As filed with the Securities and Exchange Commission
on July 15, 1998
Registration No. 2-97817; 811-4305
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
Post-Effective Amendment No. 54 [X]
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
Amendment No. 56 [X]
(Check appropriate box or boxes)
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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)
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Registrant's Telephone Number, including Area Code: (800) 321-7854
Richard H. Blank, Jr.
c/o Stephens Inc.
111 Center Street
Little Rock, Arkansas 72201
(Name and Address of Agent for Service)
With copies to:
Robert M. Kurucza, Esq. Carl Frischling, Esq.
Marco E. Adelfio, Esq. Kramer, Levin, Naftalis
Morrison & Foerster LLP & Frankel
2000 Pennsylvania Ave., N.W. 919 3rd Avenue
Suite 5500 New York, New York 10022
Washington, D.C. 20006
It is proposed that this filing will become effective (check appropriate box):
[ ] Immediately upon filing pursuant [ ] on (date), pursuant
to Rule 485(b), or to Rule 485(b), or
[ ] 60 days after filing pursuant [ ] on (date) pursuant
to Rule 485(a), or to Rule 485(a).
[X] 75 days after filing pursuant to [ ] on (date) pursuant to
paragraph 485(a)(2) paragraph (a)(2) of Rule 485
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
<PAGE>
EXPLANATORY NOTE
This Post-Effective Amendment No. 54 to the Registration Statement of
Nations Fund Trust (the "Trust") is being filed in order to add a new Fund to
the Trust: Nations Strategic Equity Fund.
<PAGE>
NATIONS FUND TRUST
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
<S> <C>
Part A
Item No. Prospectus
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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.
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10. Cover Page.................................................. Cover Page
11. Table of Contents........................................... Table of Contents
12. General Information and
History..................................................... Introduction
<PAGE>
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
<PAGE>
Part C
Item No. Other Information
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Information required to be included in Part C is
set forth under the appropriate Item, so
numbered, in Part C of this Document
</TABLE>
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
PRELIMINARY PROSPECTUS SUBJECT
TO COMPLETION DATED AUGUST , 1998
Prospectus
Primary A Shares
October , 1998
This Prospectus describes Nations Strategic Equity Fund (the "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
one class of shares of the Fund -- Primary A Shares.
This Prospectus sets forth concisely the information about the Fund that a
prospective purchaser of Primary A Shares should consider before investing.
Investors should read this Prospectus and retain it for future reference.
Additional information about Nations Fund Trust is contained in a separate
Statement of Additional Information (the "SAI"), that has been filed with the
Securities and Exchange Commission (the "SEC") and is available upon request
without charge by writing or calling Nations Funds at its address or telephone
number shown below. The SAI for Nations Fund Trust, dated October , 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 the Fund. NationsBank, N.A.
("NationsBank") is the investment sub-adviser to the Fund. As used herein the
term "Adviser" shall mean NBAI and/or NationsBank as the context may require,
see "How The Fund Is Managed."
SHARES OF NATIONS FUNDS ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF, OR ISSUED,
ENDORSED OR GUARANTEED BY, 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 Strategic Equity Fund
For Fund information call:
1-800-765-2668
Nations Funds
c/o Stephens Inc.
One NationsBank Plaza
33rd Floor
Charlotte, NC 28255
[GRAPHIC OMITTED]
<PAGE>
Table Of Contents
About The Fund
Prospectus Summary 3
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Expenses Summary 4
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Objective 5
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How The Objective Is Pursued 5
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How Performance Is Shown 7
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How The Fund Is Managed 8
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Organization And History 10
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How To Buy Shares 11
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About Your Investment
How To Redeem Shares 12
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How To Exchange Shares 13
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How The Fund Values Its Shares 13
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How Dividends And Distributions Are Made;
Tax Information 14
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Appendix A -- Portfolio Securities 15
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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 Fund's SAI
incorporated herein by reference, in connection with the offering made by this
Prospectus and, if given or made, such information or representations must not
be relied upon as having been authorized by Nations 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
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About The Fund
Prospectus Summary
o Type of Company: Open-end management investment company.
o Investment Objective and Policies:
o Nations Strategic Equity Fund's investment objective is to seek long-term,
after-tax returns by investing in a diversified portfolio of common
stocks.
o Investment Adviser: NationsBanc Advisors, Inc. serves as the investment
adviser to the Fund. NBAI provides investment management services to more
than 60 investment company portfolios in the Nations Funds Family.
NationsBank, N.A. provides investment sub-advisory services to the Fund.
For more information about the investment adviser and investment
sub-adviser to the Fund, see "How The Fund Is Managed."
o Dividends and Distributions: The Fund declares and pays dividends from net
investment income monthly. The 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 the Fund, there is no assurance that they will
be able to do so. Investments in the Fund are not insured against loss of
principal. Investments by the Fund in common stocks and other equity
securities are subject to stock market risk, which is the risk that the
value of the stocks the Fund holds may decline over short or even extended
periods. 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. Certain of the Fund's 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 Fund invests in foreign securities which present
additional risks associated with international investing, including, among
others, heightened economic and political risk. For a discussion of these
and other factors, see "How Objectives Are Pursued -- Special Risk
Considerations Relevant to an Investment in the Fund" and "Appendix A."
o Minimum Purchase: $250,000 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 Fund. The
following tables summarize shareholder transaction and operating expenses for
Primary A Shares of the Fund. The Examples show the cumulative expenses
attributable to a hypothetical $1,000 investment in the Fund over specified
periods.
NATIONS FUNDS PRIMARY A SHARES
<TABLE>
<CAPTION>
<S> <C>
Nations
Strategic
Shareholder Transaction Expenses Equity Fund
Sales Load Imposed on Purchases None
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Deferred Sales Charge None
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Annual Fund Operating Expenses
(as a percentage of average net assets)
Management Fees .75%
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Other Expenses .27%
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Total Operating Expenses 1.02%
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</TABLE>
Examples: You would pay the following expenses on a $1,000 investment in
Primary A Shares of the Fund, assuming (1) a 5% annual return and (2)
redemption at the end of each time period.
<TABLE>
<CAPTION>
Nations
Strategic
Equity Fund
<S> <C>
1 Year $10
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3 Years $32
</TABLE>
The purpose of the foregoing tables is to assist an investor in understanding
the various shareholder transaction and operating expenses that an investor in
Primary A Shares will bear either directly or indirectly. The "Other Expenses"
figure contained in the above table is based on estimates. For more complete
descriptions of the Fund's operating expenses, see "How The Fund Is Managed."
THE FOREGOING SHOULD NOT BE CONSIDERED TO BE AN ACTUAL REPRESENTATION OF PAST
OR FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES AND RATES OF RETURN MAY BE
GREATER OR LESS THAN THOSE SHOWN.
4
<PAGE>
Objective
Nations Strategic Equity Fund: Nations Strategic Equity Fund's investment
objective is to seek long-term, after-tax returns by investing in a diversified
portfolio of common stocks.
Although the Adviser seeks to achieve the investment objective of the Fund,
there is no assurance that it will be able to do so. No single Fund should be
considered, by itself, to provide a complete investment program for any
investor. The net asset value of the shares of the Fund will fluctuate based on
market conditions. Investments in the Fund are not insured against loss of
principal.
How The Objective Is Pursued
Nations Strategic Equity Fund: The investment philosophy of the Fund is based
on the belief that companies with superior long-term growth characteristics
selling at reasonable prices will outperform the market over time. Therefore,
the Fund will generally seek to invest in a diversified portfolio of common
stocks believed to be of high quality and have superior investment prospects.
The Adviser believes that the best long-term investments come from medium- to
large-sized companies that have reasonable growth potential. In selecting
common stocks, the Adviser first limits the investment universe to companies
that have at least $1 billion in market capitalization. Next, through
fundamental research, the Adviser assesses the characteristics of various
industries and companies using a consistent and disciplined long-term
framework. In particular, the Adviser examines industry growth prospects and
the relative competitive position of companies within each industry group. This
analysis identifies companies with favorable long-term prospects and those
companies best positioned to capitalize on competitive advantages such as
proprietary products, superior technology or distribution, and favorable cost
structures. The Adviser believes that this approach is a disciplined way to
identify companies with favorable prospects, competitive advantages and
sensible business strategies.
After determining which companies to own, the Adviser next determines when to
invest. To make this decision, the Adviser relies on a number of quantitative
tools, such as evaluating a company's earnings risk, giving considerable weight
to its stock valuation, and investing in good companies when investments can be
made at a reasonable price.
Under normal market conditions, the Fund invests at least 65% of its total
assets in the common stocks of between 50-75 issuers, diversified across most
major economic sectors. 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 through
investments in American Depository Receipts ("ADRs").
The Fund also may invest in various money market instruments and repurchase
agreements. The Fund may invest without limitation in such instruments pending
investment, to meet anticipated redemption requests, or as a temporary
defensive measure if market conditions warrant.
The Fund employs various techniques to minimize distributions to shareholders
of capital gains and investment income. These techniques may include:
o Investing primarily in lower yielding equity securities in order to
minimize distributions of investment income;
5
<PAGE>
o Managing portfolio turnover by focusing on long-term investments. It is
expected that, under normal market conditions, the Fund's annual turnover
will not exceed 25%;
o Minimizing distributions of short-term capital gains, which are taxed at
higher rates than long-term capital gains;
o Once a decision to sell a particular security has been made, selling those
share lots which will have the lowest tax burden to shareholders; and
o Selling securities in order to realize capital losses when prudent. Capital
losses can be used to offset capital gains, thus reducing capital gain
distributions.
In addition, the Fund may employ hedging techniques instead of selling
portfolio holdings in order to minimize the realization of capital gains.
Under normal market conditions, the Fund's expected distribution of taxable
income will be similar to that of the securities in the Standard & Poor's 500
Composite Stock Price Index ("S&P 500 Index")1. In the absence of unusual
redemption activity, distributed capital gains are expected to be less than 10%
of the Fund's total assets annually. See "Appendix A" for additional
information concerning the investment practices of the Fund.
Portfolio Turnover: Generally, the Fund will purchase portfolio securities for
capital appreciation or investment income, or both, and not for short-term
trading profits. While it is not possible to predict exact annual portfolio
turnover rates, it is expected that under normal market conditions, the annual
turnover rate for the Fund will not exceed 25%. If the Fund's annual portfolio
turnover rate exceeds 100%, it may result in higher brokerage costs and
possible tax consequences for the Fund and its shareholders.
Special Risk Considerations Relevant to an Investment in the Fund: Investments
by the Fund in common stocks and other equity securities are subject to stock
market risk. The value of the stocks that the Fund holds, like the broader stock
market, may decline over short or even extended periods. 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 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.
Certain of the Fund's investments may constitute derivative securities, which
are securities whose value is derived, at least in part, from an underlying
index or reference rate. There are certain types of derivative securities that
can, under 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 Fund's investment objective and do not unduly increase the
Fund's exposure to market or other risks. For additional risk information
regarding the Fund's investments in particular instruments, see "Appendix A".
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 Fund's operations. The Fund's principal service providers have
advised the Fund 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 Fund 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, the Fund's return
could be adversely affected.
Investment Limitations: The Fund is subject to a number of investment
limitations. The following investment limitations are matters of fundamental
policy and may not be changed without the affirmative vote of the holders of a
majority of the Fund's outstanding shares. Other investment
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1 "Standard & Poor's" and "Standard & Poor's 500" are trademarks of The
McGraw-Hill Companies, Inc.
6
<PAGE>
limitations that cannot be changed without such a vote of shareholders are
described in the SAI.
The Fund may not:
1. Purchase any securities which would cause 25% or more of the value of the
Fund's total assets at the time of such purchase to be invested in the
securities of one or more issuers conducting their principal activities in the
same industry. (For purposes of this limitation, U.S. Government securities and
tax-exempt securities issued by state or municipal governments and their
political subdivisions are not considered members of any industry.)
2. Make loans, except that the Fund may purchase and hold debt instruments
(whether such instruments are part of a public offering or privately placed),
may enter into repurchase agreements and may lend portfolio securities in
accordance with its investment policies.
3. Purchase securities of any one issuer (other than securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities) if,
immediately after such purchase, more than 5% of the value of the Fund's total
assets would be invested in the securities of such issuer, except that up to
25% of the value of the Fund's total assets may be invested without regard to
these limitations and with respect to 75% of the Fund's assets, the Fund will
not hold more than 10% of the voting securities of any issuer.
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
the Fund's portfolio securities does not mean that the limitation has been
violated.
The investment objective and policies of the Fund, unless otherwise specified,
are non-fundamental and may be changed without shareholder approval. If the
investment objective or policies of the Fund change, shareholders should
consider whether the Fund remains an appropriate investment in light of their
current position and needs.
How Performance Is Shown
From time to time, the Fund may advertise the "total return" and "yield" on a
class of shares. Total return and yield figures are based on historical data
and are not intended to indicate future performance. The "total return" of a
class of shares of the Fund may be calculated on an average annual total return
basis or an aggregate total return basis. Average annual total return refers to
the average annual compounded rates of return over one-, five-, and ten-year
periods or the life of the Fund (as stated in the 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
dividends 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 also may be presented for other periods.
"Yield" is calculated by dividing the annualized net investment income per
share during a recent 30-day (or one month) period of a class of shares of the
Fund by the maximum public offering price per share on the last day of that
period.
Investment performance, which will vary, is based on many factors, including
market conditions, the composition of the Fund's portfolio and the Fund's
operating expenses. Investment performance also often reflects the risks
associated with the Fund's investment objective and policies. These factors
should be considered when comparing the Fund's investment results to those of
other mutual funds and other investment vehicles. Since yields fluctuate, yield
data cannot necessarily be used to compare an investment in the Fund with bank
deposits, savings accounts and similar investment alternatives which often
provide an agreed-upon or guaranteed fixed yield for a stated period of time.
7
<PAGE>
Any fees charged by an Institution (as defined below) directly to its
customers' accounts in connection with investments in the Fund will not be
included in calculations of total return or yield. The Fund's annual report
contains additional performance information and is available upon request
without charge from the Fund's distributor, an investor's Institution or by
calling Nations Funds at the toll-free number indicated on the cover of this
Prospectus.
How The Fund Is 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, the Fund is advised by NBAI which is responsible for the
overall management and supervision of the investment management of the Fund.
The 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
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 Fund that the merger will not reduce the
level or quality of advisory and other services provided to the Fund.
Investment Adviser: NationsBanc Advisors, Inc. serves as investment adviser to
the Fund. NBAI is a wholly owned subsidiary of NationsBank, which in turn is a
wholly owned banking subsidiary of NationsBank Corporation, a bank holding
company organized as a North Carolina corporation. NBAI has its principal
offices at One NationsBank Plaza, Charlotte, North Carolina 28255.
NationsBank, through its division, NationsBank Private Investments, with
principal offices at 100 North Broadway, St. Louis, Missouri 63102, serves as
investment sub-adviser to the Fund pursuant to an investment sub-advisory
agreement.
Subject to the general supervision of Nations Fund Trust's Board of Trustees,
and in accordance with the Fund's investment policies, the Adviser formulates
guidelines and lists of approved investments for the Fund, makes decisions with
respect to and places orders for the Fund's purchases and sales of portfolio
securities and maintains records relating to such purchases and sales. The
Adviser is authorized to allocate purchase and sale orders for portfolio
securities to certain financial institutions, including, in the case of agency
transactions, financial institutions which are affiliated with the Adviser, or
which have sold shares in the Fund, if the Adviser believes that the quality of
the 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, the Fund may invest
in securities of companies with which NationsBank has a lending relationship.
For the services provided and expenses assumed pursuant to the investment
advisory agreement, NBAI is entitled to receive advisory fees, computed daily
and paid monthly, at the annual rate of .75% of the Fund's average daily net
assets.
For services provided pursuant to the investment sub-advisory agreement, NBAI
will pay NationsBank sub-advisory fees, computed daily and paid monthly, at the
annual rate of .25% of the Fund's average daily net assets.
From time to time, NBAI (and/or NationsBank) may waive or reimburse (either
voluntarily or pursuant to applicable state limitations) advisory fees and/or
expenses payable by the Fund.
8
<PAGE>
Michael E. Kenneally, CFA, is Portfolio Manager of the Fund. He has been the
President and Chief Investment Officer of NationsBank Private Investments since
1997, and is responsible for equity and fixed-income investment management,
research, trading, and investment strategy. Prior to assuming his current
duties, Mr. Kenneally was a managing director in charge of the fundamental and
quantitative research efforts of Boatmen's Trust Company ("Boatmen's"), as well
as small-capitalization, passive, and international equity investment. He holds
both a bachelor's degree in economics and an MBA in finance from the University
of Missouri. He joined Boatmen's in 1983, working as a research analyst before
joining the institutional portfolio management staff in 1986. Mr. Kenneally
managed fixed-income portfolios until 1989 when he assumed a senior equity
portfolio manager position. In 1992, he became Senior Vice President in charge
of quantitative applications, with responsibility for investment product
development, quantitative research, and derivative strategies. A Chartered
Financial Analyst, he is a member of the Association for Investment Management
and Research (AIMR), the International Society of Financial Analysts, the
Chicago Quantitative Alliance, and the New York Society of Quantitative
Analysts. In addition, Mr. Kenneally is Chairman of River City Capital
Management and also serves on the Board of Trustees of the St. Louis Society of
Financial Analysts.
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 thereof, could prevent
such entities from continuing to perform, in whole or in part, such services.
If any such entity were prohibited from performing any of such services, it is
expected that new agreements would be proposed or entered into with another
entity or entities qualified to perform such services.
Other Service Providers: Stephens Inc. ("Stephens"), with principal offices at
111 Center Street, Little Rock, Arkansas 72201, serves as the administrator of
Nations Funds pursuant to an administration agreement. Stephens provides
various administrative and corporate secretarial services to the Fund,
including providing general oversight of other service providers, office space,
utilities and various legal and administrative services in connection with the
satisfaction of various regulatory requirements applicable to the Fund.
First Data Investor Services Group, Inc. ("First Data"), 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 Fund including performing the calculations necessary to determine net
asset value per share and dividends, preparing tax returns and financial
statements and maintaining the portfolio records and certain of the general
accounting records for the Fund. For the services rendered pursuant to the
administration and co-administration agreements, Stephens and First Data are
entitled to receive a combined fee at the annual rate of up to .10% of the
Fund's average daily net assets.
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 Fund's administrative operations. For providing such services, NBAI is
entitled to receive a monthly fee from Stephens based on an annual rate of .01%
of the Fund's average daily net assets.
Shares of the Fund are sold on a continuous basis by Stephens, as the Fund's
sponsor and distributor. Stephens is a registered broker/dealer. Nations Funds
has entered into a distribution agreement with Stephens which provides that
Stephens has the exclusive right to distribute shares of the Fund.
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Stephens may pay service fees or commissions to Institutions which assist
customers in purchasing Primary A Shares of the Fund.
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 has established a non-cash compensation program, pursuant
to which broker/ dealers or financial institutions that sell shares of the
Fund may earn additional compensation in the form of trips to sales seminars or
vacation destinations, tickets to sporting events, theater or other
entertainment, opportunities to participate in golf or other outings and gift
certificates for meals or merchandise. This non-cash compensation program may
be amended or terminated at any time by Stephens.
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 Fund 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 Fund's
Primary A Shares. NationsBank serves as the sub-transfer agent for the Fund's
Primary A Shares and is entitled to receive an annual fee of $251,000 from
First Data for performing such services.
PricewaterhouseCoopers LLP serves as independent accountant to Nations Funds.
Their address is 160 Federal Street, Boston, Massachusetts 02110.
Expenses: The accrued expenses of the Fund are deducted from the Fund's total
accrued income before dividends are declared. These expenses include, but are
not limited to: fees paid to the Adviser, 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. Any general expenses of Nations Fund Trust that are not
readily identifiable as belonging to a particular investment portfolio are
allocated among all portfolios in the proportion that the assets of a portfolio
bears to the assets of Nations Fund Trust or in such other manner as the Board
of Trustees deems appropriate.
Organization And History
The Fund is a member of the Nations 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
Fund currently offers one class of shares -- Primary A Shares. To obtain
additional information regarding other Funds which may be available to you,
contact your Institution (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-
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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 October , 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
There is a minimum initial investment of $250,000 for each record holder; there
is no minimum subsequent investment.
Primary A Shares of the Fund may be sold to financial institutions (including
NationsBank and its affiliated and correspondent banks) and fee-based planners
acting on behalf of their customers, employee benefit plans, charitable
foundations, endowments and to other funds in the Nations Funds Family.
The Fund reserves the right, in its discretion, to make Primary A Shares
available to other categories of investors, including those who become eligible
in connection with a merger or reorganization.
Primary A Shares are sold at net asset value without the imposition of a sales
charge. Financial institutions ("Institutions") acting on behalf of their
customers ("Customers") may establish certain procedures for processing
Customers' purchase orders and may charge their Customers for services provided
to them in connection with their investments.
Purchases may be effected on days on which the New York Stock Exchange (the
"Exchange") is open for business (a "Business Day").
Nations Funds and Stephens reserve the right to reject any purchase order. The
issuance of Primary A Shares is recorded on the books of the Fund and share
certificates are not issued. It is the responsibility of Institutions, when
applicable, to record beneficial ownership of Primary A Shares and to reflect
such ownership in the account statements provided to their Customers.
Effective Time of Purchases: Purchase orders for Primary A Shares in the Fund
which are received by Stephens, the Transfer Agent or their respective agents
before the close of regular trading on the Exchange (currently 4:00 p.m.,
Eastern time)
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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 or investor placing the order. Payment for orders
which are not received or accepted will be returned after prompt inquiry to the
sending Institution or investor. Primary A Shares are purchased at 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 A
Shares by their Customers, and for delivering required funds, on a timely
basis. It is Stephens' responsibility to transmit orders it receives to Nations
Funds. 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 A Shares of the Fund 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 or investor within three Business Days after receipt of
the order.
Institutions are responsible for transmitting 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. It is the
responsibility of Stephens to transmit orders it receives to Nations Funds. No
charge for wiring redemption payments is imposed by Nations Funds, although
Institutions may charge their Customer accounts for these or other services
provided in connection with the redemption of Primary A Shares and may
establish additional procedures. Information concerning any charges or
procedures is available from the Institutions. Redemption orders are effected
at the net asset value per share next determined after acceptance of the order
by Stephens, the Transfer Agent or their respective agents.
Nations Funds may redeem a shareholder's Primary A Shares if the balance in
such shareholder's account with the Fund drops below $500 as a result of
redemptions, and the shareholder does not increase the balance to at least $500
on 60 days' written notice. 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.
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How To Exchange Shares
The exchange feature enables a shareholder of Primary A Shares of the Fund to
acquire Primary A Shares of another Nations Fund when that shareholder believes
that a shift between funds is an appropriate investment decision. An exchange
of Primary A Shares for Primary A Shares of another fund is made on the basis
of the next calculated net asset value per share of each fund after the
exchange order is received.
Primary A Shares may be exchanged by directing a request directly to the
Institution, if any, through which the original Primary A Shares were purchased
or in other cases Stephens, 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 Fund 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.
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.
How The Fund Values Its Shares
The net asset value of a share is calculated by dividing the total value of its
assets, less liabilities, by the number of shares in the class outstanding.
Shares of the Fund are valued as of the close of regular trading on the
Exchange (currently 4:00 p.m., Eastern time) on each Business Day. In the event
that the Exchange closes early, shares of the Fund 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 are valued at their fair value following procedures approved by the
Board of Trustees.
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How Dividends And Distributions Are Made; Tax Information
Dividends and Distributions: Dividends from net investment income are declared
and paid monthly by the Fund. The 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 Fund 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 A Shares of the Fund are eligible to receive dividends when declared
provided, however, that the purchase order for such shares is received at least
one day prior to the dividend declaration and such shares continue to be
eligible for dividends through and including the day before the redemption
order is executed.
The net asset value of Primary A Shares in the Fund 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 dividend or distribution would nevertheless be taxable.
Dividends and distributions are paid in cash within five Business Days of the
end of the the month to which the dividend relates. Dividends are paid in the
form of additional Primary A Shares of the Fund unless the Customer or investor
has elected prior to the date of distribution to receive payment in cash. Such
election, or any revocation thereof, must be made in writing to the Fund's
Transfer Agent and will become effective with respect to dividends paid after
its receipt. Dividends and distributions payable to a shareholder are paid in
cash within five Business Days after a shareholder's complete redemption of his
or her Primary A Shares in the Fund.
Tax Information: In general, the Fund, as a "regulated investment company" for
Federal income tax purposes will not be taxed on its net investment income and
capital gains to the extent such earnings are distributed annually to its
shareholders. The Fund intends to regularly distribute all of its net
investment income and capital gains.
Distributions to shareholders from the Fund's net investment income and net
short-term capital gain (for this purpose, the excess of net short-term capital
gains over net long-term capital losses), if any, generally are designated as
dividend distributions and taxable to the Fund's shareholders as ordinary
income. Distributions from the Fund's net capital gain (for this purpose, the
excess of net long-term capital gains over net short-term capital losses) are
designated as capital gain distributions and taxable to the Fund's shareholders
as long-term capital gain. Noncorporate shareholders may be taxed on such
distributions at preferential rates. Distributions attributable to the Fund's
dividend income which are paid to corporate shareholders may be excludible
pursuant to the "dividends-received deduction" allowable to corporations.
In general, distributions will be taxable when paid, whether you take such
distributions in cash or have them automatically reinvested in additional Fund
shares. However, distributions declared in October, November and December of
one year and distributed in January of the following year will be taxable as if
they were paid to you in December of the first year. Following the end of each
year, you will be notified as to the Federal income tax status of your
distributions from the Fund during the year.
Your redemptions (including redemptions in-kind) and exchanges of Fund shares
ordinarily will result in a taxable capital gain or loss, depending on the
amount you receive for your shares (or are deemed to receive in the case of
exchanges) and the cost of your shares.
Foreign shareholders may be subject to different tax treatment, including
withholding taxes imposed on distributions at up to a 30% rate. In certain
circumstances, U.S. residents may be subject to backup withholding at a 31%
rate.
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The foregoing discussion regarding taxes is based on tax laws 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; you
should consult your own tax advisor with respect to your specific tax situation
as well as with respect to foreign, state and local taxes. Further Federal tax
considerations are discussed in the SAI.
Appendix A -- Portfolio Securities
The following are summary descriptions of certain types of instruments in which
the Fund may invest. The "How The Objective Is Pursued" section of this
Prospectus identifies the Fund's permissible investments, and the SAI contains
more information concerning such investments.
Bank Instruments: Bank instruments consist mainly of certificates of deposit,
time deposits and bankers' acceptances. The Fund will limit its investments in
bank obligations so they do not exceed 25% of the Fund's total assets at the
time of purchase.
U.S. dollar-denominated obligations issued by foreign branches of domestic
banks ("Eurodollar" obligations) and domestic branches of foreign banks
("Yankee dollar" obligations), and other foreign obligations involve special
investment risks, including the possibility that liquidity could be impaired
because of future political and economic developments, the obligations may be
less marketable than comparable domestic obligations of domestic issuers, a
foreign jurisdiction might impose withholding taxes on interest income payable
on such obligations, deposits may be seized or nationalized, foreign
governmental restrictions such as exchange controls may be adopted which might
adversely affect the payment of principal of and interest on such obligations,
the selection of foreign obligations may be more difficult because there may be
less publicly available information concerning foreign issuers, there may be
difficulties in enforcing a judgment against a foreign issuer or the
accounting, auditing and financial reporting standards, practices and
requirements applicable to foreign issuers may differ from those applicable to
domestic issuers. In addition, foreign banks are not subject to examination by
U.S. Government agencies or instrumentalities.
Borrowings: When the Fund borrows money, the net asset value of a share may be
subject to greater fluctuation until the borrowing is paid off. The Fund may
borrow money from banks for temporary purposes in amounts of up to one-third of
its total assets, provided that borrowings in excess of 5% of the value of the
Fund's total assets must be repaid prior to the purchase of portfolio
securities. Pursuant to line of credit arrangements with BONY, the Fund may
borrow primarily for temporary or emergency purposes, including the meeting of
redemption requests that otherwise might require the untimely disposition of
securities. Under the requirements of the 1940 Act, the Fund is required to
maintain an asset coverage (including the proceeds of the borrowings) of at
least 300% of all borrowings.
Commercial Instruments: Commercial instruments consist of short-term U.S.
dollar-denominated obligations issued by domestic corporations or foreign
corporations and foreign commercial banks. Investments by the Fund in
commercial paper will consist of issues rated in a manner consistent with the
Fund's investment policies and objectives. In addition, the Fund may acquire
unrated commercial paper and corporate bonds that are determined by the
Adviser, at the time of purchase, to be of comparable quality to rated
instruments that may be acquired by the Fund. Commercial instruments include
variable-rate master demand notes, which are unsecured instruments that permit
the indebtedness thereunder to vary and provide for periodic adjustments in the
interest rate, and variable- and floating-rate instruments.
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Convertible Securities, Preferred Stock, and Warrants: To the extent provided
under "How The Objective Is Pursued," the Fund may invest in debt securities
convertible into or exchangeable for equity securities, preferred stocks or
warrants. Preferred stocks are securities that represent an ownership interest
in a corporation providing the owner with claims on a company's earnings and
assets before common stock owners, but after bond or other debt security
owners. Warrants are options to buy a stated number of shares of common stock
at a specified price any time during the life of the warrants.
Foreign Securities: Foreign securities include equity obligations of foreign
corporations and banks. Such investments may subject the 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. 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 the Fund may be
subject to greater fluctuation in price than securities of domestic companies.
The Fund may invest up to 20% of its total assets in sponsored or unsponsored
ADRs. ADRs are receipts issued in registered form by a U.S. bank or trust
company evidencing ownership of underlying securities issued by a foreign
issuer. Unsponsored ADRs are organized independently and without the
cooperation of the issuer of the underlying securities. As a result,
information concerning the issuer may not be as current as for sponsored ADRs
and the prices of unsponsored ADRs may be more volatile than if such
instruments were sponsored by the issuer. ADRs may be listed on a national
securities exchange or may be traded in the over-the-counter market. ADRs
traded in the over-the-counter market which do not have an active or
substantial secondary market will be considered illiquid and therefore will be
subject to the Fund's limitation with respect to such securities. ADR prices
are denominated in U.S. dollars although the underlying securities are
denominated in a foreign currency. Investments in ADRs involve risks similar to
those accompanying direct investments in foreign securities.
Futures, Options and Other Derivative Instruments: To the extent provided under
"How The Objective Is Pursued," the Fund may attempt to reduce the overall
level of investment risk of particular securities and attempt to protect
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.
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The use of futures, options, forward contracts and swaps exposes the Fund to
additional investment risks and transaction costs. If the Adviser incorrectly
analyzes market conditions or does not employ the appropriate strategy with
respect to these instruments, the Fund could be left in a less favorable
position. Additional risks inherent in the use of futures, options, forward
contracts and swaps include: imperfect correlation between the price of
futures, options and forward contracts and movements in the prices of the
securities or currencies being hedged; the possible absence of a liquid
secondary market for any particular instrument at any time; and the possible
need to defer closing out certain hedged positions to avoid adverse tax
consequences. The Fund may not purchase put and call options which are traded
on a national stock exchange in an amount exceeding 5% of its net assets.
Further information on the use of futures, options and other derivative
instruments, and the associated risks, is contained in the SAI.
Illiquid Securities: Certain securities may be sold only pursuant to certain
legal restrictions, and may be difficult to sell. The Fund will not hold more
than 15% of the value of its net assets in securities that are illiquid.
Repurchase agreements, time deposits and guaranteed investment contracts that
do not provide for payment to the Fund within seven days after notice and
illiquid restricted securities are subject to the limitation on illiquid
securities.
If otherwise consistent with its investment objective and policies, the Fund
may purchase securities that are not registered under the Securities Act of
1933, as amended (the "1933 Act") but which can be sold to "qualified
institutional buyers" in accordance with Rule 144A under the 1933 Act, or which
were issued under Section 4(2) of the 1933 Act. Any such security will not be
considered illiquid so long as it is determined by the Fund's Board of Trustees
or the Adviser, acting under guidelines approved and monitored by the Fund's
Board, after considering trading activity, availability of reliable price
information and other relevant information, that an adequate trading market
exists for that security. To the extent that, for a period of time, qualified
institutional or other buyers cease purchasing such restricted securities
pursuant to Rule 144A or otherwise, the level of illiquidity of the Fund
holding such securities may increase during such period.
Money Market Instruments: The term "money market instruments" refers to
instruments with remaining maturities of one year or less. Money market
instruments may include, among other instruments, certain U.S. Treasury
obligations, U.S. Government obligations, bank instruments, commercial
instruments, repurchase agreements and municipal securities. Such instruments
are described in this Appendix A.
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 the 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 the Fund, the 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 the Fund to dispose of the instrument if
the issuer defaulted on its payment obligation or
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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
the 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," the Fund will require that an issuer's obligation to pay the
principal of the note may be backed by an unconditional bank letter or line of
credit, guarantee, or commitment to lend.
Municipal securities may include participations in privately arranged loans to
municipal borrowers, some of which may be referred to as "municipal leases,"
and units of participation in trusts holding pools of tax-exempt leases. Such
loans in most cases are not backed by the taxing authority of the issuers and
may have limited marketability or may be marketable only by virtue of a
provision requiring repayment following demand by the lender. Such loans made
by the 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 the 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 the
Fund's limitation on the purchase of illiquid securities.
In addition, the Fund 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 the Fund's
option specified municipal securities at a specified price. The 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 Fund does not presently intend to do so on a regular basis, the
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 the Fund's total assets are invested in municipal
securities that are payable from the revenues of similar projects, the 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: The Fund may invest in securities issued by other
investment companies to the extent that such investments are consistent with
the Fund's investment objective and policies and permissible under the 1940
Act. As a shareholder of another investment company, the Fund would bear, along
with other shareholders, its pro rata portion of the other investment company's
expenses, including advisory fees. These expenses would be in addition to the
advisory and other expenses that the Fund bears directly in connection with its
own operations. Pursuant to an exemptive order issued by the SEC, Nations
Funds' non-money market funds may purchase shares of Nations Funds' money
market funds.
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 fail-
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ing to qualify for tax-free pass-through of income under the Code.
Repurchase Agreements: A repurchase agreement involves the purchase of a
security by the Fund and a simultaneous agreement (generally with a bank or
broker/dealer) to repurchase that security from the Fund at a specified price
and date or upon demand. This technique offers a method of earning income on
uninvested cash. A risk associated with repurchase agreements is the failure of
the seller to repurchase the securities as agreed, which may cause the Fund to
suffer a loss if the market value of such securities declines before they can
be liquidated on the open market. Repurchase agreements with a maturity of more
than seven days are considered illiquid securities and are subject to the limit
stated above. The Fund may enter into joint repurchase agreements jointly with
other investment portfolios of Nations Funds.
Securities Lending: To increase return on portfolio securities, the Fund may
lend its portfolio securities to broker/dealers and other institutional
investors pursuant to agreements requiring that the loans be continuously
secured by collateral equal at all times in value to at least the market value
of the securities loaned. There 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. The aggregate of all outstanding loans of the 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 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 for the
purpose of hedging against changes in values of the Fund's securities or
changes in the prevailing levels of interest rates or currency exchange rates.
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 the Fund's total return due to the use
of hedging; possible lack of liquidity due to daily limits on price
fluctuation; imperfect correlation between the contracts and the securities or
currencies being hedged; and potential losses in excess of the amount invested
in the futures contracts themselves.
Trading on foreign commodity exchanges presents additional risks. Unlike
trading on domestic commodity exchanges, trading on foreign commodity exchanges
is not regulated by the CFTC and may be subject to greater risks than trading
on domestic exchanges. For example, some foreign exchanges are principal
markets for which no common clearing facility exists and a trader may look only
to the broker for performance of the contract. In addition, unless the Fund
hedges against fluctuations in the exchange rate between the U.S. dollar and
the currencies in which trading is done on foreign exchanges, any profits that
the Fund might realize could be eliminated by adverse changes in the exchange
rate, or the Fund could incur losses as a result of those changes.
U.S. Government Obligations: U.S. Government obligations consist of marketable
securities and instruments issued or guaranteed by the U.S. Government or any
of its agencies, authorities or instrumentalities. Direct obligations are
issued by the U.S. Treasury and include all U.S. Treasury instruments. U.S.
Treasury obligations differ only in their interest rates, maturities and time
of issuance. Obligations of U.S. Government agencies, authorities and
instrumentalities are issued by government-sponsored agencies and enterprises
acting under authority of Congress. Although obligations of federal agencies,
authorities and instrumentalities are not debts of the U.S. Treasury, some are
backed by the full faith and credit of the U.S. Treasury, such as direct
pass-through certificates of the Government National Mortgage Association; some
are supported by the right of the issuer to borrow from the U.S. Government,
such as obligations of Federal Home Loan Banks, and some are backed only by the
credit of the issuer itself, such as obligations of the Federal National
Mortgage Association. No assurance can be given that the U.S. Government would
provide financial support to government-sponsored instrumentalities if it is
not obligated to do so by law.
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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 contact terms.
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<PAGE>
NATIONS FUND TRUST
Statement of Additional Information
Nations Strategic Equity Fund
Primary A Shares
October 1, 1998
This Statement of Additional Information ("SAI") provides supplementary
information pertaining to the classes of shares representing interests in the
above-listed investment portfolio of Nations Fund Trust (the "Fund"). This SAI
is not a prospectus, and should be read only in conjunction with the current
prospectuses for the Fund related to the class or series of shares in which one
is interested, dated October 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 by
writing Nations Fund, c/o Stephens Inc., One NationsBank Plaza, 33rd Floor,
Charlotte, North Carolina 28255, or by calling Nations Fund at 1-800-626-2275.
<PAGE>
TABLE OF CONTENTS
Page
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INTRODUCTION.................................................................1
FUND TRANSACTIONS AND BROKERAGE..............................................1
ADDITIONAL INFORMATION ON FUND INVESTMENTS...................................5
American Depository Receipts..............................................5
Commercial Instruments....................................................5
Dollar Roll Transactions..................................................6
Foreign Currency Transactions.............................................7
Futures, Options and Other Derivative Instruments.........................7
Guaranteed Investment Contracts..........................................12
Illiquid Securities......................................................12
Interest Rate Transactions...............................................13
Lending Securities.......................................................13
Other Investment Companies...............................................14
Real Estate Investment Trusts............................................14
Repurchase Agreements....................................................14
Reverse Repurchase Agreements............................................15
Variable- and Floating- Rate Instruments.................................15
Variable- and Floating-Rate Government Securities........................16
Additional Investment Limitations........................................16
NET ASSET VALUE.............................................................18
Exchange Privilege.......................................................19
DESCRIPTION OF SHARES.......................................................19
Dividends and Distributions..............................................21
ADDITIONAL INFORMATION CONCERNING TAXES.....................................21
Foreign Taxes............................................................23
Capital Gain Distributions...............................................23
Other Distributions......................................................24
Disposition of Fund Shares...............................................24
Federal Income Tax Rates.................................................24
Corporate Shareholders...................................................25
Foreign Shareholders.....................................................25
Backup Withholding.......................................................25
Tax-Deferred Plans.......................................................26
Other Matters............................................................26
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Page
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TRUSTEES AND OFFICERS.......................................................26
Nations Funds Retirement Plan............................................31
Nations Funds Deferred Compensation Plan.................................32
Compensation Table ......................................................33
Shareholder and Trustee Liability........................................35
INVESTMENT ADVISORY, ADMINISTRATION, CUSTODY, TRANSFER AGENCY,
SHAREHOLDER SERVICING AND DISTRIBUTION SERVICES AGREEMENTS..................35
Investment Adviser.......................................................35
Administrator and Co-Administrator.......................................38
Custodian and Transfer Agent.............................................39
DISTRIBUTOR.................................................................39
INDEPENDENT ACCOUNTANTS AND REPORTS.........................................40
COUNSEL.....................................................................40
ADDITIONAL INFORMATION ON PERFORMANCE.......................................40
Yield Calculations.......................................................40
Total Return Calculations................................................42
MISCELLANEOUS...............................................................44
Certain Record Holders...................................................44
SCHEDULE A.................................................................A-1
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INTRODUCTION
Nations Fund Trust (the "Trust") was organized on May 6, 1985 under the
name "MarketMaster Trust," and in March 1992 changed its name to "Nations Fund,"
and in September 1992 changed its name to "Nations Fund Trust." NationsBanc
Advisors, Inc. ("NBAI") is the investment adviser to the Fund. NationsBank, N.A.
("NationsBank") is the investment sub-adviser. As used herein the "Adviser"
shall mean NBAI and/or NationsBank as the context may require.
Nations Fund Trust currently consists of thirty-seven different investment
portfolios. This SAI pertains to the Primary A Shares of Nations Strategic
Equity Fund (the "Fund"). Much of the information contained in this SAI expands
upon subjects discussed in the Prospectuses. No investment in Primary A Shares
should be made without first reading the related Prospectuses.
FUND TRANSACTIONS AND BROKERAGE
Subject to the general supervision of the Board of Trustees, the Adviser
is responsible for, makes decisions with respect to, and places orders for all
purchases and sales of portfolio securities for the Fund.
Transactions on U.S. stock exchanges involve the payment of negotiated
brokerage commissions. On exchanges on which commissions are negotiated, the
cost of transactions may vary among different brokers. Transactions on foreign
stock exchanges involve payment of brokerage commissions which are generally
fixed.
Transactions in both foreign and domestic over-the-counter markets are
generally principal transactions with dealers, and the costs of such
transactions involve dealer spreads rather than brokerage commissions. With
respect to over-the-counter transactions, the Trust, where possible, will deal
directly with dealers who make a market in the securities involved except in
those circumstances in which better prices and execution are available
elsewhere.
Securities purchased and sold by the Fund are generally traded in the
over-the-counter market on a net basis (i.e., without commission) through
dealers, or otherwise involve transactions directly with the issuer of an
instrument. The cost of securities purchased from underwriters includes an
underwriting commission or concession, and the prices at which securities are
purchased from and sold to dealers include a dealer's mark-up or mark-down.
The Fund may participate, if and when practicable, in bidding for the
purchase of portfolio securities directly from an issuer in order to take
advantage of the lower purchase price available to members of a bidding group.
The Fund will engage in this practice, however, only when the Adviser, in its
sole discretion, believes such practice to be otherwise in the Fund's interests.
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In executing portfolio transactions and selecting brokers or dealers, the
Adviser will seek to obtain the best overall terms available for the Fund. In
assessing the best overall terms available for any transaction, the Adviser
shall consider factors deemed relevant, including the breadth of the market in
the security, the price of the security, the financial condition and execution
capability of the broker or dealer, and the reasonableness of the commission, if
any, both for the specific transaction and on a continuing basis. The Adviser
may cause the Fund to pay a broker/dealer which furnishes brokerage and research
services a higher commission than that which might be charged by another
broker/dealer for effecting the same transaction, provided that the Adviser
determines in good faith that such commission is reasonable in relation to the
value of the brokerage and research services provided by such broker/dealer,
viewed in terms of either the particular transaction or the overall
responsibilities of the Adviser. Such brokerage and research services might
consist of reports and statistics relating to specific companies or industries,
general summaries of groups of stocks or bonds and their comparative earnings
and yields, or broad overviews of the stock, bond, and government securities
markets and the economy.
Supplementary research information so received is in addition to, and not
in lieu of, services required to be performed by the Adviser and does not reduce
the advisory fees payable by the Fund. The Board of Trustees will periodically
review the commissions paid by the Fund to consider whether the commissions paid
over representative periods of time appear to be reasonable in relation to the
benefits inuring to the Fund. It is possible that certain of the supplementary
research or other services received will primarily benefit one or more other
investment companies or other accounts for which investment discretion is
exercised. Conversely, the Fund may be the primary beneficiary of the research
or services received as a result of portfolio transactions effected for such
other account or investment company.
Under Section 28(e) of the Securities Exchange Act of 1934, an adviser
shall not be "deemed to have acted unlawfully or to have breached its fiduciary
duty" solely because under certain circumstances it has caused the account to
pay a higher commission than the lowest available. To obtain the benefit of
Section 28(e), an adviser must make a good faith determination that the
commissions paid are "reasonable in relation to the value of the brokerage and
research services provided . . . viewed in terms of either that particular
transaction or its overall responsibilities with respect to the accounts as to
which it exercises investment discretion and that the services provided by a
broker provide an adviser with lawful and appropriate assistance in the
performance of its investment decision-making responsibilities." Accordingly,
the price to the Fund in any transaction may be less favorable than that
available from another broker/dealer if the difference is reasonably justified
by other aspects of the portfolio execution services offered.
Broker/dealers utilized by the Adviser may furnish statistical, research
and other information or services which are deemed by the Adviser to be
beneficial to the Fund's investment programs. Research services received from
brokers supplement the Adviser's own research and may include the following
types of information: statistical and background information on industry groups
and individual companies; forecasts and interpretations with respect to U.S. and
foreign economies, securities, markets, specific industry groups and individual
companies; information on political developments; portfolio management
strategies; performance information on securities and
2
<PAGE>
information concerning prices of securities; and information supplied by
specialized services to the Adviser and to the Trust's Trustees with respect to
the performance, investment activities and fees and expenses of other mutual
funds. Such information may be communicated electronically, orally or in written
form. Research services may also include the providing of equipment used to
communicate research information, the arranging of meetings with management of
companies and the providing of access to consultants who supply research
information.
The outside research assistance is useful to the Adviser since the brokers
utilized by the Adviser as a group tend to follow a broader universe of
securities and other matters than the staff of the Adviser can follow. In
addition, this research provides the Adviser with a diverse perspective on
financial markets. Research services which are provided to the Adviser by
brokers are available for the benefit of all accounts managed or advised by the
Adviser. In some cases, the research services are available only from the broker
providing such services. In other cases, the research services may be obtainable
from alternative sources in return for cash payments. It is the opinion of the
Adviser that because the broker research supplements rather than replaces its
research, the receipt of such research does not tend to decrease its expenses,
but tends to improve the quality of its investment advice. However, to the
extent that the Adviser would have purchased any such research services had such
services not been provided by brokers, the expenses of such services to the
Adviser could be considered to have been reduced accordingly. Certain research
services furnished by broker/dealers may be useful to the Adviser with clients
other than the Fund. Similarly, any research services received by the Adviser
through the placement of portfolio transactions of other clients may be of value
to the Adviser in fulfilling its obligations to the Fund. It is the opinion of
the Adviser that this material is beneficial in supplementing its research and
analysis; and, therefore, it may benefit the Trust by improving the quality of
the Adviser's investment advice. The advisory fees paid by the Trust are not
reduced because the Adviser receives such services.
Some broker/dealers may indicate that the provision of research services
is dependent upon the generation of certain specified levels of commissions and
underwriting concessions by the Adviser's clients, including the Fund.
The Trust will not execute portfolio transactions through, or purchase or
sell portfolio securities from or to the distributor, the Adviser, the
administrator, or the co-administrator, or their affiliates acting as principal
(including repurchase and reverse repurchase agreements), except to the extent
permitted by the Securities and Exchange Commission (the "SEC"). In addition,
the Trust will not give preference to correspondents of NationsBank 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 qualified brokerage firms.) In addition, the
Fund will not purchase securities during the existence of any underwriting or
selling group relating thereto of which the distributor, the Adviser,
administrator, or the co-administrator, or any of their affiliates, is a member,
except to the extent permitted by the SEC. Under certain circumstances, the Fund
may be at a disadvantage because of these
3
<PAGE>
limitations in comparison with other investment companies which have similar
investment objectives but are not subject to such limitations.
Under the 1940 Act, persons affiliated with the Trust are prohibited from
dealing with the Trust as a principal in the purchase and sale of securities
unless an exemptive order allowing such transactions is obtained from the SEC.
The Fund may purchase securities from underwriting syndicates of which
NationsBank or any of its affiliates is a member under certain conditions, in
accordance with the provisions of a rule adopted under the 1940 Act and any
restrictions imposed by the Board of Governors of the Federal Reserve System.
NationsBank has agreed to maintain its policy and practice of conducting
its trust department independently of its commercial department. In making
investment recommendations for the Fund, trust department personnel will not
inquire or take into consideration whether the issuer of securities proposed for
purchase or sale for the Fund's accounts are customers of the commercial
department. In dealing with commercial customers, the commercial department will
not inquire or take into consideration whether securities of those customers are
held by the Trust.
Investment decisions for the Fund are made independently from those for
the Trust's other investment portfolios, other investment companies, and
accounts advised or managed by the Adviser. Such other investment portfolios,
investment companies, and accounts may also invest in the same securities as the
Fund. When a purchase or sale of the same security is made at substantially the
same time on behalf of one or more of the Fund and another investment portfolio,
investment company, or account, the transaction will be averaged as to price and
available investments allocated as to amount, in a manner which the Adviser
believes to be equitable to the Fund and such other investment portfolio,
investment company or account. In some instances, this investment procedure may
adversely affect the price paid or received by the Fund or the size of the
position obtained or sold by the Fund. To the extent permitted by law, the
Adviser may aggregate the securities to be sold or purchased for the Fund with
those to be sold or purchased for other investment portfolios, investment
companies, or accounts in executing transactions.
The portfolio turnover rates described in the Prospectuses are calculated
by dividing the lesser of purchases or sales of portfolio securities for the
year by the monthly average value of the portfolio securities. The calculation
excludes all securities whose maturities at the time of acquisition were one
year or less. Fund turnover may vary greatly from year to year as well as within
a particular year, and may also be affected by the cash requirements for
redemptions of shares and by requirements which enable the Fund to receive
certain favorable tax treatment. Fund turnover will not be a limiting factor in
making portfolio decisions.
During the fiscal year ended March 31, 1998, the Fund did not pay
brokerage commissions because the Fund had not yet commenced operations.
4
<PAGE>
ADDITIONAL INFORMATION ON FUND INVESTMENTS
American Depository Receipts
The Fund may invest in American Depository Receipts ("ADRs"), which are
receipts issued by an American bank or trust company evidencing ownership of
underlying securities issued by a foreign issuer. ADRs may be listed on a
national securities exchange or may trade in the over-the-counter market. The
prices of ADRs are denominated in U.S. dollars; the underlying security may be
denominated in a foreign currency. The underlying security may be subject to
foreign government taxes which would reduce the yield on such securities.
Investments in such securities also involve certain inherent risks, including
those set forth in the Prospectuses for the Fund under "Appendix A -- Foreign
Securities."
Commercial Instruments
Commercial Instruments consist of short-term U.S. dollar-denominated
obligations issued by domestic corporations or by foreign corporations and
foreign commercial banks.
Investments by the Fund in commercial paper will consist of issues rated
in a manner consistent with the Fund's investment policies and objective. In
addition, the Fund may acquire unrated commercial paper and corporate bonds that
are determined by the Adviser at the time of purchase to be of comparable
quality to rated instruments that may be acquired by the Fund as previously
described.
Variable-rate master demand notes are unsecured instruments that permit
the indebtedness thereunder to vary and provide for periodic adjustments in the
interest rate. While some of these notes are not rated by credit rating
agencies, issuers of variable-rate master demand notes must satisfy the Adviser
that criteria similar to the following are met: (a) if rated by at least two
Nationally Recognized Statistical Rating Organizations ("NRSROs"), the
instruments are rated in the highest rating category for short-term obligations
given by such organizations, or if only rated by one such organization, are
rated in the highest rating category for short-term debt obligations given by
such organization; or (b) if not rated are (i) comparable in priority and
security to a class of short-term instruments of the same issuer that has such
rating(s), or (ii) of comparable quality to such instruments as determined by
the Board of Trustees on the advice of the Adviser. Variable-rate instruments
acquired by the Fund will be rated at a level consistent with the Fund's
investment objective and policies of high quality as determined by a major
rating agency or, if not rated, will be of comparable quality as determined by
the Adviser. Substantial holdings of variable-rate instruments could reduce
portfolio liquidity.
Variable- and floating- rate instruments are unsecured instruments that
permit the indebtedness thereunder to vary. While there may be no active
secondary market with respect to a particular variable or floating-rate
instrument purchased by the Fund, the Fund may, from time to time as specified
in the instrument, demand payment of the principal or may resell the instrument
to a third party. The absence of an active secondary market, however, could make
it difficult for the Fund to dispose of an instrument if the issuer defaulted on
its payment obligation
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<PAGE>
or during periods when the Fund is not entitled to exercise its demand rights,
and the Fund could, for these or other reasons, suffer a loss. The instruments
are not typically rated by credit rating agencies, but issuers of variable- and
floating-rate instruments must satisfy similar criteria to that set forth above
for issuers of commercial paper. The Fund may invest in variable- and
floating-rate instruments only when the Adviser deems the investment to involve
minimal credit risk. If such instruments are not rated, the Adviser will
consider the earning power, cash flows, and other liquidity ratios of the
issuers of such instruments and will continuously monitor their financial status
to meet payment on demand. In determining average weighted portfolio maturity,
an instrument will be deemed to have a maturity equal to the longer of the
period remaining to the next interest rate adjustment or the demand notice
period specified in the instrument.
Dollar Roll Transactions
The Fund may enter into "dollar roll" transactions, which consist of the
sale by the Fund to a bank or broker/dealer (the "counterparty") of GNMA
certificates or other mortgage-backed or asset-backed securities, together with
a commitment to purchase from the counterparty similar, but not identical,
securities at a future date, at the same price. The counterparty receives all
principal and interest payments, including prepayments, made on the security
while it is the holder. The Fund receives a fee from the counterparty as
consideration for entering into the commitment to purchase. Dollar rolls may be
renewed over a period of several months with a different repurchase price and a
cash settlement made at each renewal without physical delivery of securities.
Moreover, the transaction may be preceded by a firm commitment agreement
pursuant to which the Fund agrees to buy a security on a future date.
If the broker/dealer to whom the Fund sells the security becomes
insolvent, the Fund's right to purchase or repurchase the security may be
restricted; the value of the security may change adversely over the term of the
dollar roll; the security that the Fund is required to repurchase may be worth
less than the security that the Fund originally held, and the return earned by
the Fund with the proceeds of a dollar roll may not exceed transaction costs.
The entry into dollar rolls involves potential risks of loss that are
different from those related to the securities underlying the transactions. For
example, if the counterparty becomes insolvent, the Fund's right to purchase
from the counterparty might be restricted. Additionally, the value of such
securities may change adversely before the Fund is able to purchase them.
Similarly, the Fund may be required to purchase securities in connection with a
dollar roll at a higher price than may otherwise be available on the open
market. Since, as noted above, the counterparty is required to deliver a
similar, but not identical security to the Fund, the security that the Fund is
required to buy under the dollar roll may be worth less than an identical
security. Finally, there can be no assurance that the Fund's use of the cash
that it receives from a dollar roll will provide a return that exceeds borrowing
costs.
Foreign Currency Transactions
The Fund may enter into foreign currency exchange transactions to convert
foreign currencies to and from the United States Dollar. The Fund either enters
into these transactions on
6
<PAGE>
a spot (i.e., cash) basis at the spot rate prevailing in the foreign currency
exchange market, or uses forward contracts to purchase or sell foreign
currencies.
A forward foreign currency exchange contract is an obligation by the Fund
to purchase or sell a specific currency at a future date, which may be any fixed
number of days from the date of the contract. Forward foreign currency exchange
contracts establish an exchange rate at a future date. These contracts are
transferable in the interbank market conducted directly between currency traders
(usually large commercial banks) and their customers. A forward foreign currency
exchange contract generally has no deposit requirement, and is traded at a net
price without commission. The Fund maintains with its custodian a segregated
account of high grade liquid assets in an amount at least equal to its
obligations under each forward foreign currency exchange contract. Neither spot
transactions nor forward foreign currency exchange contracts eliminate
fluctuations in the prices of the Fund's portfolio securities or in foreign
exchange rates, or prevent loss if the prices of these securities should
decline.
The Fund also may purchase and write options on such futures contracts.
These investments will be used only to hedge against anticipated future changes
in interest rates which otherwise might either adversely affect the value of the
portfolio securities of the Fund or adversely affect the prices of securities
which the Fund intends to purchase at a later date. Should interest rates move
in an unexpected manner, the Fund may not achieve the anticipated benefits of
futures contracts or options on futures contracts or may realize a loss.
Foreign currency hedging transactions are an attempt to protect the Fund
against changes in foreign currency exchange rates between the trade and
settlement dates of specific securities transactions or changes in foreign
currency exchange rates that would adversely affect a portfolio position or an
anticipated portfolio position. Although these transactions tend to minimize the
risk of loss due to a decline in the value of the hedged currency, at the same
time they tend to limit any potential gain that might be realized should the
value of the hedged currency increase. The precise matching of the forward
contract amount and the value of the securities involved will not generally be
possible because the future value of these securities in foreign currencies will
change as a consequence of market movements in the value of those securities
between the date the forward contract is entered into and date it matures.
Futures, Options and Other Derivative Instruments
The Fund may purchase put and call options which are traded on a national
securities exchange in an amount not exceeding 5% of its net assets. Such
options may relate to particular securities or to various stock or bond indices.
Purchasing options is a specialized investment technique which entails a
substantial risk of a complete loss of the amount paid as premiums to the writer
of the option.
Futures Contracts and Related Options. In addition, the Adviser may
determine that it would be in the interest of the Fund to purchase or sell
futures contracts, or options thereon, as a hedge against changes resulting from
market conditions in the value of the securities held by the Fund, or of
securities which one of them intends to purchase. For example, the Fund may
enter
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<PAGE>
into transactions involving a stock or bond index futures contract, which is a
bilateral agreement pursuant to which two parties agree to take or make delivery
of an amount of cash equal to a specified dollar amount times the difference
between the index value (which assigns relative values to the common stocks or
bonds included in the index) at the close of the last trading day of the
contract and the price at which the futures contract is originally struck. No
physical delivery of the underlying stocks or bonds in the index is made. During
the coming fiscal year, the Fund intends to limit its transactions in futures
contracts and options thereon so that: (i) no more than 5% of the Fund's total
assets would be committed to initial margin deposits or premiums on such
contracts and (ii) immediately after entering into such contracts, no more than
30% of the Fund's total assets would be represented by such contracts.
Options Trading. Call options written by the Fund give the holder the
right to buy the underlying securities from the Fund at a fixed exercise price
up to a stated expiration date or, in the case of certain options, on such date.
Put options give the holder the right to sell the underlying securities to the
Fund during the term of the option at a fixed exercise price up to a stated
expiration date or, in the case of certain options, on such date. Call options
are "covered" by the Fund, for example, when it owns the underlying securities
and put options are "covered" by the Fund, for example, when it has established
a segregated account of cash, cash equivalents or securities which can be
liquidated promptly to satisfy any obligation of the Fund to purchase the
underlying securities. The Fund also may write combinations of puts and calls on
the same underlying security.
The Fund will receive a premium from writing a put or call option, which
increases the gross income of the Fund in the event the option expires
unexercised or is closed out at a profit. The amount of the premium will
reflect, among other things, the relationship of the exercise price to the
market price and volatility of the underlying security, the remaining term of
the option, supply and demand and interest rates. By writing a call option, the
Fund limits its opportunity to profit from any increase in the market value of
the underlying security above the exercise price of the option. By writing a put
option, the Fund assumes the risk that it may be required to purchase the
underlying security for an exercise price higher than its then current market
value, resulting in a potential capital loss unless the security subsequently
appreciates in value.
The Fund may terminate an option that it has written prior to its
expiration by entering into a closing purchase transaction in which the Fund
purchases an option having the same terms as the option written. It is possible,
however, that illiquidity in the options markets may make it difficult from time
to time for the Fund to close out its written option positions.
The Fund also may purchase put or call options in anticipation of changes
in interest rates which may adversely affect the value of its portfolio or the
prices of securities that the Fund wants to purchase at a later date. The
premium paid for a put or call option plus any transaction costs will reduce the
benefit, if any, realized by the Fund upon exercise of the option and, unless
the price of the underlying security changes sufficiently, the option may expire
without value.
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The Fund may write and purchase options on securities both for hedging
purposes and in an effort to increase current income. Options on securities that
are written or purchased by the Fund will be traded on U.S. and foreign
exchanges and over-the-counter.
The staff of the SEC has taken the position that purchased
over-the-counter options and assets used to cover written over-the-counter
options are illiquid and, therefore, together with other illiquid securities,
cannot exceed applicable limitations on the amount of the Fund's assets that may
be invested in illiquid securities. The Adviser intends to limit the Fund's
writing of over-the-counter options in accordance with the following procedure.
The Fund intends to write over-the-counter options only with primary U.S.
Government securities dealers recognized by the Federal Reserve Bank of New
York. Also, the contracts which the Fund has in place with such primary dealers
will provide that the Fund has the absolute right to repurchase an option it
writes at any time at a price which represents the fair market value, as
determined in good faith through negotiation between the parties, but which in
no event will exceed a price determined pursuant to a formula in the contract.
Although the specific formula may vary between contracts with different primary
dealers, the formula will generally be based on a multiple of the premium
received by the Fund for writing the option, plus the amount, if any, of the
option's intrinsic value (i.e., the amount that the option is in-the-money). The
formula also may include a factor to account for the difference between the
price of the security and the strike price of the option if the option is
written out-of-the-money. The Fund will treat all or a part of the formula price
as illiquid for purposes of the applicable SEC test regarding illiquid
securities.
As stated in the related Prospectuses, the Fund may purchase put and call
options listed on a national securities exchange. This is a highly specialized
activity which entails greater than ordinary investment risks. Regardless of how
much the market price of the underlying security increases or decreases, the
option buyer's risk is limited to the amount of the original investment for the
purchase of the option. However, options may be more volatile than the
underlying securities, and therefore, on a percentage basis, an investment in
options may be subject to greater fluctuation than an investment in the
underlying securities. A listed call option gives the purchaser of the option
the right to buy from a clearing corporation, and a writer has the obligation to
sell to the clearing corporation, the underlying security at the stated exercise
price at any time prior to the expiration of the option, regardless of the
market price of the security. The premium paid to the writer is in consideration
for undertaking the obligations under the option contract. A listed put option
gives the purchaser the right to sell to a clearing corporation the underlying
security at the stated exercise price at any time prior to the expiration date
of the option, regardless of the market price of the security. Put and call
options purchased by the Fund will be valued at the last sale price or, in the
absence of such a price, at the mean between bid and asked prices.
The Fund's obligation to sell a security subject to a covered call option
written by it, or to purchase a security subject to a secured put option written
by it, may be terminated prior to the expiration date of the option by the Fund
executing a closing purchase transaction, which is effected by purchasing on an
exchange an option of the same series (i.e., same underlying security, exercise
price, and expiration date) as the option previously written. Such a purchase
does not result in the ownership of an option. A closing purchase transaction
will ordinarily be effected to realize a profit on an outstanding option, to
prevent an underlying security from being called, to
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permit the sale of the underlying security, or to permit the writing of a new
option containing different terms on such underlying security. The cost of such
a liquidation purchase plus transaction costs may be greater than the premium
received upon the original option, in which event the Fund will have incurred a
loss in the transaction. An option position may be closed out only on an
exchange which provides a secondary market for an option of the same series.
There is no assurance that a liquid secondary market on an exchange will exist
for any particular option. A covered call option writer, unable to effect a
closing purchase transaction, will not be able to sell the underlying security
until the option expires or the underlying security is delivered upon exercise
with the result that the writer in such circumstances will be subject to the
risk of market decline in the underlying security during such period. The Fund
will write an option on a particular security only if the Adviser believes that
a liquid secondary market will exist on an exchange for options of the same
series which will permit the Fund to make a closing purchase transaction in
order to close out its position.
When the Fund writes a covered call option, an amount equal to the net
premium (the premium less the commission) received by the Fund is included in
the liability section of the Fund's statement of assets and liabilities as a
deferred credit. The amount of the deferred credit will be subsequently
marked-to-market to reflect the current value of the option written. The current
value of the traded option is the last sale price or, in the absence of a sale,
the average of the closing bid and asked prices. If an option expires on the
stipulated expiration date or if the Fund enters into a closing purchase
transaction, it will realize a gain (or loss if the cost of a closing purchase
transaction exceeds the net premium received when the option is sold), and the
deferred credit related to such option will be eliminated. Any gain on a covered
call option may be offset by a decline in the market price of the underlying
security during the option period. If a covered call option is exercised, the
Fund may deliver the underlying security held by it or purchase the underlying
security in the open market. In either event, the proceeds of the sale will be
increased by the net premium originally received, and the Fund will realize a
gain or loss. If a secured put option is exercised, the amount paid by the Fund
involved for the underlying security will be partially offset by the amount of
the premium previously paid to the Fund. Premiums from expired options written
by the Fund and net gains from closing purchase transactions are treated as
short-term capital gains for Federal income tax purposes, and losses on closing
purchase transactions are short-term capital losses.
Futures Contracts. A futures contract is a bilateral agreement providing
for the purchase and sale of a specified type and amount of a financial
instrument, or, in the case of futures contracts on indices of securities, for
the making and acceptance of a cash settlement, at a stated time in the future
for a fixed price. By its terms, a futures contract provides for a specified
settlement date on which, in the case of the majority of interest rate futures
contracts, the fixed income securities underlying a contract are delivered by
the seller and paid for by the purchaser, or on which, in the case of a stock
index futures contract, an amount equal to a dollar amount multiplied by the
difference between the value of a stock index at the close of the last trading
day of the contract and the value of such index at the time the futures contract
was originally entered into is settled between the purchaser and seller in cash.
The purchase or sale of a futures contract differs from the purchase or sale of
a security in that no purchase price is paid or received at the time the
contract is entered into. Instead, an amount of cash or cash equivalents, the
value of
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which may vary but is generally equal to 2% or less of the value of the
contract, must be deposited with the broker as initial deposit or "margin."
Subsequent payments to and from the broker, referred to as "variation margin,"
are made on a daily basis as the value of the index underlying the futures
contract fluctuates, making positions in the futures contract more or less
valuable, a process known as "marking to the market."
At any time prior to the expiration of a futures contract, a trader may
elect to close out the Fund's position by taking an opposite position, subject
to the availability of a secondary market, which will operate to terminate the
initial position. At that time, a final determination of variation margin is
made and any loss experienced by a party is required to be paid to the exchange
clearing corporation, while any profit due to a party must be delivered to it.
Futures contracts differ from options in that they are bilateral
agreements, with both the purchaser and the seller equally obligated to complete
the transaction. Futures contracts call for settlement only on the expiration
date, and cannot be "exercised" at any other time during their term.
Options on Futures Contracts. An option on a futures contract gives the
purchaser (the "holder") the right, but not the obligation, to enter into a
"long" position in the underlying futures contract (i.e., a purchase of such
futures contract) in the case of an option to purchase (a "call" option), or a
"short" position in the underlying futures contract (i.e., a sale of such
futures contract) in the case of an option to sell (a "put" option), at a fixed
price (the "strike price") up to a stated expiration date. The holder pays a
non-refundable purchase price for the option, known as the "premium." The
maximum amount of risk the purchase of the option assumes is equal to the
premium plus related transaction costs, although this entire amount may be lost.
Upon exercise of the option by the holder, the exchange clearing corporation
establishes a corresponding long position in the case of a put option. In the
event that an option is exercised, the parties will be subject to all the risks
associated with the trading of futures contracts, such as payment of variation
margin deposits. In addition, the writer of an option on a futures contract,
unlike the holder, is subject to initial and variation margin requirements on
the option position.
An option, whether based on a futures contract, a stock index or an equity
security, becomes worthless to the holder when it expires. A position in an
option may be terminated by the purchaser or seller prior to expiration by
effecting a closing purchase or sale transaction subject to the availability of
a secondary market, which is the purchase or sale of an option of the same
series (i.e., the same exercise price and expiration date) as the option
previously purchased or sold. The difference between the premiums paid and
received represents the party's profit or loss on the transaction.
The use of futures contracts and options does involve certain transaction
costs and risks. The Fund's ability effectively to hedge all or a portion of its
portfolio through transactions in futures, options on futures or options on
stock indices depends on the degree to which movements in the value of the
securities or index underlying such hedging instrument correlate with movements
in the value of the relevant portion of the Fund's holdings. The trading of
futures and options on indices involves the additional risk of imperfect
correlation between
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movements in the futures or option price and the value of the underlying index.
While the Fund will establish a future or option position only if there appears
to be a liquid secondary market therefor, there can be no assurance that such a
market will exist for any particular futures or option contract at any specific
time. In such event, it may not be possible to close out a position held by the
Fund, which could require the Fund to purchase or sell the instrument underlying
the position, make or receive a cash settlement, or meet ongoing variation
margin requirements. Investments in futures contracts on fixed income securities
and related indices involve the risk that if the Adviser's investment judgment
concerning the general direction of interest rates is incorrect, the Fund's
overall performance may be poorer than if it had not entered into any such
contract. Income earned from transactions in futures contracts and options
thereon would be treated in part as a short-term, and in part as a long-term,
capital gain and, if not offset by net realized capital losses, generally would
be subject to Federal income tax.
Guaranteed Investment Contracts
Guaranteed Investment Contracts ("GICs") are issued by highly rated U.S.
insurance companies. Pursuant to such contracts, the Fund makes cash
contributions to a deposit fund of the insurance company's general or separate
accounts. The insurance company then credits to the Fund on a monthly basis
guaranteed interest. The insurance company may assess periodic charges against a
GIC for expense and service costs allocable to it, and the charges will be
deducted from the value of the deposit fund. The purchase price paid for a GIC
becomes part of the general assets of the issuer, and the contract is paid from
the general assets of the issuer.
The Fund will only purchase GICs from issuers which, at the time of
purchase, meet quality and credit standards established by the Adviser.
Generally, GICs are not assignable or transferable without the permission of the
issuing insurance companies, and an active secondary market in GICs does not
currently exist. Also, the Fund may not receive the principal amount of a GIC
from the insurance company on seven days' notice or less.
Therefore, GICs are considered to be illiquid investments.
Illiquid Securities
The Fund may invest up to 15% of its net assets in securities that are
considered illiquid because of the absence of a readily available market or due
to legal or contractual restrictions. Certain restricted securities that are not
registered for sale to the general public but that can be resold to
institutional investors may not be considered illiquid, provided that a dealer
or institutional trading market exists. The institutional trading market is
relatively new, and liquidity of the Fund's investments could be impaired if
trading does not develop or declines.
Interest Rate Transactions
Among the strategic transactions into which the Fund may enter are
interest rate swaps and the purchase or sale of related caps and floors. The
Fund expects to enter into these transactions primarily to preserve a return or
spread on a particular investment or portion of its portfolio, to protect
against currency fluctuations, as a duration management technique or to protect
against
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any increase in the price of securities the Fund anticipate purchasing at a
later date. The Fund intends to use these transactions as hedges and not as
speculative investments and will not sell interest rate caps or floors where it
does not own securities or other instruments providing the income stream the
Fund may be obligated to pay. Interest rate swaps involve the exchange by the
Fund with another party of their respective commitments to pay or receive
interest, e.g., an exchange of floating-rate payments for fixed rate payments
with respect to a notional amount of principal. A currency swap is an agreement
to exchange cash flows on a notional amount of two or more currencies based on
the relative value differential among them and an index swap is an agreement to
swap cash flows on a notional amount based on changes in the values of the
reference indices. The purchase of a cap entitles the purchaser to receive
payments on a notional principal amount from the party selling such floor to the
extent that a specified index falls below a predetermined interest rate or
amount.
The Fund will usually enter into swaps on a net basis, i.e., the two
payment streams are netted out in a cash settlement on the payment date or dates
specified in the instrument, with the Fund receiving or paying, as the case may
be, only the net amount of the two payments. Inasmuch as these swaps, caps, and
floors are entered into for good faith hedging purposes, the Adviser and the
Fund believe such obligations do not constitute senior securities under the 1940
Act and, accordingly, will not treat them as being subject to its borrowing
restrictions. The Fund will not enter into any swap, cap, or floor transaction
unless, at the time of entering into such transaction, the unsecured long-term
debt of the counterparty, combined with any credit enhancements, is rated at
least "A" by S&P or Moody's or has an equivalent rating from an NRSRO or is
determined to be of equivalent credit quality by the Adviser. If there is a
default by the counterparty, the Fund may have contractual remedies pursuant to
the agreements related to the transaction. The swap market has grown
substantially in recent years with a large number of banks and investment
banking firms acting both as principals and as agents utilizing standardized
swap documentation. As a result, the swap market has become relatively liquid.
Caps and floors are more recent innovations for which standardized documentation
has not yet been fully developed and, accordingly, they are less liquid than
swaps.
With respect to swaps, the Fund will accrue the net amount of the excess,
if any, of its obligations over its entitlements with respect to each swap on a
daily basis and will segregate an amount of cash or liquid high grade securities
having a value equal to the accrued excess. Caps and floors require segregation
of assets with a value equal to the Fund's net obligation, if any.
Lending Securities
When the Fund lends its securities, it continues to receive interest or
dividends on the securities loaned and may simultaneously earn interest on the
investment of the cash loan collateral which will be invested in readily
marketable, high quality, short-term obligations. Although any voting rights, or
rights to consent, that may be attendant to securities on loan, pass to the
borrower, such loans may be called at any time. Securities on loan that have
voting rights will be called so that they may be voted by the Fund if a material
event affecting the investment is to occur.
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Other Investment Companies
In seeking to attain their investment objectives, the Fund may invest
in securities issued by other investment companies within the limits prescribed
by the 1940 Act. The 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 Trust as a whole. As a shareholder
of another investment company, the Fund would bear, along with other
shareholders, its pro rata portion of the other investment company's expenses,
including Advisory fees. These expenses would be in addition to the Advisory and
other expenses that the Fund bears 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.
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 the repurchase agreements described in the
Prospectuses generally equals the price paid by the Fund plus interest
negotiated on the basis of current short-term rates (which may be more or less
than the rate on the securities underlying the repurchase agreement). Securities
subject to repurchase agreements will be held by the Trust's custodian, or a
sub-custodian, in a segregated account or in the Federal Reserve/Treasury
book-entry system. Repurchase agreements are considered to be loans by the Trust
under the 1940 Act.
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Reverse Repurchase Agreements
At the time the Fund enters into a reverse repurchase agreement, it may
establish a segregated account with its custodian bank in which it will maintain
cash, U.S. Government securities or other liquid high grade debt obligations
equal in value to its obligations in respect of reverse repurchase agreements.
Reverse repurchase agreements involve the risk that the market value of the
securities the Fund is obligated to repurchase under the agreement may decline
below the repurchase price. In the event the buyer of securities under a reverse
repurchase agreement files for bankruptcy or becomes insolvent, the Fund's use
of proceeds of the agreement may be restricted pending a determination by the
other party, or its trustee or receiver, whether to enforce the Fund's
obligation to repurchase the securities. Reverse repurchase agreements are
speculative techniques involving leverage, and are subject to asset coverage
requirements if the Fund do not establish and maintain a segregated account (as
described above). In addition, some or all of the proceeds received by the Fund
from the sale of a portfolio instrument may be applied to the purchase of a
repurchase agreement. To the extent the proceeds are used in this fashion and a
common broker/dealer is the counterparty on both the reverse repurchase
agreement and the repurchase agreement, the arrangement might be recharacterized
as a swap transaction. Under the requirements of the 1940 Act, the Fund is
required to maintain an asset coverage (including the proceeds of the
borrowings) of at least 300% of all borrowings. Depending on market conditions,
the Fund's asset coverage and other factors at the time of a reverse repurchase,
the Fund may not establish a segregated account when the Adviser believes it is
not in the best interests of the Fund to do so. In this case, such reverse
repurchase agreements will be considered borrowings subject to the asset
coverage described above.
Variable- and Floating-Rate Instruments
The Fund may purchase variable-rate and floating-rate obligations as
described in the Prospectuses. If such instrument is not rated, the Adviser will
consider the earning power, cash flows, and other liquidity ratios of the
issuers and guarantors of such obligations and, if the obligation is subject to
a demand feature, will monitor their financial status to meet payment on demand.
In determining average weighted portfolio maturity, a variable-rate demand
instrument issued or guaranteed by the U.S. Government or an agency or
instrumentality thereof will be deemed to have a maturity equal to the period
remaining until the obligations next interest rate adjustment. Other
variable-rate obligations will be deemed to have a maturity equal to the longer
of the period remaining to the next interest rate adjustment or the time the
Fund can recover payment of principal as specified in the instrument.
The variable- and floating-rate demand instruments that the Fund may
purchase include participations in Municipal Securities purchased from and owned
by financial institutions, primarily banks. Participation interests provide the
Fund with a specified undivided interest (up to 100%) in the underlying
obligation and the right to demand payment of the unpaid principal balance plus
accrued interest on the participation interest from the institution upon a
specified number of days' notice, not to exceed 30 days. Each participation
interest is backed by an irrevocable letter of credit or guarantee of a bank
that the Adviser has determined meets the prescribed quality standards for the
Fund. The bank typically retains fees out of the interest paid
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on the obligation for servicing the obligation, providing the letter of credit,
and issuing the repurchase commitment.
Variable- and Floating-Rate Government Securities
Government securities that have variable or floating interest rates or
demand or put features may be deemed to have remaining maturities shorter than
their nominal maturities for purposes of determining the Fund's average weighted
maturity. The remaining maturities of such obligations will be determined as
follows: (i) a government security with a variable or floating-rate of interest
will be deemed to have a maturity equal to the period remaining until the next
readjustment of the interest rate; (ii) a government security with a demand or
put feature that entitles the holder to receive the principal amount of the
underlying security at the time of or sometime after the holder gives notice of
demand or exercise of the put will be deemed to have a maturity equal to the
period remaining until the principal amount can be recovered through demand or
exercise of the put; and (iii) a government security with both a variable or
floating rate of interest as described in clause (i) and a demand or put feature
as described in clause (ii) will be deemed to have a maturity equal to the
shorter of the period remaining until the next readjustment of the interest rate
or the period remaining until the principal amount can be recovered through
demand.
Additional Investment Limitations
In addition to the investment limitations disclosed in the Prospectuses,
the Fund is subject to the investment limitations enumerated in this subsection
which may be changed with respect to the Fund only by a vote of the holders of a
majority of the Fund's outstanding shares (as defined in this SAI).
The Fund may not:
1. Borrow money or issue senior securities as defined in the 1940 Act
except that (a) the Fund may borrow money from banks for temporary
purposes in amounts up to one-third of the value of the Fund's
total assets at the time of borrowing, provided that borrowings in
excess of 5% of the value of the Fund's total assets will be
repaid prior to the purchase of portfolio securities by the Fund,
(b) the Fund may enter into commitments to purchase securities in
accordance with the Fund's investment program, including delayed
delivery and when-issued securities, which commitments may be
considered the issuance of senior securities, and (c) the Fund may
issue multiple classes of shares in accordance with SEC
regulations or exemptions under the 1940 Act. The purchase or sale
of futures contracts and related options shall not be considered
to involve the borrowing of money or issuance of senior
securities.
2. Purchase any securities on margin (except for such short-term
credits as are necessary for the clearance of purchases and sales
of portfolio securities) or sell any securities short (except
against the box). (For purposes of this restriction, the deposit
or payment by the Fund of initial or maintenance margin in
connection with futures
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<PAGE>
contracts and related options and options on securities is not
considered to be the purchase of a security on margin.)
3. Underwrite securities issued by any other person, except to the
extent that the purchase of securities and the later disposition
of such securities in accordance with the Fund's investment
program may be deemed an underwriting. This restriction shall not
limit the Fund's ability to invest in securities issued by other
registered investment companies.
4. Invest in real estate or real estate limited partnership interests
(the Fund may, however, purchase and sell securities secured by
real estate or interests therein or issued by issuers which invest
in real estate or interests therein). This restriction does not
apply to real estate limited partnerships listed on a national
stock exchange (e.g. the New York Stock Exchange).
5. Purchase or sell commodity contracts except that the Fund may, to
the extent appropriate under its investment policies, purchase
publicly traded securities of companies engaging in whole or in
part in such activities, may enter into futures contracts and
related options, may engage in transactions on a when issued or
forward commitment basis, and may enter into forward currency
contracts in accordance with its investment policies.
In addition, certain non-fundamental investment restrictions are
applicable, including the following:
1. The Fund will not purchase securities of companies for the purpose
of exercising control.
2. The Fund will not invest more than 15% of the value of its net
assets in illiquid securities, including repurchase agreements
with remaining maturities in excess of seven days, time deposits
with maturities in excess of seven days, restricted securities,
and other securities which are not readily marketable. For
purposes of this restriction, illiquid securities shall not
include securities which may be resold under Rule 144A under the
Securities Act of 1933 that the Board of Trustees, or its
delegate, determines to be liquid, based upon the trading markets
for the specific security.
3. The Fund will not mortgage, pledge or hypothecate any assets
except to secure permitted borrowings and then only in an amount
up to one-third of the value of the Fund's total assets at the
time of borrowing. For purposes of this limitation, collateral
arrangements with respect to the writing of options, futures
contracts, options on futures contracts, and collateral
arrangements with respect to initial and variation margin are not
considered to be a mortgage, pledge or hypothecation of assets.
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<PAGE>
4. The Fund will not invest in securities of other investment
companies, except as they may be acquired as part of a merger,
consolidation or acquisition of assets and except to the extent
otherwise permitted by the 1940 Act.
NET ASSET VALUE
Generally, a security listed or traded on an exchange is valued at its
last sales price on the exchange where the security is principally traded or,
lacking any sales on a particular day, the security is valued at the mean
between the closing bid and asked prices on that day. Each security traded in
the over-the-counter market (but not including securities reported on the NASDAQ
National Market System) is valued at the mean between the last bid and asked
prices based upon quotes furnished by market makers for such securities. Each
security reported on the NASDAQ National Market System is valued at the last
sales price on the valuation date.
Securities for which market quotations are not readily available are
valued at fair value as determined in good faith by or under the supervision of
the Trust's officers in a manner specifically authorized by the Board of
Trustees. Short-term obligations having 60 days or less to maturity are valued
at amortized cost, which approximates market value.
Generally, trading in foreign securities, as well as U.S. Government
securities, money market instruments and repurchase agreements, is substantially
completed each day at various times prior to the close of the New York Stock
Exchange (the "Exchange"). The values of such securities used in computing the
net asset value of the shares of the Fund is determined as of such times.
Foreign currency exchange rates are also generally determined prior to the close
of the Exchange. Occasionally, events affecting the value of such securities and
such exchange rates may occur between the times at which they are determined and
the close of the Exchange, which will not be reflected in the computation of net
asset value. If during such periods events occur which materially affect the
value of such securities, the securities will be valued at their fair market
value as determined in good faith by the Trustees.
--------------------------
The Trust may redeem shares involuntarily to reimburse the Fund for any
loss sustained by reason of the failure of a shareholder to make full payment
for Investor Shares purchased by the shareholder or to collect any charge
relating to a transaction effected for the benefit of a shareholder which is
applicable to Investor Shares as provided in the related Prospectuses from time
to time. The Trust also may make payment for redemptions in readily marketable
securities or other property if it is appropriate to do so in light of Nations
Fund Trust's responsibilities under the 1940 Act.
Under the 1940 Act, the Fund may suspend the right of redemption or
postpone the date of payment for Investor Shares or Primary Shares during any
period when (a) trading on the Exchange is restricted by applicable rules and
regulations of the SEC; (b) the Exchange is closed for other than customary
weekend and holiday closings; (c) the SEC has by order permitted such
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suspension; or (d) an emergency exists as determined by the SEC. (The Fund may
also suspend or postpone the recordation of the transfer of its shares upon the
occurrence of any of the foregoing conditions.)
Exchange Privilege
The Fund and each of the other funds in the Nations Funds Family may limit
the number of times the exchange privilege may be exercised by a shareholder
within a specified period of time. Also, the exchange privilege may be
terminated or revised at any time by the Trust upon such notice as may be
required by applicable regulatory agencies (presently sixty days for termination
or material revision), provided that the exchange privilege may be terminated or
materially revised without notice under certain unusual circumstances.
The current prospectuses for the Primary A Shares of the Fund describes
the exchange privileges available to investors in such Shares.
Primary A Shares of the Fund are offered and sold on a continuous basis by
the Distributor acting as agent. As stated in the Prospectuses for the Primary A
Shares, Primary A Shares are sold to bank trust departments and other financial
institutions (primarily to NationsBank and its affiliated and correspondent
banks) (collectively, "Institutions") acting on behalf of customers maintaining
a qualified trust account or relationship at the Institution.
DESCRIPTION OF SHARES
Nations Fund Trust is a Massachusetts business trust. The Trust's
Declaration of Trust authorizes the Board of Trustees to issue an unlimited
number of units of beneficial interest ("shares") and to classify or reclassify
any unissued shares of the Trust into one or more 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, one of which -- the Strategic Equity Fund -- is
described in this SAI. Currently, the Fund only issues Primary A Shares.
Shares have no preemptive rights and only such conversion or exchange
rights as the Board of Trustees may grant in its discretion. When issued for
payment as described in the Prospectuses, the Trust's shares will be fully paid
and non-assessable. In the event of a liquidation or dissolution of the Trust or
the Fund, shareholders of the Fund are entitled to receive the assets available
for distribution belonging to the Fund, and a proportionate distribution, based
upon the relative asset values of the Trust's respective investment portfolios,
of any general assets of the Trust not belonging to any particular investment
portfolio which are available for distribution. Shareholders of the Fund are
entitled to participate, in proportion to the net asset value of the class or
series of shares held, in the net distributable assets of the Fund if it is
liquidated, based on the number of shares of the Fund that are held by such
shareholders.
19
<PAGE>
As stated in the Prospectuses, shareholders of the Fund will vote in the
aggregate and not by class or series, except as otherwise expressly required by
law or when the Board of Trustees determines that the matter to be voted upon
affects only the interests of the holders of a particular class or series of
shares. In addition, shareholders of each investment portfolio of the Trust will
vote in the aggregate and not by portfolio, except as otherwise expressly
required by law or when the Board of Trustees determines that the matter to be
voted upon affects only the interests of shareholders of a particular portfolio.
Rule 18f-2 (the "Rule") under the 1940 Act provides that any matter required to
be submitted to the holders of the outstanding voting securities of an
investment company such as the Trust shall not be deemed to have been
effectively acted upon unless approved by the holders of a majority of the
outstanding shares of each investment portfolio affected by the matter. An
investment portfolio is affected by a matter unless it is clear that the
interests of each investment portfolio in the matter are substantially identical
or that the matter does not affect any interest of the investment portfolio.
Under the Rule, the approval of an investment advisory agreement or any change
in a fundamental investment policy would be effectively acted upon with respect
to an investment portfolio only if approved by a majority of the outstanding
shares of such investment portfolio. However, the Rule also provides that the
ratification of the appointment of independent public accountants, the approval
of principal underwriting contracts, and the election of Trustees may be
effectively acted upon by shareholders of the Trust voting together in the
aggregate without regard to a particular investment portfolio. Under the Trust's
Declaration of Trust, when the Board of Trustees determines that a matter to be
voted upon affects only the interests of the shareholders of one or more but not
all of the Trust's investment portfolios, only the shareholders of the
investment portfolio or portfolios so affected will be entitled to vote on the
matter.
The Trust's Declaration of Trust authorizes the Board of Trustees, without
shareholder approval (unless otherwise required by applicable law), to (a) sell
and convey the assets of the Fund to another management investment company for
consideration which may include securities issued by the purchaser and, in
connection therewith, to cause all outstanding shares of the Fund involved to be
redeemed at a price which is equal to their net asset value and which may be
paid in cash or by distribution of the securities or other consideration
received from the sale and conveyance; (b) sell and convert the Fund's assets
into money and, in connection therewith, to cause all outstanding shares of the
Fund involved to be redeemed at their net asset value; or (c) combine the assets
belonging to the Fund with the assets belonging to another investment portfolio
of the Trust, if the Board of Trustees reasonably determines that such
combination will not have a material adverse effect on shareholders of any
investment portfolio participating in such combination, and, in connection
therewith, to cause all outstanding shares of any such investment portfolio to
be redeemed at their net asset value or converted into shares of another class
or series of the Trust's shares at net asset value. In the event that shares are
redeemed in cash at their net asset value, a shareholder of the Fund may receive
in payment for such shares an amount that is more or less than his original
investment due to changes in the market prices of the Fund's portfolio
securities. The exercise of such authority by the Board of Trustees will be
subject to the provisions of the 1940 Act.
20
<PAGE>
Dividends and Distributions
With respect to the Fund, net investment income for dividend purposes
consist of (i) interest accrued and original issue discount earned on the Fund's
assets, (ii) plus the amortization of market discount and minus the amortization
of market premium on such assets, (iii) less accrued expenses directly
attributable to the Fund and the general expenses of Nations Fund prorated to
the Fund on the basis of its relative net assets and (iv) dividend or
distribution income on such assets.
Shares of the Fund are eligible to receive dividends when declared,
provided however, that the purchase order for such shares is received at least
one day prior to the dividend declaration and such shares continue to be
eligible for dividends through and including the day before the redemption order
is executed.
ADDITIONAL INFORMATION CONCERNING TAXES
Except as provided herein, gains and losses on the sale of
portfolio securities by the 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.
Gains recognized on the disposition of a debt obligation (including
tax-exempt obligations purchased after April 30, 1993) purchased by the Fund at
a market discount (generally at a price less than its principal amount) will be
treated as ordinary income to the extent of the portion of 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 the 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 the 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.
Under Section 1256 of the Code, the Fund will be required to "mark to
market" its positions in "Section 1256 contracts," which generally include
regulated futures contracts and listed options. In this regard, Section 1256
contracts will be deemed to have been sold at market value. Sixty percent (60%)
of any net gain or loss realized on all dispositions of Section 1256 contracts,
including deemed dispositions under the mark-to-market regime, will generally be
treated as long-term capital gain or loss, and the remaining forty percent (40%)
will be treated as short-term capital gain or loss. Transactions that qualify as
designated hedges are excepted from the mark-to-market and 60%/40% rules.
21
<PAGE>
Under Section 988 of the Code, the 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 Fund will attempt to monitor Section 988 transactions, where
applicable, to avoid adverse tax impact.
Offsetting positions held by a regulated investment company 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
regulated investment company 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 regulated investment company 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 regulated investment company may differ. Generally,
to the extent the straddle rules apply to positions established by the regulated
investment company, losses realized by the regulated investment company 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 the 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 the 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
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.
Foreign Taxes
Income and dividends received by the Fund from sources within foreign
countries may be subject to withholding and other taxes imposed by such
countries. Tax conventions between
22
<PAGE>
certain countries and the United States may reduce or eliminate such taxes. If
more than 50% in value of a regulated investment company's total assets at the
close of its taxable year consist of securities of non-U.S. corporations, the
regulated investment company 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.
Capital Gain Distributions
Distributions which are designated by the 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.
The Taxpayer Relief Act of 1997 (the "1997 Act") created several new
categories of capital gains applicable to noncorporate taxpayers. Under prior
law, noncorporate taxpayers were generally taxed at a maximum rate of 28% on net
capital gain (generally, the excess of net long-term capital gain over net
short-term capital loss). Noncorporate taxpayers are now generally taxed at a
maximum rate of 20% on net capital gain attributable to gains realized on the
sale of property held for greater than 18 months, and a maximum rate of 28% on
net capital gain attributable to gain realized on the sale of property held for
greater than one year and 18 months or less. The 1997 Act retains the treatment
of short term capital gain or loss (generally, gain or loss attributable to
capital assets held for 1 year or less) and did not affect the taxation of
capital gains in the hands of corporate taxpayers.
Under the 1997 Act, the Treasury is authorized to issue regulations
for application of the reduced capital gains tax rates to pass-through entities,
including regulated investment companies, such as the Fund. Noncorporate
stockholders of the Fund may therefore qualify for the reduced rate of tax on
capital gain dividends paid by the Fund.
Other Distributions
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 the 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
23
<PAGE>
A disposition of Fund shares pursuant to redemption (including a
redemption in-kind) or exchanges will ordinarily result in a taxable capital
gain or loss, depending on the amount received for the Shares (or are deemed to
receive 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 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 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 the Fund
regularly distributes at least 90% of its net tax-exempt interest, if any. No
such regulations had 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 28% (however, see "Capital Gain Distributions" above); 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 Fund may be eligible for the
dividends-received deduction on dividends distributed out of the 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. In order to qualify for the dividends-received deduction, a
24
<PAGE>
corporate shareholder must generally hold the shares upon which the dividend
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 Fund's distribution
qualifying for the deduction.
Foreign Shareholders
Under the Code, distributions of net investment income by the 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). Withholding will not apply if a dividend paid by the 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 capital gains are generally not subject to tax withholding, and, beginning
in 1999, the Fund will be permitted to estimate the portion of their
distributions qualifying as capital gain distributions.
Backup Withholding
The Trust 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, unless
the shareholder certifies that the Taxpayer Identification Number ("TIN")
provided is correct and that the shareholder is not subject to backup
withholding, or the IRS notifies the Trust 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 Fund is 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 retirement plans because such retirement plans 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.
Other Matters
Investors should be aware that the investments to be made by the Fund
may involve sophisticated tax rules that may result in income or gain
recognition by the Fund without
25
<PAGE>
corresponding current cash receipts. Although the Fund will seek to avoid
significant noncash income, such noncash income could be recognized by the 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.
TRUSTEES AND OFFICERS
The trustees and executive officers of the Trust 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 Trust Directorships
- -------------------- --------- -------------
Edmund L. Benson, III, 61 Trustee Director, President and
Saunders & Benson, Inc. Treasurer, Saunders & Benson,
728 East Main Street Inc. (Insurance); Trustee,
Suite 400 Nations Institutional Reserves
Richmond, VA 23219 and Nations Fund Trust, Director,
Nations Fund, Inc., Nations
LifeGoal Funds, Inc., and Nations
Fund Portfolios, Inc.
James Ermer, 55 Trustee Senior Vice President- Finance,
13705 Hickory Nut Point CSX Corporation (transportation
Midlothian, VA 23112 and natural resources); Director,
National Mine Service; Director,
Lawyers Title Corporation;
Trustee, Nations Institutional
Reserves and Nations Fund Trust;
Director, Nations Fund, Inc.,
Nations LifeGoal Funds, Inc., and
Nations Fund Portfolios, Inc.
William H. Grigg, 65 Trustee Chairman Emeritus, Duke Power
Duke Power Co. Co., since July, 1997; April 1994
422 South Church Street to July 1997, Chairman and Chief
PB04G Executive Officer; November 1991
Charlotte, NC 28242-0001 to April 1994, Vice Chairman,
from April 1988 to November 1991,
Executive Vice
26
<PAGE>
Principal Occupations
During Past 5 Years
Position with and Current
Name Address and Age the Trust Directorships
- -------------------- --------- -------------
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., Nations Fund,
Inc., Nations LifeGoal Funds, Inc.
and Nations Fund Portfolios, Inc.;
Trustee, Nations Institutional
Reserves and Nations Fund Trust.
Thomas F. Keller, 66 Trustee R.J. Reynolds Industries
Fuqua School of Business Professor of Business
P.O. Box 90120 Administration and former Dean,
Duke University Fuqua School of Business, Duke
Durham, NC 27708 University; Director, LADD
Furniture, 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., Nations Fund, Inc., Nations
LifeGoal Funds, Inc., and Nations
Fund Portfolios, Inc.; Trustee,
Nations Institutional Reserves,
Nations Fund Trust, the Mentor
Funds, Mentor Institutional Trust,
Cash Resource Trust.
Carl E. Mundy, Jr., 63 Trustee Commandant, United States Marine
9308 Ludgate Drive Corps, from July 1991 to July
Alexandria, VA 22309 1995; Commanding General, Marine
Forces Atlantic, from June 1990 to
June 1991; Director, Nations Fund,
Inc., Nations LifeGoal Funds,
Inc., and Nations Fund Portfolios,
Inc.; Trustee, Nations
Institutional Reserves and Nations
Fund Trust.
James B. Sommers*, 59 Trustee President, NationsBank Trust,
from January 1992 to September
27
<PAGE>
Principal Occupations
During Past 5 Years
Position with and Current
Name Address and Age the Trust Directorships
- -------------------- --------- -------------
1996; 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, Nations
Fund, Inc., Nations Fund
Portfolios, Inc. and Nations
LifeGoal Funds, Inc.; Trustee,
Nations Institutional Reserves
and Nations Fund Trust.
A. Max Walker*, 76 President, Trustee and Financial consultant; Formerly,
4580 Windsor Gate Court Chairman of the Board President, A. Max Walker, Inc.;
Atlanta, GA 30342 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., Nations Fund,
Inc., Nations LifeGoal Funds,
Inc., and Nations Fund Portfolios.
Inc.; President and Chairman of
the Board of Trustees, Nations
Institutional Reserves and Nations
Fund Trust.
28
<PAGE>
Principal Occupations
During Past 5 Years
Position with and Current
Name Address and Age the Trust Directorships
- -------------------- --------- -------------
Charles B. Walker, 59 Trustee Since 1989, Director, Executive
Ethyl Corporation Vice President, Chief Financial
330 South Fourth Street Officer and Treasurer, Ethyl
Richmond, VA 23219 Corporation (chemicals, plastics,
and aluminum manufacturing); since
1994, Vice Chairman, Ethyl
Corporation and Vice Chairman,
Chief Financial Officer and
Treasurer, Albemarle Corporation,
Director, Nations Fund, Inc.,
Nations LifeGoal Funds, Inc, and
Nations Fund Portfolios, Inc.;
Trustee, Nations Institutional
Reserves and Nations Fund Trust.
Thomas S. Word, Jr.*, 60 Trustee Partner, McGuire Woods Battle &
McGuire, Woods, Battle & Boothe Boothe (law); Director, Vaughan
One James Center Bassett Furniture Company,
Richmond, VA 23219 Director VB Williams Furniture
Company, Inc.; Director, Nations
Fund, Inc., Nations LifeGoal
Funds, Inc., and Nations Fund
Portfolios, Inc.; Trustee, Nations
Institutional Reserves and Nations
Fund Trust.
Richard H. Blank, Jr., 41 Secretary Since 1994, Vice President of
Stephens Inc. Mutual Fund Services, Stephens
Inc. 1990 to 1994, Manager Mutual
Fund Services, Stephens Inc. 1983
to 1990, Associate in Corporate
Finance Department, Stephens
Inc.; Secretary, Nations
Institutional Reserves, Nations
Fund Trust, Nations Fund, Inc.,
Nations LifeGoal Funds, Inc., and
Nations Fund Portfolios, Inc.
Michael W. Nolte, 37 Assistant Secretary Associate, Financial Services
Stephens Inc. Group of Stephens Inc.
Louise P. Newcomb, 45 Assistant Secretary Corporate Syndicate Associate,
Stephens Inc. Stephens Inc.
James E. Banks, 42 Assistant Secretary Since 1993, Attorney, Stephens
Stephens Inc. Inc.; Associate Corporate
Counsel, Federated Investors; from
1991 to 1993, Staff
29
<PAGE>
Principal Occupations
During Past 5 Years
Position with and Current
Name Address and Age the Trust Directorships
- -------------------- --------- -------------
Attorney, Securities and Exchange
Commission from 1988 to 1991
Richard H. Rose, 43 Treasurer Since 1994, Vice President,
First Data Investor Services Group, Inc. Division Manager, First Data
(formerly, The Shareholder Services Group, Investor Services Group, Inc.
Inc.) since 1988, Senior Vice
One Exchange Place President, The Boston Company
Boston, MA 02109 Advisors. Inc.; Treasurer,
Nations Institutional Reserves,
Nations Fund Trust, Nations Fund,
Inc., Nations LifeGoal Funds,
Inc., and Nations Fund Portfolios,
Inc.
Steven Levy, 33 Assistant Treasurer Since 1997, Vice President of
Fund Accounting, First Data
Investor Services Group, Inc.;
Prior to 1997, Investment
Operations Manager, 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.or its affiliates serve as
sponsor, distributor, administrator and/or investment adviser.
Each Trustee of the Trust is also a Trustee of Nations Institutional
Reserves and Nations Annuity Trust and a Director of Nations Fund Portfolios,
Inc., Nations Fund, Inc. and Nations LifeGoal Funds, Inc. 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 Nations Fund Trust, Nations Annuity Trust,
Nations Institutional Reserves, Nations Fund, Inc., Nations Fund Portfolios, Inc
and Nations LifeGoal Funds, Inc.
Each 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 Trustees receive reimbursements
for expenses related to their attendance at meetings of the Board of 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 the Trust as a group
owned less than 1% of the outstanding shares of each of the Fund.
30
<PAGE>
The Trust has adopted a Code of Ethics which, among other things,
prohibits each access person of the Trust from purchasing or selling securities
when such person knows or should have known that, at the time of the
transaction, the security (i) was being considered for purchase or sale by a
Fund, or (ii) was being purchased or sold by a Fund. For purposes of the Code of
Ethics, an access person means (i) a director or officer of the Trust, (ii) any
employee of the Trust (or any company in a control relationship with the Trust)
who, in the course of his/her regular duties, obtains information about, or
makes recommendations with respect to, the purchase or sale of securities by the
Trust, and (iii) any natural person in a control relationship with the Trust who
obtains information concerning recommendations made to the Trust regarding the
purchase or sale of securities. Portfolio managers and other persons who assist
in the investment process are subject to additional restrictions, including a
requirement that they disgorge to the Trust any profits realized on short-term
trading (i.e., the purchase/sale or sale/purchase of securities within any
60-day period). The above restrictions do not apply to purchases or sales of
certain types of securities, including mutual fund shares, money market
instruments and certain U.S. Government securities. To facilitate enforcement,
the Code of Ethics generally requires that the Trust's access persons, other
than its "disinterested" directors, submit reports to the Trust's designated
compliance person regarding transactions involving securities which are eligible
for purchase by the Fund.
Nations Funds Retirement Plan
Under the terms of the Nations Funds Retirement Plan for Eligible
Directors/Trustees (the "Retirement Plan"), each director may be entitled to
certain benefits upon retirement from the Board of Director. 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
("Funds") 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 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 to elect to tie the rate of
return on fees
31
<PAGE>
deferred pursuant to the Deferred Compensation Plan to one or more of certain
investment portfolios of certain Funds. Distributions from the deferring
directors', trustees, deferral accounts will be paid in cash, in generally equal
quarterly installments over a period of five years beginning on the date the
deferring 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, trustees, 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, trustees, 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 have the status of unsecured creditors of the Funds from
which they are deferring compensation.
32
<PAGE>
COMPENSATION TABLE
<TABLE>
<CAPTION>
<S> <C>
Total
Aggregate Aggregate Pension or Estimated Compensation
Aggregate Compensation Compensation Retirement Benefits Annual from Registrant
Name of Person Compensation from from from Accrued as Part Benefits Upon and Fund
Position (1) NFT (2) NFI (2) NFP (2) of Fund Expenses Retirement Complex (3)(4)
------------ ------- ------- ------- ------------- ---------- --------------
Edmund L. Benson, III, [insert] [insert] [insert] [insert] [insert] [insert]
Trustee
James Ermer [insert] [insert] [insert] [insert] [insert] [insert]
Trustee
William H. Grigg [insert] [insert] [insert] [insert] [insert] [insert]
Trustee
Thomas F. Keller [insert] [insert] [insert] [insert] [insert] [insert]
Trustee
Carl E. Mundy, Jr. [insert] [insert] [insert] [insert] [insert] [insert]
Trustee
James Sommers [insert] [insert] [insert] [insert] [insert] [insert]
Trustee
A. Max Walker [insert] [insert] [insert] [insert] [insert] [insert]
Chairman of the Board
Charles B. Walker [insert] [insert] [insert] [insert] [insert] [insert]
Trustee
Thomas S. Word [insert] [insert] [insert] [insert] [insert] [insert]
Trustee
[insert] [insert] [insert] [insert] [insert] [insert]
</TABLE>
(1) All Trustees receive reimbursements for expenses related to their
attendance at meetings of the Board of Directors/Trustees. Officers of the Trust
receive no direct remuneration in such capacity from the Trust.
33
<PAGE>
(2) For the twelve-month period ending March 31, 1998, each Trustee
receives (i) an annual retainer of $1,000 ($3,000 for the Chairman of the Board)
plus $500 for each Fund in the Nations Funds Family, plus (ii) a fee of $1,000
for attendance at each "in-person" meeting of the Board of Trustees (or
committee thereof) and $500 for attendance at each other meeting of the Board of
Directors/Trustees (or Committee thereof).
(3) Messrs. Grigg, Keller and A.M. Walker receive compensation from
nine investment companies, including the Trust, that are deemed to be part of
the Nations Funds "fund complex," as that term is defined under Rule 14a-101 of
the Securities Exchange Act of 1934, as amended. Messrs. Benson, Ermer, C.
Walker, Mundy and Word receive compensation from five investment companies,
including the Trust, deemed to be part of the Nations Funds complex.
(4) Total compensation amounts include deferred compensation (including
interest) payable to or accrued for the following Trustees: Edmund L. Benson,
III ($__________); William H. Grigg ($__________); Thomas F. Keller
($____________); and Thomas S. Word ($____________).
34
<PAGE>
Shareholder and Trustee Liability
Under Massachusetts law, shareholders of a business trust may, under
certain circumstances, be held personally liable as partners for the obligations
of the trust. However, the Trust's Declaration of Trust provides that
shareholders shall not be subject to any personal liability for the acts or
obligations of the Trust, and that every note, bond, contract, order, or other
undertaking made by the Trust shall contain a provision to the effect that the
shareholders are not personally liable thereunder. The Declaration of Trust
provides for indemnification out of the trust property of any shareholder held
personally liable solely by reason of his being or having been a shareholder and
not because of his acts or omissions or some other reason. The Declaration of
Trust also provides that the Trust shall, upon request, assume the defense of
any claim made against any shareholder for any act or obligation of the Trust
and shall satisfy any judgment thereon. Thus, the risk of a shareholder
incurring financial loss on account of shareholder liability is limited to
circumstances in which the Trust itself would be unable to meet its obligations.
The Declaration of Trust states further that no Trustee, officer, or
agent of the Trust shall be personally liable for or on account of any contract,
debt, tort, claim, damage, judgment, or decree arising out of or connected with
the administration or preservation of the trust estate or the conduct of any
business of the Trust; nor shall any Trustee be personally liable to any person
for any action or failure to act except by reason of his own bad faith, willful
misfeasance, gross negligence, or reckless disregard of his duties as Trustee.
The Declaration of Trust also provides that all persons having any claim against
the Trustees or the Trust shall look solely to the trust property for payment.
With the exceptions stated, the Declaration of Trust provides that a
Trustee is entitled to be indemnified against all liabilities and expenses
reasonably incurred by him in connection with the defense or disposition of any
proceeding in which he may be involved or with which he may be threatened by
reason of his being or having been a Trustee, and that the Trustees have the
power, but not the duty, to indemnify officers and employees of the Trust unless
any such person would not be entitled to indemnification had he or she been a
Trustee.
INVESTMENT ADVISORY, ADMINISTRATION, CUSTODY,
TRANSFER AGENCY, SHAREHOLDER
SERVICING AND DISTRIBUTION SERVICES AGREEMENTS
Investment Adviser
Effective upon the inception of the Fund, NBAI began serving as investment
adviser to the Fund and NationsBank began serving as investment sub-adviser to
the Fund, pursuant to Investment Advisory and Investment Sub-Advisory
Agreements, respectively.
NBAI also serves as the investment adviser to Nations Fund, Inc., Nations
Institutional Reserves and Nations Fund Portfolios, Inc., each a registered
investment company that is part of the Nations Fund Family. In addition, NBAI
serves as the investment advisor to Hatteras Income
35
<PAGE>
Securities, Inc., Nations Government Income Term Trust 2003, Inc., Nations
Government Income Term Trust 2004, Inc. and Managed Balanced Target Maturity
Fund, Inc., each a closed-end diversified management investment company traded
on the New York Stock Exchange. NationsBank does not serve as an investment
adviser or investment sub-adviser to any other fund in the Nations Funds Family.
NBAI is a wholly owned banking subsidiaries of NationsBank, which in turn
is a wholly owned banking subsidiary of NationsBank Corporation, a bank holding
company organized as a North Carolina corporation.
NationsBank serves as investment sub-adviser to the Fund through its
division, NationsBank Private Investments, with principal offices at 100 North
Broadway, St. Louis, Missouri 63102.
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 the
Trust. 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 the Trust 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 and continues to serve as investment adviser to all of the
Funds of the Trust pursuant to an amendment to its investment advisory
agreements. NationsBank and NationsBank of Georgia, N.A. are wholly owned
subsidiaries of NationsBank Corporation.
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 $50 billion,
including the more than $27 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.
[add discussion of NationsBank Private Investments and NationsBank as
sub-adviser]
36
<PAGE>
Pursuant to the terms of the Investment Advisory Agreement and
Sub-Advisory Agreements (at times, the "Advisory Agreements"), NBAI and
NationsBank, respectively, are subject at all times to the control of the
Trustees.
The Advisory Agreements for NBAI and NationsBank 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 NationsBank,
respectively, or any of their respective officers, directors, employees or
agents, NBAI or NationsBank shall not be subject to liability to the Trust or to
any shareholder of the Trust for any act or omission in the course of, or
connected with, rendering services under thereunder or for any losses that may
be sustained in the purchase, holding or sale of any security.
The Investment Advisory Agreement with NBAI shall become effective with
respect to the Fund if and when approved by the Trustees of the Trust, and if so
approved, shall thereafter continue from year to year, provided that such
continuation of the Agreement is specifically approved at least annually by (a)
(i) the Trust's Board of Trustees or (ii) the vote of "a majority of the
outstanding voting securities" of the Fund (as defined in Section 2(a)(42) of
the 1940 Act), and (b) the affirmative vote of a majority of the Trustees who
are not parties to such Agreement or "interested persons" (as defined in the
1940 Act) of a party to such Agreement (other than as Trustees of the Trust), by
votes cast in person at a meeting specifically called for such purpose. The
respective Investment Advisory Agreement will terminate automatically in the
event of its assignment, and is terminable with respect to the Fund at any time
without penalty by the Trust (by vote of the Board of Trustees or by vote of a
majority of the outstanding voting securities of the Fund) or by NBAI on 60
days' written notice.
The Sub-Advisory Agreement with NationsBank shall become effective with
respect to the Fund as of its execution date and, unless sooner terminated,
shall continue in full force and effect for one year, and may be continued with
respect to the Fund thereafter, provided that the continuation of the Agreement
is specifically approved at least annually by (a) (i) the Trust's Board of
Trustees (ii) the vote of "a majority of the outstanding voting securities" of
the Fund (as defined in Section 2(a)(42) of the 1940 Act), and (b) the
affirmative vote of a majority of the Trust's Trustees who are not parties to
such Agreement or "interested persons" (as defined in the 1940 Act) of a party
to such Agreement (other than as Trustees of the Trust), by votes cast in person
at a meeting specifically called for such purpose. The Sub-Advisory Agreement
will terminate automatically in the event of its assignment, and is terminable
with respect to the Fund at any time without penalty by the Trust (by vote of
the Board of Trustees or by vote of a majority of the outstanding voting
securities of the Fund), or by NBAI, or by NationsBank on 60 days' written
notice.
For the services provided and expenses assumed pursuant to the Advisory
Agreement, NBAI is entitled to receive an advisory fee, computed daily and paid
monthly, at the annual rate of 0.75% of the average daily net assets of the
Fund. For the services provided and the expenses assumed pursuant to the
Sub-Advisory Agreement, NBAI will pay NationsBank sub-advisory fees, computed
daily and paid monthly, at the annual rate of 0.25% of the average daily net
assets
37
<PAGE>
of the Fund. NBAI and/or NationsBank may waive (either voluntarily or pursuant
to applicable state limitations) advisory fees payable by the Fund.
Administrator and Co-Administrator
Since the Fund's inception, Stephens Inc. (the "Administrator) has been
serving as administrator of the Trust and First Data Investor Services Group,
Inc. ("First Data") has been serving as the co-administrator of the funds of the
Trust (the "Co-Administrator").
The Administrator and Co-Administrator serve under an administration
agreement ("Administration Agreement") and a co-administration agreement
("Co-Administration Agreement"), respectively, each of which was approved by the
Board of Trustees on August 4, 1993. The Administrator receives, as compensation
for its services rendered under the Administration Agreement and as agent for
the Co-Administrator for the services it provides under the Co-Administration
Agreement, a combined administrative fee, computed daily and paid monthly, at
the annual rate of up to 0.10% of the average daily net assets of the Fund.
Pursuant to the Administration Agreement, the Administrator has agreed to,
among other things, (i) maintain office facilities for the Fund, (ii) furnish
statistical and research data, data processing, clerical, and internal executive
and administrative services to the Trust, (iii) furnish corporate secretarial
services to the Trust, including coordinating the preparation and distribution
of materials for Board of Trustees meetings, (iv) coordinate the provision of
legal advice to the Trust with respect to regulatory matters, (v) coordinate the
preparation of reports to the Trust's shareholders and the SEC, including annual
and semi-annual reports, (vi) coordinate the provision of services to the Trust
by the Co-Administrator, the Transfer Agents and the Custodian, and (vii)
generally assist in all aspects of the Trust's operations. Additionally, the
Administrator is authorized to receive, as agent for the Co-Administrator, the
fees payable to the Co-Administrator by the Trust for its services rendered
under the Co-Administration Agreement. The Administrator bears all expenses
incurred in connection with the performance of its services.
Pursuant to the Co-Administration Agreement, the Co-Administrator has
agreed to, among other things, (i) provide accounting and bookkeeping services
for the Fund, (ii) compute the Fund's net asset value and net income, (iii)
accumulate information required for the Trust's reports to shareholders and the
SEC, (iv) prepare and file the Trust's federal and state tax returns, (v)
perform monthly compliance testing for the Trust, and (vi) prepare and furnish
the Trust monthly broker security transaction summaries and transaction listings
and performance information. The Co-Administrator bears all expenses incurred in
connection with the performance of its services.
The Administration Agreement and the Co-Administration Agreement may be
terminated by a vote of a majority of the Board of Trustees, or by the
Administrator or Co-Administrator, respectively, on 60 days' written notice
without penalty. The Administration Agreement and Co-Administration Agreement
are not assignable without the written consent of the other party. Furthermore,
the Administration Agreement and the Co-Administration Agreement provide that
the Administrator and Co-Administrator, respectively, shall not be liable to the
Fund or to its
38
<PAGE>
shareholders except in the case of the Administrator's or Co-Administrator's,
respectively, willful misfeasance, bad faith, gross negligence or reckless
disregard of duty.
As discussed under the caption "Expenses," the Administrator will be
required to reduce its fee from the Trust, in direct proportion to the fees
payable to the Adviser and the Administrator by the Trust, if the expenses of
the Trust exceed the applicable expense limitation of any state in which the
Fund's shares are registered or qualified for sale.
Custodian and Transfer Agent
The Bank of New York ("BONY") serves as custodian for the fund securities
and cash of the Fund. As custodian, BONY maintains custody of the Fund's
securities, cash and other property, delivers securities against payment upon
sale and pays for securities against delivery upon purchase, makes payments on
behalf of the Fund for payments of dividends, distributions and redemptions,
endorses and collects on behalf of the Fund all checks, and receives all
dividends and other distributions made on securities owned by the Fund. For such
services, BONY, is entitled to receive, in addition to out-of-pocket expenses,
fees, payable monthly (i) at the rate of 1.25% of 1% of the average daily net
assets of the Fund, (ii) $10.00 per repurchase collateral transaction by the
Fund, and (iii) $15.00 per purchase, sale and maturity transaction involving the
Fund. BONY is not affiliated with NationsBank Corporation.
First Data, which is located at One Exchange Place, Boston, Massachusetts
02109, acts as transfer agent for the Trust's Primary A shares. NationsBank
serves as the sub-transfer agent for the Fund's Primary A Shares. Under the
transfer agency agreements, the transfer agent maintains the shareholder account
records for the Trust, handles certain communications between shareholders and
the Trust, and distributes dividends and distributions payable by the Trust to
shareholders, and produces statements with respect to account activity for the
Trust and its shareholders for these services. The transfer agent receives a
monthly fee computed on the basis of the number of shareholder accounts that it
maintains for the Trust during the month and is reimbursed for out-of-pocket
expenses.
DISTRIBUTOR
Since the inception of the Fund, Stephens Inc. (the "Distributor"), began
serving as the principal underwriter and distributor of the shares of the Fund.
At a meeting held on August 4, 1993, the Board of Trustees selected Stephens
Inc. as Distributor and approved a distribution agreement ("Distribution
Agreement") with the Distributor. Pursuant to the Distribution Agreement, the
Distributor, as agent, sells shares of the Fund on a continuous basis and
transmits purchase and redemption orders that its receives to the Trust or the
Transfer Agent. Additionally, the Distributor has agreed to use appropriate
efforts to solicit orders for the sale of shares and to undertake such
advertising and promotion as it believes appropriate in connection with such
solicitation. Pursuant to the Distribution Agreement, the Distributor, at its
own expense, finances those activities which are primarily intended to result in
the sale of shares of the Fund, including, but not limited to, advertising,
compensation of underwriters, dealers and sales personnel, the
39
<PAGE>
printing of prospectuses to other than existing shareholders, and the printing
and mailing of sales literature. The Distributor, however, may be reimbursed
for all or a portion of such expenses to the extent permitted by a distribution
plan adopted by the Trust pursuant to Rule 12b-1 under the 1940 Act.
The Distribution Agreement will continue year to year as long as such
continuance is approved at least annually by (i) the Board of Trustees or a vote
of the majority (as defined in the 1940 Act) of the outstanding voting
securities of the Fund and (ii) a majority of the trustees who are not parties
to the Distribution Agreement or "interested persons" of any such party by a
vote cast in person at a meeting called for such purpose. The Distribution
Agreement is not assignable and is terminable with respect to the Fund, without
penalty, on 60 days' notice by the Board of Trustees, the vote of a majority (as
defined in the 1940 Act) of the outstanding voting securities of the Fund, or by
the Distributor.
INDEPENDENT ACCOUNTANT AND REPORTS
The Board of Trustees has selected Price Waterhouse LLP, with offices at
160 Federal Street, Boston, MA 02110, to serve as independent accountant to the
Trust.
The Fund has not commenced operation as of the date of this SAI. As such,
the financial statements for the Fund are not yet available. The Annual Reports,
dated March 31, 1998 for the other funds of the Trust are, however, incorporated
by reference into this SAI. The Annual Report for the Fund, when available, will
be sent free of charge to all shareholders of record.
COUNSEL
Morrison & Foerster LLP, 2000 Pennsylvania Avenue, N.W., Suite 5500,
Washington, D.C. 20006-1812, is counsel to the Trust.
ADDITIONAL INFORMATION ON PERFORMANCE
From time to time, the yield and total return of the Fund's Primary A
Shares may be quoted in advertisements, shareholder reports, and other
communications to shareholders. Performance information is available by calling
1-800-621-2192.
Yield Calculations
Yield is calculated 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 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
40
<PAGE>
and then doubling the difference. Net investment income per share earned during
the period is based on the average daily number of shares outstanding during the
period entitled to receive dividends and includes dividends and interest earned
during the period minus expenses accrued for the period, net of reimbursements.
This calculation can be expressed as follows:
Yield = 2 [(a-b + 1)6 - 1]
---
cd
Where: a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of shares outstanding during
the period that were entitled to receive dividends.
d = maximum offering price per share on the last day of the
period (again, for Primary A and Primary B Shares, this
is equivalent to net asset value per share).
For the purpose of determining net investment income earned during the
period (variable "a" in the formula), dividend income on equity securities held
by the Fund is recognized by accruing 1/360 of the stated dividend rate of the
security each day that the security is in the portfolio. The Fund calculates
interest earned on any debt obligations held in its portfolio by computing the
yield to maturity of each obligation held by it based on the market value of the
obligation (including actual accrued interest) at the close of business on the
last business day of each month, or, with respect to obligations purchased
during the month, the purchase price (plus actual accrued interest) and dividing
the result by 360 and multiplying the quotient by the market value of the
obligation (including actual accrued interest) in order to determine the
interest income on the obligation for each day of the subsequent month that the
obligation is in the portfolio. For purposes of this calculation, it is assumed
that each month contains 30 days. The maturity of an obligation with a call
provision is the next call date on which the obligation reasonably may be
expected to be called or, if none, the maturity date. With respect to debt
obligations purchased at a discount or premium, the formula generally calls for
amortization of the discount or premium. The amortization schedule will be
adjusted monthly to reflect changes in the market values of such debt
obligations.
Expenses accrued for the period (variable "b" in the formula) include
recurring fees charged by Nations Fund to shareholder accounts in proportion to
the length of the base period. Undeclared earned income will be subtracted from
the maximum offering price per share (which for Primary A and Primary B Shares
is net asset value per share) (variable "d" in the formula). Undeclared earned
income is the net investment income which, at the end of the base period, has
not been declared as a dividend, but is reasonably expected to be and is
declared as a dividend shortly thereafter. The Fund's maximum offering price per
share for purposes of the formula includes the maximum sales charge, if any,
imposed by the Fund, as reflected in the Fund's Prospectuses.
41
<PAGE>
Total Return Calculations
The Fund computes its average annual total return for Primary A Shares by
determining the average annual compounded rates of return during specified
periods that equate the initial amount invested to the ending redeemable value
of such investment. This is done by dividing the ending redeemable value of a
hypothetical $1,000 initial payment by $1,000 and raising the quotient to a
power equal to one divided by the number of years (or fractional portion
thereof) covered by the computation and subtracting one from the result. This
calculation can be expressed as follows:
T = [(ERV)1/n - 1]
---
P
Where: T = average annual total return.
ERV = ending redeemable value at the end of the period covered by
the computation of a hypothetical $1,000 payment made at the
beginning of the period.
P = hypothetical initial payment of $1,000.
n = period covered by the computation, expressed in terms of
years.
The Fund compute its aggregate total returns for Primary A Shares by
determining the aggregate rates of return during specified periods that likewise
equate the initial amount invested to the ending redeemable value of such
investment. The formula for calculating aggregate total return is as follows:
T = [(ERV) - 1]
---
P
The calculations of average annual total return and aggregate total return
assume the reinvestment of all dividends and capital gain distributions on the
reinvestment dates during the period. The ending redeemable value (variable
"ERV" in each formula) is determined by assuming complete redemption of the
hypothetical investment and the deduction of all nonrecurring charges at the end
of the period covered by the computations. The Fund's average annual total
return and aggregate total return quotations for Primary A Shares reflect the
deduction of the maximum sales charge charged (if applicable) with respect to
the applicable class of shares in connection with the purchase of these shares.
Since the Fund has not commenced operation, no information on average annual
total return or aggregate annual total return for any class of shares is
available.
From time to time, the Fund may compare the performance and yield of
Primary A 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
42
<PAGE>
monitor the performance of mutual funds. For example, the performance and yield
of a class of shares in the Fund may be compared to data prepared by Lipper
Analytical Services, Inc. The performance and yield of a class of shares in the
Fund may also be compared to the Standard & Poor's 500 Stock Index, an unmanaged
index of a group of common stocks, the Consumer Price Index, or the Dow Jones
Industrial Average, a recognized unmanaged index of common stocks of 30
industrial companies listed on the Exchange. Performance and yield data as
reported in national financial publications such as Money Magazine, Forbes,
Barron's, The Wall Street Journal, and The New York Times, or in publications of
a local or regional nature, also may be used in comparing the performance of a
class of shares in the Fund.
The Fund may quote information obtained from the Investment Company
Institute in its advertising materials and sales literature.
Ibbotson Data. Ibbotson Associates of Chicago, Illinois, ("Ibbotson")
provides historical returns of the capital markets in the United States. The
Fund may compare the performance of its share classes or series to the long-term
performance of the U.S. capital markets in order to demonstrate general
long-term risk versus reward investment scenarios. Performance comparisons could
also include the value of a hypothetical investment in common stocks, long-term
bonds or treasuries.
The capital markets tracked by Ibbotson are common stocks, small
capitalization stocks, long-term corporate bonds, intermediate-term government
bonds, long-term government bonds, Treasury Bills, and the U.S. rate of
inflation. These capital markets are based on the returns of several different
indices. For common stocks, the S&P is used. For small capitalization stocks,
return is based on the return achieved by Dimensional Fund Advisors (DFA) Small
Company Fund. This fund is a market-value-weighted index of the ninth and tenth
deciles of the Exchange, plus stocks listed on the American Stock Exchange
(AMEX) and over-the-counter (OTC) with the same or less capitalization as the
upperbound of the Exchange ninth decile. At year-end 1995, the DFA Small Company
Fund contained approximately 2,663 stocks, with a weighted average market
capitalization of $165.75 million. The unweighted average market capitalization
was $82.97 million, while the median was $56.0 million.
MISCELLANEOUS
Certain Record Holders
As of the date of this SAI, NationsBank Corporation and its affiliates
owned of record more than 25% of the outstanding shares of the Trust acting as
agent, fiduciary, or custodian for its customers and may be deemed a controlling
person of the Trust under the 1940 Act.
43
<PAGE>
SCHEDULE A
ADDITIONAL INFORMATION CONCERNING
OPTIONS & FUTURES
As stated in the Prospectuses, the Fund may enter into futures contracts
and options for hedging purposes. Such transactions are described in this
Schedule. During the current fiscal year, the Fund intends to limit its
transactions in futures contracts and options so that not more than 5% of the
Fund's net assets are at risk. Furthermore, in no event would the Fund purchase
or sell futures contracts, or related options thereon, for hedging purposes if,
immediately thereafter, the aggregate initial margin that is required to be
posted by the Fund under the rules of the exchange on which the futures contract
(or futures option) is traded, plus any premiums paid by the Fund on its open
futures options positions, exceeds 5% of the Fund's total assets, after taking
into account any unrealized profits and unrealized losses on the Fund's open
contracts and excluding the amount that a futures option is "in-the-money" at
the time of purchase. (An option to buy a futures contract is "in-the-money" if
the value of the contract that is subject to the option exceeds the exercise
price; an option to sell a futures contract is "in-the-money" if the exercise
price exceeds the value of the contract that is subject of the option.)
I. Interest Rate Futures Contracts.
Use of Interest Rate Futures Contracts. Bond prices are established in
both the cash market and the futures market. In the cash market, bonds are
purchased and sold with payment for the full purchase price of the bond being
made in cash, generally within five business days after the trade. In the
futures market, only a contract is made to purchase or sell a bond in the future
for a set price on a certain date. Historically, the prices for bonds
established in the futures market have tended to move generally in the aggregate
in concert with the cash market prices and have maintained fairly predictable
relationships. Accordingly, the Fund may use interest rate futures as a defense,
or hedge, against anticipated interest rate changes and not for speculation. As
described below, this would include the use of futures contract sales to protect
against expected increases in interest rates and futures contract purchases to
offset the impact of interest rate declines.
The Fund presently could accomplish a similar result to that which it
hopes to achieve through the use of futures contracts by selling bonds with long
maturities and investing in bonds with short maturities when interest rates are
expected to increase, or conversely, selling short-term bonds and investing in
long-term bonds when interest rates are expected to decline. However, because of
the liquidity that is often available in the futures market the protection is
more likely to be achieved, perhaps at a lower cost and without changing the
rate of interest being earned by the Fund, through using futures contracts.
Description of Interest Rates Futures Contracts. An interest rate futures
contract sale would create an obligation by the Fund, as seller, to deliver the
specific type of financial instrument called for in the contract at a specific
future time for a specified price. A futures contract purchase would create an
obligation by the Fund, as purchaser, to take delivery of the specific
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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.
Interest rate futures contracts are traded in an auction environment on
the floors of several exchanges - principally, the Chicago Board of Trade, the
Chicago Mercantile Exchange and the New York Futures Exchange. The Fund would
deal only in standardized contracts on recognized changes. Each exchange
guarantees performance under contract provisions through a clearing corporation,
a nonprofit organization managed by the exchange membership.
A public market now exists in futures contracts covering various financial
instruments including long-term United States Treasury Bonds and Notes;
Government National Mortgage Association (GNMA) modified pass-through
mortgage-backed securities; three-month United States Treasury Bills; and
ninety-day commercial paper. The Fund may trade in any futures contract for
which there exists a public market, including, without limitation, the foregoing
instruments.
Examples of Futures Contract Sale. The Fund would engage in an interest
rate futures contract sale to maintain the income advantage from continued
holding of a long-term bond while endeavoring to avoid part or all of the loss
in market value that would otherwise accompany a decline in long-term securities
prices. Assume that the market value of a certain security in the Fund tends to
move in concert with the futures market prices of long-term United States
Treasury bonds ("Treasury Bonds"). The investment adviser ("Adviser") wishes to
fix the current market value of this portfolio security until some point in the
future. Assume the portfolio security has a market value of 100, and the Adviser
believes that, because of an anticipated rise in interest rates, the value will
decline to 95. The Fund might enter into futures contract sales of Treasury
bonds for an equivalent of 98. If the market value of the portfolio securities
does indeed decline from 100 to 95, the equivalent futures market price for the
Treasury bonds might also decline from 98 to 93.
In that case, the five-point loss in the market value of the portfolio
security would be offset by the five-point gain realized by closing out the
futures contract sale. Of course, the futures
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market price of Treasury bonds might well decline to more than 93 or to less
than 93 because of the imperfect correlation between cash and futures prices
mentioned below.
The Adviser could be wrong in its forecast of interest rates and the
equivalent futures market price could rise above 98. In this case, the market
value of the portfolio securities, including the portfolio security being
protected, would increase. The benefit of this increase would be reduced by the
loss realized on closing out the futures contract sale.
If interest rate levels did not change, the Fund in the above example
might incur a loss of 2 points (which might be reduced by an offsetting
transaction prior to the settlement date). In each transaction, transaction
expenses would also be incurred.
Examples of Future Contract Purchase. The Fund would engage in an interest
rate futures contract purchase when it is not fully invested in long-term bonds
but wishes to defer for a time the purchase of long-term bonds in light of the
availability of advantageous interim investments, e.g., shorter-term securities
whose yields are greater than those available on long-term bonds. The Fund's
basic motivation would be to maintain for a time the income advantage from
investing in the short-term securities; the Fund would be endeavoring at the
same time to eliminate the effect of all or part of an expected increase in
market price of the long-term bonds that the Fund may purchase.
For example, assume that the market price of a long-term bond that the
Fund may purchase, currently yielding 10%, tends to move in concert with futures
market prices of Treasury bonds. The Adviser wishes to fix the current market
price (and thus 10% yield) of the long-term bond until the time (four months
away in this example) when it may purchase the bond. Assume the long-term bond
has a market price of 100, and the Adviser believes that, because of an
anticipated fall in interest rates, the price will have risen to 105 (and the
yield will have dropped to about 9-1/2%) in four months. The Fund might enter
into futures contracts purchases of Treasury bonds for an equivalent price of
98. At the same time, the Fund would assign a pool of investments in short-term
securities that are either maturing in four months or earmarked for sale in four
months, for purchase of the long-term bond at an assumed market price of 100.
Assume these short-term securities are yielding 15%. If the market price of the
long-term bond does indeed rise from 100 to 105, the equivalent futures market
price for Treasury bonds might also rise from 98 to 103. In that case, the
5-point increase in the price that the Fund pays for the long-term bond would be
offset by the 5-point gain realized by closing out the futures contract
purchase.
The Adviser could be wrong in its forecast of interest rates; long-term
interest rates might rise to above 10%; and the equivalent futures market price
could fall below 98. If short-term rates at the same time fall to 10% or below,
it is possible that the Fund would continue with its purchase program for
long-term bonds. The market price of available long-term bonds would have
decreased. The benefit of this price decrease, and thus yield increase, will be
reduced by the loss realized on closing out the futures contract purchase.
If, however, short-term rates remained above available long-term rates, it
is possible that the Fund would discontinue its purchase program for long-term
bonds. The yield on short-term
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securities in the portfolio, including those originally in the pool assigned to
the particular long-term bond, would remain higher than yields on long-term
bonds. The benefit of this continued incremental income will be reduced by the
loss realized on closing out the futures contract purchase.
In each transaction, expenses also would be incurred.
II. Index Futures Contracts.
A stock or bond index assigns relative values to the stocks or bonds
included in the index, and the index fluctuates with changes in the market
values of the stocks or bonds included. Some stock index futures contracts are
based on broad market indices, such as the Standard & Poor's 500 or the Exchange
Composite Index. In contract, certain exchanges offer futures contracts on
narrower market indices, such as the Standard & Poor's 100, the Bond Buyer
Municipal Bond Index, an index composed of 40 term revenue and general
obligation bonds, or indices based on an industry or market segment, such as oil
and gas stocks. Futures contracts are traded on organized exchanges regulated by
the Commodity Futures Trading Commission. Transactions on such exchanges are
cleared through a clearing corporation, which guarantees the performance of the
parties to each contract.
The Fund will sell index futures contracts in order to offset a decrease
in market value of its portfolio securities that might otherwise result from a
market decline. The Fund may do so either to hedge the value of its portfolio as
a whole, or to protect against declines, occurring prior to sales of securities,
in the value of the securities to be sold. Conversely, the Fund will purchase
index futures contracts in anticipation of purchases of securities. In a
substantial majority of these transactions, the Fund will purchase such
securities upon termination of the long futures position, but a long futures
position may be terminated without a corresponding purchase of securities.
In addition, the Fund may utilize index futures contracts in anticipation
of changes in the composition of its portfolio holdings. For example, in the
event that the Fund expects to narrow the range of industry groups represented
in its holdings it may, prior to making purchases of the actual securities,
establish a long futures position based on a more restricted index, such as an
index comprised of securities of a particular industry group. The Fund also may
sell futures contracts in connection with this strategy, in order to protect
against the possibility that the value of the securities to be sold as part of
the restructuring of the portfolio will decline prior to the time of sale.
The following are examples of transactions in stock index futures (net of
commissions and premiums, if any).
ANTICIPATORY PURCHASE HEDGE: Buy the Future
Hedge Objection: Protect Against Increasing Price
<TABLE>
<CAPTION>
<S> <C>
Portfolio Futures
--------- -------
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-Day Hedge is Placed-
Anticipate Buying $62,500 Buying 1 Index Futures at 125
Equity Portfolio Value of Futures = $62,500/Contract
-Day Hedge is Lifted-
Buy Equity Portfolio with Sell 1 Index Futures at 130
Actual Cost = $65,000 Value of Futures = $65,000/Contract
Increase in Purchase Price =$2,500 Gain on Futures = $2,500
HEDGING A STOCK PORTFOLIO: Sell the Future
Hedge Objective: Protect Against Declining
Value of the Portfolio
Factors:
Value of Stock Portfolio = $1,000,000
Value of Futures Contract = 125 x $500 = $62,500
Portfolio Beta Relative to the Index - 1.0
Portfolio Futures
-Day Hedge is Placed --
Anticipate Selling $1,000,000 Sell 16 Index Futures at 125
Equity Portfolio Value of Futures = $1,000,000
-Day Hedge is Lifted --
Equity Portfolio-Own Buy 16 Index Futures at 120
Stock with Value = $960,000 Value of Futures = $960,000
Loss in Portfolio Value = $40,000 Gain on Futures = $40,000
If, however, the market moved in the opposite direction, that is, market
value decreased and the Fund had entered into an anticipatory purchase hedge, or
market value increased and the Fund had hedged its stock portfolio, the results
of the Fund's transactions in stock index futures would be as set forth below.
ANTICIPATORY PURCHASE HEDGE: Buy the Future
Hedge Objective: Protect Against Increasing Price
Portfolio Futures
--------- -------
A-5
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-Day Hedge is Placed--
Anticipate Buying $62,500 Buying 1 Index Futures at 125
Equity Portfolio Value of Futures = $62,500/Contract
-Day Hedge is Lifted--
Buy Equity Portfolio with Sell 1 Index Futures at 120
Actual Cost - $60,000 Value of Futures = $60,000/Contract
Decrease in Purchase Price = $2,500 Loss on Futures = $2,500/Contract
HEDGING A STOCK PORTFOLIO: Sell the Future
Hedge Objective: Protect Against Declining
Value of the Portfolio
Factors:
Value of Stock Portfolio = $1,000,000
Value of Futures Contract = 125 x $500 = $62,500
Portfolio Beta Relative to the Index = 1.0
Portfolio Futures
--------- -------
-Day Hedge is Placed --
Anticipate Selling $1,000,000 Sell 16 Index Futures at 125
Equity Portfolio Value of Futures = $1,000,000
-Day Hedge is Lifted --
Equity Portfolio-Own Buy 16 Index Futures at 130
Stock with Value = $1,040,000 Value of Futures = $1,040,000
Gain in Portfolio = $40,000 Loss of Futures = $40,000
</TABLE>
III. Margin Payments.
Unlike when the Fund purchases or sells a security, no price is paid or
received by the Fund upon the purchase or sale of a futures contract. Initially,
the Fund will be required to deposit with the broker or in a segregated account
with the Fund's Custodian an amount of cash or cash equivalents, the value, of
which may vary but is generally equal to 10% or less of the value of the
contract. This amount is known as initial margin. The nature of initial margin
in futures transactions is different from that of margin in security
transactions in that futures contract margin does not involve the borrowing of
Fund by the customer to finance the transactions. Rather, the initial margin is
in the nature of a performance bond or good faith deposit on the contract which
is
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returned to the Fund upon termination of the futures contract assuming all
contractual obligations have been satisfied. Subsequent payments, called
variation margin, to and from the broker, will be made on a daily basis as the
price of the underlying security or index fluctuates making the long and short
positions in the futures contract more or less valuable, a process known as
marking to the market. For example, when the Fund has purchased a futures
contract and the price of the contract has risen in response to a rise in the
underlying instruments, that position will have increased in value and the Fund
will be entitled to receive from the broker a variation margin payment equal to
that increase in value. Conversely, where the Fund has purchased a futures
contract and the price of the futures contract has declined in response to a
decrease in the underlying instruments, the position would be less valuable, and
the Fund would be required to make a variation margin payment to the broker. At
any time prior to expiration of the futures contract, the Adviser may elect to
close the position by taking an opposite position, subject to the availability
of a secondary market, which will operate to terminate the Fund's position in
the futures contract. A final determination of variation margin is then made,
additional cash is required to be paid by or released to the Fund, and the Fund
realizes a loss or gain.
IV. Risks of Transactions in Futures Contracts.
There are several risks in connection with the use of futures by the Fund
as a hedging device. One risk arises because of the imperfect correlation
between movements in the price of the future and movements in the price of the
securities which are the subject of the hedge. The price of the future may move
more than or less than the price of the securities being hedged. If the price of
the future moves less than the price of the securities which are the subject of
the hedge, the hedge will not be fully effective but, if the price of the
securities being hedged has moved in an unfavorable direction, the Fund would be
in a better position than if it had not hedged at all. If the price of the
securities being hedged has moved in a favorable direction, this advance will be
partially offset by the loss on the future. If the price of the future moves
more than the price of the hedged securities, the Fund involved will experience
either a loss or gain on the future which will not be completely offset by
movements in the price of the securities which are the subject of the hedge.
To compensate for the imperfect correlation of movements in the price of
securities being hedged and movements in the price of futures contracts, the
Fund may buy or sell futures contracts in a greater dollar amount than the
dollar amount of securities being hedged if the volatility over a particular
time period of the prices of such securities has been greater than the
volatility over such time period of the future, or if otherwise deemed to be
appropriate by the Adviser. Conversely, the Fund may buy or sell fewer futures
contracts if the volatility over a particular time period of the prices of the
securities being hedged is less than the volatility over such time period of the
futures contract being used, or if otherwise deemed to be appropriate by the
Adviser. It also is possible that, where the Fund has sold futures to hedge its
portfolio against a decline in the market, the market may advance, and the value
of securities held by the Fund may decline. If this occurred, the Fund would
lose money on the future and also experience a decline in value in its portfolio
securities.
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Where futures are purchased to hedge against a possible increase in the
price of securities before the Fund is able to invest its cash (or cash
equivalents) in securities (or options) in an orderly fashion, it is possible
that the market may decline instead; if the Fund then concludes not to invest in
securities or options at that time because of concern as to possible further
market decline or for other reasons, the Fund will realize a loss on the futures
contract that is not offset by a reduction in the price of securities purchased.
In instances involving the purchase of futures contracts by the Fund, an
amount of cash and cash equivalents, equal to the market value of the futures
contracts, will be deposited in a segregated account with the Fund's Custodian
and/or in a margin account with a broker to collateralize the position and
thereby insure that the use of such futures is unleveraged.
In addition to the possibility that there may be an imperfect correlation,
or no correlation at all, between movements in the futures and the securities
being hedged, the price of futures may not correlate perfectly with movement in
the cash market due to certain market distortions. Rather than meeting
additional margin deposit requirements, investors may close futures contracts
through off-setting transactions which could distort the normal relationship
between the cash and futures markets. Second, with respect to financial futures
contracts, the liquidity of the futures market depends on participants entering
into off-setting transactions rather than making or taking delivery. To the
extent participants decide to make or take delivery, liquidity in the futures
market could be reduced thus producing distortions. Third, from the point of
view of speculators, the deposit requirements in the futures market are less
onerous than margin requirements in the securities market. Therefore, increased
participation by speculators in the futures market may also cause temporary
price distortions. Due to the possibility of price distortion in the futures
market, and because of the imperfect correlation between the movements in the
cash market and movements in the price of futures, a correct forecast of general
market trends or interest rate movements by the Adviser still may not result in
a successful hedging transaction over a short time frame.
Positions in futures may be closed out only on an exchange or board of
trade which provides a secondary market for such futures. Although the Fund
intend to purchase or sell futures only on exchanges or boards of trade where
there appear to be active secondary markets, there is no assurance that a liquid
secondary market on any exchange or board of trade will exist for any particular
contract or at any particular time. In such event, it may not be possible to
close a futures investment position, and in the event of adverse price
movements, the Fund would continue to be required to make daily cash payments of
variation margin. However, in the event 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
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the daily limit has been reached in the contract, no trades may be entered into
at a price beyond the limit, thus preventing the liquidation of open futures
positions.
Successful use of futures by the Fund also is subject to the Adviser's
ability to predict correctly movements in the direction of the market. For
example, if the Fund has hedged against the possibility of a decline in the
market adversely affecting securities held in its portfolio and securities
prices increase instead, the Fund will lose part or all of the benefit to the
increased value of its securities which it has hedged because it will have
offsetting losses in its futures positions. In addition, in such situations, if
the Fund has insufficient cash, it may have to sell securities to meet daily
variation margin requirements. Such sales of securities may be, but will not
necessarily be, at increased prices which reflect the rising market. The Fund
may have to sell securities at a time when it may be disadvantageous to do so.
V. Options on Futures Contracts.
The Fund may purchase options on the futures contracts described above. A
futures option gives the holder, in return for the premium paid, the right to
buy (call) from or sell (put) to the writer of the option a futures contract at
a specified price at any time during the period of the option. Upon exercise,
the writer of the option is obligated to pay the difference between the cash
value of the futures contract and the exercise price. Like the buyer or seller
of a futures contract, the holder, or writer, of an option has the right to
terminate its position prior to the scheduled expiration of the option by
selling, or purchasing, an option of the same series, at which time the person
entering into the closing transaction will realize a gain or loss.
Investments in futures options involve some of the same considerations
that are involved in connection with investments in futures contracts (for
example, the existence of a liquid secondary market). In addition, the purchase
of an option also entails the risk that changes in the value of the underlying
futures contract will not be fully reflected in the value of the option
purchased. Depending on the pricing of the option compared to either the futures
contract upon which it is based, or upon the price of the securities being
hedged, an option may or may not be less risky than ownership of the futures
contract or such securities. In general, the market prices of options can be
expected to be more volatile than the market prices on the underlying futures
contract. Compared to the purchase or sale of futures contracts, however, the
purchase of call or put options on futures contracts may frequently involve less
potential risk to the Fund because the maximum amount at risk is the premium
paid for the options (plus transaction costs). Although permitted by its
fundamental investment policies, the Fund do not currently intend to write
future options, and will not do so in the future absent any necessary regulatory
approvals.
VI. Accounting and Tax Treatment.
Accounting for futures contracts and options will be in accordance with
generally accepted accounting principles.
Generally, futures contracts and options on futures contracts held by the
Fund at the close of the Fund's taxable year will be treated for Federal income
tax purposes as sold for their fair
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market value on the last business day of such year, a process known as
"marking-to-market." Forty percent (40%) of any gains or loss resulting from
such constructive sale will be treated as short-term capital gain or loss and
sixty percent (60%) of such gain or loss will be treated as long-term capital
gain or loss without regard to the length of time the Fund holds the futures
contract or option (the "40%-60% rule"). The amount of any capital gain or loss
actually realized by the Fund in a subsequent sale or other disposition of those
futures contracts will be adjusted to reflect any capital gain or loss taken
into account by the Fund in a prior year as a result of the constructive sale of
the contracts and options. With respect to futures contracts to sell or options
which will be regarded as parts of a "mixed straddle" because their values
fluctuate inversely to the values of specific securities held by the Fund,
losses as to such contracts to sell or options will be subject to certain loss
deferral rules which limit the amount of loss currently deductible on either
part of the straddle to the amount thereof which exceeds the unrecognized gain
(if any) with respect to the other part of the straddle, and to certain wash
sales regulations. Under short sales rules, which also will be applicable, the
holding period of the securities forming part of the straddle will (if they have
not been held for the long-term holding period) be deemed not to begin prior to
termination of the straddle. With respect to certain futures contracts and
options, deductions for interest and carrying charges will not be allowed.
Notwithstanding the rules described above, with respect to futures contracts to
sell which are properly identified as such and certain options, the Fund may
make an election which will except (in whole or in part) those identified
futures contracts or options from being treated for Federal income tax purposes
as sold on the last business day of the Fund's taxable year, but gains and
losses will be subject to such short sales, wash sales, loss deferral rules and
the requirement to capitalize interest and carrying charges. Under temporary
regulations, the Fund would be allowed (in lieu of the foregoing) to elect to
either (1) offset gains or losses from portions which are part of a mixed
straddle by separately identifying each mixed straddle to which such treatment
applies, or (2) establish a mixed straddle account for which gains and losses
would be recognized and offset on a periodic basis during the taxable year.
Under either election, the 40%-60% rule will apply to the net gain or loss
attributable to the futures contracts, but in the case of a mixed straddle
account election, not more than 50% of any net gain may be treated as long-term
and not more than 40% of any net loss may be treated as short-term.
Certain foreign currency contracts entered into by the Fund may be subject
to the "marking-to-market" process and the 40%-60% rule in a manner similar to
that described in the preceding paragraph for futures contracts and options on
futures contracts. To receive such Federal income tax treatment, a foreign
currency contract must meet the following conditions: (1) the contract must
require delivery of a foreign currency of a type in which regulated futures
contracts are traded or upon which the settlement value of the contract depends;
(2) the contract must be entered into at arm's length at a price determined by
reference to the price in the interbank market; and (3) the contract must be
traded in the interbank market. The Treasury Department has broad authority to
issue regulations under the provisions respecting foreign currency contracts.
Other foreign currency contracts entered into by the Fund may result in the
creation of one or more straddles for Federal income tax purposes, in which case
certain loss deferral, short sales, and wash sales rules and the requirement to
capitalize interest and carrying charges may apply.
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As described more full in the section of the SAI entitled "Additional
Information Concerning Taxes," in order to qualify as a regulated investment
company under the Code the Fund must derive less than 30% of its gross income
from investments held for less than three months. With respect to futures
contracts and other financial instruments subject to the marking-to-market
rules, the Internal Revenue Service has ruled in private letter rulings that a
gain realized from such a futures contract or financial instrument will be
treated as being derived from a security held for three months or more
(regardless of the actual period for which the contract or instrument is held)
if the gain arises as a result of a constructive sale under the
marking-to-market rules, and will be treated as being derived from a security
held for less than three months only if the contract or instrument is terminated
(or transferred) during the taxable year (other than by reason of
marking-to-market) and less than three months have elapsed between the date the
contract or instrument is acquired and the termination date. In determining
whether the 30% test is met for a taxable year, increases and decreases in the
value of the Fund's futures contracts and other investments that qualify as part
of a "designated hedge," as defined in the Code, may be netted.
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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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<PAGE>
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.
2
<PAGE>
(1)(l) Certificate relating to the establishment of money market funds'
Investor C shares dated July 8, 1993, is incorporated by
reference to Post-Effective Amendment No. 29, filed September 30,
1993.
(1)(m) Certificate relating to the establishment of the Equity Index,
Short-Term Municipal Income, Florida Municipal Bond, Georgia
Municipal Bond, North Carolina Municipal Bond, South Carolina
Municipal Bond, Tennessee Municipal Bond, Texas Municipal Bond
and Virginia Municipal Bond Funds dated September 22, 1993, is
incorporated by reference to Post-Effective Amendment No. 29,
filed September 30, 1993.
(1)(n) Certificate relating to the establishment of the Special Equity
Fund is incorporated by reference to Post-Effective Amendment No.
30, filed December 1, 1993.
(1)(o) Certificate relating to the redesignation of Investor B Shares
and Investor C Shares of the non-money market funds to "Investor
C Shares" and "Investor N Shares," respectively, is incorporated
by reference by Post-Effective Amendment No. 32, filed March 29,
1994.
(1)(p) Certificate relating to the Classification of Shares of the Money
Market Fund and the Tax Exempt Fund creating "Investor D Shares,"
is incorporated by reference to Post-Effective Amendment No. 36,
filed January 31, 1995.
(1)(q) Classification of Shares relating to the renaming of Nations
Special Equity Fund is incorporated by reference to
Post-Effective Amendment No. 36, filed January 31, 1995.
(1)(r) Certificate relating to the establishment of Nations Tax-Managed
Equity Fund's Series of Shares is incorporated by reference to
Post-Effective Amendment No. 40, filed October 20, 1995.
(2)(a) Amended and Restated Code of Regulations as approved and adopted
by Registrant's Board of Trustees is incorporated by reference to
Pre-Effective Amendment No. 2, filed October 4, 1985.
(2)(b) Amendment to the Code of Regulations as approved and adopted by
Registrant's Board of Trustees on June 24, 1992, is incorporated
by reference to Post-Effective Amendment No. 22, filed July 30,
1992.
(3) None.
(4)(a) Specimen copies of share certificates, to be filed by amendment.
(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.
3
<PAGE>
(5)(b) Sub-Advisory Agreement among NBAI, TradeStreet Investment
Associates, Inc. ("TradeStreet") and the Registrant is
incorporated by reference to Post-Effective Amendment No. 41,
filed January 29, 1996.
(6)(a) Distribution Agreement between Stephens Inc. and Registrant for
all classes of shares of Nations Fund Trust is incorporated by
reference to Post-Effective Amendment No. 37, filed March 31,
1995.
(7) None.
(8) Mutual Fund Custody and Sub-Custody Agreement between Registrant,
NationsBank of Texas, N.A. ("NationsBank Texas") and The Bank of
New York, dated October 18, 1996, is 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,
Mortgage-Backed Securities Fund, Florida Municipal Bond Fund,
North Carolina Municipal Bond Fund and Texas Municipal Bond Fund,
is incorporated by reference to Post-Effective Amendment No. 26,
filed March 26, 1993.
4
<PAGE>
(9)(g) Amendment No. 2 dated February 3, 1993, to the Transfer Agency
Agreement between Registrant and NationsBank Texas, dated April
25, 1992, relating to the Tennessee Municipal Bond Fund and
Municipal Income Fund, is incorporated by reference to
Post-Effective Amendment No. 26, filed March 26, 1993.
(9)(h) Amendment No. 3 to the Transfer Agency Agreement relating to the
Equity Index Fund, Florida Municipal Bond Fund, Georgia Municipal
Bond Fund, Maryland Municipal Bond Fund, North Carolina Municipal
Bond Fund, South Carolina Municipal Bond Fund, Tennessee
Municipal Bond Fund, Texas Municipal Bond Fund and Virginia
Municipal Bond Fund, is incorporated by reference to
Post-Effective Amendment No. 29, filed September 30, 1993.
(9)(h)(i) Amendment No. 4 to the Transfer Agency Agreement relating to
Nations Tax-Managed Equity Fund is incorporated by reference to
Post-Effective Amendment No. 40, filed October 20, 1995.
(9)(i) Cross Indemnification Agreement dated June 27, 1995, between the
Trust, Nations Fund, Inc. and Nations Fund Portfolios, Inc.
incorporated by reference to Post-Effective No. 39, filed
September 28, 1995.
(9)(j) Form of Shareholder Servicing Agreement relating to Primary B
Shares is incorporated by reference to Post-Effective Amendment
No. 27, filed May 27, 1993.
(9)(k) Shareholder Servicing Plan for Investor A Shares is incorporated
by reference to Post-Effective Amendment No. 32, filed March 29,
1994.
(9)(l) Forms of Shareholder Servicing Agreement for Investor A Shares
are incorporated by reference to Post-Effective Amendment No. 32,
filed March 29, 1994.
(9)(m) Shareholder Servicing Plan for Investor B Shares of the money
market funds and Investor C Shares (formerly Investor B Shares)
of the non-money market funds, is incorporated by reference to
Post-Effective Amendment No. 32, filed March 29, 1994.
(9)(n) Forms of Shareholder Servicing Agreement for Investor B Shares of
the money market funds and Investor C Shares (formerly Investor B
Shares) of the non-money market funds, are incorporated by
reference to Post-Effective Amendment No. 32, filed March 29,
1994.
(9)(o) Shareholder Servicing Plan for Investor C Shares of the money
market funds and Investor 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.
5
<PAGE>
(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 to be filed by amendment.
(11) Consent of Independent Accountants (Price Waterhouse LLP) to be
filed by amendment.
(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.
(15)(g) Shareholder Administration Plan for Primary B Shares is
incorporated by reference to Post-Effective Amendment No. 41,
filed January 29, 1996.
6
<PAGE>
(16)(a) Schedules for Computation of Primary A Shares is incorporated by
reference to Post-Effective Amendment No. 37, filed March 31,
1995.
(16)(b) Schedules for Computation of Primary B Shares shall be filed by
Amendment.
(16)(c) Schedules for Computation of Investor A Shares is incorporated by
reference to Post-Effective Amendment No. 37, filed March 31,
1995.
(16)(d) Schedules for Computation of Investor C Shares (formerly Investor
B Shares) is incorporated by reference to Post-Effective
Amendment No. 37, filed March 31, 1995.
(16)(e) Schedules for Computation of Investor 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 is incorporated by
reference to Post-Effective Amendment No. 44, filed July 25,
1996.
Item 25. Persons Controlled By or Under Common Control with Registrant
Registrant is controlled by its Board of Trustees.
Item 26. Number of Holders of Securities
The following information is as of July 1, 1998.
Number of
Title of Class Record Holders
- -------------- --------------
Nations Government Money Market Fund - Investor A 814
- Investor B 54
- Investor C 39
- Daily 46
- Primary A 2
- Primary B 1
Nations Tax Exempt Fund - Investor A 3,441
- Investor B 443
7
<PAGE>
- Investor C 438
- Daily 68
- Primary A 162
- Primary B 1
Nations Value Fund - Investor A 5,131
- Investor B 8,071
- Investor C 676
- Primary A 66
- Primary B 4
Nations Capital Growth Fund - Investor A 1,771
- Investor B 3,854
- Investor C 250
- Primary A 29
- Primary B 3
Nations Emerging Growth Fund - Investor A 1,422
- Investor B 4,124
- Investor C 128
- Primary A 7
- Primary B 2
Nations Disciplined Equity Fund - Investor A 780
- Investor B 2,058
- Investor C 68
- Primary A 22
- Primary B 1
Nations Equity Index Fund - Primary A 21
- Primary B 3
- Investor A 155
Nations Managed Index Fund - Investor A 605
- Investor C 39
- Primary A 77
- Primary B 2
Nations Managed SmallCap Index Fund - Investor A 923
- Investor C 19
- Primary A 33
- Primary B 2
Nations Managed Value Index Fund - Investor A 47
- Investor C 1
8
<PAGE>
- Primary A 12
- Primary B 1
Nations Managed SmallCap Value Index Fund - Investor A 19
- Investor C 2
- Primary A 5
- Primary B 1
Nations Marsico Focused Equities Fund - Investor A 0
- Investor B 0
- Investor C 0
- Primary A 0
Nations Marsico Growth & Income Fund - Investor A 0
- Investor B 0
- Investor C 0
- Primary A 0
Nations Balanced Assets Fund - Investor A 624
- Investor B 3,689
- Investor C 84
- Primary A 13
- Primary B 2
Nations Short-Intermediate - Investor A 1,137
Government Fund - Investor B 467
- Investor C 243
- Primary A 27
- Primary B 4
Nations Short-Term Income Fund - Investor A 196
- Investor B 310
- Investor C 81
- Primary A 12
- Primary B 1
Nations Diversified Income Fund - Investor A 452
- Investor B 3,387
- Investor C 121
- Primary A 7
- Primary B 2
Nations Strategic Fixed Income - Investor A 356
Fund - Investor B 125
- Investor C 31
9
<PAGE>
- Primary A 36
- Primary B 9
Nations Municipal Income Fund - Investor A 313
- Investor B 340
- Investor C 79
- Primary A 4
- Primary B 0
Nations Intermediate Municipal - Investor A 78
Bond Fund - Investor B 43
- Investor C 8
- Primary A 6
- Primary B 0
Nations Short-Term Municipal - Investor A 145
Income Fund - Investor B 137
- Investor C 9
- Primary A 3
- Primary B 0
Nations Florida Intermediate - Investor A 68
Municipal Bond Fund - Investor B 101
- Investor C 7
- Primary A 3
- Primary B 0
Nations Georgia Intermediate - Investor A 197
Municipal Bond Fund - Investor B 153
- Investor C 36
- Primary A 7
- 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 276
Municipal Bond Fund - Investor B 184
- Investor C 54
- Primary A 1
- Primary B 0
Nations Missouri Intermediate - Investor A 0
10
<PAGE>
Municipal Bond Fund - Investor B 0
- Investor C 0
- Primary A 0
Nations North Carolina Intermediate - Investor A 131
Municipal Bond Fund - Investor B 176
- Investor C 26
- Primary A 1
- Primary B 0
Nations South Carolina Intermediate - Investor A 201
Municipal Bond Fund - Investor B 179
- Investor C 93
- Primary A 3
- Primary B 0
Nations Tennessee Intermediate - Investor A 59
Municipal Bond Fund - Investor B 59
- Investor C 2
- Primary A 3
- Primary B 0
Nations Texas Intermediate - Investor A 26
Municipal Bond Fund - Investor B 80
- Investor C 3
- Primary A 2
- Primary B 0
Nations Virginia Intermediate - Investor A 781
Municipal Bond Fund - Investor B 342
- Investor C 104
- Primary A 2
- Primary B 0
Nations Virginia Municipal Bond - Investor A 16
Fund - Investor B 453
- Investor C 2
- Primary A 1
- Primary B 0
Nations Maryland Municipal Bond - Investor A 15
Fund - Investor B 321
- Investor C 2
- Primary A 2
- Primary B 0
11
<PAGE>
Nations North Carolina Municipal - Investor A 35
Bond Fund - Investor B 580
- Investor C 2
- Primary A 3
- Primary B 0
Nations South Carolina Municipal - Investor A 18
Bond Fund - Investor B 232
- Investor C 3
- Primary A 1
- Primary B 0
Nations Florida Municipal Bond Fund - Investor A 14
- Investor B 374
- Investor C 2
- Primary A 2
- Primary B 0
Nations Georgia Municipal Bond Fund - Investor A 9
- Investor B 274
- Investor C 3
- Primary A 2
- Primary B 0
Nations Tennessee Municipal Bond - Investor A 11
Fund - Investor B 124
- Investor C 3
- Primary A 2
- Primary B 0
Nations Texas Municipal Bond Fund - Investor A 11
- Investor B 240
- 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 employees. Indemnification
of Registrant's administrator, principal underwriter, custodian, and
transfer agent is provided for, respectively, in:
12
<PAGE>
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 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
13
<PAGE>
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 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
14
<PAGE>
is a wholly owned banking subsidiary of NationsBank Corporation. Information
with respect to each director and officer of the sub-investment adviser is
incorporated by reference to Form filed by TradeStreet with the Securities and
Exchange Commission pursuant to the Investment Advisers Act of 1940 (file no.
801-50372).
Item 29. Principal Underwriter
(a) Stephens Inc., distributor for the Registrant, does not presently act
as investment adviser for any other registered investment companies, but does
act as principal underwriter for the Overland Express Funds, Inc., Stagecoach
Inc., Stagecoach Funds, Inc. and Stagecoach Trust and is the exclusive placement
agent for Master Investment Trust, Managed Series Investment Trust, Life &
Annuity Trust and Master Investment Portfolio, all of which are registered
open-end management investment companies, and has acted as principal underwriter
for the Liberty Term Trust, Inc., Nations Government Income Term Trust 2003,
Inc., Nations Government Income Term Trust 2004, Inc. and the Managed Balanced
Target Maturity Fund, Inc., closed-end management investment companies.
(b) Information with respect to each director and officer of the principal
underwriter is incorporated by reference to Form ADV filed by Stephens Inc. with
the Securities and Exchange Commission pursuant to the Investment Advisers Act
of 1940 (file #501-15510).
(c) Not applicable.
Item 30. Location of Accounts and Records
(1) NBAI, One NationsBank Plaza, Charlotte, North Carolina 28255
(records relating to its function as Investment Adviser).
(2) TradeStreet, One NationsBank Plaza, Charlotte, North Carolina
28255 (records relating to its function as sub-adviser).
(3) Stephens Inc., 111 Center Street, Little Rock, Arkansas 72201
(records relating to its function as Distributor).
(4) Stephens Inc., 111 Center Street, Little Rock, Arkansas 72201
(records relating to its function as Administrator).
(5) The First Data Investors Services Group, Inc., One Exchange Place,
Boston, Massachusetts 02109 (records relating to its function as
Co-Administrator and Transfer Agent).
(6) NationsBank Texas, 1401 Elm Street, Dallas, Texas 75202 (records
relating to its function as Sub-Transfer Agent and Custodian).
15
<PAGE>
(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
15th day of July, 1998.
NATIONS FUND TRUST
By: *
--------------------------------
A. Max Walker
President and Chairman
of the Board of Trustees
By: /s/ Richard H. Blank, Jr.
--------------------------------
Richard H. Blank, Jr.
*Attorney-in-Fact
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to the Registration Statement has been signed below by
the following persons in the capacities and on the date indicated:
<TABLE>
<CAPTION>
<S> <C>
SIGNATURES TITLE DATE
---------- ----- ----
* President and Chairman July 15, 1998
- ----------------------------------------
(A. Max Walker) of the Board of Trustees
(Principal Executive Officer)
* Treasurer July 15, 1998
- ----------------------------------------
(Richard H. Rose) Vice President
(Principal Financial and
Accounting Officer)
* Trustee July 15, 1998
- ----------------------------------------
(Edmund L. Benson, III)
* Trustee July 15, 1998
- ----------------------------------------
(James Ermer)
* Trustee July 15, 1998
- ----------------------------------------
(William H. Grigg)
* Trustee July 15, 1998
- ----------------------------------------
(Thomas F. Keller)
* Trustee July 15, 1998
(Carl E. Mundy, Jr.)
* Trustee July 15, 1998
- ----------------------------------------
(Charles B. Walker)
* Trustee July 15, 1998
- ----------------------------------------
(Thomas S. Word)
* Trustee July 15, 1998
- ----------------------------------------
(James B. Sommers)
/s/ Richard H. Blank, Jr.
- ----------------------------------------
Richard H. Blank, Jr.
*Attorney-in-Fact
</TABLE>
