monthly at a rate or rates set from time to time by
the Board of Directors provided that the annual rate may not exceed 0.75% of the
average daily net asset value of each Non-Money Market Fund's Investor B Shares.
The fees payable under the Investor B Distribution Plan are used primarily
to compensate or reimburse the Distributor for distribution services provided by
it, and related expenses incurred, including payments by the Distributor to
compensate or reimburse Selling Agents, for sales support services provided, and
related expenses incurred, by such Selling Agents. Payments under the Investor B
Distribution Plan may be made with respect to preparation, printing and
distribution of prospectuses, sales literature and advertising materials by the
Distributor or, as applicable, Selling Agents, attributable to distribution or
sales support activities, respectively, commissions, incentive compensation or
other compensation to, and expenses of, account executives or other employees of
the Distributor or Selling Agents, attributable to distribution or sales support
activities, respectively; overhead and other office expenses of the Distributor
relating to the foregoing (which may be calculated as a carrying charge in the
Distributor's or Selling Agents' unreimbursed expenses), incurred in connection
with distribution or sales support activities. The overhead and other office
expenses referenced above may include, without limitation, (i) the
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expenses of operating the Distributor's or Selling Agents' offices in connection
with the sale of Fund shares, including lease costs, the salaries and employee
benefit costs of administrative, operations and support personnel, utility
costs, communication costs and the costs of stationery and supplies, (ii) the
costs of client sales seminars and travel related to distribution and sales
support activities, and (iii) other expenses relating to distribution and sales
support activities.
In addition, the Directors/Trustees have approved a Shareholder Servicing
Plan with respect to Investor C Shares of the Money Market Funds and Investor B
Shares of the Non-Money Market Funds ( "Investor C/B Servicing Plan"). Pursuant
to the Investor C/B Servicing Plan, a Fund may compensate or reimburse banks,
broker/dealers or other financial institutions that have entered into a
Shareholder Servicing Agreement with the Company ("Servicing Agents") for
certain activities or expenses of the Servicing Agents in connection with
shareholder services that are provided by the Servicing Agents. Payments under
the Investor C/B Servicing Plan will be calculated daily and paid monthly at a
rate or rates set from time to time by the Board of Directors/Trustees, provided
that the annual rate may not exceed 0.25% of the average daily net asset value
of the Investor C Shares of the Money Market Funds and Investor B Shares of the
Non-Money Market Funds.
The fees payable under the Investor C/B Servicing Plan are used primarily
to compensate or reimburse Servicing Agents for shareholder services provided,
and related expenses incurred, by such Servicing Agents. The shareholder
services provided by Servicing Agents may include: (i) aggregating and
processing purchase and redemption requests for such Investor C or Investor B
Shares from Customers and transmitting promptly net purchase and redemption
orders to the Distributor or Transfer Agent; (ii) providing Customers with a
service that invests the assets of their accounts in such Investor C or Investor
B Shares pursuant to specific or pre-authorized instructions; (iii) processing
dividend and distribution payments from the Companies on behalf of Customers;
(iv) providing information periodically to Customers showing their positions in
such Investor C or Investor B Shares; (v) arranging for bank wires; (vi)
responding to Customers' inquiries concerning their investment in such Investor
C or Investor B Shares; (vii) providing sub-accounting with respect to such
Investor C or Investor B Shares beneficially owned by Customers or providing the
information to us necessary for sub-accounting; (viii) if required by law,
forwarding shareholder communications from the Companies (such as proxies,
shareholder reports, annual and semi-annual financial statements and dividend,
distribution and tax notices) to Customers; (ix) forwarding to Customers proxy
statements and proxies containing any proposals regarding the Investor C
Servicing Plan or related agreements; (x) providing general shareholder liaison
Services; and (xi) providing such other similar services as the Companies may
reasonably request to the extent such Servicing Agent is permitted to do so
under applicable statutes, rules or regulations.
The fees payable under the Investor B Distribution Plan and Investor C/B
Servicing Plan (together, the "Investor C/B Plans") are treated by the Funds as
an expense in the year they are accrued. At any given time, a Selling Agent
and/or Servicing Agent may incur expenses in connection with services provided
pursuant to its agreements with the Distributor under the Investor C/B Plans
which exceed the total of (i) the payments made to the Selling Agents and
Servicing Agents by the Distributor or the Company and reimbursed by the Fund
pursuant to the Investor C/B Plans, and (ii) the proceeds of contingent deferred
sales charges paid to the Distributor and reallowed to the Selling Agent, upon
the redemption of their Customers' Investor C Shares. Any such excess expenses
may be recovered in future years, so long as the Investor C/B Plans are in
effect. Because there is no requirement under the Investor C/B Plans that the
Distributor be paid or the Selling Agents and Servicing Agents be compensated or
reimbursed for all their expenses or any requirement that the Investor C/B Plans
be continued from year to year, such excess amount, if any, does not constitute
a liability to a Fund or the Distributor. Although there is no legal obligation
for the Fund to pay expenses incurred by the Distributor, a Selling Agent or a
Servicing Agent in excess of payments previously made to the Distributor under
the Investor C/B Plans or in connection with contingent deferred sales charges,
if for any reason the Investor C/B Plans are terminated, the Directors will
consider at that time the manner in which to treat such expenses.
During the fiscal period ended March 31, 1996, the Distributor received
the following amounts from Rule 12b-1 fees and CDSC fees in connection with
Investor B Shares of the Non-Money Market Funds: $796,535 and $503,334
respectively. Of these amounts, the prior distributor retained $ 0 and $ 0,
respectively.
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During the fiscal period ended March 31, 1996, the Distributor received
the following amounts from Rule 12b-1 fees and CDSC fees in connection with
Investor B Shares of the Non-Money Market Funds of NFT: $939,081 and $558,076,
respectively. Of these amounts, the Distributor retained $0 and $0,
respectively.
During the fiscal year ended March 31, 1997, the Distributor received the
following amounts from Rule 12b-1 fees and CDSC fees in connection with Investor
B Shares of the Non-Money Market Funds: $0 and $0, respectively. Of these
amounts, the Distributor retained $0 and $0, respectively.
During the fiscal year ended March 31,1997, the Distributor received the
following amounts from Rule 12b-1 fees and CDSC fees in connection with Investor
B Shares of the Non-Money Market Funds of NFT: $0 and $0, respectively. Of these
amounts, the Distributor retained $0 and $0, respectively.
During the fiscal year ended March 31, 1998, the Distributor received the
following amounts from Rule 12b-1 fees and CDSC fees in connection with Investor
B Shares of the Non-Money Market Funds: $0 and $0, respectively. Of these
amounts, the Distributor retained $0 and $0, respectively.
During the fiscal year ended March 31,1998, the Distributor received the
following amounts from Rule 12b-1 fees and CDSC fees in connection with Investor
B Shares of the Non-Money Market Funds of NFT: $0 and $0, respectively. Of these
amounts, the Distributor retained $0 and $0, respectively.
DAILY SHARES OF THE MONEY MARKET FUNDS. The Directors/Trustees have
approved a Distribution Plan (the "Daily Distribution Plan") with respect to
Daily Shares of the Money Market Funds. Pursuant to the Daily Distribution Plan,
a Money Market Fund may compensate or reimburse the Distributor for any
activities or expenses primarily intended to result in the sale of the Fund's
Daily Shares, including for sales related services provided by banks,
broker/dealers or other financial institutions that have entered into a Sales
Support Agreement relating to the Daily Shares with the Distributor ("Selling
Agents"). Payments under a Fund's Daily Distribution Plan will be calculated
daily and paid monthly at a rate or rates set from time to time by the Board of
Directors provided that the annual rate may not exceed 0.45 % of the average
daily net asset value of each Money Market Fund's Daily Shares.
The fees payable under the Daily Distribution Plan are used primarily to
compensate or reimburse the Distributor for distribution services provided by
it, and related expenses incurred, including payments by the Distributor to
compensate or reimburse Selling Agents, for sales support services provided, and
related expenses incurred, by such Selling Agents. Payments under the Daily
Distribution Plan may be made with respect to preparation, printing and
distribution of prospectuses, sales literature and advertising materials by the
Distributor or, as applicable, Selling Agents, attributable to distribution or
sales support activities, respectively, commissions, incentive compensation or
other compensation to, and expenses of, account executives or other employees of
the Distributor or Selling Agents, attributable to distribution or sales support
activities, respectively; overhead and other office expenses of the Distributor
relating to the foregoing (which may be calculated as a carrying charge in the
Distributor's or Selling Agents' unreimbursed expenses), incurred in connection
with distribution or sales support activities. The overhead and other office
expenses referenced above may include, without limitation, (i) the expenses of
operating the Distributor's or Selling Agents' offices in connection with the
sale of Fund shares, including lease costs, the salaries and employee benefit
costs of administrative operations and support personnel, utility costs,
communication costs and the costs of stationery and supplies, (ii) the costs of
client sales seminars and travel related to distribution and sales support
activities, and (iii) other expenses relating to distribution and sales support
activities.
In addition, the Directors have approved a Shareholder Servicing Plan with
respect to Daily Shares of the Money Market Funds (the "Daily Servicing Plan").
Pursuant to the Daily Servicing Plan, a Fund may compensate or reimburse banks,
broker/dealers or other financial institutions that have entered into a
Shareholder Servicing Agreement with the Company ("Servicing Agents") for
certain activities or expenses of the Servicing Agents in connection with
shareholder services that are provided by the Servicing Agents. Payments under
the Daily Servicing Plan will be calculated daily and paid monthly at a rate or
rates set from time to time by the Board of Directors, provided that the annual
rate may not exceed 0.25% of the average daily net asset value of the Daily
Shares of the Money Market Funds.
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The fees payable under the Daily Servicing Plan are used primarily to
compensate or reimburse Servicing Agents for shareholder services provided, and
related expenses incurred, by such Servicing Agents. The shareholder services
provided by Servicing Agents may include: (i) aggregating and processing
purchase and redemption requests for such Daily Shares from Customers and
transmitting promptly net purchase and redemption orders to the Distributor or
Transfer Agent; (ii) providing Customers with a service that invests the assets
of their accounts in such Daily Shares pursuant to specific or pre-authorized
instructions; (iii) processing dividend and distribution payments from the
Company on behalf of Customers; (iv) providing information periodically to
Customers showing their positions in such Daily Shares; (v) arranging for bank
wires; (vi) responding to Customers' inquiries concerning their investment in
such Daily Shares; (vii) providing sub-accounting with respect to such Daily
Shares beneficially owned by Customers or providing the information to us
necessary for sub-accounting; (viii) if required by law, forwarding shareholder
communications from the Company (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 Daily Servicing Plan or related
agreements; (x) providing general shareholder liaison services; and (xi)
providing such other similar services as the Company may reasonably request to
the extent such Servicing Agent is permitted to do so under applicable statutes,
rules or regulations.
The fees payable under the Daily Distribution Plan and Daily Servicing
Plan (together, the "Daily Plans") are treated by the Funds as an expense in the
year they are accrued. At any given time, a Selling Agent and/or Servicing Agent
may incur expenses in connection with services provided pursuant to its
agreements with the Distributor under the Daily Plans which exceed the total of
(i) the payments made to the Selling Agents and Servicing Agents by the
Distributor or the Company and reimbursed by the Fund pursuant to the Daily
Plans, and (ii) the proceeds of contingent deferred sales charges paid to the
Distributor and reallowed to the Selling Agent, upon the redemption of their
Customers' Daily Shares. Any such excess expenses may be recovered in future
years, so long as the Daily Plans are in effect. Because there is no requirement
under the Daily Plans that the Distributor be paid or the Selling Agents and
Servicing Agents be compensated or reimbursed for all their expenses or any
requirement that the Daily Plans be continued from year to year, such excess
amount, if any, does not constitute a liability to a Fund or the Distributor.
Although there is no legal obligation for the Fund to pay expenses incurred by
the Distributor, a Selling Agent or a Servicing Agent in excess of payments
previously made to the Distributor under the Daily Plans or in connection with
contingent deferred sales charges, if for any reason the Daily Plans are
terminated, the Directors will consider at that time the manner in which to
treat such expenses.
During the fiscal period ended March 31, 1996, the Distributor received the
following amounts from Rule 12b-1 fees in connection with Daily Shares of the
Money Market Funds: $48 and $0, respectively. Of these amounts, the prior
Distributor retained $0 and $0, respectively.
During the fiscal year ended March 31, 1997, the Distributor received $0
from Rule 12b-1 fees in connection with Daily Shares of the Money Market Funds.
Of this amount, the Distributor retained $0.
During the fiscal year ended March 31, 1998, the Distributor received $0
from Rule 12b-1 fees in connection with Daily Shares of the Money Market Funds.
Of this amount, the Distributor retained $0.
INFORMATION APPLICABLE TO INVESTOR A, INVESTOR B, INVESTOR C AND DAILY
SHARES. The Investor A Plan, the Money Market Investor A Servicing Plan, the
Investor B/C Plan, the Investor B/C Servicing Plan, the Investor C Plan, the
Daily Distribution Plan, the Daily Servicing Plan and the Investor C/B 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 Money Market Investor A Servicing Plan, the Investor B/C
Servicing Plan, Daily Servicing Plan and the Investor C/B Servicing Plan is
subject to, among other things, the National Association of Securities Dealers,
Inc. ("NASD") Rules of Conduct governing receipt by NASD members of shareholder
servicing plan fees from registered investment companies (the "NASD Servicing
Plan Rule"), which became effective on July 7, 1993. Such compensation shall
only be paid for services determined to be permissible under the NASD Servicing
Plan Rule.
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Each Plan requires the officers of the Company or the Distributor to
provide the Board of Directors 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 Directors reviews these reports in
connection with their decisions with respect to the Plans.
As required by Rule 12b-1 under the 1940 Act, each Plan was approved by
the Board of Directors, including a majority of the directors who are not
"interested persons" (as defined in the 1940 Act) of the Company and who have no
direct or indirect financial interest in the operation of the Plan or in any
agreements related to the Plan ("Qualified Directors") on February 6, 1997, with
respect to the Investor C Shares of the Money Market Funds, on March 22, 1991,
with respect to the Investor A Shares of the Equity Income and Government
Securities Funds, on June 24, 1992 with respect to the Investor A Shares of the
International Equity Fund, and on March 19, 1992, with respect to the Investor C
Shares of the Non-Money Market Funds. Additionally, each Plan with respect to
the Investor B Shares of the Money Market Funds and with respect to the Investor
B Shares of all the Non-Money Market Funds was approved by the Board of
Directors, including a majority of the Qualified Directors, on February 3, 1993.
The Plan with respect to the Investor C Shares of the Money Market Funds was
initially approved on August 4, 1993. The Plan with respect to the Daily Shares
of the Money Market Funds was initially approved on August 4, 1993. The Plans
continue in effect as long as such continuance is specifically approved at least
annually by the Board of Directors, including a majority of the Qualified
Directors. On October 12, 1996, the Board of Directors (including a majority of
the Qualified Directors) voted to continue each Plan for an additional one year
period.
In approving the Plans in accordance with the requirements of Rule 12b-1,
the directors considered various factors and determined that there is a
reasonable likelihood that each Plan will benefit the respective Investor A,
Investor B, Investor C Shares or Investor B Shares and the holders of such
shares. The Investor A Plan was approved by the Shareholders of the Investor A
Shares of each of the Funds except the International Equity Fund on September 6,
1991, and the Investor B/C Plan applicable to Investor C Shares of the
International Equity and Equity Income Funds and the Investor A Plan applicable
to Investor A Shares of the International Equity Fund were approved on September
22, 1992 by the Investor C Shareholders of the respective International Equity
and Equity Income Funds with respect to the Investor B/C Plan and by the
Investor A Shareholders of the International Equity Fund with respect to the
Investor A Plan. The Plans applicable to the Investor B Shares of the Money
Market Funds and Investor B Shares of the Non-Money Market Funds were approved
by such Funds' initial shareholder of Investor B and Investor B Shares.
The Investor A Shares' Plans with respect to the Money Market Funds
originally became effective on December 4, 1989, and were amended February
12,1990, March 19, 1992 and February 3, 1993. The Investor A Shares' Plan with
respect to the Equity Income and Government Securities Funds became effective on
March 22, 1991, and was amended March 19, 1992. The Investor A Shares' Plan with
respect to the International Equity Fund became effective September 6, 1991 and
was amended March 19, 1992 and February 3, 1993.
The Investor A Plan, Investor B/C Plan and Investor C/B Plan may be
terminated with respect to their respective shares by vote of a majority of the
Qualified Directors, or by vote of a majority of the holders of the outstanding
voting securities of the Investor A, Investor B or Investor C, as appropriate.
Any change in such a Plan that would increase materially the distribution
expenses paid by the Investor A, Investor B or Investor C Shares requires
shareholder approval; otherwise, each Plan may be amended by the directors,
including a majority of the Qualified Directors, by vote cast in person at a
meeting called for the purpose of voting upon such amendment. The Money Market
Investor A Servicing Plan, the Investor B/C Servicing Plan and the Investor C/N
Servicing Plan may be terminated by a vote of a majority of the Qualified
Directors. As long as a Plan is in effect, the selection or nomination of the
Qualified Directors is committed to the discretion of the Qualified Directors.
100
<PAGE>
Conflict of interest restrictions may apply to the receipt by Selling and/or
Servicing Agents of compensation from the Company 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.
FEES PAID PURSUANT TO SHAREHOLDER SERVICING/DISTRIBUTION PLANS
INVESTOR A SHARES
<TABLE>
<CAPTION>
<S> <C>
NET NET
FEES PAID (12B-1 FEES PAID (SHAREHOLDER NET
COMPONENT) SERVICING COMPONENT) FEES
FUND YEAR ENDED 3/31/98 YEAR ENDED 3/31/98 PAID
---- ------------------ --------------------- ----
Prime Fund $1,375,724.00 $3,439,309.00 $4,815,033.00
Treasury Fund 1,154,511 2,886,280 4,040,791
Equity Income Fund 148,897 --- 148,897
International Equity Fund 31,043 --- 31,043
Government Securities Fund 25,326 --- 25,326
Small Company Growth Fund 11,220 --- 11,220
U.S. Government Bond Fund 2,909 --- 2,909
International Growth Fund 52,736 --- 52,736
International Value Fund N/A N/A N/A
Emerging Markets Fund 2,429 --- 2,429
Pacific Growth Fund 5,247 --- 5,247
Global Government Income Fund 36,794 --- 36,794
Value Fund 273,466 --- 273,466
Capital Growth Fund 74,936 --- 74,936
Emerging Growth Fund 39,225 --- 39,225
Equity Index Fund 7,389 --- 7,389
Managed Index Fund 30,542 --- 30,542
Managed SmallCap Index Fund 19,228 --- 19,228
Managed Value Index Fund 1,760 --- 1,760
Managed SmallCap Value Index Fund 1,291 --- 1,291
Disciplined Equity Fund 32,655 --- 32,655
Marsico Focused Equities Fund 1,045 --- 1,045
Marsico Growth & Income Fund 205 --- 205
Balanced Assets Fund 30,709 --- 30,709
Short-Intermediate Government Fund 88,874 --- 88,874
Short-Term Income Fund 17,958 --- 17,958
Diversified Income Fund 28,987 --- 28,987
Strategic Fixed Income Fund 30,753 --- 30,753
Municipal Income Fund 34,073 --- 34,073
Short-Term Municipal Income Fund 47,824 --- 47,824
Intermediate Municipal Bond Fund 8,045 --- 8,045
FL Intermediate Municipal Fund 11,973 --- 11,973
101
<PAGE>
NET FEES PAID
NET FEES PAID (12B-1 (SHAREHOLDER SERVICING
FUND COMPONENT) COMPONENT) NET FEES PAID
---- -------------------- --------------------- -------------
FL Municipal Bond Fund 3,758 --- 3,758
GA Intermediate Municipal Fund 18,809 --- 18,809
GA Municipal Bond Fund 763 --- 763
MD Intermediate Municipal Fund 30,370 --- 30,370
MD Municipal Bond Fund 3,364 --- 3,364
NC Intermediate Municipal Fund 13,654 --- 13,654
NC Municipal Bond Fund 1,271 --- 1,271
SC Intermediate Municipal Fund 22,738 --- 22,738
SC Municipal Bond Fund 2,628 --- 2,628
TN Intermediate Municipal Fund 14,351 --- 14,351
TN Municipal Bond Fund 2,631 --- 2,631
TX Intermediate Municipal Fund 2,806 --- 2,806
TX Municipal Bond Fund 791 --- 791
VA Intermediate Municipal Fund 108,231 --- 108,231
VA Municipal Bond Fund 1,928 --- 1,928
Government Money Market Fund 24,664 61,660 86,324
Tax Exempt Fund 125,498 313,747 439,245
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
FEES PAID PURSUANT TO DISTRIBUTION PLANS
-----------------------------------------
INVESTOR B SHARES - MONEY MARKET FUNDS
INVESTOR C SHARES - NON-MONEY MARKET FUNDS
NET NET
FEES PAID (12B-1 FEES PAID (SHAREHOLDER NET
COMPONENT) SERVICING COMPONENT) FEES
FUND YEAR ENDED 3/31/98 YEAR ENDED 3/31/98 PAID
---- ------------------ ---------------------- ----
Prime Fund ---- $1,577,256.00 $1,577,256.00
Treasury Fund ---- 1,891,737 1,891,737
Equity Income Fund $870,896.00 290,298 1,161,194
International Equity Fund 265,759 88,586 354,345
Government Securities Fund 193,008 80,420 273,428
Small Company Growth Fund 13,850 4,617 18,467
U.S. Government Bond Fund 3,840 1,601 5,441
International Growth Fund 2,704 900 3,604
International Value Fund N/A N/A N/A
Emerging Markets Fund 10,642 3,546 14,188
Pacific Growth Fund 12,870 4,290 17,160
Global Government Income Fund 1,029 428 1,457
Value Fund 846,974 282,235 1,129,299
Capital Growth Fund 375,580 125,193 500,773
Emerging Growth Fund 299,754 99,919 399,673
</TABLE>
102
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
NET NET
FEES PAID (12B-1 FEES PAID (SHAREHOLDER NET
COMPONENT) SERVICING COMPONENT) FEES
FUND YEAR ENDED 3/31/98 YEAR ENDED 3/31/98 PAID
---- ------------------- ---------------------- ----
Equity Index Fund ---- ---- ----
Managed Index Fund ---- ---- ----
Managed SmallCap Index Fund ---- ---- ----
Managed Value Index Fund ---- ---- ----
Managed SmallCap Value Index Fund ---- ---- ----
Disciplined Equity Fund 202,394 67,465 269,859
Marsico Focused Equities Fund 12,707 4,235 16,942
Marsico Growth & Income Fund 4,894 1,631 6,525
Balanced Assets Fund 486,598 162,199 648,797
Short-Intermediate Government Fund 51,218 23,281 74,499
Short-Term Income Fund 4,939 12,351 17,290
Diversified Income Fund 389,914 162,464 552,378
Strategic Fixed Income Fund 12,218 5,554 17,772
Municipal Income Fund 84,881 35,367 120,248
Short-Term Municipal Income Fund 11,797 29,493 41,290
Intermediate Municipal Bond Fund 8,693 3,951 12,644
FL Intermediate Municipal Fund 16,492 7,496 23,988
FL Municipal Bond Fund 103,668 43,195 146,863
GA Intermediate Municipal Fund 35,901 16,331 52,232
GA Municipal Bond Fund 57,039 23,767 80,806
MD Intermediate Municipal Fund 21,223 9,648 30,871
MD Municipal Bond Fund 50,771 21,154 71,925
NC Intermediate Municipal Fund 32,514 14,779 47,293
NC Municipal Bond Fund 140,970 58,737 199,707
SC Intermediate Municipal Fund 30,401 13,816 44,219
SC Municipal Bond Fund 62,947 26,229 89,176
TN Intermediate Municipal Fund 14,924 6,784 21,708
TN Municipal Bond Fund 28,813 12,006 40,819
TX Intermediate Municipal Fund 10,414 4,734 15,148
TX Municipal Bond Fund 54,020 22,509 76,529
VA Intermediate Municipal Fund 49,251 22,387 71,638
VA Municipal Bond Fund 80,656 33,606 114,262
Government Money Market Fund ---- 105,609 105,609
Tax Exempt Fund ---- 453,492 453,492
</TABLE>
NOTE: All fees paid under the Investor A and Investor C/B Shares Distribution
Plans were accrued as payments to broker/dealers and financial
institutions offering such shares to their customers.
103
<PAGE>
INVESTOR C SHARES - MONEY MARKET FUNDS
INVESTOR B SHARES - NON-MONEY MARKET FUNDS
<TABLE>
<CAPTION>
<S> <C>
NET NET
FEES PAID (12B-1 FEES PAID (SHAREHOLDER NET
COMPONENT) SERVICING COMPONENT) FEES
FUND YEAR ENDED 3/31/98 YEAR ENDED 3/31/98 PAID
---- ------------------- ----------------------- ----
Prime Fund --- $219,261.00 $ 219,261.00
Treasury Fund --- 25,041 25,041
Equity Income Fund 51,110 17,036 68,146
International Equity Fund 6,518 2,173 8,691
Government Securities Fund 7,171 2,988 10,159
Small Company Growth Fund 12,232 4,077 16,309
U.S. Government Bond Fund 4,428 1,846 6,274
International Growth Fund 1,894 631 2,525
International Value Fund N/A N/A N/A
Emerging Markets Fund 1,505 502 2,007
Pacific Growth Fund 488 163 651
Global Government Income Fund 48 20 68
Value Fund 68,338 22,779 91,117
Capital Growth Fund 39,286 13,095 52,381
Emerging Growth Fund 13,099 4,366 17,465
Equity Index Fund ---- ---- ----
Managed Index Fund 4,939 4,940 9,879
Managed SmallCap Index Fund 550 550 1,100
Managed Value Index Fund 2 1 3
Managed SmallCap Value Index Fund 12 11 23
Disciplined Equity Fund 5,891 1,963 7,854
Marsico Focused Equities Fund 267 89 356
Marsico Growth & Income Fund 143 47 190
Balanced Assets Fund 13,783 4,594 18,377
Short-Intermediate Government Fund 26,501 12,047 38,548
Short-Term Income Fund 3,483 8,709 12,192
Diversified Income Fund 13,883 5,784 19,667
Strategic Fixed Income Fund 4,844 2,201 7,045
Municipal Income Fund 12,181 5,076 17,257
Short-Term Municipal Income Fund 668 1,670 2,338
Intermediate Municipal Bond Fund 4,830 2,195 7,025
FL Intermediate Municipal Fund 1,183 537 1,720
</TABLE>
104
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
FL Municipal Bond Fund 125 52 177
GA Intermediate Municipal Fund 8,039 3,654 11,693
GA Municipal Bond Fund 215 89 304
MD Intermediate Municipal Fund 7,338 3,335 10,673
MD Municipal Bond Fund 14 6 20
NC Intermediate Municipal Fund 6,348 2,886 9,234
NC Municipal Bond Fund 64 26 90
SC Intermediate Municipal Fund 19,281 8,764 28,045
SC Municipal Bond Fund 272 114 386
TN Intermediate Municipal Fund 12 5 17
TN Municipal Bond Fund 208 86 294
TX Intermediate Municipal Fund 2,484 1,129 3,613
TX Municipal Bond Fund 398 166 564
VA Intermediate Municipal Fund 23,904 10,866 34,770
VA Municipal Bond Fund 137 57 194
Government Money Market Fund ---- 7,557 7,557
Tax Exempt Fund ---- 115,616 115,616
DAILY SHARES - MONEY MARKET FUNDS
NET FEES PAID
NET (SHAREHOLDER
FEES PAID (12B-1 SERVICING
COMPONENT) COMPONENT) NET
YEAR ENDED YEAR ENDED FEES
FUND 3/31/98 3/31/98 PAID
---- ---------------- ------------- ----
Prime Fund $178,213.00 $178,213.00 $ 356,426.00
Treasury Fund 378,507 378,507 757,014
Government Money Market Fund 17,523 17,523 35,046
Tax-Exempt Fund 34,060 34,060 68,120
</TABLE>
FEES PAID PURSUANT TO THE ADMINISTRATION PLAN
---------------------------------------------
PRIMARY B SHARES
NET ADMIN NET ADMIN
FEES PAID FEES WAIVED
--------- -----------
Prime Fund $145,320.00 ----
Treasury Fund 67,921.00 ----
Equity Income Fund 24,723.00 ----
International Equity Fund 16,264 ----
Government Securities Fund 2,961 ----
105
<PAGE>
NET ADMIN NET ADMIN
FEES PAID FEES WAIVED
--------- -----------
Small Company Growth Fund ---- ----
U.S. Government Bond Fund ---- ----
International Growth Fund ---- ----
International Value Fund N/A N/A
Emerging Markets Fund 888 ----
Pacific Growth Fund 1,682 ----
Global Government Income Fund 1 ----
Value Fund 94,267 ----
Capital Growth Fund 38,659 ----
Emerging Growth Fund 14,710 ----
Equity Index Fund 20,313 ----
Managed Index Fund 8 ----
Managed SmallCap Index Fund 1,026 ----
Managed Value Index Fund ---- ----
Managed SmallCap Value Index Fund ---- ----
Disciplined Equity Fund 3,779 ----
Marsico Focused Equities Fund ---- ----
Marsico Growth & Income Fund ---- ----
Balanced Assets Fund 30,926 ----
Short-Intermediate Government Fund 43,035 ----
Short-Term Income Fund 1,642 ----
Diversified Income Fund 767 ----
Strategic Fixed Income Fund 88,031 ----
Municipal Income Fund ---- ----
Short-Term Municipal Income Fund ---- ----
Intermediate Municipal Bond Fund ---- ----
FL Intermediate Municipal Fund ---- ----
FL Municipal Bond Fund ---- ----
GA Intermediate Municipal Fund ---- ----
GA Municipal Bond Fund ---- ----
Kansas Intermediate Municipal Fund N/A N/A
MD Intermediate Municipal Fund ---- ----
MD Municipal Bond Fund ---- ----
NC Intermediate Municipal Fund ---- ----
NC Municipal Bond Fund ---- ----
SC Intermediate Municipal Fund ---- ----
SC Municipal Bond Fund ---- ----
TN Intermediate Municipal Fund ---- ----
TN Municipal Bond Fund ---- ----
TX Intermediate Municipal Fund ---- ----
TX Municipal Bond Fund ---- ----
VA Intermediate Municipal Fund ---- ----
VA Municipal Bond Fund ---- ----
Government Money Market Fund 41,993 ----
Tax Exempt Fund 26,714 ----
106
<PAGE>
SHAREHOLDER SERVICING AGREEMENTS (PRIMARY B SHARES) - MONEY MARKET FUNDS
As stated in the Prospectuses for the Money Market Funds' Primary Shares of NFI
and the Prospectuses for the Primary B Shares of NFT, each of NFI and NFT has a
separate Shareholder Servicing Plan with respect to the Non-Money Market Funds'
Primary B Shares of NFI and the Primary B Shares of NFI and the Primary B Shares
of NFT except the Value Fund, Capital Growth Fund, Emerging Growth Fund,
Disciplined Equity Fund, Equity Index Fund, Managed Index Fund, Managed SmallCap
Index Fund, Managed Value Index Fund, Managed SmallCap Value Index Fund,
Balanced Assets Fund, Short-Intermediate Government Fund, Short-Term Income
Fund, Diversified Income Fund and Strategic Fixed Income Fund. Pursuant to the
Shareholder Servicing Plans, NFI and NFT each has entered into separate
agreements with certain banks pertaining to the provision of administrative
services to their customers who may from time to time own of record or
beneficially Primary B Shares ("Customers") in consideration for the payment of
up to 0.25% (on an annualized basis) of the 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
Company on behalf of Customers; (iv) providing information periodically to
Customers showing their positions in Primary B Shares; (v) arranging for bank
wires; (vi) responding to Customer inquiries concerning their investment in
Primary B Shares; (vii) providing sub-accounting with respect to Primary B
Shares beneficially owned by Customers or the information necessary for
sub-accounting; (viii) if required by law, forwarding shareholder communications
(such as proxies, shareholder reports annual and semi-annual financial
statements and dividend, distribution and tax notices) to Customers; (ix)
forwarding to Customers proxy statements and proxies containing any proposals
regarding the Shareholder Servicing Agreements or Shareholder Serving Plan; and
(x) providing such other similar services as may reasonably be requested to the
extent permitted under applicable statutes, rules, or regulations.
Such plan shall continue in effect as long as the Board of
Directors/Trustees, including a majority of the Qualified Directors,
specifically approves the plan at least annually.
SHAREHOLDER ADMINISTRATION PLAN (PRIMARY B SHARES) - NON-MONEY MARKET FUNDS
As stated in the Prospectus for the Non-Money Market Funds' Primary B
Shares, each Company has a separate Shareholder Administration Plan (the
"Administration Plan") with respect to such shares. Pursuant to the
Administration Plan, each Company may enter into agreements ("Administration
Agreements") with broker/dealers, banks and other financial institutions that
are dealers of record or holders of record or which have a servicing
relationship with the beneficial owners of Non-Money Market Fund Primary B
Shares ("Servicing Agents"). The Administration Plan provides that pursuant to
the Administration Agreements, Servicing Agents shall provide the shareholder
support services as set forth therein to their customers who may from time to
time own of record or beneficially Primary B Shares ("Customers") 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 Company on behalf of Customers; (iv) providing information periodically
to Customers showing their positions in Primary B Shares; (v) arranging for bank
wires; (vi) responding to Customer inquiries concerning their investment in
Primary B Shares; (vii) providing sub-accounting with respect to Primary B
Shares beneficially owned by Customers or the information necessary for
sub-accounting; (viii) if required by law, forwarding shareholder communications
(such as proxies, shareholder reports annual and semi-annual financial
statements and dividend, distribution and tax notices) to Customers; (ix)
forwarding to Customers proxy statements and proxies containing any proposals
regarding an Administration Agreement; (x) employee benefit plan recordkeeping,
administration, custody and trustee services; (xi) general shareholder liaison
services and (xii) providing such other similar services as may reasonably be
requested to the extent permitted under applicable statutes, rules, or
regulations.
107
<PAGE>
EXPENSES
The Administrator furnishes, without additional cost to each Company, the
services of the Treasurer and Secretary of each Company and such other personnel
(other than the personnel of the Adviser) as are required for the proper conduct
of each Company's affairs. The Distributor bears the incremental expenses of
printing and distributing prospectuses used by the Distributor or furnished by
the Distributor to investors in connection with the public offering of each
Company's shares and the costs of any other promotional or sales literature,
except that to the extent permitted under the Plans relating to the Investor A,
Investor B or Investor C Shares of each Fund, sales-related expenses incurred by
the Distributor may be reimbursed by each Company.
Each Company pays or causes to be paid all other expenses of each Company,
including, without limitation: the fees of the Adviser, the Administrator and
Co-Administrator; the charges and expenses of any registrar, any custodian or
depository appointed by each Company for the safekeeping of its cash, fund
securities and other property, and any stock transfer, dividend or accounting
agent or agents appointed by each Company; brokerage commissions chargeable to
each Company in connection with fund securities transactions to which each
Company is a party; all taxes, including securities issuance and transfer taxes;
corporate fees payable by each Company to federal, state or other governmental
agencies; all costs and expenses in connection with the registration and
maintenance of registration of each Company and its shares with the SEC and
various states and other jurisdictions (including filing fees, legal fees and
disbursements of counsel); the costs and expenses of typesetting prospectuses
and statements of additional information of each Company (including supplements
thereto) and periodic reports and of printing and distributing such prospectuses
and statements of additional information (including supplements thereto) to each
Company's shareholders; all expenses of shareholders' and directors' meetings
and of preparing, printing and mailing proxy statements and reports to
shareholders; fees and travel expenses of directors or director members of any
advisory board or committee; all expenses incident to the payment of any
dividend or distribution, whether in shares or cash; charges and expenses of any
outside service used for pricing of each Company's shares; fees and expenses of
legal counsel and of independent auditors in connection with any matter relating
to each Company; membership dues of industry associations; interest payable on
Company borrowings; postage and long-distance telephone charges; insurance
premiums on property or personnel (including officers and directors) of each
Company which inure to its benefit; extraordinary expenses (including, but not
limited to, legal claims and liabilities and litigation costs and any
indemnification related thereto); and all other charges and costs of each
Company's operation unless otherwise explicitly assumed by the Adviser), the
Administrator or Co-Administrator.
Expenses of each Company which are not directly attributable to the
operations of any class of shares or Fund are pro-rated among all classes of
shares or Fund of each Company based upon the relative net assets of each class
or Fund. Expenses of each Company which are not directly attributable to a
specific class of shares but are directly attributable to a specific Fund are
prorated among all the classes of shares of such Fund based upon the relative
net assets of each such class of shares. Expenses of each Company which are
directly attributable to a class of shares are charged against the income
available for distribution as dividends to such class of shares.
The Advisory Agreement, the Sub-Advisory Agreements, and the
Administration Agreement require NBAI, TradeStreet, Gartmore, and the
Administrator to reduce their fees to the extent required to satisfy any expense
limitations which may be imposed by the securities laws or regulations
thereunder of any state in which a Fund's shares are registered or qualified for
sale, as such limitations may be raised or lowered from time to time, and the
aggregate of all such investment advisory, sub-advisory, and administration fees
shall be reduced by the amount of such excess. The amount of any such reduction
to be borne by NBAI, TradeStreet, Gartmore or the Administrator shall be
deducted from the monthly investment advisory and administration fees otherwise
payable to NBAI, TradeStreet, Gartmore and the Administrator during such fiscal
year. If required pursuant to such state securities regulations, NBAI,
TradeStreet, Gartmore and the Administrator will reimburse the Company no later
than the last day of the first month of the next succeeding fiscal year, for any
such annual operating expenses (after reduction of all investment advisory and
administration fees in excess of such limitation).
108
<PAGE>
TRANSFER AGENTS AND CUSTODIANS
First Data is located at One Exchange Place, 53 State Street, Boston,
Massachusetts 02109, and acts as transfer agent for each Companies Primary
Shares and Investor Shares. Under the transfer agency agreements, the transfer
agent maintains shareholder account records for the Company, handles certain
communications between shareholders and the Companies, and distributes dividends
and distributions payable by the Companies to shareholders, and produces
statements with respect to account activity for the Companies 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 each Company during the month and is reimbursed for out-of-pocket expenses.
NationsBank serves as sub-transfer agent for each Fund's Primary Shares.
The Bank of New York ("BONY") 90 Washington Street, New York, N.Y. 10286
serves as custodian for the Funds' assets. As custodian, BONY maintains 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 such Funds for payments of dividends, distributions and
redemptions, endorses and collects on behalf of such Funds all checks, and
receives all dividends and other distributions made on securities owned by such
Funds.
The Bank of New York ("BONY"), Avenue des Arts, 35 1040 Brussels, Belgium
serves as custodian for the assets of the international Funds.
The SEC has amended Rule 17f-5 under the 1940 Act to permit boards to
delegate certain foreign custody matters to foreign custody managers and to
modify the criteria applied in the selection process. Accordingly, BONY serves
as Foreign Custody Manager, pursuant to a Foreign Custody Manager Agreement,
under which the Boards of Directors/Trustees retain the responsibility for
selecting foreign compulsory depositories, although BONY agrees to make certain
findings with respect to such depositories and to monitor such depositories.
DISTRIBUTOR
Stephens Inc. (the "Distributor") serves as the principal underwriter and
distributor of the shares of the Funds.
Pursuant to a distribution agreement (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 Companies 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 Companies 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 Directors/Trustees
or a vote of the majority (as defined in the 1940 Act) of the outstanding voting
securities of the Fund and (ii) a majority of the directors who are not parties
to the Distribution Agreement or "interested persons" of any such party by a
vote cast in person at a meeting called for such purpose. The Distribution
Agreement is not assignable and is terminable with respect to a Fund, without
penalty, on 60 days' notice by the Board of Directors/Trustees, the vote of a
majority (as defined in the 1940 Act) of the outstanding voting securities of
the Fund, or by the Distributor.
109
<PAGE>
INDEPENDENT ACCOUNTANTS AND REPORTS
At least semi-annually, the Companies will furnish shareholders of the
Funds with a list of the investments held in the Funds and financial statements
for the Funds. The annual financial statements will be audited by each Company's
independent accountant. The Board of Directors/Trustees has selected
PricewaterhouseCoopers LLP, 160 Federal Street, Boston, Massachusetts, 02110 as
each Company's independent accountant to audit each Company's books and review
each Company's tax returns for the Funds' fiscal year ended March 31, 1998. KPMG
Peat Marwick LLP, Two Nationwide Plaza, Columbus, Ohio 43215 were the
independent auditors for the Emerald International Equity Fund (predecessor to
the International Value Fund) for the fiscal period December 1, 1997 through May
15, 1998 and for the fiscal year ended November 30, 1997.
The Annual Reports for the fiscal period ended March 31, 1998 are hereby
incorporated herein by reference in this SAI. The Annual Reports for the Emerald
International Equity Fund (the predecessor to the International Value Fund) for
the fiscal period ended May 15, 1998 and for the fiscal year ended November 30,
1997 are also is incorporated herein by reference. These Annual Reports will be
sent free of charge with this SAI to any shareholder who requests this SAI.
COUNSEL
Morrison & Foerster LLP serves as legal counsel to the Companies. Their
address is 2000 Pennsylvania Avenue, N.W., Washington, D.C. 20006.
ADDITIONAL INFORMATION ON PERFORMANCE
Yield information and other performance information for each Company's
Funds may be obtained by calling the Company at (800) 321-7854.
From time to time, the yield and total return of a Fund's Investor Shares
and Primary Shares may be quoted in advertisements, shareholder reports, and
other communications to shareholders. Each Fund of the Company also may quote
information obtained from the Investment Company Institute in its advertising
materials and sales literature. In addition, certain potential benefits of
investing in world securities markets may be discussed in promotional materials.
Such benefits include, but are not limited to: a) the expanded opportunities for
investment in securities markets outside the U.S.; b) the growth of securities
markets outside the U.S. vis-a-vis U.S. markets; c) the relative return
associated with foreign securities markets vis-a-vis U.S. markets; and d) a
reduced risk of portfolio volatility resulting from a diversified securities
portfolio consisting of both U.S. and foreign securities. 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
The current yield quotations for the Primary A, Primary B, Investor A,
Investor B, Investor C and Daily Shares of the NFI Money Market Funds are
computed by determining the net change, exclusive of capital changes, over a
seven-day base period in the value of a hypothetical pre-existing account having
a balance of one share at the beginning of the period. The net change in account
value is divided by the value of the account at the beginning of the base period
to obtain the base period return. The base period return is then multiplied by
(5/7), with the resulting annualized yield figure carried to the nearest 1/100
of 1%. For purposes of calculating current yield, net change in account value
reflects: (i) the value of additional shares purchased with dividends from the
original shares and dividends declared on both the original shares and any such
additional shares, and (ii) all fees (other than non-recurring account charges)
that are charged to all shareholder accounts in proportion to the length of the
base period and the average account size of the Primary A, Primary B, Investor
A, Investor B, Investor C and Daily Shares of the Money Market Funds. The
capital changes excluded from the calculation of current yield are realized
gains and losses from the sale of securities and unrealized appreciation and
depreciation.
110
<PAGE>
The effective yield quotations for the Primary Shares and Investor Shares
of the Money Market Funds are computed by compounding the unannualized seven-day
base period return as follows: 1 is added to the base period return and this sum
is then raised to a power equal to (5/7), and 1 is then subtracted from the
result. Based on the seven-day period ended March 31, 1998, (the "base period"),
the current and effective yields of the various shares of the Money Market Funds
were as follows:
The yield of the Primary Shares and Investor Shares of the NFP Funds is a
measure of the net investment income per share (as defined) earned over a 30-day
period expressed as a percentage of the maximum offering price of a share of
such classes at the end of the period. Yield figures are determined by dividing
the net investment income per share earned during the specified 30-day period by
the maximum offering price per share on the last day of the period, according to
the following formula:
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 = average daily number of shares outstanding during the period
that were entitled to receive dividends
d = maximum offering price per share on the last day of the period
For purposes of yield quotation, income is calculated in accordance with
standardized methods applicable to all stock and bond mutual funds. In general,
interest income is reduced with respect to bonds trading at a premium over their
par value by subtracting a portion of the premium from income on a daily basis,
and is increased with respect to bonds trading at a discount by adding a portion
of the discount to daily income. Capital gains and losses are excluded from the
calculation.
Income calculated for the purposes of calculating a Fund's yield differs
from income as determined for other accounting purposes. Because of the
different accounting methods used, and because of the compounding assumed in
yield calculations, the yield quoted for a Fund may differ from the rate of
distributions a Fund paid over the same period or the rate of income reported in
the Funds' financial statements.
MONEY MARKET FUNDS. The "yield" and "effective yield" of Primary A,
Primary B, Investor A, Investor B, Investor C and Daily Shares of each Money
Market Fund of NFT are computed separately as described in the Prospectuses
according to formulas prescribed by the SEC. The standardized seven-day yield is
computed by determining the net change, exclusive of capital changes, in the
value of a hypothetical pre-existing account in the particular Fund involved
having a balance of one share of the class or series involved at the beginning
of the period, dividing the net change in account value by the value of the
account at the beginning of the base period to obtain the base period return,
and multiplying the base period return by (365/7). The net change in the value
of an account in each Fund includes the value of additional shares purchased
with dividends from the original share, and dividends declared on both the
original share and any such additional shares; and all fees, other than
nonrecurring account or sales charges, that are charged to shareholder accounts
in proportion to the length of the base period and the Fund's average account
size. The capital changes to be excluded from the calculation of the net change
in account value are realized gains and losses from the sale of securities and
unrealized appreciation and depreciation. The effective annualized yield for a
class or series of shares in a Fund is computed by compounding the unannualized
base period return (calculated as above) by adding 1 to the base period return,
raising the sum to a power equal to 365 divided by 7, and subtracting 1 from the
result.
In addition, the "tax-equivalent yield" of the Primary A, Primary B,
Investor A, Investor B, Investor C and Daily Shares of the Tax Exempt Fund is
computed by: (a) dividing the portion of the yield that is exempt from
111
<PAGE>
Federal income tax by one minus a stated Federal income tax rate; and (b) adding
the figure resulting from (a) above to that portion, if any, of the yield that
is not exempt from Federal income tax.
112
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Seven Day Yield
Effective
Yield Yield Tax
Without Without Tax Equivalent
Fee Effective Fee Equivalent Yield w/o
Yield Waivers Yield Waivers Yield Waivers
Prime Fund ------ ------- --------- -------- ---------- -----------
Primary A Shares 5.47% 5.42% 5.62% 5.57% n/a n/a
Primary B Shares 5.22% 5.17% 5.36% 5.31% n/a n/a
Primary A Shares 5.12% 5.07% 5.25% 5.20% n/a n/a
Investor B Shares 5.22% 5.17% 5.36% 5.31% n/a n/a
Investor C Shares 5.22% 5.17% 5.36% 5.31% n/a n/a
Daily Shares 4.97% 4.92% 5.10% 5.05% n/a n/a
Treasury Fund
Primary A Shares 5.42% 5.37% 5.56% 5.51% n/a n/a
Primary B Shares 5.17% 5.12% 5.30% 5.25% n/a n/a
Investor A Shares 5.07% 5.02% 5.19% 5.14% n/a n/a
Investor B Shares 5.17% 5.12% 5.30% 5.25% n/a n/a
Investor C Shares 5.17% 5.12% 5.30% 5.25% n/a n/a
Daily Shares 4.92% 4.87% 5.04% 4.99% n/a n/a
SEVEN DAY YIELD FOR THE YEAR ENDED 3/31/98
Tax Equivalent Yields @ 39.6%
Tax
Effective Equivalent
Yield Yield Yield
Without Without Tax Without
Fee Effective Fee Equivalent Fee
Yield Waivers Yield Waivers Yield Waivers
Government Money ----- ------- --------- --------- ---------- -------
Market Fund
Primary A Shares 5.30% 5.01% 5.44% 5.15% n/a n/a
Primary B Shares 5.05% 4.76% 5.18% 4.89% n/a n/a
Investor A Shares 4.95% 4.66% 5.07% 4.78% n/a n/a
Investor B Shares 5.05% 4.76% 5.18% 4.89% n/a n/a
Investor C Shares 5.05% 4.76% 5.18% 4.89% n/a n/a
Daily Shares 4.80% 4.51% 4.92% 4.63% n/a n/a
Tax Exempt Fund
Primary A Shares 3.42% 3.16% 3.48% 3.22% 5.66% 5.23%
Primary B Shares 3.17% 2.91% 3.22% 2.96% 5.25% 4.82%
Investor A Shares 3.07% 2.81% 3.12% 2.86% 5.08% 4.65%
Investor B Shares 3.22% 2.96% 3.27% 3.01% 5.33% 4.90%
Investor C Shares 3.17% 2.91% 3.22% 2.96% 5.25% 4.82%
Daily Shares 2.92% 2.66% 2.96% 2.70% 4.83% 4.40%
</TABLE>
NON-MONEY MARKET FUNDS. Yield is calculated sep arately for the Investor
A, Investor C, Investor B, Primary A and Primary B Shares of a Non- Money
Market Fund by dividing the net investment income per share for a particular
class or series of shares (as described below) earned during a 30-day period by
the maximum offering price per share on the last day of the period (for Primary
A and Primary B Shares, maximum offering price per share is the same as the net
asset value per share) and annualizing the result on a semi-annual basis by
adding one to the quotient, raising the sum to the power of six, subtracting one
from the result and then doubling the difference. For a class or series of
shares in a Fund, net investment income per share earned during the period is
based on the average daily number of shares outstanding during the period
entitled to receive dividends and includes dividends and interest earned during
the period minus expenses accrued for the period, net of reimbursements. This
calculation can be expressed as follows:
113
<PAGE>
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.
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. The Municipal Income Fund, Short-Term Municipal Income Fund,
Intermediate Municipal Bond Fund, the State Intermediate Municipal Bond Funds
and the State Municipal Bond Funds calculate interest gained on tax-exempt
obligations issued without original issue discount and having a current market
discount by using the coupon rate of interest instead of the yield to maturity.
In the case of tax-exempt obligations that are issued with original issue
discount, where the discount based on the current market value exceeds the
then-remaining portion of original issue discount, the yield to maturity is the
imputed rate based on the original issue discount calculation. Conversely, where
the discount based on the current market value is less than the remaining
portion of the original issue discount, the yield to maturity is based on the
market value.
Expenses accrued for the period (variable "b" in the formula) include
recurring fees charged by Nations Funds to shareholder accounts in proportion to
the length of the base period. Undeclared earned income will be subtracted from
the maximum offering price per share (which for Primary A and Primary B Shares
is net asset value per share) (variable "d" in the formula). Undeclared earned
income is the net investment income which, at the end of the base period, has
not been declared as a dividend, but is reasonably expected to be and is
declared as a dividend shortly thereafter. A Fund's maximum offering price per
share for purposes of the formula includes the maximum sales charge, if any,
imposed by the Fund, as reflected in the Fund's prospectus.
The Funds may provide additional yield calculations in communications
(other than advertisements) to the holders of Investor A, Investor C or Investor
B Shares. These may be calculated based on the Investor A, Investor C or
Investor B Shares' net asset values per share (rather than their maximum
offering prices) on the last day of the period covered by the yield
computations. That is, some communications provided to the holders of Investor
A, Investor C or Investor B Shares may also include additional yield
calculations prepared for the holders of Primary A or Primary B Shares. Such
additional quotations, therefore, will not reflect the effect of the sales
charges mentioned above.
INVESTOR A SHARES ONLY. Based on the foregoing calculations, the yield,
taking into account fee waivers and/or expense reimbursements, and the yield
without fee waivers and/or expense reimbursements for the 30-day period ended
March 31, 1998 were as follows:
114
<PAGE>
THIRTY DAY YIELD FOR THE PERIOD ENDED 3/31/98
<TABLE>
<CAPTION>
<S> <C>
Tax
Equivalent
Yield Yield
Without Tax Without
Fee Equivalent Fee
Yield Waivers Yield Waivers
------ ------- --------- -------
Short-Intermediate Government Fund
- ----------------------------------
Primary A Shares 5.42% 5.22% n/a n/a
Primary B Shares n/a n/a n/a n/a
Investor A Shares 5.17% 4.97% n/a n/a
Investor B Shares 4.57% 4.37% n/a n/a
Investor C Shares 4.57% 4.37% n/a n/a
Short-Term Income Fund
- ----------------------
Primary A Shares 5.09% 4.79% n/a n/a
Primary B Shares n/a n/a n/a n/a
Investor A Shares 4.83% 4.53% n/a n/a
Investor B Shares 4.23% 3.93% n/a n/a
Investor C Shares 4.43% 4.13% n/a n/a
Diversified Income Fund
- -----------------------
Primary A Shares 6.43% 6.33% n/a n/a
Primary B Shares 4.86% 4.76% n/a n/a
Investor A Shares 6.15% 6.05% n/a n/a
Investor B Shares 5.56% 5.46% n/a n/a
Investor C Shares 5.56% 5.46% n/a n/a
Strategic Fixed Income Fund
- ---------------------------
Primary A Shares 5.93% 5.82% n/a n/a
Primary B Shares n/a n/a n/a n/a
Investor A Shares 5.73% 5.62% n/a n/a
Investor B Shares 5.12% 5.01% n/a n/a
Investor C Shares 5.22% 5.11% n/a n/a
Municipal Income Fund
- ---------------------
Primary A Shares 4.80% 4.56% 7.95% 7.55%
Investor A Shares 4.60% 4.36% 7.62% 7.22%
Investor B Shares 3.95% 3.71% 6.54% 6.14%
Investor C Shares 4.05% 3.81% 6.71% 6.31%
Short-Term Municipal Income Fund
- --------------------------------
Primary A Shares 4.19% 3.82% 6.94% 6.32%
Investor A Shares 3.99% 3.62% 6.61% 5.99%
Investor B Shares 3.84% 3.47% 6.36% 5.75%
Investor C Shares 3.84% 3.47% 6.36% 5.75%
Intermediate Municipal Bond Fund
- --------------------------------
Primary A Shares 4.66% 4.42% 7.72% 7.32%
Investor A Shares 4.45% 4.21% 7.37% 6.97%
Investor B Shares 3.85% 3.61% 6.37% 5.98%
Investor C Shares 4.15% 3.91% 6.87% 6.47%
Florida Intermediate Municipal Bond Fund
- -----------------------------------------
Primary A Shares 4.75% 4.49% 7.86% 7.43%
Investor A Shares 4.55% 4.29% 7.53% 7.10%
Investor B Shares 3.95% 3.69% 6.54% 6.11%
Investor C Shares 3.95% 3.69% 6.54% 6.11%
Georgia Intermediate Municipal Bond Fund
- ----------------------------------------
Primary A Shares 4.61% 4.36% 8.12% 7.68%
Investor A Shares 4.41% 4.16% 7.77% 7.33%
Investor B Shares 3.81% 3.56% 6.71% 6.27%
Investor C Shares 3.81% 3.56% 6.71% 6.27%
</TABLE>
115
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Tax
Equivalent
Yield Yield
Without Tax Without
Fee Equivalent Fee
Yield Waivers Yield Waivers
----- -------- ---------- --------
Maryland Intermediate Municipal Bond Fund
- -----------------------------------------
Primary A Shares 4.54% 4.24% 7.90% 7.38%
Investor A Shares 4.34% 4.04% 7.55% 7.03%
Investor B Shares 3.74% 3.44% 6.51% 5.99%
Investor C Shares 3.74% 3.44% 6.51% 5.99%
North Carolina Intermediate Municipal Bond Fund
- ------------------------------------------------
Primary A Shares 4.68% 4.42% 8.40% 7.93%
Investor A Shares 4.48% 4.22% 8.04% 7.57%
Investor B Shares 3.88% 3.62% 6.96% 6.50%
Investor C Shares 3.88% 3.62% 6.96% 6.50%
South Carolina Intermediate Municipal Bond Fund
- -----------------------------------------------
Primary A Shares 4.91% 4.66% 8.74% 8.30%
Investor A Shares 4.71% 4.46% 8.38% 7.94%
Investor B Shares 4.10% 3.85% 7.30% 6.85%
Investor C Shares 4.11% 3.86% 7.32% 6.87%
Tennessee Intermediate Municipal Bond Fund
- ------------------------------------------
Primary A Shares 4.58% 4.24% 8.07% 7.47%
Investor A Shares 4.38% 4.04% 7.71% 7.12%
Investor B Shares 3.78% 3.44% 6.66% 6.06%
Investor C Shares 3.74% 3.40% 6.59% 5.99%
Texas Intermediate Municipal Bond Fund
- --------------------------------------
Primary A Shares 4.77% 4.52% 7.90% 7.48%
Investor A Shares 4.57% 4.32% 7.57% 7.15%
Investor B Shares 3.97% 3.72% 6.57% 6.16%
Investor C Shares 3.97% 3.72% 6.57% 6.16%
Virginia Intermediate Municipal Bond Fund
- -----------------------------------------
Primary A Shares 4.71% 4.47% 8.27% 7.85%
Investor A Shares 4.51% 4.27% 7.92% 7.50%
Investor B Shares 3.91% 3.67% 6.87% 6.45%
Investor C Shares 3.91% 3.67% 6.87% 6.45%
Florida Municipal Bond Fund
- ---------------------------
Primary A Shares 4.84% 4.54% 8.01% 7.52%
Investor A Shares 4.63% 4.33% 7.67% 7.17%
Investor B Shares 3.98% 3.68% 6.59% 6.09%
Investor C Shares 3.98% 3.68% 6.59% 6.09%
Georgia Municipal Bond Fund
- ---------------------------
Primary A Shares 4.71% 4.29% 8.30% 7.56%
Investor A Shares 4.52% 4.10% 7.96% 7.22%
Investor B Shares 3.87% 3.45% 6.82% 6.08%
Investor C Shares 3.88% 3.46% 6.83% 6.09%
Maryland Municipal Bond Fund
- ----------------------------
Primary A Shares 4.49% 4.02% 7.81% 7.00%
Investor A Shares 4.29% 3.82% 7.47% 6.65%
Investor B Shares 3.64% 3.17% 6.34% 5.52%
Investor C Shares 3.75% 3.28% 6.53% 5.71%
North Carolina Municipal Bond Fund
- ----------------------------------
Primary A Shares 4.68% 4.35% 8.40% 7.81%
Investor A Shares 4.48% 4.15% 8.04% 7.45%
Investor B Shares 3.83% 3.50% 6.87% 6.28%
Investor C Shares 3.84% 3.51% 6.89% 6.30%
South Carolina Municipal Bond Fund
- ----------------------------------
Primary A Shares 4.71% 4.32% 8.38% 7.69%
Investor A Shares 4.51% 4.12% 8.03% 7.33%
Investor B Shares 3.86% 3.47% 6.87% 6.18%
</TABLE>
116
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Tax
Equivalent
Yield Yield
Without Tax Without
Fee Equivalent Fee
Yield Waivers Yield Waivers
----- --------- ---------- --------
Investor C Shares 3.86% 3.47% 6.87% 6.18%
Tennessee Municipal Bond Fund
- -----------------------------
Primary A Shares 4.65% 4.05% 8.19% 7.13%
Investor A Shares 4.45% 3.85% 7.84% 6.78%
Investor B Shares 3.80% 3.20% 6.69% 5.64%
Investor C Shares 3.79% 3.19% 6.68% 5.62%
Texas Municipal Bond Fund
- -------------------------
Primary A Shares 4.75% 4.28% 7.86% 7.09%
Investor A Shares 4.55% 4.08% 7.53% 6.75%
Investor B Shares 3.90% 3.43% 6.46% 5.68%
Investor C Shares 3.89% 3.42% 6.44% 5.66%
Virginia Municipal Bond Fund
- ----------------------------
Primary A Shares 4.77% 4.40% 8.38% 7.73%
Investor A Shares 4.57% 4.20% 8.03% 7.38%
Investor B Shares 3.90% 3.53% 6.85% 6.20%
Investor C Shares 3.86% 3.49% 6.78% 6.13%
</TABLE>
The "tax-equivalent" yield is computed by: (a) dividing the portion of the yield
(calculated as above) that is exempt from Federal income tax by (b) one minus
(i) a stated Federal income tax rate, and, for the State Intermediate Municipal
Bond Funds, (ii) a state income tax rate multiplied by one minus the stated
Federal income tax rate. The Federal income tax rate used in calculating the
"tax-equivalent" yield 39.6%. The state income tax rate used in calculating the
"tax-equivalent" yield of the State Intermediate Municipal Bond Funds is as
follows: Florida --0%;; Georgia --6%; Maryland --4.875%; North Carolina --7.75%;
South Carolina --7%; Tennessee 6%; Texas --0%; and Virginia --5.75%.
Hypothetical examples showing the level of taxable yield needed to produce
on after-tax equivalent to an assumed tax-free yield may be provided to
shareholders. Provided below are such illustrations:
For the Georgia Intermediate Municipal Bond Fund and Georgia Municipal
Bond Fund:
- --------------------------------------------------------------------------------
Single Return $25,351-$61,400 $61,401-$128,100 $128,101-$278,450
- --------------------------------------------------------------------------------
Joint Return $42,351-$102,300 $102,301-$155,950 $155,951-$278,450
- --------------------------------------------------------------------------------
To match a
tax-free
yield of: A taxable investment would have to pay you:
- --------------------------------------------------------------------------------
4% 5.91% 6.17% 6.65%
- --------------------------------------------------------------------------------
5% 7.39% 7.71% 8.31%
- --------------------------------------------------------------------------------
6% 8.87% 9.25% 9.97%
- --------------------------------------------------------------------------------
7% 10.34% 10.79% 11.64%
- --------------------------------------------------------------------------------
8% 11.82% 12.33% 13.30%
- --------------------------------------------------------------------------------
The tax-free yields used here are hypothetical and no assurance can be made that
the Funds will obtain any particular yield. A fund's yield fluctuates as market
conditions change. The tax brackets and the related yield calculations are based
on the 1998 Federal (28%, 31%, 36%) and Georgia (6%) tax rates and assume a
Federal tax benefit for the state and local taxes. Note the highest 1998
marginal Federal tax rate may be higher than 36% due to the phase-out of
allowable itemized deductions and personal exemptions for certain taxpayers.
This schedule does not take into account the 39.6% Federal tax rate applied to
taxable income in excess of $278,450.
117
<PAGE>
For the Maryland Intermediate Municipal Bond Fund and Maryland Municipal
Bond Fund:
- --------------------------------------------------------------------------------
Single Return $25,351-$61,400 $61,401-$128,100 $128,101-$278,450
- --------------------------------------------------------------------------------
Joint Return $42,351-$102,300 $102,301-$155,950 $155,951-$278,450
- --------------------------------------------------------------------------------
To match a
tax-free
yield of: A taxable investment would have to pay you:
- --------------------------------------------------------------------------------
4% 6.00% 6.26% 6.75%
- --------------------------------------------------------------------------------
5% 7.50% 7.82% 8.43%
- --------------------------------------------------------------------------------
6% 9.00% 9.39% 10.12%
- --------------------------------------------------------------------------------
7% 10.50% 10.95% 11.81%
- --------------------------------------------------------------------------------
8% 12.00% 12.52% 13.50%
- --------------------------------------------------------------------------------
The tax-free yields used here are hypothetical and no assurance can be made that
the Funds will obtain any particular yield. A fund's yield fluctuates as market
conditions change. The tax brackets and the related yield calculations are based
on the 1998 Federal (28%, 31%, 36%), Maryland (4.875%) and local county (which,
for purposes of the above table is approximately 2.5%) tax rates and assume a
Federal tax benefit for the state and local taxes. Note the highest 1998
marginal Federal tax rate may be higher than 36% due to the phase-out of
allowable itemized deductions and personal exemptions for certain taxpayers.
This schedule does not take into account the 39.6% Federal tax rate applied to
taxable income in excess of $278,450.
For the North Carolina Intermediate Municipal Bond Fund and North Carolina
Municipal Bond Fund:
- --------------------------------------------------------------------------------
Single $25,351-$60,000 $60,001-$61,400 $61,401-$128,100 $128,101-$278,450
Return (28%, 7%) (28%, 7.75%) (31%, 7.75%) (36%, 7.75%)
- --------------------------------------------------------------------------------
$42,351-$100,000 $100,001-$102,300 $102,301-$155,950 $155,951-$278,450
Joint Return (28%, 7%) (28%,7.75%) (31%, 7.75%) (36%, 7.75%)
- --------------------------------------------------------------------------------
To match a
tax-free
yield of: A taxable investment would have to pay you:
- --------------------------------------------------------------------------------
4% 5.97% 60.22% 6.28% 6.78%
- --------------------------------------------------------------------------------
5% 7.47% 7.53% 7.86% 8.42%
- --------------------------------------------------------------------------------
6% 8.96% 9.03% 9.43% 10.16%
- --------------------------------------------------------------------------------
7% 10.45% 10.54% 11.00% 11.86%
- --------------------------------------------------------------------------------
8% 11.95% 12.04% 12.57% 13.55%
- --------------------------------------------------------------------------------
The tax-free yields used here are hypothetical and no assurance can be made that
the Funds will obtain any particular yield. A fund's yield fluctuates as market
conditions change. The tax brackets and the related yield calculations are
118
<PAGE>
based on the 1998 Federal (28%, 31% 36%) and North Carolina (7%, 7.75%) tax
rates and assume a Federal tax benefit for the state and local taxes. Note that
the highest 1998 marginal Federal tax rate may be higher than 36% due to the
phase-out of allowable itemized deductions and personal exemptions for certain
taxpayers. This schedule does not take into account the 39.6% Federal tax rate
imposed on taxable income in excess of $278,450.
For the South Carolina Intermediate Municipal Bond Fund and South Carolina
Municipal Bond Fund:
- --------------------------------------------------------------------------------
Single $25,351-$61,400 $61,401-$128,100 $128,101-$278,450
Return (28%, 7%) (31%, 7%) (36%, 7%)
- --------------------------------------------------------------------------------
$42,351-$102,300 $102,301-$155,950 $155,951-$278,450
Joint Return (28%, 7%) (31%, 7%) (36%, 7%)
- --------------------------------------------------------------------------------
To match a
tax-free
yield of: A taxable investment would have to pay you:
- --------------------------------------------------------------------------------
4% 5.97% 6.23% 6.72%
- --------------------------------------------------------------------------------
5% 7.43% 7.79% 8.40%
- --------------------------------------------------------------------------------
6% 8.96% 9.35% 10.08%
- --------------------------------------------------------------------------------
7% 10.45% 10.91% 11.76%
- --------------------------------------------------------------------------------
8% 11.95% 12.47% 13.44%
- --------------------------------------------------------------------------------
The tax-free yields used here are hypothetical and no assurance can be made that
the Funds will obtain any particular yield. A fund's yield fluctuates as market
conditions change. The tax brackets and the related yield calculations are based
on the 1998 Federal (28%, 31%, 36%) and South Carolina (7%) tax rates and assume
a Federal tax benefit for the state and local taxes. Note that the highest 1998
marginal Federal tax rate may be higher than 36% due to the phase-out of
allowable itemized deductions and personal exemptions for certain taxpayers.
This schedule does not take into account the 39.6% Federal tax rate imposed on
taxable income in excess of $278,450.
For the Tennessee Intermediate Municipal Bond Fund and Tennessee Municipal Bond
Fund:
- --------------------------------------------------------------------------------
Single Return $25,351-$61,400 $61,401-$128,100 $128,101-$278,450
- --------------------------------------------------------------------------------
Joint Return $42,351-$102,300 $102,301-$155,950 $155,951-$278,450
- --------------------------------------------------------------------------------
To match a
tax-free
yield of: A taxable investment would have to pay you:
- --------------------------------------------------------------------------------
4% 5.91% 6.17% 6.65%
- --------------------------------------------------------------------------------
5% 7.39% 7.71% 8.31%
- --------------------------------------------------------------------------------
6% 8.87% 9.25% 9.97%
- --------------------------------------------------------------------------------
7% 10.34% 10.79% 11.64%
- -------------------------------------------------------------------------------
119
<PAGE>
8% 11.82% 12.33% 13.30%
- --------------------------------------------------------------------------------
The tax-free yields used here are hypothetical and no assurance can be made that
the Funds will obtain any particular yield. A fund's yield fluctuates as market
conditions change. The tax brackets and the related yield calculations are based
on the 1998 Federal (28%, 31%, 36%) and Tennessee (6%) tax rates and assume a
Federal tax benefit for the state and local taxes. Note that the highest 1998
marginal Federal tax rate may be higher than 36% due to the phase-out of
allowable itemized deductions and personal exemptions for certain taxpayers.
This schedule does not take into account the 39.6% Federal tax rate imposed on
taxable income in excess of $278,450.
For the Virginia Intermediate Municipal Bond Fund and Virginia Municipal Bond
Fund:
- --------------------------------------------------------------------------------
Single Return $25,351-$61,400 $61,401-128,100 $128,101-$278,450
- --------------------------------------------------------------------------------
Joint Return $42,351-$102,300 $102,301-$155,950 $155,951-$278,450
- --------------------------------------------------------------------------------
To match a
tax-free
yield of: A taxable investment would have to pay you:
- ------------------------------------------------------
4% 5.89% 6.15% 6.63%
- ------------------------------------------------------
5% 7.37% 7.69% 8.29%
- ------------------------------------------------------
6% 8.84% 9.23% 9.95%
- ------------------------------------------------------
7% 10.32% 10.76% 11.60%
- ------------------------------------------------------
8% 11.79% 12.30% 13.26%
- ------------------------------------------------------
The tax-free yields used here are hypothetical and no assurance can be made that
the Funds will obtain any particular yield. A fund's yield fluctuates as market
conditions change. The tax brackets and the related yield calculations are based
on the 1998 Federal (28%, 31%, 36%) and Virginia (5.75%) tax rates and assume a
Federal tax benefit for the state and local taxes. Note that the highest 1998
marginal Federal tax rate may be higher than 36% due to the phase-out of
allowable itemized deductions and personal exemptions for certain taxpayers.
This schedule does not take into account the 39.6% Federal tax rate imposed on
taxable income in excess of $271,050.
For the Municipal Income Fund, Short-Term Municipal Income Fund, the
Intermediate Municipal Bond Fund, the Florida Intermediate Municipal Bond Fund,
Florida Municipal Bond Fund, the Texas Intermediate Municipal Bond Fund and
Texas Municipal Bond Fund:
- --------------------------------------------------------------------------------
Single Return $25,351-$61,400 $61,401-$128,100 $128,101-$278,450
- --------------------------------------------------------------------------------
Joint Return $42,352-$102,300 $102,301-$155,950 $155,951-$278,450
- --------------------------------------------------------------------------------
120
<PAGE>
To match a
tax-free
yield of: A taxable investment would have to pay you:
- ------------------------------------------------------
4% 5.56% 5.80% 6.25%
- ------------------------------------------------------
5% 6.94% 7.25% 7.81%
- ------------------------------------------------------
6% 8.33% 8.70% 9.38%
- ------------------------------------------------------
7% 9.72% 10.14% 10.94%
- ------------------------------------------------------
8% 11.11% 11.59% 12.50%
- ------------------------------------------------------
The tax-free yields used here are hypothetical and no assurance can be made that
the Funds will obtain any particular yield. A fund's yield fluctuates as market
conditions change. The tax brackets and the related yield calculations are based
on the 1998 Federal (28%, 31%, 36%) tax rates. This analysis does not take into
account any state or local taxes imposed, although, with respect to the Florida
Intermediate Municipal Bond Fund, the Florida Municipal Bond Fund, the Texas
Intermediate Municipal Bond Fund and the Texas Municipal Bond Fund, neither
Florida nor Texas impose a personal income tax. Note that the highest 1998
marginal Federal tax rate may be higher than 36% due to the phase-out of
allowable itemized deductions and personal exemptions for certain taxpayers.
This schedule does not take into account the 39.6% Federal tax rate imposed on
taxable income in excess of $278,450.
There can be no assurance that all of a yield quoted by one of these Funds
will be tax-free since these Funds may invest in short-term taxable obligations
for temporary defensive periods as described in the Prospectuses. Also, the
above hypothetical examples are for illustration only. Tax laws and regulations
may be changed at any time by legislative or administrative actions and such
changes may make the information contained in such examples obsolete.
Thirty Day Yield
----------------
Yield Without
Government Securities Fund Yield Fee Waivers
----- -------------
Primary A Shares 5.42% 5.28%
Primary B Shares n/a n/a
Investor A Shares 5.17% 5.03%
Investor B Shares 4.57% 4.43%
Investor C Shares 4.57% 4.43%
During the period for which certain yield quotations are given above,
NationsBank and the Administrator voluntarily waived fees or reimbursed certain
expenses of such shares, thereby increasing yield figures. Such waivers or
expense reimbursements may be discontinued at any time.
TOTAL RETURN CALCULATIONS
Total return measures both the net investment income generated by, and the
effect of any realized or unrealized appreciation or depreciation of the
underlying investments in a Non-Money Market Fund. The Non-Money Market Funds'
average annual and cumulative total return figures are computed in accordance
with the standardized methods prescribed by the SEC.
Average annual total return figures are computed by determining the
average annual compounded rates of return over the periods indicated in the
advertisement, sales literature or shareholders' report that would equate the
initial amount invested to the ending redeemable value, according to the
following formula:
121
<PAGE>
P(1 + T)n = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value at the end of the period of a
hypothetical $1,000 payment made at the beginning of such
period.
This calculation (i) assumes all dividends and distributions are
reinvested at net asset value on the appropriate reinvestment dates as described
in the Prospectuses, and (ii) deducts (a) the maximum sales charge from the
hypothetical initial $1,000 investment, and (b) all recurring fees, such as
advisory and administrative fees, charged as expenses to all shareholder
accounts.
The following figures, for the period ended March 31, 1998, reflect the
deduction of sales charges, if any, that would have been deducted from a sale of
shares.
AVERAGE ANNUAL TOTAL RETURNS
----------------------------
INCEPTION
INCEPTION THROUGH
THROUGH 3/31/98 3/31/98
WITHOUT SALES INCLUDING
CHARGES SALES CHARGES
---------------- -------------
Emerging Markets Fund
Primary A. Shares -6.39% 2.97%
Primary B Shares -6.80% 0.02%
Investor A Shares -6.60% 2.74%
Investor B Shares -11.89% 0.91%
Investor C Shares -7.17% 2.19%
Pacific Growth Fund
Primary A Shares -28.35% -9.86%
Primary B Shares -28.77% -17.22%
Investor A Shares -28.59% -10.12%
Investor B Shares -32.57% -11.72%
Investor C Shares -28.91% -10.53%
Global Government Income Fund
Primary A Shares 3.38% 4.61%
Primary B Shares 3.20% 2.92%
Investor A Shares 3.12% 4.35%
Investor B Shares -2.50% 2.62%
Investor C Shares 2.63% 3.92%
The Primary Shares and Investor Shares of the Funds may also quote their
distribution rates, which express the historical amount of income dividends paid
to their shareholders during a one-month (in the case of the Global Government
Income Fund) or a three-month (in the case of the Emerging Markets Fund and
Pacific Growth Fund) period as a percentage of the maximum offering price per
share on the last day of such period.
122
<PAGE>
The performance figures of the Funds as described above will vary from
time to time depending upon market and economic conditions, the composition of
their portfolios and operating expenses. These factors should be considered when
comparing the performance figures of the Funds with those of other investment
companies and investment vehicles.
Each Fund may quote information obtained from the Investment Company
Institute, national financial publications, trade journals and other industry
sources in its advertising and sales literature. In addition, the Funds may
compare the performance and yield of a class or series of shares to those of
other mutual funds with similar investment objectives and to other relevant
indices or to rankings prepared by independent services or other financial or
industry publications that monitor the performance of mutual funds. For example,
the performance and yield of a class of shares in a Fund may be compared to data
prepared by Lipper Analytical Services, Inc. Performance and yield data as
reported in national financial publications such as Money Magazine, Forbes,
Barron's, The Wall Street Journal, and The New York Times, or in publications of
a local or regional nature, also may be used in comparing the performance of a
class of shares in a Fund.
AVERAGE ANNUAL TOTAL RETURN
---------------------------
5 YEAR PERIOD ENDED 3/31/98
ONE YEAR OR INCEPTION
PERIOD ENDED 3/31/98 THROUGH 3/31/98
-------------------- ---------------
Equity Income Fund
Primary A Shares 37.21% 17.82%
Primary B 36.36% 26.74%
Investor A 36.92% 17.53%
Investor B 36.02% 17.66%
Investor C 36.28% 16.85%
International Equity Fund
Primary A 16.06% 10.68%
Primary B 15.09% 7.93%
Investor A 15.77% 10.41%
Investor B 14.93% 8.77%
Investor C 15.05% 9.69%
Government Securities Fund
Primary A 11.65% 5.22%
Primary B 11.23% 7.93%
Investor A 11.37% 5.00%
Investor B 10.78% 4.45%
Investor C 10.84% 4.50%
AVERAGE ANNUAL TOTAL RETURN
---------------------------
10 YEAR PERIOD
ENDED
ONE 3/31/98
YEAR 5-YEAR OR
PERIOD PERIOD INCEPTION
ENDED ENDING THROUGH
3/31/98 3/31/98 3/31/98
Value Fund ------- ------- -------
Primary A Shares 38.53% 20.29% 16.64%
Primary B Shares 38.09% 28.98% n/a
Investor A Shares 38.22% 20.03% 16.86%
Investor B Shares 32.29% 19.85% n/a
Investor C Shares 37.55% 19.35% 19.02%
123
<PAGE>
10 YEAR PERIOD
ENDED
ONE 3/31/98
YEAR 5-YEAR OR
PERIOD PERIOD INCEPTION
ENDED ENDING THROUGH
3/31/98 3/31/98 3/31/98
------- ------- -------
Capital Growth Fund
Primary A Shares 53.89% 19.35% 19.47%
Primary B Shares 52.99% 32.46% n/a
Investor A Shares 53.83% 19.11% 19.23%
Investor B Shares 47.52% 19.63% n/a
Investor C Shares 53.02% 18.41% 18.51%
Emerging Growth Fund
Primary A Shares 45.09% 19.30% 17.92%
Primary B Shares 44.33% 18.40% n/a
Investor A Shares 44.86% 19.04% 18.00%
Investor B Shares 38.64% 18.88% n/a
Investor C Shares 43.80% 18.31% 17.31%
Managed Index Fund
Primary A Shares 47.54% 41.04% n/a
Primary B Shares 46.88% 40.66% n/a
Investor A Shares 47.21% 40.78% n/a
Investor C Shares 46.71% 40.48% n/a
Managed SmallCap Index Fund
Primary A Shares 47.71% 29.41% n/a
Primary B Shares 47.04% 28.88% n/a
Investor A Shares 47.35% 29.06% n/a
Investor C Shares 47.10% 28.96% n/a
Managed Value Index Fund
Primary A Shares n/a 13.78% n/a
Primary B Shares n/a n/a n/a
Investor A Shares n/a 13.68% n/a
Investor C Shares n/a 13.69% n/a
Managed SmallCap Value Index Fund
Primary A Shares n/a 14.88% n/a
Primary B Shares n/a n/a n/a
Investor A Shares n/a 14.79% n/a
Investor C Shares n/a 14.71% n/a
Disciplined Equity Fund
Primary A Shares 48.65% 21.56% 27.15%
Primary B Shares 48.44% 33.67% n/a
Investor A Shares 48.28% 21.37% n/a
Investor B Shares 42.14% 23.88% n/a
Investor C Shares 47.38% 29.66% n/a
Equity Index Fund
Primary A Shares 47.38% 24.74% n/a
Primary B Shares 46.75% 34.01% n/a
124
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
10 YEAR PERIOD
ENDED
ONE 3/31/98
YEAR 5-YEAR OR
PERIOD PERIOD INCEPTION
ENDED ENDING THROUGH
3/31/98 3/31/98 3/31/98
------- ------- -------
Investor A Shares 46.58% 31.44% n/a
Balanced Assets Fund
Primary A Shares 30.35% 14.38% 14.62%
Primary B Shares 29.90% 21.95% n/a
Investor A Shares 30.13% 14.13% 14.37%
Investor B Shares 24.35% 13.96% n/a
Investor C Shares 29.43% 13.45% 13.67%
Short-Intermediate Government Fund
Primary A Shares 9.11% 5.08% 6.66%
Primary B Shares 8.74% 6.85% n/a
Investor A Shares 8.89% 4.87% 6.50%
Investor B Shares 4.35% 4.15% n/a
Investor C Shares 8.45% 4.48% 5.03%
Short-Term Income Fund
Primary A Shares 6.89% 5.45% 5.45%
Primary B Shares 6.58% 6.00% n/a
Investor A Shares 6.67% 5.26% 5.20%
Investor B Shares 6.51% 5.16% n/a
Investor C Shares 6.51% 5.04% 5.01%
Diversified Income Fund
Primary A Shares 11.07% 7.63% 8.73%
Primary B Shares 10.29% 8.26% n/a
Investor A Shares 10.80% 7.41% 8.46%
Investor B Shares 5.18% 6.35% n/a
Investor C Shares 10.27% 6.92% 8.10%
Strategic Fixed Income Fund
Primary A Shares 10.53% 6.07% 6.80%
Primary B Shares 10.12% 7.64% n/a
Investor A Shares 10.30% 5.87% 6.59%
Investor B Shares 5.73% 5.01% n/a
Investor C Shares 9.87% 5.46% 6.22%
Municipal Income Fund
Primary A Shares 11.12% 6.97% 8.11%
Investor A Shares 10.89% 6.74% 7.95%
Investor B Shares 5.23% 5.54% n/a
Investor C Shares 10.37% 6.23% 6.92%
Short-Term Municipal Income Fund
Primary A Shares 5.33% 4.38% n/a
Investor A Shares 5.12% 4.25% n/a
Investor B Shares 4.96% 4.02% n/a
Investor C Shares 4.99% 4.64% n/a
Intermediate Municipal Bond Fund
Primary A Shares 8.20% 5.55% n/a
</TABLE>
125
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
10 YEAR PERIOD
ENDED
ONE 3/31/98
YEAR 5-YEAR OR
PERIOD PERIOD INCEPTION
ENDED ENDING THROUGH
3/31/98 3/31/98 3/31/98
------- ------- -------
Investor A Shares 7.99% 5.14% n/a
Investor B Shares 3.50% 4.37% n/a
Investor C Shares 7.62% 7.45% n/a
Florida Intermediate Municipal
Bond Fund
Primary A Shares 8.55% 5.78% 6.18%
Investor A Shares 8.34% 5.58% 6.00%
Investor B Shares 3.80% 4.73% n/a
Investor C Shares 7.80% 5.16% 5.58%
Georgia Intermediate Municipal
Bond Fund
Primary A Shares 8.45% 5.59% 6.54%
Investor A Shares 8.24% 5.39% 6.41%
Investor B Shares 3.70% 4.59% n/a
Investor C Shares 7.70% 5.00% 5.73%
Maryland Intermediate Municipal
Bond Fund
Primary A Shares 7.83% 5.33% 6.73%
Investor A Shares 7.61% 5.11% 6.58%
Investor B Shares 3.07% 4.31% n/a
Investor C Shares 7.07% 4.69% 5.22%
North Carolina Intermediate
Municipal Bond Fund
Primary A Shares 8.39% 5.62% 6.02%
Investor A Shares 8.17% 5.42% 5.81%
Investor B Shares 3.64% 4.59% n/a
Investor C Shares 7.64% 4.98% 5.41%
South Carolina Intermediate
Municipal Bond Fund
Primary A Shares 7.88% 5.68% 6.30%
Investor A Shares 7.67% 5.48% 6.22%
Investor B Shares 3.13% 4.68% n/a
Investor C Shares 7.13% 5.06% 5.63%
Tennessee Intermediate
Municipal Bond Fund
Primary A Shares 7.99% 5.40% n/a
Investor A Shares 7.77% 5.30% n/a
Investor B Shares 3.24% 4.55% n/a
Investor C Shares 7.29% 7.34% n/a
Texas Intermediate Municipal
Bond Fund
Primary A Shares 8.09% 5.37% 5.71%
Investor A Shares 7.87% 5.16% 5.20%
Investor B Shares 3.34% 4.30% n/a
Investor C Shares 7.34% 7.07% n/a
Virginia Intermediate Municipal
Bond Fund
Primary A Shares 8.12% 5.38% 6.52%
Investor A Shares 7.91% 5.17% 6.37%
Investor B Shares 3.37% 4.32% n/a
</TABLE>
126
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
10 YEAR PERIOD
ENDED
ONE 3/31/98
YEAR 5-YEAR OR
PERIOD PERIOD INCEPTION
ENDED ENDING THROUGH
3/31/98 3/31/98 3/31/98
------- ------- -------
Investor C Shares 7.37% 4.77% 5.27%
Florida Municipal Bond Fund
Primary A Shares 10.60% 5.50% n/a
Investor A Shares 10.38% 5.15% n/a
Investor B Shares 4.71% 4.12% n/a
Investor C Shares 9.83% 9.78% n/a
Georgia Municipal Bond Fund
Primary A Shares 10.43% 5.27% n/a
Investor A Shares 10.22% 5.12% n/a
Investor B Shares 4.54% 4.12% n/a
Investor C Shares 9.64% 9.82% n/a
Maryland Municipal Bond Fund
Primary A Shares 10.62% 8.40% n/a
Investor A Shares 10.40% 5.30% n/a
Investor B Shares 4.72% 3.81% n/a
Investor C Shares 9.88% 9.50% n/a
North Carolina Municipal Bond Fund
Primary A Shares 10.86% 5.16% n/a
Investor A Shares 10.64% 5.18% n/a
Investor B Shares 4.96% 4.10% n/a
Investor C Shares 10.07% 9.82% n/a
South Carolina Municipal Bond Fund
Primary A Shares 10.04% 5.92% n/a
Investor A Shares 9.82% 6.06% n/a
Investor B Shares 4.15% 4.74% n/a
Investor C Shares 9.29% 9.64% n/a
Tennessee Municipal Bond Fund
Primary A Shares 10.45% 6.93% n/a
Investor A Shares 10.23% 5.89% n/a
Investor B Shares 4.56% 4.60% n/a
Investor C Shares 9.65% 9.85% n/a
Texas Municipal Bond Fund
Primary A Shares 11.12% 5.39% n/a
Investor A Shares 10.90% 5.40% n/a
Investor B Shares 5.23% 4.20% n/a
Investor C Shares 10.31% 9.91% n/a
Virginia Municipal Bond Fund
Primary A Shares 11.11% 5.26% n/a
Investor A Shares 10.88% 5.44% n/a
Investor B Shares 5.21% 4.05% n/a
Investor C Shares 10.31% 10.02% n/a
127
<PAGE>
AGGREGATE ANNUAL TOTAL RETURN
5-Year 5-Year
period period Inception Inception
FYE FYE ending ending through through
3/31/98 3/31/98 3/31/98 3/31/98 3/31/98 3/31/98
Without Including Without Including Without Including
Sales Sales Sales Sales Sales Sales
Charges Charges Charges Charges Charges Charges
------- ------- ------- ------- ------- -------
Value Fund
Primary A Shares 38.53% n/a 151.82% n/a 271.65% n/a
Primary B Shares 38.09% n/a 56.33% n/a n/a n/a
Investor A Shares 38.22% n/a 149.14% n/a 265.53% n/a
Investor B Shares 37.29% 32.29% 141.05% 139.05% n/a n/a
Investor C Shares 37.55% n/a 142.16% n/a 173.87% n/a
Capital Growth Fund
Primary A Shares 53.89% n/a 142.20% n/a 165.98% n/a
Primary B Shares 52.99% n/a 63.81% n/a n/a n/a
Investor A Shares 53.83% n/a 139.73% n/a 162.83% n/a
Investor B Shares 52.52% 47.52% 138.98% 136.98% n/a n/a
Investor C Shares 53.02% n/a 132.79% n/a 154.26% n/a
Emerging Growth Fund
Primary A Shares 45.09% n/a 141.68% n/a 140.47% n/a
Primary B Shares 44.33% n/a 34.52% n/a n/a n/a
Investor A Shares 44.86% n/a 139.05% n/a 140.63% n/a
Investor B Shares 43.64% 38.64% 131.95% 129.95% n/a n/a
Investor C Shares 43.80% n/a 131.82% n/a 132.52% n/a
Managed Index Fund
Primary A Shares n/a n/a 47.54% n/a 77.38% n/a
Primary B Shares n/a n/a 46.88% n/a 76.58% n/a
Investor A Shares n/a n/a 47.21% n/a 76.84% n/a
Investor C Shares n/a n/a 46.71% n/a 76.21% n/a
Managed SmallCap Index
Fund
Primary A Shares n/a n/a 47.71% n/a 45.69% n/a
Primary B Shares n/a n/a 47.04% n/a 44.82% n/a
Investor A Shares n/a n/a 47.35% n/a 45.12% n/a
Investor C Shares n/a n/a 47.10% n/a 44.96% n/a
Managed Value Index Fund
Primary A Shares n/a n/a 13.78% n/a n/a n/a
Primary B Shares n/a n/a n/a n/a n/a n/a
Investor A Shares n/a n/a 13.68% n/a n/a n/a
Investor C Shares n/a n/a 13.78% n/a n/a n/a
Managed SmallCap Value
Index Fund
Primary A Shares n/a n/a 14.88% n/a n/a n/a
Primary B Shares n/a n/a n/a n/a n/a n/a
Investor A Shares n/a n/a 14.79% n/a n/a n/a
Investor C Shares n/a n/a 14.71% n/a n/a n/a
Disciplined Equity Fund
Primary A Shares 48.65% n/a 165.46% n/a 274.43% n/a
Primary B Shares 48.44% n/a 66.45% n/a n/a n/a
Investor A Shares 48.28% n/a 147.57% n/a n/a n/a
Investor B Shares 47.14% 42.14% 130.69% 127.69% n/a n/a
Investor C Shares 47.38% n/a 111.83% n/a n/a n/a
Equity Index Fund
Primary A Shares n/a n/a 47.38% n/a 158.29% n/a
Primary B Shares n/a n/a 46.75% n/a 67.19% n/a
Investor A Shares n/a n/a 46.58% n/a 96.62% n/a
128
<PAGE>
Balanced Assets Funds
Primary A Shares 30.35% n/a 95.79% n/a 111.80% n/a
Primary B Shares 29.90% n/a 41.67% n/a n/a n/a
Investor A Shares 30.13% n/a 93.66% n/a 109.15% n/a
Investor B Shares 29.35% 24.35% 89.55% 87.55% n/a n/a
Investor C Shares 29.43% n/a 87.94% n/a 102.19% n/a
Short-Intermediate
Government Fund
Primary A Shares 9.11% n/a 28.10% n/a 53.69% n/a
Primary B Shares 8.74% n/a 12.33% n/a n/a n/a
Investor A Shares 8.89% n/a 26.86% n/a 52.00% n/a
Investor B Shares 8.35% 4.35% 23.56% 23.56% n/a n/a
Investor C Shares 8.45% n/a 24.48% n/a 32.85% n/a
Short-Term Income Fund
Primary A Shares 6.89% n/a 33.86% n/a n/a n/a
Primary B Shares 6.58% n/a 9.33% n/a n/a n/a
Investor A Shares 6.67% n/a 32.10% n/a n/a n/a
Investor B Shares 6.51% n/a 27.41% n/a n/a n/a
Investor C. Shares 6.51% n/a 30.80% n/a n/a n/a
Diversified Income Fund
Primary A Shares 11.07% n/a 44.45% n/a 57.37% n/a
Primary B Shares 10.29% n/a 14.95% n/a n/a n/a
Investor A Shares 10.80% n/a 42.94% n/a 54.36% n/a
Investor B Shares 10.18% 5.18% 36.49% 35.50% n/a n/a
Investor C Shares 10.27% n/a 39.74% n/a 52.22% n/a
Strategic Fixed Income
Fund
Primary A Shares 10.53% n/a 34.27% n/a 42.81% n/a
Primary B Shares 10.12% n/a 12.64% n/a n/a n/a
Investor A Shares 10.30% n/a 32.99% n/a 40.84% n/a
Investor B Shares 9.73% 5.73% 28.47% 28.47% n/a n/a
Investor C Shares 9.87% n/a 30.47% n/a 38.27% n/a
Municipal Income Fund
Primary A Shares 11.12% n/a 40.04% n/a 74.82% n/a
Investor A Shares 10.89% n/a 38.59% n/a 72.94% n/a
Investor B Shares 10.23% 5.23% 31.65% 30.65% n/a n/a
Investor C Shares 10.37% n/a 35.28% n/a 47.31% n/a
Short-Term Municipal
Income Fund
Primary A Shares 5.33% n/a 21.16% n/a n/a n/a
Investor A Shares 5.12% n/a 20.17% n/a n/a n/a
Investor B Shares 4.96% n/a 19.25% n/a n/a n/a
Investor C Shares 4.99% n/a 19.16% n/a n/a n/a
Intermediate Municipal
Bond Fund
Primary A Shares 8.20% n/a 28.66% n/a n/a n/a
Investor A Shares 7.99% n/a 26.04% n/a n/a n/a
Investor B Shares 7.50% 3.50% 22.34% 22.34% n/a n/a
Investor C Shares 7.62% n/a 27.77% n/a n/a n/a
Florida Intermediate
Municipal Bond Fund
Primary A Shares 8.55% n/a 32.45% n/a 37.41% n/a
Investor A Shares 8.34% n/a 31.19% n/a 36.17% n/a
Investor B Shares 7.80% 3.80% 26.89% 26.89% n/a n/a
Investor C Shares 7.80% n/a 28.61% n/a 33.24% n/a
Georgia Intermediate
Municipal Bond Fund
Primary A Shares 8.45% n/a 31.27% n/a 46.97% n/a
Investor A Shares 8.24% n/a 30.03% n/a 44.35% n/a
Investor B Shares 7.70% 3.70% 26.09% 26.09% n/a n/a
Investor C Shares 7.70% n/a 27.60% n/a 38.05% n/a
129
<PAGE>
Maryland Intermediate
Municipal Bond Fund
Primary A Shares 7.83% n/a 29.62% n/a 63.86% n/a
Investor A Shares 7.61% n/a 28.29% n/a 62.11% n/a
Investor B Shares 7.07% 3.07% 24.49% 24.49% n/a n/a
Investor C Shares 7.07% n/a 25.73% n/a 34.20% n/a
North Carolina
Intermediate Municipal
Bond Fund
Primary A Shares 8.39% n/a 31.45% n/a 36.36% n/a
Investor A Shares 8.17% n/a 30.21% n/a 34.87% n/a
Investor B Shares 7.64% 3.64% 26.10% 26.10% n/a n/a
Investor C Shares 7.64% n/a 27.53% n/a 32.14% n/a
South Carolina
Intermediate Municipal
Bond Fund
Primary A Shares 7.88% n/a 31.79% n/a 46.34% n/a
Investor A Shares 7.67% n/a 30.57% n/a 42.76% n/a
Investor B Shares 7.13% 3.13% 26.60% 26.60% n/a n/a
Investor C Shares 7.13% n/a 27.99% n/a 37.31% n/a
Tennessee Intermediate
Municipal Bond Fund
Primary A Shares 7.99% n/a 29.81% n/a n/a n/a
Investor A Shares 7.77% n/a 29.45% n/a n/a n/a
Investor B Shares 7.24% 3.24% 25.85% 25.85% n/a n/a
Investor C Shares 7.29% n/a 27.29% n/a n/a n/a
Texas Intermediate
Municipal Bond Fund
Primary A Shares 8.09% n/a 29.87% n/a 33.58% n/a
Investor A Shares 7.87% n/a 28.63% n/a 29.89% n/a
Investor B Shares 7.34% 3.34% 24.28% 24.28% n/a n/a
Investor C Shares 7.34% n/a 26.23% n/a n/a n/a
Virginia Intermediate
Municipal Bond Fund
Primary A Shares 8.12% n/a 29.97% n/a 71.39% n/a
Investor A Shares 7.91% n/a 28.65% n/a 67.14% n/a
Investor B Shares 7.37% 3.37% 24.60% 24.60% n/a n/a
Investor C Shares 7.37% n/a 26.21% n/a 34.61% n/a
Florida Municipal Bond
Fund
Primary A Shares 10.60% n/a 25.90% n/a n/a n/a
Investor A Shares 10.38% n/a 24.15% n/a n/a n/a
Investor B Shares 9.71% 4.71% 21.63% 20.63% n/a n/a
Investor C Shares 9.83% n/a 37.44% n/a n/a n/a
Georgia Municipal Bond
Fund
Primary A Shares 10.43% n/a 24.17% n/a n/a n/a
Investor A Shares 10.22% n/a 23.64% n/a n/a n/a
Investor B Shares 9.54% 4.54% 21.67% 20.67% n/a n/a
Investor C Shares 9.64% n/a 37.62% n/a n/a n/a
Maryland Municipal Bond
Fund
Primary A Shares 10.62% n/a 32.90% n/a n/a n/a
Investor A Shares 10.40% n/a 25.57% n/a n/a n/a
Investor B Shares 9.72% 4.72% 20.08% 19.08% n/a n/a
Investor C Shares 9.88% n/a 36.24% n/a n/a n/a
North Carolina
Municipal Bond Fund
Primary A Shares 10.86% n/a 23.65% n/a n/a n/a
Investor A Shares 10.64% n/a 24.96% n/a n/a n/a
Investor B Shares 9.96% 4.96% 21.55% 20.55% n/a n/a
Investor C Shares 10.07% n/a 37.62% n/a n/a n/a
130
<PAGE>
South Carolina
Municipal Bond Fund
Primary A Shares 10.04% n/a 27.75% n/a n/a n/a
Investor A Shares 9.82% n/a 29.51% n/a n/a n/a
Investor B Shares 9.15% 4.15% 24.85% 23.85% n/a n/a
Investor C Shares 9.29% n/a 36.83% n/a n/a n/a
Tennessee Municipal
Bond Fund
Primary A Shares 10.45% n/a 31.44% n/a n/a n/a
Investor A Shares 10.23% n/a 28.73% n/a n/a n/a
Investor B Shares 9.56% 4.56% 24.12% 23.12% n/a n/a
Investor C Shares 9.65% n/a 37.72% n/a n/a n/a
Texas Municipal Bond
Fund
Primary A Shares 11.12% n/a 24.37% n/a n/a n/a
Investor A Shares 10.90% n/a 25.27% n/a n/a n/a
Investor B Shares 10.23% 5.23% 22.04% 21.04% n/a n/a
Investor C Shares 10.31% n/a 37.99% n/a n/a n/a
Virginia Municipal Bond
Fund
Primary A Shares 11.11% n/a 24.13% n/a n/a n/a
Investor A Shares 10.88% n/a 26.21% n/a n/a n/a
Investor B Shares 10.21% 5.21% 21.28% 20.29% n/a n/a
Investor C Shares 10.31% n/a 38.48% n/a n/a n/a
</TABLE>
Fee waivers and/or expense reimbursements were in effect for the periods
presented. Primary B Shares were not offered during the period described above.
From time to time, the yields of each class of shares of a Money Market
Fund may be compared to the respective averages compiled by Donoghue's Money
Fund Report, a widely recognized independent publication that monitors the
performance of money market funds, or to the average yields reported by the Bank
Rate Monitor for money market deposit accounts offered by the 50 leading banks
and thrift institutions in the top five metropolitan statistical areas.
Each Fund may quote information obtained from the Investment Company
Institute, national financial publications, trade journals and other industry
sources in its advertising and sales literature. In addition, the Funds may
compare the performance and yield of a class or series of shares to those of
other mutual funds with similar investment objectives and to other relevant
indices or to rankings prepared by independent services or other financial or
industry publications that monitor the performance of mutual funds. For example,
the performance and yield of a class of shares in a Fund may be compared to data
prepared by Lipper Analytical Services, Inc. The performance and yield of a
class of shares in the Value Fund, Capital Growth Fund, Balanced Assets Fund,
Equity Index Fund and Emerging Growth Fund may be compared to the Standard &
Poor's 500 Stock Index, an unmanaged index of a group of common stocks, the
Consumer Price Index, or the Dow Jones Industrial Average, a recognized
unmanaged index of common stocks of 30 industrial companies listed on the
Exchange. The performance and yield of a class of shares in the
Short-Intermediate Government Fund may be compared to the Shearson Lehman
Intermediate Government Bond Index, an unmanaged index of intermediate
government securities. Performance and yield data as reported in national
financial publications such as Money Magazine, Forbes, Barron's, The Wall Street
Journal, and The New York Times, or in publications of a local or regional
nature, also may be used in comparing the performance of a class of shares in a
Fund.
The Short-Intermediate Government Fund seeks to provide higher current
yields than money market funds and short-term treasury obligations. The
Short-Intermediate Government Fund also seeks to maintain greater price
stability than higher yielding long-term bond funds. Therefore, in its
advertisements and sales materials, the Short-Intermediate Government Fund may
compare performance of the Short-Intermediate Government Fund to money
131
<PAGE>
market indices, such as those compiled by IBC/Donoghue, Inc. and Bank Rate
Monitor. In such advertising and sales materials, the Short-Intermediate
Government Fund may also compare the price stability of the Short-Intermediate
Government Fund, or indices of funds with similar investment objectives, to
indices of long term government bond funds such as those compiled by Salomon
Brothers and Shearson Lehman Brothers Inc. The Short-Intermediate Government
Fund is not meant to be a substitute for a money market fund which seeks to
maintain a fixed net asset value of $1.00 per share.
Each Fund may quote information obtained from the Investment Company
Institute in its advertising materials and sales literature.
IBBOTSON DATA. Ibbotson Associates of Chicago, Illinois, ("Ibbotson")
provides historical returns of the capital markets in the United States. The
Funds may compare the performance of their share classes or series to the
long-term performance of the U.S. capital markets in order to demonstrate
general long-term risk versus reward investment scenarios. Performance
comparisons could also include the value of a hypothetical investment in common
stocks, long-term bonds or treasuries.
The capital markets tracked by Ibbotson are common stocks, small
capitalization stocks, long-term corporate bonds, intermediate-term government
bonds, long-term government bonds, Treasury Bills, and the U.S. rate of
inflation. These capital markets are based on the returns of several different
indices. For common stocks, the S&P is used. For small capitalization stocks,
return is based on the return achieved by Dimensional Fund Advisors (DFA) Small
Company Fund. This fund is a market-value-weighted index of the ninth and tenth
deciles of the Exchange, plus stocks listed on the American Stock Exchange
(AMEX) and over-the-counter (OTC) with the same or less capitalization as the
upperbound of the Exchange ninth docile. At year-end 1995, the DFA Small Company
Fund contained approximately 2,663 stocks, with a weighted average market
capitalization of $165.75 million. The unweighted average market capitalization
was $82.97 million, while the median was $56.0 million.
Unlike an investment in a common stock mutual fund, an investment in bonds
that are held to maturity provides a fixed and stated rate of return. Bonds have
a senior priority in liquidation or bankruptcy to common stocks, and interest on
bonds is generally paid from assets of the corporation before any distributions
to common shareholders. Bonds rated in the two highest rating categories are
considered high quality and to present minimal risks of default. See Schedule A
for a more complete explanation of these ratings of corporate bonds. An
advantage of investing in government bonds is that, in many cases, they are
backed by the credit and taxing power of the United States government, and
therefore, such securities may present little or no risk of default. Although
government securities fluctuate in price, they are highly liquid and may be
purchased and sold with relatively small transaction costs (direct purchase of
Treasury securities can be made with no transaction costs).
Long-term corporate bond returns are based on the performance of the
Salomon Brothers Long-Term-High-Grade Corporate Bond Index and include nearly
all "Aaa-" and "Aa-" rated bonds. Returns on intermediate-term government bonds
are based on a one-bond portfolio constructed each year, containing a bond which
is the shortest noncallable bond available with a maturity not less than 5
years. This bond is held for the calendar year and returns are recorded. Returns
on long-term government bonds are based on a one-bond portfolio constructed each
year, containing a bond that meets several criteria, including having a term of
approximately 20 years. The bond is held for the calendar year and returns are
recorded. Returns on U.S. Treasury Bills are based on a one-bill portfolio
constructed each month, containing the shortest-term bill having not less than
one month to maturity. The total return on the bill is the month end price
divided by the previous month-end price, minus one. Data up to 1976 is from the
U.S. Government Bond file at the University of Chicago's Center for Research in
Security Prices; the Wall Street Journal is the source thereafter. Inflation
rates are based on the CPI. Ibbotson calculates total returns in the same method
as the Funds.
Cumulative total return is computed by finding the cumulative compounded
rate of return over the period indicated in the advertisement that would equate
the initial amount invested to the ending redeemable value, according to the
following formula:
CTR = (ERV-P) 100
-------
132
<PAGE>
P
Where: CTR = Cumulative total return
ERV = ending redeemable value at the end of the period of a
hypothetical $1,000 payment made at the beginning of such
period
P = initial payment of $1,000.
This calculation (i) assumes all dividends and distributions are
reinvested at net asset value on the appropriate reinvestment dates as described
in the Prospectuses, and (ii) deducts (a) the maximum sales charge from the
hypothetical initial $1,000 investment, and (b) all recurring fees, such as
advisory and administrative fees, charged as expenses to all shareholder
accounts.
Cumulative Total Return
-----------------------
<TABLE>
<CAPTION>
<S> <C> <C>
10 Year 10 Year
Period Period
Ended Ended
3/31/98 3/31/98
5 Year 5 Year or or
Period Period Inception Inception
FYE FYE Ended Ended through through
3/31/98 3/31/98 3/31/98 3/31/98 3/31/98 3/31/98
Without Including Without Including Without Including
Sales Sales Sales Sales Sales Sales
Charges Charges Charges Charges Charges Charges
------- ------- ------- ------- ------- -------
Equity Income Fund
Primary A Shares 37.21% n/a 127.08% n/a 201.84% n/a
Primary B Shares 36.36% n/a 51.59% n/a n/a n/a
Investor A Shares 36.92% n/a 124.28% n/a 195.03% n/a
Investor B Shares 36.02% 31.02% 118.74% 116.74% n/a n/a
Investor C Shares 36.28% n/a 117.83% n/a 149.92% n/a
International
Equity Fund
Primary A Shares 16.06% n/a 66.09% n/a 67.27% n/a
Primary B Shares 15.09% n/a 14.33% n/a n/a n/a
Investor A Shares 15.77% n/a 64.07% n/a 57.84% n/a
Investor B Shares 14.93% 9.93% 49.87% 47.87% n/a n/a
Investor C Shares 15.05% n/a 58.83% n/a 56.09% n/a
Government
Securities Fund
Primary A Shares 11.65% n/a 28.95% n/a 56.49% n/a
Primary B Shares 11.23% n/a 13.19% n/a n/a n/a
Investor A Shares 11.37% n/a 27.61% n/a 53.94% n/a
Investor B Shares 10.78% 5.78% 23.32% 22.38% n/a n/a
Investor C Shares 10.84% n/a 24.63% n/a 30.58% n/a
</TABLE>
10 Year 10 Year
Period Period
Ended Ended
3/31/98 3/31/98
5 Year 5 Year or or
Period Period Inception Inception
FYE FYE Ended Ended through through
3/31/98 3/31/98 3/31/98 3/31/98 3/31/98 3/31/98
Without Including Without Including Without Including
Sales Sales Sales Sales Sales Sales
Charges Charges Charges Charges Charges Charges
-------- --------- ------- --------- ---------- -----------
International
Growth Fund
Primary A Shares 14.81% n/a 69.06% n/a n/a n/a
Investor A Shares 14.58% n/a 73.58% n/a 134.48% n/a
Investor B Shares 13.53% 8.53% 14.14% 10.14% n/a n/a
Investor C Shares 7.04% n/a 7.04% n/a n/a n/a
133
<PAGE>
* Primary A Shares of the Company do not carry a sales charge.
The Primary Shares and Investor Shares of the Equity Income Fund,
Government Securities Fund and International Equity Fund may also quote their
distribution rates, which express the historical amount of income dividends paid
to their shareholders during a one-month (in the case of the Government
Securities Fund) or a three-month (in the case of the Equity Income Fund and
International Equity Fund) period as a percentage of the maximum offering price
per share on the last day of such period. The performance figures of the Funds
as described above will vary from time to time depending upon market and
economic conditions, the composition of their portfolios and operating expenses.
These factors should be considered when comparing the performance figures of the
Funds with those of other investment companies and investment vehicles.
The "yield" and "effective yield" of each class of shares of a Money
Market Fund may be compared to the respective averages compiled by DONOGHUE'S
MONEY FUND REPORT, a widely recognized independent publication that monitors the
performance of money market funds, or to the average yields reported by the BANK
RATE MONITOR for money market deposit accounts offered by the 50 leading banks
and thrift institutions in the top five metropolitan statistical areas. Each
Fund may quote information obtained from the Investment Company Institute,
national financial publications, trade journals and other industry sources in
its advertising and sales literature. In addition, the Funds also may compare
the performance and yield of a class or series of shares to those of other
mutual funds with similar investment objectives and to other relevant indices or
to rankings prepared by independent services or other financial or industry
publications that monitor the performance of mutual funds. For example, the
performance and yield of a class of shares in a Fund may be compared to data
prepared by Lipper Analytical Services, Inc. Performance and yield data as
reported in national financial publications such as MONEY MAGAZINE, FORBES,
BARRON'S, THE WALL STREET JOURNAL, and THE NEW YORK TIMES, OR in publications of
a local or regional nature, also may be used in comparing the performance of a
class of shares in a Fund.
In addition, the performance and yield of a class of shares in Nations
Equity Income Fund and Nations International Equity Fund may be compared to the
Standard & Poor's 500 Stock Index, an unmanaged index of a group of common
stocks, the Consumer Price Index, or the Dow Jones Industrial Average, a
recognized unmanaged index of common stocks of 30 industrial companies listed on
the New York Stock Exchange. The performance and yield of a class of shares in
the Nations International Equity Fund may be compared to the Europe, Far East
and Australia Index, a recognized unmanaged index of international stocks. Any
given performance comparison should not be considered representative of a Fund's
performance for any future period.
MISCELLANEOUS
CERTAIN RECORD HOLDERS
James Sommers, a Trustee of NFI, owns 11.55% of Primary A Shares of the
North Carolina Intermediate Municipal Bond Fund.
The following indicates those persons who owned 5% or more of the
indicated class of shares as of August, 1998. Unless otherwise indicated, the
address for each recordholder of Primary Shares is 1401 Elm Street, 11th Floor,
Dallas, Texas 75202.
NATIONS GOVERNMENT MONEY MARKET FUND
------------------------------------
E-Net Inc NationsBank of
PO Box 100 Investor A Texas NA
Germantown, MD 20875 25.0116% Attn: Adrian Castillo Primary A
1401 Elm Street 11th Floor 99.8684%
Dallas, TX 75202-2911
National Financial For Investor A NationsBank of Texas NA
the Exclusive 6.7579% Attn: Adrian Castillo Primary B
Benefit of Our Customer 1401 Elm Street 11th Floor 100%
200 Liberty Street Dallas, Texas 75202-2911
1 World Financial Center
Attn Mutual Funds 5th Floor
134
<PAGE>
New York, NY 22043-0000
Ramon A. Alvarez Investor A National Financi For the Daily Shares
2116 Great Falls Street 6.1707% Exclusive Benefit Of 65.2428%
Falls Church, VA 22043-0000 Our Customers
200 Liberty Street
1 World Financial Center
Attn: Mutual Funds 5th Floor
New York, NY 10281
Norbert Dickman & Investor B Jeffrey H. Schwartz Daily Shares
Robert Dickson Trustees 12.9377% PO Box 20493 34.6099%
Barbara Fasken 1995 Trust Tampa, FL 33622-0493
303 West Wall Avenue Suite 1900
Midland, TX 79701
Robert N. Herman and Investor B John M. Meister and Investor C
Ann L. Herman 12.2759% Cheryl L. Meister 49.5964%
JTWROS JTTEN
9601 Eagle Ridge Drive 4 Sun Flare Court
Bethesda, MD 20817 Greer, SC 29650
Fasken Oil and Ranch LTD Investor B Beulah W. Kelsey Trustee Investor C
303 W. Wall Avenue 7.6842% Dated December 10,1992 7.9594%
Suite 1900 Beulah W. Klesey
Midland, TX 79701 Revocable
Trust
56 Freshwater Lane
Hilton Head, SC 29928
Title Company of NC Investor B Roger Cabrera Investor C
Inc. Trustee 7.1441% 8525 NW 166th Terrace 7.4104%
For Level Associates LP(B) Miami, FL 33016
Attn: F. Alton Russell
PO Box 2718
Raleigh, NC 27602
Hare & Co., Bank of Investor B Robert Stephen Investor C
New York 6.8261% Heckard, Jr. 7.05507%
Attn: Stif/Master Note 4020 Glenn Landing Drive
One Wall Street 2nd Floor Winston Salem, NC 27107-3777
New York, NY 27602
Fasken LTD Investor B Juanita A. Ohanian and Investor C
303 W. Wall Avenue 6.758% Sarkish Ohanian JTTEN 6.3633%
Suite 1900 10826 Nantucket Terrace
Midland, TX 79701 Potomac, MD 20854
American Woodmark Corp. Investor B
Attn: Mr. Glenn Eanes 6.064%
3102 Shawnee Drive
Winchester, VA 22602-4208
NATIONS VALUE FUND
------------------
MAC & CO A/C MSTF1002012 Investor A Roy R. Martine & Investor A
Mutual Fund Operations 6.4379% Kathleen H. Martine 8.4229%
PO Box 3198 JTWROS
Pittsburgh, PA 15230-3198 4009 Tottenham Court
Richmond, VA 23233-1771
NationsBank of Texas NA Primary A BNY Cust Investor A
Attn: Adrian Castillo 89.2518% Rollover IRA FBO 6.9354%
1401 Elm Street 11th Floor William D.Patterson
Dallas, TX 75202-2911 1742 Hilltop
135
<PAGE>
Kingwood, TX 77339
Stephens Inc. Primary B J. David Dalton TTEE Investor A
Attn: Cindy Cole 100% Lowcountry 5.581%
111 Center Street Orthopedics Associates P/S/P
Little Rock, AR 72201 Dated 08-05-87
9300 Medical Plaza Drive
Charleston, SC 29405
NATIONS MUNICIPAL INCOME FUND
-----------------------------
NFSC FEBO #W52-000019 Investor A Linda Sloan Mundy TTEE Investor A
Frank B. Comfort 6.013% Carl and Anne 47.3618%
4912 Cedar Drive Mundy Memorial
West Des Moines, IA 50266 Education Trust U/A DTD
07/16/97
R-1 Quarters MCB
Quantico, VA 22134
Denise Maxwell Investor C George Gray Investor A
45 Saddlebrook 27.5076% 1708 Riverside 16.0478%
Houston, TX 11024 Holly Hill, FL 32117
Investor C Kevin Carl Connor and Investor A
College Park Partners LTD 9.4969% Cynthia J. Pietsh JTWROS 10.8027%
117 Spring Chase Circle 127 Dolores Court
Atlamonte Springs, FL 32714-6520 Holly Hill, FL 32117
Emmet David Gelhot Investor C Ronald W. Pietsch and Investor A
5630 Oleatha Avenue 5.1443% Carole J. Pietsch 10.4269
Saint Louis, MO 63139-1504 16811 Brushy Fork Road
Newar, OH 43056-0000
NationsBank of Texas Primary A Robert L. Derrick and Investor A
Attn: Adrian Castillo 99.9844% Carolyn K. Derrick JTTEN 5.2992%
1401 Elm Street 11th Floor 712 Woodside Trials Unit 201
Dallas, TX 75202-2911 Ballwin, MO 63021
Sid Meier Investor B
2 Sheepfold Lane 6.6225%
Hunt Valley, MD 21030-1113
NATIONS MD INTER. MUNICIPAL BOND FUND
-------------------------------------
Robert Gladstone and Investor A Kwok Luen Lee and Investor C
Leslie Gladstone JTTEN 20.8721% Patsy S. Lee JTTEN 5.0281%
2468 Belmont Road, NW 2705 Hardy Avenue
Washington, DC 20008-1610 Wheaton, MD 20902
Carol C. House & Investor A NationsBank of Texas NA Primary A
Peter W. House JTWROS 5.2253% Attn: Adrian Castillo 99.9451%
4210 Leeward Place 1401 Elm Street 11th Floor
Bethesda, MD 20816 Dallas, TX 75202-2911
Albert J. Robertazzi & Investor C Laurel R. G. Moreno Trustee Investor B
Susan E. Franks JTWROS 10.6919% U/Deed DTD 10/14/91 4.9446%
11564 West Hill Drive FBO Miro Gudelsky
Rockville, MD 20852-3721 10808 Riverwood Drive
Potomac, MD 20854-1334
James Lee Donaldson and Investor C Walter F. Engelhaupt & Investor A
Robert W. Donaldson JTTEN 8.2134% Vivian K. Engelhaupt & 67.8225%
PO Box 336 Stephen Engelhaupt JTTEN
136
<PAGE>
Libertytown, MD 21702 3514 Hiss Avenue
Baltimore, MD 21234
Girard F. Stegner and Investor C Stephens Inc. Investor A
Betty C. Stegner JTTEN 6.865% Attn: Jim Clark 10.9648%
29 Consett Place Nationsbank NC1-002-33-31
Fredrick, MD 21702 101 South Tryon Street
Charlotte, NC 28255
Jessixa Udall Gil and Investor C Stephens Inc. Investor A
Milan D. Smith JTWROS 6.733% Attn: Jim Clark 8.679%
5619 Wisconsin Avenue Nationsbank NC1-002-33-31
Chevy Chase, MD 20815-4415 101 South Tryon Street
Charlotte, NC 28255
Mary S. Tilbury Investor C Stephens Inc. Investor A
19817 Greenside Terrace 6.7087% Attn: Jim Clark 7.112%
Gaithersburg, MD 20879 Nationsbank NC1-002-33-31
101 South Tryon Street
Charlotte, NC 28255
Frank Baker & Steven L. Baker & Stephens Inc. Investor A
Teresa L. Radi JTTEN Investor C Attn: Jim Clark 5.4218%
250 Wyngate Drive 5.8054% Nationsbank NC1-002-33-31
Frederick, MD 21701 101 South Tryon Street
Charlotte, NC 28255
NATIONS SHORT INTER. GOVERNMENT FUND
------------------------------------
Burgess Pigment CO Investor A NationsBank of Texas NA Primary A
PO Box 349 Deck Blvd 7.253% Attn: Adrian Castillo 96.3942%
Sandersville, GA 31082 1401 Elm Street 11th Floor
Dallas, TX 75202-2911
James Street Property Investor A Reliance Trust Co. Primary B
Investors 5.3318% PO Box 48449 99.9961%
600 Atlantic Avenue Atlanta, GA 30362
Suite 2000
Boston, MA 02210
True Way Evangelistic Investor C BNY Cust Rollover IRA FBO Investor A
Mission 23.0216% Bernice Schneider 85.4317%
Attn: Wilmure Burden 1623 NE 172 Street
PO Box 61365 North Miami Beach, FL 33162-1430
Virginia Beach, VA 23466-1365
Wilma F. Hamilton & Investor A
Dean Witter Reynolds Investor C James H. Hamilton & 13.3181%
Cust 6.8137% James H. Hamilton JTTEN
David E. Ellis PO Box 281
IRA Standard DTD 8/17/94 Pine Level, NC 27568
Box 57
Goodrich, TX 77335
Jeanne N. Levy and Investor C
Richard Levy and 5.1551%
James Levy JTWROS
900 North Taylor Street, Apt 708
Arlington, VA 22203-1864
<TABLE>
<CAPTION>
<S> <C>
NATIONS GA INTER. MUNICIPAL BOND FUND
-------------------------------------
Lyles W. Sanders & Investor A Edward J. Derst Jr. As Trustee Investor B
Mary C. Sanders JTTEN 15.1768% U/A of Edward J. Derst Jr. 36.8053%
2305 Welton Place Trust Agreement DTD 11/15/88
258 Varn Drive
</TABLE>
137
<PAGE>
<TABLE>
<S> <C> <C> <C>
Dunwoody, GA 30338 Savannah, GA 31405
Letty C. Cagle and Investor C Jan R. H. Moggre Investor A
Douglas Cagle JTTEN 64.6817% 9850 Terrace Lake 47.0721%
8592 Roswell Road Apt Pointe
318 Rosell, GA 30076
Atlanta, GA 30350
Charles Davidson and Investor C James F. Sowinski Investor A
Judith L. Davidson 16.8766% C/O Serologicals Inc. 34.5601%
JTTEN 780 Park North Blvd
370b Rosalie Court #110
Alpharetta, GA 30202 Clarkson, GA 30021-
0000
NationsBank of Texas NA Primary A Harold J. Tenoso Investor A
Attn: Adrian Castillo 99.7934% C/O Serologicals Inc. 16.1519%
1401 Elm Street 11th 780 Park North Blvd
Floor #110
Dallas, TX 75202-2911 Clarkson, GA 30021-
0000
Nations SC Inter. Municipal Bond Fund
James T. Pearce Investor A Rodney R. Monroe and Investor
PO Box 1986 15.5496% Carole O. Monroe JTTEN C
Greenville, SC 213 Westminster Avenue 5.9019%
29602-1986 Summerville, SC 29485-
8010
Helena B. Clark Investor NationsBank of Texas Primary A
324 Broad River C NA 100%
Drive 12.3508% Attn: Adrian Castillo
Santee, SC 29142- 1401 Elm Street 11th
9301 Floor
Dallas, TX 75202-2911
Edward McCloud and Investor Gustave J. Crispyn and Investor
Elizabeth M. C Mildred Crispyn JTTEN B
Robinson JTTEN 12.0012% 2382 Cat Tail Pond 12.34%
523 Carpenter Street Road
Charleston, SC Johns Island, SC 29455-
29412 6101
Diane Saari McCall Investor Jimmy Ruppe and Judy Investor
and C Ruppe B
Mark J. McCall JTTEN 11.9437% JTTEN 7.3047%
12 Guerard Road 1505 Cherokee Avenue
Charleston, SC Gaffney, SC 29340
29407-7549
The Hobart W. Investor C. Clarke Moore and Investor
Griffen & C Michael K. Neil TTEES A
Frieda B. Griffen TR 9.7829% C. W. F. Spencer Jr. 98.1807%
UAD 1-31-92 Residual Trust
116 Dunbarton Circle U/A DTD 03/23/67
Aiken, SC 2980-5422 PO Box 230
Rock Hill, SC 29731
William L. Spadoni Investor
and C
Julia S. Spadoni 7.1017%
JTTEN
PO Box 1019
Myrtle Beach, SC
29578-1019
Nations International Equity Fund
Charles Schwab & Co Investor E. Larry Fonts TTEE Investor C
Inc. A FBO 6.6754%
Special Custody Account 5.8082% Central Dallas
For Benefit of Association
Customers Profit Sharing Plan
Attn: Mutual Funds 1201 Elm Street,
101 Montgomery Street Suite 5310
San Francisco, CA Dallas, TX 75270
94104
C. A. Porterfield & Investor NationsBank Of Texas Primary A
C NA
138
<PAGE>
Rosalee Moxley & 9.1623% Attn: Adrian 94.5106
Frank Minton TTEES Castillo
Starmount Company 1401 Elm St 11th
Capital Accumulation Floor
Plan Dallas, TX 75202-
PO Box 10348 2911
Greensboro, NC 27404-
0349
C. A. Porterfield & Investor Stephens Inc. Primary Class
Rosalee Moxley & C Attn: Cindy Cole B
Frank Minton TTEES FBO 8.9453% 111 Center Street 100%
Starmount Company Little Rock, AR
Employees 72201
Tax Deferree Savings
Plan
PO Box 10349
Greensboro, NC 27404-
0349
Tatsushi T. Kubo, Investor Roy R. Martine & Investor A
Max W. Dahlgren & C Kathleen H. Maritine 11.9072%
John Dahlgren TTEES FBO 7.79% JTWROS
Epic Products 4009 Tottenham Court
International Richmond, VA 23233-
Corporation 401(k) Plan 1771
2801 Randal Mill Road
Arlington, TX 76005
Summerville Pediatrics Investor BNY Cust Investor A
PA C Rollover IRA FBO 7.8436%
Money Purchase Pension 6.9734% William D. Patterson
Plan 1742 Hilltop
312 Midland Parkway Kingwood, TX 77339
Summerville, SC 29485-
8114
H. Grayson Mitchell Jr. Investor
and C
John Rawls TTEE FBO 6.9086%
Grayson Mitchell Inc.
410K Plan
PO Box 128
Emporia, VA 23847
Deeb Oweis and Investor
Mohammad Oweis TTEES C
FBO 6.9025%
Amtec International
Inc.
Profit Sharing Plan
1200 Woodruff Road A-2
Greenville, SC 29607
Nations Government Securities Fund
Dodson Brothers Investor Marvel N. Mustard Investor
Exterminating Co. Inc. A 289 Overholt Drive C
Attn: H. P. Dawson 6.2501% Virginia Beach, VA 5.7015%
PO Box 10249 23462
Lynchburg, VA 24506
Dean Witter Reynolds Investor Joseph W. Crawford Investor
Cust C 705 Staley Drive C
David E. Ellis 22.1803% Murfreesboro, TN 5.6379%
IRA Standard DTD 37130
8/17/94
Box 57
Goodrich, TX 77335
Norbert E. Schulze Investor NationsBank of Texas Primary A
508 Rosinante Road C NA 66.1769%
El Paso, TX 79922 12.4107% Attn: Adrian
Castillo
1401 Elm Street,
11th Floor
Dallas, TX 75202-
2911
BNY Cust IRA FBO Investor Stephens Inc. Primary B
Mary Jane Russo C Attn: Cindy Cole
8 Maybrook Court 111 Center Street
139
<PAGE>
Glen Arm, MC 21057 9.0544% Little Rock, AR 100%
72201
Nations Prime Fund
Barnett Bank, NA Jacksonville Investor A Maire W. Thomason and Investor
Attn: Carolyn Pries 38.3576% James R. Thomason JTTEN C
11th Fl 099000116 2911 Polo Club Road 21.0562%
50N Laura Street Nashville, TN 37221
Jacksonville, FL 32202
National Financial for the Investor A Jim Celania Investor
Exclusive 5.6524% 2000 S Canterbury Road C
Benefit of Our Customers Charlotte, NC 28211 18.8898%
200 Liberty Street
1 World Financial Center
Attn: Mutual Funds 5th Floor
New York, NY 10281
NationsBank of Texas NA Primary A Rebecca L. Layous Revocable Investor
Attn: Adrian Castillo 89.6239% Trust C
1401 Elm Street 11th Floor Dated 3-5-92 15.7717%
Dallas, TX 75202-2911 Rebecca L. Layous Trustee
11500 Big Piney Way
Potomac, MD
Barnett Bank Primary A DWR Cust For Infoproducts Investor
Attn: Bill Lendzian 8.3554% Corp. A
PO Box 40200 FL9-100-03-09 FBO Richard G. Grebner 27.2362%
Jacksonville, FL 32203-0200 VIP Plus PFT Sharing DTD
09/01/95
10220 Woodview Circle
Charlotte, NC 28277-8783
NationsBank of Texas NA Primary B Dean Witter Reynolds Cust Investor
Attn: Adrian Castillo 100% for A
1401 Elm Street 11th Floor Franklin D. Buck 23.6359%
Dallas, TX 75202-2911 IRA Standard Dated 06/14/93
Rt. 1, Box 29
Rural Retreat, VA 24368
National Financial SVC Corp. Daily Dean Witter Reynolds Cust Investor
The Exclusive Benefit of Shares For A
Our Customers 86.5142% Jane S. Mollenhoff 10.4246%
Church Street Station IRA Standard Dated 06/14/93
PO Box 3752 5603 Boatwright Circle
New York, NY 10008-3752 Williamsburg, VA 23185
National Financial For the Daily Dean Witter Reynolds Cust Investor
Exclusive Shares For A
Benefit of Our Customers 12.3152% J. Harold Courson 9.9318%
200 Liberty Street IRA Standard Dated 06/14/93
1 World Financial Center 3212 Carmel Bay Drive
Attn: Mutual Funds 5th Floor Mt. Pleasant, SC 29464-8512
New York, NY 10281
Ronald B. Beasley and Investor C Edwin C. Carter Investor
Lynn J. Beasley JTTEN 9.3594% Rosia W. Carter Tencom A
161-H W. Hartley Drive Route 5, Box 1 5.6841%
High Point, NC 27265-2866 Wytheville, VA 24382-9504
Dean Witter Reynolds Cust for Investor C BNY Cust Investor
Andrew S. Starzecki 8.6087% Rollover IRA FBO A
IRA Rollover Dated 07/22/93 William D. Patterson 13.6435%
5509 Sunningdale Drive 1742 Hilltop
Charlotte, NC 28277-2679 Kingwood, TX 77339
140
<PAGE>
Dean Witter Reynolds Cust for Investor C BNY Cust IRA FBO Investor
Max Elgan Clark 6.7933% James L. Bowen, Jr. A
IRA Rollover Dated 08/26/93 195 Springhill Drive 6.4855%
PO Box 276 Tifton, GA 31794
Mineral Wells, TX 76068-0876
John Jones and Becky L. Jones Investor C J. David Dalton TTEE Investor
JTTEN 5.5108% Lowcountry Orthopaedics A
4235 SW 111 Terrace Associates P/S/P Dated 08-05- 5.4895%
Davie, FL 33328-2111 87
9300 Medical Plaza Drive
Charleston, SC 29405
Steven A. Franks & Investor C BNY Cust Rollover IRA FBO Investor
Larry D. Johnson TTEES For 36.0665% James L. Payne A
Fielder Electric Motor Repair Box 434 5.3368%
Inc. Hemphill, TX 75948
Pen Pln U/A DTD 10/1/82
104 Poplar Knob Road
Galax, VA 24333
Nations Treasury Fund
Hare & Co., Bank of New York Investor A NationsBank SWP Disbursement Daily
Attn: Stif/Master Note 64.2851% Inc. Shares
One Wall Street 2nd Floor NationsBank Sweep/Autoborrow 34.1034%
New York, NY 10286 First Citizens Building
128 S. Tryon Street
NC1-006-08-03
Charlotte, NC 28255
Barnett Bank, NA Jacksonville Investor A Lois H. Bohler Investor C
Attn: Carolyn Pries 27.4846% 6 Bransford Place 28.7058%
11th Floor 099000116 Augusta, GA 30904-6131
50 N. Laura Street
Jacksonville, FL 32202
Hare & Co., Bank of New York Investor B Kenneth E. Hester & Investor C
Attn: Stif/Master Note 38.7288% James R. Wren, Jr. 17.6712%
One Wall Street 2nd Floor Co-TTEES Danial J. Stowe
New York, NY 27602 Rev Trust DTD 3/4/97
PO Box 1046
Belmont, NC 28012-1046
NationsBank of Texas NA Primary A Joe Oden and Marcia Oden Investor C
Attn: Adrian Castillo 77.3185% JTTEN 5.2129%
1401 Elm Street 11th Floor RT 2 Box 600
Dallas, TX 75202-2911 Normangee, TX 77891
Barnett Bank Primary A Dean Witter Reynolds Cust Investor C
Attn: Bill Lendzian 21.6612% For 81.2652%
PO Box 40200 FL9-100-03-09 John P. Nicoson
Jacksonville, FL 32203-0200 IRA STD/Rollover DTD
01/31/95
13147 Ashvale Drive
Fairfax, VA 22033
NationsBank of Texas NA Primary B Dean Witter Reynolds Cust Investor C
Attn: Adrian Castillo (B 100% For 11.5779%
Shares) James A. Cox
1401 Elm Street 11th Floor IRA Rollover Dated 02/22/94
Dallas, TX 75202-2911 2015 Ashton Pointe Drive
Dacula, GA 30211
141
<PAGE>
National Financial For the Daily Dean Witter Reynolds Cust Investor C
Exclusive Shares For 7.1569%
Benefit of Our Customers 63.8369% Susan Fishburn
200 Liberty Street IRA STD/Rollover-Spousal
1 World Financial Center 01/31/95
Attn: Mutual Funds 5th Floor 13147 Ashvale Drive
New York, NY 10281 Fairfax, VA 22033
Nations Capital Growth Fund
DWR Cust For Kenneth L. Investor NationsBank of Texas Primary
Walgren A NA A
MD 5.2172% Attn: Adrian 97.5765%
FBO Pooled Account Castillo
VIP Plus PFT Sharing DTD 1401 Elm Street 11th
10/01/97 Floor
5959 Harry Hines #402 St Dallas, TX 75202-
Paul Prof 2911
Dallas, TX 75235-6233
Howard Sodikoff TTEE FBO Investor NationsBank of Texas Primary
Oak Ridge Toyota Inc. C NA B
Retirement Savings Plan 8.917% Attn: Adrian 99.9937%
PO Box 10247 Castillo
Lynchburg, VA 24506 1401 Elm Street 11th
Floor
Dallas, TX 75202-
2911
John M. Lewis & Investor
Robert V. Dipauli & C
St Joe Communications Inc. 8.4507%
Employees Salary Deferral
Plan
502 Fifth Street
Port St Joe, FL 32456
Nations Balanced Assets Fund
NFSC FEBO #279- Investor The Bank of New York TTEE Primary
053856 A Hitachi Semiconductors A
American 7.9622% Pension Plan 8.9109%
Industriestrust Attn: Stella Brown
Comp One Wall Street 12th Floor
American I Trust New York, NY 10286
Company Ttee
U/A 08/22/97
5700 NW Central
Drive
Houston, TX 77092-
2037
C.A. Porterfield & Investor Barnett Banks Trust Primary
Rosalee Moxley & C Company NA A
Frank Minton TTEES 21.7528% F/Disability PL & Employee 8.0746%
FBO Barnett
Starmount Company U/A/D 7/21/82
Employees Attn: Income Collections
Tax Deferred PO Box 40200
Savings Plan Jacksonville, FL 32203-
PO Box 10349 0200
Greensboro, NC
27404-0349
C.A. Porterfield & Investor NationsBank of Texas NA Primary
Rosalee Moxley & C Attn: Adrian Castillo A
Frank Minton TTEES 18.8263% 1401 Elm Street 11th Floor 7.4097%
Starmount Company Dallas, TX 75202-2911
Employees
Capital
Accumulation Plan
PO Box 10349
Greensboro, NC
27404-0349
Stuart K. Colonna Investor BBTC NA Primary
TTEE C BB of FL EMP Disability PL A
Bayshore Concrette 12.384% & TR 6.2722%
Products Corp. U/A/D 7/21/82
Retirement Savings Attn: Income Collections
Plan PO Box 40200
1 Bayshore Road PO Jacksonville, FL 32203-
Box 230 0200
Cape Charles, VA
23310
142
<PAGE>
BBTC N A Primary A Bankers Trust FBO Primary
TR BBI & IT'S 26.0499% Gardner Denver 192257 A
Affiliates 401H PO Box 9014 5.0261%
Plan Church Street Station
Succ Trust U/A/D New York, NY 10008
9/15/92
Attn: Income
Collections
PO Box 40200
Jacksonville, FL
32203-0200
BBTC NA Primary A NationsBank of Texas NA Primary
BB of FL EMP 15.6919% Attn: Adrian Castillo B
Disability PL & TR 1401 Elm Street 11th Floor 99.9992%
U/A/D 7/21/82 Dallas, TX 75202-2911
Attn: Income
Collections
PO Box 40200
Jacksonville, FL
32203-0200
Nations Short-Term Income Fund
Bankers Trust CO Cust Investor NationsBank of Texas NA Primary A
FBO A Attn: Adrian Castillo 69.9567%
Dimensions Health Corp 19.5343% 1401 Elm Street 11th Floor
9200 Basil Court Suite Dallas, TX 75202-2911
500
Landover, MD 20785
Michael D. Shea Investor Dean Witter Reynolds Cust For Investor
4770 South Altanta A James R. Vaughn B
Road 5.124% IRA Standard DTD 6/18/93 7.6021%
Smyrna, GA 30080 234 Cureton Lane
Pickens, SC 29671-9306
BNY Cust IRA FBO Investor West Anderson Rural Water and Sewer Investor
James L. Bowen Jr. A Company Inc. B
195 Springhill Drive 28.168% 2767 Whitehall Road 5.9095%
Tifton, GA 31794 Barnwell, SC 29812-2609
Jean E. Kellogg and Investor Dean Witter Reynolds Cust For Investor
Thomas G. Kellogg A William B. Rogers Jr. B
52109 Tara Drive 15.903% IRA Rollover Dated 06/14/93 5.6408%
South Bend, IN 46628 PO Box 1025
Greer, SC 29652-1025
BNY Cust IRA FBO Investor Stephens, Inc. Primary B
Mary M. Ryan A Attn: Cindy Cole 100%
117 Great Oaks Lane 11.3496% 111 Center Street
Roswell, GA 30075 Little Rock, AR 72201
BNY Cust IRA FBO Investor Alden Enterprises, Inc. Investor
Cleveland H. White A 5900 Gulf Blvd C
133 George Lane 10.7953% St Pete Beach, FL 33706 31.5584%
Bonneau, SC 29431
BNY Cust IRA FBO Investor The Lincolnshire Trust Investor
Jermiah J. Leahy A 5208 Lincolnshire C
1101 N Elm Street #503 10.6157% Dallas, TX 75287 25.6605%
Greebsboro, NC 27401
BNY Cust IRA FBO Investor Erna M. Weidner Investor
Carl Blanks A 108 Lariat C
3450 Evans Road Apt 7.0493% San Antonio, TX 78232-1004 9.4741%
120 A
Chamblee, GA 30341
143
<PAGE>
Gerd W. Kraemer TTEE Investor Dean Witter Reynolds Cust For Investor
Gerd W. Kraemer Rev A C. Ronald Murray C
Trust 100% IRA Rollover Dated 06/14/93 7.4296%
DTD 10/12/90 5354 Curtisston Ct
425 Kings Bridge Charleston, SC 29418-2035
Atlanta, GA 30329
BNY Cust Rollover IRA Investor
FBO A
Milton E. Syring 97.4009%
4040 E Evans Road
San Antonio, TX 78259-
1714
Nations Diversified Income Fund
Dean Witter Reynolds Cust Investor Jean E. Kellogg and Investor
For A Thomas G. Kellogg A
James T. Pearce 7.9474% 52109 Tara Drive 5.0524%
IRA SEP Dated 06/14/93 South Bend, IN 46628
PO Box 1986
Greenville, SC 29602-1986
NationsBank of Texas NA Primary A Falcon Food Service CO Investor
Attn: Adrian Castillo 98.3572% Inc. C
1401 Elm Street 11th Floor Attn: J. B. Kraft 11.8195%
Dallas, TX 75202-2911 President
12753 Pineacre Lane
West Palm Beach, FL
33414
Stephens Inc. Primary B Robert F. Fortin & Investor
Attn: Cindy Cole 100% Donna J. Fortin JTTEN C
111 Center Street 10600 Montclair Way 6.8883%
Little Rock, AR 72201 Duluth, GA 30155
BNY Cust Investor Dean Witter Reynolds Cust Investor
Rollover IRA FBO A for C
William D. Patterson 11.1938% Linda G. Walker 6.1567%
1742 Hilltop IRA Rollover Dated
Kingwood, TX 77339 06/14/93
7 Salley Street
Spartanburg, SC 29301-
2403
BNY Cust IRA FBO Investor Stuart K. Colonna TTEE Investor
James L. Bowen Jr. A Bayshore Concrete C
195 Springhill Drive 8.949% Products Corp. 5.3948%
Tifton, GA 31794 Retirement Savings Plan
1 Bayshore Road PO Box
230
Cape Charles, VA 23310
J. David Dalton TTEE Investor
Lowcountry A
Orthopaedics Associates 6.1418%
P/S/P
Dated 08-05-87
9300 Medical Plaza Drive
Charleston, SC 29405
Nations Strategic Fixed Income Fund
Bankers Trust Co. Cust FBO Investor Dean Witter Reynolds Cust Investor
Dimensions Health Corp A For B
9200 Basil Court Suite 500 8.1986% Robert A. Pierce 6.3371%
Landover, MD 20785 IRA Rollover Dated
06/14/93
10 Lavington Court
Columbia, SC 29209-1944
144
<PAGE>
Merchantile Safe Dep & Investor Dean Witter Reynolds Cust Investor
Trust Co. A for B
Ttree 7.2555% Ira L. Allen 5.1675%
Case Communications Defined IRA Rollover Dated
Benefit Plan A/C #3400306 02/06/98
U/A DTD 05/28/1984 1008 Greeway Lane
766 Old Hammonds Ferry Road Richmond, VA 23226-1515
Linthicum, MD 21090
Alden Enterprises Inc. Investor Dean Witter Reynolds Cust Investor
5900 Gulf Blvd C for B
St Pete Beach, FL 33706 20.0526% Drayton L. Nance Jr. Md 5.1576%
IRA Rollover Dated
08/15/97
7715 North Rd PO Box 98
North, SC 29112-0098
Summerville Pediatrics PA Investor BNY Cust Investor
Money Purchase Pension Plan C Rollover IRA FBO A
312 Midland Parkway 10.6709% William D. Patterson 32.6139%
Summerville, SC 29485-8114 1742 Hilltop
Kingwood, TX 77339
John M. Lewis & Investor BNY Cust Rollover IRA FBO Investor
Robert V. Dipauli & C James L. Payne A
John H. Vaughan TTEES FBO 8.2859% Box 434 12.7572
St Joe Communications Inc. Hemphill, TX 75948
Employees Salary Deferral
Plan
502 Fifth Street
Port St Joe, FL 32456
BNY Cust IRA FBO Investor Anne Valcourt GDN FBO Investor
James A. Blanchard C Danyel A
9 Las Brisas 7.2802% Chaniequa Solange 11.1014%
Austin, TX 78746 Valcourt
C/O H.R. Chaplin
9930 W. Broadview Drive
Bay Harbor Island, FL
33154
Carver Development Board Investor BNY Cust Rollover IRA FBO Investor
Capital Fund C C. Broughton Williams Jr. A
226 North Hackberry 7.0239% 2222 2nd Street, SE 9.6787%
San Antonio, TX 787202 Moultrie, GA 31768-0000
Erna M. Weidner Investor BNY Cust Rollover IRA FBO Investor
108 Lariat C Helen M. Fulghum A
San Antonio, TX 78232-1004 6.0109% 38656 Post Road 6.6314%
Winston, GA 30187
Summerville Pediatrics PA Investor BNY Cust Rollover IRA FBO Investor
Money Purchase Pension Plan C Jean S. Ramey A
312 Midland Parkway 5.0688% 25 Templewood Drive 5.31%
Summerville, SC 29485-8114 Greenville, SC 29611
NationsBank of Texas NA Primary A BNY Cust Rollover IRA FBO Investor
Attn: Adrian Castillo 92.4447% Michael D. Turner A
1401 Elm Street 11th Floor Box 927 5.2531%
Dallas, TX 75202-2911 Eden, TX 76837
Stephens Inc. Primary B
Attn: Cindy Cole 100%
111 Center Street
Little Rock, AR 72201
145
<PAGE>
Nations Emerging Growth Fund
NFSC FEBO #179-689050 Investor Howard Sodikoff TTEE Investor
Douglas K. Higgins A FBO C
101 W. Randol Mill Rd 6.5153% Oak Ridge Toyota Inc. 5.2826%
Ste 150 Retirement Savings
Arlington, TX 76011- Plan
5810 PO Box 10247
Lynchburg, VA 24506
Citicorp USA Inc Cust Investor NationsBank of Texas Primary A
For A NA 92.6829%
Marlboro Equity 5.2438% Attn: Adrian Castillo
Partners 1401 Elm Street 11th
One Sansome Street Floor
24th Floor Dallas, TX 75202-2911
San Francisco, CA
94104
Dave Respess & Investor Barnett Bank NA Succ Primary A
William C. Myers & C TTEE 6.9292%
Greg Holmes & Lori 11.128% Barnett Pension-Large
Wallace & Cap Equity
James W. Clark TTEES U/A DTD 9/19/79
FBO Attn: Mut FD Dept M/C
Carver Machine Works 572-1270
401(k) Plan PO Box 40200
129 Christian Camp Jacksonville, FL
Road 32003-0200
Washington, DC 27889
John M. Lewis & Investor Stephens Inc. Primary B
Robert V. Dipauli & C Attn: Cindy Cole 100%
John H. Vaughan TTEES 9.6707% 111 Center Street
FBO Little Rock, AR
St Joe Communications 72201`
Inc.
Employees Salary
Deferral Plan
502 Fifth Street
Port St Joe, FL 32456
Dan Denkarik TTEE for Investor BNY Cust Rollover IRA Investor
the C FBO A
Lakeland Battery 8.6111% Bernice Schneider 85.3806%
Profit Sharing 1623 NE 172 Street
Plan DTD 7-1-84 North Miami Beach, FL
41840 S. Combee Road 33162-1430
Lakeland, FL 33801
C. A. Porterfield & Investor Wilma F. Hamilton & Investor
Rosalee Moxley & C James H. Hamilton & A
Frank Minton TTEES FBO 7.4318% James H. Hamilton 13.37%
Starmount Company JTTEN
Employees PO Box 281
Tax Deferred Savings Pine Level, NC 27568
Plan
PO Box 10349
Greensboro, NC 27404-
0349
Tatsushi T. Kubo, Max Investor
W. C
Dahlgren & John 7.3361%
Dahlgren
TTEES FBO
Epic Products
International
Corporation 401(k)
Plan
2801 Randal Mill Road
Arlington, TX 76005
Nations FL Inter. Municipal Bond Fund
Joseph J. Jillson Investor Sarah A. Barlow TTEE Investor
3537 SW Corporate PKWY A Sarah A. Barlow Trust A
Palm City, FL 34990-8151 54.0833% U/A DTD 07/19/1990 31.0531%
8400 Vamo Road Apt 664
Sarasota, FL 34231
146
<PAGE>
Harry Singer Family LTD Investor Selma Lifsher Trustee Investor
A Colorado LTD Partnership A Selma Lifsher Trust Dated 3- A
2960 Wentworth 12.4165% 2-89 25.553%
Weston, FL 33332 19355 Turnberry Way Apt PHA
Aventura, FL 33180
Doris R. Bomstein and Investor Robert N. Parsell Jr. and Investor
Stanford Bomstein TTEES C Inez G. Parsell JTWROS A
Doris R. Bomstein Trust 35.3114% 207 East 25th Street 14.1646%
U/A/D 8/20/91 Sanford, FL 32779-0000
3000 S Ocean Blvd Apt 1201
Boca Raton, FL 33432
Lynn Fain Friedman Trust Investor Ben M. Turk and Linda A. Investor
DTD C Turk A
7/5/94 29.4837% JTWROS 6.3104%
Lynn Fain Friedman TTEE 210 Crown Pointe Circle
5817 Midhill Street #100
Bethesda, MD 20817 Longwood, FL 32779-0000
Sandford and Doris R. Investor Jerry Jacobs and Candice Investor
Bomstein C Jacobs A
TTEES 28.0696% JTWROS 5.9781%
Sanford Bomstein Trust UAD 306 Brantley Harbor Drive
11/4/91 Longwood, FL 32779-0000
3000 South Ocean Blvd
#1201
Boca Raton, FL 33431
NationsBank of Texas NA Primary A
Attn: Adrian Castillo 99.0439%
1401 Elm Street 11th Floor
Dallas, TX 75202-2911
Nations NC Inter. Municipal Bond Fund
James B. Sommers Investor Donald H. Gabriel Investor
237 Cherokee Road A 3216 Champaign C
Charlotte, NC 11.8812% Street 5.4021%
28207 Charlotte, NC 28210-
0000
W. Frank Dowd, Investor Roger W. Simmons and Investor
Jr. A Mary R. Simmons C
PO Box 35430 6.9978 JTTEN 5.3712%
Charlotte, NC 150 River Holl Drive
28235-5430 Advance, NC 27006
NFSC FEBO #042072 Investor Ethel L. Clowes Investor
Ron F. Robine & A 3137 Burke Mill C
Cathy G. Robine 6.2518% Court 5.2877%
18512 Square Sail Winston Salem, NC
Road 27103
Cornelius, NC
28031
Barbara B. Coyner Investor NationsBank of Texas Primary A
513 Lake Boone C NA 99.9448%
Trail 20.4711% Attn: Adrian
Raleigh, NC Castillo
27608-1027 1401 Elm Street 11th
Floor
Dallas, TX 75202-
2911
J. Robert Stout & Investor Dorothy P. Stroud Investor
Maggie S. Stout C 155 HWY 58 South A
TTEES FBO J. 14.7853% Kinston, NC 28504 36.0801%
Robert Stout
Revocable
PO Box 35343
Greensboro, NC
27425
147
<PAGE>
Anna B. Steele Investor David C. Lavoie Cust Investor
2041 Georgia C Douglas K. Lavoie A
Avenue 9.5558% Utma NC 22.1728%
Winston-Salem, NC 5410 McApline Farm
27104 Road
Charlotte, NC 28226
W. Joseph Selvia Investor David C. Lavoie Cust Investor
and C Rebecca T. Lavoie A
Jay P. Selvia 8.8047% Utma NC 22.1728%
JTTEN 5410 McApline Farm
5730 Phillips Road
Bridge Road Charlotte, NC 28226
Winston Salem, NC
27104-3323
William F. Cox Investor Charles M. Gulledge Investor
3225 Bermuda C 4600 Belvoir Court A
Village 8.7975 Charlotte, NC 28270 8.9552%
Advance, NC
27006-9478
Thomas H. Blount Investor Karen Elizabeth Investor
and C Ritchie A
Doris J. Blount 5.4146% 16029 Hollingbourne 7.1107%
JT TEN Road
207 W 11th Street Huntersville, NC
Washington, DC 28078
27889
Nations TX Inter. Municipal Bond Fund
Edith M. Thalman Trust Investor NationsBank of Texas NA Primary A
U/A DTD 4/28/1998 A Attn: Adrian Castillo 100%
5710 E 106th Street 29.0638% 1401 Elm Street 11th Floor
Tulsa, OK 74137-7038 Dallas, TX 75202-2911
Orsinger Investments LTD Investor James Robert Mallory and Investor
2206 Camelback Drive A Faith K. Mallory JTTEN B
San Antonio, TX 78209-4262 11.8379% 2400 Winton Terrace East 11.2838%
Ft Worth, TX 76109
Motco Investor Montine T. Wisdom Investor
PO Box 17001-trust A 6335 W. Northwest HWY #1318 B
San Antonio, TX 78217 10.5923% Dallas, TX 75225-3533 11.043%
Plains National Bank Ttee Investor Oliver Roofing Systems Investor
Giles W. Dalby Mineral Trust A PO Box 180191 B
#2 7.6092% Austin, TX 78778 8.1776%
PO Box 271
Lubbock, TX 79408
First National Huntsville Co Investor A. G. Martin and Nellie L. Investor
Ttee A Martin B
L L Moore Family Key Trust 6.3954% JTTEB 7.4552%
PO Box 659 2011 32nd Street
Huntsville, TX 77342-0659 Lubbock, TX 79411
Orsinger Investments LTD Investor Reggie D. Bradford & Investor
2206 Camelback Drive C Sharon A. Bradford A
San Antonio, TX 78209-4262 98.8117 3306 Oak Hill Drive 85.8037%
Garland, TX 75043
Nations TN Inter. Municipal Bond Fund
Bob G. Long Investor Gustave J. Crispyn Trustee Investor
PO Box 2666 A Joseph A. Crispyn Trust B
Hermitage, TN 37076 16.6003% Dated 07-21-97 8.3627%
2382 Cat Tail Pond Road
Johns Island, SC 29455-
6101
148
<PAGE>
Marshall T. Polk, Investor Mildred M. Crispyn TTEE Investor
III A Timothy J. Crispyn Trust B
PO Box 90148 14.7803% DTD 7-21-97 7.3761%
Nashville, TN 37209- 2382 Cat Tail Pond Road
0148 Johns Island, SC 29455-
6101
Joseph L. Dilorenzo Investor Ellen Aston Paull Investor
310 Watercress Drive A 1407 N Weston Lane B
Franklin, TN 37064 7.5563% Austin, TX 78733 6.9073%
Ralph S. Graham Ttee Investor Joanne B. Stegall Investor
Ralph S. Graham Rev A 517 Cameo Terrace B
Liv Trust 7.1813% Chesapeake, VA 23320 5.7712%
U/A DTD 08/14/1990
PO Box 235
Big Sandy, TN 38221
James R. Kellam III Investor Donald W. Henderson Investor
3605 Sycamore Lane A 2919 Ft Campbell Blvd B
Nashville, TN 37215- 6.9136% Hopkinsville, KY 42240 5.0983%
1937
Stephens Inc. Investor Edward H. Waelterman & Investor
Attn: Cindy Cole C Mary L. B
111 Center Street 99.597% Ellersieck Cottees Edward 5.0983%
Little Rock, AR H. &
72201 Cornelia Waelterman Tr U/A
12/6/78
4 Count Fleet Circle
Florissant, MO 63033-2209
NationsBank of Texas Primary Stephens Inc. Investor
NA A Attn: Jim Clark A
Attn: Adrian 100% Nationsbank NC1-002-33-31 34.1682%
Castillo 101 South Tryon Street
1401 Elm Street 11th Charlotte, NC 28255
Floor
Dallas, TX 75202-
2911
John O. Colton Investor Stephens Inc. Investor
6211 Jocelyn Hollow B Attn: Jim Clark A
Road 22.8875% Nationsbank NC1-002-33-31 26.9716%
Nashville, TN 37205- 101 South Tryon Street
3213 Charlotte, NC 28255
Robert R. Hayes and Investor Stephens Inc. Investor
Vira E. Hayes JTTEN B Attn: Jim Clark A
400 Bryants Lane 14.0134% Nationsbank NC1-002-33-31 22.0725%
Woodbury, TN 37190- 101 South Tryon Street
1641 Charlotte, NC 28255
Win Communication Investor Stephens Inc. Investor
Corp B Attn: Jim Clark A
Attn: Bob Poole 12.8097% Nationsbank NC1-002-33-31 16.7877%
6755 Jimmy Carter 101 South Tryon Street
Blvd Charlotte, NC 28255
Norcross, GA 30071-
1702
Nations Intermediate Municipal Bond Fund
NFSC FEBO #W52-000019 Investor NationsBank of Texas Primary A
Frank B. Comfort A NA 99.8823%
4912 Cedar Drive 14.1138% Attn: Adrian
West Des Moines, IA 50266 Castillo
1401 Elm Street 11th
Floor
Dallas, TX 75202-
2911
149
<PAGE>
Vatco Investor Linda Sloan Mundy Investor
C/O The Trust Company of A TTEE A
Virginia Carl and Anne Mundy 44.7608%
6800 Paragon Place Suite 237 Memorial
Richmond, VA 23230 Education Trust U/A
DTD 07/16/97
R-1 Quarters MCB
Quantico, VA 22134
Enterprise Trust & Investor George Gray Investor
Investments Co. A 1708 Riverside Drive A
15425 Los Gatos Blvd #150 5.9688% Holly Hill, FL 16.2499%
Los Gatos, CA 95032 32117
Gerhard Kleinschmidt and Investor Ronald W. Pietsch Investor
Gwendolyn Kleinschmidt JTWROS C and A
101 Oak Creek Trail 32.9196% Carole J. Pietsch 11.7314%
Aledo, TX 76008 JTTEN
16811 Brushy Fork
Road
Newar, OH 43056-
0000
Eugene R. Allspach and Investor Kevin Carl Connor Investor
Joann M. Allspach JTWROS C and A
3760 Darcus Street 26.2854% Cynthia J. Pietsh 10.2094%
Houston, TX 77005-3704 JTWROS
127 Dolores Court
Holly Hill, FL
32117
Charles W. Doolin Investor Robert L. Derrick Investor
3508 Harvard Avenue C and A
Dallas, TX 75205-0000 19.526% Carolyn K. Derrick 5.9621%
JTTEN
712 Woodside Trails
Unit 201
Ballwin, MO 63021
Neal S. Platzer and Investor
Jack Crosby JTTEN C
Special Account 14.2207%
1410 Lost Ridge Circle
Seabrook, TX 77586-4514
Nations Short Term Municipal Income Fund
Robert E. Esrey Trust Investor NFSC FEBO #w52- Investor
Robert E. Esrey Ttee U/A 11- A 000019 A
30-94 18.8335% Frank B. Comfort 5.1411%
C/O Cohen Esrey Estate Co. 4912 Cedar Drive
4435 Main Street STE 100 West Des Moines, IA
Kansas City, MO 64111-1856 50266
Julius W. Erving Investor Donald E. Steen & Investor
Two Magic Place A Trudy K. Steen C
Maitland, FL 32810 7.5409% JTWROS 56.0964%
5715 Thames Court
Dallas, TX 75252
Edd Price Jr. and Lynn Price Investor Christopher H. Investor
Jtten A Williams C
5600 Oakbrook Pkwy Suite 120 7.2854% 9531 Gadwell Terrace 27.9218%
Norcross, GA 30093 Cherterfield, VA
23838-5289
Thurman D. Kitchin Investor Eugene R. Allspach Investor
PO Box 1479 A and C
Winter Park, FL 32790 7.0996% Joann M. Allspach 12.3916%
JTWROS
3760 Darcus Street
Houston, TX 77005-
3704
Henry F. Figon Trusthenry Investor NationsBank of Texas Primary A
Frigon Tteedtd 03/23/98 A NA 99.7998%
Attn: Susan Riley 5.8324% Attn: Adrian
PO Box 18 Castillo
Maysville, MO 64469 1401 Elm Street 11th
Floor
Dallas, TX 75202-
2911
150
<PAGE>
Nations VA Municipal Bond Fund
NationsBanc Montgomery Investor Stephens Inc. Investor
Secs A Attn: Cindy Cole C
737-00016-17 54.6716% 111 Center Street 99.6455%
Attn: Mutual Funds - Little Rock, AR
4th Floor 72201
600 Mongomery Street
San Francisco, CA
94111
Rodney M. Carlson and Investor NationsBank of Texas Primary A
Joyce L. Carlson Jtten A NA 100%
3608 South Creek Court 8.3604% Attn: Adrian
Chesapeake, VA 23325 Castillo
1401 Elm Street 11th
Floor
Dallas, TX 75202-
2911
Rebecca C. Bell Investor Roy R. Martine & Investor
1092 Oaklawn Drive A Kathleen H. Martine A
Culpeper, VA 22701 7.1435% JTWROS 95.1388%
4009 Tottenham Court
Richmond, VA 23233-
1771
Jessie E. Spells Investor
14927 Boydell Drive A
Centreville, VA 22020- 6.2441%
1534
Nations MD Municipal Bond Fund
Carol C. House & Investor NFSC FEBO #W38- Investor
Frank W. House A 001570 B
Jtwros 49.6874% William R. Gee 5.2654%
4210 Leeward Place Anne Duer Gee
Bethesda, MD 20816 15 Spyglass
Timonium, MD 21093
Charles E. Chlan Investor Betty J. Hallmark Investor
Sole Proprietorship A TTEE B
7200 Bel Air Road 12.686% Betty J. Hallmark 5.1504%
Baltimore, MD 21206 Rev Intervivos
Trust DTD 7-1-86
614 Old Country
Road
Severna Park, MD
21146-4702
Raymond A. Turetsky Investor Walter F. Investor
and A Engelhaupt & A
Bess H. Turetsky 12.4283% Vivian K. 69.7163%
Jtten Engelhaupt &
11220 Woodson Avenue Stephen Engelhaupt
Kensington, MD JTTEN
20895-1427 3514 Hiss Avenue
Baltimore, MD
21234
Dona L. Lechliter Investor Stephens Inc. Investor
and A Attn: Jim Clark A
Stephen C. Lechliter 6.6983% Nationsbank NC1-002- 9.9653%
Jtten 33-31
4002 Saul Road 101 South Tryon
Kensington, MD Street
20895 Charlotte, NC
28255
Richard E. Ireland Investor Stephens Inc. Investor
and A Attn: Jim Clark A
Mary E. Ireland 5.8161% Nationsbank NC1-002- 8.328%
Jtten 33-31
1423 Grouse Court 101 South Tryon
Frederick, MD 21702 Street
Charlotte, NC
28255
Stephens Inc. Investor Stephens Inc. Investor
Attn: Cindy Cole C Attn: Jim Clark A
111 Center Street 99.4909% Nationsbank NC1-002- 7.3087%
Little Rock, AR 33-31
72201 101 South Tryon
Street
Charlotte, NC
28255
NationsBank of Texas Primary A
NA
Attn: Adrian
Castillo
1401 Elm Street 11th
Floor
151
<PAGE>
Dallas, TX 75202-2911 98.4282%
Nations NC Municipal Bond Fund
NFSC FEBO #X68- Investor David C. Lavoie Cust Investor
102709 A Douglas K. Lavoie A
Edward John Moshy & 61.5601% Utma NC 22.3728%
Virginia Moshy 5410 McApline Farm
221 Tennwood Court Road
Durham, NC 27712 Charlotte, NC 28226
Stephens Inc. Investor David C. Lavoie Cust Investor
Attn: Cindy Cole C Douglas K. Lavoie A
111 Center Street 99.6411% Utma NC 22.3728%
Little Rock, AR 5410 McApline Farm
72201 Road
Charlotte, NC 28226
NationsBank of Texas Primary Charles M. Gulledge Investor
NA A 4600 Belvoir Court A
Attn: Adrian 95.6537% Charlotte, NC 28270 8.434%
Castillo
1401 Elm Street 11th
Floor
Dallas, TX 75202-
2911
Dorothy P. Stroud Investor Karen Elizabeth Investor
155 HWY 58 South A Ritchie A
Kinston, NC 28504 36.4054% 16029 Hollingbourne 7.1749%
Road
Huntersville, NC
28078
Nations SC Municipal Bond Fund
Donna R. Cart Investor Stephens Inc. Investor
1140 Partridge Road A Attn: Cindy Cole C
Spartanburg, SC 48.5334% 111 Center Street 6.7846%
29302-3328 Little Rock, AR
72201
Cuppia Investments LP Investor NationsBank of Texas Primary A
PO Drawer 22449 A NA 100%
Hilton Head Island, 30.8709% Attn: Adrian
SC 29925-2386 Castillo
1401 Elm Street 11th
Floor
Dallas, TX 75202-
2911
Charles J. Engelbach Investor C. Clarke Moore and Investor
and A Michael K. Neil A
Mary A. Engelbach 5.1599% TTEES 98.2111%
Jtten C W F Spencer Jr
PO Box 1006 Residual Trust
N Myrtle Beach, SC U/A DTD 03/23/67
29598 PO Box 230
Rock Hill, SC 29731
Olga Weinstein Investor
PO Box 31455 C
Charleston, SC 29417- 93.1902%
1455
Nations FL Municipal Bond Fund
National Financial SVS Investor Selma Lifsher Trustee Investor
Corp A Selma Lifsher Trust Dated 3- A
For the Exclusive Benefit 68.4849% 2-89 25.708%
of Our 19355 Turnberry Way Apt PHA
Customers Aventura, FL 33180
Church Street Station
PO Box 3908
New York, NY 10008-3908
152
<PAGE>
Stephens Inc. Investor Robert N. Parsell Jr. and Investor
Attn: Cindy Cole C Inez G. Parsell JTWROS A
111 Center Street 99.6414% 207 East 25th Street 14.2505%
Little Rock, AR 72201 Sanford, FL 32779-0000
NationsBank of Texas NA Primary A Ben M. Turk and Linda A. Investor
Attn: Adrian Castillo 42.7262% Turk A
1401 Elm Street 11th Floor JTWROS 6.3487%
Dallas, TX 75202-2911 210 Crown Pointe Circle
#100
Longwood, FL 32779-0000
Barnett Banks Trust Primary A Jerry Jacobs and Candice Investor
Company NA 5.1532% Jacobs A
FBO Gene J. Dodson JTWROS 6.0144%
U/A 9/21/94 306 Brantley Harbor Drive
Attn: Income Collections Longwood, FL 32779-0000
PO Box 40200
Jacksonville, FL 32203-
0200
Sarah A. Barlow TTEE Investor
Sarah A. Barlow Trust A
U/A DTD 07/19/1990 31.2415%
8400 Vamo Road Apt 664
Sarasota, FL 34231
Nations GA Municipal Bond Fund
Hunter R. Hughes Investor Stephens Inc. Investor
III A Attn: Cindy Cole C
C/O Rogers and 64.843% 111 Center Street 99.6414%
Hardin Little Rock, AR
2700 Cain 72201
International Tower
Atlanta, GA 30327
Lucy M. Barrett Investor NationsBank of Texas Primary A
4 Halfmoon Court A NA 99.969%
Savannah, GA 31411- 7.7627% Attn: Adrian
2218 Castillo
1401 Elm Street 11th
Floor
Dallas, TX 75202-
2911
William P. Handley Investor Jan R. H. Moggre Investor
and A 9850 Terrace Lake A
Susan K. Handley 6.2827% Pointe 51.3877%
Jtten Roswell, GA 30076
6098 Lively Road
Cumming, GA 30040
Robert A. Solheim & Investor James F. Sowinski Investor
Dianne O. Solheim A C/O Serologicals A
Jtten 6.2203% Inc. 31.6918%
44271 Loch Highland 780 Park North Blvd
Parkway #110
Roswell, GA 30025 Clarkson, GA 30021-
0000
Jerry D. Clements Investor Harold J. Tenoso Investor
and A C/O Serologicals A
Elsie A. Clements 5.4789% Inc. 14.8113%
Jtwros 780 Park North Blvd
1000 Applewood #110
Drive Apt 184 Clarkson, GA 30021-
Roswell, GA 30076- 0000
0000
Nations TN Municipal Bond Fund
Jerry L. Benefield & Investor Miriam R. Investor
Evelyn S. Benefield Jtwros A Hildebrand B
4036 Barfield Road 73.0913% 884 Edmondson Pike 14.4325%
Murfreesboro, TN 37129- Brentwood, TN
4506 37027
153
<PAGE>
Allene Ellis & Joyce Rose Investor Stephens Inc. Investor
Jtten A Attn: Jim Clark A
2544 Bearwallow Road 10.6939% Nationsbank NC1- 33.0733%
Ashland City, TN 37015- 002-33-31
4506 101 South Tryon
Street
Charlotte, NC
28255
Frank W. Condurelis and Investor Stephens Inc. Investor
Jane Condurelis JTTEN C Attn: Jim Clark A
806 Brentview Drive 93.4203% Nationsbank NC1- 27.4693%
Bashville, TN 37220 002-33-31
101 South Tryon
Street
Charlotte, NC
28255
Stephens Inc. Investor Stephens Inc. Investor
Attn: Cindy Cole C Attn: Jim Clark A
111 Center Street 6.5556% Nationsbank NC1- 24.0709%
Little Rock, AR 72201 002-33-31
101 South Tryon
Street
Charlotte, NC
28255
NationsBank of Texas NA Primary A Stephens Inc. Investor
Attn: Adrian Castillo 99.9446% Attn: Jim Clark A
1401 Elm Street 11th Floor Nationsbank NC1- 15.3865%
Dallas, TX 75202-2911 002-33-31
101 South Tryon
Street
Charlotte, NC
28255
Nations TX Municipal Bond Fund
Edith M. Thalman Investor Jay L. Willmann and Investor
Trust A Catherine B. C
U/A DTD 4/28/1998 56.5539% Willmann JTTEN 99.5566%
5720 E 106th Street 2918 Kassarine Pass
Tulsa, OK 74137- Austin, TX 78704-
7038 4655
Motco Investor NationsBank of Texas Primary A
PO Box 176001-Trust A NA 99.9677%
San Antonio, TX 23.9904% Attn: Adrian
78204 Castillo
1401 Elm Street 11th
Floor
Dallas, TX 75202-
2911
Liberto Investments Investor Reggie D. Bradford & Investor
LTD A Sharon A. Bradford A
621 S Flores 6.2242% 3306 Oak Hill Drive 86.8451%
San Antonio, TX Garland, TX 75043
78204
Nations Disciplined Equity Fund
MAC & Co A/C MSTF Investor BBTC NA Primary A
1002012 A TR Barnett Employee SVGS & 13.3628%
Mutual Fund Operations 9.7183% Thrift PL U/A/D 12/31/84
PO Box 3198 Attn: Income Collections
Pittsburgh, PA 15230- PO Box 40200
3198 Jacksonville, FL 32203-
0200
Dan Denkarik TTEE For Investor Stephens Inc. Primary B
the C Attn: Cindy Cole 100%
Lakeland Battery 14.3644% 111 Center Street
Profit Sharing Little Rock, AR 72201
Plan DTD 7-1-24
41840 S. Combee Road
Lakeland, FL 33801
Summerville Pediatrics Investor BNY Cust Investor
PA C Rollover IRA FBO A
Money Purchase Pension 12.8936% William D. Patterson 15.7058%
Plan 1742 Hilltop
312 Midland Parkway Kingwood, TX 77339
Summerville, SC 29485-
8114
154
<PAGE>
James B. Ford and Investor BNY Cust Rollover IRA FBO Investor
Joanne W. Ford JTTEN C James L. Payne A
25 Century Blvd Suite 7.4648% Box 434 6.1434%
605 Hemphill, TX 75948
Nashville, TN 37214
Richard A. Royds TTEE Investor J. David Dalton TTEE Investor
Miller Family Trust C Lowcountry A
2900 South Tower 5.3554% Orthopaedics Associates 5.9683%
Pennzoil Place P/S/P
Houston, TX 77002 Dated 08-05-87
9300 Medical Plaza Drive
Charleston, SC 29405
NationsBank of Texas Primary A Anne Valcourt GDN FBO Investor
NA 47.0631% Danyel A
Attn: Adrian Castillo Chaniequa Solange Valcourt 5.3461%
1401 Elm Street 11th C/O H R Chaplin
Floor 9930 W. Broadview Drive
Dallas, TX 75202-2911 Bay Harbor Island, FL
33154
BBTC NA Primary A
Retirmt PL & TR Of BBI 18.462%
&
Affiliates
U/A/D 9/19/79
Attn: Income
Collections
PO Box 40200
Jacksonville, FL
32203-0200
Nations Equity Index Fund
Barnett Bank Administrator Investor NationsBank of Texas NA Primary A
Carnival Corp Retirement A Attn: Adrian Castillo 70.0126%
Plan 35.5834% 1401 Elm Street 11th
Attn: Lowell Zemnick Floor
3655 NW 87 Avenue Dallas, TX 75202-2911
Miami, FL 33178-2418
W. S. Avant Jr. Investor NationsBank of Texas TTEE Primary A
7711 Louis Pasteur #810 A NB 401K Plan 22.8665%
San Antonio, TX 78229-0000 7.7136% U/A DTD 01/01/1983
PO Box 2518
Houston, TX 77252-2518
Katherine Marie Ashby and Investor Carn & Co #02174401 Primary B
James Lincoln Ashby Jtwros A Hobbs Group LLC 401K Plan 99.9862%
4016 Murphy Road 6.004% Attn: Mutual Funds Star
Nashville, TN 37209-4911 PO Box 96211
Washington, DC 20090-
6211
National Investor Services Investor Stephen Inc For the Investor
Corp A Exclusive A
For the Exclusive Benefit 5.8276% Benefit of Our Customers 100%
of Our 111 Center Street
Customers Little Rock, AR 72201
55 Water Street 32nd Floor
New York, NY 10041-3299
Nations Managed Index Fund
Charles Schwab & Co. Investor Roy R. Martine & Investor
Inc. A Kathleen H. A
Special Custody 13.699% Martine JWROS 29.0351%
Account 4009 Tottenham
For Benefit of Court
Customers Richmond, VA
Attn: Mutual Funds 23233-1771
101 Montgomery Street
San Francisco, CA
94104
155
<PAGE>
C.A. Porterfield & Investor Sarah A. Barlow Investor
Rosalee Moxley & C TTEE A
Frank Minton TTEES FBO 16.3994% Sarah A. Barlow 9.7142%
Starmount Company Trust
Employees U/A DTD 07/19/1990
Tax Deferred Savings 8400 Vamo Road,
Plan Apt 664
PO Box 10349 Sarasota, FL
Greensboro, NC 27404- 34231
0349
Rosemary H. Pettigrew Investor Selma Lifsher Investor
and C Trustee A
June H. Tilghman Co- 13.0125% Selma Lifsher 7.9936%
TTEES FBO Trust Dated 3-2-89
G Lester Hash Trust 19355 Turnberry
U/A/D 9-14-78 Way Apt PHA
250 Orlando Avenue Aventura, FL
Indialantic, FL 32903- 33180
3421
C.A. Porterfield & Investor Jan R. H. Moggre Investor
Rosalee Moxley & C 9850 Terrace Lake A
Frank Minton TTEES FBO 11.1219% Pointe 7.9295%
Starmount Company Roswell, GA 30076
Employees
Capital Accumulation
Plan
PO Box 10349
Greensboro, NC 27404-
0349
NationsBank of Texas Primary A C. Clarke Moore Investor
NA 73.7455% and A
Attn: Adrian Castillo Michael K. Neil 6.6035%
1401 Elm Street 11th TTEES
Floor C W F Spencer Jr
Dallas, TX 75202-2911 Residual Trust
U/A DTD 03/23/67
PO Box 230
Rock Hill, SC
29731
Barnett Bank NA Succ Primary A James F. Sowinski Investor
TTEE 21.1512% C/O Serologicals A
Barnett Pension-Laerge Inc. 6.0242%
Cap Equity 780 Park North
U/A DTD 9/19/79 Blvd #110
Attn: Mut Fd Dept M/C Clarkson, GA
572-1270 30021-0000
PO Box 40200
Jacksonville, FL
32203-0200
Pamela S. Keene and Primary B
William Steven Keene 99.4547%
JTWROS
2016 Englewood Drive
Apex, NC 275002
Nations Managed Small Cap Index
Charles Schwab & Co Inc. Investor Barnett Bank NA Succ TTEE Primary A
Special Custody Account A Barnett Pension-Laerge Cap 13.0881%
For Benefit of Customers 44.9497% Equity
Attn: Mutual Funds U/A DTD 9/19/79
101 Montgomery Street Attn: Mut Fd Dept M/C 572-
San Francisco, CA 94104 1270
PO Box 40200
Jacksonville, FL 32203-
0200
Dade Community Foundation Investor Barnett Bank NA TTEE - Primary A
Inc. C Barnett Employees Savings & 6.0699%
200 South Biscayne Blvd 21.8886% Thrift Plan U/A DTD
Ste 2780 12/31/1984 -
Miami, FL 33131-2343 LFG BLD GR FD
Attn: Mut FD Dept M/C F19-
100-03-01
PO Box 40200
Jacksonville, FL 32203-
0200
156
<PAGE>
C.A. Porterfield & Investor NationsBank of Texas NA Primary B
Rosalee Moxley & C Attn: Adrian Castillo 99.9928%
Frank Minton TTEES FBO 11.587% 1401 Elm Street 11th Floor
Starmount Company Dallas, TX 75202-2911
Employees
Capital Accumulation Plan
PO Box 10349
Greensboro, NC 27404-0349
C.A. Porterfield & Investor Roy R. Martine & Investor
Rosalee Moxley & C Kathleen H. Martine JWROS A
Frank Minton TTEES FBO 11.1106% 4009 Tottenham Court 8.8718%
Starmount Company Richmond, VA 23233-1771
Employees
Tax Deferred Savings Plan
PO Box 10349
Greensboro, NC 27404-0349
Dean Witter Reynolds Cust Investor BNY Cust Investor
For C Rollover IRA FBO A
Timothy H. Maguire 5.7479% William D. Patterson 8.3487%
IRA Rollover 1742 Hilltop
3825 Riverhollow Court Kingwood, TX 77339
Oviedo, FL 32765-9206
NationsBank of Texas NA Primary A J. David Dalton TTEE Investor
Attn: Adrian Castillo 68.8926% Lowcountry A
1401 Elm Street 11th Floor Orthopaedics Associates 5.0388%
Dallas, TX 75202-2911 P/S/P
Dated 08-05-87
9300 Medical Plaza Drive
Charleston, SC 29405
Nations Emerging Markets Fund
Charles Schwab & Co Investor Munawar H. Investor
Inc. A Hidayatallah C
Special Custody Account 12.0748% 1000 Louisiana Ste 13.709%
For Benefit of 5900
Customers Houston, TX 77002-
Attn: Mutual Funds 5014
101 Montgomery Street
San Francisco, CA
94104
Robert Kadlec Investor Summerville Pediatrics Investor
380 Rector Place Apt 4H A PA C
New York, NY 10280 5.3546% Money Purchase Pension 7.9296%
Plan
312 Midland Parkway
Summerville, SC 29485-
8114
BNY Cust IRA Rollover Investor NationsBank of Texas Primary A
FBO A NA 99.9108%
Steven W. Duff 5.3356% Attn: Adrian Castillo
1965 Broadway 1401 Elm Street 11th
New York, NY 10023 Floor
Dallas, TX 75202-2911
Marcus J. Dash Investor Obie & Co Primary B
4900 Northside Drive C FBO Barron Orendaine 99.9718%
Atlanta, GA 30327 37.6123% P/S
#02096 2689500
Attn: Mutual Fund
Unit (16 HCB 09)
PO Box 200547
Houston, TX 77216-0547
Hi-Tech Communications Investor
Inc. C
401(k) Plan 26.7968%
PO Box 1569
League City, TX 77574-
1569
157
<PAGE>
Nations Pacific Growth Fund
Ron Underwood & Investor Dean Witter Reynolds Cust Investor
David Brown Ttees A For C
Dallas Heart Group 12.7107% Jean M. De Ru 8.953%
401K Plan IRA Standard DTD 06/14/93
11520 N Central Expwy #105 2664 Sharondale Drive
Dallas, TX 75243 Atlanta, GA 30305-3858
Walter J. Nott Investor William D. Ratliff III Investor
8320 Fulham Court A 201 Main Street Suite C
Richmond, VA 23227 9.8516% 2200 8.917%
Ft. Worth, TX 76102-0000
Helen Goh & Investor NationsBank of Texas NA Primary A
Jeffery M. Kadet Jtwros A Attn: Adrian Castillo 97.8217%
Himonya Garden #9 5.6289% 1401 Elm Street 11th
4-14-18 Himonya Floor
Merguro-Ku Tokyo 152 Japan Dallas, TX 75202-2911
Deeb Oweis and Investor Obie & Co Primary B
Mohammad Oweis TTEES FBO C FBO Barron Orendaine P/S 99.9732%
Amtec International Inc. 49.6072% #02096 2689500
Profit Sharing Plan Attn: Mutual Fund Unit
1200 Woodruff Road A-2 (16 HCB 09)
Greenville, SC 29607 PO Box 200547
Houston, TX 77216-0547
Stephens Inc for the Investor
Exclusive C
Benefit of Our Customers 14.7102%
111 Center Street
Little Rock, AR 72201
Nations Global Government Income Fund
NationsBank Corporation Investor Stephens Inc. Primary B
NC1-007-23-01 A Attn: Cindy Cole 100%
100 North Tryon Street 99.7095% 111 Center Street
Charlotte, NC 28255 Little Rock, AR 72201
Dean Witter Reynolds Cust Investor Dixie Restaurant Equipment Co Investor
For C Inc. B
Linda G. Walker 83.8062% 2734 Spring Garden Road 80.4721
IRA Rollover Dated Winston Salem, NC 27106-5714
06/14/93
7 Sally Street
Spartanburg, SC 29301-
2403
Stephens Inc for the Investor Dean Witter Reynolds Cust For Investor
Exclusive C Sandra D. Riggs B
Benefit of Our Customers 15.9767% IRA Standard Dated 08/08/94 7.8018%
111 Center Street 1608 Summerwood Trail
Little Rock, AR 72201 Hixson, TN 37343
NationsBank of Texas NA Primary A Stephens Inc. for the Investor
Attn: Adrian Castillo 99.3291% Exclusive B
1401 Elm Street 11th Floor Benefit of our Customers 6.8472%
Dallas, TX 75202-2911 111 Center Street
Little Rock, AR 72201
158
<PAGE>
Nations International Growth Fund
Kleinwort Benson Invest MGT Investor Stephens Inc. Primary B
LTD A Attn: Cindy Cole 100%
Client Account 7.1719% 111 Center Street
Attn: Andy Poile Little Rock, AR 72201
PO Box 191 20 Fenchurch
London England EC3P 3DB
BNY Cust IRA FBO Investor William E. Prettyman Jr. Investor
Richard E. Snowbarger C 5393 Royal Mile Blvd B
Box 3884 15.2863% Salisbury, MD 21801 47.5473%
Telluride, CO 81435
Philworld Inc. Investor Rafael G. Herrera and Investor
DBA Waldo Pizza C Patricia A. Herrera and B
Attn: Phil Bourne 6.1125% Enrique M. Acevedo JTTEN 7.3056%
7433 Broadway Street 7880 San Felipe #130
Kansas City, MO 64114-1529 Houston, TX 77063-1626
NationsBank of Texas NA Primary A Dean Witter Reynolds Cust Investor
Attn: Adrian Castillo 88.6645% for B
1401 Elm Street 11th Floor Susan Iley 5.8012%
Dallas, TX 75202-2911 IRA STD/Rollover DTD
08/16/94
4656 East Grey Fox Circle
Gum Spring, VA 23065
Northern Trust Co TTEE Primary A
FBO Burlington Resources 6.3607%
A/C #22-46370
PO Box 92956
Chicago, IL 60675-2956
Nations U.S. Government Bond Fund
ISTCO Investor Humphrey Farrington & Investor
A Partnership A McClain C
PO Box 523 24.4174% Money Purchase Pension 18.7394%
Belleville, IL 62222 Pla-Seg
FBO Norman Humphrey
PO Box 900
Independence, MO 64501-
0900
Gable & Gotwals Inc Pension Investor Carla J. Worley Investor
Plan A CNSV William Cody Worley C
Segregated FBO Adwan 6.169% HC 62 Box 116 14.8844%
Bank of Oklahoma NA TTEE Salem, MO 65560-8705
Attn: Trust Securities
PO Box 2180
Tulsa, OK 74101-2180
NationsBank of Texas NA Primary A Ruth Lee Parr Investor
Attn: Adrian Castillo 99.8413 PO Box 102 C
1401 Elm Street 11th Floor Warsaw, IL 62379-0102 14.7541%
Dallas, TX 75202-2911
Stephens Inc. Primary B Dean Witter Reynolds Cust Investor
Attn: Cindy Cole 100% For C
111 Center Street Mildred Deluca 9.0264%
Little Rock, AR 72201 PO Box 250 Church Street
Station
New York, NY 10008-0250
Mary Louise Anderson Investor BNY Cust IRA FBO Investor
1412 Baldwin Mill Road B Richard E. Snowbarger C
Jarrettsville, MD 21084- 21.9222% Box 3884 5.1261%
1904 Telluride, CO 81435
159
<PAGE>
Anna M. Zumas Investor
8706 Roper Road B
Baltimore, MD 21234 9.814%
Nations Small Company Growth Fund
Wendel & Co Investor NationsBank of Texas Primary
C/O BNY MTL FD REORG DPT A NA A
PO Box 1066 12.533% Attn: Adrian 70.7435%
New York, NY 10268-1066 Castillo
1401 Elm Street 11th
Floor
Dallas, TX 75202-
2911
Majorie McCarthy Robins Investor BBTC NA Primary
TTEE of C Retirmt PL & TR Of A
the Majorie McCarthy Robins 8.6217% BBI & 12.4858%
Rev Affiliates
Liv Trust U/A DTD 5-30-1903 U/A/D 9/19/79
45 Loren Woods Attn: Income
Saint Louis, MO 63124-1903 Collections
PO Box 40200
Jacksonville, FL
32203-0200
Dale H. Wiewel Investor Stephens Inc. Primary
RR 1 C Attn: Cindy Cole B
Rowler, IL 62338-9801 7.4453% 111 Center Street 100%
Little Rock, AR
72201
Dean Witter For the Benefit Investor
of C
Members of Springdale 7.0765%
Policemens
Pension and Relief Fund
Church St Station - PO Box
250
New York, NY 10277-1763
Nations Managed Value Index Fund
Charles Schwab & Co. Inc. Investor Charles Schwab & Co. Primary
Special Custody Account A Inc. A
For Benefit of Customers 55.4389% Special Custody 44.031%
Attn: Mutual Funds Account
101 Montgomery Street For Benefit of
San Francisco, CA 94104 Customers
Attn: Mutual Funds
101 Montgomery Street
San Francisco, CA
94104
NFSC FEBO #179-499730 Investor NationsBank of Texas Primary
John A. Fink A NA A
831 Phaeton Way 5.894% Attn: Adrian Castillo 14.4542%
Auburn, IN 46706 1401 Elm Street 11th
Floor
Dallas, TX 75202-2911
Benjamin Bryson Turner Investor Strafe & Co. Primary
20920 Decora Drive C FAO Melling Forging A
Cornelius, NC 28031-6656 72.5031% Co. UAW 7.8056%
Acct #2835621514
PO Box 160
Westerville, OH 43086-
0160
160
<PAGE>
Dean Witter Reynolds Inc. Investor
C/F C
Linda Crawford 27.3218%
Rothe Converted IRA
Dated:
06/19/98
2644 Horseshoe Bend Road
Marietta, GA 30064-4416
Nations Managed Smallcap Value Index Fund
Charles Schwab & Co. Investor NationsBank of Texas Primary
Inc. A NA A
Special Custody 87.5362% Attn: Adrian 22.5416%
Account Castillo
For Benefit of 1401 Elm Street 11th
Customers Floor
Attn: Mutual Funds Dallas, TX 75202-
101 Montgomery Street 2911
San Francisco, CA
94104
Christian G. Scheurer Investor Michael Larkin TR Primary
and C UA 01-06-98 A
Janice F. Scheurer 68.1554% Courtland P. Larkin 12.7243%
JTWROS &
621 E 32nd Terrace Patricia R. Larkin
Hutchinson, KS 67502- Irrev Family Trust
2907 8665 Bay Colony
Drive Apt 702
Naples, FL 341
Janet Beer Garrett Investor Stephens, Inc. Primary
TTEE C Attn: Cindy Cole B
Martin M. Beer 28.9492% 111 Center Street 100%
Irrevocable Little Rock, AR
Educational Trust D 72201
U/A DTD 12/01/97
40 Deerhaven Lane
Asheville, NC 28803
Charles Schwab & Co. Primary A
Inc. 53.4757%
Special Custody
Account
For Benefit of
Customers
Attn: Mutual Funds
101 Montgomery Street
San Francisco, CA
94104
Nations Marsico Focused Equities Fund
Charles Schwab & Co. Inc. Investor Charles Schwab & Co. Primary
Special Custody Account A Inc. A
For Benefit of Customers 46.5521% Special Custody 53.992%
Attn: Mutual Funds Account
101 Montgomery Street For Benefit of
San Francisco, CA 94104 Customers
Attn: Mutual Funds
101 Montgomery Street
San Francisco, CA
94104
Geneviene M. Galliford Investor NationsBank of Texas Primary
2325 Shore Sands Court #301 C NA A
Virginia Beach, VA 23451- 33.7419% Attn: Adrian Castillo 22.4672%
0000 1401 Elm Street 11th
Floor
Dallas, TX 75202-2911
Dean Witter For the Benefit Investor Stephens Inc Primary
of the C Attn: Cindy Cole A
Friedman Liv Trust 13.9732% 111 Center Street 9.4655%
PO Box 250 Church Street Little Rock, AR 72201
Station
New York, NY 10008-0250
161
<PAGE>
Harvey A. Cook and Investor FTC & Co. Primary
Kathi W. Cook JTTEN C Data Lynx House Acct A
801 Ond Drive 11.1109% 04/13/98 8.3874%
West Columbia, SC 29170-2521 PO Box 173736
Denver, CO 80217-3736
Gregg Freishtat Investor
2078 Runfroe Lake Drive C
Dunwoody, GA 30338 9.2337%
Nations Marsico Growth & Income Fund
Charles Schwab & Co. Inc. Investor Dean Witter For the Investor
Special Custody Account A Benefit of C
For Benefit of Customers 54.3349% Berhard Von Ruecker 5.0006%
Attn: Mutual Funds PO Box 250 Church Street
101 Montgomery Street Station
San Francisco, CA 94104 New York, NY 10008-0250
Edd Price Jr. and Investor Charles Schwab & Co. Inc. Primary A
Lynn Price JTTEN A Special Custody Account 65.6716%
5600 Oakbrook Pkwy, Suite 6.4849% For Benefit of Customers
120 Attn: Mutual Funds
Norcross, GA 30093 101 Montgomery Street
San Francisco, CA 94104
Dean Witter For the Investor Stephens Inc. Primary A
Benefit of C Attn: Cindy Cole 19.5815%
Ramson Inc. 61.2996% 111 Center Street
PO Box 250 Church Street Little Rock, AR 72201
Station
New York, NY 10008-0250
Wallace J. Davis and Investor
Connie S. Davis JTTEN C
1418 E Sevier Avenue 9.0757%
Kingsport, TN 37664
Nations Tax Exempt Fund
Ronald Dozoretz Investor B Joann Beall Reisinger Investor
240 Corporation Blvd 6.9787% TTEE C
Norfolk, VA 23502-0000 Joann Beall Resinger 16.0404%
Trust
DTD 08/15/93
1730 Peartree Lane
Crofton, MD 21114
Hare & Co, Bank of New York Investor B Rollie Ted Phillips Investor
Attn: Stif/Master Note 5.9024% 921 Cochran Court C
One Wall Street 2nd Floor Hillsville, VA 24343- 100%
New York, NY 27602 1448
162
<PAGE>
Michele D. Snyder Investor B J. M. Tucker and Investor
10001 Abbey Drive 5.6365% Juanita Tucker Ten A
Potomac, MD 20854-5431 Com 98.4455%
109 Westpark Drive,
Suite 400
Brentwood, TN 37027-
5032
Alvin C. Copeland Investor B Roy R. Martine & Investor
1405 Airline HWY 5.4257% Kathleen H. Martine A
Metairie, LA 70001 JTWROS 26.4987%
4009 Tottenham Court
Richmond, VA 23233-
1771
NationsBank of Texas NA Primary A Sarah A. Barlow TTEE Investor
Attn: Adrian Castillo 90.6369% Sarah A. Barlow Trust A
1401 Elm Street 11th Floor U/A DTD 07/19/1990 8.8657%
Dallas, TX 75202-2911 8400 Vamo Road Apt 664
Sarasota, FL 34231
Barnett Bank Primary A James F. Sowinski Investor
Attn: Bill Lendzian 5.9224% C/O Serologicals A
PO Box 40200 FL9-100-03-09 780 Park North Blvd 7.4385%
Jacksonville, FL 32203-0200 #110
Clarkston, GA 30021
NationsBank of Texas NA Primary B Selma Lifsher Trustee Investor
Attn: Adrian Castillo 99.5194% Selma Lifsher Trust A
1401 Elm Street 11th Floor Dated 3-2-89 7.2954%
Dallas, TX 75202-2911 19355 Turnberry Way
Apt PHA
Aventura, FL 33180
National Financial For the Daily Jan R. H. Moggre Investor
Exclusive Shares 9850 Terrace Lake A
Benefit of Our Customers 99.002% Pointe 7.2369%
200 Liberty Street Roswell, GA 30076
1 World Financial Center
Attn: Mutual Funds 5th Floor
New York, NY 10281
J. Douglas Perry and Investor C William L. Shaw Investor
Patricia W. Perry JTTEN 13.8118% 12912 Shaw Place A
4600 Ocean Front Avenue Silver Spring, MD 6.4818%
Virginia Beach, VA 23451-2521 20904-3465
Calvin H. Price and Investor C C. Clark Moore and Investor
Doroethy W. Price JTWROS 83.8315% Michael K. Neil TTEES A
2900 Old Well Lane C W F Spenser Jr. 6.0266%
Gastonia, NC 28054-6626 Residual Trust
U/A DTD 03-23-67
PO Box 230
Rock Hill, SC 29731
163
<PAGE>
Nations VA Inter. Municipal Bond Fund
Frances C. Investor NationsBank of Texas Primary A
Jarrett C NA 100%
4704 Ocean Front 13.2144% Attn: Adrian
Virginia Beach, Castillo
VA 23451 1401 Elm Street 11th
Floor
Dallas, TX 75202-
2911
Ethel M. Crowe Investor Roy R. Martine & Investor
120 Falcon Drive C Kathleen H. Martine A
Charlottesville, 8.2842% JTWROS 94.3104%
VA 22901 4009 Tottenham Court
Richmond, VA 23233-
1771
Nations International Value Fund
BNY Cust IRA Rollover Investor NFSC FEBO #W23- Investor
FBO C 000582 B
Arved E. White 99.9393% Elizabeth A. 14.8437%
14810 Forest Lodge Ezenna
Circle 915 Peachwood Bend
Houston, TX 77070 Houston, TX 77077
BBTC NA Primary A Nicholas E. Investor
Retirmt PL & TR Of BBI 42.7604 Lansing & B
& Carla S. Lansing 7.5732%
Affiliates JTTEN
U/A/D 9/19/79 RR 1 Box 212
Attn: Income Ursa, IL 62376-
Collections 9801
PO Box 40200
Jacksonville, FL
32203-0200
NationsBank of Texas Primary A Mary Anna Investor
NA 9.7719% Montalbano B
Attn: Adrian Castillo Separate Property 7.3955%
1401 Elm Street 11th 6043 Crab Orchard
Floor Houston, TX 77057
Dallas, TX 75202-2911
Stephens Inc. Primary B
Attn: Cindy Cole 100%
111 Center Street
Little Rock, AR 72201
Nations Equity Income Fund
NationsBank Of Texas Primary BNY Cust Rollover IRA Investor
NA A FBO A
Attn: Adrian 96.9943% Bernice Schneider 85.3803%
Castillo 1623 NE 172 Street
1401 Elm St 11th North Miami Beach, FL
Floor 33162-1430
Dallas, TX 75202-
2911
Stephens Inc Primary Wilma F. Hamilton & Investor
Attn: Cindy Cole B James H. Hamilton & A
111 Center St 100% James H. Hamilton 13.3701
Little Rock, AR JTTEN
72201 PO Box 281
Pine Level, NC 27568
Nations Managed Value Fund
Stephens Inc. Primary B
Attn: Cindy Cole 100%
111 Center Street
Little Rock, AR
72201
164
<PAGE>
Nations Government Money Market Fund
Patricia Trout And Larry A. Investor Michael Johnson Custodian Investor
Trout C For C
JTTEN 61.0873% April Johnson FL/UTMA 38.9127%
9510 Redbird Lane 445 NE 94th Street
Alpharetta, GA 302040 Miami, FL 331380
Nations Short-Term Municipal Income Fund
Joseph Carter and Investor Paragon Assets II Investor
Diane Carter B 4520 King Street #205 B
JTWROS 20.3155% Alexandria, VA 22302-1302 5.3898%
3000 W 117th
Street
Leawood, KS 66211-
2923
NFSC FEBO #W15- Investor Walter V. Abbey Revocable Investor
000515 B Trust A
William L. Spadoni 8.5262% Walter V. Abbey Trustee DTD 8- 100%
Julia S. Spadoni 22-90
PO Box 1019 430 Royal Palm Way
Myrtle Beach, SC Boca Raton, FL 33432
29578
Irene K. Ritz Investor Joe P. Simon & Michaelette Investor
8211 Anita Road B Sanders A
Baltimore, MD 8.4903% JTTEN 53.0122%
21208-1939 38861 Kilimanjaro Dr
Palm Desert,CA 92211-7076
Edward W. Karrels Investor Jerry W. Phillips Investor
6 Abbeywood Court B 2901 Wilkinsville Rd A
Nashville, TN 8.2625% Gaffney, SC 29340 46.9878%
37215
</TABLE>
As of August 1998, NationsBank Corporation and its affiliates owned of
record more than 25% of the outstanding shares of the Companies acting as agent,
fiduciary, or custodian for its customers and may be deemed a controlling person
of the Companies under the 1940 Act.
SUITABILITY OF NATIONS TREASURY FUND
FOR INVESTMENT BY MUNICIPAL INVESTORS
The Public Funds Investments Act (the "Act"), enacted by the Texas
legislature in 1987, as amended on June 14, 1989, and effective on August 28,
1989, permits Texas municipalities and certain other similar entities that hold
public funds to invest in certain types of financial instruments. These entities
include an incorporated city or town, a county, a public school district, a
district or authority created under Article III, Section 52(b) (i) or (2), or
Article XVI, Section 59 of the Texas Constitution, an institution of higher
education as defined by Section 61.003 of the Texas Education Code, a hospital
district, a fresh water supply district, or any nonprofit corporation or public
funds investment pool created under Chapter 791, Texas Government Code, acting
on behalf of any of such entities (the "Entities"). The Act permits Entities to
invest in U.S. Treasury securities, certain repurchase agreements related
thereto, and in certain mutual funds that invest in such securities. Special
counsel to NFT with respect to the Treasury Fund has rendered an opinion to the
effect that, assuming that an Entity complies with applicable law, and that
limitations in the Act with respect to the amount of funds in the control of the
Entity that can be invested in NFT are met, the Entity may invest in the
Treasury Fund of NFT when duly authorized by its governing body.
165
<PAGE>
SCHEDULE A
DESCRIPTION OF RATINGS
The following summarizes the highest six ratings used by Standard &
Poor's Corporation ("S&P") for corporate and municipal bonds. The first four
ratings denote investment-grade securities.
AAA - This is the highest rating assigned by S&P to a debt
obligation and indicates an extremely strong capacity to pay interest
and repay principal.
AA - Debt rated AA is considered to have a very strong capacity to
pay interest and repay principal and differs from AAA issues only in a
small degree.
A - Debt rated A has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than debt
in higher-rated categories.
BBB - Debt rated BBB is regarded as having an adequate capacity to
pay interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than for those
in higher-rated categories.
BB, B - Bonds rated BB and B are regarded, on balance as
predominantly speculative with respect to capacity to pay interest and
repay principal in accordance with the terms of the obligation. Debt
rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions which
could lead to inadequate capacity to meet timely interest and principal
payments. Debt rated B has a greater vulnerability to default but
currently has the capacity to meet interest payments and principal
repayments. Adverse business, financial, or economic conditions will
likely impair capacity or willingness to pay interest and repay
principal.
To provide more detailed indications of credit quality, the AA, A and
BBB, BB and B ratings may be modified by the addition of a plus or minus sign to
show relative standing within these major rating categories.
The following summarizes the highest six ratings used by Moody's
Investors Service, Inc. ("Moody's") for corporate and municipal bonds. The first
four denote investment grade securities.
Aaa - Bonds that are rated Aaa are judged to be of the best
quality. They carry the smallest degree of investment risk and are
generally referred to as "gilt edge." Interest payments are protected by a
large or by an exceptionally stable margin and principal is secure. While
the various protective elements are likely to change, such changes as can
be visualized are most unlikely to impair the fundamentally strong
position of such issues.
Aa - Bonds that are rated Aa are judged to be of high quality by
all standards. Together with the Aaa group they comprise what are
generally known as high grade bonds. They are rated lower than the best
bonds because margins of protection may not be as large as in Aaa
securities or fluctuation of protective elements may be of greater
amplitude or there may be other elements present which make the long-term
risks appear somewhat larger than in Aaa securities.
A - Bonds that are rated A possess many favorable investment
attributes and are to be considered upper medium grade obligations.
Factors giving security to principal and interest are considered adequate,
but elements may be present which suggest a susceptibility to impairment
sometime in the future.
Baa - Bonds that are rated Baa are considered medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present
but
A-1
<PAGE>
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics
as well.
Ba - Bonds that are rated Ba are judged to have speculative
elements; their future cannot be considered as well assured. Often the
protection of interest and principal payments may be very moderate and
thereby not as well safeguarded during both good times and bad times over
the future. Uncertainty of position characterizes bonds in this class.
B - Bond that are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time
may be small.
Moody's applies numerical modifiers (1, 2 and 3) with respect to
corporate bonds rated Aa through B. The modifier 1 indicates that the bond being
rated ranks in the higher end of its generic rating category; the modifier 2
indicates a mid-range ranking; and the modifier 3 indicates that the bond ranks
in the lower end of its generic rating category. With regard to municipal bonds,
those bonds in the Aa, A and Baa groups which Moody's believes possess the
strongest investment attributes are designated by the symbols Aal, A1 or Baal,
respectively.
The following summarizes the highest four ratings used by Duff & Phelps
Credit Rating Co. ("D&P") for bonds, each of which denotes that the securities
are investment grade.
AAA - Bonds that are rated AAA are of the highest credit quality.
The risk factors are considered to be negligible, being only slightly more
than for risk-free U.S. Treasury debt.
AA - Bonds that are rated AA are of high credit quality. Protection
factors are strong. Risk is modest but may vary slightly from time to time
because of economic conditions.
A - Bonds that are rated A have protection factors which are
average but adequate. However risk factors are more variable and greater
in periods of economic stress.
BBB - Bonds that are rated BBB have below average protection
factors but still are considered sufficient for prudent investment.
Considerable variability in risk exists during economic cycles.
To provide more detailed indications of credit quality, the AA, A and
BBB ratings may modified by the addition of a plus or minus sign to show
relative standing within these major categories.
The following summarizes the highest four ratings used by Fitch
Investors Service, Inc. ("Fitch") for bonds, each of which denotes that the
securities are investment grade:
AAA - Bonds considered to be investment grade and of the highest
credit quality. The obligor has an exceptionally strong ability to pay
interest and repay principal, which is unlikely to be affected by
reasonably foreseeable events.
AA - Bonds considered to be investment grade and of very high
credit quality. The obligor's ability to pay interest and repay principal
is very strong, although not quite as strong as bonds rated AAA. Because
bonds rated in the AAA and AA categories are not significantly vulnerable
to foreseeable future developments, short-term debt of these issuers is
generally rated F-1+.
A - Bonds considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than bonds with higher ratings.
BBB - Bonds considered to be investment grade and of satisfactory
credit quality. The obligor's ability to pay interest and repay principal
is considered to be adequate. Adverse changes in economic conditions and
A-2
<PAGE>
circumstances, however, are more likely to have adverse impact on these
bonds, and therefore impair timely payment. The likelihood that the
ratings of these bonds will fall below investment grade is higher than for
bonds with higher ratings.
To provide more detailed indications of credit quality, the AA, A and
BBB ratings may be modified by the addition of a plus or minus sign to show
relative standing within these major rating categories.
The following summarizes the two highest ratings used by Moody's for
short-term municipal notes and variable-rate demand obligations:
MIG-1/VMIG-1 -- Obligations bearing these designations are of the best
quality, enjoying strong protection from established cash flows, superior
liquidity support or demonstrated broad-based access to the market for
refinancing.
MIG-2/VMIG-2 -- Obligations bearing these designations are of high
quality, with ample margins of protection although not so large as in the
preceding group.
The following summarizes the two highest ratings used by S&P for
short-term municipal notes:
SP-1 - Indicates very strong or strong capacity to pay principal and
interest. Those issues determined to possess overwhelming safety characteristics
are given a "plus" (+) designation.
SP-2 - Indicates satisfactory capacity to pay principal and interest.
The three highest rating categories of D&P for short-term debt, each of
which denotes that the securities are investment grade, are D-1, D-2, and D-3.
D&P employs three designations, D-1+, D-1 and D-1-, within the highest rating
category. D-1+ indicates highest certainty of timely payment. Short-term
liquidity, including internal operating factors and/or access to alternative
sources of funds, is judged to be "outstanding, and safety is just below
risk-free U.S. Treasury short-term obligations." D-1 indicates very high
certainty of timely payment. Liquidity factors are excellent and supported by
good fundamental protection factors. Risk factors are considered to be minor.
D-1 indicates high certainty of timely payment. Liquidity factors are strong and
supported by good fundamental protection factors. Risk factors are very small.
D-2 indicates good certainty of timely payment. Liquidity factors and company
fundamentals are sound. Although ongoing funding needs may enlarge total
financing requirements, access to capital markets is good. Risk factors are
small. D-3 indicates satisfactory liquidity and other protection factors which
qualify the issue as investment grade. Risk factors are larger and subject to
more variation. Nevertheless, timely payment is expected.
The following summarizes the two highest rating categories used by
Fitch for short-term obligations each of which denotes that the securities are
investment grade:
F-1+ securities possess exceptionally strong credit quality. Issues
assigned this rating are regarded as having the strongest degree of assurance
for timely payment.
F-1 securities possess very strong credit quality. Issues assigned this
rating reflect an assurance of timely payment only slightly less in degree than
issues rated F-1+.
F-2 securities possess good credit quality. Issues carrying this rating
have a satisfactory degree of assurance for timely payment, but the margin of
safety is not as great as for issues assigned the F-1+ and F-1 ratings.
Commercial paper rated A-1 by S&P indicates that the degree of safety
regarding timely payment is strong. Those issues determined to possess extremely
strong safety characteristics are denoted A-1+. Capacity for timely payment on
commercial paper rated A-2 is satisfactory, but the relative degree of safety is
not as high as for issues designated A-1.
A-3
<PAGE>
The rating Prime-1 is the highest commercial paper rating assigned by
Moody's. Issuers rated Prime-1 (or related supporting institutions) are
considered to have a superior capacity for repayment of senior short-term
promissory obligations. Issuers rated Prime-2 (or related supporting
institutions) are considered to have a strong capacity for repayment of senior
short-term promissory obligations. This will normally be evidenced by many of
the characteristics of issuers rated Prime-1, but to a lesser degree. Earnings
trends and coverage ratios, while sound, will be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
For commercial paper, D&P uses the short-term debt ratings described
above.
For commercial paper, Fitch uses the short-term debt ratings described
above.
Thomson BankWatch, Inc. ("BankWatch") ratings are based upon a
qualitative and quantitative analysis of all segments of the organization
including, where applicable, holding company and operating subsidiaries.
BankWatch ratings do not constitute a recommendation to buy or sell securities
of any of these companies. Further, BankWatch does not suggest specific
investment criteria for individual clients.
BankWatch long-term ratings apply to specific issues of long-term debt
and preferred stock. The long-term ratings specifically assess the likelihood of
untimely payment of principal or interest over the term to maturity of the rated
instrument. The following are the four investment grade ratings used by
BankWatch for long-term debt:
AAA - The highest category; indicates ability to repay principal
and interest on a timely basis is extremely high.
AA - The second highest category; indicates a very strong ability
to repay principal and interest on a timely basis with limited incremental
risk versus issues rated in the highest category.
A - The third highest category; indicates the ability to repay
principal and interest is strong. Issues rated "A" could be more
vulnerable to adverse developments (both internal and external) than
obligations with higher ratings.
BBB - The lowest investment grade category; indicates an acceptable
capacity to repay principal and interest. Issues rated "BBB" are, however,
more vulnerable to adverse developments (both internal and external) than
obligations with higher ratings.
Long-term debt ratings may include a plus (+) or minus (-) sign to
indicate where within a category the issue is placed.
The BankWatch short-term ratings apply to commercial paper, other
senior short-term obligations and deposit obligations of the entities to which
the rating has been assigned. The BankWatch short-term ratings specifically
assess the likelihood of an untimely payment of principal or interest.
TBW-1 The highest category; indicates a very high
likelihood that principal and interest will be paid
on a timely basis.
TBW-2 The second highest category; while the degree of
safety regarding timely repayment of principal and
interest is strong, the relative degree of safety is
not as high as for issues rated "TBW-1".
TBW-3 The lowest investment grade category; indicates that
while more susceptible to adverse developments (both
internal and external) than obligations with higher
ratings, capacity to service principal and interest
in a timely fashion is considered adequate.
A-4
<PAGE>
TBW-4 The lowest rating category; this rating is regarded
as non-investment grade and therefore speculative.
The following summarizes the four highest long-term debt ratings used
by IBCA Limited and its affiliate, IBCA Inc. (collectively "IBCA"):
AAA - Obligations for which there is the lowest expectation of
investment risk. Capacity for timely repayment of principal and
interest is substantial such that adverse changes in business, economic
or financial conditions are unlikely to increase investment risk
significantly.
AA - Obligations for which there is a very low expectation of
investment risk. Capacity for timely repayment of principal and
interest is substantial. Adverse changes in business, economic or
financial conditions may increase investment risk albeit not very
significantly.
A - Obligations for which there is a low expectation of investment
risk. Capacity for timely repayment of principal and interest is
strong, although adverse changes in business, economic or financial
conditions may lead to increased investment risk.
BBB - Obligations for which there is currently a low expectation of
investment risk. Capacity for timely repayment of principal and
interest is adequate, although adverse changes in business, economic or
financial conditions are more likely to lead to increased investment
risk than for obligations in other categories.
A plus or minus sign may be appended to a rating below AAA to denote
relative status within major rating categories.
The following summarizes the two highest short-term debt ratings used by
IBCA:
A1+ When issues possess a particularly strong credit feature, a
rating of A1+ is assigned.
A1 - Obligations supported by the highest capacity for timely
repayment.
A2 - Obligations supported by a good capacity for timely repayment.
A-5
<PAGE>
SCHEDULE B
ADDITIONAL INFORMATION CONCERNING
OPTIONS & FUTURES
As stated in the Prospectus, each Non-Money Market Fund, may enter into
futures contracts and options for hedging purposes. Such transactions are
described in this Schedule. During the current fiscal year, each of these Funds
intends to limit its transactions in futures contracts and options so that not
more than 5% of the Fund's net assets are at risk. Furthermore, in no event
would any Fund purchase or sell futures contracts, or related options thereon,
for hedging purposes if, immediately thereafter, the aggregate initial margin
that is required to be posted by the Fund under the rules of the exchange on
which the futures contract (or futures option) is traded, plus any premiums paid
by the Fund on its open futures options positions, exceeds 5% of the Fund's
total assets, after taking into account any unrealized profits and unrealized
losses on the Fund's open contracts and excluding the amount that a futures
option is "in-the-money" at the time of purchase. (An option to buy a futures
contract is "in-the-money" if the value of the contract that is subject to the
option exceeds the exercise price; an option to sell a futures contract is
"in-the-money" if the exercise Price exceeds the value of the contract that is
subject of the option.)
I. Interest Rate Futures Contracts.
Use of Interest Rate Futures Contracts. Bond prices are established in
both the cash market and the futures market. In the cash market, bonds are
purchased and sold with payment for the full purchase price of the bond being
made in cash, generally within five business days after the trade. In the
futures market, only a contract is made to purchase or sell a bond in the future
for a set price on a certain date. Historically, the prices for bonds
established in the futures market have tended to move generally in the aggregate
in concert with the cash market prices and have maintained fairly predictable
relationships. Accordingly, a Fund may use interest rate futures as a defense,
or hedge, against anticipated interest rate changes and not for speculation. As
described below, this would include the use of futures contract sales to protect
against expected increases in interest rates and futures contract purchases to
offset the impact of interest rate declines.
A Fund presently could accomplish a similar result to that which it
hopes to achieve through the use of futures contracts by selling bonds with long
maturities and investing in bonds with short maturities when interest rates are
expected to increase, or conversely, selling short-term bonds and investing in
long-term bonds when interest rates are expected to decline. However, because of
the liquidity that is often available in the futures market the protection is
more likely to be achieved, perhaps at a lower cost and without changing the
rate of interest being earned by the Fund, through using futures contracts.
Description of Interest Rates Futures Contracts. An interest rate
futures contract sale would create an obligation by a Fund, as seller, to
deliver the specific type of financial instrument called for in the contract at
a specific future time for a specified price. A futures contract purchase would
create an obligation by the Fund, as purchaser, to take delivery of the specific
type of financial instrument at a specific future time at a specific price. The
specific securities delivered or taken, respectively, at settlement date, would
not be determined until at or near that date. The determination would be in
accordance with the rules of the exchange on which the futures contract sale or
purchase was made.
Although interest rate futures contracts by their terms call for actual
delivery or acceptance of securities, in most cases the contracts are closed out
before the settlement date without the making or taking of delivery of
securities. Closing out a futures contract sale is effected by the Fund's
entering into a futures contract purchase for the same aggregate amount of the
specific type of financial instrument and the same delivery date. If the price
in the sale exceeds the price in the offsetting purchase, the Fund is paid the
difference and thus realizes a gain. If the offsetting purchase price exceeds
the sale price, the Fund pays the difference and realizes a loss. Similarly, the
closing out of a futures contract purchase is effected by the Fund's entering
into a futures contract sale. If the offsetting sale price exceeds the purchase
price, the Fund realizes a gain, and if the purchase price exceeds the
offsetting sale price, the Fund realizes a loss.
B-1
<PAGE>
Interest rate futures contracts are traded in an auction environment on
the floors of several exchanges - principally, the Chicago Board of Trade, the
Chicago Mercantile Exchange and the New York Futures Exchange. A Fund would deal
only in standardized contracts on recognized changes. Each exchange guarantees
performance under contract provisions through a clearing corporation, a
nonprofit organization managed by the exchange membership.
A public market now exists in futures contracts covering various
financial instruments including long-term United States Treasury Bonds and
Notes; Government National Mortgage Association ("GNMA") modified pass-through
mortgage-backed securities; three-month United States Treasury Bills; and
ninety-day commercial paper. The Funds may trade in any futures contract for
which there exists a public market, including, without limitation, the foregoing
instruments.
Examples of Futures Contract Sale. A Fund would engage in an interest
rate futures contract sale to maintain the income advantage from continued
holding of a long-term bond while endeavoring to avoid part or all of the loss
in market value that would otherwise accompany a decline in long-term securities
prices. Assume that the market value of a certain security in a Fund tends to
move in concert with the futures market prices of long-term United States
Treasury bonds ("Treasury Bonds"). The Adviser wishes to fix the current market
value of this portfolio security until some point in the future. Assume the
portfolio security has a market value of 100, and the Adviser believes that,
because of an anticipated rise in interest rates, the value will decline to 95.
The Fund might enter into futures contract sales of Treasury bonds for an
equivalent of 98. If the market value of the portfolio securities does indeed
decline from 100 to 95, the equivalent futures market price for the Treasury
bonds might also decline from 98 to 93.
In that case, the five-point loss in the market value of the portfolio
security would be offset by the five-point gain realized by closing out the
futures contract sale. Of course, the futures market price of Treasury bonds
might well decline to more than 93 or to less than 93 because of the imperfect
correlation between cash and futures prices mentioned below.
The Adviser could be wrong in its forecast of interest rates and the
equivalent futures market price could rise above 98. In this case, the market
value of the portfolio securities, including the portfolio security being
protected, would increase. The benefit of this increase would be reduced by the
loss realized on closing out the futures contract sale.
If interest rate levels did not change, the Fund in the above example
might incur a loss of 2 points (which might be reduced by an offsetting
transaction prior to the settlement date). In each transaction, transaction
expenses would also be incurred.
Examples of Future Contract Purchase. A Fund would engage in an
interest rate futures contract purchase when it is not fully invested in
long-term bonds but wishes to defer for a time the purchase of long-term bonds
in light of the availability of advantageous interim investments, e.g.,
shorter-term securities whose yields are greater than those available on
long-term bonds. The Fund's basic motivation would be to maintain for a time the
income advantage from investing in the short-term securities; the Fund would be
endeavoring at the same time to eliminate the effect of all or part of an
expected increase in market price of the long-term bonds that the Fund may
purchase.
For example, assume that the market price of a long-term bond that the
Fund may purchase, currently yielding 10%, tends to move in concert with futures
market prices of Treasury bonds. The Adviser wishes to fix the current market
price (and thus 10% yield) of the long-term bond until the time (four months
away in this example) when it may purchase the bond. Assume the long-term bond
has a market price of 100, and the Adviser believes that, because of an
anticipated fall in interest rates, the price will have risen to 105 (and the
yield will have dropped to about 9-1/2%) in four months. The Fund might enter
into futures contracts purchases of Treasury bonds for an equivalent price of
98. At the same time, the Fund would assign a pool of investments in short-term
securities that are either maturing in four months or earmarked for sale in four
months, for purchase of the long-term bond at an assumed market price of 100.
Assume these short-term securities are yielding 15%. If the market price of the
long-term bond does indeed rise from 100 to 105, the equivalent futures market
price for Treasury bonds might also rise
B-2
<PAGE>
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
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 New York
Stock Exchange Composite Index. In contract, certain exchanges offer futures
contracts on narrower market indices, such as the Standard & Poor's 100, the
Bond Buyer Municipal Bond Index, an index composed of 40 term revenue and
general obligation bonds, or indices based on an industry or market segment,
such as oil and gas stocks. Futures contracts are traded on organized exchanges
regulated by the Commodity Futures Trading Commission. Transactions on such
exchanges are cleared through a clearing corporation, which guarantees the
performance of the parties to each contract.
A Fund will sell index futures contracts in order to offset a decrease
in market value of its portfolio securities that might otherwise result from a
market decline. The Fund may do so either to hedge the value of its portfolio as
a whole, or to protect against declines, occurring prior to sales of securities,
in the value of the securities to be sold. Conversely, a Fund will purchase
index futures contracts in anticipation of purchases of securities. In a
substantial majority of these transactions, the Fund will purchase such
securities upon termination of the long futures position, but a long futures
position may be terminated without a corresponding purchase of securities.
In addition, a Fund may utilize index futures contracts in anticipation
of changes in the composition of its portfolio holdings. For example, in the
event that a Fund expects to narrow the range of industry groups represented in
its holdings it may, prior to making purchases of the actual securities,
establish a long futures position based on a more restricted index, such as an
index comprised of securities of a particular industry group. A Fund also may
sell futures contracts in connection with this strategy, in order to protect
against the possibility that the value of the securities to be sold as part of
the restructuring of the portfolio will decline prior to the time of sale.
The following are examples of transactions in stock index futures (net
of commissions and premiums, if any).
B-3
<PAGE>
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 130
Actual Cost = $65,000 Value of Futures = $65,000/
Increase in Purchase Contract
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 Gain on Futures = $40,000
Value = $40 000
IF, HOWEVER, THE MARKET MOVED IN THE OPPOSITE DIRECTION, THAT IS, MARKET
VALUE DECREASED AND THE FUND HAD ENTERED INTO AN ANTICIPATORY PURCHASE HEDGE, OR
MARKET VALUE INCREASED AND THE FUND HAD HEDGED ITS STOCK PORTFOLIO, THE RESULTS
OF THE FUND'S TRANSACTIONS IN STOCK INDEX FUTURES WOULD BE AS SET FORTH BELOW.
B-4
<PAGE>
ANTICIPATORY PURCHASE HEDGE: Buy the Future
Hedge Objective: Protect Against Increasing Price
<TABLE>
<CAPTION>
<S> <C>
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 Loss on Futures = $2,500
Price = $2,500 Contract
</TABLE>
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
Value = $40 000
III. Margin Payments
Unlike when a Fund purchases or sells a security, no price is paid or
received by the Fund upon the purchase or sale of a futures contract. Initially,
the Fund will be required to deposit with the broker or in a segregated account
with the Fund's Custodian an amount of cash or cash equivalents, the value, of
which may vary but is generally equal to 10% or less of the value of the
contract. This amount is known as initial margin. The nature of initial margin
in futures transactions is different from that of margin in security
transactions in that futures contract margin does not involve the borrowing of
funds by the customer to finance the transactions. Rather, the initial margin is
in the nature of a performance bond or good faith deposit on the contract which
is returned to the Fund upon termination of the futures contract assuming all
contractual obligations have been satisfied. Subsequent
B-5
<PAGE>
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, 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 securities
being hedged has moved in an unfavorable direction, the Fund would be in a
better position than if it had not hedged at Al. 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 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
B-6
<PAGE>
delivery. To the extent participants decide to make or take delivery, liquidity
in the futures market could be reduced thus producing distortions. Third, from
the point of view of speculators, the deposit requirements in the futures market
are less onerous than margin requirements in the securities market. Therefore,
increased participation by speculators in the futures market may also cause
temporary price distortions. Due to the possibility of Price distortion in the
futures market, and because of the imperfect correlation between the movements
in the cash market and movements in the price of futures, a correct forecast of
general market trends or interest rate movements by the Adviser still may not
result in a successful hedging transaction over a short time frame.
Positions in futures may be closed out only on an exchange or board of
trade which provides a secondary market for such futures. Although the Funds
intend to purchase or sell futures only on exchanges or boards of trade where
there appear to be active secondary markets, there is no assurance that a liquid
secondary market on any exchange or board of trade will exist for any particular
contract or at any particular time. In such event, it may not be possible to
close a futures investment position, and in the event of adverse price
movements, a Fund would continue to be required to make daily cash payments of
variation margin. However, in the event futures contracts have been used to
hedge portfolio securities, such securities will not be sold until the futures
contract can be terminated. In such circumstances, an increase in the price of
the securities, if any, may partially or completely offset losses on the futures
contract. However, as described above, there is no guarantee that the price of
the securities will in fact correlate with the price movements in the futures
contract and thus provide an offset on a futures contract.
Further, it should be noted that the liquidity of a secondary market in
a futures contract may be adversely affected by "daily price fluctuation limits"
established by commodity exchanges which limit the amount of fluctuation in a
futures contract price during a single trading day. Once the daily limit has
been reached in the contract, no trades may be entered into at a price beyond
the limit, thus preventing the liquidation of open futures positions.
Successful use of futures by a Fund also is subject to the Adviser's
ability to predict correctly movements in the direction of the market. For
example, if a Fund has hedged against the possibility of a decline in the market
adversely affecting securities held in its portfolio and securities prices
increase instead, the Fund will lose part or all of the benefit to the increased
value of its securities which it has hedged because it will have offsetting
losses in its futures positions. In addition, in such situations, if the Fund
has insufficient cash, it may have to sell securities to meet daily variation
margin requirements. Such sales of securities may be, but will not necessarily
be, at increased prices which reflect the rising market. A Fund may have to sell
securities at a time when it may be disadvantageous to do so.
V. Options on Futures Contracts.
The Funds may purchase options on the futures contracts described
above. A futures option gives the holder, in return for the premium paid, the
right to buy (call) from or sell (put) to the writer of the option a futures
contract at a specified price at any time during the period of the option. Upon
exercise, the writer of the option is obligated to pay the difference between
the cash value of the futures contract and the exercise price. Like the buyer or
seller of a futures contract, the holder, or writer, of an option has the right
to terminate its position prior to the scheduled expiration of the option by
selling, or purchasing, an option of the same series, at which time the person
entering into the closing transaction will realize a gain or loss.
Investments in futures options involve some of the same considerations
that are involved in connection with investments in futures contracts (for
example, the existence of a liquid secondary market). In addition, the purchase
of an option also entails the risk that changes in the value of the underlying
futures contract will not be fully reflected in the value of the option
purchased. Depending on the pricing of the option compared to either the futures
contract upon which it is based, or upon the price of the securities being
hedged, an option may or may not be less risky than ownership of the futures
contract or such securities. In general, the market prices of options can be
expected to be more volatile than the market prices on the underlying futures
contract. Compared to the purchase or sale of futures contracts, however, the
purchase of call or put options on futures contracts may frequently involve less
potential risk to a Fund because the maximum amount at risk is the premium paid
for the options (plus transaction costs).
B-7
<PAGE>
Although permitted by their fundamental investment policies, the Funds do not
currently intend to write future options, and will not do so in the future
absent any necessary regulatory approvals.
ACCOUNTING TREATMENT.
Accounting for futures contracts and options will be in accordance with
generally accepted accounting principles.
B-8
<PAGE>
SCHEDULE C
ADDITIONAL INFORMATION CONCERNING
MORTGAGE-BACKED SECURITIES
MORTGAGE-BACKED SECURITIES
Mortgage-backed securities represent an ownership interest in a pool of
residential mortgage loans. These securities are designed to provide monthly
payments of interest and principal to the investor. The mortgagor's monthly
payments to his/her lending institution are "passed-through" to an investor.
Most issuers or poolers provide guarantees of payments, regardless of whether or
not the mortgagor actually makes the payment. The guarantees made by issuers or
poolers are supported by various forms of credit collateral, guarantees or
insurance, including individual loan, title, pool and hazard insurance purchased
by the issuer. There can be no assurance that the private issuers or poolers can
meet their obligations under the policies. Mortgage-backed securities issued by
private issuers or poolers, whether or not such securities are subject to
guarantees, may entail greater risk than securities directly or indirectly
guaranteed by the U.S. Government.
Interests in pools of mortgage-backed securities differ from other
forms of debt securities, which normally provide for periodic payment of
interest in fixed amounts with principal payments at maturity or specified call
dates. Instead, these securities provide a monthly payment which consists of
both interest and principal payments. In effect, these payments are a
"pass-through" of the monthly payments made by the individual borrowers on their
residential mortgage loans, net of any fees paid. Additional payments are caused
by repayments resulting from the sale of the underlying residential property,
refinancing or foreclosure net of fees or costs which may be incurred. Some
mortgage-backed securities are described as "modified pass-through." These
securities entitle the holders to receive all interest and principal payments
owed on the mortgages in the pool, net of certain fees, regardless of whether or
not the mortgagors actually make the payments.
Residential mortgage loans are pooled by the Federal Home Loan Mortgage
Corporation (FHLMC). FHLMC is a corporate instrumentality of the U.S. Government
and was created by Congress in 1970 for the purpose of increasing the
availability of mortgage credit for residential housing. Its stock is owned by
the twelve Federal Home Loan Banks. FHLMC issues Participation Certificates
("PC's"), which represent interests in mortgages from FHLMC's national
portfolio. FHLMC guarantees the timely payment of interest and ultimate
collection of principal.
The Federal National Mortgage Association (FNMA) is a Government
sponsored corporation owned entirely by private stockholders. It is subject to
general regulation by the Secretary of Housing and Urban Development. FNMA
purchases residential mortgages from a list of approved sellers/servicers which
include state and federally-chartered savings and loan associations, mutual
savings banks, commercial banks and credit unions and mortgage bankers.
Pass-through securities issued by FNMA are guaranteed as to timely payment of
principal and interest by FNMA.
The principal Government guarantor of mortgage-backed securities is the
Government National Mortgage Association (GNMA). GNMA is a wholly-owned U.S.
Government corporation within the Department of Housing and Urban Development.
GNMA is authorized to guarantee, with the full faith and credit of the U.S.
Government, the timely payment of principal and interest on securities issued by
approved institutions and backed by pools of FHA-insured or VA-guaranteed
mortgages.
Commercial banks, savings and loan institutions, private mortgage
insurance companies, mortgage bankers and other secondary market issuers also
create pass-through pools of conventional residential mortgage loans. Pools
created by such non-governmental issuers generally offer a higher rate of
interest than Government and Government-related pools because there are no
direct or indirect Government guarantees of payments in the former pools.
However, timely payment of interest and principal of these pools is supported by
various forms of insurance or guarantees, including individual loan, title, pool
and hazard insurance purchased by the issuer. The insurance and
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guarantees are issued by Governmental entities, private insurers, and the
mortgage poolers. There can be no assurance that the private insurers or
mortgage poolers can meet their obligations under the policies.
The Fund expects that Governmental or private entities may create
mortgage loan pools offering pass-through investments in addition to those
described above. The mortgages underlying these securities may be alternative
mortgage instruments, that is, mortgage instruments whose principal or interest
payment may vary or whose terms to maturity may be shorter than previously
customary. As new types of mortgage-backed securities are developed and offered
to investors, certain Funds will, consistent with their investment objective and
policies, consider making investments in such new types of securities.
UNDERLYING MORTGAGES
Pools consist of whole mortgage loans or participations in loans. The
majority of these loans are made to purchasers of 1-4 family homes. The terms
and characteristics of the mortgage instruments are generally uniform within a
pool but may vary among pools. For example, in addition to fixed-rate,
fixed-term mortgages, a Fund may purchase pools of variable-rate mortgages
(VRM), growing equity mortgages (GEM), graduated payment mortgages (GPM) and
other types where the principal and interest payment procedures vary. VRM's are
mortgages which reset the mortgage's interest rate periodically with changes in
open market interest rates. To the extent that the Fund is actually invested in
VRM's, the Fund's interest income will vary with changes in the applicable
interest rate on pools of VRM's. GPM and GEM pools maintain constant interest
rates, with varying levels of principal repayment over the life of the mortgage.
These different interest and principal payment procedures should not impact the
Fund's net asset value since the prices at which these securities are valued
will reflect the payment procedures.
All poolers apply standards for qualification to local lending
institutions which originate mortgages for the pools. Poolers also establish
credit standards and underwriting criteria for individual mortgages included in
the pools. In addition, some mortgages included in pools are insured through
private mortgage insurance companies.
AVERAGE LIFE
The average life of pass-through pools varies with the maturities of
the underlying mortgage instruments. In addition, a pool's term may be shortened
by unscheduled or early payments of principal and interest on the underlying
mortgages. The occurrence of mortgage prepayments is affected by factors
including the level of interest rates, general economic conditions, the location
and age of the mortgage, and other social and demographic conditions.
As prepayment rates of individual pools vary widely, it is not possible
to accurately predict the average life of a particular pool. For pools of
fixed-rated 30-year mortgages, common industry practice is to assume that
prepayments will result in a 12-year average life. Pools of mortgages with other
maturities or different characteristics will have varying assumptions for
average life.
RETURNS ON MORTGAGE-BACKED SECURITIES
Yields on mortgage-backed pass-through securities are typically quoted
based on the maturity of the underlying instruments and the associated average
life assumption. Actual prepayment experience may cause the yield to differ from
the assumed average life yield.
Reinvestment of prepayments may occur at higher or lower interest rates
than the original investment, thus affecting the yields of the Fund. The
compounding effect from reinvestments of monthly payments received by the Fund
will increase its yield to shareholders, compared to bonds that pay interest
semi-annually.
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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 Managed Index,
Nations Managed SmallCap Index, Nations Managed Value Index, Nations
Managed SmallCap Value Index, Nations Marsico Growth & Income, Nations
Marsico Focused Equities, 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 and Nations Virginia Municipal Bond
Funds:
Schedule of Investments for March 31, 1998
Statements of Assets and Liabilities for March 31, 1998
Statements of Operations for the fiscal year ended March 31, 1998
Statements of Changes in Net Assets for the fiscal year ended
March 31, 1998 and the fiscal period ended March 31, 1997
Schedule of Capital Stock Activity for the fiscal year ended
March 31, 1998
Notes to Financial Statements
Report of Independent Accountants, dated May 28, 1997
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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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(1)(l) Certificate relating to the establishment of money market funds'
Investor C shares dated July 8, 1993, is incorporated by
reference to Post-Effective Amendment No. 29, filed September 30,
1993.
(1)(m) Certificate relating to the establishment of the Equity Index,
Short-Term Municipal Income, Florida Municipal Bond, Georgia
Municipal Bond, North Carolina Municipal Bond, South Carolina
Municipal Bond, Tennessee Municipal Bond, Texas Municipal Bond
and Virginia Municipal Bond Funds dated September 22, 1993, is
incorporated by reference to Post-Effective Amendment No. 29,
filed September 30, 1993.
(1)(n) Certificate relating to the establishment of the Special Equity
Fund is incorporated by reference to Post-Effective Amendment No.
30, filed December 1, 1993.
(1)(o) Certificate relating to the redesignation of Investor B Shares
and Investor C Shares of the non-money market funds to "Investor
C Shares" and "Investor N Shares," respectively, is incorporated
by reference by Post-Effective Amendment No. 32, filed March 29,
1994.
(1)(p) Certificate relating to the Classification of Shares of the Money
Market Fund and the Tax Exempt Fund creating "Investor D Shares,"
is incorporated by reference to Post-Effective Amendment No. 36,
filed January 31, 1995.
(1)(q) Classification of Shares relating to the renaming of Nations
Special Equity Fund is incorporated by reference to
Post-Effective Amendment No. 36, filed January 31, 1995.
(1)(r) Certificate relating to the establishment of Nations Tax-Managed
Equity Fund's Series of Shares is incorporated by reference to
Post-Effective Amendment No. 40, filed October 20, 1995.
(2)(a) Amended and Restated Code of Regulations as approved and adopted
by Registrant's Board of Trustees is incorporated by reference to
Pre-Effective Amendment No. 2, filed October 4, 1985.
(2)(b) Amendment to the Code of Regulations as approved and adopted by
Registrant's Board of Trustees on June 24, 1992, is incorporated
by reference to Post-Effective Amendment No. 22, filed July 30,
1992.
(3) None.
(4)(a) Specimen copies of share certificates, to be filed by amendment.
(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.
(5)(c) Sub-Advisory Agreement among NBAI, Marsico Capital Management,
LLC and the Registrant, dated December 31, 1997, filed herewith.
(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 incorporated by reference to
Post-Effective Amendment No. 48, filed May 16, 1997.
(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,
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Mortgage-Backed Securities Fund, Florida Municipal Bond Fund,
North Carolina Municipal Bond Fund and Texas Municipal Bond Fund,
is incorporated by reference to Post-Effective Amendment No. 26,
filed March 26, 1993.
(9)(g) Amendment No. 2 dated February 3, 1993, to the Transfer Agency
Agreement between Registrant and NationsBank Texas, dated April
25, 1992, relating to the Tennessee Municipal Bond Fund and
Municipal Income Fund, is incorporated by reference to
Post-Effective Amendment No. 26, filed March 26, 1993.
(9)(h) Amendment No. 3 to the Transfer Agency Agreement relating to the
Equity Index Fund, Florida Municipal Bond Fund, Georgia Municipal
Bond Fund, Maryland 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 B Shares (formerly Investor N Shares)
of the non-money market funds, is
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<PAGE>
incorporated by reference to Post-Effective Amendment No. 32,
filed March 29, 1994.
(9)(p) Forms of Shareholder Servicing Agreement for Investor C Shares of
the money market funds and Investor B Shares (formerly Investor N
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, filed herewith.
(11) Consent of Independent Accountants -- PricewaterhouseCoopers LLP,
filed herewith.
(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 B Shares (formerly Investor N
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 B Shares (formerly
Investor N Shares) of the non-money market funds) is incorporated
by reference to Post-Effective Amendment No. 32, filed March 29,
1994.
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<PAGE>
(15)(g) Shareholder Administration Plan for Primary B Shares is
incorporated by reference to Post-Effective Amendment No. 41,
filed January 29, 1996.
(16)(a) Schedules for Computation of Primary A Shares is incorporated by
reference to Post-Effective Amendment No. 37, filed March 31,
1995.
(16)(b) Schedules for Computation of Primary B Shares shall be filed by
Amendment.
(16)(c) Schedules for Computation of Investor A Shares is incorporated by
reference to Post-Effective Amendment No. 37, filed March 31,
1995.
(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 B Shares (formerly Investor
N Shares) is incorporated by reference to Post-Effective
Amendment No. 37, filed March 31, 1995.
(16)(f) Schedules for Computation of Daily Shares (formerly 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, filed herewith.
Item 25. Persons Controlled By or Under Common Control with Registrant
Registrant is controlled by its Board of Trustees.
Item 26. Number of Holders of Securities
The following information is as of July 1, 1998.
<TABLE>
<CAPTION>
Number of
Title of Class Record Holders
<S> <C> <C>
Nations Government Money Market Fund - Investor A 596
- Investor B 75
- Investor C 26
- Daily 12
- Primary A 2
- Primary B 1
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Nations Tax Exempt Fund - Investor A 3,384
- Investor B 444
- Investor C 420
- Daily 31
- Primary A 134
- Primary B 2
Nations Value Fund - Investor A 5,301
- Investor B 9,285
- Investor C 511
- Primary A 357
- Primary B 1
Nations Capital Growth Fund - Investor A 1,752
- Investor B 3,993
- Investor C 253
- Primary A 39
- Primary B 2
Nations Emerging Growth Fund - Investor A 1,291
- Investor B 4,045
- Investor C 122
- Primary A 12
- Primary B 1
Nations Disciplined Equity Fund - Investor A 3,087
- Investor B 2,673
- Investor C 81
- Primary A 605
- Primary B 1
Nations Equity Index Fund - Primary A 37
- Primary B 2
- Investor A 168
Nations Managed Index Fund - Investor A 831
- Investor C 117
- Primary A 37
- Primary B 2
Nations Managed SmallCap Index Fund - Investor A 437
- Investor C 34
- Primary A 47
- Primary B 2
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<PAGE>
Nations Managed Value Index Fund - Investor A 41
- Investor C 3
- Primary A 11
- Primary B 1
Nations Managed SmallCap Value Index Fund - Investor A 34
- Investor C 3
- Primary A 4
- Primary B 1
Nations Marsico Focused Equities Fund - Investor A 614
- Investor B 4,289
- Investor C 30
- Primary A 10
Nations Marsico Growth & Income Fund - Investor A 194
- Investor B 1,914
- Investor C 14
- Primary A 8
Nations Balanced Assets Fund - Investor A 727
- Investor B 4,001
- Investor C 83
- Primary A 84
- Primary B 2
Nations Short-Intermediate - Investor A 1,068
Government Fund - Investor B 436
- Investor C 199
- Primary A 32
- Primary B 3
Nations Short-Term Income Fund - Investor A 249
- Investor B 288
- Investor C 62
- Primary A 2,140
- Primary B 1
Nations Diversified Income Fund - Investor A 590
- Investor B 3,274
- Investor C 111
- Primary A 14
- Primary B 1
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Nations Strategic Fixed Income - Investor A 380
Fund - Investor B 134
- Investor C 29
- Primary A 426
- Primary B 1
Nations Municipal Income Fund - Investor A 337
- Investor B 326
- Investor C 55
- Primary A 4
- Primary B 0
Nations Intermediate Municipal - Investor A 95
Bond Fund - Investor B 44
- Investor C 12
- Primary A 5
- Primary B 0
Nations Short-Term Municipal - Investor A 125
Income Fund - Investor B 122
- Investor C 11
- Primary A 3
- Primary B 0
Nations Florida Intermediate - Investor A 81
Municipal Bond Fund - Investor B 93
- Investor C 7
- Primary A 18
- Primary B 0
Nations Georgia Intermediate - Investor A 177
Municipal Bond Fund - Investor B 141
- Investor C 31
- Primary A 11
- Primary B 0
Nations Kansas Intermediate - Investor A 0
Municipal Bond Fund - Investor B 0
- Investor C 0
- Primary A 0
Nations Maryland Intermediate - Investor A 263
Municipal Bond Fund - Investor B 190
- Investor C 48
- Primary A 2
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- Primary B 0
Nations Missouri Intermediate - Investor A 0
Municipal Bond Fund - Investor B 0
- Investor C 0
- Primary A 0
Nations North Carolina Intermediate - Investor A 146
Municipal Bond Fund - Investor B 170
- Investor C 22
- Primary A 1
- Primary B 0
Nations South Carolina Intermediate - Investor A 226
Municipal Bond Fund - Investor B 175
- Investor C 88
- Primary A 1
- Primary B 0
Nations Tennessee Intermediate - Investor A 66
Municipal Bond Fund - Investor B 54
- Investor C 2
- Primary A 1
- Primary B 0
Nations Texas Intermediate - Investor A 36
Municipal Bond Fund - Investor B 73
- Investor C 3
- Primary A 1
- Primary B 0
Nations Virginia Intermediate - Investor A 781
Municipal Bond Fund - Investor B 327
- Investor C 88
- Primary A 1
- Primary B 0
Nations Virginia Municipal Bond - Investor A 26
Fund - Investor B 438
- Investor C 2
- Primary A 1
- Primary B 0
Nations Maryland Municipal Bond - Investor A 20
Fund - Investor B 344
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- Investor C 2
- Primary A 3
- Primary B 0
Nations North Carolina Municipal - Investor A 36
Bond Fund - Investor B 548
- Investor C 2
- Primary A 4
- Primary B 0
Nations South Carolina Municipal - Investor A 20
Bond Fund - Investor B 219
- Investor C 3
- Primary A 1
- Primary B 0
Nations Florida Municipal Bond Fund - Investor A 664
- Investor B 340
- Investor C 2
- Primary A 404
- Primary B 0
Nations Georgia Municipal Bond Fund - Investor A 20
- Investor B 263
- Investor C 2
- Primary A 2
- Primary B 0
Nations Tennessee Municipal Bond - Investor A 16
Fund - Investor B 117
- Investor C 3
- Primary A 2
- Primary B 0
Nations Texas Municipal Bond Fund - Investor A 19
- Investor B 207
- Investor C 3
- Primary A 2
- Primary B 0
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
</TABLE>
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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 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
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<PAGE>
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.
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
14
<PAGE>
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 ADV filed by
TradeStreet with the Securities and Exchange Commission pursuant to the
Investment Advisers Act of 1940 (file no. 801-50372).
(d) Marsico performs sub-investment advisory services for the
Registrant and certain other customers. Information with respect to each
director and officer of the sub-investment adviser is incorporated by reference
to a Form ADV filed by Marsico with the Securities and Exchange Commission
pursuant to the Investment Advisers Act of 1940 (file no. 801-54914).
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 Nations Fund, Inc., Nations Annuity Trust,
Nations Fund Portfolios, Inc., Nations Instituional Reserves, Nations LifeGoal
Funds, Inc., 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 Nations Managed Balanced Target
Maturity Fund, Inc., closed-end management investment companies.
(b) Information with respect to each director and officer of the principal
underwriter is incorporated by reference to Form ADV filed by Stephens Inc. with
the Securities and Exchange Commission pursuant to the Investment Advisers Act
of 1940 (file #501-15510).
(c) Not applicable.
Item 30. Location of Accounts and Records
(1) NBAI, One NationsBank Plaza, Charlotte, North Carolina 28255 (records
relating to its function as Investment Adviser).
(2) TradeStreet, One NationsBank Plaza, Charlotte, North Carolina 28255
(records relating to its function as sub-adviser).
(3) Marsico, 1200 17th Street, Suite 1300, Denver, Colorado 80202 (records
relating to its function as sub-adviser to Nations Marscio Focused
Equities Fund and Nations Marsico Growth & Income Fund).
15
<PAGE>
(4) Stephens Inc., 111 Center Street, Little Rock, Arkansas 72201 (records
relating to its function as Distributor).
(5) Stephens Inc., 111 Center Street, Little Rock, Arkansas 72201 (records
relating to its function as Administrator).
(6) The First Data Investors Services Group, Inc., One Exchange Place,
Boston, Massachusetts 02109 (records relating to its function as
Co-Administrator and Transfer Agent).
(7) NationsBank, 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.
16
<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
3rd day of September, 1998.
NATIONS FUND, INC.
By: *
----------------------------------
A. Max Walker
President and Chairman
of the Board of Directors
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 September 3, 1998
- -------------------------------------- of the Board of Directors
(A. Max Walker) (Principal Executive Officer)
* Treasurer September 3, 1998
- -------------------------------------- Vice President
(Richard H. Rose) (Principal Financial and
Accounting Officer)
* Director September 3, 1998
- --------------------------------------
(Edmund L. Benson, III)
* Director September 3, 1998
- --------------------------------------
(James Ermer)
* Director September 3, 1998
- --------------------------------------
(William H. Grigg)
* Director September 3, 1998
- --------------------------------------
(Thomas F. Keller)
* Director September 3, 1998
- --------------------------------------
(Carl E. Mundy, Jr.)
* Director September 3, 1998
- --------------------------------------
(Charles B. Walker)
* Director September 3, 1998
- --------------------------------------
(Thomas S. Word)
* Director September 3, 1998
- ----------------------------------------
(James B. Sommers)
/s/ Richard H. Blank, Jr.
-------------------------
Richard H. Blank, Jr.
*Attorney-in-Fact
</TABLE>
<PAGE>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
EX-99.B5(c) Sub-Advisory Agreement
EX-99.B10 Opinion and Consent of Counsel
EX-99.B11 Consent of Independent Accountants
EX-99.B18 Rule 18f-3 Plan
SUB-ADVISORY AGREEMENT
NATIONS FUND TRUST
THIS AGREEMENT is made as of this 31st day of December, 1997, by and between
NATIONSBANC ADVISORS, INC., a North Carolina corporation (the "Adviser"),
MARSICO CAPITAL MANAGEMENT, LLC, a Delaware limited liability corporation (the
"Sub-Adviser"), and NATIONS FUND TRUST, a Massachusetts business trust (the
"Trust"), on behalf of those portfolios of the Trust now or hereafter identified
on Schedule I hereto (each a "Fund" and collectively, the "Funds").
WHEREAS, the Trust is registered with the Securities and Exchange Commission
(the "Commission") as an open-end, management investment company under the
Investment Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, the Adviser is registered with the Commission under the Investment
Advisers Act of 1940, as amended (the "Advisers Act") as an investment adviser;
and
WHEREAS, the Sub-Adviser also is registered with the Commission under the
Advisers Act as an investment adviser; and
WHEREAS, the Adviser and the Trust have entered into an Investment Advisory
Agreement dated January 1, 1996, as amended on December 9, 1997 (the "Investment
Advisory Agreement"), pursuant to which the Adviser shall act as investment
adviser with respect to the Funds; and
WHEREAS, pursuant to such Investment Advisory Agreement, the Adviser, with
the approval of the Trust, wishes to retain the Sub-Adviser for purposes of
rendering advisory services to the Adviser and the Trust in connection with the
Funds upon the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
it is agreed between the parties hereto as follows:
1. APPOINTMENT OF SUB-ADVISER. The Adviser hereby appoints, and the Trust
hereby approves, the Sub-Adviser to render investment research and advisory
services to the Adviser and the Trust with respect to the Funds, under the
supervision of the Adviser and subject to the policies and control of the
Trust's Board of Trustees, and the Sub-Adviser hereby accepts such appointment,
all subject to the terms and conditions contained herein.
2. INVESTMENT SERVICES. Subject to the supervision of the Adviser and the
Trust's Board of Trustees, the Sub-Adviser will provide a continuous investment
program for each Fund, including investment research and management with respect
to all securities, investments, cash and cash equivalents in each Fund. The
Sub-Adviser will determine from time to time what securities and other
investments will be purchased, retained or sold by the Funds and will place the
daily orders for the purchase or sale of securities. The Sub-Adviser will
provide the services
-1-
<PAGE>
rendered by it under this Agreement in accordance with each Fund's investment
objective, policies and restrictions as stated in the Prospectus and votes of
the Trust's Board of Trustees. The Sub-Adviser shall provide such additional
services related to the continuous investment program, including recordkeeping
services, as may reasonably be requested from time to time by the Trust or the
Adviser.
3. CONTROL BY BOARD OF TRUSTEES. As is the case with respect to the Adviser
under the Investment Advisory Agreement, any investment activities undertaken by
the Sub-Adviser pursuant to this Agreement, as well as any other activities
undertaken by the Sub-Adviser with respect to the Trust, shall at all times be
subject to any directives of the Board of Trustees of the Trust.
4. OTHER COVENANTS. In carrying out its obligations under this Agreement,
the Sub-Adviser agrees that it:
(a) will comply with all applicable Rules and Regulations of the
Commission and will in addition conduct its activities under this Agreement in
accordance with other applicable law, including but not limited to the 1940 Act
and the Advisers Act;
(b) will use the same skill and care in providing such services as it
uses in providing services to fiduciary accounts for which it has investment
responsibilities;
(c) will not make loans to any person to purchase or carry Fund shares;
(d) will place orders pursuant to its investment determinations for the
Funds either directly with the issuer or with any broker or dealer. Subject to
the other provisions of this paragraph, in executing portfolio transactions and
selecting brokers or dealers, the Sub-Adviser will use its best efforts to seek
on behalf of each Fund the best overall terms available. In assessing the best
overall terms available for any transaction, the Sub-Adviser shall consider all
factors that it deems 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. In evaluating
the best overall terms available, and in selecting the broker/dealer to execute
a particular transaction, the Sub-Adviser may also consider the brokerage and
research services (as those terms are defined in Section 28(e) of the Securities
Exchange Act of 1934, as amended) provided to the Fund and/or other accounts
over which the Sub-Adviser or an affiliate of the Sub-Adviser exercises
investment discretion. The Sub-Adviser is authorized, subject to the prior
approval of the Trust's Board of Trustees, to pay to a broker or dealer who
provides such brokerage and research services a commission for executing a
portfolio transaction for any Fund which is in excess of the amount of
commission another broker or dealer would have charged for effecting that
transaction if, but only if, the Sub-Adviser determines in good faith that such
commission was reasonable in relation to the value of the brokerage and research
services provided by such broker or dealer-viewed in terms of that particular
transaction or in terms of the overall responsibilities of the Sub-Adviser to
the particular Fund and to the Trust. In addition, the Sub-Adviser is authorized
to take into account the sale of shares of the Trust in allocating purchase and
sale orders for portfolio securities to brokers or dealers (including brokers
and
-2-
<PAGE>
dealers that are affiliated with the Sub-Adviser or the Trust's principal
underwriter), provided that the Sub-Adviser believes that the quality of the
transaction and the commission are comparable to what they would be with other
qualified firms. In no instance, however, will portfolio securities be purchased
from or sold to the Sub-Adviser or the Trust's principal underwriter for the
Funds or an affiliated person of either acting as principal or broker, except as
permitted by the Commission or applicable law;
(e) will maintain a policy and practice of conducting its investment
advisory services hereunder independently of the commercial banking operations
of its affiliates, if any. In making investment recommendations for a Fund, its
investment advisory personnel will not inquire or take into consideration
whether the issuer (or related supporting institution) of securities proposed
for purchase or sale for the Fund's account are customers of the commercial
departments of its affiliates. In dealing with commercial customers, such
commercial departments will not inquire or take into consideration whether
securities of those customers are held by the Fund; and
(f) will treat confidentially and as proprietary information of the
Trust all records and other information relative to the Trust and prior, present
or potential shareholders, and will not 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, which
approval shall not be unreasonably withheld and may not be withheld and will be
deemed granted where the Sub-Adviser may be exposed to civil or criminal
contempt proceedings for failure to comply, when requested to divulge such
information by duly constituted authorities, or when so requested by the Trust).
5. SERVICES NOT EXCLUSIVE. The services furnished by the Sub-Adviser
hereunder are deemed not to be exclusive, and the Sub-Adviser shall be free to
furnish similar services to others so long as its services under this Agreement
are not impaired thereby. To the extent that the purchase or sale of securities
or other investments of the same issuer may be deemed by the Sub-Adviser to be
suitable for two or more accounts managed by the Sub-Adviser, the available
securities or investments may be allocated in a manner believed by the
Sub-Adviser to be equitable to each account. It is recognized that in some cases
this procedure may adversely affect the price paid or received by a Fund or the
size of the position obtainable for or disposed of by a Fund.
6. BOOKS AND RECORDS. In compliance with the requirements of Rule 31a-3
under the 1940 Act, the Sub-Adviser hereby agrees that all records which it
maintains for each Fund are the property of the Trust and further agrees to
surrender promptly to the Adviser or the Trust any of such records upon request.
The Sub-Adviser further agrees to preserve for the periods prescribed by Rule
31a-2 under the 1940 Act the records required to be maintained by Rule 31a-1
under the 1940 Act.
7. EXPENSES. During the term of this Agreement, the Sub-Adviser will pay all
expenses incurred by it in connection with its activities under this Agreement
other than the cost of securities, commodities and other investments (including
brokerage commissions and other transaction charges, if any) purchased or sold
for the Funds. In addition, the Sub-Adviser
-3-
<PAGE>
acknowledges that the Adviser has agreed, pursuant to the Investment Advisory
Agreement, that, if the aggregate expenses borne by any Fund in any fiscal year
exceed the applicable expense limitations imposed by the securities regulations
of any state in which its shares are registered or qualified for sale to the
public, the Adviser together with the Fund's administrator(s) shall reimburse
such Fund for such excess in proportion to the fees otherwise payable to them
for such year.
8. COMPENSATION. For the services provided to each Fund and the expenses
assumed pursuant to this Agreement, the Adviser will pay the Sub-Adviser and the
Sub-Adviser will accept as full compensation therefor a fee for that Fund
determined in accordance with Schedule I attached hereto. The Adviser and the
Sub-Adviser may, from time to time, agree to reduce, limit or waive the amounts
payable hereunder with respect to one or more Funds for such period or periods
they deem advisable. It is understood that the Adviser shall be responsible for
the Sub-Adviser's fee for its services hereunder, and the Sub-Adviser agrees
that it shall have no claim against the Trust or the Fund with respect to
compensation under this Agreement.
9. LIABILITY OF SUB-ADVISER. The Sub-Adviser shall not be liable for any
error of judgment or mistake of law or for any loss suffered by the Adviser or
the Trust in connection with the performance of this Agreement, except a loss
resulting from a breach of fiduciary duty with respect to the receipt of
compensation for services or a loss resulting from willful misfeasance, bad
faith or gross negligence on the part of the Sub-Adviser in the performance of
its duties or from reckless disregard by it of its obligations and duties under
this Agreement.
10. DURATION AND TERMINATION. This Agreement shall become effective with
respect to a Fund when approved by the Trustees of the Trust, and if so approved
shall continue in effect for a period of two years. This Agreement shall
thereafter continue from year to year, provided that the continuation of the
Agreement is specifically approved at least annually:
(a) (i) by the Trust's Board of Trustees or (ii) by 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) by the affirmative vote of a majority of the Trust's Trustees who
are not parties to this Agreement or "interested persons" (as defined in the
1940 Act) of a party to this Agreement (other than as Trustees of the Trust), by
votes cast in person at a meeting specifically called for such purpose.
Notwithstanding the foregoing, this Agreement may be terminated as to any Fund
at any time, without the payment of any penalty, by the Trust (by vote of the
Trust's Board of Trustees or by vote of a majority of the outstanding voting
securities of the particular Fund), or by the Sub-Adviser or Adviser on sixty
(60) days' written notice to the other parties to this Agreement. The notice
provided for herein may be waived by the party entitled to receipt thereof. This
Agreement will immediately terminate in the event of its assignment. As used in
this Agreement, the terms "majority of the outstanding voting securities,"
"interested persons" and "assignment" shall have the same meanings as such terms
have in the 1940 Act.
-4-
<PAGE>
11. AMENDMENT OF THIS AGREEMENT. No provision of this Agreement may be
changed, waived, discharged or terminated orally, but only by an instrument in
writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought. No amendment of this Agreement affecting a
Fund shall be effective until approved by vote of a majority of the outstanding
voting securities of such Fund. However, this shall not prevent the Sub-Adviser
from reducing, limiting or waiving its fee.
12. RELEASE. The names "Nations Fund Trust" and "Trustees of Nations Fund
Trust" 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 Secretary of The Commonwealth of Massachusetts and the
principal office of the Trust. The obligations of "Nations Fund Trust" 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 must look solely to the property belonging to such
class for the enforcement of any claims against the Trust.
13. USE OF THE NAME "MARSICO". Sub-Adviser hereby consents to and grants a
non-exclusive license for the use by the Trust to the phrase "Marsico Capital,"
the identifying word "Marsico" in the name of the Funds and any logo or symbol
authorized by the Sub-Adviser. Such consent is conditioned upon the Trust's
employment of Sub-Adviser or its affiliates as sub-investment adviser to the
Funds. Sub-Adviser may from time to time use the phrase "Marsico Capital" or the
identifying word "Marsico" or logos or symbols used by Sub-Adviser in other
connections and for other purposes, including without limitation in the names of
other investment companies, corporations or businesses that it may manage,
advise, sponsor or own or in which it may have a financial interest. Sub-Adviser
may require the Trust to cease using the phrase "Marsico Capital" or the
identifying word "Marsico" in the name of the Funds or any logo or symbol
authorized by Sub-Adviser if the Trust ceases to employ Sub-Adviser or an
affiliate thereof as sub-investment adviser.
14. MISCELLANEOUS. 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. 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 and shall be
governed by Delaware law.
15. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original.
-5-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their officers designated below as of the day and year first above
written.
NATIONS FUND TRUST
on behalf of the Funds
By: /s/ A. Max Walker
---------------------------------
A. Max Walker
President and Chairman of the
Board of Trustees
NATIONSBANC ADVISORS, INC.
By: /s/ Edward D. Bedard
-------------------------------
Edward D. Bedard
Senior Vice President
MARSICO CAPITAL MANAGEMENT, LLC
By: /s/ Barbara M. Japha
---------------------------------
Barbara M. Japha
President and General Counsel
-6-
<PAGE>
SCHEDULE I
-----------
The Adviser shall pay the Sub-Adviser as full compensation for services
provided and expenses assumed hereunder a sub-advisory fee for each Fund,
computed daily and payable monthly at the annual rates listed below as a
percentage of the average daily net assets of the Fund:
RATE OF
FUND COMPENSATION
---- -------------
Nations Marsico Focused Equities Fund 0.45%
Nations Marsico Growth & Income Fund 0.45%
-7-
[MORRISON & FOERSTER LLP LETTERHEAD]
September 3, 1998
Nations Fund, Inc.
111 Center Street
Little Rock, AR 72201
Re: Shares of Common Stock in the Funds of Nations Fund, Inc.
Ladies and Gentlemen:
We refer to Post-Effective Amendment No. 38 and Amendment No. 39 to the
Registration Statement on Form N-1A (SEC File Nos. 33-4038; 811-4614) (the
"Registration Statement") of Nations Fund, Inc. (the "Company") relating to the
registration of an indefinite number of Shares of Common Stock in the Company
(collectively, the "Shares").
We have been requested by the Company to furnish this opinion as Exhibit
10 to the Registration Statement.
We have examined such records, documents, instruments, and certificates of
public officials and of the Company, made such inquiries of the Company, and
examined such questions of law as we have deemed necessary for the purpose of
rendering the opinion set forth herein. We have also verified with the Company's
transfer agent the maximum number of shares issued by the Company during the
fiscal period ended March 31, 1998. 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 Company have been duly and
validly authorized by all appropriate action, and assuming delivery by sale or
in accord with the Funds' 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, Inc.
September 3, 1998
Page Two
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
heading "How The Funds Are Managed" in the Prospectuses, which are included as
part of the Registration Statement.
Very truly yours,
/S/ MORRISON & FOERSTER LLP
----------------------------------
MORRISON & FOERSTER LLP
EX-99B11(a)
[PRICEWATERHOUSECOOPERS LLP LETTERHEAD]
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectuses and
Statement of Additional Information constituting parts of this Post-Effective
Amendment No. 38 to the registration statement on Form N-1A (the "Registration
Statement") of our reports dated May 28, 1998, relating to the financial
statements and financial highlights appearing in the March 31, 1998 Annual
Reports to Shareholders of Nations Prime Fund, Nations Treasury Fund, Nations
Equity Income Fund, Nations Government Securities Fund, Nations International
Equity Fund, Nations International Growth Fund, Nations Small Company Growth
Fund and Nations U.S. Government Bond Fund, portfolios of Nations Fund, Inc.,
which are also incorporated by reference into the Registration Statement. We
also consent to the references to us under the headings "Financial Highlights"
and "How The Funds Are Managed - Other Service Providers" in the Prospectuses
and under the heading "Independent Accountant and Reports" in the Statement of
Additional Information.
/s/PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Boston, Massachusetts
August 31, 1998
NATIONS FUND TRUST
RULE 18F-3 MULTI-CLASS PLAN
I. INTRODUCTION.
Pursuant to Rule 18f-3 under the Investment Company Act of 1940, as
amended (the "1940 Act"), the following sets forth the method for allocating
fees and expenses among each class of shares in the investment portfolios of
Nations Fund Trust (the "Trust"). In addition, this Rule 18f-3 Multi-Class Plan
(the "Plan") sets forth the maximum initial sales loads, contingent deferred
sales charges, Rule 12b-1 distribution fees, shareholder servicing fees,
conversion features, exchange privileges and other shareholder services
applicable to a particular class of shares of the portfolios. The Plan also
identifies expenses that may be allocated to a particular class of shares to the
extent that they are actually incurred in a different amount by the class or
relate to a different kind or degree of services provided to the class.
The Trust is an open-end series investment company registered under the
1940 Act, the shares of which are registered on Form N-1A under the Securities
Act of 1933 (Registration Nos. 2-97817 and 811-4305). The Trust elects to offer
multiple classes of shares in its investment portfolios pursuant to the
provisions of Rule 18f-3 and this Plan.
The Trust currently consists of the following thirty-nine separate
investment portfolios: Nations Government Money Market Fund, Nations Tax Exempt
Fund, Nations Value Fund, Nations Strategic Equity Fund, Nations Capital Growth
Fund, Nations Emerging Growth Fund, Nations Equity Index Fund, Nations
Disciplined Equity Fund, Nations Balanced Assets Fund, Nations
Short-Intermediate Government Fund, Nations Short-Term Income Fund, Nations
Diversified Income Fund, Nations Strategic Fixed Income Fund, Nations Managed
Index Fund, Nations Managed SmallCap Index Fund, Nations Managed Value Index
Fund, Nations Managed SmallCap Value Index Fund, Nations Marsico Focused
Equities Fund, Nations Marsico Growth & 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 Kansas Intermediate Municipal Bond Fund,
Nations Maryland Intermediate Municipal Bond Fund, Nations Maryland Municipal
Bond Fund, Nations North Carolina Intermediate Municipal Bond Fund, Nations
North Carolina Municipal Bond Fund, Nations South Carolina Intermediate
Municipal Bond Fund, Nations South Carolina Municipal Bond Fund, Nations
Tennessee Intermediate Municipal Bond Fund, Nations Tennessee Municipal Bond
Fund, Nations Texas Intermediate Municipal Bond Fund, Nations Texas Municipal
Bond Fund, Nations Virginia Intermediate Municipal Bond Fund and Nations
Virginia Municipal Bond Fund.
The above-listed investment portfolios of the Trust (the "Funds") are
authorized to issue the following classes of shares representing interests in
the Funds:
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(i) Nations Government Money Market Fund and Nations Tax Exempt
Fund (the "Money Market Funds") -- Primary A Shares, Primary B
Shares, Investor A Shares, Investor B Shares, Investor C Shares
and Daily Shares;
(ii) Nations Equity Index Fund -- Primary A Shares, Primary B Shares
and Investor A Shares;
(iii) Nations Managed Index Fund, Nations Managed SmallCap Index
Fund, Nations Managed Value Index Fund and Nations Managed
SmallCap Value Index Fund -- Primary A Shares, Primary B
Shares, Investor A Shares and Investor C Shares;
(iv) Nations Value Fund, Nations Capital Growth Fund, Nations
Emerging Growth Fund, Nations Disciplined Equity Fund, Nations
Balanced Assets Fund, Nations Short-Intermediate Government
Fund, Nations Short-Term Income Fund, Nations Diversified
Income Fund, Nations Strategic Fixed Income Fund, Nations
Marsico Focused Equities Fund, Nations Marisco Growth & 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 Kansas Intermediate Municipal Bond Fund, Nations
Maryland Intermediate Municipal Bond Fund, Nations Maryland
Municipal Bond Fund, Nations North Carolina Intermediate
Municipal Bond Fund, Nations North Carolina Municipal Bond
Fund, Nations South Carolina Intermediate Municipal Bond Fund,
Nations South Carolina Municipal Bond Fund, Nations Tennessee
Intermediate Municipal Bond Fund, Nations Tennessee Municipal
Bond Fund, Nations Texas Intermediate Municipal Bond Fund,
Nations Texas Municipal Bond Fund, Nations Virginia
Intermediate Municipal Bond Fund and Nations Virginia Municipal
Bond Fund -- Primary A Shares, Primary B Shares, Investor A
Shares, Investor B Shares and Investor C Shares;
(v) Nations Strategic Equity Fund - Primary A Shares.
II. ALLOCATION OF EXPENSES.
A. Pursuant to Rule 18f-3 under the 1940 Act, the Trust shall allocate to each
class of shares in a Fund (i) any fees and expenses incurred by the Trust in
connection with the distribution of such class of shares under a distribution
plan adopted for such class of shares pursuant to Rule 12b-1, and (ii) any fees
and expenses incurred by the Trust under a shareholder
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servicing plan in connection with the provision of shareholder services to the
holders of such class of shares.
B. In addition, pursuant to Rule 18f-3, the Trust may allocate the
following fees and expenses to a particular class of shares in a single
Fund:
(i) transfer agent fees identified by the transfer agent as being
attributable to such class of shares;
(ii) printing and postage expenses related to preparing and
distributing materials such as shareholder reports,
prospectuses, reports, and proxies to current shareholders of
such class of shares or to regulatory agencies with respect to
such class of shares;
(iii) blue sky registration or qualification fees incurred by such
class of shares;
(iv) Securities and Exchange Commission registration fees incurred
by such class of shares;
(v) the expense of administrative personnel and services
(including, but not limited to, those of a portfolio
accountant, custodian or dividend paying agent charged with
calculating net asset values or determining or paying
dividends) as required to support the shareholders of such
class of shares;
(vi) litigation or other legal expenses relating solely to such
class of shares;
(vii) fees of the Trust's Trustees incurred as result of issues
relating to such class of shares;
(viii) independent accountants' fees relating solely to such class of
shares; and
(ix) any other fees and expenses, not including advisory or
custodial fees or other expenses related to the management of
the Fund's assets, relating to (as defined below) such class of
shares.
C. For all purposes under this Plan, fees and expenses "relating to" a
class of shares are those fees and expenses that are actually incurred in a
different amount by the class or that relate to a different kind or degree
of services provided to the class. The proper officers of the Trust shall
have the authority to determine whether any or all of the fees and expenses
described in Section B of this Part II should be allocated to a particular
class of shares. The Board of Trustees will monitor any such allocations to
ensure that they comply with the requirements of the Plan.
D. Income, realized and unrealized capital gains and losses, and any
expenses of Nations Government Money Market Fund, Nations Tax Exempt Fund,
Nations Short-
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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 Kansas Intermediate Municipal Bond Fund, Nations Maryland
Intermediate Municipal Bond Fund, Nations Maryland Municipal Bond Fund,
Nations Missouri Intermediate Municipal Bond Fund, Nations North Carolina
Intermediate Municipal Bond Fund, Nations North Carolina Municipal Bond
Fund, Nations South Carolina Intermediate Municipal Bond Fund, Nations
South Carolina Municipal Bond Fund, Nations Tennessee Intermediate
Municipal Bond Fund, Nations Tennessee Municipal Bond Fund, Nations Texas
Intermediate Municipal Bond Fund, Nations Texas Municipal Bond Fund,
Nations Virginia Intermediate Municipal Bond Fund and Nations Virginia
Municipal Bond Fund not allocated to a particular class of any such Fund
pursuant to this Plan shall be allocated to each class of the Fund on the
basis of the relative net assets (settled shares), as defined in Rule
18f-3, of that class in relation to the net assets of the Fund.
Income, realized and unrealized capital gains and losses, and any
expenses of Nations Value Fund, Nations Strategic Equity Fund, Nations
Capital Growth Fund, Nations Emerging Growth Fund, Nations Equity Index
Fund, Nations Disciplined Equity Fund, Nations Balanced Assets Fund,
Nations Managed Index Fund, Nations Managed SmallCap Index Fund, Nations
Managed Value Index Fund and Nations Managed SmallCap Value Index Fund,
Nations Marsico Focused Equities Fund and Nations Marsico Growth & Income
Fund not allocated to a particular class of any such Fund pursuant to this
Plan shall be allocated to each class of the Fund on the basis of the net
asset value of that class in relation to the net asset value of the Fund.
E. In certain cases, NationsBanc Advisors, Inc., TradeStreet
Investment Associates, Inc., NationsBank, N.A., Stephens Inc., First Data
Investor Services Group, Inc., or another service provider for a Fund may
waive or reimburse all or a portion of the expenses of a specific class of
shares of the Fund. The Board of Trustees will monitor any such waivers or
reimbursements to ensure that they do not provide a means for
cross-subsidization between classes.
III. CLASS ARRANGEMENTS.
The following summarizes the maximum front-end sales charges, contingent
deferred sales charges, Rule 12b-1 distribution fees, shareholder servicing
fees, conversion features, exchange privileges and other shareholder services
applicable to each class of shares of the Trust. Additional details regarding
such fees and services are set forth in the relevant Funds' current
Prospectus(es) and Statement of Additional Information.
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A. PRIMARY A SHARES -- ALL FUNDS.
1. Maximum Initial Sales Load: None
2. Contingent Deferred Sales Charge: None
3. Maximum Rule 12b-1 Distribution Fees: None
4. Maximum Shareholder Servicing Fees: None
5. Conversion Features: None
6. Exchange Privileges:
(a) Primary A Shares of a Fund may be exchanged for Primary A
Shares of any other fund of the Nations Funds Family.
(b) From time to time, the Board of Trustees of the Trust may
modify, or ratify modifications to, the exchange privileges of
Primary A Shares of a Fund without amending this Plan,
provided that such exchange privileges, as modified, are
described in the then-current prospectus for such shares of
such Fund.
7. Other Shareholder Services: None
B. PRIMARY B SHARES -- ALL FUNDS.
1. Maximum Initial Sales Load: None
2. Contingent Deferred Sales Charge: None
3. Maximum Rule 12b-1 Distribution Fees: None
4. Maximum Shareholder Servicing/Administration Fees:
(a) Pursuant to a Shareholder Servicing Plan, the Primary B Shares
of Nations Government Money Market Fund and Nations Tax Exempt
Fund each may pay shareholder servicing fees of up to 0.25% of
the average daily net assets of such shares.
(b) Pursuant to a Shareholder Administration Plan, the Primary B
Shares of Nations Value Fund, Nations Strategic Equity Fund,
Nations Capital Growth Fund, Nations Emerging Growth Fund,
Nations Equity Index Fund, Nations Disciplined Equity Fund,
Nations Balanced Assets Fund, Nations Short-Term Income Fund,
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Nations Short-Intermediate Government Fund, Nations Strategic
Fixed Income Fund, Nations Diversified Income Fund, Nations
Managed Index Fund, Nations Managed SmallCap Index Fund,
Nations Managed Value Index Fund, Nations Managed SmallCap
Value Index Fund, Nations Marsico Focused Equities Fund and
Nations Marsico Growth & Income Fund each may pay shareholder
administration fees of up to 0.60% of the average daily net
assets of such shares, provided that in no event may the
portion of such fee that constitutes a "service fee," as that
term is defined in Rule 2830 of the Conduct Rules of the
National Association of Securities Dealers, Inc., exceed 0.25%
of the average daily net asset value of such Primary B Shares
of a Fund.
5. Conversion Features: Primary B Shares of a Fund shall have
such conversion features, if any, as are determined by or
ratified by the Board of Trustees of the Trust and described
in the then-current prospectus for such shares of such Fund.
6. Exchange Privileges:
(a) Primary B Shares of a Fund may be exchanged for Primary
B Shares of any other fund of Nations Funds Family.
(b) From time to time, the Board of Trustees of the Trust
may modify, or ratify modifications to, the exchange
privileges of Primary B Shares of a Fund without
amending this Plan, provided that such exchange
privileges, as modified, are described in the
then-current prospectus for such shares of such Fund.
7. Other Shareholder Services: None
C. INVESTOR A SHARES -- MONEY MARKET FUNDS ONLY.
1. Maximum Initial Sales Load: None
2. Contingent Deferred Sales Charge: None
3. Maximum Rule 12b-1 Distribution Fees: Pursuant to a Distribution
Plan adopted under Rule 12b-1, Investor A Shares of the Money
Market Funds may pay distribution fees of up to 0.10% of the
average daily net assets of such shares.
4. Maximum Shareholder Servicing Fees: Pursuant to a Shareholder
Servicing Plan, Investor A Shares of the Money Market Funds may
pay shareholder servicing fees of up to 0.25% of the average daily
net assets of such shares.
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5. Conversion Features: Investor A Shares of a Fund shall have such
conversion features, if any, as are determined by or ratified by
the Board of Trustees of the Trust and described in the
then-current prospectus for such shares of such Fund.
6. Exchange Privileges:
(a) Investor A Shares of the Money Market Funds may be
exchanged for Investor A Shares of any other fund of the
Nations Funds Family (other than an index fund).
(b) Investor A Shares of the Money Market Funds acquired
through a Nations Funds Individual Retirement Account
("IRA") may be exchanged for Investor B Shares of any
non-money market fund offered by the Nations Funds
Family (collectively, the "Nations Funds Non-Money
Market Funds").
(c) From time to time, the Board of Trustees of the Trust
may modify, or ratify modifications to, the exchange
privileges of Investor A Shares of a Fund without
amending this Plan, provided that such exchange
privileges, as modified, are described in the
then-current prospectus for such shares of such Fund.
7. Other Shareholder Services. The Trust offers a Systematic
Investment Plan and Automatic Withdrawal Plan to holders of
Investor A Shares of the Funds. In addition, the Trust offers
check-writing privileges to holders of Investor A Shares of the
Money Market Funds.
D. INVESTOR A SHARES -- NON-MONEY MARKET FUNDS ONLY.
1. Maximum Initial Sales Load:
(a) Nations Value Fund, Nations Strategic Equity Fund,
Nations Capital Growth Fund, Nations Emerging Growth
Fund, Nations Equity Index Fund, Nations Disciplined
Equity Fund, Nations Balanced Assets Fund, Nations
Managed Index Fund, Nations Managed SmallCap Index Fund,
Nations Managed Value Index Fund, Nations Managed
SmallCap Value Index Fund, Nations Marsico Focused
Equities Fund, Nations Marsico Growth & Income Fund:
maximum of 5.75%.
(b) Nations Diversified Income Fund, Nations Municipal
Income Fund, Nations Florida Municipal Bond Fund,
Nations Georgia Municipal Bond Fund, Nations Maryland
Municipal Bond Fund, Nations North Carolina Municipal
Bond Fund, Nations South Carolina Municipal Bond Fund,
Nations Tennessee Municipal
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Bond Fund, Nations Texas Municipal Bond Fund and Nations
Virginia Municipal Bond Fund: maximum of 4.75%.
(c) Nations Short-Intermediate Government Fund, Nations
Intermediate Municipal Bond Fund, Nations Florida
Intermediate Municipal Bond Fund, Nations Georgia
Intermediate Municipal Bond Fund, Nations Kansas
Intermediate Municipal Bond Fund, Nations Maryland
Intermediate Municipal Bond Fund, Nations North Carolina
Intermediate Municipal Bond Fund, Nations South Carolina
Intermediate Municipal Bond Fund, Nations Tennessee
Intermediate Municipal Bond Fund, Nations Texas
Intermediate Municipal Bond Fund, Nations Virginia
Intermediate Municipal Bond Fund, Nations Strategic
Fixed Income Fund, Nations Short-Term Income Fund and
Nations Short-Term Municipal Income Fund: maximum of
3.25%.
2. Contingent Deferred Sales Charge (as a percentage of the lower
of the original purchase price or redemption proceeds): 1.00%
of purchases over $1 million if redeemed within one year of
purchase, declining to .50% in the second year after purchase
and eliminated thereafter.
3. Redemption Fee: 1.00% of the current net asset value of shares
purchased by a Substantial Investor (as such term is defined in
then-current prospectuses) between July 31, 1997 and November
15, 1998, and redeemed within 18 months of purchase (excluding
the Index Funds).
4. Maximum Rule 12b-1 Distribution/Shareholder Servicing Fees:
(a) Pursuant to a Shareholder Servicing and Distribution
Plan adopted under Rule 12b-1, Investor A Shares of
Nations Equity Index Fund and of each Non-Money Market
Fund (except Nations Short-Term Income Fund and Nations
Short-Term Municipal Income Fund) may pay a combined
distribution and shareholder servicing fee of up to
0.25% of the average daily net assets of such shares.
(b) Pursuant to a Shareholder Servicing Plan, Investor A
Shares of Nations Short-Term Income Fund and Nations
Short-Term Municipal Income Fund may pay shareholder
servicing fees of up to 0.25% of the average daily net
assets of such shares.
5. Conversion Features: Investor A Shares of a Fund shall have
such conversion features, if any, as are determined by or
ratified by the Board of Trustees of the Trust and described
in the then-current prospectus for such shares of such Fund.
6. Exchange Privileges:
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(a) Investor A Shares of the Non-Money Market Funds may be
exchanged for Investor A Shares of any other Nations
Funds Non-Money Market Fund (other than an index fund)
or any Nations Funds Money Market Fund.
(b) Investor A Shares of Nations Equity Index Fund, Nations
Managed Index Fund, Nations Managed SmallCap Index Fund,
Nations Managed Value Index Fund and Nations Managed
SmallCap Value Fund (the "Managed Index Funds") may be
exchanged for Investor A Shares of any other Managed
Index Fund.
(c) Investor A Shares of Nations Short-Term Income Fund and
Nations Short-Term Municipal Income Fund acquired in
exchange from Investor B Shares of another Nations Funds
Non-Money Market Fund may be re-exchanged for Investor B
Shares of any other Nations Funds Non-Money Market Fund,
Investor C Shares of any Nations Funds Money Market Fund
or Investor A Shares of the Nations Short-Term Income
Fund and Nations Short-Term Municipal Income Fund.
(d) From time to time, the Board of Trustees of the Trust
may modify, or ratify modifications to, the exchange
privileges of Investor A Shares of a Fund without
amending this Plan, provided that such exchange
privileges, as modified, are described in the
then-current prospectus for such shares of such Fund.
7. Other Shareholder Services. The Trust offers a Systematic
Investment Plan and Automatic Withdrawal Plan to holders of
Investor A Shares of the Funds.
E. INVESTOR B SHARES -- MONEY MARKET FUNDS ONLY.
1. Maximum Initial Sales Load: None
2. Contingent Deferred Sales Charge: None
3. Maximum Rule 12b-1 Distribution Fees: Pursuant to a Distribution
Plan adopted under Rule 12b-1, the Investor B Shares of the Money
Market Funds may pay distribution fees of up to 0.10% of the average
daily net assets of such shares.
4. Maximum Shareholder Servicing Fees: Pursuant to a Shareholder
Servicing Plan, the Investor B Shares of the Money Market Funds may
pay shareholder servicing fees of up to 0.25% of the average daily
net assets of such shares.
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<PAGE>
5. Conversion Features: Investor B Shares of a Fund shall have such
conversion features, if any, as are determined by or ratified by the
Board of Trustees of the Trust and described in the then-current
prospectus for such shares of such Fund.
6. Exchange Privileges:
(a) Investor B Shares of a Money Market Fund may be
exchanged for Investor B Shares of any other Nations
Funds Money Market Fund.
(b) From time to time, the Board of Trustees of the Trust
may modify, or ratify modifications to, the exchange
privileges of Investor B Shares of a Fund without
amending this Plan, provided that such exchange
privileges, as modified, are described in the
then-current prospectus for such shares of such Fund.
7. Other Shareholder Services: The Trust offers check-writing services,
a Systematic Investment Plan and an Automatic Withdrawal Plan to
holders of Investor B Shares of the Money Market Funds.
F. INVESTOR B SHARES -- NON-MONEY MARKET FUNDS ONLY.
1. Maximum Initial Sales Load: None
2. Contingent Deferred Sales Charge (as a percentage of the lower of
the original purchase price or redemption proceeds):
(a) Nations Value Fund, Nations Capital Growth Fund, Nations
Emerging Growth Fund, Nations Equity Index Fund, Nations
Disciplined Equity Fund, Nations Balanced Assets Fund,
Nations Short-Term Income Fund, Nations Diversified
Income Fund, Nations Strategic Fixed Income Fund,
Nations Managed Index Fund, Nations Managed SmallCap
Index Fund, Nations Managed Value Index Fund, Nations
Managed SmallCap Value Index Fund, Nations Marsico
Focused Equities Fund, Nations Marsico Growth & Income
Fund, Nations Municipal Income Fund, Nations Short-Term
Municipal Income Fund, Nations Florida Municipal Bond
Fund, Nations Georgia Municipal Bond Fund, Nations
Maryland Municipal Bond Fund, Nations North Carolina
Municipal Bond Fund, Nations South Carolina Municipal
Bond Fund, Nations Tennessee Municipal Bond Fund,
Nations Texas Municipal Bond Fund, Nations Virginia
Municipal Bond Fund: 5.00% if redeemed within one year
of purchase, declining to 1.00% in the sixth year after
purchase and eliminated thereafter.
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(b) Nations Strategic Fixed Income Fund, Nations
Short-Intermediate Government Fund, Nations Intermediate
Municipal Bond Fund, Nations Florida Intermediate
Municipal Bond Fund, Nations Georgia Intermediate
Municipal Bond Fund, Nations Kansas Intermediate
Municipal Bond Fund, Nations Maryland Intermediate
Municipal Bond Fund, Nations Missouri Intermediate
Municipal Bond Fund, Nations North Carolina Intermediate
Municipal Bond Fund, Nations South Carolina Intermediate
Municipal Bond Fund, Nations Tennessee Intermediate
Municipal Bond Fund, Nations Texas Intermediate
Municipal Bond Fund, Nations Virginia Intermediate
Municipal Bond Fund, Nations Short-Term Income Fund and
Nations Short-Term Municipal Income Fund: 3.00% if
redeemed within one year of purchase, declining to 1.00%
in the fourth year after purchase and eliminated
thereafter
3. Maximum Rule 12b-1 Distribution Fees: Pursuant to a Distribution
Plan adopted under Rule 12b-1, the Investor B Shares of each
Non-Money Market Fund may pay distribution fees of up to 0.75% of
the average daily net assets of such shares.
4. Maximum Shareholder Servicing Fees: Pursuant to a Shareholder
Servicing Plan, the Investor B Shares of each Non-Money Market Fund
may pay shareholder servicing fees of up to 0.25% of the average
daily net assets of such shares.
5. Conversion Features: Investor B Shares of a Fund shall have such
conversion features, if any, as are determined by or ratified by
the Board of Trustees of the Trust and described in the
then-current prospectus for such shares of such Fund.
6. Exchange Privileges:
(a) Investor B Shares of a Non-Money Market Fund (except
Nations Short-Term Income Fund and Nations Short-Term
Municipal Income Fund) may be exchanged for Investor B
Shares of any other Nations Funds Non-Money Market Fund
(except Nations Short-Term Income Fund and Nations
Short-Term Municipal Income Fund), Investor A Shares of
the Nations Short-Term Income Fund or Nations Short-Term
Municipal Income Fund or Investor C Shares of any
Nations Funds Money Market Fund.
(b) Investor B Shares of Nations Short-Term Income Fund and
Nations Short-Term Municipal Income Fund may be
exchanged only for Investor B Shares of the other Fund.
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(c) From time to time, the Board of Trustees of the Trust
may modify, or ratify modifications to, the exchange
privileges of Investor B Shares of a Fund without
amending this Plan, provided that such exchange
privileges, as modified, are described in the
then-current prospectus for such shares of such Fund.
7. Other Shareholder Services: The Trust offers a Systematic
Investment Plan and an Automatic Withdrawal Plan to holders of
Investor B Shares of the Non-Money Market Funds.
G. INVESTOR C SHARES -- ALL FUNDS.
1. Maximum Initial Sales Load: None
2. Contingent Deferred Sales Charge: None
3. Maximum Rule 12b-1 Distribution Fees:
(a) Money Market Funds: None
(b) Non-Money Market Funds: Pursuant to a Distribution Plan
adopted under Rule 12b-1, Investor C Shares of the Non-Money
Market Funds may pay distribution fees of up to 0.75% of the
average daily net assets of such shares.
4. Maximum Shareholder Servicing Fees: Pursuant to a Shareholder
Servicing Plan, the Investor C Shares of each Fund may pay
shareholder servicing fees of up to 0.25% of the average daily net
assets of such shares.
5. Conversion Features: Investor C Shares of a Fund shall have such
conversion features, if any, as are determined by or ratified by the
Board of Trustees of the Trust and described in the then-current
prospectus for such shares of such Fund.
6. Exchange Privileges:
(a) Money Market Funds:
(i) Investor C Shares of a Money Market Fund that are
purchased directly through a servicing agent may
not be exchanged for shares of any other fund
offered by the Nations Funds Family.
(ii) Investor C Shares of a Money Market Fund acquired
through a permissible exchange of Investor B
Shares of a Nations Funds Non-Money Market Fund or
Investor A Shares of Nations Short-Term Income
Fund or Nations
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Short-Term Municipal Income Fund may be
re-exchanged for Investor C Shares of any other
Nations Funds Money Market Fund, Investor B Shares
of a Nations Funds Non-Money Market Fund (except
Nations Short-Term Income Fund or Nations
Short-Term Municipal Income Fund) or Investor A
Shares of Nations Short-Term Income Fund or
Nations Short-Term Municipal Income Fund.
(b) Non-Money Market Funds:
(i) Investor C Shares of a Non-Money Market Fund may
be exchanged for Investor C Shares of any other
Nations Funds Non-Money Market Fund. However,
Investor C Shares of a Non-Money Market Fund
(other than Nations Short-Term Income Fund and
Nations Short-Term Municipal Income Fund) may not
be exchanged for Investor C Shares of Nations
Short-Term Income Fund or Nations Short-Term
Municipal Income Fund until one year after
purchase.
(ii) In addition, Investor C Shares of a Non-Money
Market Fund (except Nations Short-Term Income Fund
and Nations Short-Term Municipal Income Fund may
be exchanged for Daily Shares of any Nations Funds
Money Market Fund.
(c) From time to time, the Board of Trustees of the Trust may
modify, or ratify modifications to, the exchange privileges of
Investor C Shares of a Fund without amending this Plan,
provided that such exchange privileges, as modified, are
described in the then-current prospectus for such shares of
such Fund.
7. Other Shareholder Services. The Trust offers a Systematic
Investment Plan and Automatic Withdrawal Plan to holders of
Investor C Shares of the Non-Money Market Funds.
H. DAILY SHARES -- MONEY MARKET FUNDS ONLY.
1. Maximum Initial Sales Load: None
2. Contingent Deferred Sales Charge: None
3. Maximum Rule 12b-1 Distribution Fees: Pursuant to a Distribution
Plan adopted under Rule 12b-1, Daily Shares of the Money Market
Funds may pay distribution fees of up to 0.45% of the average daily
net assets of such shares.
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<PAGE>
4. Maximum Shareholder Servicing Fees: Pursuant to a Shareholder
Servicing Plan, the Daily Shares of the Money Market Funds may pay
shareholder servicing fees of up to 0.25% of the average daily net
assets of such shares.
5. Conversion Features: Daily Shares of a Fund shall have such
conversion features, if any, as are determined by or ratified by the
Board of Trustees of the Trust and described in the then-current
prospectus for such shares of such Fund.
6. Exchange Privileges:
(a) Daily Shares of a Money Market Fund may be exchanged for
Daily Shares of any other Nations Funds Money Market
Fund or Investor C Shares of any Nations Funds Non-Money
Market Fund. However, Daily Shares of a Money Market
Fund may not be exchanged for Investor C Shares of
Nations Short-Term Income Fund or Nations Short-Term
Municipal Income Fund until one year after purchase of
the shares exchanged to acquire the subject Daily
Shares.
(b) From time to time, the Board of Trustees of the Trust
may modify, or ratify modifications to, the exchange
privileges of Daily Shares of a Fund without amending
this Plan, provided that such exchange privileges, as
modified, are described in the then-current prospectus
for such shares of such Fund.
7. Other Shareholder Services: The Trust offers an Automatic Withdrawal
Plan to holders of Daily Shares of the Money Market Funds.
IV. BOARD REVIEW.
The Board of Trustees of the Trust shall review this Plan as frequently as
it deems necessary. Prior to any material amendment(s) to this Plan with respect
to a Fund's shares, the Trust's Board of Trustees, including a majority of the
Trustees who are not interested persons of the Trust, shall find that the Plan,
as proposed to be amended (including any proposed amendments to the method of
allocating class and/or fund expenses), is in the best interests of each class
of shares of the Fund individually and the Fund as a whole. In considering
whether to approve any proposed amendment(s) to the Plan, the Trustees of the
Trust shall request and evaluate such information as they consider reasonably
necessary to evaluate the proposed amendment(s) to the Plan.
Adopted: Effective April 3, 1995
Last Amended Effective September 4, 1998
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