As filed with the Securities and Exchange Commission
on April 16, 1999
Registration No. 2-97817; 811-4305
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
Post-Effective Amendment No. 59 [X]
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
Amendment No. 61 [X]
(Check appropriate box or boxes)
-----------------------
NATIONS FUND TRUST
(Exact Name of Registrant as specified in Charter)
111 Center Street
Little Rock, Arkansas 72201
(Address of Principal Executive Offices, including Zip Code)
--------------------------
Registrant's Telephone Number, including Area Code: (800) 321-7854
Richard H. Blank, Jr.
c/o Stephens Inc.
111 Center Street
Little Rock, Arkansas 72201
(Name and Address of Agent for Service)
With copies to:
Robert M. Kurucza, Esq. Carl Frischling, Esq.
Marco E. Adelfio, Esq. Kramer, Levin, Naftalis
Morrison & Foerster LLP & Frankel
2000 Pennsylvania Ave., N.W. 919 3rd Avenue
Suite 5500 New York, New York 10022
Washington, D.C. 20006
It is proposed that this filing will become effective (check appropriate box):
[ ] Immediately upon filing pursuant [ ] on (date) pursuant
to Rule 485(b), or to Rule 485(b), or
[X] 60 days after filing pursuant [ ] on (date) pursuant
to Rule 485(a), or to Rule 485(a).
[ ] 75 days after filing pursuant to [ ] on (date) pursuant to
paragraph (a)(2) paragraph(a)(2) of Rule 485
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
The Registrant is filing this Post-Effective Amendment No. 59 to the
Company's Registration Statement for the purpose of filing the prospectus for
the Nations Equity Funds prepared under new Form N-1A.
<PAGE>
NATIONS FUND TRUST
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
Part A
Item No. Prospectus
- -------- ----------
<S> <C>
1. Cover Page ...................................... Cover Page
2. Synopsis ........................................ Expenses Summary
3. Condensed Financial
Information ..................................... Financial Highlights; How
Performance Is Shown
4. General Description of
Registrant ...................................... Cover Page; Objectives; How
Objectives Are Pursued; Organization And History
5. Management of the Fund .......................... How The Funds Are Managed
6. Capital Stock and Other
Securities ...................................... How To Buy Shares; How The
Funds Value Their Shares; How Dividends And
Distributions Are Made; Tax Information
7. Purchase of Securities Being
Offered ......................................... Cover Page; How To Buy Shares
8. Redemption or Repurchase ........................ How To Redeem Shares; How To
Exchange Shares
9. Legal Proceedings ............................... Organization And History
Part B
Item No.
- --------
10. Cover Page....................................... Cover Page
11. Table of Contents................................ Table of Contents
12. General Information and
History.......................................... Introduction
<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
</TABLE>
<PAGE>
Part C
Item No. Other Information
- -------- -----------------
Information required to be
included in Part C is set
forth under the
appropriate Item, so
numbered, in Part C of
this Document
<PAGE>
<PAGE>
[GRAPHIC GOES HERE]
EQUITY FUNDS
PROSPECTUS -- INVESTOR A, B AND C SHARES
AUGUST 1, 1999
Equity Funds
NATIONS VALUE FUND
NATIONS EQUITY INCOME FUND
NATIONS EMERGING GROWTH FUND
NATIONS SMALL COMPANY GROWTH FUND
NATIONS DISCIPLINED EQUITY FUND
NATIONS CAPITAL GROWTH FUND
NATIONS MARSICO FOCUSED EQUITIES FUND
NATIONS MARSICO GROWTH & INCOME FUND
Balanced Fund
NATIONS BALANCED ASSETS FUND
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
[GRAPHIC GOES HERE]
- -----------------
NOT FDIC
INSURED
- -----------------
MAY LOSE VALUE
- -----------------
NO BANK GUARANTEE
- -----------------
<PAGE>
ABOUT THIS PROSPECTUS
- --------------------------------------------------------------------------------
[GRAPHIC GOES HERE]
TERMS USED IN THIS PROSPECTUS
IN THIS PROSPECTUS, WE, US AND OUR REFER TO THE NATIONS FUNDS
FAMILY (NATIONS FUNDS). SOME OTHER IMPORTANT TERMS WE'VE USED
MAY BE NEW TO YOU. THESE ARE PRINTED IN ITALICS WHERE THEY FIRST
APPEAR IN A SECTION AND ARE DESCRIBED IN TERMS USED IN THIS
PROSPECTUS.
[GRAPHIC GOES HERE]
YOU'LL FIND TERMS USED IN
THIS PROSPECTUS ON PAGE 0.
[GRAPHIC GOES HERE]
FOR MORE INFORMATION
YOU'LL FIND MORE INFORMATION ABOUT THE FUNDS IN THE STATEMENT OF
ADDITIONAL INFORMATION (SAI). THE SAI INCLUDES DETAILED
INFORMATION ABOUT EACH FUND'S INVESTMENTS, POLICIES, PERFORMANCE
AND MANAGEMENT, AMONG OTHER THINGS. THE SAI IS LEGALLY
CONSIDERED TO BE PART OF THIS PROSPECTUS BECAUSE IT'S
INCORPORATED BY REFERENCE. TURN TO THE BACK COVER TO FIND OUT
HOW YOU CAN GET A COPY OF THE SAI.
This booklet, which is called a prospectus, tells you about some of the Nations
Funds Equity Funds and the Nations Balanced Fund. Please read it carefully
because it contains information that's designed to help you make informed
investment decisions.
The Equity Funds focus on long-term growth by investing primarily in EQUITY
SECURITIES. EQUITIES have the potential to earn higher returns than many other
kinds of investments, but there's also the risk that you'll lose money, or you
may not earn as much as you expect.
This makes these Funds best suited for longer-term investment goals, like
retirement, or as part of a balanced portfolio. They may also help protect
against a loss of buying power that inflation can cause over time.
The Balanced Fund invests in a mix of equity and FIXED INCOME SECURITIES, and
MONEY MARKET INSTRUMENTS. This Fund may be suitable for investors who want the
potential for both long-term growth and income, or who want a diversified
portfolio in a single mutual fund.
The Equity and Balanced Funds may not be suitable for people who are not
prepared to accept or are unable to bear the risks associated with equity
securities, who have short-term investment goals, or who are looking for a
regular stream of income.
You'll find a discussion of each Fund's principal investments, strategies and
risks in the Fund descriptions that start on page .
If you have any questions about the Funds, please call us at 1.800.321.7854 or
contact your investment professional.
[GRAPHIC GOES HERE]
NATIONS FUND
INVESTMENTS FOR A LIFETIME (TM)
2
<PAGE>
WHAT'S INSIDE
- --------------------------------------------------------------------------------
[GRAPHIC GOES HERE]
NATIONSBANC ADVISORS, INC.
(NBAI) IS THE INVESTMENT ADVISER TO EACH OF THE FUNDS. NBAI IS
RESPONSIBLE FOR THE OVERALL MANAGEMENT AND SUPERVISION OF THE
INVESTMENT MANAGEMENT OF EACH FUND. NBAI AND NATIONS FUNDS HAVE
ENGAGED SUB-ADVISERS, WHICH ARE GENERALLY RESPONSIBLE FOR THE
DAY-TO-DAY INVESTMENT DECISIONS FOR EACH OF THE FUNDS.
[GRAPHIC GOES HERE]
YOU'LL FIND MORE ABOUT
NBAI AND THE SUB-ADVISERS
STARTING ON PAGE .
THE EQUITY FUNDS RANGE FROM BROADLY DIVERSIFIED TO MORE
SPECIALIZED FUNDS THAT INVEST PRIMARILY IN EQUITY SECURITIES OF
COMPANIES IN THE U.S.
THE BALANCED FUND INVESTS IN A MIX OF EQUITY AND FIXED INCOME
SECURITIES AND MONEY MARKET INSTRUMENTS.
<TABLE>
[GRAPHIC GOES HERE]
<S> <C>
ABOUT THE FUNDS
EQUITY FUNDS
NATIONS VALUE FUND 00
Sub-adviser: TradeStreet Investment Associates, Inc.
- ------------------------------------------------------
NATIONS EQUITY INCOME FUND 00
Sub-adviser: TradeStreet Investment Associates, Inc.
- ------------------------------------------------------
NATIONS EMERGING GROWTH FUND 00
Sub-adviser: TradeStreet Investment Associates, Inc.
- ------------------------------------------------------
NATIONS SMALL COMPANY FUND 00
Sub-adviser: TradeStreet Investment Associates, Inc.
- ------------------------------------------------------
NATIONS DISCIPLINED EQUITY FUND 00
Sub-adviser: TradeStreet Investment Associates, Inc.
- ------------------------------------------------------
NATIONS CAPITAL GROWTH FUND 00
Sub-adviser: TradeStreet Investment Associates, Inc.
- ------------------------------------------------------
NATIONS MARSICO FOCUSED EQUITIES FUND 00
Sub-adviser: Marsico Capital Management, LLC
- ------------------------------------------------------
NATIONS MARSICO GROWTH & INCOME FUND 00
Sub-adviser: Marsico Capital Management, LLC
BALANCED FUND
NATIONS BALANCED ASSETS FUND 00
Sub-adviser: TradeStreet Investment Associates, Inc.
- ------------------------------------------------------
OTHER IMPORTANT INFORMATION 00
- ------------------------------------------------------ --
HOW THE FUNDS ARE MANAGED 00
[GRAPHIC GOES HERE]
ABOUT YOUR INVESTMENT
INFORMATION FOR INVESTORS 00
Choosing a share class 00
Buying, selling and exchanging shares 00
How selling agents are paid 00
Distributions and taxes 00
- ------------------------------------------------------ --
FINANCIAL HIGHLIGHTS 00
- ------------------------------------------------------ --
TERMS USED IN THIS PROSPECTUS 00
- ------------------------------------------------------ --
WHERE TO FIND MORE INFORMATION BACK COVER
</TABLE>
3
<PAGE>
ABOUT THE EQUITY FUNDS
- --------------------------------------------------------------------------------
[GRAPHIC GOES HERE]
ABOUT THE SUB-ADVISER
TRADESTREET INVESTMENT ASSOCIATES, INC. (TRADESTREET) IS THIS
FUND'S SUB-ADVISER. TRADESTREET'S VALUE MANAGEMENT TEAM MAKES
THE DAY-TO-DAY INVESTMENT DECISIONS FOR THE FUND.
[GRAPHIC GOES HERE]
YOU'LL FIND MORE ABOUT TRADESTREET ON PAGE 00.
[GRAPHIC GOES HERE]
WHAT IS VALUE INVESTING?
VALUE INVESTING MEANS LOOKING FOR "UNDERVALUED" COMPANIES --
QUALITY COMPANIES THAT MAY BE CURRENTLY OUT OF FAVOR AND SELLING
AT A REDUCED PRICE, BUT THAT HAVE GOOD POTENTIAL TO INCREASE IN
VALUE.
THE MANAGEMENT TEAM USES FUNDAMENTAL ANALYSIS TO HELP DECIDE
WHETHER THE CURRENT STOCK PRICE OF A COMPANY MAY BE LOWER THAN
THE COMPANY'S TRUE VALUE, AND THEN LOOKS FOR THINGS THAT COULD
TRIGGER A RISE IN PRICE, LIKE A NEW PRODUCT LINE, NEW PRICING OR
A CHANGE IN MANAGEMENT. THIS TRIGGER IS OFTEN CALLED A
"CATALYST."
NATIONS VALUE FUND
[GRAPHIC GOES HERE]
INVESTMENT OBJECTIVE
This Fund seeks growth of capital by investing in companies that are
believed to be undervalued.
[GRAPHIC GOES HERE]
PRINCIPAL INVESTMENT STRATEGIES
The Fund normally invests at least 65% of its assets in COMMON STOCKS of
U.S. companies. It generally invests in companies in a broad range of
industries with market capitalizations of at least $1 billion and daily
trading volumes of at least $3 million.
The Fund also may invest up to 10% of its assets in other kinds of
securities, which are described in the SAI.
The management team uses FUNDAMENTAL ANALYSIS to identify stocks of companies
that it believes are undervalued. When selecting investments, the management
team looks at, among other things:
o the quality of the company
o the company's projected earnings and dividends
o the stock's PRICE-TO-EARNINGS RATIO relative to other stocks in the same
industry or economic sector. The team believes that companies with lower
price-to-earnings ratios are generally more likely to provide better
opportunities for capital appreciation
o the stock's potential to provide total return
o the value of the stock relative to the overall stock market
The team also looks for a "catalyst" for improved earnings. This could be, for
example, a new product, new management or a new sales channel.
The team tries to provide above-average returns while trying to avoid
above-average risks.
The management team may use various strategies, consistent with the Fund's
investment objective, to try to reduce the amount of CAPITAL GAINS distributed
to shareholders. For example, the team:
o may limit the number of buy and sell transactions it makes
o will try to sell shares that have the lowest tax burden on shareholders
o may offset capital gains by selling securities to realize a CAPITAL LOSS
While the Fund tries to manage its capital gain distributions, it will not be
able to completely avoid making taxable distributions. These strategies also
may be affected by changes in tax laws and regulations, or by court decisions.
4
<PAGE>
[GRAPHIC GOES HERE]
YOU'LL FIND MORE ABOUT
OTHER RISKS OF INVESTING IN
THISFUND ON PAGE 00 AND
INTHE SAI.
[GRAPHIC GOES HERE]
THE BAR CHART SHOWS YOU THE PERFORMANCE OF THE FUND'S INVESTOR A
SHARES. THESE RETURNS DO NOT REFLECT DEDUCTIONS OF SALES CHARGES
OR ACCOUNT FEES, AND WOULD BE LOWER IF THEY DID. RETURNS FOR
INVESTOR B AND INVESTOR C SHARES ARE DIFFERENT BECAUSE THEY HAVE
THEIR OWN EXPENSES, PRICING AND SALES CHARGES.
[GRAPHIC GOES HERE]
RISKS AND OTHER THINGS TO CONSIDER
While investing in undervalued companies can bring added benefits, it
may also involve additional risks. Investors could lose money on their
investment in the portfolio, or the portfolio may not perform as well as
other investments. Nations Value Fund has the following general risks:
o INVESTMENT STRATEGY RISK - The management team chooses stocks that it
believes are undervalued, with the expectation that they will rise in
value. There is a risk that the value of these investments will not
rise as high as the team expects, or will fall.
o STOCK MARKET RISK - The value of the stocks the Fund holds, like the
stock market in general, can rise or fall over short as well as long
periods.
[GRAPHIC GOES HERE]
A LOOK AT THE FUND'S PERFORMANCE
Looking at past performance can give you an idea of a Fund's volatility
from year to year and its average returns over time. Performance will
vary based on many factors, including market conditions, the composition
of the Fund's holdings and the Fund's expenses. A FUND'S PAST
PERFORMANCE IS NO GUARANTEE OF HOW IT WILL PERFORM IN THE FUTURE.
YEAR BY YEAR TOTAL RETURN (%)
[GRAPHIC GOES HERE]
00% 00% 00% 00% 00% 00% 00%
- ---------------------------------------------------
1900 1900 1900 1900 1900 1900 1900
BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD:
<TABLE>
<S> <C>
Best -- 0 quarter 1900: 0%
Worst -- 0 quarter 1900: 0%
Year-to-date return as of 00: 0%
</TABLE>
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 1998
<TABLE>
<CAPTION>
1 year 5 years 10 years
<S> <C> <C> <C>
Investor A Shares 0.00% 0.00% 0.00%
Investor B Shares 0.00% 0.00% 0.00%
Investor C Shares 0.00% 0.00% 0.00%
S&P 500 0.00% 0.00% 0.00%
</TABLE>
The S&P 500 (Standard & Poor's 500 Composite Stock Price Index) is an
index of 500 common stocks chosen by Standard & Poor's on a statistical
basis.
5
<PAGE>
[GRAPHIC GOES HERE]
THERE ARE TWO KINDS OF FEES -- THOSE YOU PAY DIRECTLY, AND
ONGOING FEES AND EXPENSES THAT ARE DEDUCTED FROM THE FUND'S
ASSETS.
[GRAPHIC GOES HERE]
THIS IS AN EXAMPLE ONLY. YOUR ACTUAL COSTS COULD BE HIGHER OR
LOWER, DEPENDING ON THE AMOUNT YOU INVEST, AND ON THE FUND'S
ACTUAL EXPENSES AND PERFORMANCE.
[GRAPHIC GOES HERE]
WHAT IT COSTS TO INVEST IN THE FUND
<TABLE>
<CAPTION>
Investor A Investor B Investor C
Fees you pay directly Shares Shares Shares
<S> <C> <C> <C>
Maximum sales charge (load)
when you buy your shares 5.75% none none
Maximum deferred sales charge
(load) when you sell your shares none(1) 5.00%(2) 1.00%(3)
Redemption fee, as a percentage
of the amount sold none(4) none none
Ongoing fees and expenses deducted from the Fund's assets
(the Fund's operating expenses) (5)
Management fees 0.00% 0.00% 0.00%
Distribution (12b-1) and service fees 0.00% 0.00% 0.00%
Other expenses 0.00% 0.00% 0.00%
Total annual fund operating expenses 0.00% 0.00% 0.00%
</TABLE>
(1)A 1.00% maximum deferred sales charge applies to investors who buy $1
million or more of Investor A Shares and sell them within two years of
buying them. Please see page 00 for details.
(2)This charge decreases over time. Please see page 00 for details.
Different charges apply to Investor B Shares bought before January 1,
1996 and after July 31, 1997. Please see page 00 for details.
(3)This charge applies to investors who buy Investor C Shares and sell
them within one year of buying them. Please see page 00 for details.
(4)A 1.00% redemption fee applies to investors who bought $1 million or
more of Investor A Shares between July 31, 1997 and November 15, 1998
and sell them within 18 months of buying them. The fee is paid to the
Fund. Please see page 00 for details.
(5)The Fund's investment adviser and some of the Fund's other service
providers have agreed to waive fees or reimburse expenses until August
1, 2000. The figures shown here are after waivers and reimbursements.
Total actual Fund operating expenses last year were 0.00% for Investor
A Shares, 0.00% for Investor B Shares, and 0.00% for Investor C Shares.
There is no guarantee that these waivers and reimbursements will
continue after this date.
EXAMPLE
This example is designed to help you compare the cost of investing in
this Fund with the cost of investing in other mutual funds.
This example assumes:
o you invest $10,000 in Investor A, Investor B or Investor C Shares
of the Fund
o your investment has a 5% return each year
o the Fund's operating expenses remain the same as shown in the table
above.
6
<PAGE>
If you sold all of your shares at the end of the period, your costs
would be:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
Investor A Shares $000 $000 $000 $000
Investor B Shares $000 $000 $000 $000
Investor C Shares $000 $000 $000 $000
</TABLE>
If you bought Investor B Shares and didn't sell them, your costs would
be:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
Investor B Shares $000 $000 $000 $000
</TABLE>
7
<PAGE>
ABOUT THE EQUITY FUNDS
- --------------------------------------------------------------------------------
[GRAPHIC GOES HERE]
ABOUT THE SUB-ADVISER
TRADESTREET IS THIS FUND'S SUB-ADVISER. TRADESTREET'S
STRUCTURED PRODUCTS MANAGEMENT TEAM MAKES THE DAY-TO-DAY
INVESTMENT DECISIONS FOR THE FUND.
[GRAPHIC GOES HERE]
YOU'LL FIND MORE ABOUT TRADESTREET ON PAGE 00.
[GRAPHIC GOES HERE]
WHY INVEST IN AN EQUITY INCOME FUND?
EQUITY INCOME FUNDS ARE GENERALLY CONSIDERED TO BE A MORE
CONSERVATIVE EQUITY INVESTMENT BECAUSE THEY INVEST IN LARGE,
WELL-ESTABLISHED COMPANIES THAT PAY REGULAR DIVIDENDS. THESE
COMPANIES TEND TO BE LESS VOLATILE THAN OTHER KINDS OF
COMPANIES.
NATIONS EQUITY INCOME FUND
[GRAPHIC GOES HERE]
INVESTMENT OBJECTIVE
This Fund seeks current income and growth of capital by investing in
companies with above-average DIVIDEND YIELDS.
[GRAPHIC GOES HERE]
PRINCIPAL INVESTMENT STRATEGIES
The Fund normally invests in 100 to 150 companies in a broad range of
industries with market capitalizations of at least $5 billion. The Fund
generally invests at least 65% of its assets in income-producing
securities that are listed on a national exchange or are traded on an
established OVER-THE-COUNTER MARKET, including COMMON STOCKS that pay
dividends and CONVERTIBLE SECURITIES.
The Fund tries to provide a higher yield than the stocks that are included in
the S&P 500, and may invest in FIXED INCOME SECURITIES, PREFERRED STOCKS and
WARRANTS to try to increase the income that it earns. Fixed income securities
generally must be rated INVESTMENT GRADE at the time of investment, or can be
unrated if the team believes they are of similar quality at the time of
investment. Up to 5% of the Fund's assets may be invested in fixed income
securities rated below investment grade ("high yield" or "junk" bonds) if the
team believes they have relatively low credit risk.
The Fund may invest up to 20% of its assets in FOREIGN SECURITIES. It also may
invest smaller percentages of its assets in other kinds of securities, which
are described in the SAI.
The management team uses a quantitative process based on FUNDAMENTAL ANALYSIS
to identify stocks of companies whose earnings have the potential to grow. When
selecting investments, the management team looks at, among other things:
o value characteristics like book value, earnings yield and cash flow to
compare what the team believes to be a stock's true value to its current
market value
o growth characteristics like price momentum, earnings growth and earnings
acceleration to measure a stock's potential for growth
o a security's potential for above-average dividend yield
8
<PAGE>
[GRAPHIC GOES HERE]
YOU'LL FIND MORE ABOUT
OTHER RISKS OF INVESTING IN
THIS FUND ON PAGE 00 AND
IN THE SAI.
The management team may use various strategies, consistent with the Fund's
investment objective, to try to reduce the amount of CAPITAL GAINS distributed
to shareholders. For example, the team:
o may limit the number of buy and sell transactions it makes
o will try to sell shares that have the lowest tax burden on shareholders
o may offset capital gains by selling securities to realize a CAPITAL LOSS
While the Fund tries to manage its capital gain distributions, it will not be
able to completely avoid making taxable distributions. These strategies also
may be affected by changes in tax laws and regulations, or by court decisions.
[GRAPHIC GOES HERE]
RISKS AND OTHER THINGS TO CONSIDER
While investing in equity securities can bring added benefits, it may
also involve additional risks. Investors could lose money on their
investment in the Fund, or the Fund may not perform as well as other
investments. Nations Equity Income has the following general risks:
o INVESTMENT STRATEGY RISK - The management team chooses stocks that it
believes have the potential for dividend growth and capital
appreciation. There is a risk that dividend payments and the value of
these investments will fall or will not rise as high as the team
expects.
o STOCK MARKET RISK - The value of the stocks the Fund holds, like the
stock market in general, can rise or fall over short as well as long
periods.
o INTEREST RATE RISK - The prices of the Fund's fixed income securities
will tend to fall when interest rates rise. In general, fixed income
securities with longer terms tend to fall more in value when interest
rates rise than fixed income securities with shorter terms.
o CREDIT RISK - The Fund could lose money if the issuer of a fixed
income security is unable to pay interest or repay principal when
it's due. Credit risk usually applies to most fixed income
securities, but generally is not a factor for securities that are
issued or backed by the U.S. government. Fixed income securities with
the lowest investment grade rating or that aren't investment grade
are more speculative in nature than securities with higher ratings,
and they tend to be more sensitive to credit risk, particularly
during a downturn in the economy.
[GRAPHIC GOES HERE]
A LOOK AT THE FUND'S PERFORMANCE
Looking at past performance can give you an idea of a Fund's volatility
from year to year and its average returns over time. Performance will
vary based on many factors, including market conditions, the composition
of the Fund's holdings and the Fund's expenses. A FUND'S PAST
PERFORMANCE IS NO GUARANTEE OF HOW IT WILL PERFORM IN THE FUTURE.
9
<PAGE>
[GRAPHIC GOES HERE]
THE BAR CHART SHOWS YOU THE PERFORMANCE OF THE FUND'S INVESTOR A
SHARES. THESE RETURNS DO NOT REFLECT DEDUCTIONS OF SALES CHARGES
OR ACCOUNT FEES, AND WOULD BE LOWER IF THEY DID. RETURNS FOR
INVESTOR B AND INVESTOR C SHARES ARE DIFFERENT BECAUSE THEY HAVE
THEIR OWN EXPENSES, PRICING AND SALES CHARGES.
[GRAPHIC GOES HERE]
THERE ARE TWO KINDS OF FEES -- THOSE YOU PAY DIRECTLY, AND
ONGOING FEES AND EXPENSES THAT ARE DEDUCTED FROM THE FUND'S
ASSETS.
YEAR BY YEAR TOTAL RETURN (%)
[GRAPHIC GOES HERE]
00% 00% 00% 00% 00% 00% 00%
- ---------------------------------------------------
1900 1900 1900 1900 1900 1900 1900
BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD:
<TABLE>
<S> <C>
Best -- 0 quarter 1900: 00%
Worst -- 0 quarter 1900: 00%
Year-to-date return as of 00: 00%
</TABLE>
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 1998
<TABLE>
<CAPTION>
1 year 5 years 10 years
<S> <C> <C> <C>
Investor A Shares 0.00% 0.00% 0.00%
Investor B Shares 0.00% 0.00% 0.00%
Investor C Shares 0.00% 0.00% 0.00%
S&P 500 0.00% 0.00% 0.00%
</TABLE>
The S&P 500 (Standard & Poor's 500 Composite Stock Price Index) is an
index of 500 common stocks chosen by Standard & Poor's on a statistical
basis.
[GRAPHIC GOES HERE]
WHAT IT COSTS TO INVEST IN THE FUND
<TABLE>
<CAPTION>
Investor A Investor B Investor C
Fees you pay directly Shares Shares Shares
<S> <C> <C> <C>
Maximum sales charge (load)
when you buy your shares 5.75% none none
Maximum deferred sales charge (load)
when you sell your shares none(1) 5.00%(2) 1.00%(3)
Redemption fee, as a percentage
of the amount sold none(4) none none
Ongoing Fees and expenses deducted from the Fund's assets
(the Fund's operating expenses)(5)
Management fees 0.00% 0.00% 0.00%
Distribution (12b-1) and service fees 0.00% 0.00% 0.00%
Other expenses 0.00% 0.00% 0.00%
Total annual fund operating expenses 0.00% 0.00% 0.00%
</TABLE>
10
<PAGE>
[GRAPHIC GOES HERE]
THIS IS AN EXAMPLE ONLY. YOUR ACTUAL COSTS COULD BE HIGHER OR
LOWER, DEPENDING ON THE AMOUNT YOU INVEST, AND ON THE FUND'S
ACTUAL EXPENSES AND PERFORMANCE.
(1)A 1.00% maximum deferred sales charge applies to investors who buy $1
million or more of Investor A Shares and sell them within two years of
buying them. Please see page 00 for details.
(2)This charge decreases over time. Please see page 00 for details.
Different charges apply to Investor B Shares bought before January 1,
1996 and after July 31, 1997. Please see page 00 for details.
(3)This charge applies to investors who buy Investor C Shares and sell
them within one year of buying them. Please see page 00 for details.
(4)A 1.00% redemption fee applies to investors who bought $1 million or
more of Investor A Shares between July 31, 1997 and November 15, 1998
and sell them within 18 months of buying them. The fee is paid to the
Fund. Please see page 00 for details.
(5)The Fund's investment adviser and some of the Fund's other service
providers have agreed to waive fees or reimburse expenses until August
1, 2000. The figures shown here are after waivers and reimbursements.
Total actual Fund operating expenses last year were 0.00% for Investor
A Shares, 0.00% for Investor B Shares, and 0.00% for Investor C Shares.
There is no guarantee that these waivers and reimbursements will
continue after this date.
EXAMPLE
This example is designed to help you compare the cost of investing in
this Fund with the cost of investing in other mutual funds.
This example assumes:
o you invest $10,000 in Investor A, Investor B or Investor C Shares
of the Fund
o your investment has a 5% return each year
o the Fund's operating expenses remain the same as shown in the table
above.
If you sold all your shares at the end of the period, your costs would
be:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
Investor A Shares $000 $000 $000 $000
Investor B Shares $000 $000 $000 $000
Investor C Shares $000 $000 $000 $000
</TABLE>
If you bought Investor B Shares and didn't sell them, your costs would
be:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
Investor B Shares $000 $000 $000 $000
</TABLE>
11
<PAGE>
ABOUT THE EQUITY FUNDS
- --------------------------------------------------------------------------------
[GRAPHIC GOES HERE]
ABOUT THE SUB-ADVISER
TRADESTREET IS THIS FUND'S SUB-ADVISER. TRADESTREET'S STRATEGIC
GROWTH MANAGEMENT TEAM MAKES THE DAY-TO-DAY INVESTMENT
DECISIONS FOR THE FUND.
[GRAPHIC GOES HERE]
YOU'LL FIND MORE ABOUT TRADESTREET ON PAGE 00.
[GRAPHIC GOES HERE]
WHAT IS AN EMERGING GROWTH FUND?
AN EMERGING GROWTH FUND INVESTS IN EMERGING GROWTH COMPANIES.
THESE ARE TYPICALLY MEDIUM-SIZED AND SMALLER COMPANIES WHOSE
EARNINGS ARE EXPECTED TO GROW OR TO CONTINUE GROWING, AND WHOSE
SHARE PRICES ARE BELIEVED TO BE REASONABLY VALUED.
THESE COMPANIES MAY BE EXPANDING IN EXISTING MARKETS, ENTERING
INTO NEW MARKETS, DEVELOPING NEW PRODUCTS OR INCREASING THEIR
PROFIT MARGINS BY GAINING MARKET SHARE OR STREAMLINING THEIR
OPERATIONS.
NATIONS EMERGING GROWTH FUND
[GRAPHIC GOES HERE]
INVESTMENT OBJECTIVE
This Fund seeks capital appreciation by investing in emerging growth
companies that are believed to have superior long-term earnings growth
prospects.
[GRAPHIC GOES HERE]
PRINCIPAL INVESTMENT STRATEGIES
The Fund normally invests at least 65% of its assets in companies chosen
from a universe of emerging growth companies. The Fund generally holds
75 to 130 securities, which include COMMON STOCKS, PREFERRED STOCKS and
CONVERTIBLE SECURITIES like WARRANTS, RIGHTS and CONVERTIBLE DEBT.
The Fund may invest up to 20% of its assets in FOREIGN SECURITIES. The Fund may
also invest smaller percentages of its assets in other kinds of securities,
which are described in its the SAI.
The team selects stocks using a disciplined process based on FUNDAMENTAL
ANALYSIS. It starts with a universe of nearly 1,500 companies with market
capitalizations of $750 million to $7 billion, and using QUANTITATIVE ANALYSIS,
evaluates the companies based on the following criteria:
o earnings growth trends
o earnings momentum
o earnings estimate trends
o relative price performance
o valuation
The team then conducts a rigorous qualitative analysis of [each company] being
considered for investment. This involves, among other things:
o gaining an in-depth understanding of the company's business
o evaluating the company's growth potential, risks and competitive strengths
o discussing its growth strategy with company management
o validating the growth strategy with external research
The team selects a stock only when its price is attractive relative to
forecasted growth.
12
<PAGE>
[GRAPHIC GOES HERE]
YOU'LL FIND MORE ABOUT OTHER RISKS OF INVESTING IN THIS FUND ON
PAGE 00 AND IN THE SAI.
The management team may use various strategies, consistent with the Fund's
investment objective, to try to reduce the amount of CAPITAL GAINS distributed
to shareholders. For example, the team:
o may limit the number of buy and sell transactions it makes
o will try to sell shares that have the lowest tax burden on shareholders
o may offset capital gains by selling securities to realize a CAPITAL LOSS
While the Fund tries to manage its capital gain distributions, it will not be
able to completely avoid making taxable distributions. These strategies also
may be affected by changes in tax laws and regulations, or by court decisions.
[GRAPHIC GOES HERE]
RISKS AND OTHER THINGS TO CONSIDER
While investing in emerging growth companies can bring added benefits,
it may also involve additional risks. Investors could lose money on
their investment in the Fund, or the Fund may not perform as well as
other investments. Nations Emerging Growth Fund has the following
general risks:
o INVESTMENT STRATEGY RISK - The team chooses stocks that it believes
have the potential for superior long-term growth. There is a risk
that the value of these investments will fall or will not rise as
high as the team expects. Stocks of emerging companies also tend to
have greater price swings than stocks of larger companies because
they trade less frequently and in lower volumes. These securities may
have a higher potential for gains but also carry more risk if
unexpected company developments lower stock prices.
o STOCK MARKET RISK - The value of the stocks the Fund holds, like the
stock market in general, can rise or fall over short as well as long
periods.
o FUTURES RISK - This Fund may use FUTURES, [options, forward contracts
and swaps] to help manage LIQUIDITY or to hedge portfolio risk. There
is always a risk that this technique could reduce returns, increase
costs or increase the Fund's volatility.
o FOREIGN INVESTMENT RISK - The Fund may only invest up to 20% of its
assets in foreign securities, which means it can be affected by the
risks of foreign investing. Foreign investments may be riskier than
U.S. investments because of international political and economic
conditions, changes in currency exchange rates, foreign controls on
investment, difficulties in selling securities and lack of financial
information. Withholding taxes may apply to some foreign investments.
[GRAPHIC GOES HERE]
A LOOK AT THE FUND'S PERFORMANCE
Looking at past performance can give you an idea of a Fund's volatility
from year to year and its average returns over time. Performance will
vary based on many factors, including market conditions, the composition
of the Fund's holdings and the Fund's expenses. A FUND'S PAST
PERFORMANCE IS NO GUARANTEE OF HOW IT WILL PERFORM IN THE FUTURE.
13
<PAGE>
[GRAPHIC GOES HERE]
THE BAR CHART SHOWS YOU THE PERFORMANCE OF THE FUND'S INVESTOR A
SHARES. THESE RETURNS DO NOT REFLECT DEDUCTIONS OF SALES CHARGES
OR ACCOUNT FEES, AND WOULD BE LOWER IF THEY DID. RETURNS FOR
INVESTOR B AND INVESTOR C SHARES ARE DIFFERENT BECAUSE THEY HAVE
THEIR OWN EXPENSES, PRICING AND SALES CHARGES.
[GRAPHIC GOES HERE]
THERE ARE TWO KINDS OF FEES -- THOSE YOU PAY DIRECTLY, AND ONGOING FEES
AND EXPENSES THAT ARE DEDUCTED FROM THE FUND'S ASSETS.
YEAR BY YEAR TOTAL RETURN (%)
[GRAPHIC GOES HERE]
00% 00% 00% 00% 00% 00% 00%
- ---------------------------------------------------
1900 1900 1900 1900 1900 1900 1900
BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD:
<TABLE>
<S> <C>
Best -- 0 quarter 1990: 0%
Worst -- 0 quarter 1900: 0%
Year-to-date return as of 00: 0%
</TABLE>
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 1998
<TABLE>
<CAPTION>
1 year 5 years 10 years
<S> <C> <C> <C>
Investor A Shares 0.00% 0.00% 0.00%
Investor B Shares 0.00% 0.00% 0.00%
Investor C Shares 0.00% 0.00% 0.00%
S&P 500 0.00% 0.00% 0.00%
</TABLE>
The S&P 500 (Standard & Poor's 500 Composite Stock Price Index) is an
index of 500 common stocks chosen by Standard & Poor's on a statistical
basis.
[GRAPHIC GOES HERE]
WHAT IT COSTS TO INVEST IN THE FUND
<TABLE>
<CAPTION>
Investor A Investor B Investor C
Fees you pay directly Shares Shares Shares
<S> <C> <C> <C>
Maximum sales charge (load)
when you buy your shares 5.75% none none
Maximum deferred sales charge
(load) when you sell your shares none(1) 5.00%(2) 1.00%(3)
Redemption fee, as a percentage
of the amount sold none(4) none none
Ongoing fees and expenses deducted from the Fund's assets
(the Fund's operating expenses) (5)
Management fees 0.75% 0.75% 0.75%
Distribution (12b-1) and service fees 0.25% 1.00% 1.00%
Other expenses 0.23% 0.23% 0.23%
Total annual fund operating expenses 1.23% 1.98% 1.98%
</TABLE>
14
<PAGE>
[GRAPHIC GOES HERE]
THIS IS AN EXAMPLE ONLY. YOUR ACTUAL COSTS COULD BE HIGHER OR
LOWER, DEPENDING ON THE AMOUNT YOU INVEST, AND ON THE FUND'S
ACTUAL EXPENSES AND PERFORMANCE.
(1)A 1.00% maximum deferred sales charge applies to investors who buy $1
million or more of Investor A Shares and sell them within two years of
buying them. Please see page 00 for details.
(2)This charge decreases over time. Please see page 00 for details.
Different charges apply to Investor B Shares bought before January 1,
1996 and after July 31, 1997. Please see page 00 for details.
(3)This charge applies to investors who buy Investor C Shares and sell
them within one year of buying them. Please see page 00 for details.
(4)A 1.00% redemption fee applies to investors who bought $1 million or
more of Investor A Shares between July 31, 1997 and November 15, 1998
and sell them within 18 months of buying them. The fee is paid to the
Fund. Please see page 00 for details.
(5)The Fund's investment adviser and some of the Fund's other service
providers have agreed to waive fees or reimburse expenses until August
1, 2000. The figures shown here are after waivers and reimbursements.
Total actual Fund operating expenses last year were 0.00% for Investor
A Shares, 0.00% for Investor B Shares, and 0.00% for Investor C Shares.
There is no guarantee that these waivers and reimbursements will
continue after this date.
EXAMPLE
This example is designed to help you compare the cost of investing in
this Fund with the cost of investing in other mutual funds.
This example assumes:
o you invest $10,000 in Investor A, Investor B or Investor C Shares
of the Fund
o your investment has a 5% return each year
o the Fund's operating expenses remain the same as shown in the table
above.
If you sold all your shares at the end of the period, your costs would
be:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
Investor A Shares $000 $000 $000 $000
Investor B Shares $000 $000 $000 $000
Investor C Shares $000 $000 $000 $000
</TABLE>
If you bought Investor B Shares and didn't sell them, your costs would
be:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
Investor B Shares $000 $000 $000 $000
</TABLE>
15
<PAGE>
ABOUT THE EQUITY FUNDS
- --------------------------------------------------------------------------------
[GRAPHIC GOES HERE]
ABOUT THE SUB-ADVISER
TRADESTREET IS THIS FUND'S SUB-ADVISER. TRADESTREET'S STRATEGIC
GROWTH MANAGEMENT TEAM MAKES THE DAY-TO-DAY INVESTMENT
DECISIONS FOR THE FUND.
[GRAPHIC GOES HERE]
YOU'LL FIND MORE ABOUT TRADESTREET ON PAGE 00.
[GRAPHIC GOES HERE]
WHY INVEST IN A SMALL
COMPANY GROWTH FUND?
A SMALL COMPANY GROWTH FUND INVESTS IN SMALLER COMPANIES WITH
PROMISING PRODUCTS OR THAT ARE OPERATING IN A DYNAMIC FIELD.
THESE COMPANIES CAN HAVE BETTER POTENTIAL FOR RAPID EARNINGS
GROWTH THAN LARGER COMPANIES. THEY MAY, HOWEVER, HAVE A HARDER
TIME SECURING FINANCING AND MAY BE MORE SENSITIVE TO A SETBACK
IN SALES THAN LARGER, MORE ESTABLISHED COMPANIES.
THE PORTFOLIO MANAGEMENT TEAM LOOKS FOR COMPANIES WHOSE
EARNINGS ARE GROWING QUICKLY, AND WHOSE SHARE PRICES ARE
REASONABLY VALUED.
NATIONS SMALL COMPANY GROWTH FUND
[GRAPHIC GOES HERE]
INVESTMENT OBJECTIVE
This Fund seeks long-term capital growth by investing primarily in
equity securities.
[GRAPHIC GOES HERE]
PRINCIPAL INVESTMENT STRATEGIES
The Fund normally invests at least 65% of its assets in companies with a
market capitalization of $1 billion or less. The Fund usually holds 75
to 130 securities, which include COMMON STOCKS, PREFERRED STOCKS and
CONVERTIBLE SECURITIES like WARRANTS, RIGHTS and CONVERTIBLE DEBT.
The Fund may also invest smaller percentages of its assets in other kinds of
securities, which are described in the SAI.
The team selects stocks using a disciplined process based on FUNDAMENTAL
ANALYSIS. It starts with a universe of nearly 5,000 companies with market
capitalizations of $1 billion or less, and using quantitative analysis,
evaluates the companies based on the following criteria:
o earnings growth trends
o earnings momentum
o earnings estimate trends
o relative price performance
o valuation
The team then conducts a rigorous qualitative analysis of [each company] being
considered for investment. This involves, among other things:
o gaining an in-depth understanding of the company's business
o evaluating the company's growth potential, risks and competitive strengths
o discussing its growth strategy with company management
o validating the growth strategy with external research
The team selects a stock only when its valuation is attractive relative to
forecasted growth.
The management team may use various strategies, consistent with the Fund's
investment objective, to try to reduce the amount of CAPITAL GAINS distributed
to shareholders. For example, the team:
o may limit the number of buy and sell transactions it makes
o will try to sell shares that have the lowest tax burden on shareholders
o may offset capital gains by selling securities to realize a CAPITAL LOSS
16
<PAGE>
[GRAPHIC GOES HERE]
YOU'LL FIND MORE ABOUT
OTHER RISKS OF INVESTING IN
THIS FUND ON PAGE 00 AND
IN THE SAI.
[GRAPHIC GOES HERE]
THE BAR CHART SHOWS YOU THE PERFORMANCE OF THE FUND'S INVESTOR A
SHARES. THESE RETURNS DO NOT REFLECT DEDUCTIONS OF SALES CHARGES
OR ACCOUNT FEES, AND WOULD BE LOWER IF THEY DID. RETURNS FOR
INVESTOR B AND INVESTOR C SHARES ARE DIFFERENT BECAUSE THEY HAVE
THEIR OWN EXPENSES, PRICING AND SALES CHARGES.
While the Fund tries to manage its capital gain distributions, it will not be
able to completely avoid making taxable distributions. These strategies also
may be affected by changes in tax laws and regulations, or by court decisions.
[GRAPHIC GOES HERE]
RISKS AND OTHER THINGS TO CONSIDER
While investing in small companies can bring added benefits, it may also
involve additional risks. Investors could lose money on their investment
in the Fund, or the Fund may not perform as well as other investments.
Nations Small Company Growth Fund has the following general risks:
o INVESTMENT STRATEGY RISK - The team chooses stocks that it believes
have the potential for long-term growth. There is a risk that the
value of these investments will fall or will not rise as high as the
team expects. Stocks of smaller companies also tend to have greater
price swings than stocks of larger companies for many reasons,
including because they trade less frequently and in lower volumes.
o STOCK MARKET RISK - The value of the stocks the Fund holds, like the
stock market in general, can rise or fall over short as well as long
periods.
o FUTURES RISK - This Fund may use FUTURES, [options, forward contracts
and swaps] to help manage LIQUIDITY or to hedge portfolio risk. There
is always a risk that this technique could reduce returns, increase
costs or increase the Fund's volatility.
[GRAPHIC GOES HERE]
A LOOK AT THE FUND'S PERFORMANCE
Looking at past performance can give you an idea of a Fund's volatility
and its average returns over time. Performance will vary based on many
factors, including market conditions, the composition of the Fund's
holdings and the Fund's expenses. A FUND'S PAST PERFORMANCE IS NO
GUARANTEE OF HOW IT WILL PERFORM IN THE FUTURE.
YEAR BY YEAR TOTAL RETURN (%)
[GRAPHIC GOES HERE]
00% 00% 00% 00% 00% 00% 00%
- ---------------------------------------------------
1900 1900 1900 1900 1900 1900 1900
BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD:
<TABLE>
<S> <C>
Best -- 0 quarter 1990: 0%
Worst -- 0 quarter 1900: 0%
Year-to-date return as of 00: 0%
</TABLE>
17
<PAGE>
[GRAPHIC GOES HERE]
THERE ARE TWO KINDS OF FEES -- THOSE YOU PAY DIRECTLY, AND ONGOING FEES
AND EXPENSES THAT ARE DEDUCTED FROM THE FUND'S ASSETS.
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 1998
<TABLE>
<CAPTION>
1 year 5 years 10 years
<S> <C> <C> <C>
Investor A Shares 0.00% 0.00% 0.00%
Investor B Shares 0.00% 0.00% 0.00%
Investor C Shares 0.00% 0.00% 0.00%
S&P 500 0.00% 0.00% 0.00%
</TABLE>
The S&P 500 (Standard & Poor's 500 Composite Stock Price Index) is an
index of 500 common stocks chosen by Standard & Poor's on a statistical
basis.
[GRAPHIC GOES HERE]
WHAT IT COSTS TO INVEST IN THE FUND
<TABLE>
<CAPTION>
Investor A Investor B Investor C
Fees you pay directly Shares Shares Shares
<S> <C> <C> <C>
Maximum sales charge (load)
when you buy your shares 5.75% none none
Maximum deferred sales charge
(load) when you sell your shares none(1) 5.00%(2) 1.00%(3)
Redemption fee, as a percentage
of the amount sold none(4) none none
Ongoing fees and expenses deducted from the Fund's assets
(the Fund's operating expenses) (5)
Management fees 0.75% 0.75% 0.75%
Distribution (12b-1) and service fees 0.25% 1.00% 0.75%
Other expenses 0.20% 0.20% 0.20%
Total annual fund operating expenses 1.20% 1.95% 1.70%
</TABLE>
(1)A 1.00% maximum deferred sales charge applies to investors who buy $1
million or more of Investor A Shares and sell them within two years of
buying them. Please see page 00 for details.
(2)This charge decreases over time. Please see page 00 for details.
Different charges apply to Investor B Shares bought before January 1,
1996 and after July 31, 1997. Please see page 00 for details.
(3)This charge applies to investors who buy Investor C Shares and sell
them within one year of buying them. Please see page 00 for details.
(4)A 1.00% redemption fee applies to investors who bought $1 million or
more of Investor A Shares between July 31, 1997 and November 15, 1998
and sell them within 18 months of buying them. The fee is paid to the
Fund. Please see page 00 for details.
(5)The Fund's investment adviser and some of the Fund's other service
providers have agreed to waive fees or reimburse expenses until August
1, 2000. The figures shown here are after waivers and reimbursements.
Total actual Fund operating expenses last year were 0.00% for Investor
A Shares, 0.00% for Investor B Shares, and 0.00% for Investor C Shares.
There is no guarantee that these waivers and reimbursements will
continue after this date.
18
<PAGE>
[GRAPHIC GOES HERE]
THIS IS AN EXAMPLE ONLY. YOUR ACTUAL COSTS COULD BE HIGHER OR
LOWER, DEPENDING ON THE AMOUNT YOU INVEST, AND ON THE FUND'S
ACTUAL EXPENSES AND PERFORMANCE.
EXAMPLE
This example is designed to help you compare the cost of investing in
this Fund with the cost of investing in other mutual funds.
This example assumes:
o you invest $10,000 in Investor A, Investor B or Investor C Shares
of the Fund
o your investment has a 5% return each year
o the Fund's operating expenses remain the same as shown in the table
above.
If you sold all your shares at the end of the period, your costs would
be:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
Investor A Shares $000 $000 $000 $000
Investor B Shares $000 $000 $000 $000
Investor C Shares $000 $000 $000 $000
</TABLE>
If you bought Investor B Shares and didn't sell them, your costs would
be:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
Investor B Shares $000 $000 $000 $000
</TABLE>
19
<PAGE>
ABOUT THE EQUITY FUNDS
- --------------------------------------------------------------------------------
[GRAPHIC GOES HERE]
ABOUT THE SUB-ADVISER
TRADESTREET IS THIS FUND'S SUB-ADVISER. TRADESTREET'S
STRUCTURED PRODUCTS MANAGEMENT TEAM MAKES THE DAY-TO-DAY
INVESTMENT DECISIONS FOR THE FUND.
[GRAPHIC GOES HERE]
YOU'LL FIND MORE ABOUT TRADESTREET ON PAGE 00.
[GRAPHIC GOES HERE]
WHY USE A COMPUTER MODELING SYSTEM?
THE MANAGEMENT TEAM USES A COMPUTER MODELING SYSTEM AS A KEY
COMPONENT IN MANAGING THIS FUND. THE SYSTEM RANKS STOCKS BASED
ON EARNINGS MOMENTUM AND VALUATION, WHICH HELPS THE TEAM CHOOSE
STOCKS THAT HAVE THE POTENTIAL TO GENERATE ATTRACTIVE RETURNS.
NATIONS DISCIPLINED EQUITY FUND
[GRAPHIC GOES HERE]
INVESTMENT OBJECTIVE
This Fund seeks growth of capital by investing in companies that are
expected to produce significant increases in earnings per share.
[GRAPHIC GOES HERE]
PRINCIPAL INVESTMENT STRATEGIES
The Fund normally invests at least 65% of its assets in COMMON STOCKS of
large and medium-sized U.S. companies. These companies typically have a
market capitalization of $1 billion or more. The Fund may invest up to
20% of its assets in FOREIGN SECURITIES. The Fund may also invest
smaller percentages of its assets in other kinds of securities, which
are described in the SAI.
The management team uses a computer modeling system to help construct a
portfolio of 40 to 60 securities diversified across industry sectors.
Each security selected for investment by the Fund is in the top quartile
of the securities ranked by the team's quantitative model for earnings
momentum and in the top third of securities ranked by the model on a
valuation basis.
When selecting investments, the team looks for attractively priced securities
with increasing earnings. It uses QUANTITATIVE ANALYSIS to:
o identify companies with improving profit potential and increasing earnings
o identify companies with favorable PRICE-TO-EARNINGS RATIOS
o identify companies with positive earnings trends. In general, these
companies also tend to experience favorable trends in their stock prices
o rank the attractiveness of EQUITY SECURITIES based on a "multi- factor"
valuation model, a computer modeling system that takes into account value
measures like book value, earnings yield and cash flow to measure a
stock's intrinsic worth compared with its market price. The model also
considers growth measures like price momentum and the size and rate of
earnings growth to compare a stock with others in the same industry
The management team may use various strategies, consistent with the Fund's
investment objective, to try to reduce the amount of CAPITAL GAINS it
distributes to shareholders. For example, the team:
o may limit the number of buy and sell transactions it makes
o will try to sell shares that have the lowest tax burden on shareholders
o may offset capital gains by selling securities to realize a CAPITAL LOSS
20
<PAGE>
[GRAPHIC GOES HERE]
YOU'LL FIND MORE ABOUT OTHER RISKS OF INVESTING IN THIS FUND ON
PAGE 00 AND IN THE SAI.
[GRAPHIC GOES HERE]
THE BAR CHART SHOWS YOU THE PERFORMANCE OF THE FUND'S INVESTOR A
SHARES. THESE RETURNS DO NOT REFLECT DEDUCTIONS OF SALES CHARGES
OR ACCOUNT FEES, AND WOULD BE LOWER IF THEY DID. RETURNS FOR
INVESTOR B AND INVESTOR C SHARES ARE DIFFERENT BECAUSE THEY HAVE
THEIR OWN EXPENSES, PRICING AND SALES CHARGES.
While the Fund tries to manage its capital gain distributions, it will not be
able to completely avoid making taxable distributions. These strategies also
may be affected by changes in tax laws and regulations, or by court decisions.
[GRAPHIC GOES HERE]
RISKS AND OTHER THINGS TO CONSIDER
While investing in large and medium-sized companies and foreign
securities can bring added benefits, it may also involve additional
risks. Investors could lose money on their investment in the portfolio,
or the portfolio may not perform as well as other investments. Nations
Disciplined Equity Fund has the following general risks:
o INVESTMENT STRATEGY RISK - The team uses a quantitative approach to
select investments it believes are attractively valued and whose
earnings per share are likely to increase. There is a risk that the
value of these investments will fall or will not rise as high as the
team expects.
o STOCK MARKET RISK - The value of the stocks the Fund holds, like the
stock market in general, can rise or fall over short as well as long
periods.
o FOREIGN INVESTMENT RISK - The Fund may invest up to 20% of its assets
in foreign securities, which means it can be affected by the risks of
foreign investing. Foreign investments may be riskier than U.S.
investments because of political and economic conditions, changes in
currency exchange rates, foreign controls on investment, difficulties
in selling securities and lack of financial information. Withholding
taxes may also apply to some foreign investments.
[GRAPHIC GOES HERE]
A LOOK AT THE FUND'S PERFORMANCE
Looking at past performance can give you an idea of a Fund's volatility
from year to year and its average returns over time. Performance will
vary based on many factors, including market conditions, the composition
of the Fund's holdings and the fund's expenses. A FUND'S PAST
PERFORMANCE IS NO GUARANTEE OF HOW IT WILL PERFORM IN THE FUTURE.
YEAR BY YEAR TOTAL RETURN (%)
[GRAPHIC GOES HERE]
00% 00% 00% 00% 00% 00% 00%
- ---------------------------------------------------
1900 1900 1900 1900 1900 1900 1900
BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD:
<TABLE>
<S> <C>
Best -- 0 quarter 1990: 0%
Worst -- 0 quarter 1900: 0%
Year-to-date return as of 00: 0%
</TABLE>
21
<PAGE>
[GRAPHIC GOES HERE]
THERE ARE TWO KINDS OF FEES -- THOSE YOU PAY DIRECTLY, AND ONGOING FEES
AND EXPENSES THAT ARE DEDUCTED FROM THE FUND'S ASSETS.
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 1998
<TABLE>
<CAPTION>
1 year 5 years 10 years
<S> <C> <C> <C>
Investor A Shares 0.00% 0.00% 0.00%
Investor B Shares 0.00% 0.00% 0.00%
Investor C Shares 0.00% 0.00% 0.00%
S&P 500 0.00% 0.00% 0.00%
</TABLE>
The S&P 500 (Standard & Poor's 500 Composite Stock Price Index) is an
index of 500 common stocks chosen by Standard & Poor's on a statistical
basis.
[GRAPHIC GOES HERE]
WHAT IT COSTS TO INVEST IN THE FUND
<TABLE>
<CAPTION>
Investor A Investor B Investor C
Fees you pay directly Shares Shares Shares
<S> <C> <C> <C>
Maximum sales charge (load)
when you buy your shares 5.75% none none
Maximum deferred sales charge
(load) when you sell your shares none(1) 5.00%(2) 1.00%(3)
Redemption fee, as a percentage
of the amount sold none(4) none none
Fees and expenses deducted from the Fund's assets
(the Fund's operating expenses)(5)
Management fees 0.75% 0.75% 0.75%
Distribution (12b-1) and service fees 0.25% 1.00% 1.00%
Other expenses 0.23% 0.20% 0.23%
Total annual fund operating expenses 1.23% 1.95% 1.98%
</TABLE>
(1)A 1.00% maximum deferred sales charge applies to investors who buy $1
million or more of Investor A Shares and sell them within two years of
buying them. Please see page 00 for details.
(2)This charge decreases over time. Please see page 00 for details.
Different charges apply to Investor B Shares bought before January 1,
1996 and after July 31, 1997. Please see page 00 for details.
(3)This charge applies to investors who buy Investor C Shares and sell
them within one year of buying them. Please see page 00 for details.
(4)A 1.00% redemption fee applies to investors who bought $1 million or
more of Investor A Shares between July 31, 1997 and November 15, 1998
and sell them within 18 months of buying them. The fee is paid to the
Fund. Please see page 00 for details.
(5)The Fund's investment adviser and some of the Fund's other service
providers have agreed to waive fees or reimburse expenses until August
1, 2000. The figures shown here are after waivers and reimbursements.
Total actual Fund operating expenses last year were 0.00% for Investor
A Shares, 0.00% for Investor B Shares, and 0.00% for Investor C Shares.
There is no guarantee that these waivers and reimbursements will
continue after this date.
22
<PAGE>
[GRAPHIC GOES HERE]
THIS IS AN EXAMPLE ONLY. YOUR ACTUAL COSTS COULD BE HIGHER OR
LOWER, DEPENDING ON THE AMOUNT YOU INVEST, AND ON THE FUND'S
ACTUAL EXPENSES AND PERFORMANCE.
EXAMPLE
This example is designed to help you compare the cost of investing in
this Fund with the cost of investing in other mutual funds.
This example assumes:
o you invest $10,000 in Investor A, Investor B or Investor C Shares
of the Fund
o your investment has a 5% return each year
o the Fund's operating expenses remain the same as shown in the table
above.
If you sold all your shares at the end of the period, your costs would
be:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
Investor A Shares $000 $000 $000 $000
Investor B Shares $000 $000 $000 $000
Investor C Shares $000 $000 $000 $000
</TABLE>
If you bought Investor B Shares and didn't sell them, your costs would
be:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
Investor B Shares $000 $000 $000 $000
</TABLE>
23
<PAGE>
ABOUT THE EQUITY FUNDS
- --------------------------------------------------------------------------------
[GRAPHIC GOES HERE]
ABOUT THE SUB-ADVISER
TRADESTREET IS THIS FUND'S SUB-ADVISER. TRADESTREET'S CORE
GROWTH MANAGEMENT TEAM MAKES THE DAY-TO-DAY INVESTMENT
DECISIONS FOR THE FUND.
[GRAPHIC GOES HERE]
YOU'LL FIND MORE ABOUT TRADESTREET ON PAGE 00.
[GRAPHIC GOES HERE]
WHAT IS A GROWTH FUND?
GROWTH FUNDS INVEST IN COMPANIES THAT HAVE THE POTENTIAL FOR
SIGNIFICANT INCREASES IN REVENUE OR EARNINGS. THESE ARE
TYPICALLY COMPANIES THAT ARE DEVELOPING OR APPLYING NEW
TECHNOLOGIES, PRODUCTS OR SERVICES IN GROWING INDUSTRY SECTORS.
NATIONS CAPITAL GROWTH FUND
[GRAPHIC GOES HERE]
INVESTMENT OBJECTIVE
This Fund seeks growth of capital by investing in companies that are
believed to have superior earnings growth potential.
[GRAPHIC GOES HERE]
PRINCIPAL INVESTMENT STRATEGIES
The Fund normally invests at least 65% of its assets in COMMON STOCKS of
companies that have one or more of the following the characteristics:
o above-average earnings growth compared with the S&P 500
o established operating histories, strong balance sheets and favorable
financial performance
o above-average return on equity compared with the S&P 500
The Fund may invest up to 20% of its assets in FOREIGN SECURITIES. The Fund may
also invest smaller percentages of its assets in other kinds of securities,
which are described in the SAI.
When selecting investments, the management team starts with a universe of what
it believes are financially strong companies. The team then identifies a group
of companies with market capitalizations of more than $1 billion that it
believes have strong growth potential -- around 750 companies. The team then
chooses investments from this group based on intensive research, visits to
companies and market conditions, seeking to identify companies:
o whose earnings growth is projected to be higher than average
o that develop or apply new technologies, new and improved methods of
distribution, or new services
o that may benefit from changing consumer demands and lifestyles
The management team may use various strategies, consistent with the Fund's
investment objective, to try to reduce the amount of CAPITAL GAINS distributed
to shareholders. For example, the team:
o may limit the number of buy and sell transactions it makes
o will try to sell shares that have the lowest tax burden on shareholders
o may offset capital gains by selling securities to realize a CAPITAL LOSS
While the Fund tries to manage its capital gain distributions, it will not be
able to completely avoid making taxable distributions. These strategies also
may be affected by changes in tax laws and regulations, or by court decisions.
24
<PAGE>
[GRAPHIC GOES HERE]
YOU'LL FIND MORE ABOUT OTHER RISKS OF INVESTING IN THIS FUND ON
PAGE 00 AND IN THE SAI.
[GRAPHIC GOES HERE]
THE BAR CHART SHOWS YOU THE PERFORMANCE OF THE FUND'S INVESTOR A
SHARES. THESE RETURNS DO NOT REFLECT DEDUCTIONS OF SALES CHARGES
OR ACCOUNT FEES, AND WOULD BE LOWER IF THEY DID. RETURNS FOR
INVESTOR B AND INVESTOR C SHARES ARE DIFFERENT BECAUSE THEY HAVE
THEIR OWN EXPENSES, PRICING AND SALES CHARGES.
[GRAPHIC GOES HERE]
RISKS AND OTHER THINGS TO CONSIDER
While investing in common stocks and foreign securities can bring added
benefits, it can also involve additional risks. Investors could lose
money on their investment in the Fund, or the Fund may not perform as
well as other investments. Nations Capital Growth Fund has the following
general risks:
o INVESTMENT STRATEGY RISK - The management team chooses stocks that it
believes have superior growth potential and are selling at reasonable
prices, with the expectation that they will rise in value. There is a
risk that the value of these investments will fall or will not rise
as high as the team expects.
o STOCK MARKET RISK - The value of the stocks the Fund holds, like the
stock market in general, can rise or fall over short as well as long
periods.
o FOREIGN INVESTMENT RISK - The Fund may invest up to 20% of its assets
in foreign securities, which means it can be affected by the risks of
foreign investing. Foreign investments may be riskier than U.S.
investments because of political and economic conditions, changes in
currency exchange rates, foreign controls on investment, difficulties
in selling securities and lack of financial information. Withholding
taxes may apply to some foreign investments.
[GRAPHIC GOES HERE]
A LOOK AT THE FUND'S PERFORMANCE
Looking at past performance can give you an idea of a Fund's volatility
from year to year and its average returns over time. Performance will
vary based on many factors, including market conditions, the composition
of the Fund's holdings and the Fund's expenses. A FUND'S PAST
PERFORMANCE IS NO GUARANTEE OF HOW IT WILL PERFORM IN THE FUTURE.
YEAR BY YEAR TOTAL RETURN (%)
[GRAPHIC GOES HERE]
00% 00% 00% 00% 00% 00% 00%
- ---------------------------------------------------
1900 1900 1900 1900 1900 1900 1900
BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD:
<TABLE>
<S> <C>
Best -- 0 quarter 1990: 0%
Worst -- 0 quarter 1900: 0%
Year-to-date return as of 00: 0%
</TABLE>
25
<PAGE>
[GRAPHIC GOES HERE]
THERE ARE TWO KINDS OF FEES -- THOSE YOU PAY DIRECTLY, AND ONGOING FEES
AND EXPENSES THAT ARE DEDUCTED FROM THE FUND'S ASSETS.
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 1998
<TABLE>
<CAPTION>
1 year 5 years 10 years
<S> <C> <C> <C>
Investor A Shares 0.00% 0.00% 0.00%
Investor B Shares 0.00% 0.00% 0.00%
Investor C Shares 0.00% 0.00% 0.00%
S&P 500 0.00% 0.00% 0.00%
</TABLE>
The S&P 500 (Standard & Poor's 500 Composite Stock Price Index) is an
index of 500 common stocks chosen by Standard & Poor's on a statistical
basis.
[GRAPHIC GOES HERE]
WHAT IT COSTS TO INVEST IN THE FUND
<TABLE>
<CAPTION>
Investor A Investor B Investor C
Fees you pay directly Shares Shares Shares
<S> <C> <C> <C>
Maximum sales charge (load)
when you buy your shares 5.75% none none
Maximum deferred sales charge
(load) when you sell your shares none(1) 5.00%(2) 1.00%(3)
Redemption fee, as a percentage
of the amount sold none(4) none none
Ongoing fees and expenses deducted from the Fund's assets
(the Fund's operating expenses)
Management fees 0.75% 0.75% 0.75%
Distribution (12b-1) and service fees 0.25% 1.00% 1.00%
Other expenses 0.20% 0.20% 0.20%
Total annual fund operating expenses 1.20% 1.95% 1.95%
</TABLE>
(1)A 1.00% maximum deferred sales charge applies to investors who buy $1
million or more of Investor A Shares and sell them within two years of
buying them. Please see page 00 for details.
(2)This charge decreases over time. Please see page 00 for details.
Different charges apply to Investor B Shares bought before January 1,
1996 and after July 31, 1997. Please see page 00 for details.
(3)This charge applies to investors who buy Investor C Shares and sell
them within one year of buying them. Please see page 00 for details.
(4)A 1.00% redemption fee applies to investors who bought $1 million or
more of Investor A Shares between July 31, 1997 and November 15, 1998
and sell them within 18 months of buying them. The fee is paid to the
Fund. Please see page 00 for details.
(5)The Fund's investment adviser and some of the Fund's other service
providers have agreed to waive fees or reimburse expenses until August
1, 2000. The figures shown here are after waivers and reimbursements.
Total actual Fund operating expenses last year were 0.00% for Investor
A Shares, 0.00% for Investor B Shares, and 0.00% for Investor C Shares.
There is no guarantee that these waivers and reimbursements will
continue after this date.
26
<PAGE>
[GRAPHIC GOES HERE]
THIS IS AN EXAMPLE ONLY. YOUR ACTUAL COSTS COULD BE HIGHER OR
LOWER, DEPENDING ON THE AMOUNT YOU INVEST, AND ON THE FUND'S
ACTUAL EXPENSES AND PERFORMANCE.
EXAMPLE
This example is designed to help you compare the cost of investing in
this Fund with the cost of investing in other mutual funds.
This example assumes:
o you invest $10,000 in Investor A, Investor B or Investor C Shares
of the Fund
o your investment has a 5% return each year
o the Fund's operating expenses remain the same as shown in the table
above.
If you sold all your shares at the end of the period, your costs would
be:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
Investor A Shares $000 $000 $000 $000
Investor B Shares $000 $000 $000 $000
Investor C Shares $000 $000 $000 $000
</TABLE>
If you bought Investor B Shares and didn't sell them, your costs would
be:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
Investor B Shares $000 $000 $000 $000
</TABLE>
27
<PAGE>
ABOUT THE EQUITY FUNDS
- --------------------------------------------------------------------------------
[GRAPHIC GOES HERE]
ABOUT THE SUB-ADVISER
MARSICO CAPITAL MANAGEMENT, LLC (MARSICO CAPITAL) IS THIS
FUND'S SUB-ADVISER. THOMAS F. MARSICO IS THE PORTFOLIO MANAGER
AND MAKES THE DAY-TO-DAY INVESTMENT DECISIONS FOR THE FUND.
[GRAPHIC GOES HERE]
YOU'LL FIND MORE ABOUT
MARSICO CAPITAL AND
MR. MARSICO ON PAGE 00.
[GRAPHIC GOES HERE]
WHAT IS A FOCUSED FUND?
A FOCUSED FUND CONCENTRATES ITS INVESTMENTS IN A SMALL NUMBER OF
COMPANIES WITH EARNINGS THAT ARE BELIEVED TO HAVE THE POTENTIAL
TO GROW SIGNIFICANTLY. THIS FUND FOCUSES ON LARGE, ESTABLISHED
AND WELL- KNOWN U.S. COMPANIES.
BECAUSE A FOCUSED FUND HOLDS FEWER INVESTMENTS THAN OTHER KINDS
OF FUNDS, THIS FUND CAN HAVE GREATER PRICE SWINGS THAN MORE
DIVERSIFIED FUNDS AND MAY EARN RELATIVELY HIGHER RETURNS WHEN
ONE OF ITS INVESTMENTS PERFORMS WELL, OR RELATIVELY LOWER
RETURNS WHEN AN INVESTMENT PERFORMS POORLY.
NATIONS MARSICO FOCUSED EQUITIES FUND
[GRAPHIC GOES HERE]
INVESTMENT OBJECTIVE
This Fund seeks long-term growth of capital.
[GRAPHIC GOES HERE]
PRINCIPAL INVESTMENT STRATEGIES
This Fund normally invests at least 65% of its assets in COMMON STOCKS
of large companies. The Fund, which is NON-DIVERSIFIED, generally holds
a core position of 20 to 30 of common stocks.
The Fund may invest up to 25% of its assets in FOREIGN SECURITIES. The
Fund may also invest smaller percentages of its assets in other kinds of
securities, which are described in the SAI.
Marsico Capital looks for companies with earnings growth potential that may not
be recognized by other investors, focusing on companies that have some of the
following characteristics:
o they have promising products, markets or technologies that can result in
extraordinary growth
o they have strong brand franchises that can take advantage of a changing
global environment
o they have global reach that can allow the Fund to take advantage of a
broader range of investment opportunities. Not limiting itself to the
markets of a single country can also help the Fund reduce risk.
o they are responding to the major social, economic and cultural shifts
taking place in the world
Once an investment opportunity is identified, Marsico Capital uses a
disciplined analytical process to assess its potential as an investment. This
process includes a "top-down" analysis that takes into account economic factors
like interest rates, inflation, the regulatory environment, the industry and
global competition. The process also includes a "bottom-up" analysis that
considers individual company characteristics like commitment to research,
market franchise and quality of management.
[GRAPHIC GOES HERE]
RISKS AND OTHER THINGS TO CONSIDER
While investing in large-sized companies and foreign securities can
bring added benefits, it may also involve additional risks. Investors
could lose money on their investment in the portfolio, or the portfolio
may not perform as well as other investments. Nations Marsico Focused
Equities Fund has the following general risks:
o INVESTMENT STRATEGY RISK - This Fund is considered to be
"non-diversified" because it may hold fewer securities than other
kinds of equity funds. This increases the risk that its value could
go down
28
<PAGE>
[GRAPHIC GOES HERE]
YOU'LL FIND MORE ABOUT OTHER RISKS OF INVESTING IN THIS FUND ON
PAGE 00 AND IN THE SAI.
[GRAPHIC GOES HERE]
THE BAR CHART SHOWS YOU THE PERFORMANCE OF THE FUND'S INVESTOR A
SHARES. THESE RETURNS DO NOT REFLECT DEDUCTIONS OF SALES CHARGES
OR ACCOUNT FEES, AND WOULD BE LOWER IF THEY DID. RETURNS FOR
INVESTOR B AND INVESTOR C SHARES ARE DIFFERENT BECAUSE THEY HAVE
THEIR OWN EXPENSES, PRICING AND SALES CHARGES.
significantly if one or more of its investments performs poorly. The
value of this Fund will tend to have greater price swings than the value
of more diversified equity funds. The Fund may become a diversified fund
by limiting the investments in which more than 5% of its total assets
are invested. There also is a risk that the value of the Fund's
investments will fall or will not rise as high as Marsico Capital
expects.
o STOCK MARKET RISK - The value of the stocks the Fund holds, like the
stock market in general, can rise or fall over short as well as long
periods.
o FOREIGN INVESTMENT RISK - The Fund may only invest up to 25% of its
assets in foreign securities, which means it can be affected by the
risks of foreign investing. Foreign investments may be riskier than
U.S. investments because of political and economic conditions,
changes in currency exchange rates, foreign controls on investment,
difficulties in selling securities and lack of financial information.
Withholding taxes may apply to some foreign investments.
[GRAPHIC GOES HERE]
A LOOK AT THE FUND'S PERFORMANCE
Looking at past performance can give you an idea of a Fund's volatility
from year to year and its average returns over time. Performance will
vary based on many factors, including market conditions, the composition
of the Fund's holdings and the Fund's expenses. A FUND'S PAST
PERFORMANCE IS NO GUARANTEE OF HOW IT WILL PERFORM IN THE FUTURE.
YEAR BY YEAR TOTAL RETURN (%)
[GRAPHIC GOES HERE]
00% 00% 00% 00% 00% 00% 00%
- ---------------------------------------------------
1900 1900 1900 1900 1900 1900 1900
BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD:
<TABLE>
<S> <C>
Best -- 0 quarter 1990: 0%
Worst -- 0 quarter 1900: 0%
Year-to-date return as of 00: 0%
</TABLE>
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 1998
<TABLE>
<CAPTION>
1 year 5 years 10 years
<S> <C> <C> <C>
Investor A Shares 0.00% 0.00% 0.00%
Investor B Shares 0.00% 0.00% 0.00%
Investor C Shares 0.00% 0.00% 0.00%
S&P 500 0.00% 0.00% 0.00%
</TABLE>
29
<PAGE>
[GRAPHIC GOES HERE]
THERE ARE TWO KINDS OF FEES -- THOSE YOU PAY DIRECTLY, AND ONGOING FEES
AND EXPENSES THAT ARE DEDUCTED FROM THE FUND'S ASSETS.
[GRAPHIC GOES HERE]
WHAT IT COSTS TO INVEST IN THE FUND
<TABLE>
<CAPTION>
Investor A Investor B Investor C
Fees you pay directly Shares Shares Shares
<S> <C> <C> <C>
Maximum sales charge (load)
when you buy your shares 5.75% none none
Maximum deferred sales charge
(load) when you sell your shares none(1) 5.00%(2) 1.00%(3)
Redemption fee, as a percentage
of the amount sold none(4) none none
Ongoing fees and expenses deducted from the Fund's assets
(the Fund's operating expenses)(5)
Management fees 0.85% 0.85% 0.85%
Distribution (12b-1) and service fees 0.25% 1.00% 1.00%
Other expenses 0.40% 0.40% 0.40%
Total annual fund operating expenses 1.50% 2.25% 2.25%
</TABLE>
(1)A 1.00% maximum deferred sales charge applies to investors who buy $1
million or more of Investor A Shares and sell them within two years of
buying them. Please see page 00 for details.
(2)This charge decreases over time. Please see page 00 for details.
Different charges apply to Investor B Shares bought before January 1,
1996 and after July 31, 1997. Please see page 00 for details.
(3)This charge applies to investors who buy Investor C Shares and sell
them within one year of buying them. Please see page 00 for details.
(4)A 1.00% redemption fee applies to investors who bought $1 million or
more of Investor A Shares between July 31, 1997 and November 15, 1998
and sell them within 18 months of buying them. The fee is paid to the
Fund. Please see page 00 for details.
(5)The Fund's investment adviser and some of the Fund's other service
providers have agreed to waive fees or reimburse expenses until August
1, 2000. The figures shown here are after waivers and reimbursements.
Total actual Fund operating expenses last year were 0.00% for Investor
A Shares, 0.00% for Investor B Shares, and 0.00% for Investor C Shares.
There is no guarantee that these waivers and reimbursements will
continue after this date.
30
<PAGE>
[GRAPHIC GOES HERE]
THIS IS AN EXAMPLE ONLY. YOUR ACTUAL COSTS COULD BE HIGHER OR
LOWER, DEPENDING ON THE AMOUNT YOU INVEST, AND ON THE FUND'S
ACTUAL EXPENSES AND PERFORMANCE.
EXAMPLE
This example is designed to help you compare the cost of investing in
this Fund with the cost of investing in other mutual funds.
This example assumes:
o you invest $10,000 in Investor A, Investor B or Investor C Shares
of the Fund
o your investment has a 5% return each year
o the Fund's operating expenses remain the same as shown in the table
above.
If you sold all your shares at the end of the period, your costs would
be:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
Investor A Shares $000 $000 $000 $000
Investor B Shares $000 $000 $000 $000
Investor C Shares $000 $000 $000 $000
</TABLE>
If you bought Investor B Shares and didn't sell them, your costs would
be:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
Investor B Shares $000 $000 $000 $000
</TABLE>
31
<PAGE>
ABOUT THE EQUITY FUNDS
- --------------------------------------------------------------------------------
[GRAPHIC GOES HERE]
ABOUT THE SUB-ADVISER
MARSICO CAPITAL IS THIS FUND'S SUB-ADVISER. THOMAS F. MARSICO
IS THE PORTFOLIO MANAGER AND MAKES THE DAY-TO-DAY INVESTMENT
DECISIONS FOR THE FUND.
[GRAPHIC GOES HERE]
YOU'LL FIND MORE ABOUT
MARSICO CAPITAL AND
MR. MARSICO ON PAGE 00.
[GRAPHIC GOES HERE]
WHY INVEST IN A GROWTH AND INCOME FUND?
GROWTH AND INCOME FUNDS CAN INVEST IN A MIX OF EQUITY AND FIXED
INCOME SECURITIES. THIS CAN HELP REDUCE VOLATILITY AND GIVES THE
PORTFOLIO MANAGEMENT TEAM THE FLEXIBILITY TO SHIFT AMONG
SECURITIES THAT OFFER THE POTENTIAL FOR HIGHER RETURNS.
WHILE THIS FUND INVESTS IN A WIDE RANGE OF COMPANIES AND
INDUSTRIES, IT HOLDS FEWER SECURITIES THAN OTHER KINDS OF FUNDS.
THIS MEANS IT CAN HAVE GREATER PRICE SWINGS THAN MORE
DIVERSIFIED FUNDS AND MAY EARN RELATIVELY HIGHER RETURNS WHEN
ONE OF ITS INVESTMENTS PERFORMS WELL, OR RELATIVELY LOWER
RETURNS WHEN AN INVESTMENT PERFORMS POORLY.
NATIONS MARSICO GROWTH & INCOME FUND
[GRAPHIC GOES HERE]
INVESTMENT OBJECTIVE
This Fund seeks long-term growth of capital with a limited emphasis on
income.
[GRAPHIC GOES HERE]
PRINCIPAL INVESTMENT STRATEGIES
The Fund normally invests up to 75% of its assets in EQUITY SECURITIES
that are believed to have significant growth potential and at least 25%
of its assets in equity and FIXED INCOME SECURITIES that are believed to
have income potential. The Fund generally holds 35 to 50 securities and
emphasizes large-capitalization COMMON STOCKS.
Marsico Capital may shift assets between growth and income securities based on
its analysis of market, financial and economic conditions. It will emphasize
growth securities if it believes they will provide better returns than the
yields available or expected on income-producing securities. If Marsico Capital
believes it appropriate to do so, it may also reduce investments in growth
securities to 25% of the Fund's assets.
Since income is a part of the Fund's investment objective, Marsico Capital may
consider a company's anticipated dividends when selecting equity securities. It
may also find opportunities for capital growth from fixed income securities
because of expected changes in interest rates, credit rating, currency exchange
rates or other factors. The Fund is not, however, designed to produce a
consistent level of income.
The Fund may hold up to 25% of its assets in FOREIGN SECURITIES. The Fund may
also invest smaller percentages of its assets in other kinds of securities,
which are described in the SAI.
Marsico Capital looks for companies with earnings growth potential that may not
be recognized by other investors, focusing on companies that have some of the
following characteristics:
o they have promising products, markets or technologies that can result in
extraordinary growth
o they have strong brand franchises that can take advantage of a changing
global environment
o they have global reach that can allow the Fund to take advantage of a
broader range of investment opportunities. Not limiting itself to the
markets of a single country can also help the Fund reduce risk.
o they are responding to the major social, economic and cultural shifts
taking place in the world
32
<PAGE>
[GRAPHIC GOES HERE]
YOU'LL FIND MORE ABOUT OTHER RISKS OF INVESTING IN THIS FUND ON
PAGE 00 AND IN THE SAI.
Once an investment opportunity is identified, Marsico Capital uses a
disciplined analytical process to assess its potential as an investment. This
process includes a "top-down" analysis that takes into account economic factors
like interest rates, inflation, the regulatory environment, the industry and
global competition. The process also includes a "bottom-up" analysis that
considers individual company characteristics like commitment to research,
market franchise and quality of management.
[GRAPHIC GOES HERE]
RISKS AND OTHER THINGS TO CONSIDER
While investing in equity securities and fixed income securities can
bring added benefits, it may also involve additional risks. Investors
could lose money on their investment in the portfolio, or the portfolio
may not perform as well as other investments. Nations Marsico Growth &
Income Fund has the following general risks:
o INVESTMENT STRATEGY RISK - Marsico Capital uses an investment
strategy that tries to identify equities with growth or income
potential. There is a risk that the value of these investments will
fall or will not rise as high as Marsico Capital expects.
o STOCK MARKET RISK - The value of the stocks the Fund holds, like the
stock market in general, can rise or fall over short as well as long
periods.
o INTEREST RATE RISK - The prices of the Fund's fixed income securities
will tend to fall when interest rates rise and to rise when interest
rates fall. In general, fixed income securities with longer terms
tend to fall more in value when interest rates rise than fixed income
securities with shorter terms.
o CREDIT RISK - The Fund could lose money if the issuer of a fixed
income security is unable to pay interest or repay principal when
it's due. Credit risk usually applies to most fixed income
securities, but is generally not a factor for securities that are
issued or backed by the U.S. government. Fixed income securities with
the lowest investment grade rating or that aren't investment grade
are more speculative in nature than securities with higher ratings,
and they tend to be more sensitive to credit risk, particularly
during a downturn in the economy.
o FOREIGN INVESTMENT RISK - The Fund may only invest up to 25% of its
assets in foreign securities, which means it can be affected by the
risks of foreign investing. Foreign investments may be riskier than
U.S. investments because of political and economic conditions,
changes in currency exchange rates, foreign controls on investment,
difficulties in selling securities and lack of financial information.
Withholding taxes may apply to some foreign investments.
[GRAPHIC GOES HERE]
A LOOK AT THE FUND'S PERFORMANCE
Looking at past performance can give you an idea of a Fund's volatility
from year to year and its average returns over time. Performance will
vary based on many factors, including market conditions, the composition
of the Fund's holdings and the Fund's expenses. A FUND'S PAST
PERFORMANCE IS NO GUARANTEE OF HOW IT WILL PERFORM IN THE FUTURE.
33
<PAGE>
[GRAPHIC GOES HERE]
THE BAR CHART SHOWS YOU THE PERFORMANCE OF THE FUND'S INVESTOR A
SHARES. THESE RETURNS DO NOT REFLECT DEDUCTIONS OF SALES CHARGES
OR ACCOUNT FEES, AND WOULD BE LOWER IF THEY DID. RETURNS FOR
INVESTOR B AND INVESTOR C SHARES ARE DIFFERENT BECAUSE THEY HAVE
THEIR OWN EXPENSES, PRICING AND SALES CHARGES.
YEAR BY YEAR TOTAL RETURN (%)
[GRAPHIC GOES HERE]
00% 00% 00% 00% 00% 00% 00%
- ---------------------------------------------------
1900 1900 1900 1900 1900 1900 1900
BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD:
<TABLE>
<S> <C>
Best -- 0 quarter 1990: 0%
Worst -- 0 quarter 1900: 0%
Year-to-date return as of 00: 0%
</TABLE>
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 1998
<TABLE>
<CAPTION>
1 year 5 years 10 years
<S> <C> <C> <C>
Investor A Shares 0.00% 0.00% 0.00%
Investor B Shares 0.00% 0.00% 0.00%
Investor C Shares 0.00% 0.00% 0.00%
S&P 500 0.00% 0.00% 0.00%
</TABLE>
The S&P 500 (Standard & Poor's 500 Composite Stock Price Index) is an
index of 500 common stocks chosen by Standard & Poor's on a statistical
basis.
34
<PAGE>
[GRAPHIC GOES HERE]
THERE ARE TWO KINDS OF FEES -- THOSE YOU PAY DIRECTLY, AND ONGOING FEES
AND EXPENSES THAT ARE DEDUCTED FROM THE FUND'S ASSETS.
[GRAPHIC GOES HERE]
WHAT IT COSTS TO INVEST IN THE FUND
<TABLE>
<CAPTION>
Investor A Investor B Investor C
Fees you pay directly Shares Shares Shares
<S> <C> <C> <C>
Maximum sales charge (load)
when you buy your shares 5.75% none none
Maximum deferred sales charge
(load) when you sell your shares none(1) 5.00%(2) 1.00%(3)
Redemption fee, as a percentage
of the amount sold none(4) none none
Ongoing fees and expenses deducted from the Fund's assets
(the Fund's operating expenses)(5)
Management fees 0.85% 0.85% 0.85%
Distribution (12b-1) and service fees 0.25% 1.00% 1.00%
Other expenses 0.40% 0.40% 0.40%
Total annual fund operating expenses 1.50% 2.25% 2.25%
</TABLE>
(1)A 1.00% maximum deferred sales charge applies to investors who buy $1
million or more of Investor A Shares and sell them within two years of
buying them. Please see page 00 for details.
(2)This charge decreases over time. Please see page 00 for details.
Different charges apply to Investor B Shares bought before January 1,
1996 and after July 31, 1997. Please see page 00 for details.
(3)This charge applies to investors who buy Investor C Shares and sell
them within one year of buying them. Please see page 00 for details.
(4)A 1.00% redemption fee applies to investors who bought $1 million or
more of Investor A Shares between July 31, 1997 and November 15, 1998
and sell them within 18 months of buying them. The fee is paid to the
Fund. Please see page 00 for details.
(5)The Fund's investment adviser and some of the Fund's other service
providers have agreed to waive fees or reimburse expenses until August
1, 2000. The figures shown here are after waivers and reimbursements.
Total actual Fund operating expenses last year were 0.00% for Investor
A Shares, 0.00% for Investor B Shares, and 0.00% for Investor C Shares.
There is no guarantee that these waivers and reimbursements will
continue after this date.
35
<PAGE>
[GRAPHIC GOES HERE]
THIS IS AN EXAMPLE ONLY. YOUR ACTUAL COSTS COULD BE HIGHER OR
LOWER, DEPENDING ON THE AMOUNT YOU INVEST, AND ON THE FUND'S
ACTUAL EXPENSES AND PERFORMANCE.
EXAMPLE
This example is designed to help you compare the cost of investing in
this Fund with the cost of investing in other mutual funds.
This example assumes:
o you invest $10,000 in Investor A, Investor B or Investor C Shares
of the Fund
o your investment has a 5% return each year
o the Fund's operating expenses remain the same as shown in the table
above.
If you sold all your shares at the end of the period, your costs would
be:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
Investor A Shares $000 $000 $000 $000
Investor B Shares $000 $000 $000 $000
Investor C Shares $000 $000 $000 $000
</TABLE>
If you bought Investor B Shares and didn't sell them, your costs would
be:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
Investor B Shares $000 $000 $000 $000
</TABLE>
36
<PAGE>
ABOUT THE BALANCED FUND
- --------------------------------------------------------------------------------
[GRAPHIC GOES HERE]
ABOUT THE SUB-ADVISER
TRADESTREET IS THIS FUND'S SUB-ADVISER. TRADESTREET'S VALUE
MANAGEMENT TEAM MAKES THE DAY-TO-DAY INVESTMENT DECISIONS FOR
THE FUND.
[GRAPHIC GOES HERE]
YOU'LL FIND MORE ABOUT TRADESTREET ON PAGE 00.
[GRAPHIC GOES HERE]
WHAT IS AN ASSET ALLOCATION FUND?
AN ASSET ALLOCATION FUND INVESTS IN A MIX OF EQUITY AND FIXED
INCOME SECURITIES, AND MONEY MARKET INSTRUMENTS.
EACH OF THESE "ASSET CLASSES" HAS DIFFERENT RISK/RETURN
CHARACTERISTICS. COMBINING THEM IN ONE FUND CAN HELP REDUCE RISK
AND INCREASE RETURNS BECAUSE AT LEAST ONE ASSET CLASS SHOULD
HAVE THE POTENTIAL TO BE A STRONGER PERFORMER REGARDLESS OF
MARKET CONDITIONS.
BALANCED FUNDS LIKE THIS ONE CAN PROVIDE A DIVERSIFIED ASSET MIX
FOR YOU IN A SINGLE INVESTMENT.
NATIONS BALANCED ASSETS FUND
[GRAPHIC GOES HERE]
INVESTMENT OBJECTIVE
This Fund seeks total return by investing in equity and fixed income
securities.
[GRAPHIC GOES HERE]
PRINCIPAL INVESTMENT STRATEGIES
This Fund invests in a mix of EQUITY and FIXED INCOME SECURITIES, and
MONEY MARKET INSTRUMENTS.
Equity securities the Fund invests in are principally COMMON STOCK of
seasoned companies believed to be financially strong.
Fixed income securities normally make up at least 25% of the Fund's
assets. Fixed income securities the Fund invests in are principally
bonds, notes and MORTGAGE-BACKED and ASSET-BACKED SECURITIES issued by
U.S. companies and government entities.
MONEY MARKET INSTRUMENTS the Fund invests in are principally cash
equivalents.
The Fund may also invest up to 10% of its assets in other kinds of
securities, which are described in the SAI.
The management team uses asset allocation as its principal investment approach.
The team allocates assets among the three asset classes based on its assessment
of the expected risks and returns of each class. The team evaluates:
o current economic and financial market conditions in the U.S. and abroad
o current interest rate trends
o earnings and dividend prospects for COMMON STOCKS
o the overall stability of financial markets
The team may change the Fund's asset allocation to try to increase returns and
reduce risk.
The team selects individual investments using the following process:
o For the equity portion of the Fund, the team uses fundamental research and
valuation analysis.
o For the fixed income portion of the Fund, the team selects securities
rated INVESTMENT GRADE at the time of investment. The team may choose
unrated securities if it believes they are of comparable quality to rated
securities at the time of investment.
37
<PAGE>
[GRAPHIC GOES HERE]
YOU'LL FIND MORE ABOUT OTHER RISKS OF INVESTING IN THIS FUND ON
PAGE 00 AND IN THE SAI.
o For the money market portion of the Fund, the team chooses high-quality
securities primarily to provide LIQUIDITY.
The management team may use various tax strategies, consistent with the Fund's
investment objective, to try to reduce the amount of CAPITAL GAINS distributed
to shareholders. For example, the team:
o may limit the number of buy and sell transactions it makes
o will try to sell shares that have the lowest tax burden on shareholders
o may offset capital gains by selling securities to realize a CAPITAL LOSS
While the Fund tries to manage its capital gain distributions, it will not be
able to completely avoid making taxable distributions. These strategies also
may be affected by changes in tax laws and regulations, or by court decisions.
[GRAPHIC GOES HERE]
RISKS AND OTHER THINGS TO CONSIDER
While investing in a mix of equity and fixed income securities can bring
added benefits, it may also involve additional risks. Investors could
lose money on their investment in the portfolio, or the portfolio may
not perform as well as other investments. Nations Balanced Assets Fund
has the following general risks:
o INVESTMENT STRATEGY RISK - The team uses an asset allocation strategy
to try to achieve the highest total return. There is a risk that the
mix of investments will not produce the returns the team expects, or
will fall in value.
o STOCK MARKET RISK - The value of the stocks the Fund holds, like the
stock market in general, can rise or fall over short as well as long
periods.
o INTEREST RATE RISK - The prices of the Fund's fixed income securities
will tend to fall when interest rates rise. In general, fixed income
securities with longer terms tend to fall more in value when interest
rates rise than fixed income securities with shorter terms.
o CREDIT RISK - The Fund could lose money if the issuer of a fixed
income security is unable to pay interest or repay principal when
it's due. Credit risk usually applies to most fixed income
securities, but is generally not a factor for securities that are
issued or backed by the U.S. Government. Fixed income securities with
the lowest investment grade rating or that aren't investment grade
are more speculative in nature than securities with higher ratings,
and they tend to be more sensitive to credit risk, particularly
during a downturn in the economy.
[GRAPHIC GOES HERE]
A LOOK AT THE FUND'S PERFORMANCE
Looking at past performance can give you an idea of a Fund's volatility
from year to year and its average returns over time. Performance will
vary based on many factors, including market conditions, the composition
of the Fund's holdings and the Fund's expenses. A FUND'S PAST
PERFORMANCE IS NO GUARANTEE OF HOW IT WILL PERFORM IN THE FUTURE.
38
<PAGE>
[GRAPHIC GOES HERE]
THE BAR CHART SHOWS YOU THE PERFORMANCE OF THE FUND'S INVESTOR A
SHARES. THESE RETURNS DO NOT REFLECT DEDUCTIONS OF SALES CHARGES
OR ACCOUNT FEES, AND WOULD BE LOWER IF THEY DID. RETURNS FOR
INVESTOR B AND INVESTOR C SHARES ARE DIFFERENT BECAUSE THEY HAVE
THEIR OWN EXPENSES, PRICING AND SALES CHARGES.
[GRAPHIC GOES HERE]
THERE ARE TWO KINDS OF FEES -- THOSE YOU PAY DIRECTLY, AND ONGOING FEES
AND EXPENSES THAT ARE DEDUCTED FROM THE FUND'S ASSETS.
YEAR BY YEAR TOTAL RETURN (%)
[GRAPHIC GOES HERE]
00% 00% 00% 00% 00% 00% 00%
- ---------------------------------------------------
1900 1900 1900 1900 1900 1900 1900
BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD:
<TABLE>
<S> <C>
Best -- 0 quarter 1990: 0%
Worst -- 0 quarter 1900: 0%
Year-to-date return as of 00: 0%
</TABLE>
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 1998
<TABLE>
<CAPTION>
1 year 5 years 10 years
<S> <C> <C> <C>
Investor A Shares 0.00% 0.00% 0.00%
Investor B Shares 0.00% 0.00% 0.00%
Investor C Shares 0.00% 0.00% 0.00%
S&P 500 0.00% 0.00% 0.00%
Lehman Aggregate Bond Index 0.00% 0.00% 0.00%
</TABLE>
The S&P 500 (Standard & Poor's 500 Composite Stock Price Index) is an
index of 500 common stocks chosen by Standard & Poor's on a statistical
basis.
The Lehman Aggregate Bond Index is an index of fixed income securities
issued by the U.S. government and its agencies, and by corporations.
[GRAPHIC GOES HERE]
WHAT IT COSTS TO INVEST IN THE FUND
<TABLE>
<CAPTION>
Investor A Investor B Investor C
Fees you pay directly Shares Shares Shares
<S> <C> <C> <C>
Maximum sales charge (load)
when you buy your shares 5.75% none none
Maximum deferred sales charge
(load) when you sell your shares none(1) 5.00%(2) 1.00%(3)
Redemption fee, as a percentage
of the amount sold none(4) none none
</TABLE>
<TABLE>
<S> <C> <C> <C>
Ongoing fees and expenses deducted from the Fund's assets
(the Fund's operating expenses)(5)
Management fees 0.75% 0.75% 0.75%
Distribution (12b-1) and service fees 0.25% 1.00% 1.00%
Other expenses 0.33% 0.33% 0.33%
Total annual fund operating expenses 1.33% 2.08% 2.08%
</TABLE>
39
<PAGE>
[GRAPHIC GOES HERE]
THIS IS AN EXAMPLE ONLY. YOUR ACTUAL COSTS COULD BE HIGHER OR
LOWER, DEPENDING ON THE AMOUNT YOU INVEST, AND ON THE FUND'S
ACTUAL EXPENSES AND PERFORMANCE.
(1)A 1.00% maximum deferred sales charge applies to investors who buy $1
million or more of Investor A Shares and sell them within two years of
buying them. Please see page 00 for details.
(2)This charge decreases over time. Please see page 00 for details.
Different charges apply to Investor B Shares bought before January 1,
1996 and after July 31, 1997. Please see page 00 for details.
(3)This charge applies to investors who buy Investor C Shares and sell
them within one year of buying them. Please see page 00 for details.
(4)A 1.00% redemption fee applies to investors who bought $1 million or
more of Investor A Shares between July 31, 1997 and November 15, 1998
and sell them within 18 months of buying them. The fee is paid to the
Fund. Please see page 00 for details.
(5)The Fund's investment adviser and some of the Fund's other service
providers have agreed to waive fees or reimburse expenses until August
1, 2000. The figures shown here are after waivers and reimbursements.
Total actual Fund operating expenses last year were 0.00% for Investor
A Shares, 0.00% for Investor B Shares, and 0.00% for Investor C Shares.
There is no guarantee that these waivers and reimbursements will
continue after this date.
EXAMPLE
This example is designed to help you compare the cost of investing in
this Fund with the cost of investing in other mutual funds.
This example assumes:
o you invest $10,000 in Investor A, Investor B or Investor C Shares
of the Fund
o your investment has a 5% return each year
o the Fund's operating expenses remain the same as shown in the table
above.
If you sold all your shares at the end of the period, your costs would
be:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
Investor A Shares $000 $000 $000 $000
Investor B Shares $000 $000 $000 $000
Investor C Shares $000 $000 $000 $000
</TABLE>
If you bought Investor B Shares and didn't sell them, your costs would
be:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
Investor B Shares $000 $000 $000 $000
</TABLE>
40
<PAGE>
[GRAPHIC GOES HERE]
OTHER IMPORTANT INFORMATION
You'll find specific information about each Fund's principal investments,
strategies and risks in the descriptions starting on page . The following are
some other risks and information you should consider before you invest:
o YOUR INVESTMENT IN THESE FUNDS IS NOT A BANK DEPOSIT AND IS NOT
INSURED OR GUARANTEED BY NATIONSBANK, N.A. (NATIONSBANK), BANK OF
AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION (BANK OF AMERICA), THE
FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
YOUR INVESTMENT MAY LOSE MONEY.
o AFFILIATES OF NATIONSBANK AND BANK OF AMERICA ARE PAID FOR THE
SERVICES THEY PROVIDE TO THE FUNDS.
o CHANGING INVESTMENT OBJECTIVES AND POLICIES - The investment
objective and certain investment policies of any Fund can be changed
without shareholder approval. Other investment policies may be
changed only with shareholder approval.
o HOLDING OTHER KINDS OF INVESTMENTS - The Funds may hold investments
that aren't part of their principal investment strategies. Please
refer to the SAI for more information.
o FOREIGN INVESTMENT RISK - The Funds may invest up to 20% of their
assets in foreign securities, except for Nations Marsico Focused
Equities Fund and Nations Marsico Growth & Income Fund, which can
invest up to 25% of their assets in foreign securities. This means
the Funds can be affected by the risks of foreign investing. Funds
that invest in foreign securities may be affected by changes in
currency exchange rates and the costs of converting currencies;
foreign government controls on foreign investment, repatriation of
capital, and currency and exchange; foreign taxes; inadequate
supervision and regulation of some foreign markets; volatility from a
lack of LIQUIDITY; different settlement practices or delayed
settlements in some markets; difficulty getting complete or accurate
information about foreign companies; less strict accounting, auditing
and financial reporting standards than those in the U.S.; political,
economic or social instability; and difficulty enforcing legal rights
outside the U.S.
Securities issued by companies in developing or emerging market
countries, like those in Eastern Europe, the Pacific Basin and the Far
East, may be more sensitive to the risks of foreign investing. In
particular, these countries may experience instability resulting from
rapid social, political and economic development. Many of these
countries are dependent on international trade, which makes them
sensitive to world commodity prices and economic downturns in other
countries. Some emerging countries have a higher risk of currency
devaluation, and some countries may experience long periods of high
inflation or rapid changes in inflation rates.
41
<PAGE>
o INVESTING DEFENSIVELY - A Fund may temporarily hold investments that
are not part of its investment objective or its principal investment
strategies to try to protect it during a market or economic downturn
or because of political or other conditions. A Fund may not achieve
its investment objective while it is investing defensively.
o PORTFOLIO TURNOVER - A Fund that replaces -- or turns over -- more
than 100% of its securities in a year may have higher brokerage costs
than a Fund that is trading less frequently. This may also result in
larger distributions of CAPITAL GAINS to shareholders. All of the
Funds generally buy securities for capital appreciation, investment
income, or both, and do not engage in short-term trading. You'll find
the portfolio turnover rate for each Fund in the FINANCIAL
HIGHLIGHTS.
o PREPARING FOR THE YEAR 2000 - The year 2000 is an issue for
organizations, companies and entities around the world that rely on
computer systems to process date-related information. Computer
systems that cannot read a four-digit year may not be able to
calculate and process information on or after January 1, 2000.
All of the Funds' primary service providers have confirmed that they
have been working to make the necessary changes to their systems, and
that they expect them to be adapted in time. There is no guarantee,
however, that their computer systems will ready by the year 2000. If
their computer systems are not ready in time, there could be a negative
effect on Fund operations.
A Fund's performance could also be affected if securities it holds
decrease in value because of year 2000 issues.
42
<PAGE>
[GRAPHIC GOES HERE]
NATIONSBANC ADVISORS, INC.
ONE BANK OF AMERICA PLAZA
CHARLOTTE, NORTH CAROLINA 28255
[GRAPHIC GOES HERE]
HOW THE FUNDS ARE MANAGED
INVESTMENT ADVISER
NBAI is the investment adviser to the Equity Funds and the Balanced Fund, as
well as to over 60 other mutual fund portfolios in the Nations Funds Family
(Nations Funds).
NBAI is a registered investment adviser. It's a wholly owned subsidiary of
NationsBank, which is owned by BankAmerica Corporation. It is anticipated that
NationsBank and Bank of America will merge in July 1999. The combined bank will
be called Bank of America National Trust and Savings Association. The level or
quality of advisory and other services provided to the portfolios by
NationsBank, NBAI or its affiliates should not be affected by the merger.
Nations Funds pays NBAI an annual fee for its investment advisory services. The
fee is calculated daily based on the average net assets of each Fund and is
paid monthly. NBAI uses part of this money to pay investment sub-advisers for
the services they provide to Nations Funds.
NBAI has agreed to waive or reimburse [expenses or fees] for certain Funds
until August 1, 2000. You'll find a discussion of any waiver or reimbursement
in the Fund descriptions. There is no assurance that NBAI will continue to
waive or reimburse any fees or expenses after this date.
The following chart shows the maximum advisory fees NBAI can receive, along
with the actual advisory fees it received during the Funds' last fiscal period
(April 1, 1998 to March 31, 1999), after waivers and reimbursements:
ANNUAL INVESTMENT ADVISORY FEE,
AS A % OF AVERAGE DAILY NET ASSETS
<TABLE>
<CAPTION>
Maximum Actual fee
advisory paid last
fee fiscal year
<S> <C> <C>
Nations Value Fund 0.00 0.00
Nations Equity Income Fund 0.00 0.00
Nations Emerging Growth Fund 0.00 0.00
Nations Small Company Growth Fund 0.00 0.00
Nations Disciplined Equity Fund 0.00 0.00
Nations Capital Growth Fund 0.00 0.00
Nations Marsico Focused Equities Fund 0.00 0.00
Nations Marsico Growth & Income Fund 0.00 0.00
Nations Balanced Assets Fund 0.00 0.00
</TABLE>
43
<PAGE>
[GRAPHIC GOES HERE]
TRADESTREET INVESTMENT
ASSOCIATES, INC.
ONE BANK OF AMERICA PLAZA
CHARLOTTE, NORTH CAROLINA 28255
[GRAPHIC GOES HERE]
MARSICO CAPITAL
MANAGEMENT, LLC
1200 17TH STREET
SUITE 1300
DENVER, COLORADO 80202
INVESTMENT SUB-ADVISERS
Nations Funds and NBAI have engaged investment sub-advisers to provide
day-to-day portfolio management for the Funds. These sub-advisers function
under the supervision of the Boards of Directors/Trustees of Nations Funds and
NBAI.
TRADESTREET INVESTMENT ASSOCIATES, INC.
TradeStreet is a registered investment adviser and a wholly-owned subsidiary of
NationsBank. Its management expertise covers all major domestic asset classes.
Currently managing more than $70 billion, TradeStreet has more than 140
institutional clients and is sub-adviser to over 50 mutual funds in the Nations
Funds Family. TradeStreet uses a team approach to investment management. Each
team has access to the latest analytic technology and expertise.
TradeStreet is the investment sub-adviser to the Funds shown in the table
below. The table also tells you which internal TradeStreet asset management
team is responsible for making the day-to-day investment decisions for each
Fund.
<TABLE>
<CAPTION>
Fund TradeStreet team
<S> <C>
Nations Value Fund Value Management Team
Nations Equity Income Fund Structured Products Management Team
Nations Emerging Growth Fund Strategic Growth Management Team
Nations Small Company Fund Strategic Growth Management Team
Nations Disciplined Equity Fund Structured Products Management Team
Nations Capital Growth Fund Core Growth Management Team
Nations Balanced Assets Fund Value Management Team
</TABLE>
MARSICO CAPITAL MANAGEMENT, LLC
Marsico Capital is a full service investment advisory firm founded by Thomas F.
Marsico in September 1997. It is a registered investment adviser and
specializes in large capitalization stocks and currently has over $6 billion in
assets under management.
Marsico Management Holdings, LLC, a wholly owned subsidiary of NationsBank,
owns 50% of the equity of Marsico Capital.
Marsico Capital is the investment sub-adviser to:
o Nations Marsico Focused Equities Fund
o Nations Marsico Growth & Income Fund
Thomas F. Marsico, Chairman and Chief Executive Officer of Marsico Capital, is
the portfolio manager responsible for the day-to-day management of these Funds.
Before forming the company, Mr. Marsico was an executive vice president and
portfolio manager at Janus Capital Corporation. He has more than 20 years of
experience as a securities analyst and portfolio manager.
44
<PAGE>
[GRAPHIC GOES HERE]
PERFORMANCE OF OTHER FUNDS MANAGED BY THOMAS MARSICO
The table below shows you how a similar fund managed by Thomas Marsico
performed in the past.
The Janus Twenty Fund has an investment objective, policies and
strategies that are very similar to Nations Marsico Focused Equities
Fund. Mr. Marsico managed the Janus Twenty Fund from January 31, 1988
through August 11, 1997. He had full discretionary authority for
selecting investments for that fund, which had approximately $6 billion
in net assets on August 11, 1997.
The table below shows the returns for the Janus Twenty Fund compared
with the S&P 500 for the periods ending August 7, 1997. The returns
reflect deductions of fees and expenses, except for any account level
charges, and assume all dividends and distributions have been
reinvested.
AVERAGE ANNUAL TOTAL RETURNS AS OF AUGUST 7, 1997
<TABLE>
<CAPTION>
Janus Twenty
Fund (%) S&P 500 (%)
<S> <C> <C>
one year 48.21 46.41
three years 32.07 30.63
five years 20.02 20.98
during the period of Mr. Marsico's management
(January 31, 1988 to August 7, 1997) 23.38 18.20
</TABLE>
This information is designed to demonstrate the historical track record
of Mr. Marsico. It does not indicate how the Fund has performed or will
perform in the future.
Performance will vary based on many factors, including market
conditions, the composition of the fund's holdings and the fund's
expenses.
The Janus Growth and Income Fund has an investment objective,
policies and strategies that are very similar to Nations Marsico Growth
& Income Fund. Mr. Marsico managed the Janus Growth and Income Fund from
is inception on May 31, 1991 through August 11, 1997. He had full
discretionary authority for selecting investments for that fund, which
had approximately $1.7 billion in net assets on August 11, 1997.
45
<PAGE>
[GRAPHIC GOES HERE]
STEPHENS INC.
111 CENTER STREET
LITTLE ROCK, ARKANSAS 72201
[GRAPHIC GOES HERE]
FIRST DATA INVESTOR
SERVICES GROUP, INC.
ONE EXCHANGE PLACE
BOSTON, MASSACHUSETTS 02109
The table below shows the returns for the Janus Growth and Income Fund
compared with the S&P 500 for the period ending August 7, 1997. The S&P
500 is a broadly based index of 500 large U.S. companies. The returns
reflect deductions of fees and expenses, except for any account level
charges, and assume all dividends and distributions have been
reinvested.
AVERAGE ANNUAL TOTAL RETURNS AS OF AUGUST 7, 1997
<TABLE>
<CAPTION>
Janus Twenty
Fund (%) S&P 500 (%)
<S> <C> <C>
one year 47.77 46.41
three years 31.13 30.63
five years 21.16 20.98
during the period of Mr. Marsico's management
(May 31, 1991 to August 7, 1997) 21.19 18.59
</TABLE>
This information is designed to demonstrate the historical track record
of Mr. Marsico. It does not indicate how the Fund has performed or will
perform in the future.
Performance will vary based on many factors, including market
conditions, the composition of the fund's holdings and the fund's
expenses.
OTHER SERVICE PROVIDERS
The Funds are distributed and co-administered by Stephens Inc., a registered
broker/dealer. Stephens may pay service fees or commissions to companies that
assist investors in buying shares of the Funds.
NBAI is also co-administrator of the Funds, and assists in overseeing the
administrative operations of the Funds. NBAI and Stephens receive a combined
monthly fee of 0.23% from the Funds for their services, based on the annual
rate of the average daily net assets of the Funds, as well as certain out of
pocket expenses.
First Data Investor Services Group, Inc. (First Data) is the transfer agent for
the Funds' shares. Its responsibilities include processing purchases, sales and
exchanges, calculating and paying distributions, keeping shareholder records,
preparing account statements and providing customer service.
46
<PAGE>
ABOUT YOUR INVESTMENT
- --------------------------------------------------------------------------------
[GRAPHIC GOES HERE]
WE'VE USED THE TERM, INVESTMENT PROFESSIONAL, TO REFER TO THE
PERSON WHO HAS ASSISTED YOU WITH BUYING NATIONS FUNDS. SELLING
AGENT MEANS THE COMPANY THAT EMPLOYS YOUR INVESTMENT
PROFESSIONAL. SELLING AGENTS INCLUDE BANKS, BROKERAGE FIRMS,
MUTUAL FUND DEALERS AND OTHER FINANCIAL INSTITUTIONS, INCLUDING
AFFILIATES OF NATIONSBANK OR BANK OF AMERICA, THAT HAVE SIGNED
AN AGREEMENT WITH US OR STEPHENS.
[GRAPHIC GOES HERE]
FOR MORE INFORMATION
ABOUT HOW TO CHOOSE A
SHARE CLASS, CONTACT YOUR
INVESTMENT PROFESSIONAL OR
CALL US AT 1.800.321.7854.
[GRAPHIC GOES HERE]
FOR MORE INFORMATION ABOUT SHAREHOLDER SERVICING AND
DISTRIBUTION FEES, SEE HOW SELLING AGENTS ARE PAID.
[GRAPHIC GOES HERE]
CHOOSING A SHARE CLASS
Before you can invest in the Funds, you'll need to choose a share class. There
are three classes of shares for each Fund offered by this prospectus. Each
class has its own sales charges and fees. The table below compares the charges
and fees of the share classes.
<TABLE>
<CAPTION>
Investor A Investor B Investor C
Shares Shares Shares
<S> <C> <C> <C>
Maximum amount no limit $250,000 no limit
you can buy
Maximum front-end 5.75% none none
sales charge
Maximum deferred none(1) 5.00% 1.00%
sales charge
Redemption fee none(2) none none
Maximum annual 0.25% 0.75% 0.75%
distribution and (12b-1) distribution distribution
shareholder servicing fees combined fee (12b-1) fee (12b-1) fee
0.25% service fee 0.25% service fee
Conversion feature none yes none
</TABLE>
(1)A 1.00% maximum deferred sales charge applies to investors who buy $1
million or more of Investor A Shares and sell them within two years of
buying them. Please see page for details.
(2)A 1.00% redemption fee applies to investors who bought $1 million or more
of Investor A Shares between July 31, 1997 and November 15, 1998 and sell
them within 18 months of buying them. The fee is paid to the Fund. Please
see page for details.
The share class you choose will depend on how much you're investing, how long
you're planning to stay invested, and how you prefer to pay the sales charge.
The total cost of your investment over the time you expect to hold your shares
will be affected by the distribution (12b-1) and shareholder servicing fees, as
well as by the amount of any front-end sales charge or CDSC that applies, and
when you're required to pay the charge.
Investor A Shares have a front-end sales charge, which is deducted when you buy
your shares. This means that a smaller amount is invested in the Funds, unless
you qualify for a waiver or reduction of the sales charge. However, Investor A
Shares have lower distribution (12b-1) and shareholder servicing fees than
Investor B and Investor C Shares, which means that Investor A Shares can be
expected to earn relatively higher dividends per share.
47
<PAGE>
[GRAPHIC GOES HERE]
THE OFFERING PRICE PER SHARE IS THE NET ASSET VALUE PER SHARE
PLUS ANY SALES CHARGE THAT APPLIES.
THE NET ASSET VALUE PER SHARE IS THE PRICE CALCULATED BY A FUND
FOR A SHARE AT THE END OF EVERY BUSINESS DAY.
Investor B Shares have limits on how much you can invest. When you buy Investor
B or Investor C Shares, the full amount is invested in the Funds. However, you
may pay a CDSC when you sell your shares. Over time, Investor B and Investor C
Shares can accumulate distribution (12b-1) and shareholder servicing fees that
are equal to or more than the front-end sales charge, and distribution (12b-1)
and shareholder servicing fees you would pay for Investor A Shares. Although
the full amount of your purchase is invested in the Funds, any positive
investment return on this money may be partially or fully offset by the
expected higher annual expenses of Investor B and Investor C Shares. You should
also consider the conversion feature for Investor B Shares, which is described
in ABOUT INVESTOR B SHARES.
[GRAPHIC GOES HERE]
ABOUT INVESTOR A SHARES
There is no limit to the amount you can invest in Investor A Shares. You
may pay a front-end sales charge when you buy your shares, or in some
cases, a contingent deferred sales charge (CDSC).
FRONT-END SALES CHARGE
You'll pay a front-end sales charge when you buy Investor A Shares,
unless:
o you qualify for a reduction or waiver of the sales charge. You can
find out if you qualify for a reduction or waiver in WHEN YOU MIGHT
NOT HAVE TO PAY A SALES CHARGE.
o you're reinvesting dividends or distributions
The sales charge you'll pay depends on the amount you're investing --
the larger the investment, the smaller the sales charge.
<TABLE>
<CAPTION>
Amount
retained
by selling
Sales charge Sales charge agents
as a % of the as a % of the as a % of the
offering price net asset value offering price
Amount you bought per share per share per share
<S> <C> <C> <C>
$0-$49,999 5.75% 6.10% 5.00%
$50,000-$99,999 4.50% 4.71% 3.75%
$100,000-$249,999 3.50% 3.63% 2.75%
$250,000-$499,999 2.50% 2.56% 2.00%
$500,000-$999,999 2.00% 2.04% 1.75%
$1,000,000 or more 0.00% 0.00% minimum 1.00%(1)
</TABLE>
(1)1.00% on the first $3,000,000, plus 0.50% on the next $47,000,000, plus
0.25% on amounts over $50,000,000. Stephens pays the amount retained by
selling agents on investments of $1,000,000 or more, but may be
reimbursed when a CDSC is deducted if the shares are sold within two
years from the time they were bought. Please see HOW SELLING AGENTS ARE
PAID for more information.
48
<PAGE>
CONTINGENT DEFERRED SALES CHARGE
You'll pay a CDSC if you buy $1,000,000 or more of Investor A Shares and
sell them within two years of buying them.
<TABLE>
<CAPTION>
If you sell your shares You'll pay a CDSC of
<S> <C>
during the first year you own them 1.00%
during the second year you own them 0.50%
</TABLE>
The CDSC is calculated from the day your purchase is accepted (the TRADE
DATE). We deduct the CDSC from the market value or purchase price of the
shares, whichever is lower.
You won't pay a CDSC on any increase in net asset value since you bought
your shares, or on any shares you receive from reinvested dividends and
distributions. We'll sell any shares that aren't subject to the CDSC
first. We'll then sell shares that result in the lowest CDSC.
REDEMPTION FEE
There are two situations when we'll charge a 1% redemption fee on the
sale of Investor A Shares:
o if you bought $1,000,000 or more Investor A Shares between July 31,
1997 and November 15, 1998 and sell them within 18 months after
buying them
o if an employee benefit plan made its initial investment in Investor A
Shares between July 31, 1997 and November 15, 1998 and sold those
shares within 18 months of buying them because the plan sold all of
its Nations Funds holdings.
This fee is deducted from the amount sold and is paid to the Fund. The
Fund can reduce or cancel the fee at any time.
[GRAPHIC GOES HERE]
ABOUT INVESTOR B SHARES
You can buy up to $250,000 of Investor B Shares in total. You don't pay
a sales charge when you buy Investor B Shares, but you may have to pay a
CDSC when you sell them.
CONTINGENT DEFERRED SALES CHARGE
You'll pay a CDSC when you sell your Investor B Shares, unless:
o you bought the shares on or after January 1, 1996 and prior to August
1, 1997
o you received the shares from reinvested dividends and distributions
o you qualify for a reduction or waiver of the sales charge. You can
find out how to qualify for a reduction or waiver on page .
49
<PAGE>
The CDSC you pay depends on when you bought your shares, how much you
bought in some cases, and how long you held them.
Your selling agent receives a commission when you buy Investor B Shares.
Please see HOW SELLING AGENTS ARE PAID for more information.
<TABLE>
<CAPTION>
You'll pay a CDSC of
-----------------------------------------------------------------------
Shares
you
bought Shares
Shares between you
you bought Shares you bought between 1/1/1996 bought
If you sell your shares after 8/1/1997 and 11/15/1998 and before
during the following year: 11/15/1998 in the following amounts: 7/31/1997 1/1/1996
- --------------------------------- ------------ ------------------------------------ ----------- ---------
$250,000- $500,000-
$0-$249,999 $499,999 $999,999
<S> <C> <C> <C> <C> <C> <C>
the first year you own them 5.0% 5.0% 3.0% 2.0% zero 5.0%
the second year you own them 4.0% 4.0% 2.0% 1.0% zero 4.0%
the third year you own them 3.0% 3.0% 1.0% zero zero 3.0%
the fourth year you own them 3.0% 3.0% zero zero zero 2.0%
the fifth year you own them 2.0% 2.0% zero zero zero 2.0%
the sixth year you own them 1.0% 1.0% zero zero zero 1.0%
after six years of owning them zero zero zero zero zero zero
</TABLE>
The CDSC is calculated from the trade date of your purchase. We deduct
the CDSC from the market value or purchase price of the shares,
whichever is lower. We'll sell any shares that aren't subject to the
CDSC first. We'll then sell shares that result in the lowest CDSC.
ABOUT THE CONVERSION FEATURE
Investor B Shares generally convert automatically to Investor A Shares
according to the following schedule:
<TABLE>
<CAPTION>
Will convert to Investor A Shares
Investor B Shares you bought after you've owned them for
<S> <C>
after November 15, 1998 eight years
between August 1, 1997
and November 15, 1998
$0-$249,000 nine years
$250,000-$499,999 six years
$500,000-$999,999 five years
before August 1, 1997 nine years
</TABLE>
The conversion feature allows you to benefit from the lower operating
costs of Investor A Shares, which can help increase total returns.
50
<PAGE>
Here's how the conversion works:
o We won't convert your shares if you tell your investment
professional, selling agent or the transfer agent within 90 days
before the conversion date that you don't want your shares to be
converted. Remember, it's in your best interest to convert your
shares because Investor A Shares have lower expenses.
o Shares are converted at the end of the month in which they become
eligible for conversion.
o You'll receive the same dollar value of Investor A Shares as the
Investor B Shares that were converted. No sales charge or other
charges apply.
o Any Investor B Shares you received from reinvested dividends or
distributions will convert to Investor A Shares at the same time the
original purchase is converted.
o If you exchange Investor B Shares of Funds other than money market
funds, the conversion date is based on the trade date of your
original purchase.
[GRAPHIC GOES HERE]
ABOUT INVESTOR C SHARES
There is no limit to the amount you can invest in Investor C Shares. You
don't pay a sales charge when you buy Investor C Shares, but you may pay
a CDSC when you sell them.
CONTINGENT DEFERRED SALES CHARGE
You'll pay a CDSC of 1.00% when you sell Investor C Shares within one
year after you bought them, unless:
o you're reinvesting dividends or distributions
o you qualify for a reduction or waiver of the CDSC. You can find out
how to qualify for a reduction or waiver on page .
The CDSC is calculated from the trade date of your purchase. We deduct
the CDSC from the market value or purchase price of the shares,
whichever is lower. We'll sell any shares that aren't subject to the
CDSC first. We'll then sell shares that result in the lowest CDSC.
Your selling agent receives a commission when you buy Investor C Shares.
Please see HOW SELLING AGENTS ARE PAID for more information.
51
<PAGE>
[GRAPHIC GOES HERE]
PLEASE CONTACT YOUR INVESTMENT PROFESSIONAL FOR MORE INFORMATION
ABOUT REDUCTIONS AND WAIVERS OF SALES CHARGES.
YOU SHOULD TELL YOUR INVESTMENT PROFESSIONAL THAT YOU MAY
QUALIFY FOR A REDUCTION OR A WAIVER AT THE TIME YOU MAKE THE
TRANSACTION.
WE CAN CHANGE OR CANCEL THESE TERMS AT ANY TIME. ANY CHANGE OR
CANCELLATION APPLIES ONLY TO FUTURE PURCHASES.
WHEN YOU MIGHT NOT HAVE TO PAY A SALES CHARGE
FRONT-END SALES CHARGES
(Investor A Shares)
There are three ways you can lower the front-end sales charge you pay on
Investor A Shares:
o COMBINE PURCHASES YOU'VE ALREADY MADE
Rights of accumulation allow you to combine the value of Investor A,
Investor B and Investor C Shares you already own (except money market
funds and index funds) with Investor A Shares you've recently bought
to calculate the sales charge. You'll pay a sales charge on the
current net asset value or the original purchase cost, whichever is
higher.
o COMBINE PURCHASES YOU PLAN TO MAKE
By signing a letter of intent, you can combine the value of shares you
already own with the value of shares you plan to buy over a 13-month
period to calculate the sales charge.
o You can choose to start the 13-month period up to 90 days before
you sign the letter of intent.
o Each purchase you make will receive the sales charge that applies
to the total amount you plan to buy.
o If you don't buy as much as you planned within the period, you must
pay the difference between the charges you've paid and the charges
that actually apply to the shares you've bought.
o Your first purchase must be at least 5% of the minimum amount for
the sales charge level that applies to the total amount you plan to
buy.
o If the purchase you've made later qualifies for a reduced sales
charge through the 90-day backdating provisions, we'll make an
adjustment for the lower charge when the letter of intent expires.
Any adjustment will be used to buy additional shares at the reduced
sales charge.
o COMBINE PURCHASES WITH FAMILY MEMBERS
You can receive a quantity discount by combining purchases of Investor
A Shares that you, your spouse and children under age 21 make on the
same day. Some distributions or payments from the dissolution of
certain qualified plans also qualify for the quantity discount.
Purchases of money market funds don't qualify.
The following people can buy Investor A Shares without paying a
front-end sales charge:
o full-time employees and retired employees of BankAmerica Corporation
(and its predecessors), its affiliates and subsidiaries and the
immediate families of these people
52
<PAGE>
o accounts opened by a bank, trust company or thrift institution,
acting as a fiduciary
o individuals receiving a distribution from a NationsBank trust or
other fiduciary account may use the proceeds of that distribution to
buy Investor A Shares without paying a front-end sales charge, as
long as the proceeds are invested through a trust account established
with another trustee and invested in the Funds within 90 days.
Investors who transfer their proceeds to a fiduciary account may
continue to buy shares in the Funds without paying a front-end sales
charge.
o Nations Funds' Trustees, Directors and employees of its investment
sub- advisers
o registered broker/dealers that have entered into a Nations Fund
dealer agreement with Stephens may buy Investor A Shares without
paying a front-end sales charge for their investment account only
o registered personnel and employees of these broker/dealers may buy
Investor A Shares without paying a front-end sales charge according
to the internal policies and procedures of their employer as long as
these purchases are made for their own investment purposes
o employees or partners of any service provider to the Funds
o former shareholders of Class B Shares of the Special Equity Portfolio
of The Capitol Mutual Funds who held these shares as of January 31,
1994 or received Investor A Shares of Nations Disciplined Equity Fund
may buy Investor A Shares of Nations Disciplined Equity Fund without
paying a front-end sales charge
o investors who buy through accounts established with certain fee-based
investment advisers or financial planners, including Nations Funds
Personal Investment Planner accounts, wrap fee accounts and other
managed agency/asset allocation accounts
The following plans can buy Investor A Shares without paying a front-end
sales charge:
o pension, profit-sharing or other employee benefit plans established
under Section 401 or Section 457 of the tax code
o employee benefit plans created according to Section 403(b) of the tax
code and sponsored by a non-profit organization qualified under
Section 501(c)(3) of the tax code. To qualify for the waiver, the
plan must:
o have at least $500,000 invested in Investor A Shares of Nations Funds
(except money market funds), or
o sign a letter of intent to buy at least $500,000 of Investor A Shares
of Nations Funds (except money market funds), or
o be an employer-sponsored plan with at least 100 eligible
participants, or
53
<PAGE>
o be a participant in an alliance program that has signed an
agreement with the Fund or a selling agent. Stephens may pay
selling agents up to 1.00% of the net asset value of Investor A
Shares bought without a sales charge. Stephens may be reimbursed
through any CDSC that applies.
You can also buy Investor A Shares without paying a sales charge if you
buy the shares within 120 days of selling the same Fund. This is called
the reinstatement privilege. You can invest up to the amount of the sale
proceeds. We'll credit your account with any CDSC paid when you sold the
shares. The reinstatement privilege does not apply to any shares you
bought through a previous reinstatement. First Data, Stephens or their
agents must receive your written request within 120 days after you sell
your shares.
CONTINGENT DEFERRED SALES CHARGES
(Investor A, Investor B and Investor C Shares)
You won't pay a CDSC on the following transactions:
o shares sold following the death or disability (as defined in the tax
code) of a shareholder, including a registered joint owner
o the following retirement plan distributions:
o lump-sum or other distributions from a qualified corporate or
self-employed retirement plan following the retirement (or following
attainment of 59 1/2 in the case of a "key employee" of a "top
heavy" plan)
o distributions from an IRA or Custodial Account under Section
403(b)(7) of the tax code, following attainment of age 59 1/2
o a tax-free return of an excess contribution to an IRA
o distributions from a qualified retirement plan that aren't subject
to the 10% additional federal withdrawal tax under Section 72(t)(2)
of the tax code
o payments made to pay medical expenses which exceed 7.5% of income,
and distributions made to pay for insurance by an individual who has
separated from employment and who has received unemployment
compensation under a federal or state program for at least 12 weeks
o shares sold under our right to liquidate a shareholder's account,
including instances where the aggregate net asset value of Investor
A, Investor B or Investor C Shares held in the account is less than
the minimum account size
o shares sold because Nations Funds combine with another registered
company through a merger, acquisition of assets or other transaction
54
<PAGE>
o withdrawals made under the Automatic Withdrawal Plan described in
Buying, selling and exchanging shares, if the total withdrawals of
Investor A, Investor B or Investor C Shares made in a year are less
than 12% of the total value of those shares in your account. A CDSC
may only apply to Investor A Shares if you bought more than
$1,000,000.
We'll also waive the CDSC on the sale of Investor A or Investor C Shares
bought before September 30, 1994 by current or retired employees of Bank
of America and its affiliates, or by current or former trustee or
director of the Nations Funds or other management companies managed by
Bank of America.
You won't pay a CDSC on the sale of Investor B or Investor C Shares if
you reinvest any of the proceeds in the same Fund within 120 days of the
sale. This is called the reinstatement privilege. You can invest up to
the amount of the sale proceeds. We'll credit your account with any CDSC
paid when you sold the shares. The reinstatement privilege does not
apply to any shares you bought through a previous reinstatement. First
Data, Stephens or their agents must receive your written request within
120 days after you sell your shares.
55
<PAGE>
[GRAPHIC GOES HERE]
IF YOU DON'T HAVE AN INVESTMENT PROFESSIONAL, CALL US AT
1.800.321.7854. WE'LL BE PLEASED TO RECOMMEND INVESTMENT
PROFESSIONALS IN YOUR AREA.
YOUR SELLING AGENT MAY HAVE DIFFERENT LIMITS, CHARGE OTHER FEES,
OR HAVE DIFFERENT POLICIES FOR BUYING, SELLING AND EXCHANGING
SHARES THAN THOSE DESCRIBED IN THIS PROSPECTUS.
[GRAPHIC GOES HERE]
BUYING, SELLING AND EXCHANGING SHARES
You can invest in the Funds through your selling agent or directly from Nations
Funds.
We encourage you to consult with an investment professional who can open an
account for you with a selling agent and help you with your investment
decisions. Once you have an account, you can buy, sell and exchange shares by
contacting your investment professional or selling agent. They will look after
any paperwork that's needed to complete a transaction and send your order to
us.
Some people prefer to invest directly with Nations Funds. You can find out how
to open an account, and buy, sell and exchange shares by writing us or calling
us at 1.800.321.7854.
The table below summarizes some key information about buying, selling and
exchanging shares. These are described in more detail on the following pages.
You'll find sales charges and other fees that apply to these transactions in
Choosing a share class.
Please contact your investment professional or selling agent, or call Nations
Funds at 1.800.321.7854 if you have any questions about how to place an order
or set up one of our automatic plans.
56
<PAGE>
<TABLE>
<CAPTION>
Ways to
buy, sell or How much you can buy,
exchange sell or exchange Other things to know
- ------------------ ----------------- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Buying shares In a lump sum minimum initial investment: There is no limit to the amount you can invest
o $1,000 for regular accounts in Investor A and C Shares. You can invest up to
o $500 for traditional IRA accounts $250,000 in Investor BShares in total.
o $250 for non-working spousal IRAs
o $250 for certain fee-based accounts
o no minimum for certain retirement
plan accounts like 401(k) plans and
SEP accounts, but other restrictions
apply.
minimum additional investment:
o $100 for all accounts
Using our minimum initial investment: You can buy shares monthly, twice a month or
Systematic o $100 quarterly, using automatic transfers from your
Investment Plan minimum additional investment: bank account.
o $50
- ------------------- ----------------- -----------------------------------------------------------------------------------------
Selling shares In a lump sum o you can sell up to $50,000 of your We'll deduct any CDSC from the amount you're
shares by telephone, otherwise there selling and send
are no limits to the amount you can you or your selling agent the balance, usually
sell within three business days of receiving your
o other restrictions may apply to order.
withdrawals from retirement plan
accounts
Using our o minimum $25 per withdrawal Your account balance must be at least $10,000
Automatic to set up the plan. You can make withdrawals
Withdrawal Plan monthly, twice a month or quarterly. We'll send
your money by check or deposit it directly to
your bank account. No CDSC is deducted if you
withdraw 12% or less of the value of your
shares in a class.
- ----------------- ------------------- -------------------------------------------------------------------------------------------
Exchanging shares In a lump sum o minimum $1,000 per exchange Investor A Shares:
o You can exchange Investor A Shares of one
Fund for Investor A Shares of another Fund,
except index funds. You generally won't pay
a front-end sales charge on the shares you're
buying, or a CDSC or redemption fee on the
shares you're selling.
Investor B Shares:
o You can exchange Investor B Shares of one
Fund for Investor B Shares of another Fund,
or for Investor C Shares of a money market
fund. You won't pay a CDSC on the shares
you're selling.
Investor C Shares:
o You can exchange Investor C Shares of one
Fund, except money market funds, for
Investor C Shares of another Fund, except
money market funds or index funds, or for
Daily Shares of any money market fund. You
won't pay a CDSC on the shares you're
selling.
Using our o minimum $25 per exchange o Not available for Investor B Shares.
Automatic o You must already have an investment in the
Exchange Funds you want to buy and sell. You can
Feature make exchanges monthly or quarterly.
</TABLE>
57
<PAGE>
[GRAPHIC GOES HERE]
A BUSINESS DAY IS ANY DAY THAT THE NEW YORK STOCK EXCHANGE
(NYSE) IS OPEN. A BUSINESS DAY ENDS AT THE CLOSE OF REGULAR
TRADING ON THE NEW YORK STOCK EXCHANGE (NYSE), USUALLY AT 4:00
P.M. EASTERN TIME. IF THE NYSE CLOSES EARLY, THE BUSINESS DAY
ENDS AS OF THE TIME THE NYSE CLOSES.
THE NYSE IS CLOSED ON WEEKENDS AND ON THE FOLLOWING NATIONAL
HOLIDAYS: 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.
HOW SHARES ARE PRICED
All transactions are based on the price of a Fund's shares -- or its NET ASSET
VALUE PER SHARE. We calculate net asset value per share for each class of each
Fund at the end of each business day. First, we calculate the NET ASSET VALUE
for each class of a Fund by determining the value of the Fund's assets in the
class and then subtracting its liabilities. Next, we divide this amount by the
number of shares that investors are holding in the class.
VALUING SECURITIES IN A FUND
The value of a Fund's assets is based on the total market value of all of the
securities it holds. The prices reported on stock exchanges and securities
markets around the world are usually used to value securities in a Fund. If
prices aren't readily available, we'll base the price of a security on its fair
market value. We use the amortized cost method, which approximates market
value, to value short-term investments maturing in 60 days or less.
International markets may be open on days when U.S. markets are closed, and the
value of foreign securities owned by the portfolio could change on days when
portfolio shares may not be purchased or redeemed.
HOW ORDERS ARE PROCESSED
Orders to buy, sell or exchange shares are processed on business days. Orders
received by Stephens or First Data before the end of a business day (usually
4:00 p.m. Eastern time, unless the NYSE closes early) will receive that day's
net asset value per share. Orders received after the end of a business day will
receive the next business day's net asset value per share. The business day
that applies to your order is also called the TRADE DATE. We and Stephens may
refuse any order. If this happens, we'll return any money we've received to
your selling agent.
TELEPHONE ORDERS
You can place orders to buy, sell or exchange by telephone if you complete the
telephone authorization section of our account application and send it to us.
Here's how telephone orders work:
o If you sign up for telephone orders after you open your account, you
must have your signature guaranteed.
o Telephone orders may not be as secure as written orders. You may be
responsible for any loss resulting from a telephone order.
o We'll take reasonable steps to confirm that telephone instructions
are genuine. For example, we require proof of your identification
before we will act on instructions received by telephone and may
record telephone conversations. If we and our service providers don't
take these steps, we may be liable for any losses from unauthorized
or fraudulent instructions.
o Telephone orders may be difficult to complete during periods of
significant economic or market change.
58
<PAGE>
[GRAPHIC GOES HERE]
THE OFFERING PRICE PER SHARE IS THE NET ASSET VALUE PER SHARE
PLUS ANY SALES CHARGE THAT APPLIES.
THE NET ASSET VALUE PER SHARE IS THE PRICE CALCULATED FOR A FUND
AT THE END OF EVERY BUSINESS DAY.
[GRAPHIC GOES HERE]
BUYING SHARES
Here are some general rules for buying shares:
o You buy Investor A Shares at the offering price per share. You buy
Investor B and Investor C Shares at the net asset value per share.
o If we don't receive your money within three business days of
receiving your order, we'll refuse the order and notify your
selling agent.
o Selling agents are responsible for sending orders to us and
ensuring we your money on time.
o Shares you buy are recorded on the books of the Fund. We don't
issue certificates unless you ask for them in writing, and don't
issue certificates for fractions of shares.
MINIMUM INITIAL INVESTMENT
The minimum initial amount you can buy is usually $1,000.
If you're buying shares through one of the following accounts or plans,
the minimum initial amount you can buy is:
o $500 for traditional Individual Retirement Accounts (IRAs)
o $250 for non-working spousal IRAs
o $250 for accounts set up with some fee-based investment advisers
or financial planners, including wrap fee accounts and other
managed accounts
o $100 for Systematic Investment Plans described below
o There is no minimum for 401(k) plans, simplified employee pension
plans (SEPs), salary reduction-simplified employee pension plans
(SAR-SEPs), Savings Incentives Method Plans for Employees (SIMPLE
IRAs), salary reduction-Individual Retirement Accounts (SAR-IRAs)
or other similar kinds of accounts. However, the value of your
account must be at least $1,000 for 401(k) plans or $500 for the
other plans within one year after you open your account.
Otherwise, we may sell the shares in your account if we give you
60 days notice in writing.
59
<PAGE>
[GRAPHIC GOES HERE]
FOR MORE INFORMATION
ABOUT TELEPHONE ORDERS,
SEE PAGE .
MINIMUM ADDITIONAL INVESTMENT
You can make additional purchases of as little as $100, or $50 if you
buy shares through our Systematic Investment Plan.
SYSTEMATIC INVESTMENT PLAN
You can make regular purchases of $50 or more using automatic transfers from
your bank account to the Funds you choose. You can contact your investment
professional or us to set up the plan.
Here's how the plan works:
o You can buy shares twice a month, monthly or quarterly.
o You can choose to have us transfer your money on or about the 15th or the
last day of the month.
o Some exceptions may apply to employees of NationsBank and its affiliates,
and to plans set up before August , 1997. For details, please contact your
investment professional.
[GRAPHIC GOES HERE]
SELLING SHARES
Here are some general rules for selling shares:
o We'll deduct any CDSC from the amount you're selling and send you
the balance.
o If you're selling your shares through a selling agent, we'll
normally send the sale proceeds by federal funds wire to your
selling agent or to you within three business days after Stephens,
First Data or their agents receive your order. Your selling agent
is responsible for depositing the sale proceeds to your account on
time.
o If you're selling your shares directly through us, we'll send the
sale proceeds by mail or wire them to your bank account within
three business days after the Fund receives your order.
o You can sell up to $50,000 of shares by telephone if you qualify
for telephone orders.
o If you paid for your shares with a check that wasn't certified,
we'll hold the sale proceeds when you sell those shares for at
least 15 days, or until the check has cleared.
o If you hold any shares in certificate form, you must sign the
certificates (or send a signed stock power with them) and send
them to First Data. Your signature must be guaranteed unless
you've made other arrangements with us. We may ask for any other
information we need to prove that the order is properly
authorized.
o Under certain circumstances allowed under the 1940 Act, we can pay
you in securities or other property when you sell your shares.
60
<PAGE>
[GRAPHIC GOES HERE]
YOU SHOULD MAKE SURE YOU UNDERSTAND THE INVESTMENT OBJECTIVES
AND POLICIES OF THE FUND YOU'RE EXCHANGING INTO. PLEASE READ
ITS PROSPECTUS CAREFULLY.
We may sell your shares:
o if the value of your account after you sell any shares falls below
$500. We'll give you 60 days notice in writing if we're going to
do this
o if your selling agent tells us to sell your shares under
arrangements made between the selling agent and its customers
o under certain circumstances allowed under the 1940 Act.
AUTOMATIC WITHDRAWAL PLAN
The Automatic Withdrawal Plan lets you withdraw $25 or more
every month, every quarter or every year. You can contact your investment
professional or us to set up the plan.
Here's how the plan works:
o Your account balance must be at least $10,000 to set up the plan.
o If you set up the plan after you've opened your account, your
signature must be guaranteed.
o You can choose to have us transfer your money on or about the 15th
or the last day of the month.
o You won't pay a CDSC on Investor A, Investor B or Investor C
Shares if you withdraw 12% or less of the value of those shares in
a year. Otherwise, we'll deduct any CDSC from the withdrawals.
o We'll send you a check or deposit the money directly to your bank
account.
o You can cancel the plan by giving your selling agent or us 30 days
notice in writing.
It's important to remember that if you withdraw more than your Fund is earning,
you'll eventually use up your original investment.
[GRAPHIC GOES HERE]
EXCHANGING SHARES
You can sell shares of one Fund to buy shares of another Nations Fund.
This is called an exchange. You might want to do this if your investment
goals or tolerance for risk changes.
Here's how exchanges work:
o You must exchange at least $1,000.
o The rules for buying a Fund, including any minimum investment
requirements, apply to exchanges into that Fund.
o You may only make an exchange into a Fund that is legally sold in
your state.
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o You generally may only make an exchange into a share class that is
accepting investments.
o We may limit the number of exchanges you can make within a
specified period of time.
o We may change or cancel your right to make an exchange by giving
the amount of notice required by regulatory authorities (currently
60 days for a material change or cancellation), unless we are
required to do so because of unusual circumstances.
o An exchange is treated the same as a sale of shares for federal
income tax purposes, which means you may realize a CAPITAL GAIN or
LOSS on the Fund you're making the exchange from. You may not be
able to deduct any capital losses if you exchange shares within 90
days of buying them.
o You cannot exchange any shares you own in certificate form until
First Data has received the certificate and deposited the shares
to your account.
EXCHANGING INVESTOR A SHARES
You can exchange Investor A Shares of one Fund for Investor A Shares of
another Nations Fund, except index funds.
Here are some rules for exchanging Investor A Shares:
o You won't pay a front-end sales charge on the shares of the Fund
you're buying if:
o you're selling shares of a Fund other than a money market fund,
and
o the maximum sales charge that applies to the shares you're
buying is equal to or less than:
o the sales charge you paid on the shares of the Fund you're
selling, plus
o any sales charge you paid on Investor A Shares of any other
Fund that you previously exchanged to buy those shares. You
must tell First Data, Stephens or their agents about the
previous exchange.
o You won't pay a CDSC on the shares you're selling. Any CDSC will
be deducted later on when you sell the shares you received from
the exchange. The CDSC at that time will be based on the period
from when you bought the original shares until when you sold the
shares you received from the exchange.
o You won't pay a redemption fee on the shares you're selling. Any
redemption fee will be deducted later on when you sell the shares
you received from the exchange. The fee will be based on the
period from when you bought the original shares until you sold the
shares you received from the exchange, unless you received shares
of a money market fund. In that case, the fee will only be based
on the period from when you bought the original shares until you
sold them. Any redemption fee will be paid to the original Fund.
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<PAGE>
EXCHANGING INVESTOR B SHARES
You can exchange Investor B Shares of one Fund for Investor B Shares of
another Nations Fund, or for Investor C Shares of a Nations Funds money
market fund.
You won't pay a CDSC on the shares you're selling. Any CDSC will be
deducted later on when you sell the shares you received from the
exchange. The CDSC will be based on the period from when you bought the
original shares until you sold the shares you received from the
exchange, unless you received Investor C Shares of a money market fund.
In that case, the CDSC will only be based on the period from when you
bought the original shares until you sold them.
EXCHANGING INVESTOR C SHARES
You can exchange Investor C Shares of one Fund, except for a Nations
Funds money market fund, for:
o Investor C Shares of another Nations Fund, except for a Nations
Funds money market fund or index fund
o Daily Shares of any Nations Funds money market fund
You won't pay a CDSC on the shares you're selling. Any CDSC will be
deducted later on when you sell the shares you received from the
exchange. The CDSC will be based on the period from when you bought the
original shares until you sold the shares you received from the
exchange, unless you received Daily Shares of a money market fund. In
that case, the CDSC will only be based on the period from when you
bought the original shares until you sold them.
You'll pay a CDSC when you sell your shares within 30 days of receiving
them from an exchange. Notwithstanding the foregoing, if a shareholder
redeems shares acquired through an exchange, the shareholder will be
subject to the highest CDSC applicable to any shares that were exchanged
within the 30 days prior to the redemption.
AUTOMATIC EXCHANGE FEATURE
The Automatic Exchange Feature lets you exchange $25 or more of Investor A or
Investor C Shares every month or every quarter. You can contact your investment
professional or us to set up the plan.
Here's how automatic exchanges work:
o Send your request to First Data in writing or call [First Data's
telephone number].
o You must already have an investment in the Funds you want to buy
and sell.
o You can choose to have us transfer your money on or about the 15th
or the last day of the month in which the exchange is scheduled to
occur.
o The rules for making exchanges apply to automatic exchanges.
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[GRAPHIC GOES HERE]
THE DISTRIBUTION FEE IS OFTEN REFERRED TO AS A "12B-1" FEE
BECAUSE IT'S PAID THROUGH A PLAN APPROVED UNDER RULE 12B-1 OF
THE 1940 ACT.
YOUR SELLING AGENT MAY CHARGE OTHER FEES RELATED TO SERVICES
PROVIDED TO YOUR ACCOUNT.
[GRAPHIC GOES HERE]
HOW SELLING AGENTS ARE PAID
Your selling agent may receive compensation in a number of ways when you invest
in the Funds. The kind and amount of the compensation depends on which share
class you choose.
Selling agents may pay a portion of their compensation to their investment
professionals, under their own arrangements.
COMMISSIONS
Your selling agent may receive a commission when you buy a Fund. The amount of
the commission depends on which share class you choose:
o up to [5.00% of the offering price per share] of Investor A Shares. The
commission is paid from the sales charge we deduct when you buy your
shares.
o up to [4.00% of the net asset value per share] of Investor B Shares. The
commission is not deducted from your purchase -- we pay your selling agent
directly.
o up to [1.00% of the net asset value per share] of Investor C Shares. The
commission is not deducted from your purchase -- we pay your selling agent
directly.
DISTRIBUTION (12B-1) AND SHAREHOLDER SERVICING FEES
Selling agents may receive annual distribution (12b-1) and shareholder
servicing fees to cover the costs of selling shares and providing services to
investors.
The amount of the fee depends on the class of shares you own:
<TABLE>
<CAPTION>
Maximum annual distribution (12b-1)
and shareholder servicing fees
(as an annual % of average daily net assets)
<S> <C>
Investor A Shares 0.25% combined distribution (12b-1) and servicing fee
Investor B Shares 0.75% distribution (12b-1) fee , 0.25% servicing fee
Investor C Shares 0.75% distribution (12b-1) fee, 0.25% servicing fee
</TABLE>
Fees are calculated daily and deducted monthly. Over time, these fees will
increase the cost of your investment, and may cost you more than any sales
charges you may pay.
We pay these fees according to our agreements with selling agents for as long
as the plan continues, while they are eligible to receive the fees. We and
Stephens may reduce or discontinue payments at any time.
OTHER COMPENSATION
Selling agents may also receive:
o a bonus, incentive or other compensation if they sell a minimum dollar
amount of shares of the Funds during a specified period
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<PAGE>
o additional amounts on all sales of shares:
o up to 1.00% of the offering price per share of Investor A Shares
o up to 4.00% of the net asset value per share of Investor B Shares
o up to 0.75% of the net asset value per share of Investor C Shares
o non-cash compensation like 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
Stephens or NBAI may make this compensation available only to selected selling
agents. For example, Stephens sometimes sponsors promotions involving
NationsBanc Investment, Inc., an affiliate of NBAI, and certain other selling
agents. Selected selling agents may also receive compensation for opening a
minimum number of accounts.
Stephens is responsible for paying the costs of this compensation, and may be
reimbursed for them under the 12b-1 plan or when a CDSC is deducted. Stephens
may cancel any compensation program at any time.
NBAI may pay amounts from its own assets to Stephens or other selling agents
for administrative or distribution related services they provide to
shareholders.
65
<PAGE>
[GRAPHIC GOES HERE]
THE POWER OF COMPOUNDING
YOU CAN CHOOSE TO REINVEST YOUR DISTRIBUTIONS IN ADDITIONAL
SHARES OF THE SAME FUND AND CLASS.
REINVESTING YOUR DISTRIBUTIONS BUYS YOU MORE SHARES OF A
FUND -- WHICH LETS YOU TAKE ADVANTAGE OF THE POTENTIAL FOR
COMPOUND GROWTH.
PUTTING THE MONEY YOU EARN BACK INTO YOUR INVESTMENT MEANS IT,
IN TURN, MAY EARN EVEN MORE MONEY. OVER TIME, THE POWER OF
COMPOUNDING HAS THE POTENTIAL TO SIGNIFICANTLY INCREASE THE
VALUE OF YOUR INVESTMENT.
[GRAPHIC GOES HERE]
DISTRIBUTIONS AND TAXES
ABOUT DISTRIBUTIONS
A mutual fund can make money two ways:
o It can earn income. Examples are interest paid on bonds and dividends paid
on COMMON STOCKS.
o A fund can also have CAPITAL GAINS if the value of its investments
increases. If a fund sells an investment at a gain, the gain is realized.
If a fund continues to hold the investment, any gain is unrealized.
A mutual fund is not subject to income tax as long as it distributes its net
investment income and realized capital gains to its shareholders. The Funds
intend to pay out a sufficient amount of their income and capital gains to
their shareholders so the Funds won't have to pay any income tax. When a Fund
makes this kind of a payment, it's split equally among all shares. This is
called a distribution.
All of the Funds distribute any net realized capital gains, including net
short-term capital gains, at least once a year.
The frequency of distributions of net investment income vary by Fund:
<TABLE>
<CAPTION>
Frequency of
Fund income distributions
<S> <C>
Nations Value Fund monthly
Nations Equity Income Fund monthly
Nations Emerging Growth Fund quarterly
Nations Small Company Growth Fund monthly
Nations Disciplined Equity Fund monthly
Nations Capital Growth Fund monthly
Nations Marsico Focuses Equities Fund quarterly
Nations Marsico Growth & Income Fund quarterly
Nations Balanced Assets Fund quarterly
</TABLE>
Distributions are paid based on the number of shares you hold on the day before
the distribution is declared. Shares are eligible to receive distributions up
to and including the day before they are sold.
Different share classes of a Fund usually pay different distribution amounts,
because each class has different expenses. Each time a distribution is made,
the net asset value per share of the share class is reduced by the amount of
the distribution.
We'll automatically reinvest distributions in additional shares of the same
Fund unless you tell us you want to receive your distributions in cash.
66
<PAGE>
[GRAPHIC GOES HERE]
THIS INFORMATION IS A SUMMARY OF HOW FEDERAL INCOME TAXES MAY
AFFECT YOUR INVESTMENT IN THE FUNDS. IT IS NOT INTENDED AS A
SUBSTITUTE FOR CAREFUL TAX PLANNING. YOU SHOULD CONSULT WITH
YOUR OWN TAX ADVISOR ABOUT YOUR SITUATION, INCLUDING ANY
FOREIGN, STATE AND LOCAL TAXES THAT MAY APPLY.
[GRAPHIC GOES HERE]
FOR MORE INFORMATION ABOUT
TAXES, PLEASE SEE THE SAI.
We generally pay cash distributions within five business days after the end of
the month, quarter or year in which the distribution was made. If you sell all
of your shares, we'll pay any distribution that applies to those shares in cash
within five business days after the sale was made.
If you buy shares of a Fund shortly before it makes a distribution, you will,
in effect, receive part of your purchase back in the distribution, which is
subject to tax. Similarly, if you buy shares of a Fund that holds securities
with unrealized capital gains, you will, in effect, receive part of your
purchase back if and when the Fund sells those securities, and realizes [and
distributes] the gain. This distribution is also subject to tax. Some Funds
have built up, or have the potential to build up, high levels of unrealized
capital gains.
HOW TAXES AFFECT YOUR INVESTMENT
Distributions of net investment income, including net foreign currency gains
and any excess of net short-term capital gain over net long-term capital loss,
generally are taxable to you as ordinary income. Corporate shareholders may be
able to exclude a portion of these distributions from their taxable income.
In general, all distributions are taxable to you when paid, whether they are
paid in cash or automatically reinvested in additional shares of the Fund.
However, any distributions declared in October, November or December of one
year and distributed in January of the following year will be taxable as if
they had been paid on December 31 of the first year.
Distributions of net capital gain (generally the excess of net long- term
capital gain over net short-term capital loss), generally are taxable to you as
net capital gains. Individual, trust and estate shareholders may be taxed on
these distributions at preferential rates.
We'll send you a notice every year that tells you how much you've received in
distributions during the year and their federal tax status. Foreign, state and
local taxes may also apply to these distributions.
WITHHOLDING TAX
We're required by federal law to withhold tax of 31% on any distributions and
sale proceeds paid to you (including amounts deemed to be paid for "in kind"
and exchanges) if:
o you haven't given us a correct Taxpayer Identification Number (TIN) and
haven't certified that the TIN is correct and withholding doesn't apply
o the Internal Revenue Service (IRS) has notified us that the TIN listed on
your account is incorrect according to its records
o the IRS informs us that you're otherwise subject to backup withholding.
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<PAGE>
The IRS may also impose penalties against you if you don't give us a correct
TIN.
Amounts we withhold are applied to your federal income tax liability. You may
receive a refund from the IRS if the withholding tax results in an overpayment
of taxes.
We're also required by federal law to withhold tax on distributions paid to
some foreign shareholders.
TAXATION OF REDEMPTIONS AND EXCHANGES
Your redemptions (including redemptions "in kind") and exchanges of Fund shares
will usually 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 amount you paid (or are deemed to have paid) for them.
[GRAPHIC GOES HERE]
FINANCIAL HIGHLIGHTS
The financial highlights table is designed to help you understand how the Funds
have performed for the past five years. Certain information reflects financial
results for a single Fund share. The total investment return line indicates how
much an investment in the Fund would have earned, assuming all dividends and
distributions had been reinvested.
This information has been audited by PricewaterhouseCoopers LLP. You'll find
the auditor's report and Nations Funds financial statements in the SAI. Please
see the back cover to find out how you can get a copy.
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<PAGE>
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<S> <C> <C>
Period ended Period ended
12/31/98* 12/31/98*
Net asset value, beginning of period $ 10.00 $ 10.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.06 0.02
Net realized and unrealized gain/(loss) on
investments 0.25 3.00
Net Increase/(Decrease) in Net Asset Value from
operations 0.31 3.02
LESS DISTRIBUTIONS:
Dividends from net investment income (a) (0.03) (0.02)
Dividends from net realized capital gains (0.00) (0.00)
Returns of capital (0.00) (0.00)
Total dividends and distributions (0.00) (0.00)
Net asset value, end of period $ 10.28 $ 13.00
TOTAL RETURN+ 3.11% 30.16%
================================================ ======== ========
RATIO TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 2,310 $24,521
Ratio of operating expenses to average net
assets++ 1.25% 1.10%
Ratio of net investment income to average net
assets++ 1.09% 0.33%
Portfolio turnover rate 16% 236%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements (b)++ 4.09% 1.94%
<S> <C> <C> <C>
Period ended Period ended Period ended
12/31/98* 12/31/98* 12/31/98*
Net asset value, beginning of period $ 10.00 $ 10.00 $ 10.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.03 0.02 0.02
Net realized and unrealized gain/(loss) on
investments (0.97) 0.62 2.16
Net Increase/(Decrease) in Net Asset Value from
operations (0.94) 0.64 2.18
LESS DISTRIBUTIONS:
Dividends from net investment income (a) (0.03) (0.02) (0.02)
Dividends from net realized capital gains (0.00) (0.00) (0.00)
Returns of capital (0.00) (0.00) (0.00)
Total dividends and distributions (0.00) (0.00) (0.00)
Net asset value, end of period $ 9.03 $ 10.62 $ 12.16
TOTAL RETURN+ (9.35)% 6.44% 21.80%
================================================ ======== ======== ========
RATIO TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 6,098 $ 4,796 $15,576
Ratio of operating expenses to average net
assets++ 0.75% 1.00% 1.10%
Ratio of net investment income to average net
assets++ 0.49% 0.44% 0.40%
Portfolio turnover rate 44% 40% 184%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements (b)++ 1.70% 2.41% 1.99%
</TABLE>
<TABLE>
<CAPTION>
Period ended Period ended Period ended
12/31/98* 12/31/98* 12/31/98
<S> <C> <C> <C>
Net asset value, beginning of period $ 10.00 $ 10.00 $ 10.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.06 0.04 0.09
Net realized and unrealized gain/(loss) on
investments 1.07 0.41 (0.31)
Net Increase/(Decrease) in Net Asset Value from
operations 1.13 0.45 (0.22)
LESS DISTRIBUTIONS:
Dividends from net investment income (a) (0.07) (0.04) (0.10)
Dividends from net realized capital gains (0.00) (0.00) (0.00)
Returns of capital (0.00) (0.00) (0.00)
Total dividends and distributions (0.00) (0.00) (0.00)
Net asset value, end of period $ 11.06 $ 10.41 $ 9.68
TOTAL RETURN+ 11.39% 4.48% (2.23)%
================================================ ======= ======= =======
RATIO TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $9,931 $5,645 $3,823
Ratio of operating expenses to average net
assets++ 0.75% 1.10% 1.00
Ratio of net investment income to average net
assets++ 1.04% 0.83% 2.36%
Portfolio turnover rate 16% 27% 94%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements (b)++ 1.62% 2.32% 2.71%
</TABLE>
* Portfolio commenced operations on March 27, 1998. Shares were offered to the
public on April 6, 1998.
+ Total return represents aggregate total return for the period indicated.
++ Annualized.
(a) Includes distributions in excess of net investment income or from net
realized gains that amounted to less than $0.01 per share. (b) The ratio
includes custodian fees before reduction for credits.
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<PAGE>
[GRAPHIC GOES HERE]
TERMS USED IN THIS PROSPECTUS
ASSET-BACKED SECURITY - a debt security that gives you a share in a pool of
assets that is backed by loan paper, accounts receivable or other assets,
including mortgages, generally issued by banks, credit card companies or other
lenders. Some securities may be issued or guaranteed by the U.S. government or
by any of its agencies, authorities or instrumentalities. Asset-backed
securities make periodic payments, which may be interest or a combination of
interest and a portion of the principal of the underlying assets.
CAPITAL GAIN (CAPITAL LOSS) - the difference between the purchase price of a
security and its selling price. You realize a capital gain (or loss) when you
sell a security for more (or less) than you paid for it.
COMMON STOCK - an equity security that represents part ownership in a company.
Common stock typically allows you to vote at shareholder meetings and to share
in the company's profits by receiving dividends.
CONVERTIBLE DEBT - a debt security that can be exchanged for common stock (or
another type of security) on a specified basis and date.
CONVERTIBLE SECURITY - a security that can be exchanged for common stock (or
another type of security) at a specified rate and date. Convertible securities
include convertible debt, rights and warrants.
DEBT SECURITY - when you invest in a debt security, you are lending your money
to a governmental body or company (the issuer) to help fund their operations or
major projects. The issuer pays interest at a specified rate on a specified
date or dates, and repays the principal when the security matures. Short-term
debt securities include money market instruments such as treasury bills. Long-
term debt securities include fixed income securities such as government and
corporate bonds, and mortgage-backed and asset- backed securities.
DEPOSITARY RECEIPTS - securities representing securities of companies based in
countries other than the U.S. Examples include ADRs, ADSs, GDRs and EDRs.
DIVIDEND YIELD - rate of return of dividends paid on a common or preferred
stock. It equals the amount of the annual dividend on a stock expressed as a
percentage of the stock's current market value.
EQUITY SECURITY - an investment that gives you part ownership in a company.
Equity securities (or "equities") include common and preferred stock, rights
and warrants.
FIXED INCOME SECURITY - an intermediate to long-term debt security that matures
in more than one year.
FOREIGN SECURITY - a debt or equity security issued by a foreign government or
corporation, including depositary receipts.
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<PAGE>
FUNDAMENTAL ANALYSIS - a method of securities analysis that tries to evaluate
the intrinsic, or "true," value of a particular stock. It includes a study of
the overall economy, industry conditions and the financial condition and
management of a company.
FUTURES CONTRACT - a contract to buy or sell an asset or an index of securities
at a specified price on a specified date. The price is set through a futures
exchange.
INVESTMENT GRADE - a medium to high credit rating that's given to a debt
security based on the issuer's ability to pay interest and repay principal on
time. A debt security that has not been rated, but is believed to be of
comparable quality, may also be considered investment grade. Please see the SAI
for more information about credit ratings.
LIQUIDITY - a measurement of how easily a security can be bought or sold at a
price that is close to its market value.
MONEY MARKET INSTRUMENT - a short-term debt security that matures in one year
or less. Money market instruments include U.S. Treasury obligations, U.S.
government obligations, certificates of deposit, bankers' acceptances,
commercial paper, repurchase agreements and municipal securities.
MORTGAGE-BACKED SECURITY - a debt security that gives you a share in (or is
backed by) a pool of residential mortgages issued by the U.S. government or by
financial institutions. The underlying mortgages may be guaranteed by the U.S.
government or one of its agencies, authorities or instrumentalities. Mortgage-
backed securities make monthly payments, which are a combination of interest
and a portion of the principal of the underlying mortgages.
MSCI EAFE INDEX - Morgan Stanley Capital International Europe, Australasia and
Far East Index, an index of over 1,100 stocks from 21 developed markets in
Europe, Australia, New Zealand and Asia. The index reflects the relative size
of each market.
MUNICIPAL DEBT SECURITY - a debt security issued by state or local governments
or governmental authorities to pay for public projects and services. "General
obligations" are backed by the issuer's full taxing and revenue-raising powers.
"Revenue securities" depend on the income earned by a specific project or
authority, like road or bridge tolls, user fees for water or revenues from a
utility. Interest income is exempt from federal income taxes and is generally
exempt from state taxes if you live in the state that issued the security. If
you live in the municipality that issued the security, interest income may also
be exempt from local taxes.
NON-DIVERSIFIED - a fund that holds fewer securities than other kinds of funds.
This increases the risk that its value could go down significantly if one or
more of its investments performs poorly. Non-diversified funds tend to have
greater price swings than more diversified funds. A fund may become diversified
by limiting the investments in which more than 5% of its total assets are
invested.
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<PAGE>
(1)S&P has not reviewed any stock included in the S&P 500 for its
investment merit. S&P determines and calculates the index
independently of the Funds and is not a sponsor or affiliate of
the Funds. S&P gives no information and makes no statements about
the suitability of investing in the Funds or the ability of the
index to track stock market performance. S&P makes no guarantees
about the index, any data included in it and the suitability of
the index or its data for any purpose. "Standard and Poor's" and
"S&P 500" are trademarks of the McGraw-Hill Companies, Inc.
OVER-THE-COUNTER MARKET - a market where dealers trade securities through a
telephone or computer network rather than through a public stock exchange.
PREFERRED STOCK - an equity security that gives you an ownership right in a
company, on a different basis than common stock. Preferred stock generally pays
a fixed annual dividend. If the company goes bankrupt, preferred shareholders
generally receive their share of the company's remaining assets before common
shareholders and after bondholders and other creditors.
PRICE-TO-EARNINGS RATIO (P/E RATIO) - the current price of a share divided by
its actual or estimated earnings per share. The P/E ratio is one measure of the
value of a company.
QUANTITATIVE ANALYSIS - an analysis of financial information about a company or
security to identify securities that have the potential for growth or are
otherwise suitable for a fund to buy.
REAL ESTATE INVESTMENT TRUST (REIT) - a managed portfolio of real estate
investments which may include office buildings, apartment complexes, hotels and
shopping malls, and real-estate-related loans or interests.
RIGHT - a temporary privilege allowing investors who already own a common stock
to buy additional shares directly from the company at a specified price or
formula.
S&P 5001 - Standard & Poor's 500 Composite Stock Price Index, an index of 500
common stocks chosen by S&P on a statistical basis.
TRADE DATE - the effective date of a purchase, sale or exchange transaction, or
other instructions sent to us. The trade date is determined by the day and time
we receive the order or instructions in a form that's acceptable to us.
U.S. GOVERNMENT OBLIGATION - a debt security 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.
WARRANT - a certificate that gives you the right to buy common shares at a
specified price within a specified period of time.
72
<PAGE>
[GRAPHIC GOES HERE]
WHERE TO FIND MORE INFORMATION
You'll find more information about the Equity Funds and Balanced Fund in the
following documents:
[GRAPHIC GOES HERE]
ANNUAL AND SEMI-ANNUAL REPORTS
The annual and semi-annual reports contain information about Fund
investments and performance, the financial statements and the auditor;s
reports. The annual report also includes a discussion about the market
conditions and investment strategies that had a significant effect on
each Fund's performance during the period covered.
[GRAPHIC GOES HERE]
STATEMENT OF ADDITIONAL INFORMATION
The SAI contains additional information about the Funds and their
policies. The SAI is legally part of this prospectus (it's incorporated
by reference). A copy has been filed with the Securities and Exchange
Commission.
You can obtain a free copy of these documents by contacting Nations
Funds:
By telephone: 1.800.321.7854
By mail:
NATIONS FUNDS
C/O STEPHENS INC.
ONE BANK OF AMERICA PLAZA
33RD FLOOR
CHARLOTTE, NC 28255
On the Internet: WWW.NATIONSBANK.COM/NATIONSFUND
If you prefer, you can write or call the Securities and Exchange
Commission's (SEC's) Public Reference Room and ask them to mail you
copies of these documents. They'll charge you a fee for this service.
You can also download them from the SEC's website or visit the Public
Reference Section and copy the documents while you're there.
PUBLIC REFERENCE SECTION OF THE SEC
WASHINGTON, DC 20549-6009
1.800.SEC.0330
HTTP://WWW.SEC.GOV
[GRAPHIC GOES HERE]
SEC file numbers -- Nations Fund Trust, 811-04305; Nations Fund, Inc., 811-04614
NF-00000-5/99
[NATIONS LOGO APPEARS HERE]
NATIONS FUND
INVESTMENTS FOR A LIFETIME
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
NATIONS FUND PORTFOLIOS, INC.
Nations Emerging Markets Fund
Nations Pacific Growth Fund
Nations Global Government Income Fund
NATIONS FUND, INC.
Nations Prime Fund
Nations Treasury Fund
Nations Equity Income Fund
Nations Government Securities Fund
Nations International Equity Fund
Nations International Growth Fund
Nations International Value Fund
Nations Small Company Growth Fund
Nations U.S. Government Bond Fund
NATIONS FUND TRUST
Nations Government Money Market Fund
Nations Tax Exempt Fund
Nations Value Fund
Nations Capital Growth Fund
Nations Emerging Growth Fund
Nations Equity Index Fund
Nations Managed Index Fund
Nations Managed SmallCap Index Fund
Nations Managed Value Index Fund
Nations Managed SmallCap Value Index Fund
Nations Marsico Growth & Income Fund
Nations Marsico Focused Equities Fund
Nations Disciplined Equity Fund
Nations Balanced Assets Fund
Nations Short-Intermediate Government Fund
Nations Short-Term Income Fund
Nations Diversified Income Fund
Nations Strategic Fixed Income Fund
Nations Municipal Income Fund
Nations Short-Term Municipal Income Fund
Nations Intermediate Municipal Bond Fund
Nations Florida Intermediate Municipal Bond Fund
Nations Florida Municipal Bond Fund
Nations Georgia Intermediate Municipal Bond Fund
Nations Georgia Municipal Bond Fund
Nations Maryland Intermediate Municipal Bond Fund
Nations Maryland Municipal Bond Fund
Nations North Carolina Intermediate Municipal Bond Fund
Nations North Carolina Municipal Bond Fund
Nations South Carolina Intermediate Municipal Bond Fund
Nations South Carolina Municipal Bond Fund
Nations Tennessee Intermediate Municipal Bond Fund
Nations Tennessee Municipal Bond Fund
Nations Texas Intermediate Municipal Bond Fund
Nations Texas Municipal Bond Fund
Nations Virginia Intermediate Municipal Bond Fund
Nations Virginia Municipal Bond Fund
INVESTOR SHARES, PRIMARY SHARES, DAILY SHARES AND MARSICO SHARES
August 1, 1999
<PAGE>
This Statement of Additional Information ("SAI") provides supplementary
information pertaining to the classes of shares representing interests in the
above listed forty nine investment portfolios of Nations Fund Portfolios, Inc.,
Nations Fund, Inc., and Nations Fund Trust (individually, a "Fund" and
collectively, the "Funds"). This SAI is not a prospectus, and should be read
only in conjunction with the current prospectuses for the aforementioned Funds
related to the class or series of shares in which one is interested, dated
August 1, 1999 (each a "Prospectus"). All terms used in this SAI that are
defined in the Prospectuses will have the same meanings assigned in the
Prospectuses. Copies of the Prospectuses may be obtained without charge by
writing Nations Funds c/o Stephens Inc., One Bank of America Plaza, 33rd Floor,
Charlotte, North Carolina 28255, or by calling Nations Funds at (800) 321-7854.
<PAGE>
TABLE OF CONTENTS
Page
----
HISTORY OF NATIONS FUND TRUST, NATIONS FUND, INC. AND
NATIONS FUND PORTFOLIOS, INC. ............................................. x
DESCRIPTION OF THE COMPANIES AND THE INVESTMENTS AND RISKS
OF THE FUNDS .............................................................. x
General.............................................................. x
Investment Limitations .............................................. x
Permissible Fund Investments......................................... x
Asset-Backed Securities.............................................. x
Borrowings........................................................... x
Commercial Instruments............................................... x
Combined Transactions................................................ x
Convertible Securities............................................... x
Corporate Debt Securities............................................ x
Custodial Receipts................................................... x
Currency Swaps....................................................... x
Delayed Delivery Transactions........................................ x
Dollar Roll Transactions ............................................ x
Equity Swap Contracts ............................................... x
Foreign Currency Transactions ....................................... x
Futures, Options and Other Derivative
Instruments .................................................... x
Risk Factors Associated with Futures and Options Transactions........ x
Guaranteed Investment Contracts...................................... x
Insured Municipal Securities ........................................ x
Interest Rate Transactions .......................................... x
Lower Rated Debt Securities.......................................... x
Municipal Securities ................................................ x
Options on Currencies................................................ x
Other Investment Companies........................................... x
Participation Interests and Company Receipts......................... x
Real Estate Investment Trusts........................................ x
Repurchase Agreements ............................................... x
Reverse Repurchase Agreements ....................................... x
Securities Lending................................................... x
Short Sales.......................................................... x
Special Situations................................................... x
Stand-by Commitments ................................................ x
Stripped Securities.................................................. x
U.S. and Foreign Bank Obligations.................................... x
U.S. Government Obligations.......................................... x
Use of Segregated and Other Special Accounts......................... x
Variable and Floating Rate Instruments .............................. x
Warrants............................................................. x
When-Issued Purchases and Forward Commitments ...................... x
Portfolio Turnover................................................... x
Investment Risks..................................................... x
MANAGEMENT OF THE COMPANIES
Nations Funds Retirement Plan....................................... x
Nations Funds Deferred Compensation Plan............................ x
1
<PAGE>
Shareholder and Trustee Liability................................... x
INVESTMENT ADVISORY, ADMINISTRATION, CUSTODY,
TRANSFER AGENCY, OTHER SERVICE PROVIDERS, SHAREHOLDER SERVICING AND
DISTRIBUTION AGREEMENTS ................................................... x
Investment Adviser and Sub-Advisers.................................. x
Administrator, Co-Administrator and Sub-Administrator................ x
Transfer Agents and Custodians....................................... x
Distributor.......................................................... x
Independent Accountant and Reports................................... x
Counsel.............................................................. x
Expenses............................................................. x
Distribution Plans and Shareholder Servicing
Arrangements for Investor Shares................................. x
Fees Paid Pursuant to Shareholder Servicing/
Distribution Plans - Investor A Shares........................... x
Fees Paid Pursuant to Distribution Plan
Investor B Shares - Money Market Funds........................... x
Investor-C Shares - Money Market Funds
Investor B Shares - Non-Money Market Funds....................... x
Shareholder Servicing Agreements-Money Market Funds
(Primary B Shares)............................................... x
Shareholder Servicing Plan-Prime Fund
(Marsico Shares)................................................. x
Shareholder Administration Plan-Non-Money Market Funds
(Primary B Shares)............................................... x
FUND TRANSACTIONS AND BROKERAGE............................................ x
General Brokerage Policy............................................. x
Section 28(e) Standards.............................................. x
DESCRIPTION OF SHARES...................................................... x
Dividends and Distributions of NFI................................... x
Dividends and Distributions of NFP................................... x
Dividends and Distributions of NFT................................... x
Net Asset Value Determination........................................ x
ADDITIONAL INFORMATION CONCERNING TAXES.................................... x
General.............................................................. x
Excise Tax .......................................................... x
Private Letter Ruling................................................ x
Taxation of Fund Investments......................................... x
Foreign Taxes ....................................................... x
Capital Gain Distribution............................................ x
Other Distributions.................................................. x
Disposition of Fund Shares........................................... x
Federal Income Tax Rates............................................. x
Corporate Shareholders............................................... x
Foreign Shareholders................................................. x
Backup Withholding................................................... x
Tax Deferred Plans................................................... x
Special Tax Consideration............................................ x
Other Matters........................................................ x
2
<PAGE>
ADDITIONAL INFORMATION ON PERFORMANCE...................................... x
Yield Calculations................................................... x
Total Return Calculations............................................ x
MISCELLANEOUS ............................................................. x
Certain Record Holders............................................... x
SUITABILITY OF NATIONS TREASURY FUND FOR
INVESTMENT BY MUNICIPAL INVESTORS.......................................... x
SCHEDULE A - Description of Ratings........................................A-1
3
<PAGE>
HISTORY OF NATIONS FUND TRUST, NATIONS FUND, INC. AND
NATIONS FUND PORTFOLIOS, INC.
Nations Fund Trust ("NFT"), Nations Fund, Inc. ("NFI") and Nations Fund
Portfolios, Inc. ("NFP") (individually a "Company", and collectively, the
"Companies") are open-end registered investment companies in the Nations Funds
family, which consists of the Companies, Nations Institutional Reserves, Nations
LifeGoal Funds, Inc. and Nations Annuity Trust. The Nations Funds family
currently has more than [ ] distinct investment portfolios and total assets in
excess of $[ ] billion.
NFT was organized as a Massachusetts business trust on May 6, 1985. NFI
was organized as a Maryland corporation on December 13, 1983, but had no
operations prior to December 15, 1986. NFP was organized as a Maryland
corporation on January 23, 1995. Each NFT, NFI and NFP have fiscal year ends of
March 31st.
DESCRIPTION OF THE COMPANIES AND
THE INVESTMENTS AND RISKS OF THEIR FUNDS
GENERAL.
NFT currently consists of thirty-seven different investment portfolios.
This SAI pertains to the Primary A, Primary B, Investor A, Investor B, Investor
C and Daily Shares of Nations Government Money Market Fund ("Government Money
Market Fund") and Nations Tax Exempt Fund ("Tax Exempt Fund") (collectively,
also referred to as the "NFT Money Market Funds") and the Primary A, Primary B,
Investor A, Investor B and Investor C Shares of Nations Value Fund ("Value
Fund"), Nations Capital Growth Fund ("Capital Growth Fund"), Nations Emerging
Growth Fund ("Emerging Growth Fund"), Nations Equity Index Fund ("Equity Index
Fund"), Nations Managed Index Fund ("Managed Index Fund"), Nations Managed
SmallCap Index Fund ("Managed SmallCap Index Fund"), Nations Managed Value Index
Fund ("Managed Value Index Fund"), Nations Managed SmallCap Value Index Fund
("Managed SmallCap Value Index Fund"), Nations Marsico Growth & Income Fund (the
"Marsico Growth & Income Fund"), Nations Marsico Focused Equities Fund (the
"Marsico Focused Equities Fund"), Nations Disciplined Equity Fund ("Disciplined
Equity Fund"), Nations Balanced Assets Fund ("Balanced Assets Fund"), Nations
Short-Intermediate Government Fund ("Short-Intermediate Government Fund"),
Nations Short-Term Income Fund ("Short-Term Income Fund"), Nations Diversified
Income Fund ("Diversified Income Fund"), Nations Strategic Fixed Income Fund
("Strategic Fixed Income Fund"), Nations Municipal Income Fund ("Municipal
Income Fund"), Nations Short-Term Municipal Income Fund ("Short-Term Municipal
Income Fund"), Nations Intermediate Municipal Bond Fund ("Intermediate Municipal
Bond Fund"), Nations Florida Intermediate Municipal Bond Fund ("Florida
Intermediate Municipal Bond Fund"), Nations Georgia Intermediate Municipal Bond
Fund ("Georgia Intermediate Municipal Bond Fund"), Nations Maryland Intermediate
Municipal Bond Fund ("Maryland Intermediate Municipal Bond Fund"), Nations North
Carolina Intermediate Municipal Bond Fund ("North Carolina Intermediate
Municipal Bond Fund"), Nations South Carolina Intermediate Municipal Bond Fund
("South Carolina Intermediate Municipal Bond Fund"), Nations Tennessee
Intermediate Municipal Bond Fund ("Tennessee Intermediate Municipal Bond Fund"),
Nations Texas Intermediate Municipal Bond Fund ("Texas Intermediate Municipal
Bond Fund"), Nations Virginia Intermediate Municipal Bond Fund ("Virginia
Intermediate Municipal Bond Fund"), Nations Florida Municipal Bond Fund
("Florida Municipal Bond Fund"), Nations Georgia Municipal Bond Fund ("Georgia
Municipal Bond Fund"), Nations Maryland Municipal Bond Fund ("Maryland Municipal
Bond Fund"), Nations North Carolina Municipal Bond Fund ("North Carolina
Municipal Bond Fund"), Nations South Carolina Municipal Bond Fund ("South
Carolina Municipal Bond Fund"), Nations Tennessee Municipal Bond Fund
("Tennessee Municipal Bond Fund"), Nations Texas Municipal Bond Fund ("Texas
Municipal Bond Fund"), and Nations Virginia Municipal Bond Fund ("Virginia
Municipal Bond Fund"). The Florida Intermediate Municipal Bond Fund, Georgia
Intermediate Municipal Bond Fund, Maryland Intermediate Municipal Bond Fund,
North Carolina Intermediate Municipal Bond Fund, South Carolina Intermediate
Municipal Bond Fund, Tennessee Intermediate Municipal Bond Fund, Texas
Intermediate Municipal Bond Fund and Virginia Intermediate Municipal Bond Fund
are sometimes collectively referred to herein as the "State Intermediate
Municipal Bond Funds." The Florida Municipal Bond Fund, Georgia Municipal Bond
Fund, Maryland Municipal Bond Fund, North Carolina Municipal Bond Fund, South
Carolina Municipal Bond Fund, Tennessee Municipal Bond Fund, Texas Municipal
Bond Fund and Virginia Municipal Bond Fund are sometimes collectively referred
to herein as the "State Municipal
4
<PAGE>
Bond Funds." All of the Funds of NFT are diversified, with the exception of the
Marsico Focused Equities Fund, the State Intermediate Municipal Bond Funds and
the State Municipal Bond Funds.
Each share of NFT is without par value, represents an equal
proportionate interest in the related fund with other shares of the same class,
and is entitled to such dividends and distributions out of the income earned on
the assets belonging to such fund as are declared in the discretion of NFT's
Board of Trustees. NFT'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 NFT 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 1940 Act requires voting by
fund.
As of August 1, 1999, NationsBank and its affiliates possessed or shared
power to dispose or vote with respect to more than 25% of the outstanding shares
of NFT and therefore could be considered to be a controlling person of NFT 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.
NFT does not presently intend to hold annual meetings except as required
by the 1940 Act. Shareholders will have the right to remove Trustees. NFT'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 NFT entitled to be voted at such meeting.
NFI currently consists of nine different investment portfolios. This SAI
pertains to the Primary A, Primary B, Investor A, Investor B, Investor C , Daily
Shares and Marsico Shares of Nations Prime Fund (the "Prime Fund") and the
Primary A, Primary B, Investor A, Investor B, Investor C and Daily Shares of
Nations Treasury Fund (the "Treasury Fund") (collectively referred to as the
"NFI Money Market Funds"), and the Primary A, Primary B, Investor A, Investor B
and Investor C Shares of Nations Equity Income Fund (the "Equity Income Fund"),
Nations Government Securities Fund (the "Government Securities Fund"), Nations
Small Company Growth Fund (the "Small Company Growth Fund"), Nations U.S.
Government Bond Fund (the "U.S. Government Bond Fund"), Nations International
Equity Fund (the "International Equity Fund"), Nations International Growth Fund
(the "International Growth Fund") and Nations International Value Fund (the
"International Value Fund"). All of the Funds of NFI are diversified.
As of the date of this SAI, the authorized capital stock of NFI consists
of 460,000,000,000 shares of common stock, par value of $.001 per share, which
are divided into series or funds each of which consists of separate classes of
shares. Shares of each fund and class have equal rights with respect to voting,
except that the holders of shares of a particular fund or class will have the
exclusive right to vote on matters affecting only the rights of the holders of
such fund or class. In the event of dissolution or liquidation, holders of each
class will receive pro rata, subject to the rights of creditors, (a) the
proceeds of the sale of that portion of the assets allocated to that class held
in the respective fund of NFI, less (b) the liabilities of NFI attributable to
the respective fund or class or allocated among the funds or classes based on
the respective liquidation value of each fund or class.
Shareholders of NFI do not have cumulative voting rights, and therefore
the holders of more than 50% of the outstanding shares of all funds voting
together for election of Directors may elect all of the members of the Board of
Directors of NFI Meetings of shareholders may be called upon the request of 10%
or more of the outstanding shares of NFI There are no preemptive rights
applicable to any of NFI's shares. NFI's shares, when issued, will be fully paid
and non-assessable.
As of August 1, 1999, NationsBank and its affiliates possessed or shared
power to dispose of or vote with respect to more than 25% of the outstanding
shares of NFI and therefore could be considered to be a controlling person of
NFI for purposes of the 1940 Act. For more detailed information concerning the
percentage of each class or series over which NationsBank and its affiliates
possessed or shared power to dispose or vote as of a certain date,
5
<PAGE>
see the SAI. It is anticipated that NFI will not hold annual shareholder
meetings on a regular basis unless required by the 1940 Act or Maryland law.
NFP currently consists of three different investment portfolios. This
SAI pertains to the Primary A, Primary B, Investor A, Investor B and Investor C
Shares of Nations Emerging Markets Fund (the "Emerging Markets Fund"), Nations
Pacific Growth Fund (the "Pacific Growth Fund") and Nations Global Government
Income Fund (the "Global Government Income Fund") (each, a "Fund" and
collectively, the "NFP Funds").
As of the date of this SAI, the authorized capital stock of NFP consists
of 150,000,000,000 shares of common stock, par value of $.001 per share, which
are divided into series or funds each of which consists of separate classes of
shares.
Shares of a fund and class have equal rights with respect to voting,
except that the holders of shares of a fund or class will have the exclusive
right to vote on matters affecting only the rights of the holders of such fund
or class. In the event of dissolution or liquidation, holders of each class will
receive pro rata, subject to the rights of creditors, (a) the proceeds of the
sale of that portion of the assets allocated to that class held in the
respective fund of NFP, less (b) the liabilities of NFP attributable to the
respective fund or class or allocated among the funds or classes based on the
respective liquidation value of each fund or class.
Shareholders of NFP do not have cumulative voting rights, and therefore
the holders of more than 50% of the outstanding shares of all funds voting
together for election of directors may elect all of the members of the Board of
Directors of NFP. Meetings of shareholders may be called upon the request of 10%
or more of the outstanding shares of NFP. There are no preemptive rights
applicable to any of NFP' shares. NFP' shares, when issued, will be fully paid
and non-assessable.
As of August 1, 1999, NationsBank and its affiliates possessed or shared
power to dispose of or vote with respect to more than 25% of the outstanding
shares of NFP and, therefore, could be considered to be a controlling person of
NFP for purposes of the 1940 Act. For more detailed information concerning the
percentage of each class or series over which NationsBank and its affiliates
possessed or shared power to dispose or vote as of a certain date, see the SAI.
It is anticipated that NFP will not hold annual shareholder meetings on a
regular basis unless required by the 1940 Act or Maryland law.
Because this SAI combines disclosures on three separate investment
companies, there is a possibility that one investment company could become
liable for a misstatement, inaccuracy or incomplete disclosure in this SAI
concerning another investment company. NFT, NFI. and NFP have entered into an
indemnification agreement that creates a right of indemnification from the
investment company responsible for any such misstatement, inaccuracy or
incomplete disclosure that may appear in this SAI.
The NFI Money Market Funds and the NFT Money Market Funds are
collectively referred to herein as the "Money Market Funds". All other Funds of
NFP, NFI and NFT are referred to as "Non-Money Market Funds". The Primary A and
Primary B Shares are collectively referred to herein as "Primary Shares" and the
Investor A, Investor B, Investor C, and Daily Shares are referred to as
"Investor Shares."
NationsBanc Advisors, Inc. ("NBAI") is the investment adviser to the
Funds. Gartmore Global Partners ("Gartmore") is the investment sub-adviser to
the International Equity Fund, Nations Emerging Markets Fund, Nations Pacific
Growth Fund and Nations International Growth Fund. Boatmen's Capital Management,
Inc. ("Boatmen's") is the investment sub-adviser to the U.S. Government Bond
Fund. Brandes Investment Partners, L.P. ("Brandes") is the investment
sub-adviser to the International Value Fund. Marsico Capital Management, LLC
("Marsico Capital") is investment sub-adviser to the Marsico Focused Equities
Fund and Marsico Growth & Income Fund. TradeStreet Investment Associates, Inc.
("TradeStreet") is the investment sub-adviser to all other Funds. As used herein
the term "Adviser" shall mean NBAI, TradeStreet, Gartmore, Boatmen's, Brandes
and/or Marsico Capital as the context may require.
This SAI is intended to furnish prospective investors with additional
information concerning the Companies and the Funds. Some of the information
required to be in this SAI is also included in the Funds' current
6
<PAGE>
Prospectuses, and, in order to avoid repetition, reference will be made to
sections of the Prospectuses. Additionally, the Prospectuses and this SAI omit
certain information contained in the registration statement filed with the SEC.
Copies of the registration statement, including items omitted from the
Prospectuses and this SAI, may be obtained from the SEC by paying the charges
prescribed under its rules and regulations. No investment in the Funds' Shares
should be made without first reading the related Prospectuses.
INVESTMENT LIMITATIONS
Information concerning each Fund's investment objective is set forth in
each of the Prospectuses. There can be no assurance that the Funds will achieve
their objectives. The features of the Funds' principal investment strategies and
the principal risks associated with those investment strategies also are
discussed in the Prospectuses. The most significant investment restrictions
applicable to the Funds' investment programs are set forth below:
The following investment limitations are matters of fundamental policy
and may not be changed without the affirmative vote of the holders of a majority
of the Fund's outstanding shares. Other investment limitations that cannot be
changed without such a vote of shareholders are described in the SAI.
Each Fund (except Nations International Value Fund) may not:
1. Purchase any securities which would cause 25% or more of the value of
the Fund's total assets at the time of such purchase to be invested in
the securities of one or more issuers conducting their principal
activities in the same industry, provided that this limitation does not
apply to investments in U.S. Government Obligations. In addition, this
limitation does not apply to investments by "money market funds" as that
term is used under the 1940 Act, in obligations of domestic banks.
2. Make loans, except that a Fund may purchase and hold debt instruments
(whether such instruments are part of a public offering or privately
placed), may enter into repurchase agreements and may lend portfolio
securities in accordance with its investment policies.
3. Except for Nations Marsico Focused Equities Fund, each Fund may not
purchase securities of any one issuer (other than U.S. Government
Obligations) if, immediately after such purchase, more than 5% of the
value of such Fund's total assets would be invested in the securities of
such issuer, except that up to 25% of the value of the Fund's total
assets may be invested without regard to these limitations and with
respect to 75% of such Fund's assets, such Fund will not hold more than
10% of the voting securities of any issuer.
Nations Marsico Focused Equities Fund may not:
1. Purchase securities of any one issuer (other than U.S. Government
Obligations) if, immediately after such purchase, more than 25% of the
value of a Fund's total assets would be invested in the securities of
one issuer, and with respect to 50% of such Fund's total assets, more
than 5% of its assets would be invested in the securities of one issuer.
Nations International Growth Fund may not:
1. Borrow money except as a temporary measure and then only in amounts
not exceeding 5% of the value of the Fund's total assets or from banks
or in connection with reverse repurchase agreements provided that
immediately after such borrowing, all borrowings of the Fund do not
exceed one-third of the Fund's total assets and no purchases of
portfolio instruments will be made while the Fund has borrowings
outstanding in an amount exceeding 5% of its total assets.
Each of Nations Small Company Growth Fund and Nations U.S. Government Bond Fund
may not:
7
<PAGE>
1. Borrow money except as a temporary measure for extraordinary or
emergency purposes or except in connection with reverse repurchase
agreements and mortgage rolls; provided that the respective Fund will
maintain asset coverage of 300% for all borrowings.
Nations International Value Fund may not:
1. Invest 25% or more of its total assets in one or more issuers
conducting their principal business activities in the same industry
(with certain exceptions).
2. Purchase securities of any one issuer (with certain exceptions,
including U.S. Government securities) if more than 5% of the Fund's
total assets will be invested in the securities of any one issuer,
except that up to 25% of the value of the Fund's total assets may be
invested without regard to the 5% limitation. The Fund may not purchase
more than 10% of the outstanding voting securities of any issuer
subject, however, to the foregoing 25% exception.
3. Borrow money except for temporary purposes in amounts up to one-third
of the value of its total assets at the time of such borrowing. Whenever
borrowings exceed 5% of the Fund's total assets, the Fund will not make
any investments.
In addition, as a matter of non-fundamental policy, Nations Tax Exempt
Fund may not purchase any securities other than obligations the interest on
which is exempt from Federal income tax and stand-by commitments with respect to
such obligations.
If a percentage limitation has been met at the time an investment is
made, a subsequent change in that percentage that is the result of a change in
value of a Fund's portfolio securities does not mean that the limitation has
been violated.
The investment objective and policies of each Fund, unless otherwise
specified, are non-fundamental and may be changed without shareholder approval.
Shareholders of Nations International Growth Fund, Nations Small Company Growth
Fund and Nations U.S. Government Bond Fund, however, must receive at least 30
days' prior written notice in the event an investment objective is changed. If
the investment objective or policies of a Fund change, shareholders should
consider whether the Fund remains an appropriate investment in light of their
current position and needs.
Additionally, as a matter of fundamental policy which may not be changed
without a majority vote of a Fund's shareholders (as that term is defined under
the heading "Investment Advisory, Administration, Custody, Transfer Agency,
Shareholder Servicing and Distribution Agreements -- "The Company and Its Common
Stock" in this SAI), each Fund (except with respect to certain Funds whose
restrictions are enumerated separately) will not:
1. Borrow money or issue senior securities as defined in the Investment
Company Act of 1940, as amended (the "1940 Act") except that (a) a Fund
may borrow money from banks for temporary purposes in amounts up to
one-third of the value of such Fund's total assets at the time of
borrowing, provided that borrowings in excess of 5% of the value of such
Fund's total assets will be repaid prior to the purchase of additional
portfolio securities by such Fund, (b) a Fund may enter into commitments
to purchase securities in accordance with the Fund's investment program,
including delayed delivery and when-issued securities, which commitments
may be considered the issuance of senior securities, and (c) a Fund may
issue multiple classes of shares in accordance with SEC regulations or
exemptions under the 1940 Act. The purchase or sale of futures contracts
and related options shall not be considered to involve the borrowing of
money or issuance of senior securities. Each Fund may enter into reverse
repurchase agreements or dollar roll transactions. The purchase or sale
of futures contracts and related options shall not be considered to
involve the borrowing of money or issuance of senior securities.
2. Purchase any securities on margin (except for such short-term credits as
are necessary for the clearance of purchases and sales of portfolio
securities) or sell any securities short (except against the box.) For
purposes
8
<PAGE>
of this restriction, the deposit or payment by the Fund of initial or
maintenance margin connection with futures contracts and related options
and options on securities is not considered to be the purchase of a
security on margin.
3. Underwrite securities issued by any other person, except to the extent
that the purchase of securities and the later disposition of such
securities in accordance with the Fund's investment program may be
deemed an underwriting. This restriction shall not limit a Fund's
ability to invest in securities issued by other registered investment
companies.
4. Invest in real estate or real estate limited partnership interests. (A
Fund may, however, purchase and sell securities secured by real estate
or interests therein or issued by issuers which invest in real estate or
interests therein.) This restriction does not apply to real estate
limited partnerships listed on a national stock exchange (E.G., the New
York Stock Exchange).
5. Purchase or sell commodity contracts except that each Fund may, to the
extent appropriate under its investment policies, purchase publicly
traded securities of companies engaging in whole or in part in such
activities, may enter into futures contracts and related options, may
engage in transactions on a when-issued or forward commitment basis, and
may enter into forward currency contracts in accordance with its
investment policies.
In addition, as a matter of fundamental policy, the Small Company Growth
Fund and the Government Bond Fund may not:
1. Purchase securities of any one issuer (other than securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalists or
certificates of deposit for any such securities) if, immediately after
such purchase, more than 5% of the value of the Fund's total assets
would be invested in the securities of such issuer, or more than 10% of
the issuer's outstanding voting securities would be owned by the Fund or
the Company; except that up to 25% of the value of a Fund's total assets
may be invested without regard to the foregoing limitations. For
purposes of this limitation, (a) a security is considered to be issued
by the entity (or entities) whose assets and revenues back the security
and (b) a guarantee of a security shall not be deemed to be a security
issued by the guarantor when the value of securities issued and
guaranteed by the guarantor, and owned by the Fund, does not exceed 10%
of the value of the Fund's total assets. Each Fund will maintain asset
coverage of 300% or maintain a segregated account with its custodian
bank in which it will maintain cash, U.S. Government Securities or other
liquid high grade debt obligations equal in value to its borrowing.
2. Purchase any securities which would cause 25% or more of the value of
the Fund's total assets at the time of purchase to be invested in the
securities of one or more issuers conducting their principal business
activities in the same industry, provided that: (a) there is no
limitation with respect to (i) instruments issued or guaranteed by the
United States, any state, territory or possession of the United States,
the District of Columbia or any of their authorities, agencies,
instrumentalities or political subdivisions and (ii) repurchase
agreements secured by the instruments described in clause (i); (b)
wholly-owned finance companies will be considered to be in the
industries of their parents if their activities are primarily related to
financing the activities of the parents; and (c) utilities will be
divided according to their services, for example, gas, gas transmission,
electric and gas, electric and telephone will each be considered a
separate industry or (iii) with respect to the Small Company Growth
Fund, instruments issued by domestic branches of U.S. Banks. Purchase or
sell real estate, except that the Fund may purchase securities of
issuers which deal in real estate and may purchase securities which are
secured by interest in real estate.
In addition, as a matter of fundamental policy, the International Value
Fund may not:
1. In general, purchase or sell real estate, except that the Fund may
purchase securities of issuers which deal in real estate and may
purchase securities which are secured by interest in real estate.
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2. Acquire any other investment company or investment company security
except in connection with a merger, consolidation, reorganization or
acquisition of assets or where otherwise permitted by the 1940 Act.
3. In general, act as an underwriter of securities within the meaning of
the Securities Act of 1933, as amended, except to the extent that the
purchase of obligations directly from the issuer thereof in accordance
with the Fund's investment objective, policies and limitations may be
deemed to be underwriting.
4. Borrow money or issue senior securities, except that the Fund may borrow
from banks and enter into reverse repurchase agreements for temporary
purposes in amounts up to one-third of the value of the total assets at
the time of such borrowing; or mortgage, pledge or hypothecate any
assets, except in connection with any such borrowing and then in amounts
not in excess of one-third of the value of the Fund's total assets at
the time of such borrowing. The Fund will not purchase securities while
its borrowings (including reverse repurchase agreements) in excess of 5%
of its total assets are outstanding. Securities held in escrow or
separate accounts in connection with the Fund's investment practices
described in this SAI or in the Prospectuses are not deemed to be
pledged for purposes of this limitation.
5. Make loans, except that the Fund may purchase and hold debt instruments
and enter into repurchase agreements in accordance with its investment
objective and policies and may lend portfolio securities.
6. Purchase securities of companies for the purpose of exercising control.
7. Purchase securities of any one issuer (other than securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities or
certificates of deposit for any such securities) if, immediately after
such purchase, (a) with respect to the Fund, more than 5% of the value
of the Fund's total assets would be invested in the securities of such
issuer, or (b) more than 10% of the issuer's outstanding voting
securities would be owned by the Fund; except that up to 25% of the
value of the Fund's total assets may be invested without regard to the
foregoing limitations. For purposes of this limitation, with respect to
the Fund, a security is considered to be issued by the entity (or
entities) whose assets and revenues back the security. A guarantee of a
security shall not be deemed to be a security issued by the guarantor
when the value of all securities issued and guaranteed by the guarantor,
and owned by the Fund, does not exceed 10% of the value of the Fund's
total assets.
8. Purchase any securities which would cause 25% or more of the value of
the Fund's total assets at the time of purchase to be invested in the
securities of one or more issuers conducting their principal business
activities in the same industry, provided that (a) there is no
limitation with respect to (i) instruments issued or guaranteed by the
United States, any state, territory or possession of the United States,
the District of Columbia or any of their authorities, agencies,
instrumentalities or political subdivisions and (ii) repurchase
agreements secured by the instruments described in clause (i); (b)
wholly-owned finance companies will be considered to be in the
industries of their parents if their activities are primarily related to
financing the activities of the parents; and (c) utilities will be
divided according to their services, for example, gas, gas transmission,
electric and gas, electric and telephone will each be considered a
separate industry.
9. Write or sell put options, call options, straddles, spreads or any
combination thereof, except for transactions in options on securities,
securities indices, futures contracts, options on futures contracts,
financial instruments, currencies, forward currency exchange contracts
and swaps, floors and caps.
10. Purchase securities on margin, make short sales of securities or
maintain a short position, except that (a) this investment limitation
shall not apply to the Fund's transactions in futures contracts,
currencies and related options, and (b) the Fund may obtain short-term
credit as may be necessary for the clearance of purchases and sales of
portfolio securities.
11. In general, purchase or sell commodity contracts, or invest in oil, gas
or mineral exploration or development programs, except that the Fund
may, to the extent appropriate to its investment objective, purchase
publicly traded securities of companies engaging in whole or in part in
such activities and may enter into futures
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contracts and related options; and the Fund may enter into foreign
currency contracts and related options to the extent permitted by its
investment objective and polices.
In addition, certain non-fundamental investment restrictions are also
applicable to various investment portfolios, including the following:
1. No Fund will purchase or retain the securities of any issuer if the
officers, or directors of the Company, its advisers, or managers owning
beneficially more than one half of one percent of the securities of each
issuer together own beneficially more than five percent of such
securities.
2. No Fund will purchase securities of unseasoned issuers, including their
predecessors, that have been in operation for less than three years, if
by reason thereof the value of such Fund's investment in such classes of
securities would exceed 5% of such Fund's total assets. For purposes of
this limitation, issuers include predecessors, sponsors, controlling
persons, general partners, guarantors and originators of underlying
assets which have less than three years of continuous operation or
relevant business experience.
3. No Fund will purchase puts, calls, straddles, spreads and any
combination thereof if by reason thereof the value of its aggregate
investment in such classes of securities will exceed 5% of its total
assets except that: (a) this restriction shall not apply to standby
commitments, (b) this restriction shall not apply to a Fund's
transactions in futures contracts and related options, and (c) a Fund
may obtain short-term credit as may be necessary for the clearance of
purchases and sales of portfolio securities.
4. No Fund will invest in warrants, valued at the lower of cost or market,
in excess of 5% of the value of such Fund's assets, and no more than 2%
of the value of the Fund's net assets may be invested in warrants that
are not listed on the New York or American Stock Exchange (for purposes
of this undertaking, warrants acquired by a Fund in units or attached to
securities will be deemed to have no value).
5. No Money Market Fund may purchase securities of any one issuer (other
than obligations issued or guaranteed by the U.S. government, its
agencies, authorities or instrumentalities and repurchase agreements
fully collateralized by such obligations) if, immediately after such
purchase, more than 5% of the value of the Fund's assets would be
invested in the securities of such issuer. Notwithstanding the
foregoing, up to 25% of each Fund's total assets may be invested for a
period of three business days in the first tier securities of a single
issuer without regard to such 5% limitation.
6. No Fund will purchase securities of companies for the purpose of
exercising control.
7. No Money Market Fund will invest more than 10% of the value of its net
assets in illiquid securities, including repurchase agreements, time
deposits and GICs with maturities in excess of seven days, illiquid
restricted securities, and other securities which are not readily
marketable. For purposes of this restriction, illiquid securities shall
not include securities which may be resold under Rule 144A and Section
4(2) of the Securities Act of 1933 that the Board of Directors, or its
delegate, determines to be liquid, based upon the trading markets for
the specific security.
8. No Non-Money Market Fund will invest more than 15% of the value of its
net assets in illiquid securities, including repurchase agreements, time
deposits and GICs with maturities in excess of seven days, illiquid
restricted securities, and other securities which are not readily
marketable. For purposes of this restriction, illiquid securities shall
not include securities which may be resold under Rule 144A and Section
4(2) of the Securities Act of 1933 that the Board of Directors, or its
delegate, determines to be liquid, based upon the trading markets for
the specific security.
9. No Fund will mortgage, pledge or hypothecate any assets except to secure
permitted borrowings and then only in an amount up to one-third of the
value of the Fund's total assets at the time of borrowing. For purposes
of this limitation, collateral arrangements with respect to the writing
of options, futures contracts,
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options on futures contracts, and collateral arrangements with respect
to initial and variation margin are not considered to be a mortgage,
pledge or hypothecation of assets.
10. No Fund will invest in securities of other investment companies, except
as they may be acquired as part of a merger, consolidation or
acquisition of assets and except to the extent otherwise permitted by
the 1940 Act.
11. No Fund will purchase oil, gas or mineral leases or other interests (a
Fund may, however, purchase and sell the securities of companies engaged
in the exploration, development, production, refining, transporting and
marketing of oil, gas or minerals).
As a matter of non-fundamental policy, the Small Company Growth Fund and
Government Bond Fund may not:
1. Lend its securities if collateral values are not continuously maintained
at no less than 100% by market to market daily.
In addition, as a matter of non-fundamental policy, the Government Bond Fund may
not:
1. Purchase equity securities of issuers that are not readily marketable if
the value of a Fund's aggregate investment in such securities will
exceed 5% of its total assets.
2. Purchase securities of issuers restricted as to disposition if the value
of its aggregate investment in such classes of securities will exceed
10% of its total assets.
For purposes of the foregoing limitations, any limitation that involves
a maximum percentage shall not be considered violated unless an excess over the
percentage occurs immediately after, and is caused by, an acquisition or
encumbrance of securities or assets of, or borrowings on behalf of, a Fund.
For purposes of the foregoing fundamental and non-fundamental
limitations, any limitation that involves a maximum percentage shall not be
considered violated unless an excess over the percentage occurs immediately
after, and is caused by, an acquisition or encumbrance of securities or assets
of, or borrowings on behalf of, the Funds.
Pursuant to a fundamental investment restriction, the Companies do not
have authority to purchase any securities which would cause more than 25% of the
value of any Fund's total assets at the time of such purchase to be invested in
the securities of one or more issuers conducting their principal business
activities in the same industry, provided that, there is no limitation with
respect to investments in obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities and further provided that with
respect to the Money Market Funds only, there is no limitation with respect to
investments in obligations by banks. The position of the staff of the SEC is
that the exclusion with respect to banks may only be applied to domestic banks.
For this purpose, the staff also takes the position that United States branches
of foreign banks and foreign branches of domestic banks may, if certain
conditions are met, be treated as "domestic banks." The Companies currently
intend to consider only obligations of "domestic banks" to be within the
exclusion with respect to banks. For this purpose, "domestic banks" will be
construed by the Companies to include: (a) United States branches of foreign
banks, to the extent they are subject to the same regulation as United States
banks; and (b) foreign branches of domestic banks with respect to which the
domestic bank would be unconditionally liable in the event that the foreign
branch failed to pay on its instruments for any reason.
For purposes of the foregoing limitations, any limitation that involves
a maximum percentage shall not be considered violated unless an excess over the
percentage occurs immediately after, and is caused by, an acquisition or
encumbrance of securities or assets of, or borrowings on behalf of, a Fund.
PERMISSIBLE FUND INVESTMENTS
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In addition to the principal investment strategies for each Fund, which
are outlined in the Funds' prospectuses, each Fund also may invest in other
types of securities in percentages of less than 10% of its total assets (unless
otherwise indicated, E.G., most Funds may invest in money market instruments
without limit during temporary defensive periods). These types of securities are
listed below for each portfolio and then are described in more detail after this
sub-section.
THE EQUITY FUNDS
Value Fund: In addition to the types of securities described in the
Prospectus, the Fund may invest in: U.S. Treasury bills, notes and bonds and
other instruments issued directly by the U.S. Government ("U.S. Treasury
Obligations"), other obligations issued or guaranteed as to payment of principal
and interest by the U.S. Government, its agencies and instrumentalities
(together with U.S. Treasury Obligations, "U.S. Government Obligations");
investment grade debt securities of domestic companies; various money market
instruments and repurchase agreements.
Equity Income Fund: See General Section below.
Emerging Growth Fund: See General Section below.
Small Company Growth Fund: In addition to the types of securities
described in the Prospectus, the Fund may invest in: not more than 10% of its
assets in debt securities, unless the Fund assumes a temporary defensive
position. Debt securities, if any, purchased by the Fund will be rated "AA" or
above by S&P or "Aa" or above by Moody's or, if unrated, determined by the
Adviser to be of comparable quality. For temporary defensive purposes, the Fund
may invest up to 100% of its assets in debt securities, including short-term and
intermediate-term obligations of corporations, the U.S. and foreign governments
and international organizations such as the World Bank, and money market
instruments. The Fund may invest in common stocks (including convertible into
common stocks) of foreign issuers and rights to purchase common stock, options
and futures contracts on securities, securities indexes and foreign currencies,
securities lending, forward foreign exchange contracts and repurchase
agreements.
Nations Disciplined Equity Fund: In addition to the types of securities
described in the Prospectus, the Fund may invest in: a broad range of equity and
debt instruments, including preferred stocks, securities (debt and preferred
stock) convertible into common stock, warrants and rights to purchase common
stocks, options, U.S. government and corporate debt securities and various money
market instruments. The Fund's investments in debt securities, including
convertible securities, will be limited to securities rated investment grade
(E.G., securities rated in one of the top four investment categories by an NRSRO
or, if not rated, are of equivalent quality as determined by the Adviser). For
temporary defensive purposes if market conditions warrant, the Fund may invest
without limitation in preferred stocks, investment grade debt instruments, money
market instruments and repurchase agreements.
Capital Growth Fund: In addition to the types of securities described in
the Prospectus, the Fund may invest in: preferred stocks, securities (debt and
preferred stock) convertible into common stock, warrants and rights to purchase
common stocks, other types of securities having common stock characteristics and
various money market instruments, including repurchase agreements. The Fund may
invest in foreign securities, including common stocks (including convertible
into common stocks) of foreign issuers and rights to purchase common stock,
options and futures contracts on securities, securities indexes and foreign
currencies, securities lending, forward foreign exchange contracts.
Nations Marsico Focused Equities Fund and Nations Marsico Growth &
Income Fund: In addition to the types of securities described in the Prospectus,
these Funds may invest in: preferred stock, warrants, convertible securities and
debt securities; zero coupon, pay- in-kind and step coupon securities, and may
invest without limit in indexed/structured securities. The Funds also may invest
its assets in high-yield/high-risk securities, such as lower grade debt
securities. The Funds also may purchase high-grade commercial paper,
certificates of deposit, and repurchase agreements, and may invest in short-term
debt securities as a means of receiving a return on idle cash.
When the Adviser believes that market conditions are not favorable for
profitable investing or when the
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Adviser is otherwise unable to locate favorable investment opportunities, the
Funds may hold cash or cash equivalents and invest without limit in U.S.
Government Obligations and short-term debt securities or money market
instruments if the Adviser determines that a temporary defensive position is
advisable or to meet anticipated redemption requests. In other words, the Funds
do not always stay fully invested in stocks and bonds. The Funds also may use
options, futures, forward currency contracts and other types of derivatives for
hedging purposes or for non-hedging purposes such as seeking to enhance return.
The Funds also may purchase securities on a when-issued, delayed delivery or
forward commitment basis.
GENERAL: Each Equity Fund discussed above also may invest in certain
specified derivative securities including: exchange-traded options;
over-the-counter options executed with primary dealers, including long calls and
puts and covered calls to enhance return; and U.S. and foreign exchange-traded
financial futures approved by the Commodity Futures Trading Commission ("CFTC")
and options thereon for market exposure risk management. Each Equity Fund may
lend its portfolio securities to qualified institutional investors and may
invest in repurchase agreements, restricted, private placement and other
illiquid securities. Each Equity Fund also may invest in real estate investment
trust securities. In addition, each Equity Fund may invest in securities issued
by other investment companies, consistent with the Fund's investment objective
and policies and repurchase agreements. Nations International Growth Fund,
Nations Marsico Focused Equities Fund and Nations Marsico Growth & Income Fund
may invest in forward foreign exchange contracts.
Additional information on the particular types of securities in which
certain Funds may invest is set forth below.
ASSET-BACKED SECURITIES
IN GENERAL. Asset-backed securities arise through the grouping by
governmental, government-related, and private organizations of loans,
receivables, or other assets originated by various lenders. Asset-backed
securities consist of both mortgage- and non-mortgage-backed securities.
Interests in pools of these assets may differ from other forms of debt
securities, which normally provide for periodic payment of interest in fixed
amounts with principal paid at maturity or specified call dates. Conversely,
asset-backed securities provide periodic payments which may consist of both
interest and principal payments.
The life of an asset-backed security varies depending upon the rate of
the prepayment of the underlying debt instruments. The rate of such prepayments
will be a function of current market interest rates, and other economic and
demographic factors. For example, falling interest rates generally result in an
increase in the rate of prepayments of mortgage loans while rising interest
rates generally decrease the rate of prepayments. An acceleration in prepayments
in response to sharply falling interest rates will shorten the security's
average maturity and limit the potential appreciation in the security's value
relative to a conventional debt security. Consequently, asset-backed securities
may not be as effective in locking in high, long-term yields. Conversely, in
periods of sharply rising rates, prepayments are generally slow, increasing the
security's average life and its potential for price depreciation.
MORTGAGE-BACKED SECURITIES. Mortgage-backed securities represent an
ownership interest in a pool of mortgage loans.
Mortgage pass-through securities may represent participation interests
in pools of residential mortgage loans originated by U.S. governmental or
private lenders and guaranteed, to the extent provided in such securities, by
the U.S. Government or one of its agencies, authorities or instrumentalities.
Such securities, which are ownership interests in the underlying mortgage loans,
differ from conventional debt securities, which provide for periodic payment of
interest in fixed amounts (usually semi-annually) and principal payments at
maturity or on specified call dates. Mortgage pass-through securities provide
for monthly payments that are a "pass-through" of the monthly interest and
principal payments (including any prepayments) made by the individual borrowers
on the pooled mortgage loans, net of any fees paid to the guarantor of such
securities and the servicer of the underlying mortgage loans.
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The guaranteed mortgage pass-through securities in which a Fund may
invest may include those issued or guaranteed by Ginnie Mae, Fannie Mae or
Freddie Mac. Such Certificates are mortgage-backed securities which represent a
partial ownership interest in a pool of mortgage loans issued by lenders such as
mortgage bankers, commercial banks and savings and loan associations. Such
mortgage loans may have fixed or adjustable rates of interest.
The average life of a mortgage-backed security is likely to be
substantially less than the original maturity of the mortgage pools underlying
the securities. Prepayments of principal by mortgagors and mortgage foreclosures
will usually result in the return of the greater part of principal invested far
in advance of the maturity of the mortgages in the pool.
The yield which will be earned on mortgage-backed securities may vary
from their coupon rates for the following reasons: (i) Certificates may be
issued at a premium or discount, rather than at par; (ii) Certificates may trade
in the secondary market at a premium or discount after issuance; (iii) interest
is earned and compounded monthly, which has the effect of raising the effective
yield earned on the Certificates; and (iv) the actual yield of each Certificate
is affected by the prepayment of mortgages included in the mortgage pool
underlying the Certificates and the rate at which principal so prepaid is
reinvested. In addition, prepayment of mortgages included in the mortgage pool
underlying a GNMA Certificate purchased at a premium may result in a loss to the
Fund.
Mortgage-backed securities issued by private issuers, whether or not
such obligations are subject to guarantees by the private issuer, may entail
greater risk than obligations directly or indirectly guaranteed by the U.S.
Government.
Collateralized mortgage obligations or "CMOs" are debt obligations
collateralized by mortgage loans or mortgage pass-through securities (collateral
collectively hereinafter referred to as "Mortgage Assets"). Multi-class
pass-through securities are interests in a trust composed of Mortgage Assets and
all references herein to CMOs will include multi-class pass-through securities.
Payments of principal of and interest on the Mortgage Assets, and any
reinvestment income thereon, provide the funds to pay debt service on the CMOs
or make scheduled distribution on the multi-class pass-through securities.
Moreover, principal prepayments on the Mortgage Assets may cause the
CMOs to be retired substantially earlier than their stated maturities or final
distribution dates, resulting in a loss of all or part of the premium if any has
been paid. Interest is paid or accrues on all classes of the CMOs on a monthly,
quarterly or semiannual basis.
The principal and interest payments on the Mortgage Assets may be
allocated among the various classes of CMOs in several ways. Typically, payments
of principal, including any prepayments, on the underlying mortgages are applied
to the classes in the order of their respective stated maturities or final
distribution dates, so that no payment of principal is made on CMOs of a class
until all CMOs of other classes having earlier stated maturities or final
distribution dates have been paid in full.
Stripped mortgage-backed securities ("SMBS") are derivative multi-class
mortgage securities. A Fund will only invest in SMBS that are obligations backed
by the full faith and credit of the U.S. Government. SMBS are usually structured
with two classes that receive different proportions of the interest and
principal distributions from a pool of mortgage assets. A Fund will only invest
in SMBS whose mortgage assets are U.S. Government obligations.
A common type of SMBS will be structured so that one class receives some
of the interest and most of the principal from the mortgage assets, while the
other class receives most of the interest and the remainder of the principal. If
the underlying mortgage assets experience greater than anticipated prepayments
of principal, a Fund may fail to fully recoup its initial investment in these
securities. The market value of any class which consists primarily or entirely
of principal payments generally is unusually volatile in response to changes in
interest rates.
The average life of mortgage-backed securities varies with the
maturities of the underlying mortgage instruments. The average life is likely to
be substantially less than the original maturity of the mortgage pools
underlying the securities as the result of mortgage prepayments, mortgage
refinancings, or foreclosures. The rate of
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mortgage prepayments, and hence the average life of the certificates, will be a
function of the level of interest rates, general economic conditions, the
location and age of the mortgage and other social and demographic conditions.
Such prepayments are passed through to the registered holder with the regular
monthly payments of principal and interest and have the effect of reducing
future payments. Estimated average life will be determined by the Adviser and
used for the purpose of determining the average weighted maturity and duration
of the Funds.
ADDITIONAL INFORMATION ON MORTGAGE-BACKED SECURITIES.
Mortgage-backed securities represent an ownership interest in a pool of
residential mortgage loans. These securities are designed to provide monthly
payments of interest and principal to the investor. The mortgagor's monthly
payments to his/her lending institution are "passed-through" to an investor.
Most issuers or poolers provide guarantees of payments, regardless of whether or
not the mortgagor actually makes the payment. The guarantees made by issuers or
poolers are supported by various forms of credit collateral, guarantees or
insurance, including individual loan, title, pool and hazard insurance purchased
by the issuer. There can be no assurance that the private issuers or poolers can
meet their obligations under the policies. Mortgage-backed securities issued by
private issuers or poolers, whether or not such securities are subject to
guarantees, may entail greater risk than securities directly or indirectly
guaranteed by the U.S. Government.
Interests in pools of mortgage-backed securities differ from other forms
of debt securities, which normally provide for periodic payment of interest in
fixed amounts with principal payments at maturity or specified call dates.
Instead, these securities provide a monthly payment which consists of both
interest and principal payments. In effect, these payments are a "pass-through"
of the monthly payments made by the individual borrowers on their residential
mortgage loans, net of any fees paid. Additional payments are caused by
repayments resulting from the sale of the underlying residential property,
refinancing or foreclosure net of fees or costs which may be incurred. Some
mortgage-backed securities are described as "modified pass-through." These
securities entitle the holders to receive all interest and principal payments
owed on the mortgages in the pool, net of certain fees, regardless of whether or
not the mortgagors actually make the payments.
Residential mortgage loans are pooled by the Federal Home Loan Mortgage
Corporation (FHLMC). FHLMC is a corporate instrumentality of the U.S. Government
and was created by Congress in 1970 for the purpose of increasing the
availability of mortgage credit for residential housing. Its stock is owned by
the twelve Federal Home Loan Banks. FHLMC issues Participation Certificates
("PC's"), which represent interests in mortgages from FHLMC's national
portfolio. FHLMC guarantees the timely payment of interest and ultimate
collection of principal.
The Federal National Mortgage Association (FNMA) is a Government
sponsored corporation owned entirely by private stockholders. It is subject to
general regulation by the Secretary of Housing and Urban Development. FNMA
purchases residential mortgages from a list of approved sellers/servicers which
include state and federally-chartered savings and loan associations, mutual
savings banks, commercial banks and credit unions and mortgage bankers.
Pass-through securities issued by FNMA are guaranteed as to timely payment of
principal and interest by FNMA.
The principal Government guarantor of mortgage-backed securities is the
Government National Mortgage Association (GNMA). GNMA is a wholly-owned U.S.
Government corporation within the Department of Housing and Urban Development.
GNMA is authorized to guarantee, with the full faith and credit of the U.S.
Government, the timely payment of principal and interest on securities issued by
approved institutions and backed by pools of FHA-insured or VA-guaranteed
mortgages.
Commercial banks, savings and loan institutions, private mortgage
insurance companies, mortgage bankers and other secondary market issuers also
create pass-through pools of conventional residential mortgage loans. Pools
created by such non-governmental issuers generally offer a higher rate of
interest than Government and Government-related pools because there are no
direct or indirect Government guarantees of payments in the former pools.
However, timely payment of interest and principal of these pools is supported by
various forms of insurance or guarantees, including individual loan, title, pool
and hazard insurance purchased by the issuer. The insurance and
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guarantees are issued by Governmental entities, private insurers, and the
mortgage poolers. There can be no assurance that the private insurers or
mortgage poolers can meet their obligations under the policies.
The Fund expects that Governmental or private entities may create
mortgage loan pools offering pass-through investments in addition to those
described above. The mortgages underlying these securities may be alternative
mortgage instruments, that is, mortgage instruments whose principal or interest
payment may vary or whose terms to maturity may be shorter than previously
customary. As new types of mortgage-backed securities are developed and offered
to investors, certain Funds will, consistent with their investment objective and
policies, consider making investments in such new types of securities.
Underlying Mortgages
Pools consist of whole mortgage loans or participations in loans. The
majority of these loans are made to purchasers of 1-4 family homes. The terms
and characteristics of the mortgage instruments are generally uniform within a
pool but may vary among pools. For example, in addition to fixed-rate,
fixed-term mortgages, a Fund may purchase pools of variable-rate mortgages
(VRM), growing equity mortgages (GEM), graduated payment mortgages (GPM) and
other types where the principal and interest payment procedures vary. VRM's are
mortgages which reset the mortgage's interest rate periodically with changes in
open market interest rates. To the extent that the Fund is actually invested in
VRM's, the Fund's interest income will vary with changes in the applicable
interest rate on pools of VRM's. GPM and GEM pools maintain constant interest
rates, with varying levels of principal repayment over the life of the mortgage.
These different interest and principal payment procedures should not impact the
Fund's net asset value since the prices at which these securities are valued
will reflect the payment procedures.
All poolers apply standards for qualification to local lending
institutions which originate mortgages for the pools. Poolers also establish
credit standards and underwriting criteria for individual mortgages included in
the pools. In addition, some mortgages included in pools are insured through
private mortgage insurance companies.
Average Life
The average life of pass-through pools varies with the maturities of the
underlying mortgage instruments. In addition, a pool's term may be shortened by
unscheduled or early payments of principal and interest on the underlying
mortgages. The occurrence of mortgage prepayments is affected by factors
including the level of interest rates, general economic conditions, the location
and age of the mortgage, and other social and demographic conditions.
As prepayment rates of individual pools vary widely, it is not possible
to accurately predict the average life of a particular pool. For pools of
fixed-rated 30-year mortgages, common industry practice is to assume that
prepayments will result in a 12-year average life. Pools of mortgages with other
maturities or different characteristics will have varying assumptions for
average life.
Returns on Mortgage-Backed Securities
Yields on mortgage-backed pass-through securities are typically quoted
based on the maturity of the underlying instruments and the associated average
life assumption. Actual prepayment experience may cause the yield to differ from
the assumed average life yield.
Reinvestment of prepayments may occur at higher or lower interest rates
than the original investment, thus affecting the yields of the Fund. The
compounding effect from reinvestments of monthly payments received by the Fund
will increase its yield to shareholders, compared to bonds that pay interest
semi-annually.
NON-MORTGAGE ASSET-BACKED SECURITIES. Non-mortgage asset-backed
securities include interests in pools of receivables, such as motor vehicle
installment purchase obligations and credit card receivables. Such securities
are generally issued as pass-through certificates, which represent undivided
fractional ownership interests in the underlying pools of assets. Such
securities also may be debt instruments, which are also known as collateralized
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obligations and are generally issued as the debt of a special purpose entity
organized solely for the purpose of owning such assets and issuing such debt.
Such securities also may include instruments issued by certain trusts,
partnerships or other special purpose issuers, including pass-through
certificates representing participations in, or debt instruments backed by, the
securities and other assets owned by such issuers.
Non-mortgage-backed securities are not issued or guaranteed by the U.S.
Government or its agencies or instrumentalities; however, the payment of
principal and interest on such obligations may be guaranteed up to certain
amounts and for a certain time period by a letter of credit issued by a
financial institution (such as a bank or insurance company) unaffiliated with
the issuers of such securities.
The purchase of non-mortgage-backed securities raises considerations
peculiar to the financing of the instruments underlying such securities. For
example, most organizations that issue asset-backed securities relating to motor
vehicle installment purchase obligations perfect their interests in their
respective obligations only by filing a financing statement and by having the
servicer of the obligations, which is usually the originator, take custody
thereof. In such circumstances, if the servicer were to sell the same
obligations to another party, in violation of its duty not to do so, there is a
risk that such party could acquire an interest in the obligations superior to
that of the holders of the Asset-backed Securities. Also, although most such
obligations grant a security interest in the motor vehicle being financed, in
most states the security interest in a motor vehicle must be noted on the
certificate of title to perfect such security interest against competing claims
of other parties. Due to the larger number of vehicles involved, however, the
certificate of title to each vehicle financed, pursuant to the obligations
underlying the Asset-backed Securities, usually is not amended to reflect the
assignment of the seller's security interest for the benefit of the holders of
the Asset-backed Securities. Therefore, there is the possibility that recoveries
on repossessed collateral may not, in some cases, be available to support
payments on those securities. In addition, various state and Federal laws give
the motor vehicle owner the right to assert against the holder of the owner's
obligation certain defenses such owner would have against the seller of the
motor vehicle. The assertion of such defenses could reduce payments on the
related Asset-backed Securities. Insofar as credit card receivables are
concerned, credit card holders are entitled to the protection of a number of
state and Federal consumer credit laws, many of which give such holders the
right to set off certain amounts against balances owed on the credit card,
thereby reducing the amounts paid on such receivables. In addition, unlike most
other Asset-backed Securities, credit card receivables are unsecured obligations
of the card holder.
While the market for Asset-backed Securities is becoming increasingly
liquid, the market for mortgage-backed securities issued by certain private
organizations and non-mortgage-backed securities is not as well developed. As
stated above, the Adviser intends to limit its purchases of mortgage-backed
securities issued by certain private organizations and non-mortgage-backed
securities to securities that are readily marketable at the time of purchase.
BORROWINGS
NFT, NFI and NFP participate in an uncommitted line of credit provided
by The Bank of New York under a line of credit agreement (the "Agreement").
Advances under the Agreement are taken primarily for temporary or emergency
purposes, including the meeting of redemption requests that otherwise might
require the untimely disposition of securities. Interest on borrowings is
payable at the federal funds rate plus .50% on an annualized basis. The
Agreement requires, among other things, that each participating Fund maintain a
ratio of no less than 4 to 1 net assets (not including funds borrowed pursuant
to the Agreement) to the aggregate amount of indebtedness pursuant to the
Agreement. Specific borrowings by a Fund under the Agreement over the last
fiscal year, if any, can by found in the Funds' Annual Reports for the year
ended March 31, 1998.
COMMERCIAL INSTRUMENTS
Commercial Instruments consist of short-term U.S. dollar-denominated
obligations issued by domestic corporations or issued in the U.S. by foreign
corporations and foreign commercial banks. The Nations Prime Fund will limit
purchases of commercial instruments to instruments which: (a) if rated by at
least two Nationally Rated Statistical Rating Organizations ("NRSROs"), are
rated in the highest rating category for
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short-term debt obligations given by such organizations, or if only rated by one
such organization, are rated in the highest rating category for short-term debt
obligations given by such organization; or (b) if not rated, are (i) comparable
in priority and security to a class of short-term instruments of the same issuer
that has such rating(s), or (ii) of comparable quality to such instruments as
determined by NFI's Board of Directors on the advice of the Adviser.
Investments by a Fund in commercial paper will consist of issues rated
in a manner consistent with such Fund's investment policies and objectives. In
addition, the Funds may acquire unrated commercial paper and corporate bonds
that are determined by the Adviser at the time of purchase to be of comparable
quality to rated instruments that may be acquired by such Funds as previously
described.
Variable-rate master demand notes are unsecured instruments that permit
the indebtedness thereunder to vary and provide for periodic adjustments in the
interest rate. While some of these notes are not rated by credit rating
agencies, issuers of variable rate master demand notes must satisfy the Adviser
that similar criteria to that set forth above with respect to the issuers of
commercial paper purchasable by the Nations Prime Fund are met. Variable-rate
instruments acquired by a Fund will be rated at a level consistent with such
Fund's investment objective and policies of high quality as determined by a
major rating agency or, if not rated, will be of comparable quality as
determined by the Adviser. See also the discussion of variable- and
floating-rate instruments in this SAI.
Variable- and floating-rate instruments are unsecured instruments that
permit the indebtedness thereunder to vary. While there may be no active
secondary market with respect to a particular variable or floating rate
instrument purchased by a Fund, a Fund may, from time to time as specified in
the instrument, demand payment of the principal or may resell the instrument to
a third party. The absence of an active secondary market, however, could make it
difficult for a Fund to dispose of an instrument if the issuer defaulted on its
payment obligation or during periods when a Fund is not entitled to exercise its
demand rights, and a Fund could, for these or other reasons, suffer a loss. A
Fund may invest in variable and floating rate instruments only when the Adviser
deems the investment to involve minimal credit risk. If such instruments are not
rated, the Adviser will consider the earning power, cash flows, and other
liquidity ratios of the issuers of such instruments and will continuously
monitor their financial status to meet payment on demand. In determining average
weighted portfolio maturity, an instrument will be deemed to have a maturity
equal to the longer of the period remaining to the next interest rate adjustment
or the demand notice period specified in the instrument.
Certain Funds also may purchase short-term participation interests in
loans extended by banks to companies, provided that both such banks and such
companies meet the quality standards set forth above. In purchasing a loan
participation or assignment, the Fund acquires some or all of the interest of a
bank or other lending institution in a loan to a corporate borrower. Many such
loans are secured and most impose restrictive covenants which must be met by the
borrower and which are generally more stringent than the covenants available in
publicly traded debt securities. However, interests in some loans may not be
secured, and the Fund will be exposed to a risk of loss if the borrower
defaults. Loan participations also may be purchased by the Fund when the
borrowing company is already in default. In purchasing a loan participation, the
Fund may have less protection under the federal securities laws than it has in
purchasing traditional types of securities. The Fund's ability to assert its
rights against the borrower will also depend on the particular terms of the loan
agreement among the parties.
COMBINED TRANSACTIONS
Certain Funds may enter into multiple transactions, including multiple
options transactions, multiple futures transactions, multiple forward foreign
currency exchange contracts and any combination of futures, options and forward
foreign currency exchange contracts ("component" transactions), instead of a
single transaction, as part of a single hedging strategy when, in the opinion of
the Adviser, it is in the best interest of a Fund to do so and where underlying
hedging strategies are permitted by a Fund's investment policies. A combined
transaction, while part of a single hedging strategy, may contain elements of
risk that are present in each of its component transactions. (See above for the
risk characteristics of certain transactions.)
CONVERTIBLE SECURITIES
Certain Funds may invest in convertible securities, such as bonds,
notes, debentures, preferred stocks and other securities that may be converted
into common stock. All convertible securities purchased by the Fund will be
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rated in the top two categories by an Nationally Recognized Statistical Rating
Organization ("NRSRO") or, if unrated, determined by the Adviser to be of
comparable quality. Investments in convertible securities can provide income
through interest and dividend payments, as well as, an opportunity for capital
appreciation by virtue of their conversion or exchange features.
The convertible securities in which a Fund may invest include
fixed-income and zero coupon debt securities, and preferred stock that may be
converted or exchanged at a stated or determinable exchange ratio into
underlying shares of common stock. The exchange ratio for any particular
convertible security may be adjusted from time to time due to stock splits,
dividends, spin-offs, other corporate distributions or scheduled changes in the
exchange ratio. Convertible debt securities and convertible preferred stocks,
until converted, have general characteristics similar to both debt and equity
securities. Although to a lesser extent than with debt securities, generally,
the market value of convertible securities tends to decline as interest rates
increase and, conversely, tends to increase as interest rates decline. In
addition, because of the conversion exchange feature, the market value of
convertible securities typically changes as the market value of the underlying
common stock changes, and, therefore, also tends to follow movements in the
general market for equity securities. A unique feature of convertible securities
is that as the market price of the underlying common stock declines, convertible
securities tend to trade increasingly on a yield basis, and so may not
experience market value declines to the same extent as the underlying common
stock. When the market price of the underlying common stock increases, the price
of a convertible security tends to rise as a reflection of the value of the
underlying common stock, although typically not as much as the price of the
underlying common stock. While no securities investments are without risk,
investments in convertible securities generally entail less risk than
investments in common stock of the same issuer.
As debt securities, convertible securities are investments which provide
for a stream of income or, in the case of zero coupon securities, accretion of
income with generally higher yields than common stocks. Of course, like all debt
securities, there can be no assurance of income or principal payments because
the issuers of the convertible securities may default on their obligations.
Convertible securities generally offer lower yields than non-convertible
securities of similar quality because of their conversion exchange features.
Convertible securities generally are subordinated to other similar debt
securities but not to non-convertible securities of the same issuer. Convertible
bonds, as corporate debt obligations, are senior in right of payment to all
equity securities, and convertible preferred stock is senior to common stock, of
the same issuer. However, convertible bonds and convertible preferred stock
typically have lower coupon rates than similar non-convertible securities.
Convertible securities may be issued as fixed income obligations that pay
current income or as zero coupon notes and bonds, including Liquid Yield Option
Notes ("LYONs"). Zero coupon securities pay no cash income and are sold at
substantial discounts from their value at maturity. When held to maturity, their
entire income, which consists of accretion of discount, comes from the
difference between the issue price and their value at maturity. Zero coupon
convertible securities offer the opportunity for capital appreciation because
increases (or decreases) in the market value of such securities closely follow
the movements in the market value of the underlying common stock. Zero coupon
convertible securities generally are expected to be less volatile than the
underlying common stocks because they usually are issued with short maturities
(15 years or less) and are issued with options and/or redemption features
exercisable by the holder of the obligation entitling the holder to redeem the
obligation and receive a defined cash payment.
CORPORATE DEBT SECURITIES
Certain Funds may invest in corporate debt securities of domestic
issuers of all types and maturities, such as bonds, debentures, notes and
commercial paper. Corporate debt securities may involve equity features, such as
conversion or exchange rights or warrants for the acquisition of stock of the
same or a different issuer, participation based on revenue, sales or profit, or
the purchase of common stock or warrants in a unit transaction (where corporate
debt obligations and common stock are offered as a unit). Each Fund may also
invest in corporate debt securities of foreign issuers.
The corporate debt securities in which the Funds will invest will be
rated investment grade by at least one NRSRO (E.G., BBB or above by Standard &
Poor's Corporation ("S&P") or Baa or above by Moody's Investors Services, Inc.
("Moody's")). Commercial paper purchased by the Funds will be rated in the top
two categories by a NRSRO. Corporate debt securities that are not rated may be
purchased by such Funds if they are determined by the Adviser to be of
comparable quality under the direction of the Board of Directors of the Company.
If the rating of
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any corporate debt security held by a Fund falls below such ratings or if the
Adviser determines that an unrated corporate debt security is no longer of
comparable quality, then such security shall be disposed of in an orderly manner
as quickly as possible. A description of these ratings is attached as Schedule A
to this Statement of Additional Information.
CUSTODIAL RECEIPTS
Certain Funds may also acquire custodial receipts that evidence
ownership of future interest payments, principal payments or both on certain
U.S. Government notes or bonds. Such notes and bonds are held in custody by a
bank on behalf of the owners. These custodial receipts are known by various
names, including "Treasury Receipts," "Treasury Investors Growth Receipts" and
"Certificates of Accrual on Treasury Securities." Although custodial receipts
are not considered U.S. Government securities, they are indirectly issued or
guaranteed as to principal and interest by the U.S. Government, its agencies,
authorities or instrumentalities. Custodial receipts will be treated as illiquid
securities.
CURRENCY SWAPS
Certain Funds also may enter into currency swaps for hedging purposes
and to seek to increase total return. In as much as swaps are entered into for
good faith hedging purposes or are offset by a segregated account as described
below, the Fund and the Adviser believe that swaps do not constitute senior
securities as defined in the 1940 Act and, accordingly, will not treat them as
being subject to the Fund's borrowing restrictions. The net amount of the
excess, if any, of the Fund's obligations over its entitlement with respect to
each currency swap will be accrued on a daily basis and an amount of cash or
liquid high grade debt securities (i.e., securities rated in one of the top
three ratings categories by an NRSRO, or, if unrated, deemed by the Adviser to
be of comparable credit quality) having an aggregate net asset value at least
equal to such accrued excess will be maintained in a segregated account by the
Fund's custodian. The Fund will not enter into any currency swap unless the
credit quality of the unsecured senior debt or the claims-paying ability of the
other party thereto is considered to be investment grade by the Adviser.
DELAYED DELIVERY TRANSACTIONS
In a delayed delivery transaction, the Fund relies on the other party to
complete the transaction. If the transaction is not completed, the Fund may miss
a price or yield considered to be advantageous. In delayed delivery
transactions, delivery of the securities occurs beyond normal settlement
periods, but a Fund would not pay for such securities or start earning interest
on them until they are delivered. However, when a Fund purchases securities on
such a delayed delivery basis, it immediately assumes the risk of ownership,
including the risk of price fluctuation. Failure by a counterparty to deliver a
security purchased on a delayed delivery basis may result in a loss or missed
opportunity to make an alternative investment. Depending upon market conditions,
a Fund's delayed delivery purchase commitments could cause its net asset value
to be more volatile, because such securities may increase the amount by which
the Fund's total assets, including the value of when-issued and delayed delivery
securities held by the Fund, exceed its net assets.
DOLLAR ROLL TRANSACTIONS
Certain Funds may enter into "dollar roll" transactions, which consist
of the sale by a Fund to a bank or broker/dealer (the "counterparty") of GNMA
certificates or other mortgage-backed securities together with a commitment to
purchase from the counterparty similar, but not identical, securities at a
future date, at the same price. The counterparty receives all principal and
interest payments, including prepayments, made on the security while it is the
holder. A Fund receives a fee from the counterparty as consideration for
entering into the commitment to purchase. Dollar rolls may be renewed over a
period of several months with a different repurchase price and a cash settlement
made at each renewal without physical delivery of securities. Moreover, the
transaction may be preceded by a firm commitment agreement pursuant to which the
Fund agrees to buy a security on a future date. If the broker/dealer to whom a
Fund sells the security becomes insolvent, the Fund's right to purchase or
repurchase the security may be restricted; the value of the security may change
adversely over the term of the dollar roll; the security that the Fund is
required to repurchase may be worth less than the
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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.
EQUITY SWAP CONTRACTS
Certain Funds may from time to time enter into equity swap contracts.
The counterparty to an equity swap contract will typically be a bank, investment
banking firm or broker/dealer. For example, the counterparty will generally
agree to pay a Fund the amount, if any, by which the notional amount of the
Equity Swap Contract would have increased in value had it been invested in the
stocks comprising the S&P 500 Index in proportion to the composition of the
Index, plus the dividends that would have been received on those stocks. A Fund
will agree to pay to the counterparty a floating rate of interest (typically the
London Inter Bank Offered Rate) on the notional amount of the Equity Swap
Contract plus the amount, if any, by which that notional amount would have
decreased in value had it been invested in such stocks. Therefore, the return to
a Fund on any Equity Swap Contract should be the gain or loss on the notional
amount plus dividends on the stocks comprising the S&P 500 Index less the
interest paid by the Fund on the notional amount. A Fund will only enter into
Equity Swap Contracts on a net basis, i.e., the two parties' obligations are
netted out, with the Fund paying or receiving, as the case may be, only the net
amount of any payments. Payments under the Equity Swap Contracts may be made at
the conclusion of the contract or periodically during its term.
If there is a default by the counterparty to an Equity Swap Contract, a
Fund will be limited to contractual remedies pursuant to the agreements related
to the transaction. There is no assurance that Equity Swap Contract
counterparties will be able to meet their obligations pursuant to Equity Swap
Contracts or that, in the event of default, a Fund will succeed in pursuing
contractual remedies. A Fund thus assumes the risk that it may be delayed in or
prevented from obtaining payments owed to it pursuant to Equity Swap Contracts.
A Fund will closely monitor the credit of Equity Swap Contract counterparties in
order to minimize this risk.
Certain Funds may from time to time enter into the opposite side of
Equity Swap Contracts (i.e., where a Fund is obligated to pay the increase (net
of interest) or receive the decrease (plus interest) on the contract to reduce
the amount of the Fund's equity market exposure consistent with the Fund's
objective. These positions are sometimes referred to as Reverse Equity Swap
Contracts.
Equity Swap Contracts will not be used to leverage a Fund. A Fund will
not enter into any Equity Swap Contract or Reverse Equity Swap Contract unless,
at the time of entering into such transaction, the unsecured senior debt of the
counterparty is rated at least A by Moody's or S&P. Since the SEC considers
Equity Swap Contracts and Reverse Equity Swap Contracts to be illiquid
securities, a Fund will not invest in Equity Swap Contracts or Reverse Equity
Swap Contracts if the total value of such investments together with that of all
other illiquid securities which a Fund owns would exceed 15% of the Fund's total
assets.
The Adviser does not believe that a Fund's obligations under Equity
Swap Contracts or Reverse Equity Swap Contracts are senior securities and,
accordingly, the Fund will not treat them as being subject to its borrowing
restrictions. However, the net amount of the excess, if any, of a Fund's
obligations over its respective entitlements with respect to each Equity Swap
Contract and each Reverse Equity Swap Contract will be accrued on a daily basis
and an amount of cash, U.S. Government securities or other liquid high quality
debt securities having an aggregate market value at least equal to the accrued
excess will be maintained in a segregated account by the Fund's custodian.
FOREIGN CURRENCY TRANSACTIONS
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Certain Funds may invest in foreign currency transactions. Foreign
securities involve currency risks. The U.S. dollar value of a foreign security
tends to decrease when the value of the U.S. dollar rises against the foreign
currency in which the security is denominated, and tends to increase when the
value of the U.S. dollar falls against such currency. A Fund may purchase or
sell forward foreign currency exchange contracts ("forward contracts") to
attempt to minimize the risk to the Fund from adverse changes in the
relationship between the U.S. dollar and foreign currencies. A Fund may also
purchase and sell foreign currency futures contracts and related options (see
"Purchase and Sale of Currency Futures Contracts and Related Options"). A
forward contract is an obligation to purchase or sell a specific currency for an
agreed price at a future date that is individually negotiated and privately
traded by currency traders and their customers.
Forward foreign currency exchange contracts establish an exchange rate
at a future date. These contracts are transferable in the interbank market
conducted directly between currency traders (usually large commercial banks) and
their customers. A forward foreign currency exchange contract generally has no
deposit requirement, and is traded at a net price without commission. A Fund
will direct its custodian to segregate high grade liquid assets in an amount at
least equal to its obligations under each forward foreign currency exchange
contract. Neither spot transactions nor forward foreign currency exchange
contracts eliminate fluctuations in the prices of a Fund's portfolio securities
or in foreign exchange rates, or prevent loss if the prices of these securities
should decline.
A Fund may enter into a forward contract, for example, when it enters
into a contract for the purchase or sale of a security denominated in a foreign
currency in order to "lock in" the U.S. dollar price of the security (a
"transaction hedge"). In addition, when the Adviser believes that a foreign
currency may suffer a substantial decline against the U.S. dollar, it may enter
into a forward sale contract to sell an amount of that foreign currency
approximating the value of some or all of the Fund's securities denominated in
such foreign currency, or when the Adviser believes that the U.S. dollar may
suffer a substantial decline against the foreign currency, it may enter into a
forward purchase contract to buy that foreign currency for a fixed dollar amount
(a "position hedge").
A Fund may, however, enter into a forward contract to sell a different
foreign currency for a fixed U.S. dollar amount where the Adviser believes that
the U.S. dollar value of the currency to be sold pursuant to the forward
contract will fall whenever there is a decline in the U.S. dollar value of the
currency in which the fund securities are denominated (a "cross-hedge").
Foreign currency hedging transactions are an attempt to protect a Fund
against changes in foreign currency exchange rates between the trade and
settlement dates of specific securities transactions or changes in foreign
currency exchange rates that would adversely affect a portfolio position or an
anticipated portfolio position. Although these transactions tend to minimize the
risk of loss due to a decline in the value of the hedged currency, at the same
time they tend to limit any potential gain that might be realized should the
value of the hedged currency increase. The precise matching of the forward
contract amount and the value of the securities involved will not generally be
possible because the future value of these securities in foreign currencies will
change as a consequence of market movements in the value of those securities
between the date the forward contract is entered into and date it matures.
The Fund's custodian will segregate cash, U.S. Government securities or
other high-quality debt securities having a value equal to the aggregate amount
of the Fund's commitments under forward contracts entered into with respect to
position hedges and cross-hedges. If the value of the segregated securities
declines, additional cash or securities will be segregated on a daily basis so
that the value of the segregated securities will equal the amount of the Fund's
commitments with respect to such contracts. As an alternative to segregating all
or part of such securities, the Fund may purchase a call option permitting the
Fund to purchase the amount of foreign currency being hedged by a forward sale
contract at a price no higher than the forward contract price or the Fund may
purchase a put option permitting the Fund to sell the amount of foreign currency
subject to a forward purchase contract at a price as high or higher than the
forward contract price.
The Funds are dollar-denominated mutual funds and therefore
consideration is given to hedging part or all of the portfolio back to U.S.
dollars from international currencies. All decisions to hedge are based upon an
analysis of the relative value of the U.S. dollar on an international purchasing
power parity
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basis (purchasing power parity is a method for determining the relative
purchasing power of different currencies by comparing the amount of each
currency required to purchase a typical bundle of goods and services to domestic
markets) and an estimation of short-term interest rate differentials (which
affect both the direction of currency movements and also the cost of hedging).
FUTURES, OPTIONS AND OTHER DERIVATIVE INSTRUMENTS
FUTURES CONTRACTS IN GENERAL. A futures contract is an agreement between
two parties for the future delivery of fixed income securities or equity
securities or for the payment or acceptance of a cash settlement in the case of
futures contracts on an index of fixed income or equity securities. A "sale" of
a futures contract means the contractual obligation to deliver the securities at
a specified price on a specified date, or to make the cash settlement called for
by the contract. Futures contracts have been designed by exchanges which have
been designated "contract markets" by the Commodity Futures Trading Commission
("CFTC") and must be executed through a brokerage firm, known as a futures
commission merchant, which is a member of the relevant contract market. Futures
contracts trade on these markets, and the exchanges, through their clearing
organizations, guarantee that the contracts will be performed as between the
clearing members of the exchange. Presently, futures contracts are based on such
debt securities as long-term U.S. Treasury Bonds, Treasury Notes, GNMA modified
pass-through mortgage-backed securities, three-month U.S. Treasury Bills, bank
certificates of deposit, and on indices of municipal, corporate and government
bonds.
While futures contracts based on securities do provide for the delivery
and acceptance of securities, such deliveries and acceptances are seldom made.
Generally, a futures contract is terminated by entering into an offsetting
transaction. A Fund will incur brokerage fees when it purchases and sells
futures contracts. At the time such a purchase or sale is made, a Fund must
provide cash or money market securities as a deposit known as "margin." The
initial deposit required will vary, but may be as low as 2% or less of a
contract's face value. Daily thereafter, the futures contract is valued through
a process known as "marking to market," and a Fund that engages in futures
transactions may receive or be required to pay "variation margin" as the futures
contract becomes more or less valuable. At the time of delivery of securities
pursuant to a futures contract based on securities, adjustments are made to
recognize differences in value arising from the delivery of securities with a
different interest rate than the specific security that provides the standard
for the contract. In some (but not many) cases, securities called for by a
futures contract may not have been issued when the contract was written.
Futures contracts on indices of securities are settled through the
making and acceptance of cash settlements based on changes in value of the
underlying rate or index between the time the contract is entered into and the
time it is liquidated.
FUTURES CONTRACTS ON FIXED INCOME SECURITIES AND RELATED INDICES. As
noted in their respective Prospectuses, certain Funds may enter into
transactions in futures contracts for the purpose of hedging a relevant portion
of their portfolios. A Fund may enter into transactions in futures contracts
that are based on U.S. Government obligations, including any index of government
obligations that may be available for trading. Such transactions will be entered
into where movements in the value of the securities or index underlying a
futures contract can be expected to correlate closely with movements in the
value of securities held in a Fund. For example, a Fund may sell futures
contracts in anticipation of a general rise in the level of interest rates,
which would result in a decline in the value of its fixed income securities. If
the expected rise in interest rates occurs, the Fund may realize gains on its
futures position, which should offset all or part of the decline in value of
fixed income fund securities. A Fund could protect against such decline by
selling fixed income securities, but such a strategy would involve higher
transaction costs than the sale of futures contracts and, if interest rates
again declined, the Fund would be unable to take advantage of the resulting
market advance without purchases of additional securities.
The purpose of the purchase or sale of a futures contract on government
securities and indices of government securities, in the case of the
above-referenced Funds, which hold or intend to acquire long-term debt
securities, is to protect a Fund from fluctuations in interest rates without
actually buying or selling long-term debt securities. For example, if long-term
bonds are held by a Fund, and interest rates were expected to increase, the Fund
might enter into futures contracts for the sale of debt securities. Such a sale
would have much the same effect
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as selling an equivalent value of the long-term bonds held by the Fund. If
interest rates did increase, the value of the debt securities in the Fund would
decline, but the value of the futures contracts to the Fund would increase at
approximately the same rate thereby keeping the net asset value of the Fund from
declining as much as it otherwise would have. When a Fund is not fully invested
and a decline in interest rates is anticipated, which would increase the cost of
fixed income securities that the Fund intends to acquire, it may purchase
futures contracts. In the event that the projected decline in interest rates
occurs, the increased cost of the securities acquired by the Fund should be
offset, in whole or part, by gains on the futures contracts by entering into
offsetting transactions on the contract market on which the initial purchase was
effected. In a substantial majority of transactions involving futures contracts
on fixed income securities, a Fund will purchase the securities upon termination
of the long futures positions, but under unusual market conditions, a long
futures position may be terminated without a corresponding purchase of
securities.
Similarly, when it is expected that interest rates may decline, futures
contracts on fixed income securities and indices of government securities may be
purchased for the purpose of hedging against anticipated purchases of long-term
bonds at higher prices. Since the fluctuations in the value of such futures
contracts should be similar to that of long-term bonds, a Fund could take
advantage of the anticipated rise in the value of long-term bonds without
actually buying them until the market had stabilized. At that time, the futures
contracts could be liquidated and the Fund's cash reserves could then be used to
buy long-term bonds in the cash market. Similar results could be accomplished by
selling bonds with long maturities and investing in bonds with short maturities
when interest rates are expected to increase. However, since the futures market
is more liquid than the cash market, the use of these futures contracts as an
investment technique allows a Fund to act in anticipation of such an interest
rate decline without having to sell its portfolio securities. To the extent a
Fund enters into futures contracts for this purpose, the segregated assets
maintained by a Fund will consist of cash, cash equivalents or high quality debt
securities of the Fund in an amount equal to the difference between the
fluctuating market value of such futures contract and the aggregate value of the
initial deposit and variation margin payments made by the Fund with respect to
such futures contracts.
STOCK INDEX FUTURES CONTRACTS. Certain Funds may sell stock index
futures contracts in order to offset a decrease in market value of its
securities that might otherwise result from a market decline. A Fund may do so
either to hedge the value of its portfolio as a whole, or to protect against
declines, occurring prior to sales of securities, in the value of securities to
be sold. Conversely, a Fund may purchase stock index futures contracts in order
to protect against anticipated increases in the cost of securities to be
acquired.
In addition, a Fund may utilize stock index futures contracts in
anticipation of changes in the composition of its portfolio. For example, in the
event that a Fund expects to narrow the range of industry groups represented in
its portfolio, it may, prior to making purchases of the actual securities,
establish a long futures position based on a more restricted index, such as an
index comprised of securities of a particular industry group. As such securities
are acquired, a Fund's futures positions would be closed out. A Fund may also
sell futures contracts in connection with this strategy, in order to protect
against the possibility that the value of the securities to be sold as part of
the restructuring of its portfolio will decline prior to the time of sale.
OPTIONS ON FUTURES CONTRACTS. An option on a futures contract gives the
purchaser (the "holder") the right, but not the obligation, to purchase a
position in the underlying futures contract (i.e., a purchase of such futures
contract) in the case of an option to purchase (a "call" option), or a "short"
position in the underlying futures contract (i.e., a sale of such futures
contract) in the case of an option to sell (a "put" option), at a fixed price
(the "strike price") up to a stated expiration date. The holder pays a
non-refundable purchase price for the option, known as the "premium." The
maximum amount of risk the purchase of the option assumes is equal to the
premium plus related transaction costs, although this entire amount may be lost.
Upon exercise of the option by the holder, the exchange clearing corporation
establishes a corresponding long position in the case of a put option. In the
event that an option is exercised, the parties will be subject to all the risks
associated with the trading of futures contracts, such as payment of variation
margin deposits. In addition, the writer of an option on a futures contract,
unlike the holder, is subject to initial and variation margin requirements on
the option position.
OPTIONS ON FUTURES CONTRACTS ON FIXED INCOME SECURITIES AND RELATED
INDICES. Certain Funds may purchase put options on futures contracts in which
such Funds are permitted to invest for the purpose of hedging a
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relevant portion of their portfolios against an anticipated decline in the
values of portfolio securities resulting from increases in interest rates, and
may purchase call options on such futures contracts as a hedge against an
interest rate decline when they are not fully invested. A Fund would write
options on these futures contracts primarily for the purpose of terminating
existing positions.
OPTIONS ON STOCK INDEX FUTURES CONTRACTS, OPTIONS ON STOCK INDICES AND
OPTIONS ON EQUITY SECURITIES. Certain Funds may purchase put options on stock
index futures contracts, stock indices or equity securities for the purpose of
hedging the relevant portion of their portfolio securities against an
anticipated market-wide decline or against declines in the values of individual
portfolio securities, and they may purchase call options on such futures
contracts as a hedge against a market advance when they are not fully invested.
A Fund would write options on such futures contracts primarily for the purpose
of terminating existing positions. In general, options on stock indices will be
employed in lieu of options on stock index futures contracts only where they
present an opportunity to hedge at lower cost. With respect to options on equity
securities, a Fund may, under certain circumstances, purchase a combination of
call options on such securities and U.S. Treasury bills. The Adviser believes
that such a combination may more closely parallel movements in the value of the
security underlying the call option than would the option itself.
Further, while a Fund generally would not write options on individual
portfolio securities, it may do so under limited circumstances known as
"targeted sales" and "targeted buys," which involve the writing of call or put
options in an attempt to purchase or sell portfolio securities at specific
desired prices. A Fund would receive a fee, or a "premium," for the writing of
the option. For example, where the Fund seeks to sell portfolio securities at a
"targeted" price, it may write a call option at that price. In the event that
the market rises above the exercise price, it would receive its "targeted"
price, upon the exercise of the option, as well as the premium income. Also,
where it seeks to buy portfolio securities at a "targeted" price, it may write a
put option at that price for which it will receive the premium income. In the
event that the market declines below the exercise price, a Fund would pay its
"targeted" price upon the exercise of the option. In the event that the market
does not move in the direction or to the extent anticipated, however, the
targeted sale or buy might not be successful and a Fund could sustain a loss on
the transaction that may not be offset by the premium received. In addition, a
Fund may be required to forego the benefit of an intervening increase or decline
in value of the underlying security.
OPTIONS AND FUTURES STRATEGIES. The Adviser may seek to increase the
current return of certain Funds by writing covered call or put options. In
addition, through the writing and purchase of options and the purchase and sale
of U.S. and certain foreign stock index futures contracts, interest rate futures
contracts, foreign currency futures contracts and related options on such
futures contracts, the Adviser may at times seek to hedge against a decline in
the value of securities included in the Fund or an increase in the price of
securities that it plans to purchase for the Fund. Expenses and losses incurred
as a result of such hedging strategies will reduce the Fund's current return. A
Fund's investment in foreign stock index futures contracts and foreign interest
rate futures contracts, and related options on such futures contracts, are
limited to only those contracts and related options that have been approved by
the CFTC for investment by U.S. investors. Additionally, with respect to a
Fund's investment in foreign options, unless such options are specifically
authorized for investment by order of the CFTC or meet the definition of trade
options as set forth in CFTC Rule 32.4, a Fund will not make these investments.
The ability of a Fund to engage in the options and futures strategies
described below will depend on the availability of liquid markets in such
instruments. Markets in options and futures with respect to stock indices,
foreign government securities and foreign currencies are relatively new and
still developing. It is impossible to predict the amount of trading interest
that may exist in various types of options or futures. Therefore, no assurance
can be given that a Fund will be able to utilize these instruments effectively
for the purposes stated below. Furthermore, a Fund's ability to engage in
options and futures transactions may be limited by tax considerations. Although
a Fund will only engage in options and futures transactions for limited
purposes, these activities will involve certain risks which are described below
under "Risk Factors Associated with Futures and Options Transactions." A Fund
will not engage in options and futures transactions for leveraging purposes.
WRITING COVERED OPTIONS ON SECURITIES. Certain Funds may write covered
call options and covered put options on securities in which it is permitted to
invest from time to time as the Adviser determines is appropriate in seeking to
attain its objective. Call options written by a Fund give the holder the right
to buy the underlying
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securities from a Fund at a stated exercise price; put options give the holder
the right to sell the underlying security to the Fund at a stated price.
A Fund may write only covered options, which means that, so long as the
Fund is obligated as the writer of a call option, it will own the underlying
securities subject to the option (or comparable securities satisfying the cover
requirements of securities exchanges). In the case of put options, a Fund will
maintain in a separate account cash or short-term U.S. Government securities
with a value equal to or greater than the exercise price of the underlying
securities. A Fund may also write combinations of covered puts and calls on the
same underlying security.
A Fund will receive a premium from writing a put or call option, which
increases the Fund's return in the event the option expires unexercised or is
closed out at a profit. The amount of the premium will reflect, among other
things, the relationship of the market price of the underlying security to the
exercise price of the option, the term of the option and the volatility of the
market price of the underlying security. By writing a call option, a Fund limits
its opportunity to profit from any increase in the market value of the
underlying security above the exercise price of the option. By writing a put
option, the Fund assumes the risk that it may be required to purchase the
underlying security for an exercise price higher than its then current market
value, resulting in a potential capital loss if the purchase price exceeds the
market value plus the amount of the premium received, unless the security
subsequently appreciates in value.
A Fund may terminate an option that it has written prior to its
expiration by entering into a closing purchase transaction in which it purchases
an option having the same terms as the option written. A Fund will realize a
profit or loss from such transaction if the cost of such transaction is less or
more than the premium received from the writing of the option. In the case of a
put option, any loss so incurred may be partially or entirely offset by the
premium received from a simultaneous or subsequent sale of a different put
option. Because increases in the market price of a call option will generally
reflect increases in the market price of the underlying security, any loss
resulting from the repurchase of a call option is likely to be offset in whole
or in part by unrealized appreciation of the underlying security owned by a
Fund.
PURCHASING PUT AND CALL OPTIONS ON SECURITIES. A Fund may purchase put
options to protect its portfolio holdings in an underlying security against a
decline in market value. Such hedge protection is provided during the life of
the put option since a Fund, as holder of the put option, is able to sell the
underlying security at the put exercise price regardless of any decline in the
underlying security's market price. In order for a put option to be profitable,
the market price of the underlying security must decline sufficiently below the
exercise price to cover the premium and transaction costs. By using put options
in this manner, a Fund will reduce any profit it might otherwise have realized
in its underlying security by the premium paid for the put option and by
transaction costs.
A Fund may also purchase call options to hedge against an increase in
prices of securities that it wants ultimately to buy. Such hedge protection is
provided during the life of the call option since the Fund, as holder of the
call option, is able to buy the underlying security at the exercise price
regardless of any increase in the underlying security's market price. In order
for a call option to be profitable, the market price of the underlying security
must rise sufficiently above the exercise price to cover the premium and
transaction costs. By using call options in this manner, a Fund will reduce any
profit it might have realized had it bought the underlying security at the time
it purchased the call option by the premium paid for the call option and by
transaction costs.
PURCHASE AND SALE OF OPTIONS AND FUTURES ON STOCK INDICES. A Fund may
purchase and sell options on non-U.S. stock indices and stock index futures as a
hedge against movements in the equity markets.
Options on stock indices are similar to options on specific securities
except that, rather than the right to take or make delivery of the specific
security at a specific price, an option on a stock index gives the holder the
right to receive, upon exercise of the option, an amount of cash if the closing
level of that stock index is greater than, in the case of a call, or less than,
in the case of a put, the exercise price of the option. This amount of cash is
equal to such difference between the closing price of the index and the exercise
price of the option expressed in dollars multiplied by a specified multiple. The
writer of the option is obligated, in return for the premium received, to make
delivery of this amount. Unlike options on specific securities, all settlements
of options on stock indices are in cash and gain or
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loss depends on general movements in the stocks included in the index rather
than price movements in particular stocks. A stock index futures contract is an
agreement in which one party agrees to deliver to the other an amount of cash
equal to a specific amount multiplied by the difference between the value of a
specific stock index at the close of the last trading day of the contract and
the price at which the agreement is made. No physical delivery of securities is
made.
If the Adviser expects general stock market prices to rise, a Fund might
purchase a call option on a stock index or a futures contract on that index as a
hedge against an increase in prices of particular equity securities it wants
ultimately to buy. If in fact the stock index does rise, the price of the
particular equity securities intended to be purchased may also increase, but
that increase would be offset in part by the increase in the value of a Fund's
index option or futures contract resulting from the increase in the index. If,
on the other hand, the Adviser expects general stock market prices to decline, a
Fund might purchase a put option or sell a futures contract on the index. If
that index does in fact decline, the value of some or all of the equity
securities in a Fund may also be expected to decline, but that decrease would be
offset in part by the increase in the value of the Fund's position in such put
option or futures contract.
PURCHASE AND SALE OF INTEREST RATE FUTURES. A Fund may purchase and sell
interest rate futures contracts on foreign government securities including, but
not limited to, debt securities of the governments and central banks of France,
Germany, Denmark and Japan for the purpose of hedging fixed income and interest
sensitive securities against the adverse effects of anticipated movements in
interest rates.
A Fund may sell interest rate futures contracts in anticipation of an
increase in the general level of interest rates. Generally, as interest rates
rise, the market value of the fixed income securities held by a Fund will fall,
thus reducing the net asset value of the Fund. This interest rate risk can be
reduced without employing futures as a hedge by selling long-term fixed income
securities and either reinvesting the proceeds in securities with shorter
maturities or by holding assets in cash. This strategy, however, entails
increased transaction costs to a Fund in the form of dealer spreads and
brokerage commissions.
The sale of interest rate futures contracts provides an alternative
means of hedging against rising interest rates. As rates increase, the value of
a Fund's short position in the futures contracts will also tend to increase,
thus offsetting all or a portion of the depreciation in the market value of a
Fund's investments that are being hedged. While a Fund will incur commission
expenses in selling and closing out futures positions (which is done by taking
an opposite position which operates to terminate the position in the futures
contract), commissions on futures transactions are lower than transaction costs
incurred in the purchase and sale of portfolio securities.
OPTIONS ON STOCK INDEX FUTURES CONTRACTS AND INTEREST RATE FUTURES
CONTRACTS. A Fund may purchase and write call and put options on non-U.S. stock
index and interest rate futures contracts. A Fund may use such options on
futures contracts in connection with its hedging strategies in lieu of
purchasing and writing options directly on the underlying securities or stock
indices or purchasing and selling the underlying futures. For example, a Fund
may purchase put options or write call options on stock index futures, or
interest rate futures, rather than selling futures contracts, in anticipation of
a decline in general stock market prices or rise in interest rates,
respectively, or purchase call options or write put options on stock index or
interest rate futures, rather than purchasing such futures, to hedge against
possible increases in the price of equity securities or debt securities,
respectively, which the Fund intends to purchase.
PURCHASE AND SALE OF CURRENCY FUTURES CONTRACTS AND RELATED OPTIONS. In
order to hedge its portfolio and to protect it against possible variations in
foreign exchange rates pending the settlement of securities transactions, a Fund
may buy or sell currency futures contracts and related options. If a fall in
exchange rates for a particular currency is anticipated, a Fund may sell a
currency futures contract or a call option thereon or purchase a put option on
such futures contract as a hedge. If it is anticipated that exchange rates will
rise, a Fund may purchase a currency futures contract or a call option thereon
or sell (write) a put option to protect against an increase in the price of
securities denominated in a particular currency a Fund intends to purchase.
These futures contracts and related options thereon will be used only as a hedge
against anticipated currency rate changes, and all options on currency futures
written by a Fund will be covered.
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A currency futures contract sale creates an obligation by a Fund, as
seller, to deliver the amount of currency called for in the contract at a
specified future time for a special price. A currency futures contract purchase
creates an obligation by a Fund, as purchaser, to take delivery of an amount of
currency at a specified future time at a specified price. Although the terms of
currency futures contracts specify actual delivery or receipt, in most instances
the contracts are closed out before the settlement date without the making or
taking of delivery of the currency. Closing out of a currency futures contract
is effected by entering into an offsetting purchase or sale transaction. Unlike
a currency futures contract, which requires the parties to buy and sell currency
on a set date, an option on a currency futures contract entitles its holder to
decide on or before a future date whether to enter into such a contract. If the
holder decides not to enter into the contract, the premium paid for the option
is fixed at the point of sale.
The Fund will write (sell) only covered put and call options on currency
futures. This means that a Fund will provide for its obligations upon exercise
of the option by segregating sufficient cash or short-term obligations or by
holding an offsetting position in the option or underlying currency future, or a
combination of the foregoing. A Fund will, so long as it is obligated as the
writer of a call option on currency futures, own on a contract-for-contract
basis an equal long position in currency futures with the same delivery date or
a call option on stock index futures with the difference, if any, between the
market value of the call written and the market value of the call or long
currency futures purchased maintained by a Fund in cash, Treasury bills, or
other high grade short-term obligations in a segregated account with its
custodian. If at the close of business on any day the market value of the call
purchased by a Fund falls below 100% of the market value of the call written by
the Fund, a Fund will so segregate an amount of cash, Treasury bills or other
high grade short-term obligations equal in value to the difference.
Alternatively, a Fund may cover the call option through segregating with the
custodian an amount of the particular foreign currency equal to the amount of
foreign currency per futures contract option times the number of options written
by a Fund. In the case of put options on currency futures written by the Fund,
the Fund will hold the aggregate exercise price in cash, Treasury bills, or
other high grade short-term obligations in a segregated account with its
custodian, or own put options on currency futures or short currency futures,
with the difference, if any, between the market value of the put written and the
market value of the puts purchased or the currency futures sold maintained by a
Fund in cash, Treasury bills or other high grade short-term obligations in a
segregated account with its custodian. If at the close of business on any day
the market value of the put options purchased or the currency futures by a Fund
falls below 100% of the market value of the put options written by the Fund, a
Fund will so segregate an amount of cash, Treasury bills or other high grade
short-term obligations equal in value to the difference.
If other methods of providing appropriate cover are developed, a Fund
reserves the right to employ them to the extent consistent with applicable
regulatory and exchange requirements. In connection with transactions in stock
index options, stock index futures, interest rate futures, foreign currency
futures and related options on such futures, a Fund will be required to deposit
as "initial margin" an amount of cash or short-term government securities equal
to from 5% to 8% of the contract amount. Thereafter, subsequent payments
(referred to as "variation margin") are made to and from the broker to reflect
changes in the value of the futures contract.
LIMITATIONS ON PURCHASE OF OPTIONS. The staff of the SEC has taken the
position that purchased over-the-counter options and assets used to cover
written over-the-counter options are illiquid and, therefore, together with
other illiquid securities, cannot exceed 15% of a Fund's assets. The Adviser
intends to limit a Fund's writing of over-the-counter options in accordance with
the following procedure. Each Fund intends to write over-the-counter options
only with primary U.S. Government securities dealers recognized by the Federal
Reserve Bank of New York. Also, the contracts which a Fund has in place with
such primary dealers will provide that the Fund has the absolute right to
repurchase an option it writes at any time at a price which represents the fair
market value, as determined in good faith through negotiation between the
parties, but which in no event will exceed a price determined pursuant to a
formula in the contract. Although the specific formula may vary between
contracts with different primary dealers, the formula will generally be based on
a multiple of the premium received by a Fund for writing the option, plus the
amount, if any, of the option's intrinsic value (i.e., the amount that the
option is in-the-money). The formula also may include a factor to account for
the difference between the price of the security and the strike price of the
option if the option is written out-of-the-money. A Fund will treat all or a
part of the formula price as illiquid for purposes of the 15% test imposed by
the SEC staff.
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Risk Factors Associated with Futures and Options Transactions
The effective use of options and futures strategies depends on, among
other things, a Fund's ability to terminate options and futures positions at
times when its the Adviser deems it desirable to do so. Although a Fund will not
enter into an option or futures position unless the Adviser believes that a
liquid secondary market exists for such option or future, there is no assurance
that a Fund will be able to effect closing transactions at any particular time
or at an acceptable price. A Fund generally expects that its options and futures
transactions will be conducted on recognized U.S. and foreign securities and
commodity exchanges. In certain instances, however, a Fund may purchase and sell
options in the over-the-counter market. A Fund's ability to terminate option
positions established in the over-the-counter market may be more limited than in
the case of exchange-traded options and may also involve the risk that
securities dealers participating in such transactions would fail to meet their
obligations to the Fund.
Options and futures markets can be highly volatile and transactions of
this type carry a high risk of loss. Moreover, a relatively small adverse market
movement with respect to these types of transactions may result not only in loss
of the original investment but also in unquantifiable further loss exceeding any
margin deposited.
The use of options and futures involves the risk of imperfect
correlation between movements in options and futures prices and movements in the
price of securities which are the subject of the hedge. Such correlation,
particularly with respect to options on stock indices and stock index futures,
is imperfect, and such risk increases as the composition of a Fund diverges from
the composition of the relevant index. The successful use of these strategies
also depends on the ability of the Adviser to correctly forecast interest rate
movements, currency rate movements and general stock market price movements.
In addition to certain risk factors described above, the following sets
forth certain information regarding the potential risks associated with the
Funds' futures and options transactions.
RISK OF IMPERFECT CORRELATION. A Fund's ability effectively to hedge all
or a portion of its portfolio through transactions in futures, options on
futures or options on stock indices depends on the degree to which movements in
the value of the securities or index underlying such hedging instrument
correlate with movements in the value of the relevant portion of the Fund's
securities. If the values of the securities being hedged do not move in the same
amount or direction as the underlying security or index, the hedging strategy
for a Fund might not be successful and the Fund could sustain losses on its
hedging transactions which would not be offset by gains on its portfolio. It is
also possible that there may be a negative correlation between the security or
index underlying a futures or option contract and the portfolio securities being
hedged, which could result in losses both on the hedging transaction and the
fund securities. In such instances, a Fund's overall return could be less than
if the hedging transactions had not been undertaken. Stock index futures or
options based on a narrower index of securities may present greater risk than
options or futures based on a broad market index, as a narrower index is more
susceptible to rapid and extreme fluctuations resulting from changes in the
value of a small number of securities. A Fund would, however, effect
transactions in such futures or options only for hedging purposes.
The trading of futures and options on indices involves the additional
risk of imperfect correlation between movements in the futures or option price
and the value of the underlying index. The anticipated spread between the prices
may be distorted due to differences in the nature of the markets, such as
differences in margin requirements, the liquidity of such markets and the
participation of speculators in the futures and options market. The purchase of
an option on a futures contract also involves the risk that changes in the value
of underlying futures contract will not be fully reflected in the value of the
option purchased. The risk of imperfect correlation, however, generally tends to
diminish as the maturity date of the futures contract or termination date of the
option approaches. The risk incurred in purchasing an option on a futures
contract is limited to the amount of the premium plus related transaction costs,
although it may be necessary under certain circumstances to exercise the option
and enter into the underlying futures contract in order to realize a profit.
Under certain extreme market conditions, it is possible that a Fund will not be
able to establish hedging positions, or that any hedging strategy adopted will
be insufficient to completely protect the Fund.
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A Fund will purchase or sell futures contracts or options only if, in
the Adviser's judgment, there is expected to be a sufficient degree of
correlation between movements in the value of such instruments and changes in
the value of the relevant portion of the Fund's portfolio for the hedge to be
effective. There can be no assurance that the Adviser's judgment will be
accurate.
POTENTIAL LACK OF A LIQUID SECONDARY MARKET. The ordinary spreads
between prices in the cash and futures markets, due to differences in the
natures of those markets, are subject to distortions. First, all participants in
the futures market are subject to initial deposit and variation margin
requirements. This could require a Fund to post additional cash or cash
equivalents as the value of the position fluctuates. Further, rather than
meeting additional variation margin requirements, investors may close futures
contracts through offsetting transactions which could distort the normal
relationship between the cash and futures markets. Second, the liquidity of the
futures or options market may be lacking. Prior to exercise or expiration, a
futures or option position may be terminated only by entering into a closing
purchase or sale transaction, which requires a secondary market on the exchange
on which the position was originally established. While a Fund will establish a
futures or option position only if there appears to be a liquid secondary market
therefor, there can be no assurance that such a market will exist for any
particular futures or option contract at any specific time. In such event, it
may not be possible to close out a position held by a Fund, which could require
the Fund to purchase or sell the instrument underlying the position, make or
receive a cash settlement, or meet ongoing variation margin requirements. The
inability to close out futures or option positions also could have an adverse
impact on a Fund's ability effectively to hedge its securities, or the relevant
portion thereof.
The liquidity of a secondary market in a futures contract or an option
on a futures contract may be adversely affected by "daily price fluctuation
limits" established by the exchanges, which limit the amount of fluctuation in
the price of a contract during a single trading day and prohibit trading beyond
such limits once they have been reached. The trading of futures and options
contracts also is subject to the risk of trading halts, suspensions, exchange or
clearing house equipment failures, government intervention, insolvency of the
brokerage firm or clearing house or other disruptions of normal trading
activity, which could at times make it difficult or impossible to liquidate
existing positions or to recover excess variation margin payments.
RISK OF PREDICTING INTEREST RATE MOVEMENTS. Investments in futures
contracts on fixed income securities and related indices involve the risk that
if the Adviser's investment judgment concerning the general direction of
interest rates is incorrect, a Fund's overall performance may be poorer than if
it had not entered into any such contract. For example, if a Fund has been
hedged against the possibility of an increase in interest rates which would
adversely affect the price of bonds held in its portfolio and interest rates
decrease instead, the Fund will lose part or all of the benefit of the increased
value of its bonds which have been hedged because it will have offsetting losses
in its futures positions. In addition, in such situations, if a Fund has
insufficient cash, it may have to sell bonds from its portfolio to meet daily
variation margin requirements, possibly at a time when it may be disadvantageous
to do so. Such sale of bonds may be, but will not necessarily be, at increased
prices which reflect the rising market.
TRADING AND POSITION LIMITS. Each contract market on which futures and
option contracts are traded has established a number of limitations governing
the maximum number of positions which may be held by a trader, whether acting
alone or in concert with others. The Adviser does not believe that these trading
and position limits will have an adverse impact on the hedging strategies
regarding the Funds' investments.
REGULATIONS ON THE USE OF FUTURES AND OPTIONS CONTRACTS. Regulations of
the CFTC require that the Funds enter into transactions in futures contracts and
options thereon for hedging purposes only, in order to assure that they are not
deemed to be a "commodity pool" under such regulations. In particular, CFTC
regulations require that all short futures positions be entered into for the
purpose of hedging the value of investment securities held by a Fund, and that
all long futures positions either constitute bona fide hedging transactions, as
defined in such regulations, or have a total value not in excess of an amount
determined by reference to certain cash and securities positions maintained for
the Fund, and accrued profits on such positions. In addition, a Fund may not
purchase or sell such instruments if, immediately thereafter, the sum of the
amount of initial margin deposits on its existing futures positions and premiums
paid for options on futures contracts would exceed 5% of the market value of the
Fund's total assets.
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When a Fund purchases a futures contract, an amount of cash or cash
equivalents or high quality debt securities will be segregated with the Fund's
custodian so that the amount so segregated, plus the initial deposit and
variation margin held in the account of its broker, will at all times equal the
value of the futures contract, thereby insuring that the use of such futures is
unleveraged.
The Funds' ability to engage in the hedging transactions described
herein may be limited by the current federal income tax requirement that a Fund
derive less than 30% of its gross income from the sale or other disposition of
stock or securities held for less than three months. The Funds may also further
limit their ability to engage in such transactions in response to the policies
and concerns of various Federal and state regulatory agencies. Such policies may
be changed by vote of the Board of Directors/Trustees.
Additional Information on Futures and Options
As stated in the Prospectus, each Non-Money Market Fund, may enter into
futures contracts and options for hedging purposes. Such transactions are
described in this Schedule. During the current fiscal year, each of these Funds
intends to limit its transactions in futures contracts and options so that not
more than 5% of the Fund's net assets are at risk. Furthermore, in no event
would any Fund purchase or sell futures contracts, or related options thereon,
for hedging purposes if, immediately thereafter, the aggregate initial margin
that is required to be posted by the Fund under the rules of the exchange on
which the futures contract (or futures option) is traded, plus any premiums paid
by the Fund on its open futures options positions, exceeds 5% of the Fund's
total assets, after taking into account any unrealized profits and unrealized
losses on the Fund's open contracts and excluding the amount that a futures
option is "in-the-money" at the time of purchase. (An option to buy a futures
contract is "in-the-money" if the value of the contract that is subject to the
option exceeds the exercise price; an option to sell a futures contract is
"in-the-money" if the exercise Price exceeds the value of the contract that is
subject of the option.)
I. Interest Rate Futures Contracts.
Use of Interest Rate Futures Contracts. Bond prices are established in
both the cash market and the futures market. In the cash market, bonds are
purchased and sold with payment for the full purchase price of the bond being
made in cash, generally within five business days after the trade. In the
futures market, only a contract is made to purchase or sell a bond in the future
for a set price on a certain date. Historically, the prices for bonds
established in the futures market have tended to move generally in the aggregate
in concert with the cash market prices and have maintained fairly predictable
relationships. Accordingly, a Fund may use interest rate futures as a defense,
or hedge, against anticipated interest rate changes and not for speculation. As
described below, this would include the use of futures contract sales to protect
against expected increases in interest rates and futures contract purchases to
offset the impact of interest rate declines.
A Fund presently could accomplish a similar result to that which it
hopes to achieve through the use of futures contracts by selling bonds with long
maturities and investing in bonds with short maturities when interest rates are
expected to increase, or conversely, selling short-term bonds and investing in
long-term bonds when interest rates are expected to decline. However, because of
the liquidity that is often available in the futures market the protection is
more likely to be achieved, perhaps at a lower cost and without changing the
rate of interest being earned by the Fund, through using futures contracts.
Description of Interest Rates Futures Contracts. An interest rate
futures contract sale would create an obligation by a Fund, as seller, to
deliver the specific type of financial instrument called for in the contract at
a specific future time for a specified price. A futures contract purchase would
create an obligation by the Fund, as purchaser, to take delivery of the specific
type of financial instrument at a specific future time at a specific price. The
specific securities delivered or taken, respectively, at settlement date, would
not be determined until at or near that date. The determination would be in
accordance with the rules of the exchange on which the futures contract sale or
purchase was made.
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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. A Fund would deal
only in standardized contracts on recognized changes. Each exchange guarantees
performance under contract provisions through a clearing corporation, a
nonprofit organization managed by the exchange membership.
A public market now exists in futures contracts covering various
financial instruments including long-term United States Treasury Bonds and
Notes; Government National Mortgage Association ("GNMA") modified pass-through
mortgage-backed securities; three-month United States Treasury Bills; and
ninety-day commercial paper. The Funds may trade in any futures contract for
which there exists a public market, including, without limitation, the foregoing
instruments.
Examples of Futures Contract Sale. A Fund would engage in an interest
rate futures contract sale to maintain the income advantage from continued
holding of a long-term bond while endeavoring to avoid part or all of the loss
in market value that would otherwise accompany a decline in long-term securities
prices. Assume that the market value of a certain security in a Fund tends to
move in concert with the futures market prices of long-term United States
Treasury bonds ("Treasury Bonds"). The Adviser wishes to fix the current market
value of this portfolio security until some point in the future. Assume the
portfolio security has a market value of 100, and the Adviser believes that,
because of an anticipated rise in interest rates, the value will decline to 95.
The Fund might enter into futures contract sales of Treasury bonds for an
equivalent of 98. If the market value of the portfolio securities does indeed
decline from 100 to 95, the equivalent futures market price for the Treasury
bonds might also decline from 98 to 93.
In that case, the five-point loss in the market value of the portfolio
security would be offset by the five-point gain realized by closing out the
futures contract sale. Of course, the futures market price of Treasury bonds
might well decline to more than 93 or to less than 93 because of the imperfect
correlation between cash and futures prices mentioned below.
The Adviser could be wrong in its forecast of interest rates and the
equivalent futures market price could rise above 98. In this case, the market
value of the portfolio securities, including the portfolio security being
protected, would increase. The benefit of this increase would be reduced by the
loss realized on closing out the futures contract sale.
If interest rate levels did not change, the Fund in the above example
might incur a loss of 2 points (which might be reduced by an offsetting
transaction prior to the settlement date). In each transaction, transaction
expenses would also be incurred.
Examples of Future Contract Purchase. A Fund would engage in an interest
rate futures contract purchase when it is not fully invested in long-term bonds
but wishes to defer for a time the purchase of long-term bonds in light of the
availability of advantageous interim investments, e.g., shorter-term securities
whose yields are greater than those available on long-term bonds. The Fund's
basic motivation would be to maintain for a time the income advantage from
investing in the short-term securities; the Fund would be endeavoring at the
same time to eliminate the effect of all or part of an expected increase in
market price of the long-term bonds that the Fund may purchase.
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For example, assume that the market price of a long-term bond that the
Fund may purchase, currently yielding 10%, tends to move in concert with futures
market prices of Treasury bonds. The Adviser wishes to fix the current market
price (and thus 10% yield) of the long-term bond until the time (four months
away in this example) when it may purchase the bond. Assume the long-term bond
has a market price of 100, and the Adviser believes that, because of an
anticipated fall in interest rates, the price will have risen to 105 (and the
yield will have dropped to about 9-1/2%) in four months. The Fund might enter
into futures contracts purchases of Treasury bonds for an equivalent price of
98. At the same time, the Fund would assign a pool of investments in short-term
securities that are either maturing in four months or earmarked for sale in four
months, for purchase of the long-term bond at an assumed market price of 100.
Assume these short-term securities are yielding 15%. If the market price of the
long-term bond does indeed rise from 100 to 105, the equivalent futures market
price for Treasury bonds might also rise from 98 to 103. In that case, the
5-point increase in the price that the Fund pays for the long-term bond would be
offset by the 5-point gain realized by closing out the futures contract
Purchase.
The Adviser could be wrong in its forecast of interest rates; long-term
interest rates might rise to above 10%; and the equivalent futures market price
could fall below 98. If short-term rates at the same time fall to 10% or below,
it is possible that the Fund would continue with its purchase program for
long-term bonds. The market price of available long-term bonds would have
decreased. The benefit of this price decrease, and thus yield increase, will be
reduced by the loss realized on closing out the futures contract purchase.
If, however, short-term rates remained above available long-term rates,
it is possible that the Fund would discontinue its purchase program for
long-term bonds. The yield on short-term securities in the portfolio, including
those originally in the pool assigned to the particular long-term bond, would
remain higher than yields on long-term bonds. The benefit of this continued
incremental income will be reduced by the loss realized on closing out the
futures contract purchase.
In each transaction, expenses also would be incurred.
II. Index Futures Contracts.
A stock or bond index assigns relative values to the stocks or bonds
included in the index, and the index fluctuates with changes in the market
values of the stocks or bonds included. Some stock index futures contracts are
based on broad market indices, such as the Standard & Poor's 500 or the New York
Stock Exchange Composite Index. In contract, certain exchanges offer futures
contracts on narrower market indices, such as the Standard & Poor's 100, the
Bond Buyer Municipal Bond Index, an index composed of 40 term revenue and
general obligation bonds, or indices based on an industry or market segment,
such as oil and gas stocks. Futures contracts are traded on organized exchanges
regulated by the Commodity Futures Trading Commission. Transactions on such
exchanges are cleared through a clearing corporation, which guarantees the
performance of the parties to each contract.
A Fund will sell index futures contracts in order to offset a decrease
in market value of its portfolio securities that might otherwise result from a
market decline. The Fund may do so either to hedge the value of its portfolio as
a whole, or to protect against declines, occurring prior to sales of securities,
in the value of the securities to be sold. Conversely, a Fund will purchase
index futures contracts in anticipation of purchases of securities. In a
substantial majority of these transactions, the Fund will purchase such
securities upon termination of the long futures position, but a long futures
position may be terminated without a corresponding purchase of securities.
In addition, a Fund may utilize index futures contracts in anticipation
of changes in the composition of its portfolio holdings. For example, in the
event that a Fund expects to narrow the range of industry groups represented in
its holdings it may, prior to making purchases of the actual securities,
establish a long futures position based on a more restricted index, such as an
index comprised of securities of a particular industry group. A Fund also may
sell futures contracts in connection with this strategy, in order to protect
against the possibility that the value of the securities to be sold as part of
the restructuring of the portfolio will decline prior to the time of sale.
The following are examples of transactions in stock index futures (net
of commissions and premiums, if any).
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ANTICIPATORY PURCHASE HEDGE: Buy the Future
Hedge Objective: Protect Against Increasing Price
Portfolio Futures
-Day Hedge is Placed
Anticipate Buying $62,500 Buying 1 Index Futures at 125
Equity Portfolio Value of Futures = $62,500/
Contract
-Day Hedge is Lifted-
Buy Equity Portfolio with Sell 1 Index Futures at 130
Actual Cost = $65,000 Value of Futures = $65,000/
Increase in Purchase Contract
Price = $2,500 Gain on Futures = $2,500
HEDGING A STOCK PORTFOLIO: Sell the Future Hedge
Objective: Protect Against Declining (Value of the Portfolio)
Factors
Value of Stock Portfolio = $1,000,000
Value of Futures Contract = 125 x $500 = $62,500
Portfolio Beta Relative to the Index - 1 0
Portfolio Futures
-Day Hedge is Placed
Anticipate Selling $1,000,000 Sell 16 Index Futures at 125
Equity Portfolio Value of Futures = $1,000,000
-Day Hedge is Lifted-
Equity Portfolio-Own Buy 16 Index Futures at 120
Stock with Value = $960,000 Value of Futures = $960,000
Loss in Portfolio Gain on Futures = $40,000
Value = $40 000
IF, HOWEVER, THE MARKET MOVED IN THE OPPOSITE DIRECTION, THAT IS, MARKET
VALUE DECREASED AND THE FUND HAD ENTERED INTO AN ANTICIPATORY PURCHASE HEDGE, OR
MARKET VALUE INCREASED AND THE FUND HAD HEDGED ITS STOCK PORTFOLIO, THE RESULTS
OF THE FUND'S TRANSACTIONS IN STOCK INDEX FUTURES WOULD BE AS SET FORTH BELOW.
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ANTICIPATORY PURCHASE HEDGE: Buy the Future
Hedge Objective: Protect Against Increasing Price
Portfolio Futures
-Day Hedge is Placed
Anticipate Buying $62,500 Buying 1 Index Futures at 125
Equity Portfolio Value of Futures = $62,500/
Contract
-Day Hedge is Lifted-
Buy Equity Portfolio with Sell 1 Index Futures at 120
Actual Cost = $60,000 Value of Futures = $60,000/Contract
Decrease in Purchase Loss on Futures = $2,500
Price = $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
Value = $40 000
III. Margin Payments
Unlike when a Fund purchases or sells a security, no price is paid or
received by the Fund upon the purchase or sale of a futures contract. Initially,
the Fund will be required to deposit with the broker or in a segregated account
with the Fund's Custodian an amount of cash or cash equivalents, the value, of
which may vary but is generally equal to 10% or less of the value of the
contract. This amount is known as initial margin. The nature of initial margin
in futures transactions is different from that of margin in security
transactions in that futures contract margin does not involve the borrowing of
funds by the customer to finance the transactions. Rather, the initial margin is
in the nature of a performance bond or good faith deposit on the contract which
is returned to the Fund upon termination of the futures contract assuming all
contractual obligations have been satisfied. Subsequent
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payments, called variation margin, to and from the broker, will be made on a
daily basis as the price of the underlying security or index fluctuates making
the long and short positions in the futures contract more or less valuable, a
process known as marking to the market. For example, when a Fund has purchased a
futures contract and the price of the contract has risen in response to a rise
in the underlying instruments, that position will have increased in value and
the Fund will be entitled to receive from the broker a variation margin payment
equal to that increase in value. Conversely, where a Fund has purchased a
futures contract and the price of the futures contract has declined in response
to a decrease in the underlying instruments, the position would be less
valuable, the Fund would be required to make a variation margin payment to the
broker. At any time prior to expiration of the futures contract, the Adviser may
elect to close the position by taking an opposite position, subject to the
availability of a secondary market, which will operate to terminate the Fund's
position in the futures contract. A final determination of variation margin is
then made, additional cash is required to be paid by or released to the Fund,
and the Fund realizes a loss or gain.
IV. Risks of Transactions in Futures Contracts
There are several risks in connection with the use of futures by a Fund
as a hedging device. One risk arises because of the imperfect correlation
between movements in the price of the future and movements in the price of the
securities which are the subject of the hedge. The price of the future may move
more than or less than the price of the securities being hedged. If the price of
the future moves less than the price of the securities which are the subject of
the hedge, the hedge will not be fully effective but, if the price of securities
being hedged has moved in an unfavorable direction, the Fund would be in a
better position than if it had not hedged at Al. If the price of the securities
being hedged has moved in a favorable direction, this advance will be partially
offset by the loss on the future. If the price of the future moves more than the
price of the hedged securities, the Fund involved will experience either a loss
or gain on the future which will not be completely offset by movements in the
price of the securities which are the subject of the hedge.
To compensate for the imperfect correlation of movements in the price of
securities being hedged and movements in the price of futures contracts, a Fund
may buy or sell futures contracts in a greater dollar amount than the dollar
amount of securities being hedged if the volatility over a particular time
period of the prices of such securities has been greater than the volatility
over such time period of the future, or if otherwise deemed to be appropriate by
the Adviser. Conversely, a Fund may buy or sell fewer futures contracts if the
volatility over a particular time period of the prices of the securities being
hedged is less than the volatility over such time period of the futures contract
being used, or if otherwise deemed to be appropriate by the Adviser. It also is
possible that, where a Fund has sold futures to hedge its portfolio against a
decline in the market, the market may advance, and the value of securities held
by the Fund may decline. If this occurred, the Fund would lose money on the
future and also experience a decline in value in its portfolio securities.
Where futures are purchased to hedge against a possible increase in the
price of securities before a Fund is able to invest its cash (or cash
equivalents) in securities (or options) in an orderly fashion, it is possible
that the market may decline instead; if the Fund then concludes not to invest in
securities or options at that time because of concern as to possible further
market decline or for other reasons, the Fund will realize a loss on the futures
contract that is not offset by a reduction in the price of securities purchased.
In instances involving the purchase of futures contracts by a Fund, an
amount of cash and cash equivalents, equal to the market value of the futures
contracts, will be deposited in a segregated account with the Fund's Custodian
and/or in a margin account with a broker to collateralize the position and
thereby insure that the use of such futures is unleveraged.
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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 Funds
intend to purchase or sell futures only on exchanges or boards of trade where
there appear to be active secondary markets, there is no assurance that a liquid
secondary market on any exchange or board of trade will exist for any particular
contract or at any particular time. In such event, it may not be possible to
close a futures investment position, and in the event of adverse price
movements, a Fund would continue to be required to make daily cash payments of
variation margin. However, in the event futures contracts have been used to
hedge portfolio securities, such securities will not be sold until the futures
contract can be terminated. In such circumstances, an increase in the price of
the securities, if any, may partially or completely offset losses on the futures
contract. However, as described above, there is no guarantee that the price of
the securities will in fact correlate with the price movements in the futures
contract and thus provide an offset on a futures contract.
Further, it should be noted that the liquidity of a secondary market in
a futures contract may be adversely affected by "daily price fluctuation limits"
established by commodity exchanges which limit the amount of fluctuation in a
futures contract price during a single trading day. Once the daily limit has
been reached in the contract, no trades may be entered into at a price beyond
the limit, thus preventing the liquidation of open futures positions.
Successful use of futures by a Fund also is subject to the Adviser's
ability to predict correctly movements in the direction of the market. For
example, if a Fund has hedged against the possibility of a decline in the market
adversely affecting securities held in its portfolio and securities prices
increase instead, the Fund will lose part or all of the benefit to the increased
value of its securities which it has hedged because it will have offsetting
losses in its futures positions. In addition, in such situations, if the Fund
has insufficient cash, it may have to sell securities to meet daily variation
margin requirements. Such sales of securities may be, but will not necessarily
be, at increased prices which reflect the rising market. A Fund may have to sell
securities at a time when it may be disadvantageous to do so.
V. Options on Futures Contracts.
The Funds may purchase options on the futures contracts described above.
A futures option gives the holder, in return for the premium paid, the right to
buy (call) from or sell (put) to the writer of the option a futures contract at
a specified price at any time during the period of the option. Upon exercise,
the writer of the option is obligated to pay the difference between the cash
value of the futures contract and the exercise price. Like the buyer or seller
of a futures contract, the holder, or writer, of an option has the right to
terminate its position prior to the scheduled expiration of the option by
selling, or purchasing, an option of the same series, at which time the person
entering into the closing transaction will realize a gain or loss.
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Investments in futures options involve some of the same considerations
that are involved in connection with investments in futures contracts (for
example, the existence of a liquid secondary market). In addition, the purchase
of an option also entails the risk that changes in the value of the underlying
futures contract will not be fully reflected in the value of the option
purchased. Depending on the pricing of the option compared to either the futures
contract upon which it is based, or upon the price of the securities being
hedged, an option may or may not be less risky than ownership of the futures
contract or such securities. In general, the market prices of options can be
expected to be more volatile than the market prices on the underlying futures
contract. Compared to the purchase or sale of futures contracts, however, the
purchase of call or put options on futures contracts may frequently involve less
potential risk to a Fund because the maximum amount at risk is the premium paid
for the options (plus transaction costs). Although permitted by their
fundamental investment policies, the Funds do not currently intend to write
future options, and will not do so in the future absent any necessary regulatory
approvals.
Accounting Treatment.
Accounting for futures contracts and options will be in accordance with
generally accepted accounting principles.
GUARANTEED INVESTMENT CONTRACTS
Guaranteed investment contracts, investment contracts or funding
agreements (each referred to as a "GIC") are investment instruments issued by
highly rated insurance companies. Pursuant to such contracts, a Fund may make
cash contributions to a deposit fund of the insurance company's general or
separate accounts. The insurance company then credits to a Fund guaranteed
interest. The insurance company may assess periodic charges against a GIC for
expense and service costs allocable to it, and the charges will be deducted from
the value of the deposit fund. The purchase price paid for a GIC generally
becomes part of the general assets of the issuer, and the contract is paid from
the general assets of the issuer.
A Fund will only purchase GICs from issuers which, at the time of
purchase, meet quality and credit standards established by the Adviser.
Generally, GICs are not assignable or transferable without the permission of the
issuing insurance companies, and an active secondary market in GICs does not
currently exist. Also, a Fund may not receive the principal amount of a GIC from
the insurance company on seven days' notice or less, at which point the GIC may
be considered to be an illiquid investment.
A Money Market Fund will acquire GlCs so that they, together with other
instruments in such Fund's portfolio which are not readily marketable, will not
exceed applicable limitations on such Fund's investments in illiquid securities.
A Money Market Fund will restrict its investments in GlCs to those having a term
of 397 days or less. In determining average weighted portfolio maturity, a GIC
will be deemed to have a maturity equal to the period of time remaining under
the next readjustment of the guaranteed interest rate.
INSURED MUNICIPAL SECURITIES
Certain of the Municipal Securities held by the Funds may be insured at
the time of issuance as to the timely payment of principal and interest. The
insurance policies will usually be obtained by the issuer of the Municipal
Securities at the time of its original issuance. In the event that the issuer
defaults with respect to interest or principal payments, the insurer will be
notified and will be required to make payment to the bondholders. There is,
however, no guarantee that the insurer will meet its obligations. In addition,
such insurance will not protect against market fluctuations caused by changes in
interest rates and other factors.
INTEREST RATE TRANSACTIONS
Among the strategic transactions into which certain Funds may enter are
interest rate swaps and the purchase or sale of related caps and floors. The
Funds expect to enter into these transactions primarily to preserve a return or
spread on a particular investment or portion of its portfolio, to protect
against currency fluctuations, as a duration management technique or to protect
against any increase in the price of securities the Fund anticipates purchasing
at a later date. A Fund intends to use these transactions as hedges and not as
speculative investments and will not sell interest rate caps or floors where it
does not own securities or other instruments providing the income stream the
Fund may be obligated to pay. Interest rate swaps involve the exchange by a Fund
with another party of their respective commitments to pay or receive interest,
e.g. an exchange of floating rate payments for fixed rate payments with respect
to a notional amount of principal. A currency swap is an agreement to exchange
cash flows on a notional amount of two or more currencies based on the relative
value differential among them and an index swap is an agreement to swap cash
flows on a notional amount based on changes in the values of the reference
indices. The purchase of a cap entitles the purchaser to receive payments on a
notional principal amount from the party selling such floor to the extent that a
specified index falls below a predetermined interest rate or amount.
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A Fund will usually enter into swaps on a net basis, i.e., the two
payment streams are netted out in a cash settlement on the payment date or dates
specified in the instrument, with the Fund receiving or paying, as the case may
be, only the net amount of the two payments. In as much as these swaps, caps and
floors are entered into for good faith hedging purposes, the Adviser and the
Fund believe such obligations do not constitute senior securities under the 1940
Act and, accordingly, will not treat them as being subject to its borrowing
restrictions. A Fund will not enter into any swap, cap and floor transaction
unless, at the time of entering into such transaction, the unsecured long-term
debt of the counterparty, combined with any credit enhancements, is rated at
least "A" by Standard & Poor's Corporation or Moody's Investors Service, Inc. or
has an equivalent rating from a Nationally Recognized Statistical Rating
Organization ("NRSRO") or is determined to be of equivalent credit quality by
the Adviser. If there is a default by the counterparty, the Fund may have
contractual remedies pursuant to the agreements related to the transaction. The
swap market has grown substantially in recent years with a large number of banks
and investment banking firms acting both as principals and as agents utilizing
standardized swap documentation. As a result, the swap market has become
relatively liquid. Caps and floors are more recent innovations for which
standardized documentation has not yet been fully developed and, accordingly,
they are less liquid than swaps.
With respect to swaps, a Fund will accrue the net amount of the excess,
if any, of its obligations over its entitlements with respect to each swap on a
daily basis and will segregate an amount of cash or liquid high grade securities
having a value equal to the accrued excess. Caps and floors require segregation
of assets with a value equal to the Fund's net obligation, if any.
LOWER RATED DEBT SECURITIES
The yields on lower rated debt and comparable unrated fixed-income
securities generally are higher than the yields available on higher-rated
securities. However, investments in lower rated debt and comparable unrated
securities generally involve greater volatility of price and risk of loss of
income and principal, including the probability of default by or bankruptcy of
the issuers of such securities. Lower rated debt and comparable unrated
securities (a) will likely have some quality and protective characteristics
that, in the judgment of the rating organization, are outweighed by large
uncertainties or major risk exposures to adverse conditions and (b) are
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal in accordance with the terms of the obligation. Accordingly,
it is possible that these types of factors could, in certain instances, reduce
the value of securities held in a Fund's portfolio, with a commensurate effect
on the value of the Fund's shares. Therefore, an investment in the Fund should
not be considered as a complete investment program and may not be appropriate
for all investors.
The market prices of lower rated securities may fluctuate more than
higher rated securities and may decline significantly in periods of general
economic difficulty which may follow periods of rising interest rates. During an
economic downturn or a prolonged period of rising interest rates, the ability of
issuers of lower quality debt to service their payment obligations, meet
projected goals, or obtain additional financing may be impaired.
Since the risk of default is higher for lower rated securities, the
Adviser will try to minimize the risks inherent in investing in lower rated debt
securities by engaging in credit analysis, diversification, and attention to
current developments and trends affecting interest rates and economic
conditions. The Adviser will attempt to identify those issuers of high-yielding
securities whose financial condition is adequate to meet future obligations,
have improved, or are expected to improve in the future.
Unrated securities are not necessarily of lower quality than rated
securities, but they may not be attractive to as may buyers. Each Fund's
policies regarding lower rated debt securities is not fundamental and may be
changed at any time without shareholder approval.
While the market values of lower rated debt and comparable unrated
securities tend to react less to fluctuations in interest rate levels than the
market values of higher-rated securities, the market values of certain lower
rated debt and comparable unrated securities also tend to be more sensitive to
individual corporate developments and changes in economic conditions than
higher-rated securities. In addition, lower rated debt securities and comparable
unrated securities generally present a higher degree of credit risk. Issuers of
lower rated debt and comparable unrated securities often are highly leveraged
and may not have more traditional methods of financing available to them so that
their ability to service their debt obligations during an economic downturn or
during sustained periods of rising interest rates may be impaired. The risk of
loss due to default by such issuers is significantly greater because lower rated
debt and comparable unrated securities generally are unsecured and frequently
are subordinated to the prior payment of senior indebtedness. A Fund may incur
additional expenses to the extent that it is required to seek recovery upon a
default in the payment of principal or interest on its portfolio holdings. The
existence of limited markets for lower rated debt and comparable unrated
securities may diminish a Fund's ability to (a) obtain accurate market
quotations for purposes of valuing such securities and calculating its net asset
value and (b) sell the securities at fair value either to meet redemption
requests or to respond to changes in the economy or in financial markets.
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Fixed-income securities, including lower rated debt securities and
comparable unrated securities, frequently have call or buy-back features that
permit their issuers to call or repurchase the securities from their holders,
such as a Fund. If an issuer exercises these rights during periods of declining
interest rates, a Fund may have to replace the security with a lower yielding
security, thus resulting in a decreased return to a Fund.
The market for certain lower rated debt and comparable unrated
securities is relatively new and has not weathered a major economic recession.
The effect that such a recession might have on such securities is not known. Any
such recession, however, could disrupt severely the market for such securities
and adversely affect the value of such securities. Any such economic downturn
also could adversely affect the ability of the issuers of such securities to
repay principal and pay interest thereon.
MUNICIPAL SECURITIES
GENERALLY. The two principal classifications of municipal securities are
"general obligation" securities and "revenue" securities. General obligation
securities are secured by the issuer's pledge of its full faith, credit, and
taxing power for the payment of principal and interest. Revenue securities are
payable only from the revenues derived from a particular facility or class of
facilities or, in some cases, from the proceeds of a special excise tax or other
specific revenue source such as the user of the facility being financed. Private
activity bonds held by a Fund are in most cases revenue securities and are not
payable from the unrestricted revenues of the issuer. Consequently, the credit
quality of private activity bonds is usually directly related to the credit
standing of the corporate user of the facility involved.
Municipal securities may include "moral obligation" bonds, which are
normally issued by special purpose public authorities. If the issuer of moral
obligation bonds is unable to meet its debt service obligations from current
revenues, it may draw on a reserve fund, the restoration of which is a moral
commitment but not a legal obligation of the state or municipality which created
the issuer.
Municipal securities may include variable- or floating- rate instruments
issued by industrial development authorities and other governmental entities.
While there may not be an active secondary market with respect to a particular
instrument purchased by a Fund, a Fund may demand payment of the principal and
accrued interest on the instrument or may resell it to a third party as
specified in the instruments. The absence of an active secondary market,
however, could make it difficult for a Fund to dispose of the instrument if the
issuer defaulted on its payment obligation or during periods the Fund is not
entitled to exercise its demand rights, and the Fund could, for these or other
reasons, suffer a loss.
Some of these instruments may be unrated, but unrated instruments
purchased by a Fund will be determined by the Adviser to be of comparable
quality at the time of purchase to instruments rated "high quality" by any major
rating service. Where necessary to ensure that an instrument is of comparable
"high quality," a Fund will require that an issuer's obligation to pay the
principal of the note may be backed by an unconditional bank letter or line of
credit, guarantee, or commitment to lend.
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Municipal securities may include participations in privately arranged
loans to municipal borrowers, some of which may be referred to as "municipal
leases." Generally such loans are unrated, in which case they will be determined
by the Adviser to be of comparable quality at the time of purchase to rated
instruments that may be acquired by a Fund. Frequently, privately arranged loans
have variable interest rates and may be backed by a bank letter of credit. In
other cases, they may be unsecured or may be secured by assets not easily
liquidated. Moreover, such loans in most cases are not backed by the taxing
authority of the issuers and may have limited marketability or may be marketable
only by virtue of a provision requiring repayment following demand by the
lender. Such loans made by a Fund may have a demand provision permitting the
Fund to require payment within seven days. Participations in such loans,
however, may not have such a demand provision and may not be otherwise
marketable.
Although lease obligations do not constitute general obligations of the
municipality for which the municipality's taxing power is pledged, a lease
obligation is ordinarily backed by the municipality's covenant to budget for,
appropriate, and make the payments due under the lease obligation. However,
certain lease obligations contain "non-appropriation" clauses which provide that
the municipality has no obligation to make lease or installment purchase
payments in future years unless money is appropriated for such purpose on a
yearly basis. In addition to the "non-appropriation" risk, these securities
represent a relatively new type of financing that has not yet developed the
depth of marketability associated with more conventional bonds. In the case of a
"non-appropriation" lease, the Funds' ability to recover under the lease in the
event of non-appropriation or default will be limited solely to the repossession
of the leased property in the event foreclosure might prove difficult.
The Funds will not invest more than 5% of their total investment assets
in lease obligations that contain "non-appropriation" clauses where (1) the
nature of the leased equipment or property is such that its ownership or use is
essential to a governmental function of the municipality, (2) the lease payments
will commence amortization of principal at an early date resulting in an average
life of seven years or less for the lease obligation, (3) appropriate covenants
will be obtained from the municipal obligor prohibiting the substitution or
purchase of similar equipment if lease payments are not appropriated, (4) the
lease obligor has maintained good market acceptability in the past, (5) the
investment is of a size that will be attractive to institutional investors, and
(6) the underlying leased equipment has elements of probability and/or use that
enhance its marketability in the event foreclosure on the underlying equipment
were ever required. The Funds have not imposed any percentage limitations with
respect to their investment in lease obligations not subject to the
"non-appropriation" risk. To the extent municipal leases are illiquid, they will
be subject to each Fund's limitation on investments in illiquid securities.
Recovery of an investment in any such loan that is illiquid and payable on
demand may depend on the ability of the municipal borrower to meet an obligation
for full repayment of principal and payment of accrued interest within the
demand period, normally seven days or less (unless a Fund determines that a
particular loan issue, unlike most such loans, has a readily available market).
As it deems appropriate, the Adviser will establish procedures to monitor the
credit standing of each such municipal borrower, including its ability to meet
contractual payment obligations.
In evaluating the credit quality of a municipal lease obligation and
determining whether such lease obligation will be considered "liquid," the
Adviser for each Fund will consider: (1) whether the lease can be canceled; (2)
what assurance there is that the assets represented by the lease can be sold;
(3) the strength of the lessee's general credit (e.g., its debt, administrative,
economic, and financial characteristics); (4) the likelihood that the
municipality will discontinue appropriating funding for the leased property
because the property is no longer deemed essential to the operations of the
municipality (e.g., the potential for an "event of non-appropriation"); and (5)
the legal recourse in the event of failure to appropriate.
Municipal securities may include units of participation in trusts
holding pools of tax-exempt leases. Municipal participation interests may be
purchased from financial institutions, and give the purchaser an undivided
interest in one or more underlying municipal security. To the extent that
municipal participation interests are considered to be "illiquid securities,"
such instruments are subject to each Fund's limitation on the purchase of
illiquid securities. Municipal leases and participating interests therein, which
may take the form of a lease or an installment sales contract, are issued by
state and local governments and authorities to acquire a wide variety of
equipment and facilities. Interest payments on qualifying leases are exempt from
Federal income taxes.
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In addition, certain of the Funds may acquire "stand-by commitments"
from banks or broker/dealers with respect to municipal securities held in their
portfolios. Under a stand-by commitment, a dealer would agree to purchase at a
Fund's option specified Municipal Securities at a specified price. The Funds
will acquire stand-by commitments solely to facilitate portfolio liquidity and
do not intend to exercise their rights thereunder for trading purposes.
Although the Funds do not presently intend to do so on a regular basis,
each may invest more than 25% of its total assets in municipal securities the
interest on which is paid solely from revenues of similar projects if such
investment is deemed necessary or appropriate by the Adviser. To the extent that
more than 25% of a Fund's total assets are invested in Municipal Securities that
are payable from the revenues of similar projects, a Fund will be subject to the
peculiar risks presented by such projects to a greater extent than it would be
if its assets were not so concentrated.
There are, of course, variations in the quality of Municipal Securities,
both within a particular classification and between classifications, and the
yields on Municipal Securities depend upon a variety of factors, including
general money market conditions, the financial condition of the issuer, general
conditions of the municipal bond market, the size of a particular offering, the
maturity of the obligation, and the rating of the issue. The ratings of
nationally recognized statistical rating organizations represent their opinions
as to the quality of Municipal Securities. It should be emphasized, however,
that these ratings are general and are not absolute standards of quality, and
Municipal Securities with the same maturity, interest rate, and rating may have
different yields while Municipal Securities of the same maturity and interest
rate with different ratings may have the same yield. Subsequent to its purchase
by a Fund, an issue of Municipal Securities may cease to be rated, or its rating
may be reduced below the minimum rating required for purchase by that Fund. The
Adviser will consider such an event in determining whether a Fund should
continue to hold the obligation.
Opinions relating to the validity of Municipal Securities and to the
exemption of interest thereon from regular Federal income tax or state income
tax are rendered by counsel to the issuer or bond counsel at the time of
issuance. Neither the Funds nor the Adviser will review the proceedings relating
to the issuance of Municipal Securities or the bases for opinions relating to
the validity of such issuance.
The payment of principal and interest on most securities purchased by a
Fund will depend upon the ability of the issuers to meet their obligations. Each
state, each of their political subdivisions, municipalities, and public
authorities, as well as the District of Columbia, Puerto Rico, Guam, and the
Virgin Islands are a separate "issuer" as that term is used in the Prospectuses
and this SAI. The non-governmental user of facilities financed by private
activity bonds is also considered to be an "issuer." An issuer's obligations
under its Municipal Securities are subject to the provisions of bankruptcy,
insolvency, and other laws affecting the rights and remedies of creditors, such
as the Federal Bankruptcy Code, and laws, if any, which may be enacted by
Federal or state legislatures extending the time for payment of principal or
interest, or both, or imposing other constraints upon enforcement of such
obligations or upon the ability of municipalities to levy taxes. The power or
ability of an issuer to meet its obligations for the payment of interest on and
principal of its Municipal Securities may be materially adversely affected by
litigation or other conditions.
Although the Municipal Income Fund and the State Municipal Bond Funds
invest primarily in Municipal Securities with long-term maturities, the
Intermediate Municipal Bond Fund and the State Intermediate Municipal Bond Funds
invest primarily in Municipal Securities with intermediate-term maturities, they
may also purchase short-term General Obligation Notes, Tax Anticipation Notes,
Bond Anticipation Notes, Revenue Anticipation Notes, Tax-Exempt Commercial
Paper, Construction Loan Notes, and other forms of short-term loans. Such
instruments are issued with a short-term maturity in anticipation of the receipt
of tax funds, the proceeds of bond placements, or other revenues. The State
Intermediate Municipal Bond Funds may also invest in long-term tax-exempt
instruments.
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Certain types of Municipal Securities (private activity bonds) have been
or are issued to obtain funds to provide, among other things, privately operated
housing facilities, pollution control facilities, convention or trade show
facilities, mass transit, airport, port or parking facilities, and certain local
facilities for water supply, gas, electricity, or sewage or solid waste
disposal. Private activity bonds are also issued for privately held or publicly
owned corporations in the financing of commercial or industrial facilities. Most
governments are authorized to issue private activity bonds for such purposes in
order to encourage corporations to locate within their communities. The
principal and interest on these obligations may be payable from the general
revenues of the users of such facilities.
From time to time, proposals have been introduced before Congress for
the purpose of restricting or eliminating the Federal income tax exemption for
interest on Municipal Securities. Moreover, with respect to Municipal Securities
issued by Florida, Georgia, Maryland, North Carolina, South Carolina, Tennessee,
Texas, or Virginia issuers, NFT cannot predict which legislation, if any, may be
proposed in the state legislatures or which proposals, if any, might be enacted.
Such proposals, while pending or if enacted, might materially and adversely
affect the availability of Municipal Securities generally, or Florida, Georgia,
Maryland, North Carolina, South Carolina, Tennessee, Texas, or Virginia
Municipal Securities specifically, for investment by one of these Funds and the
liquidity and value of such portfolios. In such an event, a Fund impacted would
re-evaluate its investment objective and policies and consider possible changes
in its structure or possible dissolution.
The following information relating to the State Intermediate Municipal
Bond Funds and the State Municipal Bond Funds supplements information relevant
to each of those Funds in the related Prospectuses.
FLORIDA. Florida is the fourth most populous state with an estimated
1997 population of 14,700,000. By the year 2000, population will likely exceed
15.5 million. Population growth has historically been driven by retirement
migration with local economies weighted heavily in tourism and agriculture. Over
the past twenty years, retirement, agriculture and tourism have been
complemented by high technology jobs, service sector jobs and international
trade. In the meantime, the three traditional industries have taken on a global
character. Trade and tourism have become international and this has fueled
foreign retirement migration. The character and dynamism of Florida has changed
considerably in recent decades and the state is considered a bellwether
indicator for the health of national economic trends.
The health of the national economy plays an important role in Florida's
fiscal soundness and economic development. Today, as this country enters its
eighth year of economic expansion, population growth in Florida exceeds 250,000
per year.
The emergence of Florida as one of the most populous states in the
United States has placed significant pressure on state and local government to
provide infrastructure and municipal and urban services. During the 1980's
growth was so rapid that a significant backlog of need emerged which, today, is
still being filled. Across the state, construction of new highway systems,
airport expansions, local school and university systems, hospitals and jails are
being put in place. Much of this growth is being funded by bonded revenues
secured by the expanding real property tax base. As of 1997, real property
values exceed $724 billion. Residential property values account for over $400
billion in value. Despite the rapid population growth and resulting increases in
improved residential properties, commercial and industrial valuations have also
grown consistently. Today these values still account for 17 percent of Florida
property values as they did a decade ago. There is now over $100 billion in real
property value in commercial and industrial properties in Florida.
One reason commercial and industrial values have increased is the
strategic nature of the industries that have located and grown in the state. The
Florida industrial base is concentrated in high technology industries such as
electronics, medical equipment, laser optics, computer simulation and space
travel. As a result, while defense contract spending has declined nationally by
over 20 percent from 1985-1994, Florida's value of defense contracts has
increased 12 percent to nearly $6 billion over the same period.
With increasing demands for services and comparatively low taxes,
Florida has experienced a rapid growth in the volume of bond debt. Because of
rapid population growth however, per capita State debt remains well below the
national average. In 1996, the outstanding state debt, among all states, was
$1,690 per capita compared with $1,077 in Florida.
The Growth Management Act of 1985 and the concurrency rule has affected
Florida's economic growth and development in some regions of the state and could
continue to impact the economy in the future. In addition, the location of new
development will be more carefully scrutinized with respect to environmental
sensitivity and natural resource limitations. Growth management legislation will
affect all areas of the state with varying degrees of impact depending on the
specific local conditions such as, existing infrastructure capacity, local
environmental constraints, and limitations on natural resources such as potable
water and habitat preservation. Having now experienced ten years subject to
growth management rules, it appears that The Growth Management Act of 1985 has,
on balance, been beneficial. Growth management has helped improve quality of
life, ease infrastructure shortfalls and focused the State agenda on preserving
quality of life through growth management regulation and other state funded
environmental land preservation programs.
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At the regional level, local economies within Florida perform
differently according to their urban or rural qualities and level of economic
diversification. The spectrum of local economies spans dense urban centers such
as Miami and Tampa to rural agricultural regions of citrus, cattle ranching and
sugar cane production.
Southeast Florida includes Miami, Fort Lauderdale, West Palm Beach and
the Florida Keys. This area is highly urban and economically diverse. Tourism,
retirement, high technology computer manufacturing, medical industries,
international trade, winter vegetable crops and sugar cane production are the
prominent features of this regional economy. The area accounts for just under
one-third of the state's population. Hurricane Andrew struck South Dade County
in fall, 1992. Some 80,000 homes were destroyed along with local businesses.
Since the hurricane, approximately 80 to 90 percent of the homes have been
restored. The restoration and rebuilding process is now essentially complete.
Over the long term, the effects of the hurricane may speed the suburbanization
of South Florida. Other factors helping to diminish agriculture locally include
environmental preservation efforts in sugarcane lands, and the effect of foreign
competition due to NAFTA on local winter fruit and vegetable growers. In 1996,
Florida led the nation in housing starts. The demand for new single and
multi-family homes should remain robust. Across the State, new construction and
renovations to existing structures is fueling the construction industry. Naples,
in southwest Florida, led the nation in the highest per capita number of
building permits. Ongoing redevelopment in downtown Jacksonville and the new
construction of public schools in the Orlando area, for instance, are worthy
examples of infrastructure meeting the demands of increasing population.
In Broward and Palm Beach Counties, in particular, growth management's
concurrency requirements have played a significant role in limiting economic
expansion as compared with other regions of the state because of the lack of
infrastructure capacity. Community consensus based long range planning efforts
recently have been undertaken in northern Palm Beach County. These efforts are a
recognition of the pause in growth that has occurred and over time will help the
area accommodate new development. More recently improved infrastructure and
access in Southwest Broward has fueled development there.
Southwest Florida has emerged as a strong growth market. Traditionally
very retirement oriented, the region's economy has begun to diversify through
increased employment opportunities and migration southward of citrus production.
Increased employment opportunity has occurred due to the overall size of the
market and improvements in infrastructure capacity. The improvement in
transportation access also has helped tourism and as a result indirectly buoyed
population growth rates by providing exposure and increased awareness of the
region as a retirement destination among visitors. The State of Florida has
begun building its tenth public university in Lee County, near the Fort Myers
airport. The university will accommodate 10,000 students within a decade and
provide opportunities for synergy between industry and education.
Central Florida is a premier world-class resort/vacation destination.
The presence of Disney World, studio theme parks and other tourist oriented
recreational parks drives the Central Florida economy. While the total size of
the market has grown rapidly, the economy is dependent on tourism and population
growth. Locally, the tourism industry has been more stable and seen better
growth over the past three decades than either the manufacturing or services
section. Two additional local industry concentrations, the laser/optical
research node and motion picture industries are helping to diversify the local
economy. Universal Studios has began to expand its motion picture and theme park
facilities. Disney World has also financed and begun construction of its fourth
theme park covering 500 acres and adjacent residential and commercial
developments. Strong growth in tourism and large land areas available for
expansion suggest this region will lead the state in population growth through
the end of the century. International tourism has fueled the growth of an
international retirement and second home market throughout Florida. Today, in
the tourist areas of the market, one fifth of new homes built are sold to
foreign retirees or vacation home owners. Places of origin include England,
Germany, South America, and Puerto Rico. International retirement markets are
also growing in Southwest and Southeast Florida. There were over 37 million
visitors to the Orlando market in 1977.
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North Florida is rural in many areas. Jacksonville is the major city in
North Florida. The local economy is dominated by the logging and paper
industries, defense and retirement. The insurance industry also has a strong
presence in Jacksonville. Growth in North Florida peaked in the mid-1980s,
coinciding with the military defense buildup, prior to the full implementation
of growth management legislation. As urbanization and living costs increase in
the south and central parts of the state, population growth from national
retirement migration sources are increasing.
The Florida Panhandle is quite rural with reliance on tourism, defense
and state government for employment opportunities. This areas of the state has
the lowest per capita incomes and the smallest volume of population growth. With
the uncertainty of state budget funding in recent years and continuing defense
cutbacks, strong growth in this region of the state is not expected. Coastal
counties, however, remain attractive to continued economic development and
retirement migration because of the pristine beaches along the Gulf of Mexico.
In general, pursuant to the Florida Constitution and certain statutory
provisions, there are two basic types of obligations that may be issued in the
State of Florida: general obligation bonds and revenue bonds.
General obligation bonds are also known as full faith and credit bonds
because their repayment is based on the general credit and taxing power of the
borrowing government. The ad valorem tax is the most common source of revenue
pledged for the repayment of general obligation bonds. Being tax-supported,
general obligation bonds are typically used to finance the capital portion of
tax supported general purpose governmental projects, with public buildings,
roads, criminal justice facilities, and schools being the most common. Only
units of local government with taxing power can levy and collect ad valorem
taxes. The State of Florida has no ad valorem taxing power. General obligation
bonds payable from ad valorem taxes and maturing more than twelve months (other
than certain refunding bonds) after issuance may be issued to finance capital
projects authorized by law and only if the issuance of such bonds is approved by
the qualified electors.
Revenue bonds are obligations of a unit of government payable solely
from the revenues of a particular enterprise, such as a water and sewer system,
or from the revenues derived from a particular facility or user, or from non-ad
valorem revenues, such as the sales tax, or from other special funds authorized
to be pledged as additional security. Revenue bonds may also be payable from
non-specific revenues budgeted each year by the issuer. Unlike general
obligation bonds, revenue bonds do not constitute a debt of the issuing unit or
a pledge of its faith and credit, and they are not backed by the issuer's taxing
power.
A test was developed by the Florida Supreme Court for analyzing the
constitutional ability of an issuer to issue revenue bonds where a significant
portion of the proceeds would be used for private or non-governmental benefit.
Generally, these types of securities are referred to as industrial revenue bonds
or private activity bonds. Unless a particular use for the proceeds of a private
activity bond has been constitutionally or legislatively sanctioned (such as
multifamily and single family housing revenue bonds) or tested in the courts, a
determination must be made that the project to be financed with the proceeds of
the private activity bond will serve a paramount public purpose. The paramount
public purpose doctrine is designed to protect public funds from being exploited
in assisting or promoting private ventures when the public would be, at the
most, only incidentally benefited. Generally, an issuer may pledge something
less than all of its available non-ad valorem revenues without voter approval,
subject to the parameters established by the Florida Supreme Court.
The Florida courts have validated debt obligations commonly referred to
as certificates of participation or "COPS." In a typical COPS transaction, the
issuer leases either real or personal property from a special purpose
corporation. The special purpose corporation assigns its rights to the lease
payments to a corporate trustee who in turn issues certificates evidencing an
undivided proportionate interest of the owners of such certificates to receive
the lease payments. The lease payments made by the issuer may be derived from
both ad valorem and non-ad valorem revenues of the issuer. Although ad valorem
taxes can be used to make the lease payments, the Florida Supreme Court has held
that a referendum is not required because the obligation to make lease payments
is an annual obligation subject to renewal each year. If the issuing body elects
not to renew its lease for the next succeeding year and therefore fails to
appropriate the necessary moneys to make lease payments, the holders of the COPS
would be limited to the remedies available under the lease. At least one Florida
court has upheld the right of a governmental unit to not exercise the annual
renewal option of its lease.
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When a mortgage, with a right of foreclosure, on real or personal
property (owned by a unit of government) is given to secure a bond, the Florida
courts have held that a pledge of such mortgage requires voter approval. In
effect, ad valorem taxes are indirectly pledged because, as the Florida Supreme
Court reasoned, the legislative body affected by such foreclosure might feel
"morally compelled" to levy taxes to prevent the loss of assets through
foreclosure. As a result, the majority of revenue bonds issued in the State of
Florida are not additionally secured by a mortgage on the governmental property
being financed. This prohibition is applicable even if the issuer has no taxing
power.
In Florida, the Division of Bond Finance has authority over the issuance
of State bonds pledging the full faith and credit of the State and the issuance
of revenue bonds payable solely from funds derived from sources other than State
tax revenues or rents or fees paid from State tax revenues.
Pursuant to the Florida Constitution, moneys sufficient to pay debt
service on State bonds must be appropriated as the same become due. Furthermore,
to the extent necessary, all State tax revenues, other than trust funds, must be
available for such appropriation purposes.
At the November 1994 general election, voters in the State approved an
amendment to the Florida Constitution limiting the amount of taxes, fees,
licenses and charges imposed by the State and collected during any fiscal year
to the amount of revenues allowed for the prior fiscal year, plus an adjustment
for growth. Growth is defined as the amount equal to the average annual rate of
growth in Florida personal income over the most recent twenty quarters times the
State revenues allowed for the prior fiscal year. The revenues allowed for any
fiscal year can be increased by a two-thirds vote of the State Legislature. The
limit is effective starting with fiscal year 1995-1996. Any excess revenues
generated will be deposited in the budget stabilization fund until it is fully
funded and then refunded to taxpayers. Included among the categories of revenues
which are exempt from the proposed revenue limitation, however, are revenues
pledged to state bonds and charges for services imposed by local, regional or
school district governing bodies.
The total outstanding principal of State bonds pledging the full faith
and credit of the State may not exceed fifty percent of the total tax revenues
of the State for the two preceding fiscal years, excluding any tax revenues held
in trust.
State bonds pledging the full faith and credit of the State, except
certain refunding bonds, generally may be issued only to finance or refinance
the cost of State fixed capital outlay projects subject to approval by a vote of
the electors. However, State bonds pledging the full faith and credit of the
State may be issued without a referendum to finance the construction of air and
water pollution control and abatement and solid waste disposal facilities to be
operated by a political subdivision of the State or by an agency of the State.
All forms of taxation other than ad valorem taxes are preempted to the
State, except as provided by general law. The State is prohibited from
collecting ad valorem taxes, which are taxes that are levied on real estate or
tangible personal property.
Revenue bonds may be issued by the State of Florida or its agencies
without voter approval only to finance or refinance the cost of state capital
projects payable solely from funds derived from sources other than state tax
revenues or rents or fees paid from state tax revenues.
Bonds issued pursuant to the State Bond Act must be validated in
accordance with Florida Statutes. Once an issuer decides to finance a project
with bonds issued pursuant to the State Bond Act, a bond validation proceeding
is held in circuit court to determine whether the proposed bond issuance
complies with Florida law. The court makes findings on the questions of whether
the issuing body had the power to incur bonded debt and whether it exercised
that power in accordance with the law. The court may not weigh the fiscal
feasibility of the proposed bonds in the validation determination. The circuit
court judgment is final on all matters, other than constitutional issues, raised
at the validation hearing after time for appeal to the Supreme Court of Florida
has elapsed. Refunding bonds and bonds issued to finance or refinance capital
outlay projects for the system of public education are not required to be
validated.
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The legislature has the power to confer on political subdivisions the
power to issue bonds, notes and other forms of indebtedness, except as otherwise
restricted by State and federal constitutional provisions, and such power is
conferred on municipal corporations, cities, counties and a variety of other
specially created districts and authorities. The bond validation process
described above is also available to such units of local government. In most
cases, bond validations are not statutorily mandated and many general obligation
and revenue bond issues have not been validated.
Generally, the Florida Constitution and Florida Statutes require that
the budget of the State and that of the units of local government in the State
be kept in balance from currently available revenues during each fiscal year. If
revenues collected during a fiscal year are less than anticipated, expenditures
must be reduced in order to comply with the balanced budget requirement.
Florida Statutes provide for a statewide maximum bond interest rate
which is flexible with the bond market and from which are exempted bonds rated
in one of the three highest ratings by nationally recognized rating services.
Nevertheless, upon request of a governmental unit, the State Board of
Administration may authorize a rate of interest in excess of the maximum rate,
provided relevant financial data and information relating to the sale of the
bonds is submitted to the State Board.
The Florida Sunshine Law, among other things, precludes public officials
from meeting with respect to the issuance of bonds other than at duly noticed
public meetings of the governmental entity. These provisions apply to all
meetings of any board or commission of any State agency or authority, or of any
county, municipal corporation, or political subdivision. No resolution, rule, or
formal action is considered binding except as taken at such duly noticed public
meetings.
GEORGIA. The state government of Georgia has one of the lowest debt
levels, per capita, of all states in the United States, which is reflective of
the very conservative fiscal approach taken by elected state officials, even
through the state has enjoyed a strong economy over the past few years.
Typically, general obligation bonds of the state are issued pursuant to the
powers granted under Article VII, Section IV of the Constitution of the State of
Georgia (the "Georgia Constitution"), which provides that the bonds are the
direct and general obligations of the state. The key language is provided under
Article VII, Section IV, Paragraph VI of the Georgia Constitution which provides
as follows:
"The full faith, credit and taxing power of the state are hereby
pledged to the payment of all public debt incurred under this article and
all such debt and the interest on the debt shall be exempt from taxation
(emphasis added). Such debt may be validated by judicial proceedings in
the manner provided by law. Such validation shall be incontestable and
conclusive."
The Georgia Constitution further mandates that the General Assembly
"shall raise by taxation and appropriate each fiscal year . . . such amounts as
are necessary to pay debt service requirements in such fiscal year on all
general obligation debt." The Georgia Constitution further provides for the
establishment of a special trust fund which is designated the "State of Georgia
General Obligation Debt Sinking Fund" which is used for the payment of annual
debt service requirements on all general obligation debt.
There are debt limitations provided under Article VII, Section IV,
Paragraph II(b)-(e) of the Georgia Constitution which essentially provide that
the cumulative annual debt service for both general obligation debt and
guaranteed revenue debt shall not exceed 10% of the total revenue receipts, less
refunds paid to the state treasury in the fiscal year immediately preceding the
proposed issuance of any new debt. The Georgia Constitution prohibits state
departments and agencies from circumventing the debt limitation provisions by
not allowing such agencies to execute contracts which may be deemed to
constitute a security for bonds or other public obligations. (See Article VII,
Section IV, Paragraph IV of the Georgia Constitution.)
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The State of Georgia may incur: "Public debt to supply a temporary
deficit in the state treasury in any fiscal year created by a delay in
collecting the taxes of that year. Such debt shall not exceed, in the aggregate,
5% of the total revenue receipts, less refunds, of the state treasury in the
fiscal year immediately preceding the year in which such debt is incurred." (See
Georgia Constitution, Article VII, Section IV, Paragraph I(b).) Since this
provision of the Constitution was enacted, there has been no temporary debt
incurred by the state.
Virtually all debt obligations represented by bonds issued by the State
of Georgia, counties or municipalities or other public subdivisions, and public
authorities require validation by a judicial proceeding prior to the issuance of
such obligation. The judicial validation makes these obligations incontestable
and conclusive, as provided under the Georgia Constitution.
The State of Georgia operates on a fiscal year beginning on July 1 and
ending on June 30. Each year the State Economist, the Governor and the State
Revenue Commissioner jointly prepare a revenue forecast upon which is based the
state budget which is considered, amended and approved by the Georgia General
Assembly. On June 30, 1996 the state had a revenue shortfall reserve fund of
$313,385,534. Total net revenue collections for the fiscal year ended on June
30, 1996 were $11,166,835,592, which represented a 8.3890 increase over fiscal
year 1995 collections of $10,303,573,061. Additionally, Georgia received
$558,473,887 in revenue from the Georgia Lottery Corporation in fiscal year
1996; all lottery revenues are earmarked for educational expenditures.
Georgia has a very bright economic future highlighted by a $3 billion
stimulus to the economy which occurred by reason of Atlanta's hosting of the
1996 Summer Olympic Games. Manufacturing activity, particularly in the textile,
apparel and carpet sectors, has increased dramatically as a result of increased
home building. The real estate/construction industry is thriving and has emerged
from a recession that had been caused by over-building of commercial office
space and industrial parks in the late 1980s. In recent years, Georgia has
enjoyed the economic stimulus caused by a number of major corporate relocations
led by United Parcel Service of America, Inc. and Holiday Inn Worldwide. In
1996, Paragon Trade Brands, Inc., moved its headquarters to Atlanta from
Seattle, Washington.
On December 6, 1994, the United States Supreme Court reversed the
Georgia Supreme Court's decision in Reich v. Collins, 263 Ga. 602 (1993) and
held that Georgia resident federal retirees were entitled to refunds of pre-1989
taxes on federal retirement pension benefits. In response, the Governor signed
H.B. 90 on February 1, 1995, permitting federal retirees who file timely claims
to receive refunds for such taxes for tax years 1985-1988. Total potential
liability is approximately $110,000,000 which is now being paid in four equal
annual installments, the first of which occurred on October 15, 1995. The Reich
case has now been dismissed.
On August 2, 1995, a petition was filed in Dekalb County Superior Court
(Civil Action File No. 95-10114-4) by the Lombard Corporation against Marcus
Collins, Commissioner of the Georgia Department of Revenue, and Tom Scott, Tax
Commissioner for Dekalb County. This petition attacked the constitutionality of
the Georgia intangibles tax and sought a refund for previously paid intangibles
taxes. During the 1996 Session of the Georgia General Assembly, the Georgia
intangibles tax was legislatively repealed. On November 5, 1996, a
constitutional amendment was approved by the voters of Georgia, which also
repealed the intangibles tax, retroactively effective to January 1, 1996.
There have been two other cases filed seeking refunds of the intangibles
tax, Charles Pero v. T. Jerry Jackson, Civil Action No. E-47722, and Jack W.
Shemaria v. T. Jerry Jackson, Civil Action No. 96-11005-4. Regardless of the
outcome of these refund cases, the financial impact on the State of Georgia will
be marginal since the intangibles taxes were paid to city and county governments
and local boards of education, which historically received approximately $40
million per year in intangibles tax revenues.
The above-referenced information is based on available public documents
and oral representations made by officials at the state Attorney General's
Office, Georgia Department of Revenue, and participants in the pending cases, as
well as representations made as "Significant Contingent Liabilities" provided in
the Official Statement dated April 1, 1997 for the issuance of $307,195,000
General Obligation Bonds (1997-A) by the State of Georgia.
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MARYLAND. The public indebtedness of the State of Maryland and its
instrumentalities is divided into four basic categories. The State issues
general obligation bonds, to the payment of which the State ad valorem property
tax is exclusively pledged, for capital improvements and for various
State-sponsored projects. The Maryland Department of Transportation issues
limited, special obligation bonds for transportation purposes payable primarily
from specific, fixed-rate excise taxes and other revenues related mainly to
highway use. The Maryland Stadium Authority issues limited special obligation
bonds and votes for purposes of financing stadiums and conference centers
payable primarily from fixed rate financing of facility bonds using a
combination of variable rate refunding obligations and forward interest rate
exchange agreements. Certain authorities issue obligations payable solely from
specific non-tax, enterprise fund revenues, and for which the State has no
liability and has given no moral obligation assurance. The State and certain of
its agencies also have entered into a variety of lease purchase agreements to
finance the acquisition of capital assets. These lease agreements specify that
payments thereunder are subject to annual appropriation by the General Assembly.
At least since the end of the Civil War, the State has paid the
principal of and interest on its general obligation bonds when due. Neither the
Maryland Constitution nor the public general laws of Maryland impose any general
debt limit. Although the State has the authority to make short-term borrowings
in anticipation of taxes and other receipts up to a maximum of $100 million, the
State in the past has not issued short-term tax anticipation notes or made any
other similar short-term borrowings for cash flow purposes. The State has not
issued bond anticipation notes except in connection with a State program to
ameliorate the impact of the failure of certain State-chartered savings and loan
associations in 1985; all such notes were redeemed without the issuance of debt.
The State Constitution prohibits the contracting of State debt unless
authorized by a law providing for the collection of an annual tax or taxes
sufficient to pay the interest when due and to discharge the principal within 15
years of the date of debt issuance. The Constitution also provides that the
taxes levied for this purpose may not be repealed or applied to any other
purpose until the debt is fully discharged. As a matter of practice, general
obligation bonds, other than small denomination bonds and refunding bonds, are
issued to mature in serial installments designed to provide payment of interest
only during the first two years and an approximately level annual amortization
of principal and interest over the remaining years.
The State has financed and expects to continue to finance the
construction and acquisition of various facilities and equipment through
conditional purchase, sale-leaseback, and similar transactions. All of the lease
payments under these arrangements are subject to annual appropriation by the
General Assembly. In the event that appropriations are not made, the State may
not be held contractually liable for the payments. These transactions are
subject to approval by the Board of Public Works.
When the 1996 Budget was enacted, it was estimated that the general fund
surplus on a budgetary basis at June 30, 1996, would be approximately $7.8
million; it is currently estimated to be $1.0 million. At its December 12, 1995,
meeting, the Board of Revenue Estimates lowered the estimate of fiscal year 1996
general fund revenues by $92 million. The Governor has proposed a plan to
address this change that principally includes: (1) additional reversions for
Medicaid and Nonpublic Special Education Placements of $22 million; (2)
reduction of current general fund appropriations of $26 million; (3) transfer
from the Revenue Stabilization Account of $18 million; and (4) use of
unanticipated fiscal year 1995 surplus of $26 million. It is anticipated that
the balance of the Revenue Stabilization Account after the transfer at June 30,
1996, will be $500 million.
1997 Budget--On April 3, 1996, the General Assembly approved the budget
for fiscal year 1997. The Budget includes, among other things: (i) sufficient
funds to meet all specific statutory funding requirements; (ii) sufficient funds
to meet the actuarial recommended contributions for the seven retirement
systems, determined on a basis consistent with prior years' practice; (iii)
sufficient general funds for the Annuity Bond Fund to maintain the State
property tax rate at $.21 per $100 of assessed valuation; (iv) $2.9 billion in
aid to local governments (reflecting a $121.5 million increase over fiscal year
1996 that provides for increases in education, health and police aid); and (v)
$13.2 million in general fund deficiency appropriations.
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Legislation enacted by the 1996 General Assembly reorganized the State's
personnel system and reformed the welfare and Medicaid programs; estimated
fiscal year 1997 savings of $29 million ($19.5 million general funds) are
incorporated into the fiscal year 1997 Budget. The legislation establishes a
decentralized personnel management system, replacing the classified and
unclassified services with skilled, professional, management, and executive
services; a pay for performance plan; and early retirement during fiscal year
1997 for certain groups of employees. The welfare reform legislation limits
welfare recipients to 60 months of cumulative cash assistance and requires
adults to be in a State-defined work activity in order to receive more than 24
months of benefits; federal permission must be obtained before the new welfare
program can be implemented. The Medicaid reform authorized the establishment of
a mandatory managed care program for Medicaid recipients (consistent with
federal law or federal waivers). The legislation requires managed care
organizations to meet certain performance, access, and quality standards; it is
anticipated the organizations will be paid prospectively.
The operating budget is to be funded with $7,412 million in general
funds, $4,112 million in special and higher education funds, and $3,117 million
in federal funds.
The State's fiscal year 1997 capital program is to be funded with $400
million in general obligation bonds (net of $12.1 million of prior year
authorizations to be deauthorized), $66.8 million general funds appropriated in
the operating budget, $1,297 million in special and federal funds (of which
$1,099 million is appropriated to the Department of Transportation, including
$71 million for infrastructure improvements related to the construction of
Redskins Stadium in Prince George's County) and $69.8 million in revenue bonds
other than those issued by the Department of Transportation. The general
obligation bond financed program includes $229 million for education, $23
million for the environment, $41 million for business and job creation, $41
million for public safety, and $63 million for various other projects.
Based on the 1997 Budget, it is estimated that the general fund surplus
on a budgetary basis at June 30, 1997, will be approximately $0.8 million. It is
also estimated that the balance in the Revenue Stabilization Account of the
State Reserve Fund at June 30, 1997, will be $465 million.
The Adviser believes that the information summarized above describes
some of the more significant matters relating to the Maryland Intermediate
Municipal Bond Fund and Maryland Municipal Bond Fund. The sources of the
information are the official statements of issuers located in Maryland, other
publicly available documents, and oral statements from various state agencies.
The Adviser has not independently verified any of the information contained in
the official statements, other publicly available documents, or oral statements
from various state agencies.
NORTH CAROLINA. The North Carolina Constitution requires that the total
expenditures of the State for the fiscal period covered by the budget not exceed
the total receipts during the fiscal period plus any surplus remaining in the
State Treasury at the beginning of the period. The State operates on a fiscal
year ending June 30th.
The State of North Carolina is the tenth most populous state. Its
economy is a combination of manufacturing, agriculture, services and tourism.
The State's seasonally adjusted unemployment rate in December 1997 was 3.6%. In
recent years, the State has moved from an agricultural economy to a service and
goods producing economy. The State leads the nation in the production of
textiles, tobacco products, furniture and fiberoptic cable and is among the
largest producers of pharmaceuticals, electronics and telecommunications
equipment. The principal agricultural products are poultry, pork and tobacco.
Charlotte is now the second largest financial center in the nation, based on the
assets of banks headquartered there.
The ending fund balance for the State's General Fund at June 30, 1997
was $1,307.5 million. The growth in tax and other revenues exceeded expectations
since that date which, with existing reserves, provides sufficient funds to pay
intangibles tax refunds required by the Fulton case described below and the
income tax refunds required by the Bailey case described below. The budget for
the fiscal year ending June 30, 1998 projects an ending General Fund balance of
$622.2 million.
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The following are cases pending in which the State faces the risk of
either a loss of revenue or an unanticipated expenditure. In the Opinion of the
Department of State Treasurer, however, any such loss of revenue or expenditure
would not materially adversely affect the State's ability to meet its financial
obligations.
Leandro, et al. v. State of North Carolina and State Board of Education.
On May 25, 1994, students and boards of education in five counties filed suit
requesting a declaration that the public education system of North Carolina
violates the State constitution by failing to provide adequate or substantially
equal education opportunities, and by denying due process of law. The
defendants' motion to dismiss was denied. However, the North Carolina Supreme
Court upheld the present funding system and remanded the case for trial on the
claim for relief based on the conclusion that the constitution guarantees every
child the opportunity to obtain a sound basic education. Five other counties
intervened and now allege claims for relief on behalf of their students' rights
to a sound basic education on the basis of the high proportion of at-risk
students in their counties' systems.
Francisco case. On August 10, 1994, a class action lawsuit was filed
against the Superintendent of Public Instruction and the State Board of
Education on behalf of a class of parents and their children who are
characterized as limited English proficient. The complaint alleges that the
State has failed to provide funding for the education of these students and has
failed to supervise local school systems in administering programs for them. The
complaint asks the Court to order the defendants to fund a comprehensive program
to ensure equal educational opportunities for limited English proficient
children.
Bailey case. State and local government retirees filed a class action
suit in 1990 as a result of the repeal of the income tax exemptions for state
and local government retirement benefits.
Patton case. Federal retirees filed a class action suit in 1995 seeking
monetary relief for taxes paid since 1989 on federal government retirement
benefits.
On May 8, 1998, the North Carolina Supreme Court ruled that it was
unconstitutional for the State of North Carolina to collect taxes on the
pensions of retired federal, state and local government employees. The required
refunds were estimated to be $1.1 billion. However, a settlement has been
reached and a Consent Order signed in which the State will pay a total of $799
million with $400 million to be paid beginning as early as July 1998 and the
balance by July 1999.
Faulkenbury v. Teachers' and State Employees' Retirement System, Peele
v. Teachers' and State Employees' Retirement System, and Woodard v. Local
Governmental Employees' Retirement System. Plaintiffs are disability retirees
who brought class actions in state court challenging changes in the formula for
payment of disability retirement benefits and claiming impairment of contract
rights, breach of fiduciary duty, violation of other federal constitutional
rights and violation of state constitutional and statutory rights. The North
Carolina Court of Appeals and Supreme Court dismissed the fiduciary claims and
certain of the constitutional claims. The primary claim for unconstitutional
impairment of contract was tried in Superior Court in May, 1995, and the court
issued an order in favor of the plaintiffs. In April of 1997, the North Carolina
Supreme Court upheld the trial court's ruling. A determination of the actual
amount of liability and the payment process is being made by the parties. The
plaintiffs have submitted documentation to the court asserting that the cost and
damages and higher prospective benefit payments to the plaintiffs and class
members would amount to $407 million. These amounts would be payable from the
funds of the State's retirement system. The plaintiffs also have filed actions
in federal court asserting the same claims, along with claims for violations of
constitutional rights in the taxation of disability benefits.
Smith case. This class action is related to litigation in Fulton v.
Faulkner brought by a single taxpayer and decided by the United States Supreme
Court in 1996 which held that certain intangibles taxes previously collected by
the State of North Carolina on intangible personal property were
unconstitutional. In 1995, the Smith class action was commenced on behalf of all
taxpayers who had complied with the refund requirements of the North Carolina
statute who would be entitled to refunds if Fulton prevailed on its refund
claim. A second group of plaintiffs was added consisting of taxpayers who paid
the intangibles tax but failed to comply with the tax refund statute. Refunds
were ordered for those plaintiffs who had complied with the requirements of the
North Carolina tax refund statute and the court dismissed the claims of those
who had not complied. Refunds totaling approximately $120 million have been paid
with interest. The appeal of the plaintiffs who did not comply with the tax
refund statute is pending in the North Carolina Court of Appeals. A separate
class action was filed in January 1998 on behalf of the plaintiffs who did not
comply with the tax refund requirements.
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Fulton case. The State's intangible personal property tax levied on
certain shares of stock has been challenged by the plaintiff on the grounds that
it violates the U.S. Constitution's commerce clause by discriminating against
stock issued by corporations that do all or part of their business outside the
State. The plaintiff in the action is a North Carolina corporation that paid the
tax on stock it owned in companies that did all or part of their business
outside the State. Plaintiff sought to invalidate the tax in its entirety and to
recover tax paid on the value of its shares in such corporations. The North
Carolina Court of Appeals invalidated the taxable percentage deduction and
excised it from the statute beginning with the 1994 tax year; however, the North
Carolina Supreme Court reversed the Court of Appeals and reinstated the trial
court's ruling, which had upheld the tax as constitutional, including the
taxable percentage deduction. The plaintiff's petition for certiorari to the
U.S. Supreme Court was granted, and on February 21, 1996, the U.S. Supreme Court
declared the State's intangibles tax to be unconstitutional under the commerce
clause and remanded the case to the North Carolina Supreme Court for its
determination of the appropriate remedy for taxes improperly collected in years
prior to the repeal of the tax.
In February of 1997, the North Carolina Supreme Court ruled that the
unconstitutional portion of the statute is severable and referred the matter to
the North Carolina General Assembly for legislative action. This action may
include paying refunds to taxpayers who paid the tax, but took appropriate steps
to claim that a refund was due. The estimated cost of paying such refunds is
approximately $150 million.
The Adviser believes that the information summarized above describes
some of the more significant matters relating to the North Carolina Intermediate
Municipal Bond Fund and North Carolina Municipal Bond Fund. The sources of the
information are the official statements of the Department of State Treasurer of
North Carolina, other publicly available documents and oral statements from
various State agencies. The Adviser has not independently verified any of the
information contained in the official statements, other publicly available
documents, or oral statements from various State agencies.
SOUTH CAROLINA. The South Carolina Constitution mandates a balanced
budget. If a deficit appears likely, the State Budget and Control Board may
reduce appropriations during the current fiscal year as necessary to prevent the
deficit. If it is determined that a fiscal year has ended with an operating
deficit, the State Constitution requires that monies appropriated from the
Capital Reserve Fund must be reduced to the extent necessary and applied to the
year end operating deficit before withdrawing monies from the General Reserve
Fund for such purpose.
The State Constitution limits annual increases in State appropriations
to the average growth rate of the economy of the State and annual increases in
the number of State employees to the average growth of the population of the
State; provided, however, that these two limitations are subject to suspension
for any one fiscal year by a special vote in each House of the General Assembly.
The State Constitution requires a General Reserve fund that equals three
percent of General Fund Revenue for the latest completed fiscal year. Funds may
be withdrawn from the General Reserve Fund only for the purpose of covering
operating deficits. The State Constitution also requires a Capital Reserve Fund
equal to two percent of General Fund Revenue for the latest completed fiscal
year.
The State Constitution requires that the General Assembly provide that,
if revenue forecasts before March 1 project that revenues for the current fiscal
year will be less than expenditures authorized by appropriation for the current
fiscal year, the current fiscal year's appropriation to the Capital Reserve Fund
shall first be reduced to the extent necessary before any reduction is made in
operating appropriations.
After March 1, monies from the Capital Reserve Fund may be appropriated
by a special vote of the General Assembly to finance previously authorized
capital improvement bond projects, to retire principal or interest on bonds
previously issued, and to pay for capital improvements or other nonrecurring
purposes. Monies in the Capital Reserve Fund not appropriated or any
appropriation for a particular project or item that has been reduced due to
application of the monies to a year-end deficit must go back to the General
Fund.
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The State operates on a fiscal year beginning July 1 and ending June 30.
For the fiscal year ended June 30, 1997, the State had a budgetary surplus of
$297,700,000, and the Capital Reserve Fund and General Reserve Fund were fully
funded at the combined 5% level. The South Carolina General Assembly recently
passed the Fiscal Year 1997-98 Appropriations Act that enacted a balanced budget
where most of the new revenue was allocated to property tax relief, health and
human services and education.
A lawsuit, Glen E. Kennedy, et al vs. the South Carolina Retirement
System and South Carolina Budget and Control Board, has been filed against the
South Carolina Retirement Systems (Systems) by a group of retired participants
in the Systems which challenges the Systems' treatment of annual leave
calculation of participants' retirement payments. The Systems' liability in the
event of an unfavorable outcome would be approximately $340 million for current
retirees, and $800 million for current active members of the South Carolina
Retirement System and the Police Officers' Retirement System. The Circuit Court
determined that the State has been providing retirement benefits to its members
in accordance with the law. The Circuit Court decision has been appealed to the
State Supreme Court and the State continues to defend its position and believes
it is meritorious.
The Adviser believes that the information summarized above describes
some of the more significant matters relating to the South Carolina Intermediate
Municipal Bond Fund and South Carolina Municipal Bond Fund. The sources of the
information are the official statements of issuers located in South Carolina,
other publicly available documents, or oral statements from various State
agencies. The adviser has not independently verified any of the information
contained in the official statements, other publicly available documents, or
oral statements from various state agencies.
TENNESSEE. The Constitution of the State of Tennessee forbids the
expenditure of the proceeds of any debt obligation for a purpose other than the
purpose for which it was authorized by statute. The Constitution also forbids
the authorization of any debt obligation, except as shall be repaid within the
fiscal year of issuance, for current operation of any state service or program.
Under Tennessee law, the term of the State's bonds cannot exceed the life of the
projects being financed. Furthermore, the amount of debt obligations of the
State of Tennessee cannot exceed the amount authorized by the Tennessee General
Assembly. The procedure for funding State of Tennessee debt is provided by
Chapter 9 of Title 9, Tennessee Code Annotated. The Funding Board of the State
of Tennessee is the entity authorized to issue general obligation indebtedness
of the State of Tennessee. Pursuant to Section 9-9-106, Tennessee Code
Annotated, the Funding Board of the State of Tennessee has a lien on the taxes,
fees and revenues from certain designated revenue sources for the full amount
required to service the State's general obligation indebtedness. Certain other
agencies and authorities in Tennessee issue obligations, payable solely from
specific non-tax enterprise fund revenues and which are not debts or liabilities
of the State of Tennessee nor is the full faith and credit pledged to the
payment thereof.
Under current state statutes, the State of Tennessee's general
obligation bonded debt issuances are subject to an annual legal debt service
limitation based on a pledged portion of certain current year revenues. As of
June 30, 1997, the State of Tennessee's annual legal debt service limit of $463
million was well above the debt service required of $110 million, with a legal
debt service margin of $353 million. Debt per capita equaled $163, and the ratio
of net general long-term bonded debt to assessed property valuation was 1.55
percent.
The Constitution of the State of Tennessee requires a balanced budget.
As required by law, the legislature enacted a balanced budget for fiscal year
1996-97. During fiscal year 1997, Tennessee continued several programs that were
designed to position the State to remain competitive in attracting new jobs
while addressing several problem areas for the State. The State continued its
Basic Education Program which is designed to achieve salary equalization in
teachers' salaries and to provide funding for enrollment growth. The State also
extended coverage under Ten Care to all Tennessee children who do not otherwise
have access to health insurance, enhanced all services to children under the
newly established Department of Children's Services and continued enhancement of
industrial growth and strengthening services for the continued success of the
Families First Program of welfare reform.
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The economic outlook for Tennessee remains favorable. The State's
economic diversity has improved substantially over the last twelve years.
Investments announced in new and expanding business exceeded one billion dollars
in each of those years and exceeded three billion in the last two years. The
$3.4 billion in announced capital investments in 1996 was the largest year in
Tennessee history. This growth created 20,863 new jobs in Tennessee for the year
ended June 1997. As of June 1997, the State's unemployment rate was 4.8%, below
the national average of 5.6%. Based on current projections, the State's overall
growth is expected to exceed the national average into the next century
according to the Comprehensive Annual Financial Report for the State of
Tennessee for the year ended June 1997.
TEXAS. Except as specifically authorized, the Texas Constitution
generally prohibits the creation of debt by or on behalf of the State, with only
limited exceptions. In addition, the Constitution prohibits the Legislature from
lending the credit of the State to any person, including municipalities, or
pledging the credit of the State in any manner for the payment of the
liabilities of any individual, association of individuals, corporation or
municipality. The limitations of the Constitution do not prohibit the issuance
of revenue bonds, since the Texas courts (like the courts of most states) have
held that certain obligations do not create a "debt" within the meaning of the
Constitution. The State and various State agencies have issued revenue bonds
payable from the revenues produced by various facilities or from lease payments
appropriated by the Legislature. Furthermore, obligations which are payable from
funds expected to be available during the current budget period, do not
constitute "debt" within the meaning of the constitutional prohibition.
Texas Revised Civil Statutes Article 717k-7(8) prohibits the Legislature
from authorizing additional state debt payable from general revenues, including
authorized but unissued bonds and lease purchase contracts in excess of $250,000
or for a term of greater than five years, if the resulting annual debt service
exceeds five percent of an amount equal to the average amount of general revenue
for the three immediately preceding years, excluding revenues constitutionally
dedicated for purposes other than payment of debt service. Self-supporting
general obligation bonds, although backed by the full faith and credit of the
State, are reasonably expected to be paid from other revenue sources and are not
expected to create a general revenue draw. On November 4, 1997, Texas voters
approved a constitutional amendment pursuant to Proposition 11 in order to add
the provisions of Article 717k-7(8) to the Constitution. The State has long been
identified with the oil and gas industry, but the Texas economy has diversified,
particularly with the growth of the computer and electronics industries. Oil and
gas related industries currently account for only 10% of the State's economy.
Service-producing sectors (which include transportation and public utilities;
finance and insurance and real estate; trade; services; and government) are the
major sources of job growth in Texas although the rate of growth of
goods-producing jobs has been about the same as that of service-producing jobs
since 1995. Texas' location and transportation and accessibility have made it a
distribution center for the southwestern United States as well as a growing
international market for export trade. With leadership provided by a strong
high-technology sector and the growth of exports, manufacturing job growth is
expected to remain a significant part of Texas' economic future. The State
Comptroller of Public Accounts has predicted that the overall Texas economy will
slightly outpace national economic growth in the long term.
The State generally can be divided into six geo-economic regions. The
east region is a largely non-metropolitan region, in which the economy is
dependent on agricultural activities and the production and processing of coal,
petroleum and wood. The Dallas-Ft. Worth metroplex region is mostly
metropolitan, with diversified manufacturing, financial and commercial sectors.
The panhandle, Permian basin and Concho Valley regions are relatively populated
areas of the State, with an economy drawing heavily from petroleum production
and agriculture. The border region stretching from El Paso to Brownsville is
characterized by its economic ties to Mexico, tourism and agriculture. The gulf
coast region is the most populous region in the State and has an economy
centered on energy services, petro-chemical industries and commercial activities
resulting from agriculture and seaport trade. The economy of the central
corridor is based upon the public and private service sector, recreation/tourism
and high-technology manufacturing. Because the economic base is different from
region to region, economic developments, such as the strength of the U.S.
economy, shifting export markets or changes in oil prices or defense spending,
can be expected to affect the economy of each region differently.
In 1997, total nonfarm employment growth was 4.2%. Most new jobs created
in the past year have been in the service sector with most of the growth in the
health, business and miscellaneous services sectors. Employment during the past
year also increased in the wholesale and retail trade, government,
transportation, communications, public utilities, manufacturing and construction
industries. Oil and gas mining added jobs since the beginning of 1996, but
experienced a tapering off in hiring during the last few months of 1997. The
State's per capita personal income growth has exceeded the nation's each year
since 1989. Per capita personal income has since increased to approximately 91%
of U.S. per capita income as of 1997.
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The State's general revenue fund provides an indication of the State's
financial condition. Effective as of the beginning of fiscal 1994, numerous
state funds were merged into the general revenue fund providing for a one-time
gain of approximately $1.2 billion for the fund. In the fiscal year 1997, the
general revenue fund accounted for most of the state's net revenue. Due to the
state's expansion in Medicaid spending and other Health and Human Services
programs requiring federal matching revenues, federal receipts were the state's
number one source of income in fiscal 1997. Sales tax, which had been the main
source of revenue for the previous 12 years prior to fiscal 1993, was second.
Licenses, fees, fines and penalties are now the third largest source of revenue
to the state, with motor fuels taxes and motor vehicle sales/rental taxes
following as fourth largest and fifth largest, respectively. The remainder of
the state's revenues are derived primarily from interest and investment income,
lottery proceeds, cigarette and tobacco, franchise, oil and gas severance and
other taxes. The state has no personal or corporate income tax, although the
state does impose a corporate franchise tax based on the amount of a
corporation's capital and "earned surplus," which includes corporate net income
and officers' and directors' compensation. For each of the fiscal years ended
August 31, 1993, 1994, 1995, 1996 and 1997, the general revenue fund contained a
cash surplus of approximately $1.633 billion, $2.239 billion, $2.110 billion,
$2.271 billion and $2.685 billion, respectively.
VIRGINIA. The Constitution of Virginia, in Section 9 of Article X
provides for the issuance of debt by or on behalf of the Commonwealth. Sections
9(a), (b) and (c) provide for the issuance of debt to which the Commonwealth's
full faith and credit is pledged and Section 9(d) provides for the issuance of
debt not secured by the full faith and credit of the Commonwealth, but which may
be supported by and paid from Commonwealth tax collections. The Commonwealth may
also enter into leases and contracts that are classified on its financial
statements as long-term indebtedness. Debt may also be issued by certain
authorities and institutions of the Commonwealth.
Section 9(a) of Article X authorizes general obligation debt to meet
certain types of emergencies, to meet casual deficits in the revenue or in
anticipation of the collection of revenues of the Commonwealth (subject to
limits on the amount and duration of the debt), and to redeem a previous debt
obligation of the Commonwealth. Total indebtedness issued to meet casual
deficits may not exceed thirty percent of an amount equal to 1.15 times the
annual tax revenues "derived from taxes on income and retail sales, as certified
by the Auditor of Public Accounts, for the preceding fiscal year."
Section 9(b) of Article X authorizes general obligation debt for capital
projects. The outstanding amount of Section 9(b) debt is limited in the
aggregate to an amount equal to 1.15 times the average annual tax revenues
"derived from taxes on income and retail sales, as certified by the Auditor of
Public Accounts," for the three immediately preceding fiscal years less the
total amounts of bonds outstanding. The amount of Section 9(b) debt that the
General Assembly may authorize for the current fiscal year is further limited to
25% of the aggregate Section 9(b) debt limit less Section 9(b) debt authorized
in the current and prior three fiscal years. Also, the debt must be authorized
by a vote of a majority of the members of each house of the General Assembly and
approved in a state-wide election.
Section 9(c) of Article X authorizes general obligation debt for
revenue-producing capital projects. The outstanding amount of Section 9(c) debt
is limited in the aggregate to an amount equal to 1.15 times the average annual
tax revenues "derived from taxes on income and retail sales, as certified by the
Auditor of Public Accounts," for the three immediately preceding fiscal years.
This debt must be approved by a vote of two-thirds of the members of each house
of the General Assembly and approved by the Governor. The Governor must certify
before the enactment of the bond legislation and again before the issuance of
the bonds that the net revenues pledged are expected to be sufficient to pay
principal and interest on the bonds issued to finance the projects.
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The phrase "taxes on income and retail sales" is not defined in the
Constitution or by statute. The record made in the process of adopting the
Constitution, however, suggests an intention to include only income taxes
payable by individuals, fiduciaries and corporations and the state sales and use
tax.
Section 9(d) of Article X provides that the restrictions of Section 9
are not applicable to any obligation increased by the Commonwealth or any of its
institutions, agencies or authorities if the full faith and credit of the
Commonwealth is not pledged or committed to the payment of such obligation.
Various types of Section 9(d) revenue bonds are issued for which the
Commonwealth's full faith and credit is not pledged. Certain of these bonds,
however, are paid in whole or in part from revenues received as appropriations
by the General Assembly from general tax revenues, while others are paid solely
from the revenues derived from enterprises related to the operation of financed
capital projects.
The Commonwealth is involved in numerous agreements to lease buildings
and equipment. These lease agreements are for various terms, and each lease
contains a nonappropriation clause indicting that continuation of the lease is
subject to funding by the General Assembly.
The Commonwealth also finances the acquisition of certain personal
property and equipment through installment purchase agreements. The length of
the agreements and the interest rates charged vary. In most cases, the
agreements are collateralized by the personal property and equipment acquired.
Installment purchase agreements contain nonappropriation clauses indicating that
continuation of the installment purchase is subject to funding by the General
Assembly.
On December 18, 1995, the Governor presented to the General Assembly the
Budget Bill for the 1996-98 biennium. The 1996-98 Budget Bill focused on three
key areas: education, public safety, and economic development. The Budget Bill
provided about $1,4119.9 million in spending increases above the level necessary
to continue FY 1996 workloads and costs. Of these increases, $107.2 million
resulted from the deposits to the Revenue Stabilization Fund ($66.6 million is
scheduled for deposit on June 30, 1997 and an estimated $40.6 million is
scheduled for deposit on June 30, 1998). The remainder provided the state share
of Standards of Quality for public schools, proposed increases in higher
education, increased spending for adult and juvenile corrections, proposed
expansion of economic development activities in several areas, and mandated
increases in several entitlement programs in health and human resources,
primarily for Medicaid. The proposed budget included more than $200 million to
cover installment payments on the settlement and the recent ruling by the
Virginia Supreme Court in favor of retirees who did not settle in the Harper v.
Virginia Department of Taxation.
The 1996 General Assembly Session ended on March 11, 1996. The 1996-98
Budget Bill, as amended by the General Assembly, was submitted to the Governor
for approval. The Governor then returned the 1996-98 Budget Bill to the General
Assembly for consideration at its one-day reconvened session held on April 17,
1996. The General Assembly re-submitted the 1996-98 Budget Bill, as amended, to
the Governor for his final approval. The 1996-98 Budget Bill, as amended, became
effective as Chapter 912 of the 1996 Acts of Assembly (the 1996-98 Appropriation
Act) on April 17, 1996.
The Virginia Intermediate Municipal Bond Fund and Virginia Municipal
Bond Fund also invest in debt obligations issued by local governments. Local
government in the Commonwealth is comprised of approximately 95 counties, 41
incorporated cities, and 190 incorporated towns. The Commonwealth is unique in
that cities and counties are independent and their land areas do not overlap.
Cities and counties each levy and collect their own taxes and provide their own
services. Towns, which are units of local government and which continue to be
part of the counties in which they are located, levy and collect taxes for town
purposes but their residents are also subject to county taxes. Generally, the
largest expenditure by local governments in the Commonwealth is for public
education. Each county and city in the Commonwealth, with few exceptions,
constitutes a separate school district. Counties, cities and towns typically
also provide such services such as water and sewer services, police and fire
protection, and recreational facilities.
In Davis v. Michigan (decided March 28, 1989), the United States Supreme
Court ruled unconstitutional states' exempting from state income tax the
retirement benefits paid by the state or local governments without exempting
retirement benefits paid by the federal government. At that time, Virginia
exempted state and local retirement benefits but not federal retirement
benefits. At a Special Session held in April 1989, the General Assembly repealed
the exemption of state and local retirement benefits. Following DAVIS, at least
five suits, some with multiple plaintiffs, for refunds of Virginia income taxes,
were filed by federal retirees. These suits were consolidated under the name of
Harper v. Virginia Department of Taxation.
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In a Special Session, the Virginia General Assembly on July 9, 1994
passed emergency legislation to provide payments to federal retirees in
settlement of the retirees' claims as a result of Davis. The settlement payments
are to be made over a five-year period, commencing March 31, 1995. The total
amount of authorized appropriations for the settlement is $340 million (payment
to participating retirees in installments of $60 million on March 31, 1995, and
$70 million on each succeeding March 31 through March 31, 1999, subject to
appropriation by the General Assembly).
On September 15, 1995 the Supreme Court of Virginia rendered its
decision in Harper. The Court reversed the judgment of the trial court and
entered final judgment in favor of the taxpayers, directing that the amounts
unlawfully collected be refunded with statutory interest. The Commonwealth will
not seek an appeal or rehearing of this decision. The Commonwealth issued refund
checks on November 9, 1995, and interest stopped accruing as of November 3,
1995. The cost of refunding all Virginia income taxes paid on federal government
pensions for taxable years 1985, 1986, 1987 and 1988 to federal government
pensioners who opted out of the settlement was approximately $78.4 million,
including interest earnings. The total cost of refunding all Virginia income
taxes paid on federal government pensions was $418.4 million, $340 million for
the settlement and $78.4 million as a result of the judgment. Of this total
amount, $60 million was paid in March 1995 and $78.4 million was paid in
November 1995 leaving a balance to be paid of $280 million.
Nations Funds believe that the information summarized above describes
some of the more significant matters relating to the Virginia Intermediate
Municipal Bond Fund and Virginia Municipal Bond Fund. The sources of the
information are the official statements of issuers located in the Commonwealth,
other publicly available documents, and oral statements from various state
agencies. Nations Funds have not independently verified any of the information
contained in the official statements, other publicly available documents, or
oral statements from various state agencies.
OPTIONS ON CURRENCIES
Certain Funds may purchase and sell options on currencies to hedge the
value of securities the Fund holds or intends to buy. Options on foreign
currencies may be traded on U.S. and foreign exchanges or over-the-counter.
OTHER INVESTMENT COMPANIES
In seeking to attain their investment objectives, certain Funds may
invest in securities issued by other investment companies within the limits
prescribed by the 1940 Act. Each Fund currently intends to limit its investments
so that, as determined immediately after a securities purchase is made: (a) not
more than 5% of the value of its total assets will be invested in the securities
of any one investment company; (b) not more than 10% of the value of its total
assets will be invested in the aggregate in securities of investment companies
as a group; and (c) not more than 3% of the outstanding voting stock of any one
investment company will be owned by the Fund or by the Company as a whole. As a
shareholder of another investment company, a Fund would bear, along with other
shareholders, its pro rata portion of the other investment company's expenses,
including Advisory fees. These expenses would be in addition to the Advisory and
other expenses that a Fund bears in connection with its own operations. The
Adviser has agreed to remit to the respective investing Fund fees payable to it
under its respective Investment Advisory Agreement with an affiliated money
market Fund to the extent such fees are based upon the investing Fund's assets
invested in shares of the affiliated money market fund.
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PARTICIPATION INTERESTS AND COMPANY RECEIPTS
The Government Bond Fund also may purchase from domestic financial
institutions and trusts created by such institutions participation interests and
trust receipts in high quality debt securities. A participation interest or
receipt gives the Fund an undivided interest in the security in the proportion
that the Fund's participation interest or receipt bears to the total principal
amount of the security. As to certain instruments for which the Fund will be
able to demand payment, the Fund intends to exercise its right to do so only
upon a default under the terms of the security, as needed to provide liquidity
or to maintain or improve the quality of its investment portfolio. It is
possible that a participation interest or trust receipt may be deemed to be an
extension of credit by the Fund to the issuing financial institution rather than
to the obligor of the underlying security and may not be directly entitled to
the protection of any collateral security provided by the obligor. In such
event, the ability of the Fund to obtain repayment could depend on the issuing
financial institution.
Participation interests and trust receipts may have fixed, floating or
variable rates of interest, and will have remaining maturities of thirteen
months or less (as defined by the SEC). If a participation interest or trust
receipt is unrated, the Adviser will have determined that the interest or
receipt is of comparable quality to those instruments in which the Fund may
invest pursuant to guidelines approved by the Board of Directors. For certain
participation interests or trust receipts the Fund will have the right to demand
payment, on not more than 30 days' notice, for all or any part of the Fund's
participation interest or trust receipt in the securities involved, plus accrued
interest.
REAL ESTATE INVESTMENT TRUSTS
A real estate investment trust ("REIT") is a managed portfolio of real
estate investments which may include office buildings, apartment complexes,
hotels and shopping malls. An equity REIT holds equity positions in real estate,
and it seeks to provide its shareholders with income from the leasing of its
properties, and with capital gains from any sales of properties. A mortgage REIT
specializes in lending money to developers of properties, and passes any
interest income it may earn to its shareholders.
REITs may be affected by changes in the value of the underlying property
owned or financed by the REIT, while Mortgage REITs also may be affected by the
quality of credit extended. Both equity and mortgage REITs are dependent upon
management skill and may not be diversified. REITs also may be subject to heavy
cash flow dependency, defaults by borrowers, self-liquidation, and the
possibility of failing to qualify for tax-free pass-through of income under the
Internal Revenue Code of 1986, as amended.
REPURCHASE AGREEMENTS
The repurchase price under any repurchase agreements described in the
Prospectuses generally equals the price paid by a Fund plus interest negotiated
on the basis of current short-term rates (which may be more or less than the
rate on the securities underlying the repurchase agreement). Securities subject
to repurchase agreements will be held by a Company's custodian in a segregated
account or in the Federal Reserve/Treasury book-entry system. Repurchase
agreements are considered to be loans by such Company under the 1940 Act.
REVERSE REPURCHASE AGREEMENTS
At the time a Fund enters into a reverse repurchase agreement, it may
establish a segregated account with its custodian bank in which it will maintain
cash, U.S. Government securities or other liquid high grade debt obligations
equal in value to its obligations in respect of reverse repurchase agreements.
Reverse repurchase agreements involve the risk that the market value of the
securities the Funds are obligated to repurchase under the agreement may decline
below the repurchase price. In the event the buyer of securities under a reverse
repurchase agreement files for bankruptcy or becomes insolvent, the Funds' use
of proceeds of the agreement may be restricted pending a determination by the
other party, or its trustee or receiver, whether to enforce the Funds'
obligation to repurchase the securities. Reverse repurchase agreements are
speculative techniques involving leverage, and are subject to asset coverage
requirements if the Funds do not establish and maintain a segregated account (as
described above). In addition, some or all of the proceeds received by a Fund
from the sale of a portfolio instrument may be applied to the purchase of a
repurchase agreement. To the extent the proceeds are used in this fashion and a
common broker/dealer is the counterparty on both the reverse repurchase
agreement and the repurchase agreement, the arrangement might be recharacterized
as a swap transaction. Under the requirements of the 1940 Act, the Funds are
required to maintain an asset coverage (including the proceeds of the
borrowings) of at least 300% of all borrowings. Depending on market conditions,
the Funds' asset coverage and other factors at the time of a reverse repurchase,
the Funds may not establish a segregated account when the Adviser believes it is
not in the best interests of the Funds to do so. In this case, such reverse
repurchase agreements will be considered borrowings subject to the asset
coverage described above.
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SECURITIES LENDING
To increase return on portfolio securities, certain Funds may lend their
portfolio securities to broker/dealers and other institutional investors
pursuant to agreements requiring that the loans be continuously secured by
collateral equal at all times in value to at least the market value of the
securities loaned. Collateral for such loans may include cash, securities of the
U.S. Government, its agencies or instrumentalities, an irrevocable letter of
credit issued by (i) a U.S. bank that has total assets exceeding $1 billion and
that is a member of the Federal Deposit Insurance Corporation, or (ii) a foreign
bank that is one of the 75 largest foreign commercial banks in terms of total
assets, or any combination thereof. Such loans will not be made if, as a result,
the aggregate of all outstanding loans of the Fund involved exceeds 33% of the
value of its total assets which may include cash collateral received for
securities loaned. There may be risks of delay in receiving additional
collateral or in recovering the securities loaned or even a loss of rights in
the collateral should the borrower of the securities fail financially. However,
loans are made only to borrowers deemed by the Adviser to be of good standing
and when, in its judgment, the income to be earned from the loan justifies the
attendant risks. Pursuant to the securities loan agreement a Fund is able to
terminate the securities loan upon notice of not more than five business days
and thereby secure the return to the Fund of securities identical to the
transferred securities upon termination of the loan.
SHORT SALES
Certain Funds may from time to time enter into short sales transactions.
A Fund will not make short sales of securities nor maintain a short position
unless at all times when a short position is open, such Fund owns an equal
amount of such securities or securities convertible into or exchangeable,
without payment of any further consideration, for securities of the same issue
as, and equal in amount to, the securities sold short. This is a technique known
as selling short "against the box." Such short sales will be used by a Fund for
the purpose of deferring recognition of gain or loss for federal income tax
purposes.
SPECIAL SITUATIONS
Certain Funds may invest in "special situations." A special situation
arises when, in the opinion of the Adviser, the securities of a particular
company will, within a reasonably estimable period of time, be accorded market
recognition at an appreciated value solely by reason of a development applicable
to that company, and regardless of general business conditions or movements of
the market as a whole. Developments creating special situations might include,
among others: liquidations, reorganizations, recapitalizations, mergers,
material litigation, technical breakthroughs and new management or management
policies. Although large and well known companies may be involved, special
situations more often involve comparatively small or unseasoned companies.
Investments in unseasoned companies and special situations often involve much
greater risk than is inherent in ordinary investment securities.
STAND-BY COMMITMENTS
Certain Funds may acquire "stand-by commitments" with respect to
Municipal Securities held in their portfolios. Under a "stand-by commitment," a
dealer agrees to purchase from a Fund, at a Fund's option, specified Municipal
Securities at a specified price. Stand-by commitments are exercisable by a Fund
at any time before the maturity of the underlying Municipal Securities, and may
be sold, transferred, or assigned by a Fund only with the underlying
instruments.
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The amount payable to a Tax-Free Bond Fund upon its exercise of a
stand-by commitment will normally be (i) the Fund's acquisition cost of the
Municipal Securities (excluding any accrued interest which a Tax-Free Bond Fund
paid on their acquisition), less any amortized market premium or plus any
amortized market or original issue discount during the period a Tax-Free Bond
Fund owned the securities, plus (ii) all interest accrued on the securities
since the last interest payment date during that period. Under normal market
conditions, in determining net asset value a Tax-Free Bond Fund values the
underlying Municipal Securities on an amortized cost basis. Accordingly, the
amount payable by a dealer upon exercise of a stand-by commitment will normally
be substantially the same as the portfolio value of the underlying Municipal
Securities.
A Fund's right to exercise stand-by commitments will be unconditional
and unqualified. A stand-by commitment will not be transferable by a Fund,
although the Fund could sell the underlying Municipal Securities to a third
party at any time. Until a Fund exercises its stand-by commitment, it owns the
securities in its portfolio which are subject to the stand-by commitment.
The Funds expect that stand-by commitments will generally be available
without the payment of any direct or indirect consideration. However, if
necessary or advisable, a Fund may pay for a stand-by commitment either
separately in cash or by paying a higher price for the security being acquired
which will be subject to the commitment (thus reducing the yield to maturity
otherwise available for the same security). When a Fund pays any consideration
directly or indirectly for a stand-by commitment, its cost will be reflected as
unrealized depreciation for the period during which the commitment is held by
that Fund. The Tax-Free Bond Funds will not acquire a stand-by commitment unless
immediately after the acquisition not more than 5% of the Funds' total assets
will be subject to a demand feature, or in stand-by commitments, with the same
institution.
Each Fund intends to enter into stand-by commitments only with banks and
broker/dealers which, in the Adviser's opinion, present minimal credit risks. In
evaluating the credit worthiness of the issuer of a stand-by commitment, the
Adviser will review periodically the issuer's assets, liabilities, contingent
claims, and other relevant financial information.
The Funds would acquire stand-by commitments solely to facilitate
portfolio liquidity and do not intend to exercise their rights thereunder for
trading purposes. Stand-by commitments acquired by a Fund will be valued at zero
in determining net asset value. A Fund's reliance upon the credit of these
dealers, banks, and broker/dealers will be secured by the value of the
underlying Municipal Securities that are subject to the commitment. Thus, the
risk of loss to the Fund in connection with a "stand-by commitment" will not be
qualitatively different from the risk of loss faced by a person that is holding
securities pending settlement after having agreed to sell the securities in the
ordinary course of business.
STRIPPED SECURITIES
Certain Funds may purchase stripped securities issued or guaranteed by
the U.S. Government, where the principal and interest components are traded
independently under the Separate Trading of Registered Interest and Principal of
Securities program ("STRIPS"). Under STRIPS, the principal and interest
components are individually numbered and separately issued by the U.S. Treasury
at the request of depository financial institutions, which then trade the
component parts independently.
In addition, the Fund may purchase stripped mortgage-backed securities
("SMBS") issued by the U.S. Government (or a U.S. Government agency or
instrumentality) or by private issuers such as banks and other institutions. If
the underlying obligations experience greater than anticipated prepayments of
principal, the Fund may fail to fully recover its initial investment. The market
value of the class consisting entirely of principal payments can be extremely
volatile in response to changes in interest rates. The yields on a class of SMBS
that receives all or most of the interest are generally higher than prevailing
market yields on other mortgage-backed obligations because their cash flow
patterns are also volatile and there is a greater risk that the initial
investment will not be full recovered. SMBS issued by the U.S. Government (or a
U.S. Government agency or instrumentality) may be considered liquid under
guidelines established by the Company's Board of Directors if they can be
disposed of promptly in the ordinary course of business at a value reasonably
close to that used in the calculation of the Fund's per share net asset value.
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Although stripped securities may not pay interest to holders prior to
maturity, Federal income tax regulations require a Fund to recognize as interest
income a portion of the bond's discount each year. This income must then be
distributed to shareholders along with other income earned by the Fund. To the
extent that any shareholders in the Fund elect to receive their dividends in
cash rather than reinvest such dividends in additional Fund shares, cash to make
these distributions will have to be provided from the assets of the Fund or
other sources such as proceeds of sales of Fund shares and/or sales of portfolio
securities. In such cases, the Fund will not be able to purchase additional
income producing securities with cash used to make such distributions and its
current income may ultimately be reduced as a result.
U.S. AND FOREIGN BANK OBLIGATIONS
These obligations include negotiable certificates of deposit, banker's
acceptances and fixed time deposits. Each Fund limits its investments in
domestic bank obligations to banks having total assets in excess of $1 billion
and subject to regulation by the U.S. Government. Each Fund may also invest in
certificates of deposit issued by members of the Federal Deposit Insurance
Corporation ("FDIC") having total assets of less than $1 billion, provided that
the Fund will at no time own more than $100,000 principal amount of certificates
of deposit (or any higher principal amount which in the future may be fully
covered by FDIC insurance) of any one of those issuers. Fixed time deposits are
obligations which are payable at a stated maturity date and bear a fixed rate of
interest. Generally, fixed time deposits may be withdrawn on demand by a Fund,
but they may be subject to early withdrawal penalties which vary depending upon
market conditions and the remaining maturity of the obligation. Although fixed
time deposits do not have a market, there are no contractual restrictions on a
Fund's right to transfer a beneficial interest in the deposit to a third party.
Each Fund limits its investments in foreign bank obligations (i.e.,
obligations of foreign branches and subsidiaries of domestic banks, and domestic
and foreign branches and agencies of foreign banks) to obligations of banks
which at the time of investment are branches or subsidiaries of domestic banks
which meet the criteria in the preceding paragraphs or are branches or agencies
of foreign banks which (i) have more than $10 billion, or the equivalent in
other currencies, in total assets; (ii) in terms of assets are among the 75
largest foreign banks in the world; (iii) have branches or agencies in the
United States; and (iv) in the opinion of the Adviser, pursuant to the
established by the Board of Directors of the Company, are of an investment
quality comparable to obligations of domestic banks which may be purchased by a
Fund. These obligations may be general obligations of the parent bank in
addition to the issuing branch or subsidiary, but the parent bank's obligations
may be limited by the terms of the specific obligation or by governmental
regulation. Each Fund also limits its investments in foreign bank obligations to
banks, branches and subsidiaries located in Western Europe (United Kingdom,
France, Germany, Belgium, The Netherlands, Italy and Switzerland), Scandinavia
(Denmark and Sweden), Australia, Japan, the Cayman Islands, the Bahamas and
Canada. Each Fund will limit its investment in securities of foreign banks to
not more than 20% of total assets at the time of investment.
Each Fund may also make interest-bearing savings deposits in commercial
and savings banks in amounts not in excess of 5% of the total assets of the
Fund.
U.S. GOVERNMENT OBLIGATIONS
Each Fund may invest in U.S. Government obligations. Examples of the
types of U.S. Government obligations that may be held by the Funds include, in
addition to U.S. Treasury bonds, notes and bills, the obligations of the Federal
Home Loan Banks, Federal Farm Credit Banks, Federal Land Banks, Federal Housing
Administration, Farmers Home Administration, Export-Import Bank of the United
States, Small Business Administration, Government National Mortgage Association,
Federal National Mortgage Association, General Services Administration, Student
Loan Marketing Association, Central Bank for Cooperatives, Federal Home Loan
Mortgage Corporation, Federal Intermediate Credit Banks, Tennessee Valley
Authority, Resolution Funding Corporation and Maritime Administration.
Obligations guaranteed as to principal or interest by the U.S. Government, its
agencies, authorities or instrumentalities are deemed to include: (a) securities
for which the payment of principal and interest is backed by an irrevocable
letter of credit issued by the U.S. Government, its agencies, authorities or
instrumentalities and (b) participations in loans made to foreign governments or
their agencies that are so guaranteed. The secondary market for certain of these
participations is limited. If such participations are illiquid they will not be
purchased.
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U.S. Government obligations include principal and interest components of
securities issued or guaranteed by the U.S. Treasury if the components are
traded independently under the Separate Trading of Registered Interest and
Principal of Securities program. Obligations issued or guaranteed as to
principal or interest by the U.S. Government, its agencies, authorities or
instrumentalities may also be acquired in the form of custodial receipts. These
receipts evidence ownership of future interest payments, principal payments or
both on certain notes or bonds issued by the U.S. Government, its agencies,
authorities or instrumentalities.
USE OF SEGREGATED AND OTHER SPECIAL ACCOUNTS
Options, futures and forward foreign currency contracts that obligate a
Fund to provide cash, securities or currencies to complete such transactions
will entail that Fund to either segregate assets in an account with, or on the
books of, the Company's custodian, or otherwise "covering" the transaction as
described below. For example, a call option written by a Fund will require the
Fund to hold the securities subject to the call (or securities convertible into
the needed securities without additional consideration) or liquid assets
sufficient to meet the obligation by purchasing and delivering the securities if
the call is exercised. A call option written on an index will require that Fund
to have portfolio securities that correlate with the index. A put option written
by a Fund also will require that Fund to have available assets sufficient to
purchase the securities the Fund would be obligated to buy if the put is
exercised.
A forward foreign currency contract that obligates a Fund to provide
currencies will require the Fund to hold currencies or liquid securities
denominated in a foreign currency which will equal the Fund's obligations. Such
a contract requiring the purchase of currencies also requires segregation.
Unless a segregated account consists of the securities, cash or
currencies that are the subject of the obligation, a Fund will hold cash, U.S.
Government securities and other high grade liquid debt obligations in a
segregated account. These assets cannot be transferred while the obligation is
outstanding unless replaced with other suitable assets. In the case of an
index-based transaction, a Fund could own securities substantially replicating
the movement of the particular index.
In the case of a futures contract, a Fund must deposit initial margin
and variation margin, as often as daily, if the position moves adversely,
sufficient to meet its obligation to purchase or provide securities or
currencies, or to pay the amount owed at the expiration of an index-based
futures contract. Similarly, options on futures contracts require a Fund to
deposit margin to the extent necessary to meet the Fund's commitments.
In lieu of such assets, such transactions may be covered by other means
consistent with applicable regulatory policies. A Fund may enter into
off-setting transactions so that its combined position, coupled with any
segregated assets, equals its net outstanding obligation in related options and
hedging transactions. For example, a Fund could purchase a put option if the
strike price of that option is the same or higher than the strike price of a put
option sold by that Fund. Moreover, instead of segregating assets if a Fund held
a futures or forward contract, it could purchase a put option on the same
futures or forward contract with a strike price as high or higher than the price
of the contract held. Of course, the off-setting transaction must terminate at
the time of or after the primary transaction.
VARIABLE- AND FLOATING-RATE INSTRUMENTS
Certain Funds may purchase variable-rate and floating rate obligations.
If such instrument is not rated, the Adviser will consider the earning power,
cash flows, and other liquidity ratios of the issuers and guarantors of such
obligations and, if the obligation is subject to a demand feature, will monitor
their financial status to meet payment on demand. In determining average
weighted portfolio maturity, a variable-rate demand instrument issued or
guaranteed by the U.S. Government or an agency or instrumentality thereof will
be deemed to have a maturity equal to the period remaining until the obligations
next interest rate adjustment. Other variable-rate obligations will be deemed to
have a maturity equal to the longer of the period remaining to the next interest
rate adjustment or the time a Fund can recover payment of principal as specified
in the instrument. Variable-rate demand notes held by a Money Market Fund may
have maturities of more than 397 days, provided (i) the Fund is entitled to
payment principal on not more than 30 days' notice, or at specified intervals
not exceeding 397 days (upon not more than 30 days' notice), and (ii) the rate
of interest on such note is adjusted automatically at periodic intervals which
may extend up to 397 days.
63
<PAGE>
The variable- and-floating rate demand instruments that the Funds may
purchase include participations in Municipal Securities purchased from and owned
by financial institutions, primarily banks. Participation interests provide a
Fund with a specified undivided interest (up to 100%) in the underlying
obligation and the right to demand payment of the unpaid principal balance plus
accrued interest on the participation interest from the institution upon a
specified number of days' notice, not to exceed 30 days. Each participation
interest is backed by an irrevocable letter of credit or guarantee of a bank
that the Adviser has determined meets the prescribed quality standards for the
Funds. The bank typically retains fees out of the interest paid on the
obligation for servicing the obligation, providing the letter of credit, and
issuing the repurchase commitment.
WARRANTS
Certain Funds are permitted to invest in warrants. Warrants are
privileges issued by corporations enabling the owner to subscribe to and
purchase a specified number of shares of the corporation at a specified price
during a specified period of time. The prices of warrants do not necessarily
correlate with the prices of the underlying securities. The purchase of warrants
involves the risk that the purchaser could lose the purchase value of the
warrant if the right to subscribe to additional shares is not exercised prior to
the warrant's expiration. Also, the purchase of warrants involves the risk that
the effective price paid for the warrant added to the subscription price of the
related security may exceed the value of the subscribed security's market price
such as when there is no movement in the level of the underlying security.
WHEN-ISSUED PURCHASES AND FORWARD COMMITMENTS
A Fund may agree to purchase securities on a when-issued basis or enter
into a forward commitment to purchase securities. When a Fund engages in these
transactions, its custodian will segregate cash, U.S. government securities or
other high quality debt obligations equal to the amount of the commitment.
Normally, the custodian will segregate portfolio securities to satisfy a
purchase commitment, and in such a case a Fund may be required subsequently to
segregate additional assets in order to ensure that the value of the segregated
assets remains equal to the amount of the Fund's commitment. Because a Fund will
segregate cash or liquid assets to satisfy its purchase commitments in the
manner described, the Fund's liquidity and ability to manage its portfolio might
be adversely affected in the event its commitments to purchase when-issued
securities ever exceeded 25% of the value of its assets. In the case of a
forward commitment to sell portfolio securities, the Fund's custodian will hold
the portfolio securities themselves in a segregated account while the commitment
is outstanding.
A Fund will make commitments to purchase securities on a when-issued
basis or to purchase or sell securities on a forward commitment basis only with
the intention of completing the transaction and actually purchasing or selling
the securities. If deemed advisable as a matter of investment strategy, however,
a Fund may dispose of or renegotiate a commitment after it is entered into, and
may sell securities it has committed to purchase before those securities are
delivered to the Fund on the settlement date. In these cases the Fund may
realize a capital gain or loss.
When a Fund engages in when-issued and forward commitment transactions,
it relies on the other party to consummate the trade. Failure of such party to
do so may result in the Fund's incurring a loss or missing an opportunity to
obtain a price considered to be advantageous.
64
<PAGE>
The value of the securities underlying a when-issued purchase or a
forward commitment to purchase securities, and any subsequent fluctuations in
their value, is taken into account when determining the net asset value of a
Fund starting on the date the Fund agrees to purchase the securities. The Fund
does not earn dividends on the securities it has committed to purchase until
they are paid for and delivered on the settlement date. When the Fund makes a
forward commitment to sell securities it owns, the proceeds to be received upon
settlement are included in the Fund's assets. Fluctuations in the value of the
underlying securities are not reflected in the Fund's net asset value as long as
the commitment remains in effect.
PORTFOLIO TURNOVER
Generally, the Equity Funds will purchase portfolio securities for
capital appreciation or investment income, or both, and not for short-term
trading profits. If a Fund's annual portfolio turnover rate exceeds 100%, it may
result in higher brokerage costs and possible tax consequences for the Portfolio
and its shareholders. For the Funds' portfolio turnover rates, see the
"Financial Highlights" in the Prospectus.
INVESTMENT RISKS
In addition to the risks identified in certain of the securities
descriptions above, there also are general investment risks associated with an
investment in any of the Funds.
Investments by a Fund in common stocks and other equity securities are
subject to stock market risks. The value of the stocks that the Fund holds, like
the broader stock market, may decline over short or even extended periods. The
U.S. stock market tends 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 market, as measured by the S&P 500 Index and other
commonly used indexes, was trading at or close to record levels. There can be no
guarantee that these levels will continue.
Nations Marsico Focused Equities Fund, as a non-diversified fund, may
invest in fewer issuers than diversified funds such as Nations Marsico Growth &
Income Fund. Therefore, appreciation or depreciation of an investment in a
single issuer could have a greater impact on the Fund's net asset value. The
Fund reserves the right to become a diversified fund by limiting the investments
in which more than 5% of its total assets are invested.
The value of a Fund's investments in debt securities, including U.S.
Government Obligations, will tend to decrease when interest rates rise and
increase when interest rates fall. In general, longer-term debt instruments tend
to fluctuate in value more than shorter-term debt instruments in response to
interest rate movements. In addition, debt securities that are not backed by the
United States Government are subject to credit risk, which is the risk that the
issuer may not be able to pay principal and/or interest when due. In addition,
obligations with the lowest investment grade rating (E.G., "BBB" by Standard &
Poor's Corporation ("S&P") or "Baa" by Moody's Investors Service, Inc.
("Moody's")) have speculative characteristics and changes in economic conditions
or other circumstances are more likely to lead to a weakened capacity to make
principal and interest payments than is the case with higher grade debt
obligations. Subsequent to its purchase by the Fund, an issue of securities may
cease to be rated or its rating may be reduced below the minimum rating required
for purchase by the Fund. The Adviser will consider such an event in determining
whether the Fund should continue to hold the obligation. Unrated obligations may
be acquired by the Fund if they are determined by the Adviser to be of
comparable quality at the time of purchase to rated obligations that may be
acquired.
Certain of the Funds' investments constitute derivative securities,
which are securities whose value is derived, at least in part, from an
underlying index or reference rate. There are certain types of derivative
securities that can, under certain circumstances, significantly increase a
purchaser's exposure to market or other risks. The Adviser, however, only
purchases derivative securities in circumstances where it believes such
purchases are consistent with such Fund's investment objective and do not unduly
increase the Fund's exposure to market or other risks. For additional risk
information regarding the Funds' investments in particular instruments, see
"Appendix A -- Fund Securities."
65
<PAGE>
Certain of the Funds may invest in securities of smaller and newer
issuers. Investments in such companies may present greater opportunities for
capital appreciation because of high potential earnings growth, but also present
greater risks than investments in more established companies with longer
operating histories and greater financial capacity.
MANAGEMENT OF THE COMPANIES
The business and affairs of the Companies are managed under the
direction of their respective Boards of Directors/Trustees. This SAI contains
the names of and general background information concerning each Trustee/Director
of the Companies.
The Companies 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.
The Directors/Trustees and executive officers of each Company and their
principal occupations during the last five years are set forth below. The
address of each, unless otherwise indicated, is 111 Center Street, Little Rock,
Arkansas 72201. Those directors who are "interested persons" of a Company (as
defined in the 1940 Act) are indicated by an asterisk(*).
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS
DURING PAST 5 YEARS
POSITION WITH AND CURRENT
NAME ADDRESS AND AGE THE COMPANIES DIRECTORSHIPS
- -------------------- ------------- -------------
<S> <C> <C>
Edmund L. Benson, III, 61 Director/Trustee Director, President and Treasurer, Saunders &
Saunders & Benson, Inc. Benson, Inc. (Insurance); Trustee, Nations
728 East Main Street Institutional Reserves, Nations Annuity Trust and
Suite 400 NFT, Director, NFI, Nations LifeGoal Funds, Inc.,
Richmond, VA 23219 and NFP
James Ermer, 55 Director/Trustee Senior Vice President- Finance, CSX Corporation
13705 Hickory Nut Point (transportation and natural resources); Director,
Midlothian, VA 23112 National Mine Service; Director, Lawyers Title
Corporation; Trustee, Nations Institutional
Reserves, Nations Annuity Trust and NFT; Director,
NFI, Nations LifeGoal Funds, Inc., and NFP.
William H. Grigg, 65 Director /Trustee Chairman Emeritus, Duke Power Co., since July,
Duke Power Co. 1997; April 1994 to July 1997, Chairman and Chief
422 South Church Street Executive Officer; November 1991 to April 1994,
PB04G Vice Chairman, from April 1988 to November 1991,
Charlotte, NC 28242-0001 Executive Vice President -- Customer Group,
Director, Coltec Industries, Hatteras Income
Securities, Inc., Nations Government Income Term
Trust 2003, Inc., Nations Government Income Term
Trust 2004, Inc., Nations Balanced Target Maturity
Fund, Inc., NFI, Nations LifeGoal Funds, Inc. and
NFP; Trustee, Nations Institutional Reserves,
Nations Annuity Trust and NFT.
</TABLE>
66
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS
DURING PAST 5 YEARS
POSITION WITH AND CURRENT
NAME ADDRESS AND AGE THE COMPANIES DIRECTORSHIPS
- -------------------- ------------- -------------
<S> <C> <C>
Thomas F. Keller, 66 Director/Trustee R.J. Reynolds Industries Professor of Business
Fuqua School of Business Administration and former Dean, Fuqua School of
P.O. Box 90120 Business, Duke University; Director, LADD
Duke University Furniture, Inc.; Director, Wendy's International
Durham, NC 27708 Inc., American Business Products, Dimon Inc.,
Biogen, Inc., Hatteras Income Securities, Inc.,
Nations Government Income Term Trust 2003, Inc.,
Nations Government Income Term Trust 2004, Inc.,
Nations Balanced Target Maturity Fund, Inc., NFI,
Nations LifeGoal Funds, Inc., and NFP; Trustee,
Nations Institutional Reserves, Nations Annuity
Trust, NFT, the Mentor Funds, Mentor Institutional
Trust, Cash Resource Trust.
Carl E. Mundy, Jr., 63 Director/Trustee Commandant, United States Marine Corps, from July
9308 Ludgate Drive 1991 to July 1995; Commanding General, Marine
Alexandria, VA 22309 Forces Atlantic, from June 1990 to June 1991;
Director, NFI, Nations LifeGoal Funds, Inc., and
NFP; Trustee, Nations Institutional Reserves,
Nations Annuity Trust and NFT.
James B. Sommers*, 59 Director/Trustee President, NationsBank Trust, from January 1992 to
237 Cherokee Road September 1996; Executive Vice President,
Charlotte, NC 28207 NationsBank Corporation, from January 1992 to May
1997; Principal, Bainbridge & Associates; Partner,
Villa LLC; Chairman, Central Piedmont Community
College Foundation; Trustee, Central Piedmont
Community College; Board of Commissioners,
Charlotte/Mecklenberg Hospital Authority;
Director, NFI, NFP and Nations LifeGoal Funds,
Inc.; Trustee, Nations Institutional Reserves,
Nations Annuity Trust and NFT.
A. Max Walker*, 76 President, Financial consultant; Formerly, President, A. Max
4580 Windsor Gate Court Director/Trustee and Walker, Inc.; Director and Chairman of the Board,
Atlanta, GA 30342 Chairman of the Board Hatteras Income Securities, Inc., Nations
Government Income Term Trust 2003, Inc., Nations
Government Income Term Trust 2004, Inc., Nations
Balanced Target Maturity Fund, Inc., NFI, Nations
LifeGoal Funds, Inc., and Nations Fund Portfolios.
Inc.; President and Chairman of the Board of
Trustees, Nations Institutional Reserves, Nations
Annuity Trust and NFT.
</TABLE>
67
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS
DURING PAST 5 YEARS
POSITION WITH AND CURRENT
NAME ADDRESS AND AGE THE COMPANIES DIRECTORSHIPS
- -------------------- ------------- -------------
<S> <C> <C>
Charles B. Walker, 59 Director/Trustee Since 1989, Director, Executive Vice President,
Ethyl Corporation Chief Financial Officer and Treasurer, Ethyl
330 South Fourth Street Corporation (chemicals, plastics, and aluminum
Richmond, VA 23219 manufacturing); since 1994, Vice Chairman, Ethyl
Corporation and Vice Chairman, Chief Financial
Officer and Treasurer, Albemarle Corporation,
Director, NFI, Nations LifeGoal Funds, Inc, and
NFP; Trustee, Nations Institutional Reserves,
Nations Annuity Trust and NFT.
Thomas S. Word, Jr.*, 60 Director/Trustee Partner, McGuire Woods Battle & Boothe (law);
McGuire, Woods, Battle & Boothe Director, Vaughan Bassett Furniture Company,
One James Center Director VB Williams Furniture Company, Inc.;
Richmond, VA 23219 Director, NFI, Nations LifeGoal Funds, Inc., and
NFP; Trustee, Nations Institutional Reserves,
Nations Annuity Trust and NFT.
Richard H. Blank, Jr., 41 Secretary, Treasurer Since 1994, Vice President of Mutual Fund
Stephens Inc. Services, Stephens Inc. 1990 to 1994, Manager
111 Center Street Mutual Fund Services, Stephens Inc. 1983 to 1990,
Suite 300 Associate in Corporate Finance Department,
Little Rock, AR 72201 Stephens Inc.; Secretary, Nations Institutional
Reserves, Nations Annuity Trust, NFT, NFI, Nations
LifeGoal Funds, Inc., and NFP
Michael W. Nolte, 37 Assistant Secretary Associate, Financial Services Group of Stephens
Stephens Inc. Inc.
111 Center Street
Suite 300
Little Rock, AR 72201
James E. Banks, 42 Assistant Secretary Since 1993, Attorney, Stephens Inc.; Associate
Stephens Inc. Corporate Counsel, Federated Investors; from 1991
111 Center Street to 1993, Staff Attorney, Securities and Exchange
Suite 300 Commission from 1988 to 1991
Little Rock, AR 72201
Steven Levy, 33 Assistant Treasurer Since 1997, Vice President of Fund Accounting,
First Data Investor Services Group, First Data Investor Services Group, Inc.; Prior to
Inc. 1997, Investment Operations Manager, Franklin
One Exchange Place Templeton Group and Assistant Vice President of
Boston, MA 02109 Fund Accounting, Scudder Stevens and Clark, Inc.
</TABLE>
Each Director/Trustee is a board member of NFI, NFT, NFP, Nations
Annuity Trust, Nations Institutional Reserves and Nations LifeGoal Funds, Inc.,
each a registered investment company that is part of the Nations Funds family.
Richard H. Blank, Jr., Steven Levy, Michael W. Nolte, and James E. Banks. Jr.
also are officers of NFI, NFT, NFP, Nations Annuity Trust, Nations Institutional
Reserves and Nations LifeGoal Funds, Inc.
68
<PAGE>
Each Director/Trustee receives (i) an annual retainer of $1,000 ($3,000
for the Chairman of the Board) plus $500 for each Fund of each Company, plus
(ii) a fee of $1,000 for attendance at each "in-person" meeting of the Board of
Directors/Trustees (or committee thereof). All Directors/Trustees receive
reimbursements for expenses related to their attendance at meetings of the Board
of Directors/Trustees. Officers receive no direct remuneration in such capacity
from the Companies. No person who is an officer, director, trustee, or employee
of NationsBank or its affiliates serves as an Officer, Director, Trustee or
employee of the company. As of the date of this SAI, the directors and officers
of each Company as a group owned less than 1% of the outstanding shares of each
of the Funds. Each Company has adopted a Code of Ethics which, among other
things, prohibits each access person of the Company from purchasing or selling
securities when such person knows or should have known that, at the time of the
transaction, the security (i) was being considered for purchase or sale by a
Fund, or (ii) was being purchased or sold by a Fund. For purposes of the Code of
Ethics, an access person means (i) a director or officer of a Company, (ii) any
employee of a Company (or any company in a control relationship with a Company)
who, in the course of his/her regular duties, obtains information about, or
makes recommendations with respect to, the purchase or sale of securities by a
Company, and (iii) any natural person in a control relationship with a Company
who obtains information concerning recommendations made to a Company regarding
the purchase or sale of securities. Portfolio managers and other persons who
assist in the investment process are subject to additional restrictions,
including a requirement that they disgorge to a Company any profits realized on
short-term trading (i.e., the purchase/sale or sale/purchase of securities
within any 60-day period). The above restrictions do not apply to purchases or
sales of certain types of securities, including mutual fund shares, money market
instruments and certain U.S. Government securities. To facilitate enforcement,
the Code of Ethics generally requires that a Company's access persons, other
than its "disinterested" directors, submit reports to a Company's designated
compliance person regarding transactions involving securities which are eligible
for purchase by a Fund.
NATIONS FUNDS RETIREMENT PLAN
Under the terms of the Nations Funds Retirement Plan for Eligible
Directors/Trustees (the "Retirement Plan"), each director/trustee may be
entitled to certain benefits upon retirement from the Board of
Directors/Trustees. Pursuant to the Retirement Plan, the normal retirement date
is the date on which the eligible director/trustee has attained age 65 and has
completed at least five years of continuous service with one or more of the
open-end investment companies advised by the Adviser. If a director/trustee
retires before reaching age 65, no benefits are payable. Each eligible
director/trustee is entitled to receive an annual benefit from the Funds
commencing on the first day of the calendar quarter coincident with or next
following his date of retirement equal to 5% of the aggregate
director's/trustee's fees payable by the Funds during the calendar year in which
the director's/trustee's retirement occurs multiplied by the number of years of
service (not in excess of ten years of service) completed with respect to any of
the Funds. Such benefit is payable to each eligible director/trustee in
quarterly installments for a period of no more than five years. If an eligible
director/trustee's dies after attaining age 65, the director's/trustees
surviving spouse (if any) will be entitled to receive 50% of the benefits that
would have been paid (or would have continued to have been paid) to the
director/trustee if he had not died. The Retirement Plan is unfunded. The
benefits owed to each director/trustee are unsecured and subject to the general
creditors of the Funds.
NATIONS FUNDS DEFERRED COMPENSATION PLAN
Under the terms of the Nations Funds Deferred Compensation Plan for
Eligible Directors (the "Deferred Compensation Plan"), each director/trustee may
elect, on an annual basis, to defer all or any portion of the annual board fees
(including the annual retainer and all attendance fees) payable to the
director/trustee for that calendar year. An application was submitted to and
approved by the SEC to permit deferring directors/trustees to elect to tie the
rate of return on fees deferred pursuant to the Deferred Compensation Plan to
one or more of certain investment portfolios of certain Funds. Distributions
from the deferring directors'/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/trustee's
termination of service. If a deferring director/trustee dies prior to the
commencement of the distribution of amounts in his deferral account, the balance
of the deferral account will be distributed to his designated beneficiary in a
lump sum as soon as practicable after the director's/trustee's death. If a
deferring director dies after the commencement of such distribution, but prior
to the complete distribution of his deferral account, the balance of the amounts
credited to his deferral account will be distributed to his designated
beneficiary over the remaining period during which such amounts were
distributable to the director. Amounts payable under the Deferred Compensation
Plan are not funded or secured in any way and deferring directors/trustees have
the status of unsecured creditors of the Funds from which they are deferring
compensation.
69
<PAGE>
<TABLE>
<CAPTION>
COMPENSATION TABLE
AGGREGATE AGGREGATE PENSION OR ESTIMATED TOTAL COMPENSATION
AGGREGATE COMPENSATION COMPENSATION RETIREMENT BENEFITS ANNUAL FROM REGISTRANT
NAME OF PERSON COMPENSATION FROM FROM ACCRUED AS PART OF BENEFITS UPON AND FUND
POSITION (1) FROM NFT (2) NFI (2) NFP (2) FUND EXPENSES RETIREMENT COMPLEX (3)(4)
------------ ------------ ------- ------- ------------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C>
Edmund L. Benson, III, $24,500.00 $11,000.00 $7,500.00 $4,431.53 $30,000.00 $86,201.07
Trustee
James Ermer $24,500.00 $11,000.00 $7,500.00 $4,431.53 $30,000.00 $59,000.00
Trustee
William H. Grigg $24,500.00 $11,000.00 $7,500.00 $4,431.53 $30,000.00 $117,533.68
Trustee
Thomas F. Keller $24,500.00 $11,000.00 $7,500.00 $4,431.53 $30,000.00 $116,115.17
Trustee
Carl E. Mundy, Jr. $23,500.00 $10,000.00 $6,500.00 $4,431.53 $30,000.00 $54,000.00
Trustee
James Sommers $18,625.00 $8,250.00 $5,375.00 $4,431.53 $30,000.00 $43,875.00
Trustee
A. Max Walker $26,500.00 $13,000.00 $9,500.00 $4,431.53 $35,000.00 $89,000.00
Chairman of the Board
Charles B. Walker $24,500.00 $11,000.00 $7,500.00 $4,431.53 $30,000.00 $59,000.00
Trustee
Thomas S. Word $24,500.00 $11,000.00 $7,500.00 $4,431.53 $30,000.00 $109,255.23
Trustee
</TABLE>
(1) All directors/trustees receive reimbursements for expenses related
to their attendance at meetings of the Board of Directors/Trustees. Officers of
the Companies receive no direct remuneration in such capacity from the
Companies.
(2) For the twelve-month period ending March 31, 1998, each
Director/Trustee receives (i) an annual retainer of $1,000 ($3,000 for the
Chairman of the Board) plus $500 for each Fund of the Companies, plus (ii) a fee
of $1,000 for attendance at each "in-person" meeting of the Board of Trustees
(or committee thereof) and $500 for attendance at each other meeting of the
Board of Directors/Trustees (or Committee thereof).
(3) Messrs. Grigg, Keller and A.M. Walker receive compensation from nine
investment companies that are deemed to be part of the Nations Funds "fund
complex," as that term is defined under Rule 14a-101 of the Securities Exchange
Act of 1934, as amended. Messrs. Benson, Ermer, C. Walker, Sommers, Mundy and
Word receive compensation from five investment companies deemed to be part of
the Nations Funds complex.
(4) Total compensation amounts include deferred compensation (including
interest) payable to or accrued for the following Directors/Trustees: Edmund L.
Benson, III $53,201; William H. Grigg $94,534; Thomas F. Keller $93,115; and
Thomas S. Word $102,255.
70
<PAGE>
SHAREHOLDER AND TRUSTEE LIABILITY
NFT is a Massachusetts business trust. Under Massachusetts law,
shareholders of a business trust may, under certain circumstances, be held
personally liable as partners for the obligations of the trust. However, NFT's
Declaration of Trust provides that shareholders shall not be subject to any
personal liability for the acts or obligations of NFT, and that every note,
bond, contract, order, or other undertaking made by NFT shall contain a
provision to the effect that the shareholders are not personally liable
thereunder. The Declaration of Trust provides for indemnification out of the
trust property of any shareholder held personally liable solely by reason of his
being or having been a shareholder and not because of his acts or omissions or
some other reason. The Declaration of Trust also provides that NFT shall, upon
request, assume the defense of any claim made against any shareholder for any
act or obligation of NFT and shall satisfy any judgment thereon. Thus, the risk
of a shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which NFT itself would be unable to meet its
obligations.
The Declaration of Trust states further that no Trustee, officer, or
agent of NFT shall be personally liable for or on account of any contract, debt,
tort, claim, damage, judgment, or decree arising out of or connected with the
administration or preservation of the trust estate or the conduct of any
business of NFT; nor shall any Trustee be personally liable to any person for
any action or failure to act except by reason of his own bad faith, willful
misfeasance, gross negligence, or reckless disregard of his duties as Trustee.
The Declaration of Trust also provides that all persons having any claim against
the Trustees or NFT shall look solely to the trust property for payment.
With the exceptions stated, the Declaration of Trust provides that a
Trustee is entitled to be indemnified against all liabilities and expenses
reasonably incurred by him in connection with the defense or disposition of any
proceeding in which he may be involved or with which he may be threatened by
reason of his being or having been a Trustee, and that the Trustees have the
power, but not the duty, to indemnify officers and employees of NFT unless any
such person would not be entitled to indemnification had he or she been a
Trustee.
INVESTMENT ADVISORY, ADMINISTRATION, CUSTODY,
TRANSFER AGENCY, OTHER SERVICE PROVIDERS, SHAREHOLDER SERVICING
AND DISTRIBUTION AGREEMENTS
INVESTMENT ADVISER AND SUB-ADVISERS
NBAI serves as investment adviser to all of the Funds of the Companies,
pursuant to Investment Advisory Agreements dated January 1, 1996, and amended
thereafter. Brandes serves as investment sub-adviser to the International Value
Fund, pursuant to an Investment Sub-Advisory Agreement dated as of April 8,
1998. Gartmore serves as investment sub-adviser to Funds of NFP and to the
International Equity Fund and International Growth Fund, pursuant to Investment
Sub-Advisory Agreements dated January 1, 1996, and amended thereafter. Boatmen's
serves as investment sub-adviser to the Government Bond Fund, pursuant to an
Investment Sub-Advisory Agreement dated July 31, 1997. Marsico Capital serves as
investment sub-adviser to the Marsico Focused Equities Fund and Marsico Growth &
Income Fund, pursuant to an Investment Sub-Advisory Agreement, dated December
31, 1997. TradeStreet serves as investment sub-adviser to all other Funds of the
NFI and NFT, pursuant to Investment Sub-Advisory Agreements, dated January 1,
1996, and amended thereafter.
NBAI also serves as the investment adviser to the portfolios of Nations
Institutional Reserves, Nations Annuity Trust, Nations LifeGoal Funds, Inc.,
each a registered investment company that is part of the Nations Funds Family.
In addition, NBAI serves as the investment advisor to Hatteras Income
Securities, Inc., Nations Government Income Term Trust 2003, Inc., Nations
Government Income Term Trust 2004, Inc. and Nations Balanced Target Maturity
Fund, Inc., each a closed-end diversified management investment company traded
on the New York Stock Exchange. TradeStreet also serves as the sub-investment
adviser to Nations Institutional Reserves, Nations Annuity Trust, Hatteras
Income Securities, Inc., Nations Government Income Term Trust 2003, Inc.,
Nations Government Income Term Trust 2004, Inc. and Nations Balanced Target
Maturity Fund, Inc.
NBAI and TradeStreet are each wholly owned subsidiaries of Nations Bank,
which in turn is a wholly owned banking subsidiary of NationsBank Corporation, a
bank holding company organized as a North Carolina corporation. Gartmore is a
joint venture structured as a Delaware general partnership between NB Partner
Corp., a wholly owned subsidiary of NationsBank and Gartmore U.S. Limited, an
indirect wholly owned subsidiary of Gartmore Investment Management plc
("Gartmore plc"), a publicly listed U.K. company. National Westminster Bank plc
and affiliated parties (collectively, "NatWest) own 100% of the equity of
Gartmore plc. Gartmore is a registered investment adviser in the United States
and a member of the Investment Management Regulatory Organization Limited, a
U.K. regulatory authority. The respective principal offices of NBAI, TradeStreet
and Gartmore are located at One NationsBank Plaza, Charlotte, N.C. 28255.
Boatmen's is an indirect wholly owned subsidiary of NationsBank Corporation, a
bank holding company organized as a North Carolina corporation. Boatmen's
principal office is located at 100 North Broadway, St. Louis, Missouri 63178.
Marsico Capital is located at 1200 17th Street, Suite 1300, Denver, CO 80202.
NationsBank has an option to purchase up to 50% of Marsico Capital.
71
<PAGE>
Prior to April 10, 1996, the predecessor to Gartmore, Nations Gartmore
Investment Management ("Nations Gartmore"), provided sub-advisory services to
NBAI and Nations International Equity Fund and Nations International Growth
Fund. Nations Gartmore was a joint venture structured as a general partnership
between NB Partner Corp. and Gartmore U.S. Limited. On April 10, 1996, NatWest
purchased control of Gartmore plc from Compagnie de Suez, S.A. and affiliated
entities (collectively, "Compagnie de Suez") through a two-part transaction
involving (1) the direct purchase from Compagnie de Suez of its indirect
subsidiary Indosuez UK Asset Management Limited, which held 75% of the
outstanding voting shares of Gartmore plc; and (2) the acquisition of the
remaining portion of Gartmore plc's shares held by public shareholders through a
tender offer. This acquisition resulted in the change of control of Nations
Gartmore and the creation of a successor entity, Gartmore. On July 17, 1996, the
shareholders of Nations International Equity Fund and Nations International
Growth Fund approved the new sub-advisory arrangements with Gartmore. There were
no material changes to the personnel who provided service to NFP, the
International Equity Fund, or the Nations International Growth Fund, and the
change in ownership did not result in a change in the level of service provided
NFP, the International Equity Fund, or the Nations International Growth Fund or
the level of sub-advisory fees.
Brandes Investment Partners, Inc. owns a controlling interest in Brandes
Investment Partners, L.P. and serves as its General Partner. Charles Brandes is
the controlling shareholder of Brandes Investment Partners, Inc. The principal
offices of Brandes are located at 12750 High Bluff Drive, San Diego, CA 92130.
Thomas F. Marsico is Chairman and Chief Executive Officer of Marsico
Capital and has voting control of the company. Prior to forming Marsico Capital
in September 1997, Mr. Marsico had 18 years of experience as a securities
analyst/portfolio manager.
Prior to January 1, 1996, NationsBank, through its investment management
division, served as investment adviser to the Funds. NationsBank is successor to
NationsBank of North Carolina, N.A. which was merged with and into NationsBank
of South Carolina, N.A., effective January 3, 1995. The resulting entity was
renamed NationsBank, N.A. (Carolinas). NationsBank is a wholly owned subsidiary
of NationsBank Corporation, a bank holding company. Prior to June 30, 1992,
NationsBank of Georgia, N.A. served as the Investment Adviser to NFT. On
December 31, 1991 an Agreement and Plan of Consolidation between NCNB
Corporation ("NCNB") and C&S Sovran Corporation ("C&S/Sovran") was consummated
whereby C&S/Sovran was merged into and became a wholly owned subsidiary of NCNB
and NCNB changed its name to NationsBank Corporation. In anticipation of this
transaction, the prior investment adviser for NFT was changed from Sovran Bank,
N.A., to C&S/Sovran Trust Company (Georgia), N.A. After the merger of C&S/Sovran
and NCNB was completed, C&S Sovran Trust Company (Georgia), N.A., changed its
name to NationsBank Trust Company (Georgia), N.A., and subsequently merged into
NationsBank of Georgia, N.A. which continued to serve as the investment adviser
to Nations Fund Trust until June 30, 1992. Prior to the merger of NCNB and
C&S/Sovran, NationsBank (formerly NCNB National Bank of North Carolina) served
as investment adviser to all of the Funds of NFT pursuant to an amendment to its
investment advisory agreements.
Since 1874, NationsBank and its predecessors have been managing money
for foundations, universities, corporations, institutions and individuals.
Today, NationsBank affiliates collectively manage in excess of $100 billion,
including the more than $40 billion in mutual fund assets. It is a company
dedicated to a goal of providing responsible investment management and superior
service. NationsBank is recognized for its sound investment approaches, which
place it among the nation's foremost financial institutions. NationsBank and its
affiliates organization makes available a wide range of financial services to
its over 6 million customers through over 1700 banking and investment centers.
72
<PAGE>
Pursuant to the terms of the Investment Advisory Agreements and
Sub-Advisory Agreements (at times, the "Advisory Agreements") with NBAI,
TradeStreet, Gartmore, Boatman's, Brandes and Marsico Capital, subject at all
times to the control of the respective Companies' Boards of Directors/Trustees
and conformance with the stated policies of each Company, NBAI, TradeStreet,
Gartmore, Boatman's, Brandes and Marsico Capital each selects and manages the
investments of the Funds. Each such advisory entity obtains and evaluates
economic, statistical and financial information to formulate and implement
investment policies for the Funds.
The Advisory Agreements for NBAI, TradeStreet, Gartmore, Boatmen's
Brandes and Marsico Capital each provide that in the absence of willful
misfeasance, bad faith, negligence or reckless disregard of obligations or
duties thereunder on the part of NBAI or Trade Street, respectively, or any of
their respective officers, directors, employees or agents, NBAI or TradeStreet
shall not be subject to liability to the Company or to any shareholder of the
Company for any act or omission in the course of, or connected with, rendering
services under thereunder or for any losses that may be sustained in the
purchase, holding or sale of any security.
An Investment Advisory Agreement with NBAI shall become effective with
respect to a Fund if and when approved by the Boards of a Company, and if so
approved, shall thereafter continue from year to year, provided that such
continuation of the Agreement is specifically approved at least annually by (a)
(i) the Company's Board of Directors/Trustees or (ii) the vote of "a majority of
the outstanding voting securities" of a Fund (as defined in Section 2(a)(42) of
the 1940 Act), and (b) the affirmative vote of a majority of the Company's
Directors/Trustees who are not parties to such Agreement or "interested persons"
(as defined in the 1940 Act) of a party to such Agreement (other than as
Directors of the Company), by votes cast in person at a meeting specifically
called for such purpose. The respective Investment Advisory Agreement will
terminate automatically in the event of its assignment, and is terminable with
respect to a Fund at any time without penalty by a Company (by vote of the Board
of Directors/Trustees or by vote of a majority of the outstanding voting
securities of the Fund) or by NBAI on 60 days' written notice.
A Sub-Advisory Agreement with TradeStreet shall become effective with
respect to each Fund as of its execution date and, unless sooner terminated,
shall continue in full force and effect for one year, and may be continued with
respect to each Fund thereafter, provided that the continuation of the Agreement
is specifically approved at least annually by (a) (i) the Company's Board of
Directors (ii) the vote of "a majority of the outstanding voting securities" of
a Fund (as defined in Section 2(a)(42) of the 1940 Act), and (b) the affirmative
vote of a majority of the Company's Directors who are not parties to such
Agreement or "interested persons" (as defined in the 1940 Act) of a party to
such Agreement (other than as Directors of the Company), by votes cast in person
at a meeting specifically called for such purpose. The Sub-Advisory Agreement
will terminate automatically in the event of its assignment, and is terminable
with respect to a Fund at any time without penalty by the Company (by vote of
the Board of Directors or by vote of a majority of the outstanding voting
securities of the Fund), or by NBAI, or by TradeStreet on 60 days' written
notice.
The Sub-Advisory Agreement with Gartmore was initially approved by NFP's
Board of Directors on January 26, 1995 and by the initial shareholder on June
30, 1995. The Sub-Advisory Agreement will continue in effect for an initial term
of two years from its effective date and continues in effect from year to year
thereafter only if such continuance is specifically approved at least annually
by the Company's Board of Directors and the affirmative vote of a majority of
the directors who are not parties to the Sub-Advisory Agreement or "interested
persons" of any such party by votes cast in person at a meeting called for such
purpose. The respective Funds, NBAI or Gartmore may terminate the Sub-Advisory
Agreement, on 60 days' written notice without penalty. The Advisory Agreement
terminates automatically in the event of its "assignment," as defined in the
1940 Act. The Sub-Advisory Agreement with Gartmore provides that Gartmore shall
not be liable to the Company or to its shareholders for any act or omission by
Gartmore or for any loss sustained by the Company or by its shareholders except
in the case of Gartmore's willful misfeasance, bad faith, gross negligence or
reckless disregard of duty on the part of Gartmore, as the case may be.
73
<PAGE>
The Sub-Advisory Agreement with Boatmen's became effective on July 31,
1997 and it shall thereafter continue from year to year, provided that such
continuation of the Agreement is specifically approved at least annually by
(a)(i) the Company's Board of Directors or (ii) the vote of "a majority of the
outstanding voting securities" of a Fund (as defined in Section 2(a)(42) of the
1940 Act), and (b) the affirmative vote of a majority of the Company's Directors
who are not parties to such Agreement or "interested persons" (as defined in the
1940 Act) of a party to such Agreement (other than as Directors of the Company),
by votes cast in person at a meeting specifically called for such purpose. Each
Advisory Agreement will terminate automatically in the event of its assignment,
and is terminable with respect to a Fund at any time without penalty by the
Company (by vote of the Board of Directors or by vote of a majority of the
outstanding voting securities of the Fund) or by the Adviser on 60 days' written
notice. The Sub-Advisory Agreement provides that the Adviser shall not be liable
to the Company or to its shareholders for any act or omission by Boatmen's or
for any loss sustained by the Company or by its shareholders except in the case
of such Adviser's willful misfeasance, bad faith, gross negligence or reckless
disregard of duty on the part of such Adviser, as the case may be.
The Sub-Advisory Agreement with Brandes was initially approved by NFI's
Board of Directors on February 4, 1998. The Sub-Advisory Agreement will continue
in effect for an initial term of two years from its effective date and continues
in effect from year to year thereafter only if such continuance is specifically
approved at least annually by the Company's Board of Directors and the
affirmative vote of a majority of the directors who are not parties to the
Sub-Advisory Agreement or "interested persons" of any such party by votes cast
in person at a meeting called for such purpose. The Fund, NBAI or Brandes may
terminate the Sub-Advisory Agreement, on 60 days' written notice without
penalty. The Sub-Advisory Agreement terminates automatically in the event of its
"assignment," as defined in the 1940 Act. The Sub-Advisory Agreement with
Brandes provides that Brandes shall not be liable to the Company or to its
shareholders for any act or omission by Brandes or for any loss sustained by the
Company or by its shareholders except in the case of Brandes' willful
misfeasance, bad faith, gross negligence or reckless disregard of duty on the
part of Brandes, as the case may be.
The Investment Sub-Advisory Agreement with Marsico Capital was initially
approved by NFT's Board of Trustees on December 7, 1997 and is effective for a
two year period and shall thereafter continue from year to year, provided that
such continuation of the Agreement is specifically approved at least annually by
(a)(i) NFT's Board of Trustees or (ii) the vote of "a majority of the
outstanding voting securities" of a Fund (as defined in Section 2(a)(42) of the
1940 Act), and (b) the affirmative vote of a majority of NFT's Trustees who are
not parties to such Agreement or "interested persons" (as defined in the 1940
Act) of a party to such Agreement (other than as Trustees of NFT), by votes cast
in person at a meeting specifically called for such purpose. The Investment
Sub-Advisory Agreement will terminate automatically in the event of its
assignment, and is terminable with respect to a Fund at any time without penalty
by NFT (by vote of the Board of Trustees or by vote of a majority of the
outstanding voting securities of the Fund) or by NBAI on 60 days' written
notice. The Sub-Advisory Agreement shall become effective for a two-year term
with respect to each Fund as of its execution date and, unless sooner
terminated, shall continue in full force and effect for one year, and may be
continued with respect to each Fund thereafter, provided that the continuation
of the Agreement is specifically approved at least annually by (a)(i) NFT's
Board of Trustees or (ii) the vote of "a majority of the outstanding voting
securities" of the Fund (as defined in Section 2(a)(42) of the 1940 Act), and
(b) the affirmative vote of a majority of NFT's Trustees who are not parties to
such Agreement or "interested persons" (as defined in the 1940 Act) of a party
to such Agreement (other than as Trustees of NFT), by votes cast in person at a
meeting specifically called for such purpose.
The Funds, in any advertisement or sales literature, may advertise the
names, experience and/or qualifications of the portfolio manager(s) of any Fund,
or if a Fund is managed by team or committee, such Fund may advertise the names,
experience and/or qualifications of any such team or committee member.
The Adviser may waive a portion of its fees; however, any such waiver
may be discontinued at any time. As discussed under the caption "Expenses,"
NBAI, TradeStreet and Gartmore will be required to reduce their fees from the
Funds, in direct proportion to the fees payable by the Funds to NBAI,
TradeStreet, Gartmore, Brandes, Boatmen's, Marsico Capital and the
Administrator, if the expenses of the Funds exceed the applicable expense
limitation of any state in which the Funds' shares are registered or qualified
for sale.
74
<PAGE>
Subject to reduction in accordance with the expense limitation
provisions which may be imposed by states in which the Funds' shares are
qualified for sale, NBAI received fees from the Funds for its services as
outlined in the following chart, which states the net advisory fees paid to
NBAI, the advisory fees waived and expense reimbursements where applicable for
the fiscal year ended March 31, 1998. The table below also states the advisory
fees paid and waived by Barnett Capital Advisers, Inc. with respect to the
Emerald International Equity Fund (predecessor to the International Value Fund)
for the fiscal period December 1, 1997 through May 15, 1998.
<TABLE>
<CAPTION>
ADVISORY FEES
Net Amount Paid Amount Waived Reimbursed by Adviser
--------------- ------------- ---------------------
<S> <C> <C> <C>
Prime Fund $9,639,804 $1,588,170 $0.00
Treasury Fund 5,843,938 843,672 0.00
Equity Income Fund 4,731,858 0.00 0.00
Government Securities Fund 606,485 160,648 0.00
International Equity Fund 9,260,334 0.00 0.00
International Growth Fund 4,491,759 145,205 0.00
International Value Fund 326,210 0.00 3,902.00
Small Company Growth Fund 959,096 419,890 0.00
U.S. Government Bond Fund 483,931 385,271 0.00
Government Money Market Fund 468,312 954,231 0.00
Tax Exempt Fund 3,482,525 5,239,935 0.00
Value Fund 15,618,802 49,168 0.00
Capital Growth Fund 5,717,424 0.00 0.00
Disciplined Equity Fund 1,236,280 0.00 0.00
Equity Index Fund 1,302,110 2,088,839 0.00
Emerging Growth Fund 2,836,719 0.00 0.00
Managed Index Fund 360,994 449,019 0.00
Managed SmallCap Index Fund 0.00 419,108 0.00
Managed Value Index Fund 670 11,025 0.00
Managed SmallCap Value Index Fund 193 5,901 0.00
Marsico Growth & Income Fund 0.00 10,919 0.00
Marsico Focused Equities Fund 27,032 0.00 0.00
Balanced Assets Fund 1,493,286 0.00 0.00
Short-Intermediate Gov't Fund 2,708,669 1,354,334 0.00
Short-Term Income Fund 1,006,049 1,006,049 0.00
Diversified Income Fund 1,440,010 288,002 0.00
Strategic Fixed Income Fund 7,389,298 1,760,101 0.00
Municipal Income Fund 1,495,049 865,120 0.00
Short-Term Municipal Income Fund 143,891 357,577 0.00
Intermediate Municipal Bond Fund 1,814,264 1,420,175 0.00
Florida Intermediate Municipal Bond 414,266 371,186 0.00
Fund
Georgia Intermediate Municipal Bond 305,490 267,367 0.00
Fund
Maryland Intermediate Municipal 216,531 251,773 0.00
Bond Fund
North Carolina Intermediate 350,910 325,600 0.00
Municipal Bond Fund
South Carolina Intermediate 532,494 471,252 0.00
Municipal Bond Fund
Tennessee Intermediate Municipal 67,179 121,971 0.00
Bond Fund
Texas Intermediate Municipal Bond 688,008 601,927 0.00
Fund
Virginia Intermediate Municipal 631,227 484,093 0.00
Bond Fund
Florida Municipal Bond Fund 144,492 123,106 0.00
Georgia Municipal Bond Fund 33,480 66,122 0.00
Maryland Municipal Bond Fund 25,999 82,546 0.00
North Carolina Municipal Bond Fund 83,208 94,452 0.00
South Carolina Municipal Bond Funds 42,805 72,257 0.00
Tennessee Municipal Bond Fund 1,873 57,822 0.00
Texas Municipal Bond Fund 26,062 72,988 0.00
Virginia Municipal Bond Fund 56,750 81,176 0.00
Emerging Markets Fund 988,113 0.00 0.00
Pacific Growth Fund 894,307 0.00 0.00
Global Government Income Fund 288,379 0.00 0.00
</TABLE>
NBAI received fees from the Funds for its services as outlined in the following
chart, which states the net advisory fees paid to NBAI, the advisory fees waived
and expense reimbursements where applicable for the fiscal year ended March 31,
1997. The table below also states the advisory fees paid and waived by Barnett
Capital Advisers, Inc. with respect to the Emerald International Equity Fund
(predecessor to the International Value Fund) for the period ended December 1,
1996 through November 30, 1997.
75
<PAGE>
ADVISORY FEES
<TABLE>
<CAPTION>
Net Amt. Amount Reimbsd.
Paid Waived by Advsr.
---- ------ ---------
<S> <C> <C> <C>
Government Money Market Fund $ 595,369.00 $ 1,087,306.00 $ 0.00
Tax Exempt Fund 2,307,746.00 3,589,593.00 0.00
Value Fund 9,794,835.00 0.00 0.00
Capital Growth Fund 5,714,094.00 0.00 0.00
Disciplined Equity Fund 1,064,026.00 0.00 0.00
Equity Index Fund 678,564.00 1,534,132.00 0.00
Emerging Growth Fund 2,666,535.00 0.00 0.00
Managed Index Fund 12,069.00 86,414.00 22,720.00
Managed SmallCap Index Fund 13.00 44,990.00 18,619.00
Balanced Assets Fund 1,798,693.00 00.0 0.00
Short-Intermediate Gov't Fund 1,886,178.00 943,089.00 0.00
Short-Term Income Fund 600,834.00 601,326.00 0.00
Diversified Income Fund 1,000,615.00 200,123.00 0.00
Strategic Fixed Income Fund 4,757,641.00 951,528.00 0.00
Municipal Income Fund 323,476.00 305,497.00 0.00
Short-Term Municipal Income Fund 60,734.00 294,153.00 0.00
Intermediate Municipal Bond Fund 189,645.00 277,372.00 0.00
Florida Intermediate Municipal Bond Fund 104,662.00 161,773.00 0.00
Georgia Intermediate Municipal Bond Fund 124,834.00 165,879.00 0.00
Maryland Intermediate Municipal Bond Fund 260,093.00 227,212.00 0.00
North Carolina Intermediate Municipal Bond Fund 76,726.00 121,064.00 0.00
South Carolina Intermediate Municipal Bond Fund 152,937.00 197,205.00 0.00
Tennessee Intermediate Municipal Bond Fund 14,485.00 79,715.00 0.00
Texas Intermediate Municipal Bond Fund 54,898.00 104,929.00 0.00
Virginia Intermediate Municipal Bond Fund 614,014.00 520,946.00 0.00
Florida Municipal Bond Fund 112,099.00 117,651.00 0.00
Georgia Municipal Bond Fund 26,675.00 61,249.00 0.00
Maryland Municipal Bond Fund 15,208.00 67,979.00 0.00
North Carolina Municipal Bond Fund 80,159.00 92,926.00 0.00
South Carolina Municipal Bond Funds 40,452.00 67,297.00 0.00
Tennessee Municipal Bond Fund 2,763.00 47,192.00 3,159.00
Texas Municipal Bond Fund 35,113.00 69,111.00 0.00
Virginia Municipal Bond Fund 49,575.00 71,879.00 0.00
Emerging Markets Fund 661,747.00 0.00 0.00
Pacific Growth Fund 1,035,724.00 0.00 0.00
Global Government Income Fund 298,997.00 0.00 0.00
Prime Fund 6,849,130.00 1,579,771.00 0.00
Treasury Fund 4,030,618.00 1,026,792.00 0.00
Equity Income Fund 2,632,510.00 0.00 0.00
International Equity Fund 8,870,691.00 0.00 0.00
International Value Fund 395,837.00 0.00 4,304.00
Government Securities Fund 568,081.00 156,808.00
</TABLE>
The table below states the net advisory fees paid to NationsBank and/or
its wholly-owned affiliate NBAI, the advisory fees waived and expense
reimbursements where applicable for the fiscal period from December 1, 1995 to
March 31, 1996. The table below also states the advisory fees paid to NBAI or
its predecessor under NFP's prior advisory agreement and the advisory fees
waived for the fiscal period from June 1, 1995 to March 31, 1996 for the
Emerging Markets Fund, Pacific Growth Fund and Global Government Income Fund.
The table also states the advisory fees paid and waived by Barnett Capital
Advisors, Inc. with respect to the Emerald International Equity Fund
(predecessor to the International Value Fund) from its commencement on Dec. 27,
1995 through the period ended November 30, 1996.
76
<PAGE>
ADVISORY FEES
<TABLE>
<CAPTION>
Net Amt. Amount Reimbsd.
Paid Waived by Advsr.
---- ------ ---------
<S> <C> <C> <C>
Government Money Market Fund $ 195,815.00 $ 442,122.00 $ 0.00
Tax Exempt Fund 600,930.00 1,248,939.00 0.00
Value Fund 2,808,328.00 0.00 0.00
Capital Growth Fund 2,253,497.00 0.00 0.00
Disciplined Equity Fund 339,082.00 0.00 0.00
Equity Index Fund 64,733.00 0.00 0.00
Emerging Growth Fund 777,193.00 0.00 0.00
Balanced Assets Fund 590,332.00 0.00 0.00
Short-Intermediate Gov't Fund 619,149.00 384,574.00 0.00
Short-Term Income Fund 173,410.00 216,740.00 0.00
Diversified Income Fund 286,700.00 57,340.00 0.00
Strategic Fixed Income Fund 1,388,673.00 294,244.00 0.00
Municipal Income Fund 114,363.00 117,368.00 0.00
Short-Term Municipal Income Fund 12,972.00 99,745.00 0.00
Intermediate Municipal Bond Fund 45,524.00 89,165.00 0.00
Florida Intermediate Municipal Bond Fund 25,169.00 62,242.00 0.00
Georgia Intermediate Municipal Bond Fund 33,891.00 64,182.00 0.00
Maryland Intermediate Municipal Bond Fund 59,770.00 93,011.00 0.00
North Carolina Intermediate Municipal Bond Fund 17,326.00 47,071.00 0.00
South Carolina Intermediate Municipal Bond Fund 42,310.00 75,330.00 0.00
Tennessee Intermediate Municipal Bond Fund 0.00 31,491.00 1,332.00
Texas Intermediate Municipal Bond Fund 11,045.00 41,063.00 0.00
Virginia Intermediate Municipal Bond Fund 196,295.00 215,292.00 0.00
Florida Municipal Bond Fund 34,641.00 44,125.00 0.00
Georgia Municipal Bond Fund 4,774.00 25,162.00 0.00
Maryland Municipal Bond Fund 108.00 27,352.00 0.00
North Carolina Municipal Bond Fund 24,232.00 38,851.00 0.00
South Carolina Municipal Bond Funds 5,358.00 27,497.00 0.00
Tennessee Municipal Bond Fund 0.00 15,588.00 5,817.00
Texas Municipal Bond Fund 6,913.00 28,200.00 0.00
Virginia Municipal Bond Fund 11,162.00 29,711.00 0.00
Prime Fund 6,265,471.00 726,242.00 0.00
Treasury Fund 4,417,264.00 552,985.00 0.00
Equity Income Fund 2,329,896.00 0.00 0.00
International Equity Fund 5,291,343.00 84,472.00 0.00
International Value Fund 0.00 0.00 0.00
Government Securities Fund 468,579.00 147,897.00 0.00
Emerging Markets Fund 188,334.00 0.00 0.00
Pacific Growth Fund 307,806.00 0.00 0.00
Global Government Income Fund 1,132,152.00 0.00 0.00
</TABLE>
The Pilot U.S. Government Fund (predecessor to the U.S. Government Bond
Fund) and the Pilot Small Capitalization Equity Fund (predecessor to the Pilot
Small Company Growth Fund) paid and waived the following advisory and
sub-advisory fees under a prior advisory agreement with Boatmen's during the
periods indicated.
ADVISORY AND SUB-ADVISORY FEES PAID
SEPTEMBER 1, 1996 - MAY 16, 1997
Advisory
Fee
Pilot US Government Fund
Advisory Fee $552,504
Advisory Waiver (125,674)
--------
426,830
--------
Pilot Small Capitalization Fund
Advisory Fee $731,622
Advisory Waiver $(250,320)
---------
$481,302
---------
77
<PAGE>
ADVISORY FEES PAID
SEPTEMBER 1, 1995 SEPTEMBER 1, 1994 -
- AUGUST 31, 1996 AUGUST 31, 1995
Pilot US Government Fund $555,098 $415,164
Pilot Small Capitalization Fund $178,877 $0*
* Fund inception 12/12/95
SUB-ADVISORY FEES PAID
SEPTEMBER 1, 1995 AUGUST 31, 1994 -
- AUGUST 31, 1996 AUGUST 31, 1995
Pilot US Government Fund N/A N/A
Pilot Small Capitalization Fund N/A N/A
The table below states the net sub-advisory fees paid to TradeStreet for
the fiscal periods indicated. No fees were waived or reimbursed by the Adviser
during this periods.
SUB-ADVISORY FEES
Period Ending
3/31/98
Net Amount Paid
---------------
Prime Fund $2,959,571
Treasury Fund 1,763,574
Equity Income Fund 1,478,586
Government Securities Fund 181,945
Small Company Growth Fund 338,212
Government Money Market Fund 186,411
Tax Exempt Fund 1,199,059
Value Fund 5,222,656
Capital Growth Fund 1,905,808
Disciplined Equity Fund 412,093
Equity Index Fund 678,190
Emerging Growth Fund 945,572
Managed Index Fund 162,002
Managed SmallCap Index Fund 83,822
Managed Value Index Fund 2,505
Managed SmallCap Value Index Fund 1,410
Balanced Assets Fund 497,762
Short-Intermediate Gov't Fund 1,015,751
Short-Term Income Fund 503,025
Diversified Income Fund 432,003
Strategic Fixed Income Fund 2,287,350
Municipal Income Fund 275,353
Short-Term Municipal Income Fund 70,205
Intermediate Municipal Bond Fund 452,822
Florida Intermediate Municipal Bond Fund 109,963
Georgia Intermediate Municipal Bond Fund 80,200
Maryland Intermediate Municipal Bond Fund 65,563
North Carolina Intermediate 94,711
Municipal Bond Fund
South Carolina Intermediate 140,524
Municipal Bond Fund
Tennessee Intermediate Municipal Bond Fund 26,481
Texas Intermediate Municipal Bond Fund 180,591
Virginia Intermediate Municipal 156,145
Bond Fund
Florida Municipal Bond Fund 31,220
Georgia Municipal Bond Fund 11,621
Maryland Municipal Bond Fund 12,663
North Carolina Municipal Bond Fund 20,727
South Carolina Municipal Bond Funds 13,424
Tennessee Municipal Bond Fund 6,964
Texas Municipal Bond Fund 11,556
Virginia Municipal Bond Fund 16,091
78
<PAGE>
Period Ending Period Ending
3/31/97 3/31/96
Net Amt. Net Amt.
Paid Paid
Government Money Market Fund $ 231,367.00 $ 65,559.22
Tax Exempt Fund 810,884.00 195,836.30
Value Fund 3,264,945.00 702,508.52
Capital Growth Fund 1,904,698.00 558,981.57
Disciplined Equity Fund 354,675.00 85,311.87
Equity Index Fund 442,539.00 41,386.62
Managed Index Fund 19,717.00 194,888.10
Managed SmallCap Index Fund 9,001.00 146,994.87
Emerging Growth Fund 888,845.00 185,611.41
Balanced Assets Fund 599,564.00 73,671.51
Short-Intermediate Gov't Fund 707,317.00 63,997.63
Short-Term Income Fund 300,416.00 313,681.03
Diversified Income Fund 300,184.00 20,092.35
Strategic Fixed Income Fund 1,427,292.00 11,904.57
Municipal Income Fund 73,380.00 14,212.28
Short-Term Municipal Income Fund 49,684.00 9,158.98
Intermediate Municipal Bond Fund 65,382.00 10,161.88
Florida Intermediate Municipal Bond 37,301.00 15,999.36
Fund
Georgia Intermediate Municipal Bond 40,700.00 6,729.45
Fund
Maryland Intermediate Municipal Bond 59,822.00 12,199.38
Fund
North Carolina Intermediate 27,691.00 3,812.00
Municipal Bond Fund
South Carolina Intermediate 49,020.00 5,474.20
Municipal Bond Fund
Tennessee Intermediate Municipal Bond 13,188.00 42,887.69
Fund
Texas Intermediate Municipal Bond Fund 22,376.00 6,891.65
Virginia Intermediate Municipal Bond 158,894.00 2,562.42
Fund
Florida Municipal Bond Fund 26,804.00 2,390.88
Georgia Municipal Bond Fund 10,258.00 5,475.32
Maryland Municipal Bond Fund 9,705.00 2,870.87
North Carolina Municipal Bond Fund 20,193.00 1,366.28
South Carolina Municipal Bond Fund 12,571.00 3,051.30
Tennessee Municipal Bond Fund 5,828.00 3,538.33
Texas Municipal Bond Fund 12,160.00 563,821.51
Virginia Municipal Bond Fund 14,170.00 356,560.15
Emerging Markets Fund 511,350.00 212,221.62
Pacific Growth Fund 805,563.00 0.00
Prime Fund 2,296,435.00 239,405.20
Treasury Fund 1,377,806.00 145,531.05
Equity Income Fund 777,371.00 101,945.98
Government Securities Fund 170,424.00 n/a
The table below states the net sub-advisory fees paid to Gartmore for
the fiscal period indicated. No fees were waived or reimbursed by the Adviser
during this periods.
SUB-ADVISORY FEES
<TABLE>
<CAPTION>
Period Ending Period Ending Period Ending
3/31/98 3/31/97 3/31/97
<S> <C> <C>
International Equity Fund $9,260,333.98 $6,899,426.00 n/a
International Growth Fund 4,331,994.06 n/a n/a
Emerging Markets Fund 988,113.20 511,350.00 $212,221.62
Pacific Growth Fund 894,306.20 805,563.00 0.00
Global Government Income Fund 288,379.18 230,655.00 47,092.65
</TABLE>
79
<PAGE>
The table below states the net sub-advisory fees paid to Marsico for the
fiscal year ended March 31, 1998. No fees were waived or reimbursed by the
Adviser during this periods.
SUB-ADVISORY FEES
Net Amount Paid
---------------
Marsico Focused Equities Fund $14,311
Marsico Growth & Income Fund 5,780
The table below states the net sub-advisory fees paid to Brandes for the
fiscal period indicated. No fees were waived or reimbursed by the Adviser during
this periods.
Period Ending Period Ending Period Ending
5/15/98 11/30/97 11/30/96
International Value Fund $177,516.52 $212,631.72 $19,395.00
CO-ADMINISTRATORS AND SUB-ADMINISTRATOR
Stephens Inc. and NBAI (the "Co-Administrators") serve as
co-administrators of each Company.
The Co-Administrators serve under co-administration agreements
("Co-Administration Agreements"), which were approved by the Boards of
Directors/Trustees on November 5-6, 1998. The Co-Administrators receive, as
compensation for their services rendered under the Co-Administration Agreements,
administration fees, computed daily and paid monthly, at the annual rate of:
0.10% of the money market Funds; 0.12% of the fixed income and international
Funds; and 0.13% of the domestic equity Funds, of the average daily net assets
of each such Fund.
Pursuant to the Co-Administration Agreement, Stephens has agreed to, among
other things, (i) maintain office facilities for the Funds, (ii) furnish
statistical and research data, data processing, clerical, and internal executive
and administrative services to each Company, (iii) furnish corporate secretarial
services to each Company, including coordinating the preparation and
distribution of materials for Board of Directors/Trustees meetings, (iv)
coordinate the provision of legal advice to each Company with respect to
regulatory matters, (v) coordinate the preparation of reports to each Company's
shareholders and the SEC, including annual and semi-annual reports, (vi)
coordinating the provision of services to each Company by the Transfer Agent,
Sub-Transfer Agent and the Custodian, and (vii) generally assist in all aspects
of each Company's operations. Stephens bears all expenses incurred in connection
with the performance of its services.
Also, pursuant to the Co-Administration Agreement, NBAI has agreed to,
among other things, (i) provide accounting and bookkeeping services for the
Funds, (ii) compute each Fund's net asset value and net income, (iii) accumulate
information required for the Company's reports to shareholders and the SEC, (iv)
prepare and file each Company's federal and state tax returns, (v) perform
monthly compliance testing for the Company, and (vi) prepare and furnish the
Company monthly broker security transaction summaries and transaction listings
and performance information. NBAI bears all expenses incurred in connection with
the performance of its services.
The Co-Administration Agreement may be terminated by a vote of a majority
of the respective Board of Directors/Trustees, by Stephens or by NBAI,
respectively, on 60 days' written notice without penalty. The Co-Administration
Agreements are not assignable without the written consent of the other party.
Furthermore, the Co-Administration Agreements provide that Stephens and NBAI
shall not be liable to the Funds or to their shareholders except in the case of
Stephens' or NBAI's, willful misfeasance, bad faith, gross negligence or
reckless disregard of duty.
BNY serves as sub-administrator for the Funds pursuant to
sub-administration agreements. Pursuant to their terms, BNY assists Stephens and
NBAI in supervising, coordinating and monitoring various aspects of the Funds'
administrative operations. For providing such services, BNY is entitled to
receive a monthly fee from Stephens and NBAI based on an annual rate of 0.01% of
the Funds' average daily net assets.
80
<PAGE>
The table set forth below states the net Administration fees paid to
Stephens and waived for the fiscal year ended March 31, 1998, under the previous
administration arrangements. The administration arrangements have been revised
and the fees set forth below are not reflective of those changes. The new
arrangements appointing Stephens and NBAI as Co-Administrators and BNY as
Sub-Administrator were effective on or about January 14, 1999.
ADMINISTRATION FEES
Net Fees Paid Fees Waived
------------- -----------
Prime Fund 4,056,997 1,110,297
Treasury Fund 2,423,641 664,082
Equity Income Fund 494,468 0.00
Government Securities Fund 71,126 0.00
International Equity Fund 405,314 0.00
International Growth Fund 230,311 0.00
International Value Fund n/a n/a
Small Company Growth Fund 96,976 0.00
U.S. Government Bond Fund 89,058 0.00
Government Money Market Fund 259,300 71,128
Tax Exempt Fund 1,591,584 436,123
Value Fund 1,408,801 0.00
Capital Growth Fund 503,034 0.00
Disciplined Equity Fund 101,504 0.00
Equity Index Fund 458,619 0.00
Emerging Growth Fund 246,308 0.00
Managed Index Fund 111,133 0.00
Managed SmallCap Index Fund 61,116 0.00
Managed Value Index Fund 1,630 0.00
Managed SmallCap Value Index Fund 848 0.00
Marsico Growth & Income Fund 898 0.00
Marsico Focused Equities Fund 2,227 0.00
Balanced Assets Fund 134,032 0.00
Short-Intermediate Gov't Fund 401,570 0.00
Short-Term Income Fund 203,225 0.00
Diversified Income Fund 173,538 0.00
Strategic Fixed Income Fund 903,615 0.00
Municipal Income Fund 153,482 78,672
Short-Term Municipal Income Fund 38,788 20,059
Intermediate Municipal Bond Fund 254,780 129,378
Florida Intermediate Municipal Bond Fund 61,898 31,419
Georgia Intermediate Municipal Bond Fund 44,811 22,914
Maryland Intermediate Municipal Bond Fund 36,010 26,201
North Carolina Intermediate Municipal Bond 53,527 27,061
Fund
South Carolina Intermediate Municipal Bond 79,235 40,150
Fund
Tennessee Intermediate Municipal Bond Fund 14,824 7,566
Texas Intermediate Municipal Bond Fund 102,899 51,598
Virginia Intermediate Municipal Bond Fund 85,542 44,703
Florida Municipal Bond Fund 17,169 8,920
Georgia Municipal Bond Fund 6,369 3,320
Maryland Municipal Bond Fund 6,978 3,619
North Carolina Municipal Bond Fund 11,379 5,922
South Carolina Municipal Bond Funds 7,376 3,836
Tennessee Municipal Bond Fund 3,826 1,990
Texas Municipal Bond Fund 6,334 3,301
Virginia Municipal Bond Fund 8,843 4,598
Emerging Markets Fund 21,266 0.00
Pacific Growth Fund 30,206 0.00
Global Government Income Fund 21,621 0.00
81
<PAGE>
The table below sets forth the total co-administration fees paid to
First Data Investor Services Group, Inc. ("First Data") and waived by First Data
for the fiscal year ended March 31, 1998. First Data was the co-administrator
under the previous administration arrangements.
CO-ADMINISTRATION FEES
Net Fees Paid Fees Waived
------------- -----------
Prime Fund 384,193 0.00
Treasury Fund 232,691 0.00
Equity Income Fund 244,825 0.00
Government Securities Fund 50,171 0.00
International Equity Fund 623,612 0.00
International Growth Fund 306,814 0.00
International Value Fund n/a n/a
Small Company Growth Fund 43,762 0.00
U.S. Government Bond Fund 59,434 0.00
Government Money Market Fund 25,208 0.00
Tax Exempt Fund 152,908 0.00
Value Fund 680,262 0.00
Capital Growth Fund 259,289 0.00
Disciplined Equity Fund 63,108 0.00
Equity Index Fund 214,846 0.00
Emerging Growth Fund 131,921 0.00
Managed Index Fund 50,870 0.00
Managed SmallCap Index Fund 22,706 0.00
Managed Value Index Fund 709 0.00
Managed SmallCap Value Index Fund 371 0.00
Marsico Growth & Income Fund 387 0.00
Marsico Focused Equities Fund 953 0.00
Balanced Assets Fund 65,073 0.00
Short-Intermediate Gov't Fund 275,597 0.00
Short-Term Income Fund 132,125 0.00
Diversified Income Fund 114,464 0.00
Strategic Fixed Income Fund 621,285 0.00
Municipal Income Fund 161,207 0.00
Short-Term Municipal Income Fund 41,447 0.00
Intermediate Municipal Bond Fund 262,730 0.00
Florida Intermediate Municipal Bond Fund 63,773 0.00
Georgia Intermediate Municipal Bond Fund 46,846 0.00
Maryland Intermediate Municipal Bond Fund 31,450 0.00
North Carolina Intermediate Municipal Bond 54,714 0.00
Fund
South Carolina Intermediate Municipal Bond 81,364 0.00
Fund
Tennessee Intermediate Municipal Bond Fund 15,440 0.00
Texas Intermediate Municipal Bond Fund 103,490 0.00
Virginia Intermediate Municipal Bond Fund 92,909 0.00
Florida Municipal Bond Fund 18,511 0.00
Georgia Municipal Bond Fund 6,911 0.00
Maryland Municipal Bond Fund 7,494 0.00
North Carolina Municipal Bond Fund 12,309 0.00
South Carolina Municipal Bond Fund 7,965 0.00
Tennessee Municipal Bond Fund 4,133 0.00
Texas Municipal Bond Fund 6,873 0.00
Virginia Municipal Bond Fund 9,547 0.00
Emerging Markets Fund 67,559 0.00
Pacific Growth Fund 69,037 0.00
Global Government Income Fund 19,576 0.00
82
<PAGE>
The table set forth below states the net Administration fees paid to
Stephens and waived for the fiscal year ended March 31, 1997.
ADMINISTRATION FEES
Net Fees Paid Fees Waived
Government Money Market Fund $281,893.00 $39,867.00
Tax Exempt Fund 995,984.00 151,529.00
Value Fund 792,002.00 0.00
Capital Growth Fund 463,687.00 0.00
Disciplined Equity Fund 81,365.00 0.00
Equity Index Fund 270,994.00 0.00
Managed Index Fund 12,195.00 0.00
Managed SmallCap Index Fund 1,626.00 0.00
Emerging Growth Fund 211,748.00 0.00
Balanced Assets Fund 146,269.00 0.00
Short-Intermediate Government Fund 252,303.00 0.00
Short-Term Income Fund 104,245.00 0.00
Diversified Income Fund 103,988.00 0.00
Strategic Fixed Income Fund 510,826.00 0.00
Municipal Income Fund 46,849.00 10,434.00
Short-Term Municipal Income Fund 31,084.00 7,479.00
Intermediate Municipal Bond Fund 40,902.00 9,878.00
Florida Intermediate Municipal Bond Fund 23,525.00 5,513.00
Georgia Intermediate Municipal Bond Fund 25,682.00 5,977.00
Maryland Intermediate Municipal Bond Fund 38,122.00 2,519.00
North Carolina Intermediate Municipal Bond 17,628.00 3,971.00
Fund
South Carolina Intermediate Municipal Bond 31,091.00 7,071.00
Fund
Tennessee Intermediate Municipal Bond Fund 8,422.00 1,869.00
Texas Intermediate Municipal Bond Fund 14,310.00 3,130.00
Virginia Intermediate Municipal Bond Fund 101,774.00 22,264.00
Florida Municipal Bond Fund 17,082.00 3,824.00
Georgia Municipal Bond Fund 6,500.00 1,497.00
Maryland Municipal Bond Fund 6,151.00 1,408.00
North Carolina Municipal Bond Fund 12,881.00 2,857.00
South Carolina Municipal Bond Fund 7,923.00 1,846.00
Tennessee Municipal Bond Fund 3,695.00 847.00
Texas Municipal Bond Fund 7,747.00 1,724.00
Virginia Municipal Bond Fund 8,995.00 2,043.00
Prime Fund 3,775,833.00 419,503.00
Treasury Fund 2,254,616.00 250,485.00
Equity Income Fund 388,686.00 0.00
International Equity Fund 985,632.00 0.00
Government Securities Fund 113,616.00 0.00
Emerging Markets Fund 60,159.00 0.00
Pacific Growth Fund 115,080 0.00
Global Government Income Fund 42,714.00 0.00
83
<PAGE>
The table below sets forth the total sub-administration fees paid to
First Data and waived by First Data for the fiscal year ended March 31, 1997.
CO-ADMINISTRATION FEES
Net Fees Paid Fees Waived
------------- -----------
Government Money Market Fund $ 98,906.00 $ 0.00
Tax Exempt Fund 326,822.00 0.00
Value Fund 513,976.00 0.00
Capital Growth Fund 298,193.00 0.00
Disciplined Equity Fund 60,505.00 0.00
Equity Index Fund 171,545.00 0.00
Managed Index Fund 7,522.00 0.00
Managed SmallCap Index Fund 7,375.00 0.00
Emerging Growth Fund 143,790.00 0.00
Balanced Assets Fund 93,557.00 0.00
Short-Intermediate Government Fund 219,240.00 0.00
Short-Term Income Fund 96,033.00 0.00
Diversified Income Fund 96,135.00 0.00
Strategic Fixed Income Fund 440,702.00 0.00
Municipal Income Fund 47,546.00 0.00
Short-Term Municipal Income Fund 32,415.00 0.00
Intermediate Municipal Bond Fund 42,623.00 0.00
Florida Intermediate Municipal Bond Fund 24,249.00 0.00
Georgia Intermediate Municipal Bond Fund 26,483.00 0.00
Maryland Intermediate Municipal Bond Fund 38,819.00 0.00
North Carolina Intermediate Municipal Bond 17,960.00 0.00
Fund
South Carolina Intermediate Municipal Bond 31,867.00 0.00
Fund
Tennessee Intermediate Municipal Bond Fund 8,549.00 0.00
Texas Intermediate Municipal Bond Fund 14,526.00 0.00
Virginia Intermediate Municipal Bond Fund 102,954.00 0.00
Florida Municipal Bond Fund 17,385.00 0.00
Georgia Municipal Bond Fund 6,657.00 0.00
Maryland Municipal Bond Fund 6,306.00 0.00
North Carolina Municipal Bond Fund 13,109.00 0.00
South Carolina Municipal Bond Fund 8,189.00 0.00
Tennessee Municipal Bond Fund 3,784.00 0.00
Texas Municipal Bond Fund 7,900.00 0.00
Virginia Municipal Bond Fund 9,205.00 0.00
The table set forth on the following page states the total net
administration fees paid and the total administration fees waived for the fiscal
period ended March 31, 1996.
ADMINISTRATION FEES
FY 1996
-------
Net Fees Fees
Paid Waived
---- ------
Government Money Market Fund $139,341.00 $19,949.00
Tax Exempt Fund 409,267.00 $52,641.00
Value Fund 374,444.00 0.00
Capital Growth Fund 300,466.00 0.00
Emerging Growth Fund 103,626.00 0.00
Disciplined Equity Fund 45,211.00 0.00
Equity Index Fund 53,838.00 0.00
Balanced Assets Fund 78,711.00 0.00
Short-Intermediate Government Fund 167,287.00 0.00
Short-Term Income Fund 65,025.00 0.00
Diversified Income Fund 57,340.00 0.00
Strategic Fixed Income Fund 280,486.00 0.00
Municipal Income Fund 38,622.00 0.00
Short-Term Municipal Income Fund 22,543.00 0.00
Intermediate Municipal Bond Funds 26,938.00 0.00
Florida Intermediate Municipal 17,482.00 0.00
Bond Fund
Georgia Intermediate Municipal 19,615.00 0.00
Bond Fund
Maryland Intermediate Municipal 30,556.00 0.00
Bond Fund
North Carolina Intermediate 12,879.00 0.00
Municipal Bond Fund
South Carolina Intermediate 23,528.00 0.00
Municipal Bond Fund
Tennessee Intermediate Municipal 6,298.00 0.00
Bond Fund
Texas Intermediate Municipal Bond 10,422.00 0.00
Fund
Virginia Intermediate Municipal 82,317.00 0.00
Bond Fund
Florida Municipal Bond Fund 13,127.00 0.00
Georgia Municipal Bond Fund 4,989.00 0.00
Maryland Municipal Bond Fund 4,576.00 0.00
North Carolina Municipal Bond Fund 10,514.00 0.00
South Carolina Municipal Bond Fund 5,476.00 0.00
Tennessee Municipal Bond Fund 2,598.00 0.00
Texas Municipal Bond Fund 5,852.00 0.00
Virginia Municipal Bond Fund 6,812.00 0.00
Prime Fund 1,924,496.00 1,537,278.00
Treasury Fund 1,405,372.00 1,126,831.00
Equity Income Fund 346,633.00 0.00
International Equity Fund 597,450.00 0.00
Government Securities Fund 96,960.00 0.00
Emerging Markets Fund 17,121.00 0.00
Pacific Growth Fund 34,201.00 0.00
Global Government Income Fund 418,879.00 0.00
84
<PAGE>
The table set forth below states the net Sub-Administration fees paid and
waived to NationsBank, or its affiliate NBAI, for the fiscal year ended March
31, 1998. For the period March 31, 1997 through November 30, 1997, fees were
paid to NationsBank. For the period December 1, 1997 through March 31, 1998,
fees were paid to NBAI.
SUB-ADMINISTRATION FEES
Net Fees Paid Fees Waived
------------- -----------
Prime Fund $555,149 $0
Treasury Fund 332,041 --
Equity Income Fund 73,929 --
Government Securities Fund 12,130 --
International Equity Fund 102,893 --
International Growth Fund 55,097 --
International Value Fund 0 --
Small Company Growth Fund 14,378 --
U.S. Government Bond Fund 15,227 --
Government Money Market Fund 35,564 --
Tax Exempt Fund 218,062 --
Value Fund 208,906 --
Capital Growth Fund 76,232 --
Disciplined Equity Fund 16,484 --
Equity Index Fund 67,819 --
Emerging Growth Fund 37,823 --
Managed Index Fund 16,200 --
Managed SmallCap Index Fund 8,382 --
Managed Value Index Fund 250 --
Managed SmallCap Value Index Fund 141 --
Marsico Growth & Income Fund 128 --
Marsico Focused Equities Fund 318 --
Balanced Assets Fund 19,910 --
Short-Intermediate Gov't Fund 67,717 --
Short-Term Income Fund 33,535 --
Diversified Income Fund 28,800 --
Strategic Fixed Income Fund 152,490 --
Municipal Income Fund 39,336 --
Short-Term Municipal Income Fund 10,029 --
Intermediate Municipal Bond Fund 64,689 --
Florida Intermediate Municipal Bond Fund 15,709 --
Georgia Intermediate Municipal Bond Fund 11,457 --
Maryland Intermediate Municipal Bond Fund 9,366 --
North Carolina Intermediate Municipal Bond 13,530 --
Fund
South Carolina Intermediate Municipal Bond 20,075 --
Fund
Tennessee Intermediate Municipal Bond Fund 3,783 --
Texas Intermediate Municipal Bond Fund 25,799 --
Virginia Intermediate Municipal Bond Fund 22,306 --
Florida Municipal Bond Fund 4,460 --
Georgia Municipal Bond Fund 1,660 --
Maryland Municipal Bond Fund 1,809 --
North Carolina Municipal Bond Fund 2,961 --
South Carolina Municipal Bond Fund 1,918 --
Tennessee Municipal Bond Fund 995 --
Texas Municipal Bond Fund 1,651 --
Virginia Municipal Bond Fund 2,299 --
Emerging Markets Fund 8,983 --
Pacific Growth Fund 9,937 --
Global Government Income Fund 4,120 --
85
<PAGE>
As discussed under the caption "Expenses," the Administrator will be
required to reduce its fee from the Companies, in direct proportion to the fees
payable to the Adviser and the Administrator by the Companies, if the expenses
of the Companies exceed the applicable expense limitation of any state in which
the Funds' shares are registered or qualified for sale.
DISTRIBUTION PLANS AND SHAREHOLDER SERVICING ARRANGEMENTS FOR INVESTOR SHARES
INVESTOR A SHARES. Each Company has adopted an Amended and Restated
Shareholder Servicing and Distribution Plan (the "Investor A Plan") pursuant to
Rule 12b-1 under the 1940 Act with respect to each Fund's Investor A Shares. The
Investor A Plan provides that each Fund may pay the Distributor or banks,
broker/dealers or other financial institutions that offer shares of the Fund and
that have entered into a Sales Support Agreement with the Distributor ("Selling
Agents") or a Shareholder Servicing Agreement with the respective Company,
("Servicing Agents"), up to 0.10% (on an annualized basis) of the average daily
net asset value of Investor A Shares of the Money Market Funds and up to 0.25%
(on an annualized basis) of the average daily net asset value of the Non-Money
Market Funds.
With respect to the Money Market Funds, such payments may be made to (i)
the Distributor for reimbursements of distribution-related expenses actually
incurred by the Distributor, including, but not limited to, expenses of
organizing and conducting sales seminars, printing of prospectuses and
statements of additional information (and supplements thereto) and reports for
other than existing shareholders, preparation and distribution of advertising
material and sales literature and costs of administering the Investor A Plan, or
(ii) Selling Agents that have entered into a Sales Support Agreement with the
Distributor for providing sales support assistance in connection with the sale
of Investor A Shares of the Money Market Funds. The sales support assistance
provided by a Selling Agent under a Sales Support Agreement may include
forwarding sales literature and advertising provided by the Companies or the
Distributor to their customers and providing such other sales support assistance
as may be requested by the Distributor from time to time. Currently,
substantially all fees paid by the Money Market Funds pursuant to the Investor A
Plan are paid to compensate Selling Agents for providing sales support services,
with any remaining amounts being used by the Distributor to partially defray
other expenses incurred by the Distributor in distributing Investor A Shares.
Fees received by the Distributor pursuant to the Investor A Plan will not be
used to pay any interest expenses, carrying charges or other financing costs
(except to the extent permitted by the SEC) and will not be used to pay any
general and administrative expenses of the Distributor.
With respect to the Non-Money Market Funds, (except the Short-Term
Income Fund and the Short-Term Municipal Income Fund) payments under the
Investor A Plan may be made to the Distributor for providing the
distribution-related services described in (i) above or to Servicing Agents that
have entered into a Shareholder Servicing Agreement with each Company for
providing shareholder support services to their Customers which hold of record
or beneficially Investor A Shares of a Non-Money Market Fund. Such shareholder
support services provided by Servicing Agents to holders of Investor A Shares of
the Non-Money Market Funds may include (i) aggregating and processing purchase
and redemption requests for Investor A Shares from their Customers and
transmitting promptly net purchase and redemption orders to our distributor or
transfer agent; (ii) providing their Customers with a service that invests the
assets of their accounts in Investor A Shares pursuant to specific or
pre-authorized instructions; (iii) processing dividend and distribution payments
from the Company on behalf of their Customers; (iv) providing information
periodically to their Customers showing their positions in Investor A Shares;
(v) arranging for bank wires; (vi) responding to their Customers' inquiries
concerning their investment in Investor A Shares; (vii) providing sub-accounting
with respect to Investor A Shares beneficially owned by their Customers or the
information necessary to us for sub-accounting; (viii) if required by law,
forwarding shareholder communications from each Company (such as proxies,
shareholder reports, annual and semi-annual financial statements and dividend,
distribution and tax notices) to their Customers (ix) forwarding to their
Customers proxy statements and proxies containing any proposals regarding the
Shareholder Servicing Agreement; (x) providing general shareholder liaison
services; and (xi) providing such other similar services as each Company may
reasonably request to the extent the Selling Agent is permitted to do so under
applicable statutes, rules or regulations. The Money Market Funds, the
Short-Term Income Fund and the Short-Term Municipal Income Fund may not pay for
personal services and/or maintenance of shareholder accounts, as such terms are
interpreted by the NASD, under the Investor A Plan.
86
<PAGE>
Expenses incurred by the Distributor pursuant to the Investor A Plan in
any given year may exceed the sum of the fees received under the Investor A
Plan. Any such excess may be recovered by the Distributor in future years so
long as the Investor A Plan is in effect. If the Investor A Plan were terminated
or not continued, a Fund would not be contractually obligated to pay the
Distributor for any expenses not previously reimbursed by the Fund.
In addition, NFI has adopted an Amended and Restated Shareholder
Servicing Plan for the Investor A Shares of the Money Market Funds (the "Money
Market Investor A Servicing Plan"). Pursuant to the Money Market Investor A
Servicing Plan, which became effective on March 28, 1993, each Money Market Fund
may pay banks, broker/dealers or other financial institutions that have entered
into a Shareholder Servicing Agreement with the Company ("Servicing Agents") up
to 0.25% (on an annualized basis) of the average daily net asset value of the
Investor A Shares of each Money Market Fund for providing shareholder support
services. Such shareholder support services provided by Servicing Agents may
include those shareholder support services discussed above with respect to the
Investor A Shares of the Non-Money Market Funds. Fees paid pursuant to the Money
Market Investor A Servicing Plan are calculated daily and paid monthly.
In addition, NFT has adopted an Amended and Restated Shareholder
Servicing Plan for the Investor A Shares of NFT's Money Market Funds, the
Short-Term Income Fund and the Short-Term Municipal Income Fund (the "Investor A
Servicing Plan"). Pursuant to the Investor A Servicing Plan, each such Fund may
pay banks, broker/dealers or other financial institutions that have entered into
a Shareholder Servicing Agreement with NFT ("Servicing Agents") up to 0.25% (on
an annualized basis) of the average daily net asset value of the Investor A
Shares of each Fund for providing shareholder support services. Such shareholder
support services provided by Servicing Agents may include those shareholder
support services discussed above with respect to the Investor A Plan. Fees paid
pursuant to the Investor A Servicing Plan are calculated daily and paid monthly.
During the fiscal period ended March 31, 1996, the Distributor received
the following amounts from Rule 12b-1 fees, front end sales load fees and CDSC
fees in connection with Investor A Shares: $265,899, $12,473 and $0,
respectively. Of these amounts, the Distributor retained $0, $0 and $0,
respectively.
During the fiscal year ended March 31,1997, the Distributor received the
following amount from Rule 12b-1 fees in connection with Investor A Shares of
NFT's Money Market Funds: $0. Of this amount, the Distributor retained $0.
During the fiscal year ended March 31,1997, the Distributor received the
following amount from Rule 12b-1 fees in connection with Investor A Shares of
NFT's Non-Money Market Funds: $0. Of this amount, the Distributor retained $0.
During the fiscal year ended March 31,1998, the Distributor received the
following amount from Rule 12b-1 fees in connection with Investor A Shares of
NFT's Money Market Funds: $0. Of this amount, the Distributor retained $0.
During the fiscal year ended March 31,1998, the Distributor received the
following amount from Rule 12b-1 fees in connection with Investor A Shares of
NFT's Non-Money Market Funds: $0. Of this amount, the Distributor retained $0.
During the fiscal period ended March 31,1996, the Distributor received
the following amounts from Rule 12b-1 fees, front end sales load fees and CDSC
fees in connection with Investor A Shares of the NFI Money Market Funds:
$972,685 and $35,670, respectively. Of these amounts, the prior Distributor
retained $0 and $6,728.76.
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During the fiscal year ended March 31,1997, the Distributor received the
following amount from Rule 12b-1 fees in connection with Investor A Shares of
the NFI Non-Money Market Funds: $0. Of this amount, the Distributor retained $0.
During the fiscal year ended March 31,1997, the Distributor received the
following amount from Rule 12b-1 fees in connection with Investor A Shares of
the NFI Money Market Funds: $0. Of this amount, the Distributor retained $0.
During the fiscal year ended March 31,1998, the Distributor received the
following amount from Rule 12b-1 fees in connection with Investor A Shares of
the NFI Non-Money Market Funds: $0. Of this amount, the Distributor retained $0.
During the fiscal year ended March 31,1998, the Distributor received the
following amount from Rule 12b-1 fees in connection with Investor A Shares of
the NFI Money Market Funds: $0. Of this amount, the Distributor retained $0.
Expenses incurred by the Distributor pursuant to the Investor A Plan in
any given year may exceed the sum of the fees received under the Investor A
Plan. Any such excess may be recovered by the Distributor in future years so
long as the Investor A Plan is in effect. If the Investor A Plan were terminated
or not continued, a Fund would not be contractually obligated to pay the
Distributor for any expenses not previously reimbursed by the Fund.
During the fiscal period ended March 31, 1996 the Distributor received
$7,579 from 12b-1 fees and $1,533 from front end sales load fees in connection
with the NFP Investor A Shares. Of this amount, the Distributor retained $0 of
the 12b-1 fees and $224.17 of the front end sales load fees and paid the balance
to selling dealers.
During the fiscal year ended March 31,1997, the Distributor received the
following amounts from Rule 12b-1 fees and front end sales load fees in
connection with Investor A Shares of the NFP Funds: $0 and $0, respectively. Of
these amounts, the Distributor retained $0 and $0, respectively.
During the fiscal year ended March 31,1998, the Distributor received the
following amounts from Rule 12b-1 fees and front end sales load fees in
connection with Investor A Shares of the NFP Funds: $0 and $0, respectively. Of
these amounts, the Distributor retained $0 and $0, respectively.
INVESTOR B SHARES OF THE MONEY MARKET FUNDS AND INVESTOR C SHARES OF THE
NON-MONEY MARKET FUNDS. The Directors/Trustees of the Companies have approved an
Amended and Restated Distribution Plan in accordance with Rule 12b-1 under the
1940 Act for the Investor B Shares of Money Market Funds and Investor C Shares
of the Non-Money Market Funds (the "Investor B/C Plan"). Pursuant to the
Investor B/C Plan, each Fund may pay the Distributor for certain expenses that
are incurred in connection with the distribution of shares. Payments under the
Investor B/C Plan will be calculated daily and paid monthly at a rate set from
time to time by the Board of Directors provided that the annual rate may not
exceed 0.75% of the average daily net asset value of Investor C Shares of a
Non-Money Market Fund and 0.10% of the average daily net asset value of Investor
B Shares of a Money Market Fund. Payments to the Distributor pursuant to the
Investor B/C Plan will be used (i) to compensate banks, other financial
institutions or a securities broker/dealer that have entered into a Sales
Support Agreement with the Distributor ("Selling Agents") for providing sales
support assistance relating to Investor B or Investor C Shares, for promotional
activities intended to result in the sale of Investor B or Investor C Shares
such as to pay for the preparation, printing and distribution of prospectuses to
other than current shareholders, and (iii) to compensate Selling Agents for
providing sales support services with respect to their Customers who are, from
time to time, beneficial and record holders of Investor B or Investor C Shares.
Currently, substantially all fees paid pursuant to the Investor B/C Plan are
paid to compensate Selling Agents for providing the services described in (i)
and (iii) above, with any remaining amounts being used by the Distributor to
partially defray other expenses incurred by the Distributor in distributing
Investor B or Investor C Shares. Fees received by the Distributor pursuant to
the Investor B/C Plan will not be used to pay any interest expenses, carrying
charges or other financing costs (except to the extent permitted by the SEC) and
will not be used to pay any general and administrative expenses of the
Distributor.
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Pursuant to the Investor B/C Plan, the Distributor may enter into Sales
Support Agreements with Selling Agents for providing sales support services to
their Customers who are the record or beneficial owners of Investor B Shares of
the Money Market Funds and Investor C Shares of the non-Money Market Funds. Such
Selling Agents will be compensated at the annual rate of up to 0.75% of the
average daily net asset value of the Investor C Shares of the Non-Money Market
Funds, and up to 0.10% of the average daily net asset value of the Investor B
Shares of the Money Market Funds held of record or beneficially by such
Customers. The sales support services provided by Setting Agents may include
providing distribution assistance and promotional activities intended to result
in the sales of shares such as paying for the preparation, printing and
distribution of prospectuses to other than current shareholders.
Fees paid pursuant to the Investor B/C Plan are accrued daily and paid
monthly, and are charged as expenses of the relevant shares of a Fund as
accrued. Expenses incurred by the Distributor pursuant to the Investor B/C Plan
in any given year may exceed the sum of the fees received under the Investor B/C
Plan and payments received pursuant to contingent deferred sales charges. Any
such excess may be recovered by the Distributor in future years so long as the
Investor B/C Plan is in effect. If the Investor B/C Plan were terminated or not
continued, a Fund would not be contractually obligated to pay the Distributor
for any expenses not previously reimbursed by the Fund or recovered through
contingent deferred sales charges.
In addition, the Directors have approved an Amended and Restated
Shareholder Servicing Plan ("Servicing Plan") with respect to the Investor B
Shares of the Money Market Funds and Investor C Shares of the Non-Money Market
Funds (the "Investor B/C Servicing Plan"). Pursuant to the Investor B/C
Servicing Plan, each Fund may pay banks, broker/dealers or other financial
institutions that have entered into a Shareholder Servicing Agreement with
Nations Funds ("Servicing Agents") for certain expenses that are incurred by the
Servicing Agents in connection with shareholder support services that are
provided by the Servicing Agents. Payments under the Investor B/C Servicing Plan
will be calculated daily and paid monthly at a rate set from time to time by the
Board of Directors, provided that the annual rate may not exceed 0.25% of the
average daily net asset value of the Money Market Funds' Investor B Shares and
the Non-Money Market Funds' Investor C Shares. The shareholder services provided
by the Servicing Agents may include (i) aggregating and processing purchase and
redemption requests for such Investor B or Investor C Shares from Customers and
transmitting promptly net purchase and redemption orders to our distributor or
transfer agent; (ii) providing Customers with a service that invests the assets
of their accounts in such Investor B or Investor C Shares pursuant to specific
or pre-authorized instructions; (iii) dividend and distribution payments from
the Company on behalf of Customers; (iv) providing information periodically to
Customers showing their positions in such Investor B or Investor C Shares; (v)
arranging for bank wires; (vi) responding to Customers' inquiries concerning
their investment in such Investor B or Investor C Shares; (vii) providing
sub-accounting with respect to such Investor B or Investor C Shares beneficially
owned by Customers or providing the information to us necessary for
sub-accounting; (viii) if required by law, forwarding shareholder communications
from the Company (such as proxies, shareholder reports, annual and semi-annual
financial statements and dividend, distribution and tax notices) to Customers;
(ix) forwarding to Customers proxy statements and proxies containing any
proposals regarding the Shareholder Servicing Agreement; (x) providing general
shareholder liaison services; and (xi) providing such other similar services as
the Company may reasonably request to the extent the Servicing Agent is
permitted to do so under applicable statutes, rules or regulations.
During the fiscal period ended March 31,1996, the Distributor received
the following amounts from Rule 12b-1 fees and CDSC fees in connection with
Investor B Shares of the NFI Money Market Funds: $1,982,677.43 and $65,117
respectively. Of these amounts, the prior distributor retained $13,780.21 and
$456.62, respectively.
During the fiscal period ended March 31, 1996, the Distributor received
the following amounts from Rule 12b-1 fees and CDSC fees in connection with
Investor C Shares of the NFI Non-Money Market Funds: $226,162.84 and $5,086,
respectively. Of these amounts, the Distributor retained $15,749.93 and
$1,394.24, respectively.
During the fiscal year ended March 31,1997, the Distributor received the
following amount from Rule 12b-1 fees in connection with Investor B Shares of
the NFI Money Market Funds: $4,403,155.44. Of this amount, the Distributor
retained $302.33.
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During the fiscal year ended March 31,1997, the Distributor received the
following amounts from Rule 12b-1 fees and CDSC fees in connection with Investor
C Shares of the NFI Non-Money Market Funds: $38,342.90 and $587.17,
respectively. Of these amounts, the Distributor retained $4,441.52 and $587.17,
respectively.
During the fiscal year ended March 31,1997, the Distributor received the
following amount from Rule 12b-1 fees in connection with Investor B Shares of
the NFT Money Market Funds: $488,455.68. Of this amount, the Distributor
retained $369.80.
During the fiscal year ended March 31,1997, the Distributor received the
following amounts from Rule 12b-1 fees and CDSC fees in connection with Investor
C Shares of the NFT Non-Money Market Funds: $252,094.80 and $6,716.67,
respectively. Of these amounts, the Distributor retained $43,497.58 and
$6,716.67, respectively.
During the fiscal year ended March 31,1998, the Distributor received the
following amount from Rule 12b-1 fees in connection with Investor B Shares of
the NFI Money Market Funds: $3,466,866.65. Of this amount, the Distributor
retained $7,743.41.
During the fiscal year ended March 31,1998, the Distributor received the
following amounts from Rule 12b-1 fees and CDSC fees in connection with Investor
C Shares of the NFI Non-Money Market Funds: $98,350.80 and $18,143.54
respectively. Of these amounts, the Distributor retained $33,051.16 and
$18,143.54, respectively.
During the fiscal year ended March 31,1998, the Distributor received the
following amount from Rule 12b-1 fees in connection with Investor B Shares of
the NFT Money Market Funds: $562,681.69. Of this amount, the Distributor
retained $730.94.
During the fiscal year ended March 31,1998, the Distributor received the
following amounts from Rule 12b-1 fees and CDSC fees in connection with Investor
C Shares of the NFT Non-Money Market Funds: $369,785.35 and $18,619.52,
respectively. Of these amounts, the Distributor retained $148,710.43 and
$18,619.52, respectively.
During the fiscal year ended March 31,1998, the Distributor received the
following amounts from Rule 12b-1 fees and CDSC fees in connection with Investor
C Shares of the NFP Non-Money Market Funds: $2,682.36 and $14.74, respectively.
Of these amounts, the Distributor retained $1,646.52 and $14.74, respectively.
INVESTOR C SHARES OF THE MONEY MARKET FUNDS AND INVESTOR B SHARES OF THE
NON-MONEY MARKET FUNDS. The Directors/Trustees of each Company have approved a
Distribution Plan (the "Investor B Distribution Plan") with respect to Investor
B Shares of the Non-Money Market Funds. Pursuant to the Investor B Distribution
Plan, a Non-Money Market Fund may compensate or reimburse the Distributor for
any activities or expenses primarily intended to result in the sale of the
Fund's Investor B Shares, including for sales related services provided by
banks, broker/dealers or other financial institutions that have entered into a
Sales Support Agreement relating to the Investor B Shares with the Distributor
("Selling Agents"). Payments under a Fund's Investor B Distribution Plan will be
calculated daily and paid monthly at a rate or rates set from time to time by
the Board of Directors provided that the annual rate may not exceed 0.75% of the
average daily net asset value of each Non-Money Market Fund's Investor B Shares.
The fees payable under the Investor B Distribution Plan are used
primarily to compensate or reimburse the Distributor for distribution services
provided by it, and related expenses incurred, including payments by the
Distributor to compensate or reimburse Selling Agents, for sales support
services provided, and related expenses incurred, by such Selling Agents.
Payments under the Investor B Distribution Plan may be made with respect to
preparation, printing and distribution of prospectuses, sales literature and
advertising materials by the Distributor or, as applicable, Selling Agents,
attributable to distribution or sales support activities, respectively,
commissions, incentive compensation or other compensation to, and expenses of,
account executives or other employees of the Distributor or Selling Agents,
attributable to distribution or sales support activities, respectively; overhead
and other office expenses of the Distributor relating to the foregoing (which
may be calculated as a carrying charge in the Distributor's or Selling Agents'
unreimbursed expenses), incurred in connection with distribution or sales
support activities. The overhead and other office expenses referenced above may
include, without limitation, (i) the expenses of operating the Distributor's or
Selling Agents' offices in connection with the sale of Fund shares, including
lease costs, the salaries and employee benefit costs of administrative,
operations and support personnel, utility costs, communication costs and the
costs of stationery and supplies, (ii) the costs of client sales seminars and
travel related to distribution and sales support activities, and (iii) other
expenses relating to distribution and sales support activities.
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In addition, the Directors/Trustees have approved a Shareholder
Servicing Plan with respect to Investor C Shares of the Money Market Funds and
Investor B Shares of the Non-Money Market Funds ( "Investor C/B Servicing
Plan"). Pursuant to the Investor C/B Servicing Plan, a Fund may compensate or
reimburse banks, broker/dealers or other financial institutions that have
entered into a Shareholder Servicing Agreement with the Company ("Servicing
Agents") for certain activities or expenses of the Servicing Agents in
connection with shareholder services that are provided by the Servicing Agents.
Payments under the Investor C/B Servicing Plan will be calculated daily and paid
monthly at a rate or rates set from time to time by the Board of
Directors/Trustees, provided that the annual rate may not exceed 0.25% of the
average daily net asset value of the Investor C Shares of the Money Market Funds
and Investor B Shares of the Non-Money Market Funds.
The fees payable under the Investor C/B Servicing Plan are used
primarily to compensate or reimburse Servicing Agents for shareholder services
provided, and related expenses incurred, by such Servicing Agents. The
shareholder services provided by Servicing Agents may include: (i) aggregating
and processing purchase and redemption requests for such Investor C or Investor
B Shares from Customers and transmitting promptly net purchase and redemption
orders to the Distributor or Transfer Agent; (ii) providing Customers with a
service that invests the assets of their accounts in such Investor C or Investor
B Shares pursuant to specific or pre-authorized instructions; (iii) processing
dividend and distribution payments from the Companies on behalf of Customers;
(iv) providing information periodically to Customers showing their positions in
such Investor C or Investor B Shares; (v) arranging for bank wires; (vi)
responding to Customers' inquiries concerning their investment in such Investor
C or Investor B Shares; (vii) providing sub-accounting with respect to such
Investor C or Investor B Shares beneficially owned by Customers or providing the
information to us necessary for sub-accounting; (viii) if required by law,
forwarding shareholder communications from the Companies (such as proxies,
shareholder reports, annual and semi-annual financial statements and dividend,
distribution and tax notices) to Customers; (ix) forwarding to Customers proxy
statements and proxies containing any proposals regarding the Investor C
Servicing Plan or related agreements; (x) providing general shareholder liaison
Services; and (xi) providing such other similar services as the Companies may
reasonably request to the extent such Servicing Agent is permitted to do so
under applicable statutes, rules or regulations.
The fees payable under the Investor B Distribution Plan and Investor C/B
Servicing Plan (together, the "Investor C/B Plans") are treated by the Funds as
an expense in the year they are accrued. At any given time, a Selling Agent
and/or Servicing Agent may incur expenses in connection with services provided
pursuant to its agreements with the Distributor under the Investor C/B Plans
which exceed the total of (i) the payments made to the Selling Agents and
Servicing Agents by the Distributor or the Company and reimbursed by the Fund
pursuant to the Investor C/B Plans, and (ii) the proceeds of contingent deferred
sales charges paid to the Distributor and reallowed to the Selling Agent, upon
the redemption of their Customers' Investor C Shares. Any such excess expenses
may be recovered in future years, so long as the Investor C/B Plans are in
effect. Because there is no requirement under the Investor C/B Plans that the
Distributor be paid or the Selling Agents and Servicing Agents be compensated or
reimbursed for all their expenses or any requirement that the Investor C/B Plans
be continued from year to year, such excess amount, if any, does not constitute
a liability to a Fund or the Distributor. Although there is no legal obligation
for the Fund to pay expenses incurred by the Distributor, a Selling Agent or a
Servicing Agent in excess of payments previously made to the Distributor under
the Investor C/B Plans or in connection with contingent deferred sales charges,
if for any reason the Investor C/B Plans are terminated, the Directors will
consider at that time the manner in which to treat such expenses.
During the fiscal period ended March 31, 1996, the Distributor received
the following amounts from Rule 12b-1 fees and CDSC fees in connection with
Investor B Shares of the Non-Money Market Funds: $796,535 and $503,334
respectively. Of these amounts, the prior distributor retained $ 0 and $ 0,
respectively.
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<PAGE>
During the fiscal period ended March 31, 1996, the Distributor received
the following amounts from Rule 12b-1 fees and CDSC fees in connection with
Investor B Shares of the Non-Money Market Funds of NFT: $939,081 and $558,076,
respectively. Of these amounts, the Distributor retained $0 and $0,
respectively.
During the fiscal year ended March 31, 1997, the Distributor received
the following amounts from Rule 12b-1 fees and CDSC fees in connection with
Investor B Shares of the Non-Money Market Funds: $0 and $0, respectively. Of
these amounts, the Distributor retained $0 and $0, respectively.
During the fiscal year ended March 31,1997, the Distributor received the
following amounts from Rule 12b-1 fees and CDSC fees in connection with Investor
B Shares of the Non-Money Market Funds of NFT: $0 and $0, respectively. Of these
amounts, the Distributor retained $0 and $0, respectively.
During the fiscal year ended March 31, 1998, the Distributor received
the following amounts from Rule 12b-1 fees and CDSC fees in connection with
Investor B Shares of the Non-Money Market Funds: $0 and $0, respectively. Of
these amounts, the Distributor retained $0 and $0, respectively.
During the fiscal year ended March 31,1998, the Distributor received the
following amounts from Rule 12b-1 fees and CDSC fees in connection with Investor
B Shares of the Non-Money Market Funds of NFT: $0 and $0, respectively. Of these
amounts, the Distributor retained $0 and $0, respectively.
DAILY SHARES OF THE MONEY MARKET FUNDS. The Directors/Trustees have
approved a Distribution Plan (the "Daily Distribution Plan") with respect to
Daily Shares of the Money Market Funds. Pursuant to the Daily Distribution Plan,
a Money Market Fund may compensate or reimburse the Distributor for any
activities or expenses primarily intended to result in the sale of the Fund's
Daily Shares, including for sales related services provided by banks,
broker/dealers or other financial institutions that have entered into a Sales
Support Agreement relating to the Daily Shares with the Distributor ("Selling
Agents"). Payments under a Fund's Daily Distribution Plan will be calculated
daily and paid monthly at a rate or rates set from time to time by the Board of
Directors provided that the annual rate may not exceed 0.45 % of the average
daily net asset value of each Money Market Fund's Daily Shares.
The fees payable under the Daily Distribution Plan are used primarily to
compensate or reimburse the Distributor for distribution services provided by
it, and related expenses incurred, including payments by the Distributor to
compensate or reimburse Selling Agents, for sales support services provided, and
related expenses incurred, by such Selling Agents. Payments under the Daily
Distribution Plan may be made with respect to preparation, printing and
distribution of prospectuses, sales literature and advertising materials by the
Distributor or, as applicable, Selling Agents, attributable to distribution or
sales support activities, respectively, commissions, incentive compensation or
other compensation to, and expenses of, account executives or other employees of
the Distributor or Selling Agents, attributable to distribution or sales support
activities, respectively; overhead and other office expenses of the Distributor
relating to the foregoing (which may be calculated as a carrying charge in the
Distributor's or Selling Agents' unreimbursed expenses), incurred in connection
with distribution or sales support activities. The overhead and other office
expenses referenced above may include, without limitation, (i) the expenses of
operating the Distributor's or Selling Agents' offices in connection with the
sale of Fund shares, including lease costs, the salaries and employee benefit
costs of administrative operations and support personnel, utility costs,
communication costs and the costs of stationery and supplies, (ii) the costs of
client sales seminars and travel related to distribution and sales support
activities, and (iii) other expenses relating to distribution and sales support
activities.
In addition, the Directors have approved a Shareholder Servicing Plan
with respect to Daily Shares of the Money Market Funds (the "Daily Servicing
Plan"). Pursuant to the Daily Servicing Plan, a Fund may compensate or reimburse
banks, broker/dealers or other financial institutions that have entered into a
Shareholder Servicing Agreement with the Company ("Servicing Agents") for
certain activities or expenses of the Servicing Agents in connection with
shareholder services that are provided by the Servicing Agents. Payments under
the Daily Servicing Plan will be calculated daily and paid monthly at a rate or
rates set from time to time by the Board of Directors, provided that the annual
rate may not exceed 0.25% of the average daily net asset value of the Daily
Shares of the Money Market Funds.
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The fees payable under the Daily Servicing Plan are used primarily to
compensate or reimburse Servicing Agents for shareholder services provided, and
related expenses incurred, by such Servicing Agents. The shareholder services
provided by Servicing Agents may include: (i) aggregating and processing
purchase and redemption requests for such Daily Shares from Customers and
transmitting promptly net purchase and redemption orders to the Distributor or
Transfer Agent; (ii) providing Customers with a service that invests the assets
of their accounts in such Daily Shares pursuant to specific or pre-authorized
instructions; (iii) processing dividend and distribution payments from the
Company on behalf of Customers; (iv) providing information periodically to
Customers showing their positions in such Daily Shares; (v) arranging for bank
wires; (vi) responding to Customers' inquiries concerning their investment in
such Daily Shares; (vii) providing sub-accounting with respect to such Daily
Shares beneficially owned by Customers or providing the information to us
necessary for sub-accounting; (viii) if required by law, forwarding shareholder
communications from the Company (such as proxies, shareholder reports, annual
and semi-annual financial statements and dividend, distribution and tax notices)
to Customers; (ix) forwarding to Customers proxy statements and proxies
containing any proposals regarding the Daily Servicing Plan or related
agreements; (x) providing general shareholder liaison services; and (xi)
providing such other similar services as the Company may reasonably request to
the extent such Servicing Agent is permitted to do so under applicable statutes,
rules or regulations.
The fees payable under the Daily Distribution Plan and Daily Servicing
Plan (together, the "Daily Plans") are treated by the Funds as an expense in the
year they are accrued. At any given time, a Selling Agent and/or Servicing Agent
may incur expenses in connection with services provided pursuant to its
agreements with the Distributor under the Daily Plans which exceed the total of
(i) the payments made to the Selling Agents and Servicing Agents by the
Distributor or the Company and reimbursed by the Fund pursuant to the Daily
Plans, and (ii) the proceeds of contingent deferred sales charges paid to the
Distributor and reallowed to the Selling Agent, upon the redemption of their
Customers' Daily Shares. Any such excess expenses may be recovered in future
years, so long as the Daily Plans are in effect. Because there is no requirement
under the Daily Plans that the Distributor be paid or the Selling Agents and
Servicing Agents be compensated or reimbursed for all their expenses or any
requirement that the Daily Plans be continued from year to year, such excess
amount, if any, does not constitute a liability to a Fund or the Distributor.
Although there is no legal obligation for the Fund to pay expenses incurred by
the Distributor, a Selling Agent or a Servicing Agent in excess of payments
previously made to the Distributor under the Daily Plans or in connection with
contingent deferred sales charges, if for any reason the Daily Plans are
terminated, the Directors will consider at that time the manner in which to
treat such expenses.
During the fiscal period ended March 31, 1996, the Distributor received
the following amounts from Rule 12b-1 fees in connection with Daily Shares of
the Money Market Funds: $48 and $0, respectively. Of these amounts, the prior
Distributor retained $0 and $0, respectively.
During the fiscal year ended March 31, 1997, the Distributor received $0
from Rule 12b-1 fees in connection with Daily Shares of the Money Market Funds.
Of this amount, the Distributor retained $0.
During the fiscal year ended March 31, 1998, the Distributor received $0
from Rule 12b-1 fees in connection with Daily Shares of the Money Market Funds.
Of this amount, the Distributor retained $0.
MARSICO SHARES OF THE PRIME FUND. In addition, the Directors have
approved a Shareholder Servicing Plan with respect to the Marsico Shares of the
Prime Fund (the "Marsico Servicing Plan"). Pursuant to the Marsico Servicing
Plan, a Fund may compensate or reimburse banks, broker/dealers or other
financial institutions that have entered into a Shareholder Servicing Agreement
with the Company ("Servicing Agents") for certain activities or expenses of the
Servicing Agents in connection with shareholder services that are provided by
the Servicing Agents. Payments under the Marsico Servicing Plan will be
calculated daily and paid monthly at a rate or rates set from time to time by
the Board of Directors, provided that the annual rate may not exceed 0.25% of
the average daily net asset value of the Marsico Shares of the Prime Fund.
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<PAGE>
The fees payable under the Marsico Servicing Plan are used primarily to
compensate or reimburse Servicing Agents for shareholder services provided, and
related expenses incurred, by such Servicing Agents. The shareholder services
provided by Servicing Agents may include: (i) aggregating and processing
purchase and redemption requests for such Marsico Shares from Customers and
transmitting promptly net purchase and redemption orders to the Distributor or
Transfer Agent; (ii) providing Customers with a service that invests the assets
of their accounts in such Marsico Shares pursuant to specific or pre-authorized
instructions; (iii) processing dividend and distribution payments from the
Company on behalf of Customers; (iv) providing information periodically to
Customers showing their positions in such Marsico Shares; (v) arranging for bank
wires; (vi) responding to Customers' inquiries concerning their investment in
such Marsico Shares; (vii) providing sub-accounting with respect to such Daily
Shares beneficially owned by Customers or providing the information to us
necessary for sub-accounting; (viii) if required by law, forwarding shareholder
communications from the Company (such as proxies, shareholder reports, annual
and semi-annual financial statements and dividend, distribution and tax notices)
to Customers; (ix) forwarding to Customers proxy statements and proxies
containing any proposals regarding the Daily Servicing Plan or related
agreements; (x) providing general shareholder liaison services; and (xi)
providing such other similar services as the Company may reasonably request to
the extent such Servicing Agent is permitted to do so under applicable statutes,
rules or regulations.
INFORMATION APPLICABLE TO INVESTOR A, INVESTOR B, INVESTOR C AND DAILY
SHARES. The Investor A Plan, the Money Market Investor A Servicing Plan, the
Investor B/C Plan, the Investor B/C Servicing Plan, the Investor C Plan, the
Daily Distribution Plan, the Daily Servicing Plan and the Investor C/B Servicing
Plan (each a "Plan" and collectively the "Plans") may only be used for the
purposes specified above and as stated in each such Plan. Compensation payable
to Selling Agents or Servicing Agents for shareholder support services under the
Investor A Plan, the Money Market Investor A Servicing Plan, the Investor B/C
Servicing Plan, Daily Servicing Plan and the Investor C/B Servicing Plan is
subject to, among other things, the National Association of Securities Dealers,
Inc. ("NASD") Rules of Conduct governing receipt by NASD members of shareholder
servicing plan fees from registered investment companies (the "NASD Servicing
Plan Rule"), which became effective on July 7, 1993. Such compensation shall
only be paid for services determined to be permissible under the NASD Servicing
Plan Rule.
Each Plan requires the officers of the Company or the Distributor to
provide the Board of Directors at least quarterly with a written report of the
amounts expended pursuant to the Plan and the purposes for which such
expenditures were made. The Board of Directors reviews these reports in
connection with their decisions with respect to the Plans.
As required by Rule 12b-1 under the 1940 Act, each Plan was approved by
the Board of Directors, including a majority of the directors who are not
"interested persons" (as defined in the 1940 Act) of the Company and who have no
direct or indirect financial interest in the operation of the Plan or in any
agreements related to the Plan ("Qualified Directors") on February 6, 1997, with
respect to the Investor C Shares of the Money Market Funds, on March 22, 1991,
with respect to the Investor A Shares of the Equity Income and Government
Securities Funds, on June 24, 1992 with respect to the Investor A Shares of the
International Equity Fund, and on March 19, 1992, with respect to the Investor C
Shares of the Non-Money Market Funds. Additionally, each Plan with respect to
the Investor B Shares of the Money Market Funds and with respect to the Investor
B Shares of all the Non-Money Market Funds was approved by the Board of
Directors, including a majority of the Qualified Directors, on February 3, 1993.
The Plan with respect to the Investor C Shares of the Money Market Funds was
initially approved on August 4, 1993. The Plan with respect to the Daily Shares
of the Money Market Funds was initially approved on August 4, 1993. The Plans
continue in effect as long as such continuance is specifically approved at least
annually by the Board of Directors, including a majority of the Qualified
Directors. On October 12, 1996, the Board of Directors (including a majority of
the Qualified Directors) voted to continue each Plan for an additional one year
period.
In approving the Plans in accordance with the requirements of Rule
12b-1, the directors considered various factors and determined that there is a
reasonable likelihood that each Plan will benefit the respective Investor A,
Investor B, Investor C Shares or Investor B Shares and the holders of such
shares. The Investor A Plan was approved by the Shareholders of the Investor A
Shares of each of the Funds except the International Equity Fund on September 6,
1991, and the Investor B/C Plan applicable to Investor C Shares of the
International Equity and Equity Income Funds and the Investor A Plan applicable
to Investor A Shares of the International Equity Fund were approved on September
22, 1992 by the Investor C Shareholders of the respective International Equity
and Equity Income Funds with respect to the Investor B/C Plan and by the
Investor A Shareholders of the International Equity Fund with respect to the
Investor A Plan. The Plans applicable to the Investor B Shares of the Money
Market Funds and Investor B Shares of the Non-Money Market Funds were approved
by such Funds' initial shareholder of Investor B and Investor B Shares.
94
<PAGE>
The Investor A Shares' Plans with respect to the Money Market Funds
originally became effective on December 4, 1989, and were amended February
12,1990, March 19, 1992 and February 3, 1993. The Investor A Shares' Plan with
respect to the Equity Income and Government Securities Funds became effective on
March 22, 1991, and was amended March 19, 1992. The Investor A Shares' Plan with
respect to the International Equity Fund became effective September 6, 1991 and
was amended March 19, 1992 and February 3, 1993.
The Investor A Plan, Investor B/C Plan and Investor C/B Plan may be
terminated with respect to their respective shares by vote of a majority of the
Qualified Directors, or by vote of a majority of the holders of the outstanding
voting securities of the Investor A, Investor B or Investor C, as appropriate.
Any change in such a Plan that would increase materially the distribution
expenses paid by the Investor A, Investor B or Investor C Shares requires
shareholder approval; otherwise, each Plan may be amended by the directors,
including a majority of the Qualified Directors, by vote cast in person at a
meeting called for the purpose of voting upon such amendment. The Money Market
Investor A Servicing Plan, the Investor B/C Servicing Plan and the Investor C/N
Servicing Plan may be terminated by a vote of a majority of the Qualified
Directors. As long as a Plan is in effect, the selection or nomination of the
Qualified Directors is committed to the discretion of the Qualified Directors.
Conflict of interest restrictions may apply to the receipt by Selling and/or
Servicing Agents of compensation from the Company in connection with the
investment of fiduciary assets in Investor Shares. Selling and/or Servicing
Agents, including banks regulated by the Comptroller of the Currency, the
Federal Reserve Board, or the Federal Deposit Insurance Corporation, and
investment advisers and other money managers subject to the jurisdiction of the
SEC, the Department of Labor, or state securities commissions, are urged to
consult their legal advisers before investing such assets in Investor Shares.
95
<PAGE>
FEES PAID PURSUANT TO SHAREHOLDER SERVICING/DISTRIBUTION PLANS
INVESTOR A SHARES
<TABLE>
<CAPTION>
NET
NET FEES PAID
FEES PAID (12B-1 (SHAREHOLDER NET
COMPONENT) SERVICING COMPONENT) FEES
FUND YEAR ENDED 3/31/98 YEAR ENDED 3/31/98 PAID
---- ------------------ ------------------ ----
<S> <C> <C> <C>
Prime Fund $1,375,724.00 $3,439,309.00 $4,815,033.00
Treasury Fund 1,154,511 2,886,280 4,040,791
Equity Income Fund 148,897 --- 148,897
International Equity Fund 31,043 --- 31,043
Government Securities 25,326 --- 25,326
Fund
Small Company Growth Fund 11,220 --- 11,220
U.S. Government Bond Fund 2,909 --- 2,909
International Growth Fund 52,736 --- 52,736
International Value Fund N/A N/A N/A
Emerging Markets Fund 2,429 --- 2,429
Pacific Growth Fund 5,247 --- 5,247
Global Government Income Fund 36,794 --- 36,794
Value Fund 273,466 --- 273,466
Capital Growth Fund 74,936 --- 74,936
Emerging Growth Fund 39,225 --- 39,225
Equity Index Fund 7,389 --- 7,389
Managed Index Fund 30,542 --- 30,542
Managed SmallCap Index Fund 19,228 --- 19,228
Managed Value Index Fund 1,760 --- 1,760
Managed SmallCap Value Index Fund 1,291 --- 1,291
Disciplined Equity Fund 32,655 --- 32,655
Marsico Focused Equities Fund 1,045 --- 1,045
Marsico Growth & Income Fund 205 --- 205
Balanced Assets Fund 30,709 --- 30,709
Short-Intermediate Government Fund 88,874 --- 88,874
Short-Term Income Fund 17,958 --- 17,958
Diversified Income Fund 28,987 --- 28,987
Strategic Fixed Income Fund 30,753 --- 30,753
Municipal Income Fund 34,073 --- 34,073
Short-Term Municipal Income Fund 47,824 --- 47,824
Intermediate Municipal Bond Fund 8,045 --- 8,045
FL Intermediate Municipal Fund 11,973 --- 11,973
</TABLE>
96
<PAGE>
<TABLE>
<CAPTION>
FUND NET FEES PAID NET FEES PAID
---- (12B-1 COMPONEMT) (SHAREHOLDER SERVICING NET FEES PAID
---------------- COMPONENT) -------------
----------
<S> <C> <C> <C>
FL Municipal Bond Fund 3,758 --- 3,758
GA Intermediate Municipal Fund 18,809 --- 18,809
GA Municipal Bond Fund 763 --- 763
MD Intermediate Municipal Fund 30,370 --- 30,370
MD Municipal Bond Fund 3,364 --- 3,364
NC Intermediate Municipal Fund 13,654 --- 13,654
NC Municipal Bond Fund 1,271 --- 1,271
SC Intermediate Municipal Fund 22,738 --- 22,738
SC Municipal Bond Fund 2,628 --- 2,628
TN Intermediate Municipal Fund 14,351 --- 14,351
TN Municipal Bond Fund 2,631 --- 2,631
TX Intermediate Municipal Fund 2,806 --- 2,806
TX Municipal Bond Fund 791 --- 791
VA Intermediate Municipal Fund 108,231 --- 108,231
VA Municipal Bond Fund 1,928 --- 1,928
Government Money Market Fund 24,664 61,660 86,324
Tax Exempt Fund 125,498 313,747 439,245
</TABLE>
FEES PAID PURSUANT TO DISTRIBUTION PLANS
INVESTOR B SHARES - MONEY MARKET FUNDS
INVESTOR C SHARES - NON-MONEY MARKET FUNDS
<TABLE>
<CAPTION>
NET
NET FEES PAID
FEES PAID (12B-1 (SHAREHOLDER NET
COMPONENT) SERVICING COMPONENT) FEES
FUND YEAR ENDED 3/31/98 YEAR ENDED 3/31/98 PAID
---- ------------------ ------------------ ----
<S> <C> <C> <C>
Prime Fund --- $1,577,256.00 $1,577,256.00
Treasury Fund --- 1,891,737 1,891,737
Equity Income Fund $870,896.00 290,298 1,161,194
International Equity Fund 265,759 88,586 354,345
Government Securities Fund 193,008 80,420 273,428
Small Company Growth Fund 13,850 4,617 18,467
U.S. Government Bond Fund 3,840 1,601 5,441
International Growth Fund 2,704 900 3,604
International Value Fund N/A N/A N/A
Emerging Markets Fund 10,642 3,546 14,188
Pacific Growth Fund 12,870 4,290 17,160
Global Government Income Fund 1,029 428 1,457
Value Fund 846,974 282,235 1,129,299
Capital Growth Fund 375,580 125,193 500,773
Emerging Growth Fund 299,754 99,919 399,673
</TABLE>
97
<PAGE>
<TABLE>
<CAPTION>
NET
NET FEES PAID
FEES PAID (12B-1 (SHAREHOLDER NET
COMPONENT) SERVICING COMPONENT) FEES
FUND YEAR ENDED 3/31/98 YEAR ENDED 3/31/98 PAID
---- ------------------ ------------------ ----
<S> <C> <C> <C>
Equity Index Fund ---- ---- ----
Managed Index Fund ---- ---- ----
Managed SmallCap Index Fund ---- ---- ----
Managed Value Index Fund ---- ---- ----
Managed SmallCap Value Index Fund ---- ---- ----
Disciplined Equity Fund 202,394 67,465 269,859
Marsico Focused Equities Fund 12,707 4,235 16,942
Marsico Growth & Income Fund 4,894 1,631 6,525
Balanced Assets Fund 486,598 162,199 648,797
Short-Intermediate Government Fund 51,218 23,281 74,499
Short-Term Income Fund 4,939 12,351 17,290
Diversified Income Fund 389,914 162,464 552,378
Strategic Fixed Income Fund 12,218 5,554 17,772
Municipal Income Fund 84,881 35,367 120,248
Short-Term Municipal Income Fund 11,797 29,493 41,290
Intermediate Municipal Bond Fund 8,693 3,951 12,644
FL Intermediate Municipal Fund 16,492 7,496 23,988
FL Municipal Bond Fund 103,668 43,195 146,863
GA Intermediate Municipal Fund 35,901 16,331 52,232
GA Municipal Bond Fund 57,039 23,767 80,806
MD Intermediate Municipal Fund 21,223 9,648 30,871
MD Municipal Bond Fund 50,771 21,154 71,925
NC Intermediate Municipal Fund 32,514 14,779 47,293
NC Municipal Bond Fund 140,970 58,737 199,707
SC Intermediate Municipal Fund 30,401 13,816 44,219
SC Municipal Bond Fund 62,947 26,229 89,176
TN Intermediate Municipal Fund 14,924 6,784 21,708
TN Municipal Bond Fund 28,813 12,006 40,819
TX Intermediate Municipal Fund 10,414 4,734 15,148
TX Municipal Bond Fund 54,020 22,509 76,529
VA Intermediate Municipal Fund 49,251 22,387 71,638
VA Municipal Bond Fund 80,656 33,606 114,262
Government Money Market Fund ---- 105,609 105,609
Tax Exempt Fund ---- 453,492 453,492
</TABLE>
NOTE: All fees paid under the Investor A and Investor C/B Shares Distribution
Plans were accrued as payments to broker/dealers and financial
institutions offering such shares to their customers.
98
<PAGE>
INVESTOR C SHARES - MONEY MARKET FUNDS
INVESTOR B SHARES - NON-MONEY MARKET FUNDS
<TABLE>
<CAPTION>
NET
NET FEES PAID
FEES PAID (12B-1 (SHAREHOLDER NET
COMPONENT) SERVICING COMPONENT) FEES
FUND YEAR ENDED 3/31/98 YEAR ENDED 3/31/98 PAID
---- ------------------ ------------------ ----
<S> <C> <C> <C>
Prime Fund --- $219,261.00 $ 219,261.00
Treasury Fund --- 25,041 25,041
Equity Income Fund 51,110 17,036 68,146
International Equity Fund 6,518 2,173 8,691
Government Securities 7,171 2,988 10,159
Fund
Small Company Growth Fund 12,232 4,077 16,309
U.S. Government Bond Fund 4,428 1,846 6,274
International Growth Fund 1,894 631 2,525
International Value Fund N/A N/A N/A
Emerging Markets Fund 1,505 502 2,007
Pacific Growth Fund 488 163 651
Global Government Income Fund 48 20 68
Value Fund 68,338 22,779 91,117
Capital Growth Fund 39,286 13,095 52,381
Emerging Growth Fund 13,099 4,366 17,465
Equity Index Fund ---- ---- ----
Managed Index Fund 4,939 4,940 9,879
Managed SmallCap Index Fund 550 550 1,100
Managed Value Index Fund 2 1 3
Managed SmallCap Value Index Fund 12 11 23
Disciplined Equity Fund 5,891 1,963 7,854
Marsico Focused Equities Fund 267 89 356
Marsico Growth & Income Fund 143 47 190
Balanced Assets Fund 13,783 4,594 18,377
Short-Intermediate Government Fund 26,501 12,047 38,548
Short-Term Income Fund 3,483 8,709 12,192
Diversified Income Fund 13,883 5,784 19,667
Strategic Fixed Income Fund 4,844 2,201 7,045
Municipal Income Fund 12,181 5,076 17,257
Short-Term Municipal Income Fund 668 1,670 2,338
Intermediate Municipal Bond Fund 4,830 2,195 7,025
FL Intermediate Municipal Fund 1,183 537 1,720
99
<PAGE>
<CAPTION>
FL Municipal Bond Fund 125 52 177
GA Intermediate Municipal Fund 8,039 3,654 11,693
GA Municipal Bond Fund 215 89 304
MD Intermediate Municipal Fund 7,338 3,335 10,673
MD Municipal Bond Fund 14 6 20
NC Intermediate Municipal Fund 6,348 2,886 9,234
NC Municipal Bond Fund 64 26 90
SC Intermediate Municipal Fund 19,281 8,764 28,045
SC Municipal Bond Fund 272 114 386
TN Intermediate Municipal Fund 12 5 17
TN Municipal Bond Fund 208 86 294
TX Intermediate Municipal Fund 2,484 1,129 3,613
TX Municipal Bond Fund 398 166 564
VA Intermediate Municipal Fund 23,904 10,866 34,770
VA Municipal Bond Fund 137 57 194
Government Money Market Fund ---- 7,557 7,557
Tax Exempt Fund ---- 115,616 115,616
</TABLE>
DAILY SHARES - MONEY MARKET FUNDS
<TABLE>
<CAPTION>
NET
NET FEES PAID
FEES PAID (12B-1 (SHAREHOLDER NET
COMPONENT) SERVICING COMPONENT) FEES
FUND YEAR ENDED 3/31/98 YEAR ENDED 3/31/98 PAID
---- ------------------ ------------------ ----
<S> <C> <C> <C>
Prime Fund $178,213.00 $178,213.00 $ 356,426.00
Treasury Fund 378,507 378,507 757,014
Government Money Market Fund 17,523 17,523 35,046
Tax-Exempt Fund 34,060 34,060 68,120
</TABLE>
FEES PAID PURSUANT TO THE ADMINISTRATION PLAN
PRIMARY B SHARES
NET ADMIN NET ADMIN
FEES PAID FEES WAIVED
--------- -----------
Prime Fund $145,320.00 ----
Treasury Fund 67,921.00 ----
Equity Income Fund 24,723.00 ----
International Equity Fund 16,264 ----
Government Securities Fund 2,961 ----
100
<PAGE>
NET ADMIN NET ADMIN
FEES PAID FEES WAIVED
--------- -----------
Small Company Growth Fund ---- ----
U.S. Government Bond Fund ---- ----
International Growth Fund ---- ----
International Value Fund N/A N/A
Emerging Markets Fund 888 ----
Pacific Growth Fund 1,682 ----
Global Government Income Fund 1 ----
Value Fund 94,267 ----
Capital Growth Fund 38,659 ----
Emerging Growth Fund 14,710 ----
Equity Index Fund 20,313 ----
Managed Index Fund 8 ----
Managed SmallCap Index Fund 1,026 ----
Managed Value Index Fund ---- ----
Managed SmallCap Value Index Fund ---- ----
Disciplined Equity Fund 3,779 ----
Marsico Focused Equities Fund ---- ----
Marsico Growth & Income Fund ---- ----
Balanced Assets Fund 30,926 ----
Short-Intermediate Government Fund 43,035 ----
Short-Term Income Fund 1,642 ----
Diversified Income Fund 767 ----
Strategic Fixed Income Fund 88,031 ----
Municipal Income Fund ---- ----
Short-Term Municipal Income Fund ---- ----
Intermediate Municipal Bond Fund ---- ----
FL Intermediate Municipal Fund ---- ----
FL Municipal Bond Fund ---- ----
GA Intermediate Municipal Fund ---- ----
GA Municipal Bond Fund ---- ----
Kansas Intermediate Municipal Fund N/A N/A
MD Intermediate Municipal Fund ---- ----
MD Municipal Bond Fund ---- ----
NC Intermediate Municipal Fund ---- ----
NC Municipal Bond Fund ---- ----
SC Intermediate Municipal Fund ---- ----
SC Municipal Bond Fund ---- ----
TN Intermediate Municipal Fund ---- ----
TN Municipal Bond Fund ---- ----
TX Intermediate Municipal Fund ---- ----
TX Municipal Bond Fund ---- ----
VA Intermediate Municipal Fund ---- ----
VA Municipal Bond Fund ---- ----
Government Money Market Fund 41,993 ----
Tax Exempt Fund 26,714 ----
101
<PAGE>
SHAREHOLDER SERVICING AGREEMENTS (PRIMARY B SHARES) - MONEY MARKET FUNDS
As stated in the Prospectuses for the Money Market Funds' Primary Shares of NFI
and the Prospectuses for the Primary B Shares of NFT, each of NFI and NFT has a
separate Shareholder Servicing Plan with respect to the Non-Money Market Funds'
Primary B Shares of NFI and the Primary B Shares of NFI and the Primary B Shares
of NFT except the Value Fund, Capital Growth Fund, Emerging Growth Fund,
Disciplined Equity Fund, Equity Index Fund, Managed Index Fund, Managed SmallCap
Index Fund, Managed Value Index Fund, Managed SmallCap Value Index Fund,
Balanced Assets Fund, Short-Intermediate Government Fund, Short-Term Income
Fund, Diversified Income Fund and Strategic Fixed Income Fund. Pursuant to the
Shareholder Servicing Plans, NFI and NFT each has entered into separate
agreements with certain banks pertaining to the provision of administrative
services to their customers who may from time to time own of record or
beneficially Primary B Shares ("Customers") in consideration for the payment of
up to 0.25% (on an annualized basis) of the net asset value of such shares. Such
services may include: (i) aggregating and processing purchase, exchange and
redemption requests for Primary B Shares from Customers and transmitting
promptly net purchase and redemption orders with the Distributor or the transfer
agents; (ii) providing Customers with a service that invests the assets of their
accounts in Primary B Shares pursuant to specific or pre-authorized
instructions; (iii) processing dividend and distribution payments from the
Company on behalf of Customers; (iv) providing information periodically to
Customers showing their positions in Primary B Shares; (v) arranging for bank
wires; (vi) responding to Customer inquiries concerning their investment in
Primary B Shares; (vii) providing sub-accounting with respect to Primary B
Shares beneficially owned by Customers or the information necessary for
sub-accounting; (viii) if required by law, forwarding shareholder communications
(such as proxies, shareholder reports annual and semi-annual financial
statements and dividend, distribution and tax notices) to Customers; (ix)
forwarding to Customers proxy statements and proxies containing any proposals
regarding the Shareholder Servicing Agreements or Shareholder Serving Plan; and
(x) providing such other similar services as may reasonably be requested to the
extent permitted under applicable statutes, rules, or regulations.
Such plan shall continue in effect as long as the Board of
Directors/Trustees, including a majority of the Qualified Directors,
specifically approves the plan at least annually.
SHAREHOLDER SERVICING PLAN (MARSICO SHARES) - PRIME FUND
As stated in the Prospectus for the Prime Fund's Marsico Shares of NFI, there is
a separate Shareholder Servicing Plan with respect to the Prime Fund's Marsico
Shares of NFI. Pursuant to the Shareholder Servicing Plan, NFI has entered into
a separate agreement with a servicing agent pertaining to the provision of
shareholder support services to its customers who may from time to time own of
record or beneficially Marsico Shares ("Customers") in consideration for the
payment of up to 0.25% (on an annualized basis) of the net asset value of such
shares. Such services may include: (i) general shareholder liason services; (ii)
aggregating and processing purchase, exchange and redemption requests for
Marsico Shares from Customers and transmitting promptly net purchase and
redemption orders with the Distributor or the Transfer Agent; (iii) providing
Customers with a service that invests the assets of their accounts in Marsico
Shares pursuant to specific or pre-authorized instructions; (iv) processing
dividend and distribution payments from the Company on behalf of Customers; (v)
providing information periodically to Customers showing their positions in
Marsico Shares; (vi) arranging for bank wires; (vii) responding to Customer
inquiries concerning their investment in Marsico Shares; (viii) providing
sub-accounting with respect to Marsico Shares beneficially owned by Customers or
the information necessary for sub-accounting; (ix) if required by law,
forwarding shareholder communications (such as proxies, shareholder reports
annual and semi-annual financial statements and dividend, distribution and tax
notices) to Customers; (x) forwarding to Customers proxy statements and proxies
containing any proposals regarding the shareholder servicing agreement or
Shareholder Serving Plan; and (xi) providing such other similar services as may
reasonably be requested to the extent permitted under applicable statutes,
rules, or regulations.
Such plan shall continue in effect as long as the Board of
Directors/Trustees, including a majority of the disinterested Directors,
specifically approves the plan at least annually.
SHAREHOLDER ADMINISTRATION PLAN (PRIMARY B SHARES) - NON-MONEY MARKET FUNDS
102
<PAGE>
As stated in the Prospectus for the Non-Money Market Funds' Primary B
Shares, each Company has a separate Shareholder Administration Plan (the
"Administration Plan") with respect to such shares. Pursuant to the
Administration Plan, each Company may enter into agreements ("Administration
Agreements") with broker/dealers, banks and other financial institutions that
are dealers of record or holders of record or which have a servicing
relationship with the beneficial owners of Non-Money Market Fund Primary B
Shares ("Servicing Agents"). The Administration Plan provides that pursuant to
the Administration Agreements, Servicing Agents shall provide the shareholder
support services as set forth therein to their customers who may from time to
time own of record or beneficially Primary B Shares ("Customers") in
consideration for the payment of up to 0.60% (on an annualized basis) of the net
asset value of such shares. Such services may include: (i) aggregating and
processing purchase, exchange and redemption requests for Primary B Shares from
Customers and transmitting promptly net purchase and redemption orders with the
Distributor or the transfer agents; (ii) providing Customers with a service that
invests the assets of their accounts in Primary B Shares pursuant to specific or
pre-authorized instructions; (iii) processing dividend and distribution payments
from the Company on behalf of Customers; (iv) providing information periodically
to Customers showing their positions in Primary B Shares; (v) arranging for bank
wires; (vi) responding to Customer inquiries concerning their investment in
Primary B Shares; (vii) providing sub-accounting with respect to Primary B
Shares beneficially owned by Customers or the information necessary for
sub-accounting; (viii) if required by law, forwarding shareholder communications
(such as proxies, shareholder reports annual and semi-annual financial
statements and dividend, distribution and tax notices) to Customers; (ix)
forwarding to Customers proxy statements and proxies containing any proposals
regarding an Administration Agreement; (x) employee benefit plan recordkeeping,
administration, custody and trustee services; (xi) general shareholder liaison
services and (xii) providing such other similar services as may reasonably be
requested to the extent permitted under applicable statutes, rules, or
regulations.
EXPENSES
The Administrator furnishes, without additional cost to each Company,
the services of the Treasurer and Secretary of each Company and such other
personnel (other than the personnel of the Adviser) as are required for the
proper conduct of each Company's affairs. The Distributor bears the incremental
expenses of printing and distributing prospectuses used by the Distributor or
furnished by the Distributor to investors in connection with the public offering
of each Company's shares and the costs of any other promotional or sales
literature, except that to the extent permitted under the Plans relating to the
Investor A, Investor B or Investor C Shares of each Fund, sales-related expenses
incurred by the Distributor may be reimbursed by each Company.
Each Company pays or causes to be paid all other expenses of each
Company, including, without limitation: the fees of the Adviser, the
Administrator and Co-Administrator; the charges and expenses of any registrar,
any custodian or depository appointed by each Company for the safekeeping of its
cash, fund securities and other property, and any stock transfer, dividend or
accounting agent or agents appointed by each Company; brokerage commissions
chargeable to each Company in connection with fund securities transactions to
which each Company is a party; all taxes, including securities issuance and
transfer taxes; corporate fees payable by each Company to federal, state or
other governmental agencies; all costs and expenses in connection with the
registration and maintenance of registration of each Company and its shares with
the SEC and various states and other jurisdictions (including filing fees, legal
fees and disbursements of counsel); the costs and expenses of typesetting
prospectuses and statements of additional information of each Company (including
supplements thereto) and periodic reports and of printing and distributing such
prospectuses and statements of additional information (including supplements
thereto) to each Company's shareholders; all expenses of shareholders' and
directors' meetings and of preparing, printing and mailing proxy statements and
reports to shareholders; fees and travel expenses of directors or director
members of any advisory board or committee; all expenses incident to the payment
of any dividend or distribution, whether in shares or cash; charges and expenses
of any outside service used for pricing of each Company's shares; fees and
expenses of legal counsel and of independent auditors in connection with any
matter relating to each Company; membership dues of industry associations;
interest payable on Company borrowings; postage and long-distance telephone
charges; insurance premiums on property or personnel (including officers and
directors) of each Company which inure to its benefit; extraordinary expenses
(including, but not limited to, legal claims and liabilities and litigation
costs and any indemnification related thereto); and all other charges and costs
of each Company's operation unless otherwise explicitly assumed by the Adviser),
the Administrator or Co-Administrator.
103
<PAGE>
Expenses of each Company which are not directly attributable to the
operations of any class of shares or Fund are pro-rated among all classes of
shares or Fund of each Company based upon the relative net assets of each class
or Fund. Expenses of each Company which are not directly attributable to a
specific class of shares but are directly attributable to a specific Fund are
prorated among all the classes of shares of such Fund based upon the relative
net assets of each such class of shares. Expenses of each Company which are
directly attributable to a class of shares are charged against the income
available for distribution as dividends to such class of shares.
The Advisory Agreement, the Sub-Advisory Agreements, and the
Administration Agreement require NBAI, TradeStreet, Gartmore, and the
Administrator to reduce their fees to the extent required to satisfy any expense
limitations which may be imposed by the securities laws or regulations
thereunder of any state in which a Fund's shares are registered or qualified for
sale, as such limitations may be raised or lowered from time to time, and the
aggregate of all such investment advisory, sub-advisory, and administration fees
shall be reduced by the amount of such excess. The amount of any such reduction
to be borne by NBAI, TradeStreet, Gartmore or the Administrator shall be
deducted from the monthly investment advisory and administration fees otherwise
payable to NBAI, TradeStreet, Gartmore and the Administrator during such fiscal
year. If required pursuant to such state securities regulations, NBAI,
TradeStreet, Gartmore and the Administrator will reimburse the Company no later
than the last day of the first month of the next succeeding fiscal year, for any
such annual operating expenses (after reduction of all investment advisory and
administration fees in excess of such limitation).
TRANSFER AGENTS AND CUSTODIANS
First Data is located at One Exchange Place, 53 State Street, Boston,
Massachusetts 02109, and acts as transfer agent for each Companies Primary
Shares and Investor Shares. Under the transfer agency agreements, the transfer
agent maintains shareholder account records for the Company, handles certain
communications between shareholders and the Companies, and distributes dividends
and distributions payable by the Companies to shareholders, and produces
statements with respect to account activity for the Companies and its
shareholders for these services. The transfer agent receives a monthly fee
computed on the basis of the number of shareholder accounts that it maintains
for each Company during the month and is reimbursed for out-of-pocket expenses.
NationsBank serves as sub-transfer agent for each Fund's Primary Shares.
The Bank of New York ("BONY") 90 Washington Street, New York, N.Y. 10286
serves as custodian for the Funds' assets. As custodian, BONY maintains the
Funds' securities cash and other property, delivers securities against payment
upon sale and pays for securities against delivery upon purchase, makes payments
on behalf of such Funds for payments of dividends, distributions and
redemptions, endorses and collects on behalf of such Funds all checks, and
receives all dividends and other distributions made on securities owned by such
Funds.
The Bank of New York ("BONY"), Avenue des Arts, 35 1040 Brussels,
Belgium serves as custodian for the assets of the international Funds.
The SEC has amended Rule 17f-5 under the 1940 Act to permit boards to
delegate certain foreign custody matters to foreign custody managers and to
modify the criteria applied in the selection process. Accordingly, BONY serves
as Foreign Custody Manager, pursuant to a Foreign Custody Manager Agreement,
under which the Boards of Directors/Trustees retain the responsibility for
selecting foreign compulsory depositories, although BONY agrees to make certain
findings with respect to such depositories and to monitor such depositories.
DISTRIBUTOR
Stephens Inc. (the "Distributor") serves as the principal underwriter
and distributor of the shares of the Funds.
104
<PAGE>
Pursuant to a distribution agreement (the "Distribution Agreement"), the
Distributor, as agent, sells shares of the Funds on a continuous basis and
transmits purchase and redemption orders that its receives to the Companies or
the Transfer Agent. Additionally, the Distributor has agreed to use appropriate
efforts to solicit orders for the sale of shares and to undertake such
advertising and promotion as it believes appropriate in connection with such
solicitation. Pursuant to the Distribution Agreement, the Distributor, at its
own expense, finances those activities which are primarily intended to result in
the sale of shares of the Funds, including, but not limited to, advertising,
compensation of underwriters, dealers and sales personnel, the printing of
prospectuses to other than existing shareholders, and the printing and mailing
of sales literature. The Distributor, however, may be reimbursed for all or a
portion of such expenses to the extent permitted by a distribution plan adopted
by the Companies pursuant to Rule 12b-1 under the 1940 Act.
The Distribution Agreement will continue year to year as long as such
continuance is approved at least annually by (i) the Board of Directors/Trustees
or a vote of the majority (as defined in the 1940 Act) of the outstanding voting
securities of the Fund and (ii) a majority of the directors who are not parties
to the Distribution Agreement or "interested persons" of any such party by a
vote cast in person at a meeting called for such purpose. The Distribution
Agreement is not assignable and is terminable with respect to a Fund, without
penalty, on 60 days' notice by the Board of Directors/Trustees, the vote of a
majority (as defined in the 1940 Act) of the outstanding voting securities of
the Fund, or by the Distributor.
INDEPENDENT ACCOUNTANTS AND REPORTS
At least semi-annually, the Companies will furnish shareholders of the
Funds with a list of the investments held in the Funds and financial statements
for the Funds. The annual financial statements will be audited by each Company's
independent accountant. The Board of Directors/Trustees has selected
PricewaterhouseCoopers LLP, 160 Federal Street, Boston, Massachusetts, 02110 as
each Company's independent accountant to audit each Company's books and review
each Company's tax returns for the Funds' fiscal year ended March 31, 1998. KPMG
Peat Marwick LLP, Two Nationwide Plaza, Columbus, Ohio 43215 were the
independent auditors for the Emerald International Equity Fund (predecessor to
the International Value Fund) for the fiscal period December 1, 1997 through May
15, 1998 and for the fiscal year ended November 30, 1997.
The Annual Reports for the fiscal period ended March 31, 1998 are hereby
incorporated herein by reference in this SAI. The Annual Reports for the Emerald
International Equity Fund (the predecessor to the International Value Fund) for
the fiscal period ended May 15, 1998 and for the fiscal year ended November 30,
1997 are also is incorporated herein by reference. These Annual Reports will be
sent free of charge with this SAI to any shareholder who requests this SAI.
COUNSEL
Morrison & Foerster LLP serves as legal counsel to the Companies. Their
address is 2000 Pennsylvania Avenue, N.W., Washington, D.C. 20006.
Morrison & Foerster LLP, counsel to the Trust and special counsel to
NationsBank has advised the Trust and NationsBank that NationsBank and its
affiliates may perform the services contemplated by the Investment Advisory
Agreement and this Prospectus without violation of the Glass-Steagall Act. Such
counsel has pointed out, however, that there are no controlling judicial or
administrative interpretations or decisions and that future judicial or
administrative interpretations of, or decisions relating to, present federal or
state statutes, including the Glass-Steagall Act, and regulations relating to
the permissible activities of banks and their subsidiaries or affiliates, as
well as future changes in such federal or state statutes, regulations and
judicial or administrative decisions or interpretations, could prevent such
entities from continuing to perform, in whole or in part, such services. If any
such entity were prohibited from performing any of such services, it is expected
that new agreements would be proposed or entered into with another entity or
entities qualified to perform such services.
FUND TRANSACTIONS AND BROKERAGE
GENERAL BROKERAGE POLICY
105
<PAGE>
Subject to policies established by the Board of Directors/Trustees of
each Company, the Adviser is responsible for decisions to buy and sell
securities for each Fund, for the selection of broker/dealers, for the execution
of such Fund's securities transactions, and for the allocation of brokerage fees
in connection with such transactions. The Adviser's primary consideration in
effecting a security transaction is to obtain the best net price and the most
favorable execution of the order. Purchases and sales of securities on a
securities exchange are effected through brokers who charge a negotiated
commission for their services. Orders may be directed to any broker to the
extent and in the manner permitted by applicable law.
In the over-the-counter market, securities are generally traded on a
"net" basis with dealers acting as principal for their own accounts without
stated commissions, although the price of a security usually includes a profit
to the dealer. In underwritten offerings, securities are purchased at a fixed
price that includes an amount of compensation to the underwriter, generally
referred to as the underwriter's concession or discount. On occasion, certain
money market instruments may be purchased directly from an issuer, in which case
no commissions or discounts are paid.
In placing orders for portfolio securities of a Fund, the Adviser is
required to give primary consideration to obtaining the most favorable price and
efficient execution. This means that the Adviser will seek to execute each
transaction at a price and commission, if any, which provide the most favorable
total cost or proceeds reasonably attainable in the circumstances. In seeking
such execution, the Adviser will use its best judgment in evaluating the terms
of a transaction, and will give consideration to various relevant factors,
including, without limitation, the size and type of the transaction, the nature
and character of the market for the security, the confidentiality, speed and
certainty of effective execution required for the transaction, the general
execution and operational capabilities of the broker-dealer, the reputation,
reliability, experience and financial condition of the firm, the value and
quality of the services rendered by the firm in this and other transactions and
the reasonableness of the spread or commission, if any. In addition, the Adviser
will consider research and investment services provided by brokers or dealers
who effect or are parties to portfolio transactions of a Fund, the Adviser or
its other clients. Such research and investment services are those which
brokerage houses customarily provide to institutional investors and include
statistical and economic data and research reports on particular companies and
industries. Such services are used by the Adviser in connection with all of its
investment activities, and some of such services obtained in connection with the
execution of transactions for a Fund may be used in managing other investment
accounts. Conversely, brokers furnishing such services may be selected for the
execution of transactions of such other accounts, whose aggregate assets are far
larger than those of a Fund. Services furnished by such brokers may be used by
the Adviser in providing investment advisory and investment management services
for the Companies.
Commission rates are established pursuant to negotiations with the
broker based on the quality and quantity of execution services provided by the
broker in the light of generally prevailing rates. The allocation of orders
among brokers and the commission rates paid are reviewed periodically by the
Directors/Trustees of the respective Company. On exchanges on which commissions
are negotiated, the cost of transactions may vary among different brokers.
Transactions on foreign stock exchanges involve payment of brokerage commissions
which are generally fixed. Transactions in both foreign and domestic
over-the-counter markets are generally principal transactions with dealers, and
the costs of such transactions involve dealer spreads rather than brokerage
commissions. With respect to over-the-counter transactions, the Adviser, where
possible, will deal directly with dealers who make a market in the securities
involved except in those circumstances in which better prices and execution are
available elsewhere.
106
<PAGE>
In certain instances there may be securities which are suitable for more
than one Fund as well as for one or more of the other clients of the Adviser.
Investment decisions for each Fund and for the Adviser's other clients are made
with the goal of achieving their respective investment objectives. It may happen
that a particular security is bought or sold for only one client even though it
may be held by, or bought or sold for, other clients. Likewise, a particular
security may be bought for one or more clients when one or more other clients
are selling that same security. Some simultaneous transactions are inevitable
when several clients receive investment advice from the same investment adviser,
particularly when the same security is suitable for the investment objectives of
more than one client. When two or more clients are simultaneously engaged in the
purchase or sale of the same security, the securities are allocated among
clients in a manner believed to be equitable to each. It is recognized that in
some cases this system could have a detrimental effect on the price or volume of
the security in a particular transaction as far as a Fund is concerned. The
Companies believe that over time its ability to participate in volume
transactions will produce superior executions for the Funds.
The portfolio turnover rate for each Fund is calculated by dividing the
lesser of purchases or sales of portfolio securities for the reporting period by
the monthly average value of the portfolio securities owned during the reporting
period. The calculation excludes all securities, including options, whose
maturities or expiration dates at the time of acquisition are one year or less.
Portfolio turnover may vary greatly from year to year as well as within a
particular year, and may be affected by cash requirements for redemption of
shares and by requirements which enable the Funds to receive favorable tax
treatment.
The Funds may participate, if and when practicable, in bidding for the
purchase of portfolio securities directly from an issuer in order to take
advantage of the lower purchase price available to members of a bidding group. A
Fund will engage in this practice, however, only when the Adviser, in its sole
discretion, believes such practice to be otherwise in the Fund's interests.
The Companies will not execute portfolio transactions through, or
purchase or sell portfolio securities from or to the distributor, the Adviser,
the administrator, the co-administrator or their affiliates, acting as principal
(including repurchase and reverse repurchase agreements), except to the extent
permitted by applicable law. In addition, the Companies will not give preference
to correspondents of NationsBank or its affiliates, with respect to such
transactions or securities. (However, the Adviser is authorized to allocate
purchase and sale orders for portfolio securities to certain financial
institutions, including, in the case of agency transactions, financial
institutions which are affiliated with NationsBank or its affiliates, and to
take into account the sale of Fund shares if the Adviser believes that the
quality of the transaction and the commission are comparable to what they would
be with other qualified brokerage firms.) In addition, a Fund will not purchase
securities during the existence of any underwriting or selling group relating
thereto of which the distributor, the Adviser, the administrator, or the
co-administrator, or any of their affiliates, is a member, except to the extent
permitted by the SEC. Under certain circumstances, the Funds may be at a
disadvantage because of these limitations in comparison with other investment
companies which have similar investment objectives but are not subject to such
limitations.
Certain affiliates of NationsBank Corporation and its subsidiary banks
may have deposit, loan or commercial banking relationships with the corporate
users of facilities financed by industrial development revenue bonds or private
activity bonds purchased by the Tax Exempt Fund, the Municipal Income Fund, the
Short-Term Municipal Income Fund, the Intermediate Municipal Bond Fund, the
State Intermediate Municipal Bond Funds and the State Municipal Bond Funds (the
"Tax-Free Bond Funds"). NationsBank or certain of its affiliates may serve as
trustee, tender agent, guarantor, placement agent, underwriter, or in some other
capacity, with respect to certain issues of municipal securities. Under certain
circumstances, the Tax-Free Bond Funds may purchase municipal securities from a
member of an underwriting syndicate in which an affiliate of NationsBank is a
member. NFT has adopted procedures pursuant to Rule 10f-3 under the 1940 Act,
and intends to comply with the requirements of Rule 10f-3, in connection with
any purchases of municipal securities that may be subject to such Rule.
Under the 1940 Act, persons affiliated with a Company are prohibited
from dealing with such Company as a principal in the purchase and sale of
securities unless an exemptive order allowing such transactions is obtained from
the SEC. Each of the Funds may purchase securities from underwriting syndicates
of which NationsBank or any of its affiliates is a member under certain
conditions, in accordance with the provisions of a rule adopted under the 1940
Act and any restrictions imposed by the Board of Governors of the Federal
Reserve System.
Investment decisions for each Fund are made independently from those for
each Company's other investment portfolios, other investment companies, and
accounts advised or managed by the Adviser. Such other investment portfolios,
investment companies, and accounts may also invest in the same securities as the
Funds. When a purchase or sale of the same security is made at substantially the
same time on behalf of one or more of the Funds and another investment
portfolio, investment company, or account, the transaction will be averaged as
to price and available investments allocated as to amount, in a manner which the
Adviser believes to be equitable to each Fund and such other investment
portfolio, investment company or account. In some instances, this investment
procedure may adversely affect the price paid or received by a Fund or the size
of the position obtained or sold by the Fund. To the extent permitted by law,
the Adviser may aggregate the securities to be sold or purchased for the Funds
with those to be sold or purchased for other investment portfolios, investment
companies, or accounts in executing transactions.
107
<PAGE>
<TABLE>
<CAPTION>
BROKERAGE COMMISSIONS
- ------------------------------ -------------------- --------------------- --------------------
FUND FISCAL YEAR ENDED FISCAL YEAR ENDED FISCAL YEAR ENDED
MARCH 31,1998 MARCH 31,1997 MARCH 31,1996
- ------------------------------ -------------------- --------------------- --------------------
<S> <C> <C> <C>
Managed SmallCap Index 143,732 $ 54,486.18 --
- ------------------------------ -------------------- --------------------- --------------------
Disciplined Equity 152,295 288,643.86 --
- ------------------------------ -------------------- --------------------- --------------------
Equity Index 208,604 115,828.91 --
- ------------------------------ -------------------- --------------------- --------------------
Emerging Growth 477,588 554,981.41 --
- ------------------------------ -------------------- --------------------- --------------------
Capital Growth Fund 1,392,418 1,584,909.43 --
- ------------------------------ -------------------- --------------------- --------------------
Managed Index 119,677 24,684.19 --
- ------------------------------ -------------------- --------------------- --------------------
Value 3,142,078 1,784,504.83 --
- ------------------------------ -------------------- --------------------- --------------------
Balanced Assets 1,207,000 1,965,293.04 --
- ------------------------------ -------------------- --------------------- --------------------
Nations Emerging Markets 284,328 207,518.87 192,107.00
- ------------------------------ -------------------- --------------------- --------------------
Nations Pacific Growth 963,416 932,004.34 638,176.00
- ------------------------------ -------------------- --------------------- --------------------
Equity Income 1,111,460 1,083,187.32 578,343.00
- ------------------------------ -------------------- --------------------- --------------------
International Equity 2,421,975 1,738,165.19 1,251,696.00
- ------------------------------ -------------------- --------------------- --------------------
International Growth 1,054,454 0 0
- ------------------------------ -------------------- --------------------- --------------------
Managed Small Cap Value Index 5,469 0 0
- ------------------------------ -------------------- --------------------- --------------------
Marsico Focused Equities 25,934 0 0
- ------------------------------ -------------------- --------------------- --------------------
Marsico Growth & Income 9,903 0 0
- ------------------------------ -------------------- --------------------- --------------------
Small Company Growth 184,948 0 0
- ------------------------------ -------------------- --------------------- --------------------
</TABLE>
During the fiscal periods ended March 31, 1998, 1997 and 1996, NFT and
its Funds did not pay brokerage commissions to NationsBanc Investments, Inc. (or
its predecessors), NationsBanc Capital Markets, Inc., or Stephens. NFT did pay
$2,368.03 to Nations Montgomery Securities LLC during the fiscal year ended
March 31, 1998.
During the fiscal period ended March 31, 1998 1997 and 1996, NFP did not
pay brokerage commissions to Nations Montgomery Securities LLC, NationsBanc
Investments, Inc. (or its predecessors), NationsBanc Capital Markets, Inc. or
Stephens.
During the fiscal years ended March 31, 1998, 1997 and 1996, NFI did not
pay brokerage commissions to Nations Montgomery Securities LLC, NationsBanc
Investments, Inc. (or its predecessors), NationsBanc Capital Markets, Inc. or
Stephens.
No other Funds of NFP, NFI or NFT paid brokerage fees during the fiscal
years ended March 31, 1998, 1997 and 1996.
108
<PAGE>
SECTION 28(E) STANDARDS
Under Section 28(e) of the Securities Exchange Act of 1934, the Adviser
shall not be "deemed to have acted unlawfully or to have breached its fiduciary
duty" solely because under certain circumstances it has caused the account to
pay a higher commission than the lowest available. To obtain the benefit of
Section 28(e), the Adviser must make a good faith determination that the
commissions paid are "reasonable in relation to the value of the brokerage and
research services provided ...viewed in terms of either that particular
transaction or its overall responsibilities with respect to the accounts as to
which it exercises investment discretion and that the services provided by a
broker provide an adviser with lawful and appropriate assistance in the
performance of its investment decision making responsibilities." Accordingly,
the price to a Fund in any transaction may be less favorable than that available
from another broker/dealer if the difference is reasonably justified by other
aspects of the portfolio execution services offered.
Broker/dealers utilized by the Adviser may furnish statistical, research
and other information or services which are deemed by the Adviser to be
beneficial to the Funds' investment programs. Research services received from
brokers supplement the Adviser's own research and may include the following
types of information: statistical and background information on industry groups
and individual companies; forecasts and interpretations with respect to U.S and
foreign economies, securities, markets, specific industry groups and individual
companies; information on political developments; fund management strategies;
performance information on securities and information concerning prices of
securities; and information supplied by specialized services to the Adviser and
to the Company's Directors/Trustees with respect to the performance, investment
activities and fees and expenses of other mutual funds. Such information may be
communicated electronically, orally or in written form. Research services may
also include the providing of equipment used to communicate research
information, the arranging of meetings with management of companies and the
providing of access to consultants who supply research information.
The outside research assistance is useful to the Adviser since the
brokers utilized by the Adviser as a group tend to follow a broader universe of
securities and other matters than the Adviser's staff can follow. In addition,
this research provides the Adviser with a diverse perspective on financial
markets. Research services which are provided to the Adviser by brokers are
available for the benefit of all accounts managed or advised by the Adviser. In
some cases, the research services are available only from the broker providing
such services. In other cases, the research services may be obtainable from
alternative sources in return for cash payments. The Adviser is of the opinion
that because the broker research supplements rather than replaces its research,
the receipt of such research does not tend to decrease its expenses, but tends
to improve the quality of its investment advice. However, to the extent that the
Adviser would have purchased any such research services had such services not
been provided by brokers, the expenses of such services to the Adviser could be
considered to have been reduced accordingly. Certain research services furnished
by broker/dealers may be useful to the Adviser with clients other than the
Funds. Similarly, any research services received by the Adviser through the
placement of fund transactions of other clients may be of value to the Adviser
in fulfilling its obligations to the Funds. The Adviser is of the opinion that
this material is beneficial in supplementing its research and analysis; and,
therefore, it may benefit the Companies by improving the quality of the
Adviser's investment advice. The advisory fees paid by the Companies are not
reduced because the Adviser receives such services.
Some broker/dealers may indicate that the provision of research services
is dependent upon the generation of certain specified levels of commissions and
underwriting concessions by the Adviser's clients, including the Funds.
DESCRIPTION OF SHARES
DESCRIPTION OF SHARES OF THE COMPANIES
The Companies' Boards of Directors/Trustees have authorized the issuance
of the classes of shares of the Funds indicated above and may, in the future,
authorize the creation of additional investment portfolios or classes of shares.
109
<PAGE>
The Boards may classify or reclassify any unissued shares of a Company
into shares of any class, classes or Fund in addition to those already
authorized by setting or changing in any one or more respects, from time to
time, prior to the issuance of such shares, the preferences, conversion or other
rights, voting powers, restrictions, limitations as to dividends,
qualifications, or terms or conditions of redemption, of such shares and,
pursuant to such classification or reclassification to increase or decrease the
number of authorized shares of any Fund or class. Any such classification or
reclassification will comply with the provisions of the 1940 Act. Fractional
shares shall have the same rights as full shares to the extent of their
proportionate interest.
All shares of a Fund have equal voting rights and will be voted in the
aggregate, and not by series, except where voting by a series is required by law
or where the matter involved only affects one series. For example, a change in a
Fund's fundamental investment policy would be voted upon only by shareholders of
the Fund involved. Additionally, approval of an advisory contract is a matter to
be determined separately by Fund. Approval by the shareholders of one Fund is
effective as to that Fund whether or not sufficient votes are received from the
shareholders of the other Funds to approve the proposal as to those Portfolios.
As used in the Prospectus and in this SAI, the term "majority," when referring
to approvals to be obtained from shareholders of a Fund, means the vote of the
lesser of (i) 67% of the shares of the Fund represented at a meeting if the
shareholders of more than 50% of the outstanding interests of the Fund are
present in person or by proxy, or (ii) more than 50% of the outstanding shares
of the Fund. The term "majority," when referring to the approvals to be obtained
from shareholders of a Company as a whole, means the vote of the lesser of (i)
67% of the Company's shares represented at a meeting if the shareholders of more
than 50% of the Company's outstanding shares are present in person or by proxy,
or (ii) more than 50% of the Company's outstanding shares. Shareholders are
entitled to one votE for each full share held and fractional votes for
fractional shares held.
Each Company may dispense with an annual meeting of shareholders in any
year in which it is not required to elect Trustees/Directors under the 1940 Act.
However, each Company has undertaken to hold a special meeting of its
shareholders for the purpose of voting on the question of removal of a Board
member, if requested in writing by the shareholders of at least 10% of the
Company's outstanding voting shares, and to assist in communicating with other
shareholders as required by Section 16(c) of the 1940 Act.
Each share of a Fund represents an equal proportional interest in the
Fund with each other share and is entitled to such dividends and distributions
out of the income earned on the assets belonging to the Fund, as are declared in
the discretion of the Board members. In the event of the liquidation or
dissolution of a Company, shareholders of that Company's Funds are entitled to
receive the assets attributable to the Fund that are available for distribution,
and a distribution of any general assets not attributable to a particular Fund
that are available for distribution in such manner and on such basis as the
Board members in their sole discretion may determine.
Shareholders are not entitled to any preemptive rights. All shares, when
issued, will be fully paid and non-assessable by the Companies.
Net investment income for the Funds for dividend purposes consists of
(i) interest accrued and original issue discount earned on a Fund's assets, (ii)
plus the amortization of market discount and minus the amortization of market
premium on such assets, (iii) less accrued expenses directly attributable to the
Fund and the general expenses of the Company prorated to a Fund on the basis of
its relative net assets, plus dividend or distribution income on a Fund's
assets.
Prior to purchasing shares in one of the Funds, the impact of dividends
or distributions which are expected to be or have been declared, but not paid,
should be carefully considered. Any dividend or distribution declared shortly
after a purchase of such shares prior to the record date will have the effect of
reducing the per share net asset value by the per share amount of the dividend
or distribution. All or a portion of such dividend or distribution, although in
effect a return of capital, may be subject to tax.
Shareholders receiving a distribution in the form of additional shares
will be treated as receiving an amount equal to the fair market value of the
shares received, determined as of the reinvestment date.
110
<PAGE>
The Funds use the so-called "equalization accounting method" to allocate
a portion of earnings and profits to redemption proceeds. This method permits a
fund to achieve more balanced distributions for both continuing and departing
shareholders. Continuing shareholders should realize tax savings or deferrals
through this method, and departing shareholders will not have their tax
obligations change. Although using this method will not affect a Fund's total
returns, it may reduce the amount that otherwise would be distributable to
continuing shareholders by reducing the effect of redemptions on dividend and
distribution amounts.
DIVIDENDS AND DISTRIBUTIONS OF NFI
NATIONS PRIME AND TREASURY FUNDS. All of the net investment income
earned by each of the Money Market Funds is declared daily as a dividend to the
shareholders of record of each class of shares of each Fund. The Investor A,
Investor B, Investor C, Daily, Marsico and Primary B Shares of each such Fund
shall accrue an additional expense not borne by the Primary A Shares as a result
of the Rule 12b-1 Plans and/or the Shareholder Servicing Plans or Shareholder
Administration Plan and/or Shareholder Administration Agreements applicable to
each such class of shares. Consequently, a separate calculation shall be made to
arrive at the dividends of each class of shares. Dividends normally accrue on
the first day that a purchase order is effective but not on the date that a
redemption order is effective. Thus, if a purchase order is accepted prior to
12:00 noon Eastern Standard Time, the shareholder will receive dividends
beginning that day. All dividends declared during a month will be paid in cash
within five business days after the end of the month. If a shareholder of record
redeems all of the shares in its account at any time during the month, all
dividends declared through the date of redemption are paid to the shareholder
along with the proceeds of the redemption within five business days of the
redemption.
EQUITY INCOME FUND, INTERNATIONAL EQUITY FUND AND INTERNATIONAL GROWTH
FUND. Dividends and distributions from net investment income, if any, are
declared and paid quarterly, and capital gains distributions are declared and
paid annually. The Investor A, Investor B, Investor C and Primary B Shares of
the Funds shall accrue an additional expense not borne by the Primary A Shares
as a result of the applicable Rule 12b-1 Plan and/or Shareholder Servicing Plan
or Shareholder Administration Plan and/or Shareholder Administration Agreements.
Consequently, a separate calculation shall be made to arrive at the net asset
value per share and dividends of each class of shares of the Funds.
GOVERNMENT SECURITIES FUND AND GOVERNMENT BOND FUND. Dividends and
distributions from net investment income are declared daily and paid monthly,
and capital gains distributions are declared and paid annually. The Investor A,
Investor B, Investor C and Primary B Shares of the Fund shall accrue an
additional expense not borne by the Primary A Shares as a result of the 12b-1
Plans and the Shareholder Servicing Plan or Shareholder Administration Plan
and/or Shareholder Administration Agreements. Consequently, a separate
calculation shall be made to arrive at the net asset value per share and
dividends of each class of shares of the Funds.
SMALL COMPANY GROWTH FUND AND INTERNATIONAL VALUE FUND. Dividends and
distributions from net investment income, if any, are declared and paid
quarterly, and capital gains distributions are declared and paid annually. The
Investor A, Investor B and Investor C Shares of the Funds shall accrue an
additional expense not borne by the Primary A Shares or Primary B Shares as a
result of the applicable Rule 12b-1 Plan and/or Shareholder Servicing Plan or
Shareholder Administration Plan and/or Shareholder Administration Agreements.
Consequently, a separate calculation shall be made to arrive at the net asset
value per share and dividends of each class of shares of the Funds.
DIVIDENDS AND DISTRIBUTIONS OF NFP
EMERGING MARKETS FUND AND PACIFIC GROWTH FUND. Dividends and
distributions from net investment income, if any, are declared and paid
quarterly, and capital gains distributions are declared and paid annually. The
Investor A, Investor B, Investor C and Primary B Shares of the Funds shall
accrue an additional expense not borne by the Primary A Shares as a result of
the applicable Rule 12b-1 Plan, Shareholder Servicing Plan and/or Shareholder
Administration Plan. Consequently, a separate calculation shall be made to
arrive at the net asset value per share and dividends of each class of shares of
the Funds.
111
<PAGE>
GLOBAL GOVERNMENT INCOME FUND. Dividends and distributions from net
investment income are declared daily and paid monthly, and capital gains
distributions are declared and paid annually. The Investor A, Investor B,
Investor C and Primary B Shares of the Fund shall accrue an additional expense
not borne by the Primary A Shares as a result of the 12b-1 Plans, Shareholder
Servicing Plan and Shareholder Administration Plan. Consequently, a separate
calculation shall be made to arrive at the net asset value per share and
dividends of each class of shares of the Fund.
DIVIDENDS AND DISTRIBUTIONS OF NFT
Dividends from net investment income are declared and paid monthly by
the Capital Growth Fund, the Disciplined Equity Fund, the Managed Index Fund and
the Value Fund. The Short-Intermediate Government Fund, the Short-Term Income
Fund, the Diversified Income Fund, the Strategic Fixed Income Fund, the NFT
Money Market Funds, and the Tax-Free Bond Funds declare dividends daily and pay
them monthly. All other NFT Non-Money Market Funds declare and pay dividends
from net investment income each calendar quarter.
MONEY MARKET FUNDS. All of the net investment income earned by each of
the Money Market Funds is declared daily as a dividend to the shareholders of
record of each class of shares of each Fund. The Investor A, Investor B,
Investor C, Daily and Primary B Shares of each such Fund shall accrue an
additional expense not borne by the Primary A Shares as a result of the Rule
12b-1 Plans and/or the Shareholder Servicing Plans or Shareholder Administration
Plan and/or Shareholder Administration Agreements applicable to each such class
of shares. Consequently, a separate calculation shall be made to arrive at the
dividends of each class of shares. Dividends normally accrue on the first day
that a purchase order is effective but not on the date that a redemption order
is effective. Thus, if a purchase order is accepted prior to 12:00 noon Eastern
Standard Time, the shareholder will receive dividends beginning that day. All
dividends declared during a month will be paid in cash within five business days
after the end of the month. If a shareholder of record redeems all of the shares
in its account at any time during the month, all dividends declared through the
date of redemption are paid to the shareholder along with the proceeds of the
redemption within five business days of the redemption. Net income for dividend
purposes consists of (i) interest accrued and original issue discount earned on
the Fund's assets, (ii) plus the amortization of market discount (including, in
the case of the Tax Exempt Fund, market discount on tax-exempt obligations
purchased after April 30, 1993) and minus the amortization of market premium on
such assets, (iii) less accrued expenses directly attributable to the Fund and
the general expenses of Nations Funds prorated to a Fund on the basis of its
relative net assets. Shares of the Money Market Funds begin earning dividends on
the day the purchase order is executed and continue earning dividends through
and including the day before the redemption order is executed (e.g., the
settlement date).
NON-MONEY MARKET FUNDS. With respect to the Non-Money Market Funds, net
investment income for dividend purposes consist of items (i), (ii) and (iii)
discussed above with respect to the Money Market Funds and dividend or
distribution income on such assets.
Shares of the Bond Funds are eligible to begin earning dividends that
are declared on the day the purchase order is executed and continue to be
eligible for dividends through and including the day before the redemption order
is executed. Shares of the Equity Funds and the Balanced Fund are eligible to
receive dividends when declared, provided however, that the purchase order for
such shares is received at least one day prior to the dividend declaration and
such shares continue to be eligible for dividends through and including the day
before the redemption order is executed.
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NET ASSET VALUE DETERMINATION
Money Market Funds
The Money Market Funds use the amortized cost method of valuation to
value their shares in such Funds. Pursuant to this method, a security is valued
at its cost initially and thereafter a constant amortization to maturity of any
discount or premium is assumed, regardless of the impact of fluctuating interest
rates on the market value of the security. Where it is not appropriate to value
a security by the amortized cost method, the security will be valued either by
market quotations or by fair value as determined by the Board of Trustees. This
method may result in periods during which value, as determined by amortized
cost, is higher or lower than the price the Fund would receive if it sold the
security.
Each of the Money Market Funds invest only in high quality instruments
and maintain a dollar-weighted average portfolio maturity appropriate to its
objective of maintaining a stable net asset value per share, provided that a
Fund will neither purchase any security deemed to have a remaining maturity of
more than 397 days within the meaning of the 1940 Act nor maintain a
dollar-weighted average portfolio maturity which exceeds 90 days. NFT's NFI's
Board of Directors and NFT's Board of Trustees each have established procedures
reasonably designed, taking into account current market conditions and each
Money Market Fund's investment objective, to stabilize the net asset value per
share of each Money Market Fund for purposes of sales and redemptions at $1.00.
These procedures include review by the Board of Directors/Trustees, at such
intervals as it deems appropriate, to determine the extent, if any, to which the
net asset value per share of each Money Market Fund calculated by using
available market quotations deviates from $1.00 per share. In the event such
deviation exceeds one-half of one percent, the Board of Directors/Trustees will
promptly consider what action, if any, should be initiated. If the Board of
Directors/Trustees believes that the extent of any deviation from a Fund's $1.00
amortized cost price per share may result in material dilution or other unfair
results to new or existing investors, it has agreed to take such steps as it
considers appropriate to eliminate or reduce, to the extent reasonably
practicable, any such dilution or unfair results. These steps may include
selling portfolio instruments prior to maturity; shortening the average
portfolio maturity; withholding or reducing dividends; redeeming shares in kind;
reducing the number of a Fund's outstanding shares without monetary
consideration; or utilizing a net asset value per share determined by using
available market quotations.
Non-Money Market Funds
With respect to the Non-Money Market Funds, a security listed or traded
on an exchange is valued at its last sales price on the exchange where the
security is principally traded or, lacking any sales on a particular day, the
security is valued at the mean between the closing bid and asked prices on that
day. Each security traded in the over-the-counter market (but not including
securities reported on the NASDAQ National Market System) is valued at the mean
between the last bid and asked prices based upon quotes furnished by market
makers for such securities. Each security reported on the NASDAQ National Market
System is valued at the last sales price on the valuation date. With respect to
the Bond Funds, securities may be valued on the basis of prices provided by an
independent pricing service. Prices provided by the pricing service may be
determined without exclusive reliance on quoted prices, and may reflect
appropriate factors such as yield, type of issue, coupon rate maturity and
seasoning differential. Securities for which prices are not provided by the
pricing service are valued at the mean between the last bid and asked prices
based upon quotes furnished by market makers for such securities.
With respect to the Non-Money Market Funds, securities for which market
quotations are not readily available are valued at fair value as determined in
good faith by or under the supervision of the Company's officers in a manner
specifically authorized by the Board of Directors/Trustees of the Company.
Short-Term obligations having 60 days or less to maturity are valued at
amortized cost, which approximates market value.
Generally, trading in foreign securities, as well as U.S. Government
securities, money market instruments and repurchase agreements, is substantially
completed each day at various times prior to the close of the New York Stock
Exchange. The values of such securities used in computing the net asset value of
the shares of the Fund are determined as of such times. Foreign currency
exchange rates are also generally determined prior to the close of the New York
Stock Exchange. Occasionally, events affecting the value of such securities and
such exchange rates may occur between the times at which they are determined and
the close of the New York Stock Exchange, which will not be reflected in the
computation of net asset value. If during such periods events occur which
materially affect the value of such securities, the securities will be valued at
their fair market value as determined in good faith by the directors/trustees.
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For purposes of determining the net asset value per share of the
International Funds, all assets and liabilities of the International Funds
initially expressed in foreign currencies will be converted into U.S. dollars at
the mean between the bid and offer prices of such currencies against U.S.
dollars quoted by a major bank that is a regular participant in the foreign
exchange market or on the basis of a pricing service that takes into account the
quotes provided by a number of such major banks.
A Company may redeem shares involuntarily to reimburse the Funds for any
loss sustained by reason of the failure of a shareholder to make full payment
for Investor Shares purchased by the shareholder or to collect any charge
relating to a transaction effected for the benefit of a shareholder which is
applicable to Investor Shares as provided in the related Prospectuses from time
to time. A Company also may make payment for redemptions in readily marketable
securities or other property if it is appropriate to do so in light of such
Company's responsibilities under the 1940 Act.
Under the 1940 Act, the Funds may suspend the right of redemption or
postpone the date of payment for Investor Shares or Primary Shares during any
period when (a) trading on the Exchange is restricted by applicable rules and
regulations of the SEC; (b) the Exchange is closed for other than customary
weekend and holiday closings; (c) the SEC has by order permitted such
suspension; or (d) an emergency exists as determined by the SEC. (The Funds may
also suspend or postpone the recordation of the transfer of their shares upon
the occurrence of any of the foregoing conditions.)
ADDITIONAL INFORMATION CONCERNING TAXES
The following information supplements and should be read in conjunction
with the Prospectus section entitled "Tax Information." The Prospectuses of the
Funds describe generally the tax treatment of distributions by the Funds. This
section of the SAI includes additional information concerning Federal income
taxes.
GENERAL
The Companies intend to qualify each Fund as a regulated investment
company under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"), as long as such qualification is in the best interest of the Fund's
shareholders. Each Fund will be treated as a separate entity for tax purposes
and thus, the provisions of the Code applicable to regulated investment
companies generally will be applied to each Fund, rather than to a Company as a
whole. In addition, net capital gains, net investment income, and operating
expenses will be determined separately for each Fund. As a regulated investment
company, the Funds will not be taxed on net investment income and capital gains
distributed to shareholders.
Qualification as a regulated investment company under the Code requires,
among other things, that (a) each Fund derive at least 90% of its annual gross
income from dividends, interest, certain payments with respect to securities
loans, gains from the sale or other disposition of stock or securities or
foreign currencies (to the extent such currency gains are directly related to
the regulated investment company's principal business of investing in stock or
securities) and other income (including but not limited to gains from options,
futures or forward contracts) derived with respect to its business of investing
in such stock, securities or currencies; and (b) the Fund diversify its holdings
so that, at the end of each quarter of the taxable year, (i) at least 50% of the
market value of the Fund's assets is represented by cash, government securities
and other securities limited in respect of any one issuer to an amount not
greater than 5% of the Fund's assets and 10% of the outstanding voting
securities of such issuer, and (ii) not more than 25% of the value of its assets
is invested in the securities of any one issuer (other than U.S. Government
obligations and the securities of other regulated investment companies), or in
two or more issuers which the Fund controls and which are determined to be
engaged in the same or similar trades or businesses.
Each Fund also must distribute or be deemed to distribute to its
shareholders at least 90% of its net investment income which for this purpose,
includes net short-term capital gains earned in each taxable year. In general,
these distributions must actually or be deemed to be made in the taxable year.
However, in certain circumstances, such distributions may be made in the 12
months following the taxable year. Furthermore, distributions declared in
October, November or December of one taxable year and paid by January 3 of the
following taxable year will be treated as paid by December 31 the first taxable
year. The Funds intend to pay out substantially all of their net investment
income and net realized capital gains (if any) for each year.
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In addition, a regulated investment company must, in general, derive
less than 30% of its gross income from the sale or other disposition of
securities or options thereon held for less than three months. However, this
restriction has been repealed with respect to a regulated investment company's
taxable years beginning after August 5, 1997.
EXCISE TAX
A 4% nondeductible excise tax will be imposed on each Fund (other than
to the extent of its tax-exempt interest income) to the extent it does not meet
certain minimum distribution requirements by the end of each calendar year. Each
Fund intends to actually or be deemed to distribute substantially all of its net
investment income and net capital gains by the end of each calendar year and,
thus, expects not to be subject to the excise tax.
PRIVATE LETTER RULING
In order for a Fund to maintain regulated investment company status
under the Code, its dividends, including--for this purpose--capital gain
distributions, must not constitute "preferential dividends," within the meaning
of Section 562(c) of the Code. The Companies have received a private letter
ruling from the Internal Revenue Service ("IRS") generally to the effect that
the following will not give rise to preferential dividends: differing fees
imposed on the different classes of shares with respect to servicing,
distribution and administrative support services, and transfer agency
arrangements; differing sales charges on purchases and redemptions of such
shares; and conversion features resulting in the Companies paying different
dividends or distributions on the different classes of shares.
TAXATION OF FUND INVESTMENTS
Except as provided herein, gains and losses on the sale of portfolio
securities by a Fund will generally be capital gains and losses. Such gains and
losses will ordinarily be long-term capital gains and losses if the securities
have been held by the Fund for more than one year at the time of disposition of
the securities.
Gains recognized on the disposition of a debt obligation (including
tax-exempt obligations purchased after April 30, 1993) purchased by a Fund at a
market discount (generally at a price less than its principal amount) will be
treated as ordinary income to the extent of the portion of market discount which
accrued, but was not previously recognized pursuant to an available election,
during the term the Fund held the debt obligation.
If an option granted by a Fund lapses or is terminated through a closing
transaction, such as a repurchase by the Fund of the option from its holder, the
Fund will realize a short-term capital gain or loss, depending on whether the
premium income is greater or less than the amount paid by the Fund in the
closing transaction. Some realized capital losses may be deferred if they result
from a position which is part of a "straddle," discussed below. If securities
are sold by a Fund pursuant to the exercise of a call option written by it, the
Fund will add the premium received to the sale price of the securities delivered
in determining the amount of gain or loss on the sale. If securities are
purchased by a Fund pursuant to the exercise of a put option written by it, such
Fund will subtract the premium received from its cost basis in the securities
purchased.
The amount of any gain or loss realized by a Fund on closing out a
regulated futures contract will generally result in a realized capital gain or
loss for Federal income tax purposes. Regulated futures contracts held at the
end of each fiscal year will be required to be "marked to market" for Federal
income tax purposes pursuant to Section 1256 of the Code. In this regard, they
will be deemed to have been sold at market value. Sixty percent (60%) of any net
gain or loss recognized on these deemed sales and sixty percent (60%) of any net
realized gain or loss from any actual sales, will generally be treated as
long-term capital gain or loss, and the remainder will be treated as short-term
capital gain or loss. Transactions that qualify as designated hedges are
excepted from the "mark-to-market" rule and the "60%/40%" rule.
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Under Section 988 of the Code, a Fund will generally recognize ordinary
income or loss to the extent gain or loss realized on the disposition of
portfolio securities is attributable to changes in foreign currency exchange
rates. In addition, gain or loss realized on the disposition of a foreign
currency forward contract, futures contract, option or similar financial
instrument, or of foreign currency itself, will generally be treated as ordinary
income or loss. The Funds will attempt to monitor Section 988 transactions,
where applicable, to avoid adverse tax impact.
Offsetting positions held by a Fund involving certain financial forward,
futures or options contracts may be considered, for tax purposes, to constitute
"straddles." "Straddles" are defined to include "offsetting positions" in
actively traded personal property. The tax treatment of "straddles" is governed
by Section 1092 of the Code which, in certain circumstances, overrides or
modifies the provisions of Section 1256. If a Fund were treated as entering into
"straddles" by engaging in certain financial forward, futures or option
contracts, such straddles could be characterized as "mixed straddles" if the
futures, forwards, or options comprising a part of such straddles were governed
by Section 1256 of the Code. The Fund may make one or more elections with
respect to "mixed straddles." Depending upon which election is made, if any, the
results with respect to the Fund may differ. Generally, to the extent the
straddle rules apply to positions established by the Fund, losses realized by
the Fund may be deferred to the extent of unrealized gain in any offsetting
positions. Moreover, as a result of the straddle and the conversion transaction
rules, short-term capital loss on straddle positions may be recharacterized as
long-term capital loss, and long-term capital gain may be characterized as
short-term capital gain or ordinary income.
If a Fund enters into a "constructive sale" of any appreciated position
in stock, a partnership interest, or certain debt instruments, the Fund must
recognize gain (but not loss) with respect to that position. For this purpose, a
constructive sale occurs when the Fund enters into one of the following
transactions with respect to the same or substantially identical property: (i) a
short sale; (ii) an offsetting notional principal contract; or (iii) a futures
or forward contract.
If a Fund purchases shares in a "passive foreign investment company"
("PFIC"), the Fund may be subject to Federal income tax and an interest charge
imposed by the IRS upon certain distributions from the PFIC or the Fund's
disposition of its PFIC shares. If the Fund invests in a PFIC, the Fund intends
to make an available election to mark-to-market its interest in PFIC shares.
Under the election, the Fund will be treated as recognizing at the end of each
taxable year the difference, if any, between the fair market value of its
interest in the PFIC shares and its basis in such shares. In some circumstances,
the recognition of loss may be suspended. The Fund will adjust its basis in the
PFIC shares by the amount of income (or loss) recognized. Although such income
(or loss) will be taxable to the Fund as ordinary income (or loss)
notwithstanding any distributions by the PFIC, the Fund will not be subject to
Federal income tax or the interest charge with respect to its interest in the
PFIC under the election.
FOREIGN TAXES
Income and dividends received by a Fund from sources within foreign
countries may be subject to withholding and other taxes imposed by such
countries. Tax conventions between certain countries and the United States may
reduce or eliminate such taxes. If more than 50% of the value of a Fund's total
assets at the close of its taxable year consists of securities of non-U.S.
corporations, the Fund will be eligible to file an election with the IRS
pursuant to which the regulated investment company may pass-through to its
shareholders foreign taxes paid by the regulated investment company, which may
be claimed either as a credit or deduction by the shareholders. Only the Nations
Emerging Markets Fund, Nations Pacific Growth Fund and Nations Global Government
Income Fund expect to qualify for the election. However, even if a Fund
qualifies for the election, foreign taxes will only pass-through to a Fund
shareholder if (i) the shareholder holds the Fund shares for at least 16 days
during the 30 day period beginning 15 days prior to the date upon which the
shareholder becomes entitled to receive Fund dividends corresponding with the
pass-through of the foreign taxes paid by the Fund, and (ii) with respect to
foreign source dividends received by the Fund on shares giving rise to foreign
tax, the Fund holds the shares for at least 16 days during the 30 day period
beginning 15 days prior to the date upon which the Fund becomes entitled to the
dividend.
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For tax years beginning after December 31, 1997, an individual with $300
or less of creditable foreign taxes generally is exempt from foreign source
income and certain other limitations imposed by the Code on claiming a credit
for such taxes. The $300 amount is increased to $600 for joint filers.
CAPITAL GAIN DISTRIBUTIONS
Distributions which are designated by a Fund as capital gain
distributions will be taxed to shareholders as long-term term capital gain (to
the extent such dividends do exceed the Fund's actual net capital gains for the
taxable year), regardless of how long a shareholder has held Fund shares. Such
distributions will be designated as capital gain distributions in a written
notice mailed by the Fund to its shareholders not later than 60 days after the
close of the Fund's taxable year.
OTHER DISTRIBUTIONS
Although dividends will be declared daily based on each Money Market
Fund's and the Government Securities Fund's daily earnings, for Federal income
tax purposes, the Fund's earnings and profits will be determined at the end of
each taxable year and will be allocated pro rata over the entire year. For
Federal income tax purposes, only amounts paid out of earnings and profits will
qualify as dividends. Thus, if during a taxable year a Fund's declared dividends
(as declared daily throughout the year) exceed the Fund's net income (as
determined at the end of the year), only that portion of the year's
distributions which equals the year's earnings and profits will be deemed to
have constituted a dividend. It is expected that each Fund's net income, on an
annual basis, will equal the dividends declared during the year.
DISPOSITION OF FUND SHARES
A disposition of Fund shares pursuant to a redemption (including a
redemption in-kind) or an exchange will ordinarily result in a taxable capital
gain or loss, depending on the amount received for the shares (or are deemed to
be received in the case of an exchange) and the cost of the shares.
If a shareholder exchanges or otherwise disposes of Fund shares within
90 days of having acquired such shares and if, as a result of having acquired
those shares, the shareholder subsequently pays a reduced sales charge on a new
purchase of shares of the Fund or a different regulated investment company, the
sales charge previously incurred in acquiring the Fund's shares shall not be
taken into account (to the extent such previous sales charges do not exceed the
reduction in sales charges on the new purchase) for the purpose of determining
the amount of gain or loss on the disposition, but will be treated as having
been incurred in the acquisition of such other shares. Also, any loss realized
on a redemption or exchange of shares of the Fund will be disallowed to the
extent that substantially identical shares are acquired within the 61-day period
beginning 30 days before and ending 30 days after the shares are disposed of.
If a shareholder receives a designated capital gain distribution (to be
treated by the shareholder as a long-term capital gain) with respect to any Fund
share and such Fund share is held for six months or less, then (unless otherwise
disallowed) any loss on the sale or exchange of that Fund share will be treated
as a long-term capital loss to the extent of the designated capital gain
distribution. In addition, if a shareholder holds Fund shares for six months or
less, any loss on the sale or exchange of those shares will be disallowed to the
extent of the amount of exempt-interest dividends received with respect to the
shares. The Treasury Department is authorized to issue regulations reducing the
six months holding requirement to a period of not less than the greater of 31
days or the period between regular dividend distributions where a Fund regularly
distributes at least 90% of its net tax-exempt interest, if any. No such
regulations have been issued as of the date of this SAI. The loss disallowance
rules described in this paragraph do not apply to losses realized under a
periodic redemption plan.
FEDERAL INCOME TAX RATES
As of the printing of this SAI, the maximum individual tax rate
applicable to ordinary income is 39.6% (marginal tax rates may be higher for
some individuals to reduce or eliminate the benefit of exemptions and
deductions); the maximum individual marginal tax rate applicable to net capital
gain is 20%; and the maximum corporate tax rate applicable to ordinary income
and net capital gain is 35% (marginal tax rates may be higher for some
corporations to reduce or eliminate the benefit of lower marginal income tax
rates). Naturally, the amount of tax payable by an individual or corporation
will be affected by a combination of tax laws covering, for example, deductions,
credits, deferrals, exemptions, sources of income and other matters.
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CORPORATE SHAREHOLDERS
Corporate shareholders of the Funds may be eligible for the
dividends-received deduction on dividends distributed out of a Fund's net
investment income attributable to dividends received from domestic corporations,
which, if received directly by the corporate shareholder, would qualify for such
deduction. A distribution by a Fund attributable to dividends of a domestic
corporation will only qualify for the dividends-received deduction if (i) the
corporate shareholder generally holds the Fund shares upon which the
distribution is made for at least 46 days during the 90 day period beginning 45
days prior to the date upon which the shareholder becomes entitled to the
distribution; and (ii) the Fund generally holds the shares of the domestic
corporation producing the dividend income for at least 46 days during the 90 day
period beginning 45 days prior to the date upon which the Fund becomes entitled
to such dividend income.
FOREIGN SHAREHOLDERS
Under the Code, distributions of net investment income by a Fund to a
nonresident alien individual, foreign trust (i.e., trust which a U.S. court is
able to exercise primary supervision over administration of that trust and one
or more U.S. persons have authority to control substantial decisions of that
trust), foreign estate (i.e., the income of which is not subject to U.S. tax
regardless of source), foreign corporation, or foreign partnership (a "foreign
shareholder") will be subject to U.S. withholding tax (at a rate of 30% or a
lower treaty rate if applicable). Withholding will not apply if a dividend paid
by a Fund to a foreign shareholder is "effectively connected" with a U.S. trade
or business (or, if an income tax treaty applies, is attributable to a U.S.
permanent establishment of the foreign shareholder), in which case the reporting
and withholding requirements applicable to U.S. persons will apply.
Distributions of net long-term capital gains are generally not subject to tax
withholding, and beginning in 2000, the Funds will be permitted to estimate the
portion of their distributions qualifying as capital gain distributions.
BACKUP WITHHOLDING
The Companies may be required to withhold, subject to certain
exemptions, at a rate of 31% ("backup withholding") on dividends, capital gain
distributions, and redemption proceeds (including proceeds from exchanges and
redemptions in-kind) paid or credited to an individual Fund shareholder, if the
shareholder fails to certify that the Taxpayer Identification Number ("TIN")
provided is correct and that the shareholder is not subject to backup
withholding, or the IRS notifies NFT that the shareholder's TIN is incorrect or
that the shareholder is subject to backup withholding. Such tax withheld does
not constitute any additional tax imposed on the shareholder, and may be claimed
as a tax payment on the shareholder's Federal income tax return. An investor
must provide a valid TIN upon opening or reopening an account. Failure to
furnish a valid TIN to the Companies could subject the investor to penalties
imposed by the IRS.
TAX-DEFERRED PLANS
The Funds are available for a variety of tax-deferred retirement and
other plans, including Individual Retirement Accounts ("IRA"), Simplified
Employee Pension Plans ("SEP-IRA"), Savings Incentive Match Plans for Employees
("SIMPLE plans"), Roth IRAs, and Education IRAs, which permit investors to defer
some of their income from taxes. A Tax Free Bond Fund, however, is generally not
a suitable investment for tax-deferred plans because such plans, which are
generally tax exempt, would not gain any benefit from the tax-exempt nature of
the Tax Free Bond Fund's dividends. Investors should contact their Selling
Agents for details concerning retirement plans.
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SPECIAL TAX CONSIDERATIONS PERTAINING TO THE MUNICIPAL INCOME FUND, SHORT-TERM
MUNICIPAL INCOME FUND, INTERMEDIATE MUNICIPAL BOND FUND, THE STATE INTERMEDIATE
MUNICIPAL BOND FUNDS AND THE STATE MUNICIPAL BOND FUNDS
The Municipal Income Fund, Short-Term Municipal Income Fund,
Intermediate Municipal Bond Fund, the State Intermediate Municipal Bond Funds
and the State Municipal Bond Funds (each, a "Tax-Free Bond Fund" and
collectively the "Tax-Free Bond Funds") are designed to provide investors with a
high level of income exempt from Federal and, with respect to the Florida
Intermediate Municipal Bond Fund and Florida Municipal Bond Fund, Georgia
Intermediate Municipal Bond Fund and Georgia Municipal Bond Fund, Maryland
Intermediate Municipal Bond Fund and Maryland Municipal Bond Fund, North
Carolina Intermediate Municipal Bond Fund and North Carolina Municipal Bond
Fund, South Carolina Intermediate Municipal Bond Fund and South Carolina
Municipal Bond Fund, Tennessee Intermediate Municipal Bond Fund and Tennessee
Municipal Bond Fund, and Virginia Intermediate Municipal Bond Fund and Virginia
Municipal Bond Fund, Florida state intangibles tax, and the Georgia, Maryland,
North Carolina, South Carolina, or Virginia state income tax, and the Tennessee
Hall Income Tax on unearned income, respectively. Florida and Texas do not
presently impose any income tax but Florida currently imposes a state
intangibles tax on intangible personal property.
Each Tax-Free Bond Fund intends that at least 50% of the value of its
total assets at the close of each quarter of its taxable years will consist of
obligations the interest on which is exempt from Federal income tax, so that
they will qualify under the Code to pay "exempt-interest dividends." The portion
of total dividends paid by the Fund with respect to any taxable year that
constitutes exempt-interest dividends will be the same for all shareholders
receiving dividends during such year. Long-term and/or short-term capital gain
distributions will not constitute exempt-interest dividends and will be taxed as
capital gain or ordinary income dividends, respectively. The exemption of
interest income derived from investments in tax-exempt obligations for Federal
income tax purposes may not result in a similar exemption under the laws of a
particular state or local taxing authority.
Not later than 60 days after the close of its taxable year, each
Tax-Exempt Bond Fund will notify its shareholders of the portion of the
dividends paid with respect to such taxable year which constitutes
exempt-interest dividends. The aggregate amount of dividends so designated
cannot exceed the excess of the amount of interest excludable from gross income
under Section 103 of the Code received by the Fund during the taxable year over
any amounts disallowed as deductions under Sections 265 and 171(a)(2) of the
Code. Interest on indebtedness incurred to purchase or carry shares of a Fund
will not be deductible to the extent that the Fund's distributions are exempt
from Federal income tax.
In addition, the Federal alternative minimum tax ("AMT") rules ensure
that at least a minimum amount of tax is paid by taxpayers who obtain
significant benefit from certain tax deductions and exemptions. Some of these
deductions and exemptions have been designated "tax preference items" which must
be added back to taxable income for purposes of calculating AMT. Among the tax
preference items is tax-exempt interest from "private activity bonds" issued
after August 7, 1986. To the extent that a Fund invests in private activity
bonds, its shareholders who pay AMT will be required to report that portion of
Fund dividends attributable to income from the bonds as a tax preference item in
determining their AMT. Shareholders will be notified of the tax status of
distributions made by the Fund. Persons who may be "substantial users" (or
"related persons" of substantial users) of facilities financed by private
activity bonds should consult their tax advisors before purchasing shares in the
Fund. Furthermore, shareholders will not be permitted to deduct any of their
share of the Fund's expenses in computing their AMT. With respect to a corporate
shareholder of such Funds, exempt-interest dividends paid by a Fund is included
in the corporate shareholder's "adjusted current earnings" as part of its AMT
calculation, and may also affect its Federal "environmental tax" liability. As
of the printing of this SAI, individuals are subject to an AMT at a maximum rate
of 28% and corporations at a maximum rate of 20%. Shareholders with questions or
concerns about AMT should consult their tax advisors.
Distributions other than exempt-interest dividends, including
distributions of interest in Municipal Securities issued by other issuers and
all long-term and short-term capital gains will be subject to state income tax
(other than Florida and Texas) unless specifically exempted by statute
including, in the case of Virginia, statutory provisions creating the agency or
political subdivision.
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Florida does not impose a personal income tax, but does impose an annual
intangible personal property tax on intangible personal property (including but
not limited to stocks or shares of business trusts or mutual funds) held by
persons domiciled in the State of Florida, regardless of where such property is
kept. Florida counsel has, however, advised the Fund that shares in the Nations
Florida Intermediate Municipal Bond Fund and the Nations Florida Municipal Bond
Fund shall not be subject to Florida's intangible personal property tax if on
January 1 of each tax year the portfolio of such Fund consists exclusively of
obligations of the government of the United States of America, its agencies,
instrumentalities, the Commonwealth of Puerto Rico, the government of Guam, the
government of American Samoa, the government of the Northern Mariana Islands,
the State of Florida, its political subdivisions, municipalities or other taxing
districts. Nations Funds has received a Technical Assistance Advisement from the
Florida Department of Revenue confirming the foregoing.
Although the Nations Florida Intermediate Municipal Bond Fund and
Nations Florida Municipal Bond Fund anticipate that the portfolio will
exclusively contain assets that are exempt from Florida's intangible personal
property tax on January 1 of each tax year, it may be possible that the
portfolio will have a small portion of its assets invested temporarily in assets
on such date which are not exempt from Florida's annual intangible personal
property tax. In this situation, only the portion of the net asset value of the
portfolio which is made up of direct obligations of the United States of
America, its agencies, territories and possessions (as described above) may be
removed from the net asset value for purposes of computing the intangible
personal property tax. The remaining net asset value of the portfolio and hence
a portion of the net asset value of the shares in the Nations Florida
Intermediate Municipal Bond Fund and Nations Florida Municipal Bond Fund would
be subject to the intangible personal property tax. Notice as to the tax status
of your shares will be mailed to you annually. Owners of shares in the Nations
Florida Intermediate Municipal Bond Fund or Nations Florida Municipal Bond Fund
should consult their tax advisers with specific reference to their own tax
situation if advised that a portion of the portfolio of such Funds consisted on
January 1 of any year of assets which are not exempt from Florida's annual
intangible personal property tax. Such annual intangible personal property tax,
if any, is due and payable on June 30 of such year in which the tax liability
arises.
The Georgia state intangibles tax was legislatively repealed by action
of the General Assembly during the 1996 Session and was also repealed by a
constitutional amendment approved by the voters of Georgia on November 5, 1996.
The repeal of the Georgia intangibles tax was made retroactively effective to
January 1, 1996.
Nations Maryland Intermediate Municipal Bond Fund's and Nations Maryland
Municipal Bond Fund's shareholders who are residents of Maryland must add to
their Federal adjusted gross income 50% of their Federal tax preference items
(which include interest amounts from private activity bonds) the sum total of
which is in excess of $10,000 for an individual return (or $20,000 for a joint
return) when determining their Maryland adjusted gross income Shareholders who
are nonresidents of Maryland are required to include only those tax preference
items that are based on income taxable in Maryland.
Although any net capital gain recognized with respect to the sale or
exchange of shares of a Fund may be subject to the South Carolina state income
tax, individuals, estates and trusts are entitled to a deduction for South
Carolina taxable income purposes equal to 44% of the net capital gain recognized
from the sale or exchange of an asset which has been held for a period of two or
more years. In the case of estates or trusts, the deduction is applicable only
to income taxed to the estate or trust or individual beneficiaries and not
income passed through to nonindividual beneficiaries.
The Tennessee Hall Income Tax imposes a tax on income received by way of
dividends from stock or interest on bonds. Dividends from a qualified regulated
investment company are exempt from the Hall Income Tax, but only to the extent
attributable to interest on bonds or securities of the U.S. Government or any
agency or instrumentality thereof or on bonds of the State of Tennessee or any
county or any municipality or political subdivision thereof, including any
agency, board, authority or commission of any of the above.
OTHER MATTERS
Investors should be aware that the investments to be made by the Funds
may involve sophisticated tax rules that may result in income or gain
recognition by a Fund without corresponding current cash receipts. Although the
Funds will seek to avoid significant noncash income, such noncash income could
be recognized by a Fund, in which case the Fund may distribute cash derived from
other sources in order to meet the minimum distribution requirements described
above.
120
<PAGE>
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.
ADDITIONAL INFORMATION ON PERFORMANCE
Yield information and other performance information for each Company's
Funds may be obtained by calling the Company at (800) 321-7854.
From time to time, the yield and total return of a Fund's Investor
Shares and Primary Shares may be quoted in advertisements, shareholder reports,
and other communications to shareholders. Each Fund of the Company also may
quote information obtained from the Investment Company Institute in its
advertising materials and sales literature. In addition, certain potential
benefits of investing in world securities markets may be discussed in
promotional materials. Such benefits include, but are not limited to: a) the
expanded opportunities for investment in securities markets outside the U.S.; b)
the growth of securities markets outside the U.S. vis-a-vis U.S. markets; c) the
relative return associated with foreign securities markets vis-a-vis U.S.
markets; and d) a reduced risk of portfolio volatility resulting from a
diversified securities portfolio consisting of both U.S. and foreign securities.
Performance information is available by calling 1-800-321-7854 with respect to
Investor Shares and 1-800-621-2192 with respect to Primary Shares.
YIELD CALCULATIONS
The current yield quotations for the Primary A, Primary B, Investor A,
Investor B, Investor C and Daily Shares of the NFI Money Market Funds are
computed by determining the net change, exclusive of capital changes, over a
seven-day base period in the value of a hypothetical pre-existing account having
a balance of one share at the beginning of the period. The net change in account
value is divided by the value of the account at the beginning of the base period
to obtain the base period return. The base period return is then multiplied by
(5/7), with the resulting annualized yield figure carried to the nearest 1/100
of 1%. For purposes of calculating current yield, net change in account value
reflects: (i) the value of additional shares purchased with dividends from the
original shares and dividends declared on both the original shares and any such
additional shares, and (ii) all fees (other than non-recurring account charges)
that are charged to all shareholder accounts in proportion to the length of the
base period and the average account size of the Primary A, Primary B, Investor
A, Investor B, Investor C and Daily Shares of the Money Market Funds. The
capital changes excluded from the calculation of current yield are realized
gains and losses from the sale of securities and unrealized appreciation and
depreciation.
The effective yield quotations for the Primary Shares and Investor
Shares of the Money Market Funds are computed by compounding the unannualized
seven-day base period return as follows: 1 is added to the base period return
and this sum is then raised to a power equal to (5/7), and 1 is then subtracted
from the result. Based on the seven-day period ended March 31, 1998, (the "base
period"), the current and effective yields of the various shares of the Money
Market Funds were as follows:
The yield of the Primary Shares and Investor Shares of the NFP Funds is
a measure of the net investment income per share (as defined) earned over a
30-day period expressed as a percentage of the maximum offering price of a share
of such classes at the end of the period. Yield figures are determined by
dividing the net investment income per share earned during the specified 30-day
period by the maximum offering price per share on the last day of the period,
according to the following formula:
121
<PAGE>
Yield = 2[(a-b + 1)(6) 1]
cd
Where: a = dividends and interest earned during the period
b = expenses accrued for the period (net of reimbursements)
c = average daily number of shares outstanding during the period
that were entitled to receive dividends
d = maximum offering price per share on the last day of the period
For purposes of yield quotation, income is calculated in accordance with
standardized methods applicable to all stock and bond mutual funds. In general,
interest income is reduced with respect to bonds trading at a premium over their
par value by subtracting a portion of the premium from income on a daily basis,
and is increased with respect to bonds trading at a discount by adding a portion
of the discount to daily income. Capital gains and losses are excluded from the
calculation.
Income calculated for the purposes of calculating a Fund's yield differs
from income as determined for other accounting purposes. Because of the
different accounting methods used, and because of the compounding assumed in
yield calculations, the yield quoted for a Fund may differ from the rate of
distributions a Fund paid over the same period or the rate of income reported in
the Funds' financial statements.
MONEY MARKET FUNDS. The "yield" and "effective yield" of Primary A,
Primary B, Investor A, Investor B, Investor C and Daily Shares of each Money
Market Fund of NFT are computed separately as described below according to
formulas prescribed by the SEC. The standardized seven-day yield is computed by
determining the net change, exclusive of capital changes, in the value of a
hypothetical pre-existing account in the particular Fund involved having a
balance of one share of the class or series involved at the beginning of the
period, dividing the net change in account value by the value of the account at
the beginning of the base period to obtain the base period return, and
multiplying the base period return by (365/7). The net change in the value of an
account in each Fund includes the value of additional shares purchased with
dividends from the original share, and dividends declared on both the original
share and any such additional shares; and all fees, other than nonrecurring
account or sales charges, that are charged to shareholder accounts in proportion
to the length of the base period and the Fund's average account size. The
capital changes to be excluded from the calculation of the net change in account
value are realized gains and losses from the sale of securities and unrealized
appreciation and depreciation. The effective annualized yield for a class or
series of shares in a Fund is computed by compounding the unannualized base
period return (calculated as above) by adding 1 to the base period return,
raising the sum to a power equal to 365 divided by 7, and subtracting 1 from the
result.
In addition, the "tax-equivalent yield" of the Primary A, Primary B,
Investor A, Investor B, Investor C and Daily Shares of the Tax Exempt Fund is
computed by: (a) dividing the portion of the yield that is exempt from Federal
income tax by one minus a stated Federal income tax rate; and (b) adding the
figure resulting from (a) above to that portion, if any, of the yield that is
not exempt from Federal income tax.
122
<PAGE>
Seven Day Yield
<TABLE>
<CAPTION>
Effective
Yield Yield Tax
Without Without Tax Equivalent
Fee Effective Fee Equivalent Yield w/o
Yield Waivers Yield Waivers Yield Waivers
----- ------- ----- ------- ----- -------
<S> <C> <C> <C> <C> <C> <C>
Prime Fund
Primary A Shares 5.47% 5.42% 5.62% 5.57% n/a n/a
Primary B Shares 5.22% 5.17% 5.36% 5.31% n/a n/a
Investor A Shares 5.12% 5.07% 5.25% 5.20% n/a n/a
Investor B Shares 5.22% 5.17% 5.36% 5.31% n/a n/a
Investor C Shares 5.22% 5.17% 5.36% 5.31% n/a n/a
Daily Shares 4.97% 4.92% 5.10% 5.05% n/a n/a
Treasury Fund
Primary A Shares 5.42% 5.37% 5.56% 5.51% n/a n/a
Primary B Shares 5.17% 5.12% 5.30% 5.25% n/a n/a
Investor A Shares 5.07% 5.02% 5.19% 5.14% n/a n/a
Investor B Shares 5.17% 5.12% 5.30% 5.25% n/a n/a
Investor C Shares 5.17% 5.12% 5.30% 5.25% n/a n/a
Daily Shares 4.92% 4.87% 5.04% 4.99% n/a n/a
</TABLE>
SEVEN DAY YIELD FOR THE YEAR ENDED 3/31/98
Tax Equivalent Yields @ 39.6%
<TABLE>
<CAPTION>
Tax
Effective Equivalent
Yield Yield
Yield Without Tax Without
Without Effective Fee Equivalent Fee
Yield Fee Waivers Yield Waivers Yield Waivers
----- ----------- ----- ------- ----- -------
<S> <C> <C> <C> <C> <C> <C>
Government Money Market Fund
Primary A Shares 5.30% 5.01% 5.44% 5.15% n/a n/a
Primary B Shares 5.05% 4.76% 5.18% 4.89% n/a n/a
Investor A Shares 4.95% 4.66% 5.07% 4.78% n/a n/a
Investor B Shares 5.05% 4.76% 5.18% 4.89% n/a n/a
Investor C Shares 5.05% 4.76% 5.18% 4.89% n/a n/a
Daily Shares 4.80% 4.51% 4.92% 4.63% n/a n/a
Tax Exempt Fund
Primary A Shares 3.42% 3.16% 3.48% 3.22% 5.66% 5.23%
Primary B Shares 3.17% 2.91% 3.22% 2.96% 5.25% 4.82%
Investor A Shares 3.07% 2.81% 3.12% 2.86% 5.08% 4.65%
Investor B Shares 3.22% 2.96% 3.27% 3.01% 5.33% 4.90%
Investor C Shares 3.17% 2.91% 3.22% 2.96% 5.25% 4.82%
Daily Shares 2.92% 2.66% 2.96% 2.70% 4.83% 4.40%
</TABLE>
NON-MONEY MARKET FUNDS. Yield is calculated separately for the Investor
A, Investor C, Investor B, Primary A and Primary B Shares of a Non-Money Market
Fund by dividing the net investment income per share for a particular class or
series of shares (as described below) earned during a 30-day period by the
maximum offering price per share on the last day of the period (for Primary A
and Primary B Shares, maximum offering price per share is the same as the net
asset value per share) and annualizing the result on a semi-annual basis by
adding one to the quotient, raising the sum to the power of six, subtracting one
from the result and then doubling the difference. For a class or series of
shares in a Fund, net investment income per share earned during the period is
based on the average daily number of shares outstanding during the period
entitled to receive dividends and includes dividends and interest earned during
the period minus expenses accrued for the period, net of reimbursements. This
calculation can be expressed as follows:
123
<PAGE>
Yield = 2 [(a-b+ 1)(6) - 1]
---
cd
Where: a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of shares outstanding during
the period that were entitled to receive dividends.
d = maximum offering price per share on the last day of
the period (again, for Primary A and Primary B Shares,
this is equivalent to net asset value per share).
For the purpose of determining net investment income earned during the
period (variable- "a" in the formula), dividend income on equity securities held
by a Fund is recognized by accruing 1/360 of the stated dividend rate of the
security each day that the security is in the portfolio. Each Fund calculates
interest earned on any debt obligations held in its portfolio by computing the
yield to maturity of each obligation held by it based on the market value of the
obligation (including actual accrued interest) at the close of business on the
last business day of each month, or, with respect to obligations purchased
during the month, the purchase price (plus actual accrued interest) and dividing
the result by 360 and multiplying the quotient by the market value of the
obligation (including actual accrued interest) in order to determine the
interest income on the obligation for each day of the subsequent month that the
obligation is in the portfolio. For purposes of this calculation, it is assumed
that each month contains 30 days. The maturity of an obligation with a call
provision is the next call date on which the obligation reasonably may be
expected to be called or, if none, the maturity date. With respect to debt
obligations purchased at a discount or premium, the formula generally calls for
amortization of the discount or premium. The amortization schedule will be
adjusted monthly to reflect changes in the market values of such debt
obligations. The Municipal Income Fund, Short-Term Municipal Income Fund,
Intermediate Municipal Bond Fund, the State Intermediate Municipal Bond Funds
and the State Municipal Bond Funds calculate interest gained on tax-exempt
obligations issued without original issue discount and having a current market
discount by using the coupon rate of interest instead of the yield to maturity.
In the case of tax-exempt obligations that are issued with original issue
discount, where the discount based on the current market value exceeds the
then-remaining portion of original issue discount, the yield to maturity is the
imputed rate based on the original issue discount calculation. Conversely, where
the discount based on the current market value is less than the remaining
portion of the original issue discount, the yield to maturity is based on the
market value.
Expenses accrued for the period (variable "b" in the formula) include
recurring fees charged by Nations Funds to shareholder accounts in proportion to
the length of the base period. Undeclared earned income will be subtracted from
the maximum offering price per share (which for Primary A and Primary B Shares
is net asset value per share) (variable "d" in the formula). Undeclared earned
income is the net investment income which, at the end of the base period, has
not been declared as a dividend, but is reasonably expected to be and is
declared as a dividend shortly thereafter. A Fund's maximum offering price per
share for purposes of the formula includes the maximum sales charge, if any,
imposed by the Fund, as reflected in the Fund's prospectus.
The Funds may provide additional yield calculations in communications
(other than advertisements) to the holders of Investor A, Investor C or Investor
B Shares. These may be calculated based on the Investor A, Investor C or
Investor B Shares' net asset values per share (rather than their maximum
offering prices) on the last day of the period covered by the yield
computations. That is, some communications provided to the holders of Investor
A, Investor C or Investor B Shares may also include additional yield
calculations prepared for the holders of Primary A or Primary B Shares. Such
additional quotations, therefore, will not reflect the effect of the sales
charges mentioned above.
INVESTOR A SHARES ONLY. Based on the foregoing calculations, the yield,
taking into account fee waivers and/or expense reimbursements, and the yield
without fee waivers and/or expense reimbursements for the 30-day period ended
March 31, 1998 were as follows:
124
<PAGE>
THIRTY DAY YIELD FOR THE PERIOD ENDED 3/31/98
<TABLE>
<CAPTION>
Tax
Equivalent
Yield Yield
Without Tax Without
Fee Equivalent Fee
Yield Waivers Yield Waivers
----- ------- ----- -------
<S> <C> <C> <C> <C>
Short-Intermediate Government Fund
Primary A Shares 5.42% 5.22% n/a n/a
Primary B Shares n/a n/a n/a n/a
Investor A Shares 5.17% 4.97% n/a n/a
Investor B Shares 4.57% 4.37% n/a n/a
Investor C Shares 4.57% 4.37% n/a n/a
Short-Term Income Fund
Primary A Shares 5.09% 4.79% n/a n/a
Primary B Shares n/a n/a n/a n/a
Investor A Shares 4.83% 4.53% n/a n/a
Investor B Shares 4.23% 3.93% n/a n/a
Investor C Shares 4.43% 4.13% n/a n/a
Diversified Income Fund
Primary A Shares 6.43% 6.33% n/a n/a
Primary B Shares 4.86% 4.76% n/a n/a
Investor A Shares 6.15% 6.05% n/a n/a
Investor B Shares 5.56% 5.46% n/a n/a
Investor C Shares 5.56% 5.46% n/a n/a
Strategic Fixed Income Fund
Primary A Shares 5.93% 5.82% n/a n/a
Primary B Shares n/a n/a n/a n/a
Investor A Shares 5.73% 5.62% n/a n/a
Investor B Shares 5.12% 5.01% n/a n/a
Investor C Shares 5.22% 5.11% n/a n/a
Municipal Income Fund
Primary A Shares 4.80% 4.56% 7.95% 7.55%
Investor A Shares 4.60% 4.36% 7.62% 7.22%
Investor B Shares 3.95% 3.71% 6.54% 6.14%
Investor C Shares 4.05% 3.81% 6.71% 6.31%
Short-Term Municipal Income Fund
Primary A Shares 4.19% 3.82% 6.94% 6.32%
Investor A Shares 3.99% 3.62% 6.61% 5.99%
Investor B Shares 3.84% 3.47% 6.36% 5.75%
Investor C Shares 3.84% 3.47% 6.36% 5.75%
Intermediate Municipal Bond Fund
Primary A Shares 4.66% 4.42% 7.72% 7.32%
Investor A Shares 4.45% 4.21% 7.37% 6.97%
Investor B Shares 3.85% 3.61% 6.37% 5.98%
Investor C Shares 4.15% 3.91% 6.87% 6.47%
Florida Intermediate Municipal Bond
Fund
Primary A Shares 4.75% 4.49% 7.86% 7.43%
Investor A Shares 4.55% 4.29% 7.53% 7.10%
Investor B Shares 3.95% 3.69% 6.54% 6.11%
Investor C Shares 3.95% 3.69% 6.54% 6.11%
Georgia Intermediate Municipal Bond
Fund
Primary A Shares 4.61% 4.36% 8.12% 7.68%
Investor A Shares 4.41% 4.16% 7.77% 7.33%
Investor B Shares 3.81% 3.56% 6.71% 6.27%
Investor C Shares 3.81% 3.56% 6.71% 6.27%
</TABLE>
125
<PAGE>
<TABLE>
<CAPTION>
Tax
Equivalent
Yield Yield
Without Tax Without
Fee Equivalent Fee
Yield Waivers Yield Waivers
----- ------- ----- -------
<S> <C> <C> <C> <C>
Maryland Intermediate Municipal Bond
Fund
Primary A Shares 4.54% 4.24% 7.90% 7.38%
Investor A Shares 4.34% 4.04% 7.55% 7.03%
Investor B Shares 3.74% 3.44% 6.51% 5.99%
Investor C Shares 3.74% 3.44% 6.51% 5.99%
North Carolina Intermediate Municipal
Bond Fund
Primary A Shares 4.68% 4.42% 8.40% 7.93%
Investor A Shares 4.48% 4.22% 8.04% 7.57%
Investor B Shares 3.88% 3.62% 6.96% 6.50%
Investor C Shares 3.88% 3.62% 6.96% 6.50%
South Carolina Intermediate Municipal
Bond Fund
Primary A Shares 4.91% 4.66% 8.74% 8.30%
Investor A Shares 4.71% 4.46% 8.38% 7.94%
Investor B Shares 4.10% 3.85% 7.30% 6.85%
Investor C Shares 4.11% 3.86% 7.32% 6.87%
Tennessee Intermediate Municipal Bond
Fund
Primary A Shares 4.58% 4.24% 8.07% 7.47%
Investor A Shares 4.38% 4.04% 7.71% 7.12%
Investor B Shares 3.78% 3.44% 6.66% 6.06%
Investor C Shares 3.74% 3.40% 6.59% 5.99%
Texas Intermediate Municipal Bond Fund
Primary A Shares 4.77% 4.52% 7.90% 7.48%
Investor A Shares 4.57% 4.32% 7.57% 7.15%
Investor B Shares 3.97% 3.72% 6.57% 6.16%
Investor C Shares 3.97% 3.72% 6.57% 6.16%
Virginia Intermediate Municipal Bond
Fund
Primary A Shares 4.71% 4.47% 8.27% 7.85%
Investor A Shares 4.51% 4.27% 7.92% 7.50%
Investor B Shares 3.91% 3.67% 6.87% 6.45%
Investor C Shares 3.91% 3.67% 6.87% 6.45%
Florida Municipal Bond Fund
Primary A Shares 4.84% 4.54% 8.01% 7.52%
Investor A Shares 4.63% 4.33% 7.67% 7.17%
Investor B Shares 3.98% 3.68% 6.59% 6.09%
Investor C Shares 3.98% 3.68% 6.59% 6.09%
Georgia Municipal Bond Fund
Primary A Shares 4.71% 4.29% 8.30% 7.56%
Investor A Shares 4.52% 4.10% 7.96% 7.22%
Investor B Shares 3.87% 3.45% 6.82% 6.08%
Investor C Shares 3.88% 3.46% 6.83% 6.09%
Maryland Municipal Bond Fund
Primary A Shares 4.49% 4.02% 7.81% 7.00%
Investor A Shares 4.29% 3.82% 7.47% 6.65%
Investor B Shares 3.64% 3.17% 6.34% 5.52%
Investor C Shares 3.75% 3.28% 6.53% 5.71%
North Carolina Municipal Bond Fund
Primary A Shares 4.68% 4.35% 8.40% 7.81%
Investor A Shares 4.48% 4.15% 8.04% 7.45%
Investor B Shares 3.83% 3.50% 6.87% 6.28%
Investor C Shares 3.84% 3.51% 6.89% 6.30%
South Carolina Municipal Bond Fund
Primary A Shares 4.71% 4.32% 8.38% 7.69%
Investor A Shares 4.51% 4.12% 8.03% 7.33%
Investor B Shares 3.86% 3.47% 6.87% 6.18%
Investor C Shares 3.86% 3.47% 6.87% 6.18%
</TABLE>
126
<PAGE>
<TABLE>
<CAPTION>
Tax
Equivalent
Yield Yield
Without Tax Without
Fee Equivalent Fee
Yield Waivers Yield Waivers
----- ------- ----- -------
<S> <C> <C> <C> <C>
Tennessee Municipal Bond Fund
Primary A Shares 4.65% 4.05% 8.19% 7.13%
Investor A Shares 4.45% 3.85% 7.84% 6.78%
Investor B Shares 3.80% 3.20% 6.69% 5.64%
Investor C Shares 3.79% 3.19% 6.68% 5.62%
Texas Municipal Bond Fund
Primary A Shares 4.75% 4.28% 7.86% 7.09%
Investor A Shares 4.55% 4.08% 7.53% 6.75%
Investor B Shares 3.90% 3.43% 6.46% 5.68%
Investor C Shares 3.89% 3.42% 6.44% 5.66%
Virginia Municipal Bond Fund
Primary A Shares 4.77% 4.40% 8.38% 7.73%
Investor A Shares 4.57% 4.20% 8.03% 7.38%
Investor B Shares 3.90% 3.53% 6.85% 6.20%
Investor C Shares 3.86% 3.49% 6.78% 6.13%
</TABLE>
The "tax-equivalent" yield is computed by: (a) dividing the portion of the yield
(calculated as above) that is exempt from Federal income tax by (b) one minus
(i) a stated Federal income tax rate, and, for the State Intermediate Municipal
Bond Funds, (ii) a state income tax rate multiplied by one minus the stated
Federal income tax rate. The Federal income tax rate used in calculating the
"tax-equivalent" yield 39.6%. The state income tax rate used in calculating the
"tax-equivalent" yield of the State Intermediate Municipal Bond Funds is as
follows: Florida --0%;; Georgia --6%; Maryland --4.875%; North Carolina --7.75%;
South Carolina --7%; Tennessee 6%; Texas --0%; and Virginia --5.75%.
Hypothetical examples showing the level of taxable yield needed to
produce on after-tax equivalent to an assumed tax-free yield may be provided to
shareholders. Provided below are such illustrations:
For the Georgia Intermediate Municipal Bond Fund and Georgia Municipal
Bond Fund:
<TABLE>
<CAPTION>
- ------------------------- ----------------------- ----------------------- -----------------------
<S> <C> <C> <C>
Single Return $25,351-$61,400 $61,401-$128,100 $128,101-$278,450
- ------------------------- ----------------------- ----------------------- -----------------------
Joint Return $42,351-$102,300 $102,301-$155,950 $155,951-$278,450
- ------------------------- ----------------------- ----------------------- -----------------------
</TABLE>
To match a
tax-free
yield of: A taxable investment would have to pay you:
- ----------- ----------------------- ----------------------- -------------
4% 5.91% 6.17% 6.65%
- ----------- ----------------------- ----------------------- -------------
5% 7.39% 7.71% 8.31%
- ----------- ----------------------- ----------------------- -------------
6% 8.87% 9.25% 9.97%
- ----------- ----------------------- ----------------------- -------------
7% 10.34% 10.79% 11.64%
- ----------- ----------------------- ----------------------- -------------
8% 11.82% 12.33% 13.30%
- ----------- ----------------------- ----------------------- -------------
The tax-free yields used here are hypothetical and no assurance can be made that
the Funds will obtain any particular yield. A fund's yield fluctuates as market
conditions change. The tax brackets and the related yield calculations are based
on the 1998 Federal (28%, 31%, 36%) and Georgia (6%) tax rates and assume a
Federal tax benefit for the state and local taxes. Note the highest 1998
marginal Federal tax rate may be higher than 36% due to the phase-out of
allowable itemized deductions and personal exemptions for certain taxpayers.
This schedule does not take into account the 39.6% Federal tax rate applied to
taxable income in excess of $278,450.
127
<PAGE>
For the Maryland Intermediate Municipal Bond Fund and Maryland Municipal
Bond Fund:
<TABLE>
<CAPTION>
- ------------------------- ----------------------- ----------------------- -----------------------
<S> <C> <C> <C>
Single Return $25,351-$61,400 $61,401-$128,100 $128,101-$278,450
- ------------------------- ----------------------- ----------------------- -----------------------
Joint Return $42,351-$102,300 $102,301-$155,950 $155,951-$278,450
- ------------------------- ----------------------- ----------------------- -----------------------
</TABLE>
To match a
tax-free
yield of: A taxable investment would have to pay you:
- ----------- ----------------------- ----------------------- -------------
4% 6.00% 6.26% 6.75%
- ----------- ----------------------- ----------------------- -------------
5% 7.50% 7.82% 8.43%
- ----------- ----------------------- ----------------------- -------------
6% 9.00% 9.39% 10.12%
- ----------- ----------------------- ----------------------- -------------
7% 10.50% 10.95% 11.81%
- ----------- ----------------------- ----------------------- -------------
8% 12.00% 12.52% 13.50%
- ----------- ----------------------- ----------------------- -------------
The tax-free yields used here are hypothetical and no assurance can be made that
the Funds will obtain any particular yield. A fund's yield fluctuates as market
conditions change. The tax brackets and the related yield calculations are based
on the 1998 Federal (28%, 31%, 36%), Maryland (4.875%) and local county (which,
for purposes of the above table is approximately 2.5%) tax rates and assume a
Federal tax benefit for the state and local taxes. Note the highest 1998
marginal Federal tax rate may be higher than 36% due to the phase-out of
allowable itemized deductions and personal exemptions for certain taxpayers.
This schedule does not take into account the 39.6% Federal tax rate applied to
taxable income in excess of $278,450.
For the North Carolina Intermediate Municipal Bond Fund
and North Carolina Municipal Bond Fund:
<TABLE>
<CAPTION>
- ---------------- --------------- --------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Single Return $25,351-$60,000 $60,001-$61,400 $61,401-$128,100 $128,101-$278,450
(28%, 7%) (28%, 7.75%) (31%, 7.75%) (36%, 7.75%)
- ---------------- --------------- --------------- ----------------- -----------------
Joint Return $42,351-$100,000 $100,001-$102,300 $102,301-$155,950 $155,951-$278,450
(28%, 7%) (28%,7.75%) (31%, 7.75%) (36%, 7.75%)
- ---------------- --------------- --------------- ----------------- -----------------
</TABLE>
To match a
tax-free
yield of: A taxable investment would have to pay you:
- ----------------- --------------- --------------- --------------- --------------
4% 5.97% 60.22% 6.28% 6.78%
- ----------------- --------------- --------------- --------------- --------------
5% 7.47% 7.53% 7.86% 8.42%
- ----------------- --------------- --------------- --------------- --------------
6% 8.96% 9.03% 9.43% 10.16%
- ----------------- --------------- --------------- --------------- --------------
7% 10.45% 10.54% 11.00% 11.86%
- ----------------- --------------- --------------- --------------- --------------
8% 11.95% 12.04% 12.57% 13.55%
- ----------------- --------------- --------------- --------------- --------------
The tax-free yields used here are hypothetical and no assurance can be made that
the Funds will obtain any particular yield. A fund's yield fluctuates as market
conditions change. The tax brackets and the related yield calculations are based
on the 1998 Federal (28%, 31% 36%) and North Carolina (7%, 7.75%) tax rates and
assume a Federal tax benefit for the state and local taxes. Note that the
highest 1998 marginal Federal tax rate may be higher than 36% due to the
phase-out of allowable itemized deductions and personal exemptions for certain
taxpayers. This schedule does not take into account the 39.6% Federal tax rate
imposed on taxable income in excess of $278,450.
128
<PAGE>
For the South Carolina Intermediate Municipal Bond Fund and South Carolina
Municipal Bond Fund:
- ---------------- --------------- ----------------- ----------------------
Single Return $25,351-$61,400 $61,401-$128,100 $128,101-$278,450
(28%, 7%) (31%, 7%) (36%, 7%)
- ---------------- --------------- ----------------- ----------------------
Joint Return $42,351-$102,300 $102,301-$155,950 $155,951-$278,450
(28%, 7%) (31%, 7%) (36%, 7%)
- ---------------- --------------- ----------------- ----------------------
To match a
tax-free
yield of: A taxable investment would have to pay you:
- ----------------- --------------- --------------- ---------------
4% 5.97% 6.23% 6.72%
- ----------------- --------------- --------------- ---------------
5% 7.43% 7.79% 8.40%
- ----------------- --------------- --------------- ---------------
6% 8.96% 9.35% 10.08%
- ----------------- --------------- --------------- ---------------
7% 10.45% 10.91% 11.76%
- ----------------- --------------- --------------- ---------------
8% 11.95% 12.47% 13.44%
- ----------------- --------------- --------------- ---------------
The tax-free yields used here are hypothetical and no assurance can be made that
the Funds will obtain any particular yield. A fund's yield fluctuates as market
conditions change. The tax brackets and the related yield calculations are based
on the 1998 Federal (28%, 31%, 36%) and South Carolina (7%) tax rates and assume
a Federal tax benefit for the state and local taxes. Note that the highest 1998
marginal Federal tax rate may be higher than 36% due to the phase-out of
allowable itemized deductions and personal exemptions for certain taxpayers.
This schedule does not take into account the 39.6% Federal tax rate imposed on
taxable income in excess of $278,450.
For the Tennessee Intermediate Municipal Bond Fund and Tennessee Municipal Bond
Fund:
<TABLE>
<CAPTION>
- ------------------------- ----------------------- ----------------------- -----------------------
<S> <C> <C> <C>
Single Return $25,351-$61,400 $61,401-$128,100 $128,101-$278,450
- ------------------------- ----------------------- ----------------------- -----------------------
Joint Return $42,351-$102,300 $102,301-$155,950 $155,951-$278,450
- ------------------------- ----------------------- ----------------------- -----------------------
</TABLE>
To match a
tax-free
yield of: A taxable investment would have to pay you:
- ----------- ----------------------- ----------------------- -------------
4% 5.91% 6.17% 6.65%
- ----------- ----------------------- ----------------------- -------------
5% 7.39% 7.71% 8.31%
- ----------- ----------------------- ----------------------- -------------
6% 8.87% 9.25% 9.97%
- ----------- ----------------------- ----------------------- -------------
7% 10.34% 10.79% 11.64%
- ----------- ----------------------- ----------------------- -------------
8% 11.82% 12.33% 13.30%
- ----------- ----------------------- ----------------------- -------------
The tax-free yields used here are hypothetical and no assurance can be made that
the Funds will obtain any particular yield. A fund's yield fluctuates as market
conditions change. The tax brackets and the related yield calculations are based
on the 1998 Federal (28%, 31%, 36%) and Tennessee (6%) tax rates and assume a
Federal tax benefit for the state and local taxes. Note that the highest 1998
marginal Federal tax rate may be higher than 36% due to the phase-out of
allowable itemized deductions and personal exemptions for certain taxpayers.
This schedule does not take into account the 39.6% Federal tax rate imposed on
taxable income in excess of $278,450.
129
<PAGE>
For the Virginia Intermediate Municipal Bond Fund and Virginia Municipal Bond
Fund:
<TABLE>
<CAPTION>
- ------------------------- ----------------------- ----------------------- -----------------------
<S> <C> <C> <C>
Single Return $25,351-$61,400 $61,401-128,100 $128,101-$278,450
- ------------------------- ----------------------- ----------------------- -----------------------
Joint Return $42,351-$102,300 $102,301-$155,950 $155,951-$278,450
- ------------------------- ----------------------- ----------------------- -----------------------
</TABLE>
To match a
tax-free
yield of: A taxable investment would have to pay you:
- ----------------- --------------- --------------- ---------------
4% 5.89% 6.15% 6.63%
- ----------------- --------------- --------------- ---------------
5% 7.37% 7.69% 8.29%
- ----------------- --------------- --------------- ---------------
6% 8.84% 9.23% 9.95%
- ----------------- --------------- --------------- ---------------
7% 10.32% 10.76% 11.60%
- ----------------- --------------- --------------- ---------------
8% 11.79% 12.30% 13.26%
- ----------------- --------------- --------------- ---------------
The tax-free yields used here are hypothetical and no assurance can be made that
the Funds will obtain any particular yield. A fund's yield fluctuates as market
conditions change. The tax brackets and the related yield calculations are based
on the 1998 Federal (28%, 31%, 36%) and Virginia (5.75%) tax rates and assume a
Federal tax benefit for the state and local taxes. Note that the highest 1998
marginal Federal tax rate may be higher than 36% due to the phase-out of
allowable itemized deductions and personal exemptions for certain taxpayers.
This schedule does not take into account the 39.6% Federal tax rate imposed on
taxable income in excess of $271,050.
For the Municipal Income Fund, Short-Term Municipal Income Fund, the
Intermediate Municipal Bond Fund, the Florida Intermediate Municipal Bond Fund,
Florida Municipal Bond Fund, the Texas Intermediate Municipal Bond Fund and
Texas Municipal Bond Fund:
<TABLE>
<CAPTION>
- ------------------------- ----------------------- ----------------------- -----------------------
<S> <C> <C> <C>
Single Return $25,351-$61,400 $61,401-$128,100 $128,101-$278,450
- ------------------------- ----------------------- ----------------------- -----------------------
Joint Return $42,352-$102,300 $102,301-$155,950 $155,951-$278,450
- ------------------------- ----------------------- ----------------------- -----------------------
</TABLE>
To match a
tax-free
yield of: A taxable investment would have to pay you:
- ----------------- --------------- --------------- ---------------
4% 5.56% 5.80% 6.25%
- ----------------- --------------- --------------- ---------------
5% 6.94% 7.25% 7.81%
- ----------------- --------------- --------------- ---------------
6% 8.33% 8.70% 9.38%
- ----------------- --------------- --------------- ---------------
7% 9.72% 10.14% 10.94%
- ----------------- --------------- --------------- ---------------
8% 11.11% 11.59% 12.50%
- ----------------- --------------- --------------- ---------------
130
<PAGE>
The tax-free yields used here are hypothetical and no assurance can be made that
the Funds will obtain any particular yield. A fund's yield fluctuates as market
conditions change. The tax brackets and the related yield calculations are based
on the 1998 Federal (28%, 31%, 36%) tax rates. This analysis does not take into
account any state or local taxes imposed, although, with respect to the Florida
Intermediate Municipal Bond Fund, the Florida Municipal Bond Fund, the Texas
Intermediate Municipal Bond Fund and the Texas Municipal Bond Fund, neither
Florida nor Texas impose a personal income tax. Note that the highest 1998
marginal Federal tax rate may be higher than 36% due to the phase-out of
allowable itemized deductions and personal exemptions for certain taxpayers.
This schedule does not take into account the 39.6% Federal tax rate imposed on
taxable income in excess of $278,450.
There can be no assurance that all of a yield quoted by one of these
Funds will be tax-free since these Funds may invest in short-term taxable
obligations for temporary defensive periods as described in the Prospectuses.
Also, the above hypothetical examples are for illustration only. Tax laws and
regulations may be changed at any time by legislative or administrative actions
and such changes may make the information contained in such examples obsolete.
Thirty Day Yield
Yield Without
Government Securities Fund Yield Fee Waivers
----- -----------
Primary A Shares 5.42% 5.28%
Primary B Shares n/a n/a
Investor A Shares 5.17% 5.03%
Investor B Shares 4.57% 4.43%
Investor C Shares 4.57% 4.43%
During the period for which certain yield quotations are given above,
NationsBank and the Administrator voluntarily waived fees or reimbursed certain
expenses of such shares, thereby increasing yield figures. Such waivers or
expense reimbursements may be discontinued at any time.
TOTAL RETURN CALCULATIONS
Total return measures both the net investment income generated by, and
the effect of any realized or unrealized appreciation or depreciation of the
underlying investments in a Non-Money Market Fund. The Non-Money Market Funds'
average annual and cumulative total return figures are computed in accordance
with the standardized methods prescribed by the SEC. Average annual total return
figures are computed by determining the average annual compounded rates of
return over the periods indicated in the advertisement, sales literature or
shareholders' report that would equate the initial amount invested to the ending
redeemable value, according to the following formula:
P(1 + T)n = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value at the end of the period of a
hypothetical $1,000 payment made at the beginning of such
period.
This calculation (i) assumes all dividends and distributions are
reinvested at net asset value on the appropriate reinvestment dates, and (ii)
deducts (a) the maximum sales charge from the hypothetical initial $1,000
investment, and (b) all recurring fees, such as advisory and administrative
fees, charged as expenses to all shareholder accounts.
131
<PAGE>
The following figures, for the period ended March 31, 1998, reflect the
deduction of sales charges, if any, that would have been deducted from a sale of
shares.
AVERAGE ANNUAL TOTAL RETURNS INCEPTION THROUGH INCEPTION
---------------------------- 3/31/98 WITHOUT THROUGH 3/31/98
SALES CHARGES INCLUDING SALES
------------- CHARGES
-------
Emerging Markets Fund
Primary A. Shares -6.39% 2.97%
Primary B Shares -6.80% 0.02%
Investor A Shares -6.60% 2.74%
Investor B Shares -11.89% 0.91%
Investor C Shares -7.17% 2.19%
Pacific Growth Fund
Primary A Shares -28.35% -9.86%
Primary B Shares -28.77% -17.22%
Investor A Shares -28.59% -10.12%
Investor B Shares -32.57% -11.72%
Investor C Shares -28.91% -10.53%
Global Government Income Fund
Primary A Shares 3.38% 4.61%
Primary B Shares 3.20% 2.92%
Investor A Shares 3.12% 4.35%
Investor B Shares -2.50% 2.62%
Investor C Shares 2.63% 3.92%
The Primary Shares and Investor Shares of the Funds may also quote their
distribution rates, which express the historical amount of income dividends paid
to their shareholders during a one-month (in the case of the Global Government
Income Fund) or a three-month (in the case of the Emerging Markets Fund and
Pacific Growth Fund) period as a percentage of the maximum offering price per
share on the last day of such period.
The performance figures of the Funds as described above will vary from
time to time depending upon market and economic conditions, the composition of
their portfolios and operating expenses. These factors should be considered when
comparing the performance figures of the Funds with those of other investment
companies and investment vehicles.
Each Fund may quote information obtained from the Investment Company
Institute, national financial publications, trade journals and other industry
sources in its advertising and sales literature. In addition, the Funds may
compare the performance and yield of a class or series of shares to those of
other mutual funds with similar investment objectives and to other relevant
indices or to rankings prepared by independent services or other financial or
industry publications that monitor the performance of mutual funds. For example,
the performance and yield of a class of shares in a Fund may be compared to data
prepared by Lipper Analytical Services, Inc. Performance and yield data as
reported in national financial publications such as Money Magazine, Forbes,
Barron's, The Wall Street Journal, and The New York Times, or in publications of
a local or regional nature, also may be used in comparing the performance of a
class of shares in a Fund.
132
<PAGE>
AVERAGE ANNUAL TOTAL RETURN
5 YEAR PERIOD ENDED
ONE YEAR 3/31/98 OR INCEPTION
PERIOD ENDED 3/31/98 THROUGH 3/31/98
-------------------- ---------------
Equity Income Fund
Primary A Shares 37.21% 17.82%
Primary B 36.36% 26.74%
Investor A 36.92% 17.53%
Investor B 36.02% 17.66%
Investor C 36.28% 16.85%
International Equity Fund
Primary A 16.06% 10.68%
Primary B 15.09% 7.93%
Investor A 15.77% 10.41%
Investor B 14.93% 8.77%
Investor C 15.05% 9.69%
Government Securities Fund
Primary A 11.65% 5.22%
Primary B 11.23% 7.93%
Investor A 11.37% 5.00%
Investor B 10.78% 4.45%
Investor C 10.84% 4.50%
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
10 YEAR
PERIOD
ONE ENDED
YEAR 3/31/98 OR
PERIOD 5-YEAR INCEPTION
ENDED PERIOD ENDING THROUGH
3/31/98 3/31/98 3/31/98
------- ------- -------
<S> <C> <C> <C>
Value Fund
Primary A Shares 38.53% 20.29% 16.64%
Primary B Shares 38.09% 28.98% n/a
Investor A Shares 38.22% 20.03% 16.86%
Investor B Shares 32.29% 19.85% n/a
Investor C Shares 37.55% 19.35% 19.02%
Capital Growth Fund
Primary A Shares 53.89% 19.35% 19.47%
Primary B Shares 52.99% 32.46% n/a
Investor A Shares 53.83% 19.11% 19.23%
Investor B Shares 47.52% 19.63% n/a
Investor C Shares 53.02% 18.41% 18.51%
Emerging Growth Fund
Primary A Shares 45.09% 19.30% 17.92%
Primary B Shares 44.33% 18.40% n/a
Investor A Shares 44.86% 19.04% 18.00%
Investor B Shares 38.64% 18.88% n/a
Investor C Shares 43.80% 18.31% 17.31%
Managed Index Fund
Primary A Shares 47.54% 41.04% n/a
Primary B Shares 46.88% 40.66% n/a
Investor A Shares 47.21% 40.78% n/a
Investor C Shares 46.71% 40.48% n/a
</TABLE>
133
<PAGE>
<TABLE>
<CAPTION>
10 YEAR
PERIOD
ONE ENDED
YEAR 3/31/98 OR
PERIOD 5-YEAR INCEPTION
ENDED PERIOD ENDING THROUGH
3/31/98 3/31/98 3/31/98
------- ------- -------
<S> <C> <C> <C>
Managed SmallCap Index Fund
Primary A Shares 47.71% 29.41% n/a
Primary B Shares 47.04% 28.88% n/a
Investor A Shares 47.35% 29.06% n/a
Investor C Shares 47.10% 28.96% n/a
Managed Value Index Fund
Primary A Shares n/a 13.78% n/a
Primary B Shares n/a n/a n/a
Investor A Shares n/a 13.68% n/a
Investor C Shares n/a 13.69% n/a
Managed SmallCap Value Index Fund
Primary A Shares n/a 14.88% n/a
Primary B Shares n/a n/a n/a
Investor A Shares n/a 14.79% n/a
Investor C Shares n/a 14.71% n/a
Disciplined Equity Fund
Primary A Shares 48.65% 21.56% 27.15%
Primary B Shares 48.44% 33.67% n/a
Investor A Shares 48.28% 21.37% n/a
Investor B Shares 42.14% 23.88% n/a
Investor C Shares 47.38% 29.66% n/a
Equity Index Fund
Primary A Shares 47.38% 24.74% n/a
Primary B Shares 46.75% 34.01% n/a
Investor A Shares 46.58% 31.44% n/a
Balanced Assets Fund
Primary A Shares 30.35% 14.38% 14.62%
Primary B Shares 29.90% 21.95% n/a
Investor A Shares 30.13% 14.13% 14.37%
Investor B Shares 24.35% 13.96% n/a
Investor C Shares 29.43% 13.45% 13.67%
Short-Intermediate Government Fund
Primary A Shares 9.11% 5.08% 6.66%
Primary B Shares 8.74% 6.85% n/a
Investor A Shares 8.89% 4.87% 6.50%
Investor B Shares 4.35% 4.15% n/a
Investor C Shares 8.45% 4.48% 5.03%
Short-Term Income Fund
Primary A Shares 6.89% 5.45% 5.45%
</TABLE>
134
<PAGE>
<TABLE>
<CAPTION>
10 YEAR
PERIOD
ONE ENDED
YEAR 3/31/98 OR
PERIOD 5-YEAR INCEPTION
ENDED PERIOD ENDING THROUGH
3/31/98 3/31/98 3/31/98
------- ------- -------
<S> <C> <C> <C>
Primary B Shares 6.58% 6.00% n/a
Investor A Shares 6.67% 5.26% 5.20%
Investor B Shares 6.51% 5.16% n/a
Investor C Shares 6.51% 5.04% 5.01%
Diversified Income Fund
Primary A Shares 11.07% 7.63% 8.73%
Primary B Shares 10.29% 8.26% n/a
Investor A Shares 10.80% 7.41% 8.46%
Investor B Shares 5.18% 6.35% n/a
Investor C Shares 10.27% 6.92% 8.10%
Strategic Fixed Income Fund
Primary A Shares 10.53% 6.07% 6.80%
Primary B Shares 10.12% 7.64% n/a
Investor A Shares 10.30% 5.87% 6.59%
Investor B Shares 5.73% 5.01% n/a
Investor C Shares 9.87% 5.46% 6.22%
Municipal Income Fund
Primary A Shares 11.12% 6.97% 8.11%
Investor A Shares 10.89% 6.74% 7.95%
Investor B Shares 5.23% 5.54% n/a
Investor C Shares 10.37% 6.23% 6.92%
Short-Term Municipal Income Fund
Primary A Shares 5.33% 4.38% n/a
Investor A Shares 5.12% 4.25% n/a
Investor B Shares 4.96% 4.02% n/a
Investor C Shares 4.99% 4.64% n/a
Intermediate Municipal Bond Fund
Primary A Shares 8.20% 5.55% n/a
Investor A Shares 7.99% 5.14% n/a
Investor B Shares 3.50% 4.37% n/a
Investor C Shares 7.62% 7.45% n/a
Florida Intermediate Municipal Bond
Fund
Primary A Shares 8.55% 5.78% 6.18%
Investor A Shares 8.34% 5.58% 6.00%
Investor B Shares 3.80% 4.73% n/a
Investor C Shares 7.80% 5.16% 5.58%
Georgia Intermediate Municipal Bond
Fund
Primary A Shares 8.45% 5.59% 6.54%
Investor A Shares 8.24% 5.39% 6.41%
Investor B Shares 3.70% 4.59% n/a
Investor C Shares 7.70% 5.00% 5.73%
</TABLE>
135
<PAGE>
<TABLE>
<CAPTION>
10 YEAR
PERIOD
ONE ENDED
YEAR 3/31/98 OR
PERIOD 5-YEAR INCEPTION
ENDED PERIOD ENDING THROUGH
3/31/98 3/31/98 3/31/98
------- ------- -------
<S> <C> <C> <C>
Maryland Intermediate Municipal Bond
Fund
Primary A Shares 7.83% 5.33% 6.73%
Investor A Shares 7.61% 5.11% 6.58%
Investor B Shares 3.07% 4.31% n/a
Investor C Shares 7.07% 4.69% 5.22%
North Carolina Intermediate Municipal
Bond Fund
Primary A Shares 8.39% 5.62% 6.02%
Investor A Shares 8.17% 5.42% 5.81%
Investor B Shares 3.64% 4.59% n/a
Investor C Shares 7.64% 4.98% 5.41%
South Carolina Intermediate Municipal
Bond Fund
Primary A Shares 7.88% 5.68% 6.30%
Investor A Shares 7.67% 5.48% 6.22%
Investor B Shares 3.13% 4.68% n/a
Investor C Shares 7.13% 5.06% 5.63%
Tennessee Intermediate Municipal Bond
Fund
Primary A Shares 7.99% 5.40% n/a
Investor A Shares 7.77% 5.30% n/a
Investor B Shares 3.24% 4.55% n/a
Investor C Shares 7.29% 7.34% n/a
Texas Intermediate Municipal Bond Fund
Primary A Shares 8.09% 5.37% 5.71%
Investor A Shares 7.87% 5.16% 5.20%
Investor B Shares 3.34% 4.30% n/a
Investor C Shares 7.34% 7.07% n/a
Virginia Intermediate Municipal Bond
Fund
Primary A Shares 8.12% 5.38% 6.52%
Investor A Shares 7.91% 5.17% 6.37%
Investor B Shares 3.37% 4.32% n/a
Investor C Shares 7.37% 4.77% 5.27%
Florida Municipal Bond Fund
Primary A Shares 10.60% 5.50% n/a
Investor A Shares 10.38% 5.15% n/a
Investor B Shares 4.71% 4.12% n/a
Investor C Shares 9.83% 9.78% n/a
Georgia Municipal Bond Fund
Primary A Shares 10.43% 5.27% n/a
Investor A Shares 10.22% 5.12% n/a
Investor B Shares 4.54% 4.12% n/a
Investor C Shares 9.64% 9.82% n/a
</TABLE>
136
<PAGE>
<TABLE>
<CAPTION>
10 YEAR
PERIOD
ONE ENDED
YEAR 3/31/98 OR
PERIOD 5-YEAR INCEPTION
ENDED PERIOD ENDING THROUGH
3/31/98 3/31/98 3/31/98
------- ------- -------
<S> <C> <C> <C>
Maryland Municipal Bond Fund
Primary A Shares 10.62% 8.40% n/a
Investor A Shares 10.40% 5.30% n/a
Investor B Shares 4.72% 3.81% n/a
Investor C Shares 9.88% 9.50% n/a
North Carolina Municipal Bond Fund
Primary A Shares 10.86% 5.16% n/a
Investor A Shares 10.64% 5.18% n/a
Investor B Shares 4.96% 4.10% n/a
Investor C Shares 10.07% 9.82% n/a
South Carolina Municipal Bond Fund
Primary A Shares 10.04% 5.92% n/a
Investor A Shares 9.82% 6.06% n/a
Investor B Shares 4.15% 4.74% n/a
Investor C Shares 9.29% 9.64% n/a
Tennessee Municipal Bond Fund
Primary A Shares 10.45% 6.93% n/a
Investor A Shares 10.23% 5.89% n/a
Investor B Shares 4.56% 4.60% n/a
Investor C Shares 9.65% 9.85% n/a
Texas Municipal Bond Fund
Primary A Shares 11.12% 5.39% n/a
Investor A Shares 10.90% 5.40% n/a
Investor B Shares 5.23% 4.20% n/a
Investor C Shares 10.31% 9.91% n/a
Virginia Municipal Bond Fund
Primary A Shares 11.11% 5.26% n/a
Investor A Shares 10.88% 5.44% n/a
Investor B Shares 5.21% 4.05% n/a
Investor C Shares 10.31% 10.02% n/a
</TABLE>
AGGREGATE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
5-Year 5-Year
period period Inception Inception
FYE FYE ending ending through through
3/31/98 3/31/98 3/31/98 3/31/98 3/31/98 3/31/98
Without Including Without Including Without Including
Sales Sales Sales Sales Sales Sales
Charges Charges Charges Charges Charges Charges
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Value Fund
Primary A Shares 38.53% n/a 151.82% n/a 271.65% n/a
Primary B Shares 38.09% n/a 56.33% n/a n/a n/a
Investor A Shares 38.22% n/a 149.14% n/a 265.53% n/a
Investor B Shares 37.29% 32.29% 141.05% 139.05% n/a n/a
Investor C Shares 37.55% n/a 142.16% n/a 173.87% n/a
137
<PAGE>
Capital Growth Fund
Primary A Shares 53.89% n/a 142.20% n/a 165.98% n/a
Primary B Shares 52.99% n/a 63.81% n/a n/a n/a
Investor A Shares 53.83% n/a 139.73% n/a 162.83% n/a
Investor B Shares 52.52% 47.52% 138.98% 136.98% n/a n/a
Investor C Shares 53.02% n/a 132.79% n/a 154.26% n/a
Emerging Growth Fund
Primary A Shares 45.09% n/a 141.68% n/a 140.47% n/a
Primary B Shares 44.33% n/a 34.52% n/a n/a n/a
Investor A Shares 44.86% n/a 139.05% n/a 140.63% n/a
Investor B Shares 43.64% 38.64% 131.95% 129.95% n/a n/a
Investor C Shares 43.80% n/a 131.82% n/a 132.52% n/a
Managed Index Fund
Primary A Shares n/a n/a 47.54% n/a 77.38% n/a
Primary B Shares n/a n/a 46.88% n/a 76.58% n/a
Investor A Shares n/a n/a 47.21% n/a 76.84% n/a
Investor C Shares n/a n/a 46.71% n/a 76.21% n/a
Managed SmallCap Index Fund
Primary A Shares n/a n/a 47.71% n/a 45.69% n/a
Primary B Shares n/a n/a 47.04% n/a 44.82% n/a
Investor A Shares n/a n/a 47.35% n/a 45.12% n/a
Investor C Shares n/a n/a 47.10% n/a 44.96% n/a
Managed Value Index Fund
Primary A Shares n/a n/a 13.78% n/a n/a n/a
Primary B Shares n/a n/a n/a n/a n/a n/a
Investor A Shares n/a n/a 13.68% n/a n/a n/a
Investor C Shares n/a n/a 13.78% n/a n/a n/a
Managed SmallCap Value Index
Fund
Primary A Shares n/a n/a 14.88% n/a n/a n/a
Primary B Shares n/a n/a n/a n/a n/a n/a
Investor A Shares n/a n/a 14.79% n/a n/a n/a
Investor C Shares n/a n/a 14.71% n/a n/a n/a
Disciplined Equity Fund
Primary A Shares 48.65% n/a 165.46% n/a 274.43% n/a
Primary B Shares 48.44% n/a 66.45% n/a n/a n/a
Investor A Shares 48.28% n/a 147.57% n/a n/a n/a
Investor B Shares 47.14% 42.14% 130.69% 127.69% n/a n/a
Investor C Shares 47.38% n/a 111.83% n/a n/a n/a
Equity Index Fund
Primary A Shares n/a n/a 47.38% n/a 158.29% n/a
Primary B Shares n/a n/a 46.75% n/a 67.19% n/a
Investor A Shares n/a n/a 46.58% n/a 96.62% n/a
Balanced Assets Funds
Primary A Shares 30.35% n/a 95.79% n/a 111.80% n/a
Primary B Shares 29.90% n/a 41.67% n/a n/a n/a
Investor A Shares 30.13% n/a 93.66% n/a 109.15% n/a
Investor B Shares 29.35% 24.35% 89.55% 87.55% n/a n/a
Investor C Shares 29.43% n/a 87.94% n/a 102.19% n/a
Short-Intermediate
Government Fund 9.11% n/a 28.10% n/a 53.69% n/a
Primary A Shares
Primary B Shares 8.74% n/a 12.33% n/a n/a n/a
Investor A Shares 8.89% n/a 26.86% n/a 52.00% n/a
Investor B Shares 8.35% 4.35% 23.56% 23.56% n/a n/a
Investor C Shares 8.45% n/a 24.48% n/a 32.85% n/a
138
<PAGE>
Short-Term Income Fund
Primary A Shares 6.89% n/a 33.86% n/a n/a n/a
Primary B Shares 6.58% n/a 9.33% n/a n/a n/a
Investor A Shares 6.67% n/a 32.10% n/a n/a n/a
Investor B Shares 6.51% n/a 27.41% n/a n/a n/a
Investor C. Shares 6.51% n/a 30.80% n/a n/a n/a
Diversified Income Fund
Primary A Shares 11.07% n/a 44.45% n/a 57.37% n/a
Primary B Shares 10.29% n/a 14.95% n/a n/a n/a
Investor A Shares 10.80% n/a 42.94% n/a 54.36% n/a
Investor B Shares 10.18% 5.18% 36.49% 35.50% n/a n/a
Investor C Shares 10.27% n/a 39.74% n/a 52.22% n/a
Strategic Fixed Income Fund
Primary A Shares 10.53% n/a 34.27% n/a 42.81% n/a
Primary B Shares 10.12% n/a 12.64% n/a n/a n/a
Investor A Shares 10.30% n/a 32.99% n/a 40.84% n/a
Investor B Shares 9.73% 5.73% 28.47% 28.47% n/a n/a
Investor C Shares 9.87% n/a 30.47% n/a 38.27% n/a
Municipal Income Fund
Primary A Shares 11.12% n/a 40.04% n/a 74.82% n/a
Investor A Shares 10.89% n/a 38.59% n/a 72.94% n/a
Investor B Shares 10.23% 5.23% 31.65% 30.65% n/a n/a
Investor C Shares 10.37% n/a 35.28% n/a 47.31% n/a
Short-Term Municipal Income
Fund 5.33% n/a 21.16% n/a n/a n/a
Primary A Shares
Investor A Shares 5.12% n/a 20.17% n/a n/a n/a
Investor B Shares 4.96% n/a 19.25% n/a n/a n/a
Investor C Shares 4.99% n/a 19.16% n/a n/a n/a
Intermediate Municipal Bond
Fund 8.20% n/a 28.66% n/a n/a n/a
Primary A Shares
Investor A Shares 7.99% n/a 26.04% n/a n/a n/a
Investor B Shares 7.50% 3.50% 22.34% 22.34% n/a n/a
Investor C Shares 7.62% n/a 27.77% n/a n/a n/a
Florida Intermediate
Municipal Bond Fund
Primary A Shares 8.55% n/a 32.45% n/a 37.41% n/a
Investor A Shares 8.34% n/a 31.19% n/a 36.17% n/a
Investor B Shares 7.80% 3.80% 26.89% 26.89% n/a n/a
Investor C Shares 7.80% n/a 28.61% n/a 33.24% n/a
Georgia Intermediate
Municipal Bond Fund
Primary A Shares 8.45% n/a 31.27% n/a 46.97% n/a
Investor A Shares 8.24% n/a 30.03% n/a 44.35% n/a
Investor B Shares 7.70% 3.70% 26.09% 26.09% n/a n/a
Investor C Shares 7.70% n/a 27.60% n/a 38.05% n/a
Maryland Intermediate
Municipal Bond Fund
Primary A Shares 7.83% n/a 29.62% n/a 63.86% n/a
Investor A Shares 7.61% n/a 28.29% n/a 62.11% n/a
Investor B Shares 7.07% 3.07% 24.49% 24.49% n/a n/a
Investor C Shares 7.07% n/a 25.73% n/a 34.20% n/a
North Carolina Intermediate
Municipal Bond Fund
Primary A Shares 8.39% n/a 31.45% n/a 36.36% n/a
Investor A Shares 8.17% n/a 30.21% n/a 34.87% n/a
Investor B Shares 7.64% 3.64% 26.10% 26.10% n/a n/a
Investor C Shares 7.64% n/a 27.53% n/a 32.14% n/a
139
<PAGE>
South Carolina Intermediate
Municipal Bond Fund
Primary A Shares 7.88% n/a 31.79% n/a 46.34% n/a
Investor A Shares 7.67% n/a 30.57% n/a 42.76% n/a
Investor B Shares 7.13% 3.13% 26.60% 26.60% n/a n/a
Investor C Shares 7.13% n/a 27.99% n/a 37.31% n/a
Tennessee Intermediate
Municipal Bond Fund
Primary A Shares 7.99% n/a 29.81% n/a n/a n/a
Investor A Shares 7.77% n/a 29.45% n/a n/a n/a
Investor B Shares 7.24% 3.24% 25.85% 25.85% n/a n/a
Investor C Shares 7.29% n/a 27.29% n/a n/a n/a
Texas Intermediate Municipal
Bond Fund
Primary A Shares 8.09% n/a 29.87% n/a 33.58% n/a
Investor A Shares 7.87% n/a 28.63% n/a 29.89% n/a
Investor B Shares 7.34% 3.34% 24.28% 24.28% n/a n/a
Investor C Shares 7.34% n/a 26.23% n/a n/a n/a
Virginia Intermediate
Municipal Bond Fund
Primary A Shares 8.12% n/a 29.97% n/a 71.39% n/a
Investor A Shares 7.91% n/a 28.65% n/a 67.14% n/a
Investor B Shares 7.37% 3.37% 24.60% 24.60% n/a n/a
Investor C Shares 7.37% n/a 26.21% n/a 34.61% n/a
Florida Municipal Bond Fund
Primary A Shares 10.60% n/a 25.90% n/a n/a n/a
Investor A Shares 10.38% n/a 24.15% n/a n/a n/a
Investor B Shares 9.71% 4.71% 21.63% 20.63% n/a n/a
Investor C Shares 9.83% n/a 37.44% n/a n/a n/a
Georgia Municipal Bond Fund
Primary A Shares 10.43% n/a 24.17% n/a n/a n/a
Investor A Shares 10.22% n/a 23.64% n/a n/a n/a
Investor B Shares 9.54% 4.54% 21.67% 20.67% n/a n/a
Investor C Shares 9.64% n/a 37.62% n/a n/a n/a
Maryland Municipal Bond Fund
Primary A Shares 10.62% n/a 32.90% n/a n/a n/a
Investor A Shares 10.40% n/a 25.57% n/a n/a n/a
Investor B Shares 9.72% 4.72% 20.08% 19.08% n/a n/a
Investor C Shares 9.88% n/a 36.24% n/a n/a n/a
North Carolina Municipal
Bond Fund
10.86% n/a 23.65% n/a n/a n/a
Primary A Shares
Investor A Shares 10.64% n/a 24.96% n/a n/a n/a
Investor B Shares 9.96% 4.96% 21.55% 20.55% n/a n/a
Investor C Shares 10.07% n/a 37.62% n/a n/a n/a
South Carolina Municipal
Bond Fund
10.04% n/a 27.75% n/a n/a n/a
Primary A Shares
Investor A Shares 9.82% n/a 29.51% n/a n/a n/a
Investor B Shares 9.15% 4.15% 24.85% 23.85% n/a n/a
Investor C Shares 9.29% n/a 36.83% n/a n/a n/a
Tennessee Municipal Bond Fund
Primary A Shares 10.45% n/a 31.44% n/a n/a n/a
Investor A Shares 10.23% n/a 28.73% n/a n/a n/a
Investor B Shares 9.56% 4.56% 24.12% 23.12% n/a n/a
Investor C Shares 9.65% n/a 37.72% n/a n/a n/a
140
<PAGE>
Texas Municipal Bond Fund
Primary A Shares 11.12% n/a 24.37% n/a n/a n/a
Investor A Shares 10.90% n/a 25.27% n/a n/a n/a
Investor B Shares 10.23% 5.23% 22.04% 21.04% n/a n/a
Investor C Shares 10.31% n/a 37.99% n/a n/a n/a
Virginia Municipal Bond Fund
Primary A Shares 11.11% n/a 24.13% n/a n/a n/a
Investor A Shares 10.88% n/a 26.21% n/a n/a n/a
Investor B Shares 10.21% 5.21% 21.28% 20.29% n/a n/a
Investor C Shares 10.31% n/a 38.48% n/a n/a n/a
</TABLE>
Fee waivers and/or expense reimbursements were in effect for the periods
presented. Primary B Shares were not offered during the period described above.
From time to time, the yields of each class of shares of a Money Market
Fund may be compared to the respective averages compiled by Donoghue's Money
Fund Report, a widely recognized independent publication that monitors the
performance of money market funds, or to the average yields reported by the Bank
Rate Monitor for money market deposit accounts offered by the 50 leading banks
and thrift institutions in the top five metropolitan statistical areas.
Each Fund may quote information obtained from the Investment Company
Institute, national financial publications, trade journals and other industry
sources in its advertising and sales literature. In addition, the Funds may
compare the performance and yield of a class or series of shares to those of
other mutual funds with similar investment objectives and to other relevant
indices or to rankings prepared by independent services or other financial or
industry publications that monitor the performance of mutual funds. For example,
the performance and yield of a class of shares in a Fund may be compared to data
prepared by Lipper Analytical Services, Inc. The performance and yield of a
class of shares in the Value Fund, Capital Growth Fund, Balanced Assets Fund,
Equity Index Fund and Emerging Growth Fund may be compared to the Standard &
Poor's 500 Stock Index, an unmanaged index of a group of common stocks, the
Consumer Price Index, or the Dow Jones Industrial Average, a recognized
unmanaged index of common stocks of 30 industrial companies listed on the
Exchange. The performance and yield of a class of shares in the
Short-Intermediate Government Fund may be compared to the Shearson Lehman
Intermediate Government Bond Index, an unmanaged index of intermediate
government securities. Performance and yield data as reported in national
financial publications such as Money Magazine, Forbes, Barron's, The Wall Street
Journal, and The New York Times, or in publications of a local or regional
nature, also may be used in comparing the performance of a class of shares in a
Fund.
The Short-Intermediate Government Fund seeks to provide higher current
yields than money market funds and short-term treasury obligations. The
Short-Intermediate Government Fund also seeks to maintain greater price
stability than higher yielding long-term bond funds. Therefore, in its
advertisements and sales materials, the Short-Intermediate Government Fund may
compare performance of the Short-Intermediate Government Fund to money market
indices, such as those compiled by IBC/Donoghue, Inc. and Bank Rate Monitor. In
such advertising and sales materials, the Short-Intermediate Government Fund may
also compare the price stability of the Short-Intermediate Government Fund, or
indices of funds with similar investment objectives, to indices of long term
government bond funds such as those compiled by Salomon Brothers and Shearson
Lehman Brothers Inc. The Short-Intermediate Government Fund is not meant to be a
substitute for a money market fund which seeks to maintain a fixed net asset
value of $1.00 per share.
Each Fund may quote information obtained from the Investment Company
Institute in its advertising materials and sales literature.
141
<PAGE>
IBBOTSON DATA. Ibbotson Associates of Chicago, Illinois, ("Ibbotson")
provides historical returns of the capital markets in the United States. The
Funds may compare the performance of their share classes or series to the
long-term performance of the U.S. capital markets in order to demonstrate
general long-term risk versus reward investment scenarios. Performance
comparisons could also include the value of a hypothetical investment in common
stocks, long-term bonds or treasuries.
The capital markets tracked by Ibbotson are common stocks, small
capitalization stocks, long-term corporate bonds, intermediate-term government
bonds, long-term government bonds, Treasury Bills, and the U.S. rate of
inflation. These capital markets are based on the returns of several different
indices. For common stocks, the S&P is used. For small capitalization stocks,
return is based on the return achieved by Dimensional Fund Advisors (DFA) Small
Company Fund. This fund is a market-value-weighted index of the ninth and tenth
deciles of the Exchange, plus stocks listed on the American Stock Exchange
(AMEX) and over-the-counter (OTC) with the same or less capitalization as the
upperbound of the Exchange ninth docile. At year-end 1995, the DFA Small Company
Fund contained approximately 2,663 stocks, with a weighted average market
capitalization of $165.75 million. The unweighted average market capitalization
was $82.97 million, while the median was $56.0 million.
Unlike an investment in a common stock mutual fund, an investment in
bonds that are held to maturity provides a fixed and stated rate of return.
Bonds have a senior priority in liquidation or bankruptcy to common stocks, and
interest on bonds is generally paid from assets of the corporation before any
distributions to common shareholders. Bonds rated in the two highest rating
categories are considered high quality and to present minimal risks of default.
See Schedule A for a more complete explanation of these ratings of corporate
bonds. An advantage of investing in government bonds is that, in many cases,
they are backed by the credit and taxing power of the United States government,
and therefore, such securities may present little or no risk of default.
Although government securities fluctuate in price, they are highly liquid and
may be purchased and sold with relatively small transaction costs (direct
purchase of Treasury securities can be made with no transaction costs).
Long-term corporate bond returns are based on the performance of the
Salomon Brothers Long-Term-High-Grade Corporate Bond Index and include nearly
all "Aaa-" and "Aa-" rated bonds. Returns on intermediate-term government bonds
are based on a one-bond portfolio constructed each year, containing a bond which
is the shortest noncallable bond available with a maturity not less than 5
years. This bond is held for the calendar year and returns are recorded. Returns
on long-term government bonds are based on a one-bond portfolio constructed each
year, containing a bond that meets several criteria, including having a term of
approximately 20 years. The bond is held for the calendar year and returns are
recorded. Returns on U.S. Treasury Bills are based on a one-bill portfolio
constructed each month, containing the shortest-term bill having not less than
one month to maturity. The total return on the bill is the month end price
divided by the previous month-end price, minus one. Data up to 1976 is from the
U.S. Government Bond file at the University of Chicago's Center for Research in
Security Prices; the Wall Street Journal is the source thereafter. Inflation
rates are based on the CPI. Ibbotson calculates total returns in the same method
as the Funds.
Cumulative total return is computed by finding the cumulative compounded
rate of return over the period indicated in the advertisement that would equate
the initial amount invested to the ending redeemable value, according to the
following formula:
CTR = (ERV-P) 100
-----
P
Where: CTR = Cumulative total return
ERV = ending redeemable value at the end of the period of a
hypothetical $1,000 payment made at the beginning of such
period
P = initial payment of $1,000.
142
<PAGE>
This calculation (i) assumes all dividends and distributions are
reinvested at net asset value on the appropriate reinvestment dates, and (ii)
deducts (a) the maximum sales charge from the hypothetical initial $1,000
investment, and (b) all recurring fees, such as advisory and administrative
fees, charged as expenses to all shareholder accounts.
<TABLE>
<CAPTION>
Cumulative Total Return
10 Year
Period 10 Year
Ended Period
3/31/98 Ended
5 Year 5 Year or 3/31/98
Period Period Inception or Inception
FYE FYE Ended Ended through through
3/31/98 3/31/98 3/31/98 3/31/98 3/31/98 3/31/98
Without Including Without Including Without Including
Sales Sales Sales Sales Sales Sales
Charges Charges Charges Charges Charges Charges
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Equity Income Fund
Primary A Shares 37.21% n/a 127.08% n/a 201.84% n/a
Primary B Shares 36.36% n/a 51.59% n/a n/a n/a
Investor A Shares 36.92% n/a 124.28% n/a 195.03% n/a
Investor B Shares 36.02% 31.02% 118.74% 116.74% n/a n/a
Investor C Shares 36.28% n/a 117.83% n/a 149.92% n/a
International Equity
Fund 16.06% n/a 66.09% n/a 67.27% n/a
Primary A Shares
Primary B Shares 15.09% n/a 14.33% n/a n/a n/a
Investor A Shares 15.77% n/a 64.07% n/a 57.84% n/a
Investor B Shares 14.93% 9.93% 49.87% 47.87% n/a n/a
Investor C Shares 15.05% n/a 58.83% n/a 56.09% n/a
Government Securities
Fund 11.65% n/a 28.95% n/a 56.49% n/a
Primary A Shares
Primary B Shares 11.23% n/a 13.19% n/a n/a n/a
Investor A Shares 11.37% n/a 27.61% n/a 53.94% n/a
Investor B Shares 10.78% 5.78% 23.32% 22.38% n/a n/a
Investor C Shares 10.84% n/a 24.63% n/a 30.58% n/a
10 Year
Period 10 Year
Ended Period
3/31/98 Ended
5 Year 5 Year or 3/31/98
Period Period Inception or Inception
FYE FYE Ended Ended through through
3/31/98 3/31/98 3/31/98 3/31/98 3/31/98 3/31/98
Without Including Without Including Without Including
Sales Sales Sales Sales Sales Sales
Charges Charges Charges Charges Charges Charges
------- ------- ------- ------- ------- -------
International Growth
Fund 14.81% n/a 69.06% n/a n/a n/a
Primary A Shares
Investor A Shares 14.58% n/a 73.58% n/a 134.48% n/a
Investor B Shares 13.53% 8.53% 14.14% 10.14% n/a n/a
Investor C Shares 7.04% n/a 7.04% n/a n/a n/a
</TABLE>
* Primary A Shares of the Company do not carry a sales charge.
The Primary Shares and Investor Shares of the Equity Income Fund,
Government Securities Fund and International Equity Fund may also quote their
distribution rates, which express the historical amount of income dividends paid
to their shareholders during a one-month (in the case of the Government
Securities Fund) or a three-month (in the case of the Equity Income Fund and
International Equity Fund) period as a percentage of the maximum offering price
per share on the last day of such period. The performance figures of the Funds
as described above will vary from time to time depending upon market and
economic conditions, the composition of their portfolios and operating expenses.
These factors should be considered when comparing the performance figures of the
Funds with those of other investment companies and investment vehicles.
143
<PAGE>
The "yield" and "effective yield" of each class of shares of a Money
Market Fund may be compared to the respective averages compiled by DONOGHUE'S
MONEY FUND REPORT, a widely recognized independent publication that monitors the
performance of money market funds, or to the average yields reported by the BANK
RATE MONITOR for money market deposit accounts offered by the 50 leading banks
and thrift institutions in the top five metropolitan statistical areas. Each
Fund may quote information obtained from the Investment Company Institute,
national financial publications, trade journals and other industry sources in
its advertising and sales literature. In addition, the Funds also may compare
the performance and yield of a class or series of shares to those of other
mutual funds with similar investment objectives and to other relevant indices or
to rankings prepared by independent services or other financial or industry
publications that monitor the performance of mutual funds. For example, the
performance and yield of a class of shares in a Fund may be compared to data
prepared by Lipper Analytical Services, Inc. Performance and yield data as
reported in national financial publications such as MONEY MAGAZINE, FORBES,
BARRON'S, THE WALL STREET JOURNAL, and THE NEW YORK TIMES, OR in publications of
a local or regional nature, also may be used in comparing the performance of a
class of shares in a Fund.
In addition, the performance and yield of a class of shares in Nations
Equity Income Fund and Nations International Equity Fund may be compared to the
Standard & Poor's 500 Stock Index, an unmanaged index of a group of common
stocks, the Consumer Price Index, or the Dow Jones Industrial Average, a
recognized unmanaged index of common stocks of 30 industrial companies listed on
the New York Stock Exchange. The performance and yield of a class of shares in
the Nations International Equity Fund may be compared to the Europe, Far East
and Australia Index, a recognized unmanaged index of international stocks. Any
given performance comparison should not be considered representative of a Fund's
performance for any future period.
MISCELLANEOUS
CERTAIN RECORD HOLDERS
James Sommers, a Trustee of NFI, owns 11.55% of Primary A Shares of the
North Carolina Intermediate Municipal Bond Fund.
The following indicates those persons who owned 5% or more of the
indicated class of shares as of August, 1998. Unless otherwise indicated, the
address for each recordholder of Primary Shares is 1401 Elm Street, 11th Floor,
Dallas, Texas 75202.
NATIONS GOVERNMENT MONEY MARKET FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C>
E-Net Inc Investor A NationsBank of Texas Primary A
PO Box 100 25.0116% NA 99.8684%
Germantown, MD 20875 Attn: Adrian Castillo
1401 Elm Street 11th
Floor
Dallas, TX 75202-2911
National Financial For the Investor A NationsBank of Texas Primary B
Exclusive 6.7579% NA 100%
Benefit of Our Customer Attn: Adrian Castillo
200 Liberty Street 1401 Elm Street 11th
1 World Financial Center Floor
Attn Mutual Funds 5th Floor Dallas, Texas
New York, NY 22043-0000 75202-2911
Ramon A. Alvarez Investor A National Financial Daily
2116 Great Falls Street 6.1707% For the Exclusive Shares
Falls Church, VA 22043-0000 Benefit Of Our 65.2428%
Customers
200 Liberty Street
1 World Financial
Center
Attn: Mutual Funds
5th Floor
New York, NY 10281
144
<PAGE>
<CAPTION>
Norbert Dickman & Robert Investor B Jeffrey H. Schwartz Daily
Dickson 12.9377% PO Box 20493 Shares
Trustees Tampa, FL 33622-0493 34.6099%
Barbara Fasken 1995 Trust
303 West Wall Avenue Suite
1900
Midland, TX 79701
Robert N. Herman and Investor B John M. Meister and Investor C
Ann L. Herman 12.2759% Cheryl L. Meister 49.5964%
JTWROS JTTEN
9601 Eagle Ridge Drive 4 Sun Flare Court
Bethesda, MD 20817 Greer, SC 29650
Fasken Oil and Ranch LTD Investor B Beulah W. Kelsey Investor C
303 W. Wall Avenue Suite 1900 7.6842% Trustee 7.9594%
Midland, TX 79701 Dated December 10,
1992
Beulah W. Klesey
Revocable Trust
56 Freshwater Lane
Hilton Head, SC 29928
Title Company of NC Inc. Investor B Roger Cabrera Investor C
Trustee 7.1441% 8525 NW 166th Terrace 7.4104%
For Level Associates LP(B) Miami, FL 33016
Attn: F. Alton Russell
PO Box 2718
Raleigh, NC 27602
Hare & Co., Bank of New York Investor B Robert Stephen Investor C
Attn: Stif/Master Note 6.8261% Heckard, Jr. 7.05507%
One Wall Street 2nd Floor 4020 Glenn Landing
New York, NY 27602 Drive
Winston Salem, NC
27107-3777
Fasken LTD Investor B Juanita A. Ohanian and Investor C
303 W. Wall Avenue Suite 1900 6.758% Sarkish Ohanian JTTEN 6.3633%
Midland, TX 79701 10826 Nantucket
Terrace
Potomac, MD 20854
American Woodmark Corp. Investor B
Attn: Mr. Glenn Eanes 6.064%
3102 Shawnee Drive
Winchester, VA 22602-4208
NATIONS VALUE FUND
MAC & CO A/C MSTF1002012 Investor A Roy R. Martine & Investor A
Mutual Fund Operations 6.4379% Kathleen H. Martine 8.4229%
PO Box 3198 JTWROS
Pittsburgh, PA 15230-3198 4009 Tottenham Court
Richmond, VA
23233-1771
NationsBank of Texas NA Primary A BNY Cust Investor A
Attn: Adrian Castillo 89.2518% Rollover IRA FBO 6.9354%
1401 Elm Street 11th Floor William D. Patterson
Dallas, TX 75202-2911 1742 Hilltop
Kingwood, TX 77339
Stephens Inc. Primary B J. David Dalton TTEE Investor A
Attn: Cindy Cole 100% Lowcountry 5.581%
111 Center Street Orthopedics
Little Rock, AR 72201 Associates P/S/P
Dated 08-05-87
9300 Medical Plaza Drive
Charleston, SC 29405
145
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NATIONS MUNICIPAL INCOME FUND
NFSC FEBO #W52-000019 Investor A Linda Sloan Mundy TTEE Investor A
Frank B. Comfort 6.013% Carl and Anne Mundy 47.3618%
4912 Cedar Drive Memorial
West Des Moines, IA 50266 Education Trust U/A
DTD 07/16/97
R-1 Quarters MCB
Quantico, VA 22134
Denise Maxwell Investor C George Gray Investor A
45 Saddlebrook 27.5076% 1708 Riverside Drive 16.0478%
Houston, TX 11024 Holly Hill, FL 32117
College Park Partners LTD Investor C Kevin Carl Connor and Investor A
117 Spring Chase Circle 9.4969% Cynthia J. Pietsh 10.8027%
Atlamonte Springs, FL JTWROS
32714-6520 127 Dolores Court
Holly Hill, FL 32117
Emmet David Gelhot Investor C Ronald W. Pietsch and Investor A
5630 Oleatha Avenue 5.1443% Carole J. Pietsch 10.4269
Saint Louis, MO 63139-1504 16811 Brushy Fork Road
Newar, OH 43056-0000
NationsBank of Texas NA Primary A Robert L. Derrick and Investor A
Attn: Adrian Castillo 99.9844% Carolyn K. Derrick 5.2992%
1401 Elm Street 11th Floor JTTEN
Dallas, TX 75202-2911 712 Woodside Trials
Unit 201
Ballwin, MO 63021
Sid Meier Investor B
2 Sheepfold Lane 6.6225%
Hunt Valley, MD 21030-1113
NATIONS MD INTER. MUNICIPAL BOND FUND
Robert Gladstone and Investor A Kwok Luen Lee and Investor C
Leslie Gladstone JTTEN 20.8721% Patsy S. Lee JTTEN 5.0281%
2468 Belmont Road, NW 2705 Hardy Avenue
Washington, DC 20008-1610 Wheaton, MD 20902
Carol C. House & Investor A NationsBank of Texas Primary A
Peter W. House JTWROS 5.2253% NA 99.9451%
4210 Leeward Place Attn: Adrian Castillo
Bethesda, MD 20816 1401 Elm Street 11th
Floor
Dallas, TX 75202-2911
Albert J. Robertazzi & Investor C Laurel R. G. Moreno Investor B
Susan E. Franks JTWROS 10.6919% Trustee 4.9446%
11564 West Hill Drive U/Deed DTD 10/14/91
Rockville, MD 20852-3721 FBO Miro Gudelsky
10808 Riverwood Drive
Potomac, MD
20854-1334
James Lee Donaldson and Investor C Walter F. Engelhaupt & Investor A
Robert W. Donaldson JTTEN 8.2134% Vivian K. Engelhaupt & 67.8225%
PO Box 336 Stephen Engelhaupt
Libertytown, MD 21702 JTTEN
3514 Hiss Avenue
Baltimore, MD 21234
Girard F. Stegner and Investor C Stephens Inc. Investor A
Betty C. Stegner JTTEN 6.865% Attn: Jim Clark 10.9648%
29 Consett Place Nationsbank
Fredrick, MD 21702 NC1-002-33-31
101 South Tryon Street
Charlotte, NC 28255
146
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<CAPTION>
Jessixa Udall Gil and Investor C Stephens Inc. Investor A
Milan D. Smith JTWROS 6.733% Attn: Jim Clark 8.679%
5619 Wisconsin Avenue Nationsbank
Chevy Chase, MD 20815-4415 NC1-002-33-31
101 South Tryon Street
Charlotte, NC 28255
Mary S. Tilbury Investor C Stephens Inc. Investor A
19817 Greenside Terrace 6.7087% Attn: Jim Clark 7.112%
Gaithersburg, MD 20879 Nationsbank
NC1-002-33-31
101 South Tryon Street
Charlotte, NC 28255
Frank Baker & Steven L. Baker & Investor C Stephens Inc. Investor A
Teresa L. Radi JTTEN 5.8054% Attn: Jim Clark 5.4218%
250 Wyngate Drive Nationsbank
Frederick, MD 21701 NC1-002-33-31
101 South Tryon Street
Charlotte, NC 28255
NATIONS SHORT INTER. GOVERNMENT FUND
Burgess Pigment CO Investor A NationsBank of Texas Primary A
PO Box 349 Deck Blvd 7.253% NA 96.3942%
Sandersville, GA 31082 Attn: Adrian Castillo
1401 Elm Street 11th
Floor
Dallas, TX 75202-2911
James Street Property Investor A Reliance Trust Co. Primary B
Investors 5.3318% PO Box 48449 99.9961%
600 Atlantic Avenue Suite 2000 Atlanta, GA 30362
Boston, MA 02210
True Way Evangelistic Mission Investor C BNY Cust Rollover IRA Investor A
Attn: Wilmure Burden 23.0216% FBO 85.4317%
PO Box 61365 Bernice Schneider
Virginia Beach, VA 23466-1365 1623 NE 172 Street
North Miami Beach,
FL 33162-1430
Dean Witter Reynolds Cust Investor C Wilma F. Hamilton & Investor A
David E. Ellis 6.8137% James H. Hamilton & 13.3181%
IRA Standard DTD 8/17/94 James H. Hamilton
Box 57 JTTEN
Goodrich, TX 77335 PO Box 281
Pine Level, NC 27568
Jeanne N. Levy and Investor C
Richard Levy and 5.1551%
James Levy JTWROS
900 North Taylor Street, Apt
708
Arlington, VA 22203-1864
NATIONS GA INTER. MUNICIPAL BOND FUND
Lyles W. Sanders & Investor A Edward J. Derst Jr. Investor B
Mary C. Sanders JTTEN 15.1768% As Trustee 36.8053%
2305 Welton Place U/A of Edward J.
Dunwoody, GA 30338 Derst Jr.
Trust Agreement DTD
11/15/88
258 Varn Drive
Savannah, GA 31405
Letty C. Cagle and Investor C Jan R. H. Moggre Investor A
Douglas Cagle JTTEN 64.6817% 9850 Terrace Lake 47.0721%
8592 Roswell Road Apt 318 Pointe
Atlanta, GA 30350 Rosell, GA 30076
147
<PAGE>
<CAPTION>
Charles Davidson and Investor C James F. Sowinski Investor A
Judith L. Davidson JTTEN 16.8766% C/O Serologicals Inc. 34.5601%
370b Rosalie Court 780 Park North Blvd
Alpharetta, GA 30202 #110
Clarkson, GA
30021-0000
NationsBank of Texas NA Primary A Harold J. Tenoso Investor A
Attn: Adrian Castillo 99.7934% C/O Serologicals Inc. 16.1519%
1401 Elm Street 11th Floor 780 Park North Blvd
Dallas, TX 75202-2911 #110
Clarkson, GA
30021-0000
NATIONS SC INTER. MUNICIPAL BOND FUND
James T. Pearce Investor A Rodney R. Monroe and Investor C
PO Box 1986 15.5496% Carole O. Monroe JTTEN 5.9019%
Greenville, SC 29602-1986 213 Westminster Avenue
Summerville, SC
29485-8010
Helena B. Clark Investor C NationsBank of Texas Primary A
324 Broad River Drive 12.3508% NA 100%
Santee, SC 29142-9301 Attn: Adrian Castillo
1401 Elm Street 11th
Floor
Dallas, TX 75202-2911
Edward McCloud and Investor C Gustave J. Crispyn and Investor B
Elizabeth M. Robinson JTTEN 12.0012% Mildred Crispyn JTTEN 12.34%
523 Carpenter Street 2382 Cat Tail Pond
Charleston, SC 29412 Road
Johns Island, SC
29455-6101
Diane Saari McCall and Investor C Jimmy Ruppe and Judy Investor B
Mark J. McCall JTTEN 11.9437% Ruppe 7.3047%
12 Guerard Road JTTEN
Charleston, SC 29407-7549 1505 Cherokee Avenue
Gaffney, SC 29340
The Hobart W. Griffen & Investor C C. Clarke Moore and Investor A
Frieda B. Griffen TR UAD 9.7829% Michael K. Neil TTEES 98.1807%
1-31-92 C. W. F. Spencer Jr.
116 Dunbarton Circle Residual Trust
Aiken, SC 2980-5422 U/A DTD 03/23/67
PO Box 230
Rock Hill, SC 29731
William L. Spadoni and Investor C
Julia S. Spadoni JTTEN 7.1017%
PO Box 1019
Myrtle Beach, SC 29578-1019
NATIONS INTERNATIONAL EQUITY FUND
Charles Schwab & Co Inc. Investor A E. Larry Fonts TTEE Investor C
Special Custody Account 5.8082% FBO 6.6754%
For Benefit of Customers Central Dallas
Attn: Mutual Funds Association
101 Montgomery Street Profit Sharing Plan
San Francisco, CA 94104 1201 Elm Street,
Suite 5310
Dallas, TX 75270
C. A. Porterfield & Investor C NationsBank Of Texas NA Primary A
Rosalee Moxley & 9.1623% Attn: Adrian Castillo 94.5106
Frank Minton TTEES 1401 Elm St 11th Floor
Starmount Company Dallas, TX 75202-2911
Capital Accumulation Plan
PO Box 10348
Greensboro, NC 27404-0349
148
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<CAPTION>
C. A. Porterfield & Investor C Stephens Inc. Primary
Rosalee Moxley & 8.9453% Attn: Cindy Cole Class B
Frank Minton TTEES FBO 111 Center Street 100%
Starmount Company Employees Little Rock, AR 72201
Tax Deferree Savings Plan
PO Box 10349
Greensboro, NC 27404-0349
Tatsushi T. Kubo, Investor C Roy R. Martine & Investor A
Max W. Dahlgren & 7.79% Kathleen H. Maritine 11.9072%
John Dahlgren TTEES FBO JTWROS
Epic Products International 4009 Tottenham Court
Corporation 401(k) Plan Richmond, VA
2801 Randal Mill Road 23233-1771
Arlington, TX 76005
Summerville Pediatrics PA Investor C BNY Cust Investor A
Money Purchase Pension Plan 6.9734% Rollover IRA FBO 7.8436%
312 Midland Parkway William D. Patterson
Summerville, SC 29485-8114 1742 Hilltop
Kingwood, TX 77339
H. Grayson Mitchell Jr. and Investor C
John Rawls TTEE FBO 6.9086%
Grayson Mitchell Inc. 410K
Plan
PO Box 128
Emporia, VA 23847
Deeb Oweis and Investor C
Mohammad Oweis TTEES FBO 6.9025%
Amtec International Inc.
Profit Sharing Plan
1200 Woodruff Road A-2
Greenville, SC 29607
NATIONS GOVERNMENT SECURITIES FUND
Dodson Brothers Investor A Marvel N. Mustard Investor C
Exterminating Co. Inc. 6.2501% 289 Overholt Drive 5.7015%
Attn: H. P. Dawson Virginia Beach, VA
PO Box 10249 23462
Lynchburg, VA 24506
Dean Witter Reynolds Cust Investor C Joseph W. Crawford Investor C
David E. Ellis 22.1803% 705 Staley Drive 5.6379%
IRA Standard DTD 8/17/94 Murfreesboro, TN
Box 57 37130
Goodrich, TX 77335
Norbert E. Schulze Investor C NationsBank of Texas Primary A
508 Rosinante Road 12.4107% NA 66.1769%
El Paso, TX 79922 Attn: Adrian Castillo
1401 Elm Street, 11th
Floor
Dallas, TX 75202-2911
BNY Cust IRA FBO Investor C Stephens Inc. Primary B
Mary Jane Russo 9.0544% Attn: Cindy Cole 100%
8 Maybrook Court 111 Center Street
Glen Arm, MC 21057 Little Rock, AR 72201
149
<PAGE>
<CAPTION>
NATIONS PRIME FUND
Barnett Bank, NA Jacksonville Investor A Maire W. Thomason and Investor C
Attn: Carolyn Pries 38.3576% James R. Thomason 21.0562%
11th Fl 099000116 JTTEN
50N Laura Street 2911 Polo Club Road
Jacksonville, FL 32202 Nashville, TN 37221
National Financial for the Investor A Jim Celania Investor C
Exclusive 5.6524% 2000 S Canterbury Road 18.8898%
Benefit of Our Customers Charlotte, NC 28211
200 Liberty Street
1 World Financial Center
Attn: Mutual Funds 5th Floor
New York, NY 10281
NationsBank of Texas NA Primary A Rebecca L. Layous Investor C
Attn: Adrian Castillo 89.6239% Revocable Trust 15.7717%
1401 Elm Street 11th Floor Dated 3-5-92
Dallas, TX 75202-2911 Rebecca L. Layous
Trustee
11500 Big Piney Way
Potomac, MD
Barnett Bank Primary A DWR Cust For Investor A
Attn: Bill Lendzian 8.3554% Infoproducts Corp. 27.2362%
PO Box 40200 FL9-100-03-09 FBO Richard G. Grebner
Jacksonville, FL 32203-0200 VIP Plus PFT Sharing
DTD 09/01/95
10220 Woodview Circle
Charlotte, NC
28277-8783
NationsBank of Texas NA Primary B Dean Witter Reynolds Investor A
Attn: Adrian Castillo 100% Cust for 23.6359%
1401 Elm Street 11th Floor Franklin D. Buck
Dallas, TX 75202-2911 IRA Standard Dated
06/14/93
Rt. 1, Box 29
Rural Retreat, VA
24368
National Financial SVC Corp. Daily Shares Dean Witter Reynolds Investor A
The Exclusive Benefit of 86.5142% Cust For 10.4246%
Our Customers Jane S. Mollenhoff
Church Street Station IRA Standard Dated
PO Box 3752 06/14/93
New York, NY 10008-3752 5603 Boatwright Circle
Williamsburg, VA
23185
National Financial For the Daily Shares Dean Witter Reynolds Investor A
Exclusive 12.3152% Cust For 9.9318%
Benefit of Our Customers J. Harold Courson
200 Liberty Street IRA Standard Dated
1 World Financial Center 06/14/93
Attn: Mutual Funds 5th Floor 3212 Carmel Bay Drive
New York, NY 10281 Mt. Pleasant, SC
29464-8512
Ronald B. Beasley and Investor C Edwin C. Carter Investor A
Lynn J. Beasley JTTEN 9.3594% Rosia W. Carter Tencom 5.6841%
161-H W. Hartley Drive Route 5, Box 1
High Point, NC 27265-2866 Wytheville, VA
24382-9504
Dean Witter Reynolds Cust for Investor C BNY Cust Investor A
Andrew S. Starzecki 8.6087% Rollover IRA FBO 13.6435%
IRA Rollover Dated 07/22/93 William D. Patterson
5509 Sunningdale Drive 1742 Hilltop
Charlotte, NC 28277-2679 Kingwood, TX 77339
150
<PAGE>
<CAPTION>
Dean Witter Reynolds Cust for Investor C BNY Cust IRA FBO Investor A
Max Elgan Clark 6.7933% James L. Bowen, Jr. 6.4855%
IRA Rollover Dated 08/26/93 195 Springhill Drive
PO Box 276 Tifton, GA 31794
Mineral Wells, TX 76068-0876
John Jones and Becky L. Jones Investor C J. David Dalton TTEE Investor A
JTTEN 5.5108% Lowcountry 5.4895%
4235 SW 111 Terrace Orthopaedics
Davie, FL 33328-2111 Associates P/S/P
Dated 08-05-87
9300 Medical Plaza
Drive
Charleston, SC 29405
Steven A. Franks & Investor C BNY Cust Rollover IRA Investor A
Larry D. Johnson TTEES For 36.0665% FBO 5.3368%
Fielder Electric Motor Repair James L. Payne
Inc. Box 434
Pen Pln U/A DTD 10/1/82 Hemphill, TX 75948
104 Poplar Knob Road
Galax, VA 24333
NATIONS TREASURY FUND
Hare & Co., Bank of New York Investor A NationsBank SWP Daily
Attn: Stif/Master Note 64.2851% Disbursement Inc. Shares
One Wall Street 2nd Floor NationsBank 34.1034%
New York, NY 10286 Sweep/Autoborrow
First Citizens
Building
128 S. Tryon Street
NC1-006-08-03
Charlotte, NC 28255
Barnett Bank, NA Jacksonville Investor A Lois H. Bohler Investor C
Attn: Carolyn Pries 27.4846% 6 Bransford Place 28.7058%
11th Floor 099000116 Augusta, GA 30904-6131
50 N. Laura Street
Jacksonville, FL 32202
Hare & Co., Bank of New York Investor B Kenneth E. Hester & Investor C
Attn: Stif/Master Note 38.7288% James R. Wren, Jr. 17.6712%
One Wall Street 2nd Floor Co-TTEES Danial J.
New York, NY 27602 Stowe
Rev Trust DTD 3/4/97
PO Box 1046
Belmont, NC 28012-1046
NationsBank of Texas NA Primary A Joe Oden and Marcia Investor C
Attn: Adrian Castillo 77.3185% Oden JTTEN 5.2129%
1401 Elm Street 11th Floor RT 2 Box 600
Dallas, TX 75202-2911 Normangee, TX 77891
Barnett Bank Primary A Dean Witter Reynolds Investor C
Attn: Bill Lendzian 21.6612% Cust For 81.2652%
PO Box 40200 FL9-100-03-09 John P. Nicoson
Jacksonville, FL 32203-0200 IRA STD/Rollover DTD
01/31/95
13147 Ashvale Drive
Fairfax, VA 22033
NationsBank of Texas NA Primary B Dean Witter Reynolds Investor C
Attn: Adrian Castillo (B 100% Cust For 11.5779%
Shares) James A. Cox
1401 Elm Street 11th Floor IRA Rollover Dated
Dallas, TX 75202-2911 02/22/94
2015 Ashton Pointe
Drive
Dacula, GA 30211
National Financial For the Daily Shares Dean Witter Reynolds Investor C
Exclusive 63.8369% Cust For 7.1569%
Benefit of Our Customers Susan Fishburn
200 Liberty Street IRA
1 World Financial Center STD/Rollover-Spousal
Attn: Mutual Funds 5th Floor 01/31/95
New York, NY 10281 13147 Ashvale Drive
Fairfax, VA 22033
151
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<CAPTION>
NATIONS CAPITAL GROWTH FUND
DWR Cust For Kenneth L. Investor A NationsBank of Texas Primary A
Walgren 5.2172% NA 97.5765%
MD Attn: Adrian Castillo
FBO Pooled Account 1401 Elm Street 11th
VIP Plus PFT Sharing DTD Floor
10/01/97 Dallas, TX 75202-2911
5959 Harry Hines #402 St Paul
Prof
Dallas, TX 75235-6233
Howard Sodikoff TTEE FBO Investor C NationsBank of Texas Primary B
Oak Ridge Toyota Inc. 8.917% NA 99.9937%
Retirement Savings Plan Attn: Adrian Castillo
PO Box 10247 1401 Elm Street 11th
Lynchburg, VA 24506 Floor
Dallas, TX 75202-2911
John M. Lewis & Investor C
Robert V. Dipauli & 8.4507%
St Joe Communications Inc.
Employees Salary Deferral Plan
502 Fifth Street
Port St Joe, FL 32456
NATIONS BALANCED ASSETS FUND
NFSC FEBO #279-053856 Investor A The Bank of New York Primary A
American Industriestrust Comp 7.9622% TTEE 8.9109%
American I Trust Company Ttee Hitachi
U/A 08/22/97 Semiconductors
5700 NW Central Drive Pension Plan
Houston, TX 77092-2037 Attn: Stella Brown
One Wall Street 12th
Floor
New York, NY 10286
C.A. Porterfield & Investor C Barnett Banks Trust Primary A
Rosalee Moxley & 21.7528% Company NA 8.0746%
Frank Minton TTEES FBO F/Disability PL &
Starmount Company Employees Employee Barnett
Tax Deferred Savings Plan U/A/D 7/21/82
PO Box 10349 Attn: Income
Greensboro, NC 27404-0349 Collections
PO Box 40200
Jacksonville, FL
32203-0200
C.A. Porterfield & Investor C NationsBank of Texas Primary A
Rosalee Moxley & 18.8263% NA 7.4097%
Frank Minton TTEES Attn: Adrian Castillo
Starmount Company Employees 1401 Elm Street 11th
Capital Accumulation Plan Floor
PO Box 10349 Dallas, TX 75202-2911
Greensboro, NC 27404-0349
Stuart K. Colonna TTEE Investor C BBTC NA Primary A
Bayshore Concrette Products 12.384% BB of FL EMP 6.2722%
Corp. Disability PL & TR
Retirement Savings Plan U/A/D 7/21/82
1 Bayshore Road PO Box 230 Attn: Income
Cape Charles, VA 23310 Collections
PO Box 40200
Jacksonville, FL
32203-0200
BBTC N A Primary A Bankers Trust FBO Primary A
TR BBI & IT'S Affiliates 401H 26.0499% Gardner Denver 192257 5.0261%
Plan PO Box 9014
Succ Trust U/A/D 9/15/92 Church Street Station
Attn: Income Collections New York, NY 10008
PO Box 40200
Jacksonville, FL 32203-0200
BBTC NA Primary A NationsBank of Texas Primary B
BB of FL EMP Disability PL & 15.6919% NA 99.9992%
TR Attn: Adrian Castillo
U/A/D 7/21/82 1401 Elm Street 11th
Attn: Income Collections Floor
PO Box 40200 Dallas, TX 75202-2911
Jacksonville, FL 32203-0200
152
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<CAPTION>
NATIONS SHORT-TERM INCOME FUND
Bankers Trust CO Cust FBO Investor A NationsBank of Texas Primary A
Dimensions Health Corp 19.5343% NA 69.9567%
9200 Basil Court Suite 500 Attn: Adrian Castillo
Landover, MD 20785 1401 Elm Street 11th
Floor
Dallas, TX 75202-2911
Michael D. Shea Investor A Dean Witter Reynolds Investor B
4770 South Altanta Road 5.124% Cust For 7.6021%
Smyrna, GA 30080 James R. Vaughn
IRA Standard DTD
6/18/93
234 Cureton Lane
Pickens, SC 29671-9306
BNY Cust IRA FBO Investor A West Anderson Rural Investor B
James L. Bowen Jr. 28.168% Water and Sewer 5.9095%
195 Springhill Drive Company Inc.
Tifton, GA 31794 2767 Whitehall Road
Barnwell, SC
29812-2609
Jean E. Kellogg and Investor A Dean Witter Reynolds Investor B
Thomas G. Kellogg 15.903% Cust For 5.6408%
52109 Tara Drive William B. Rogers Jr.
South Bend, IN 46628 IRA Rollover Dated
06/14/93
PO Box 1025
Greer, SC 29652-1025
BNY Cust IRA FBO Investor A Stephens, Inc. Primary B
Mary M. Ryan 11.3496% Attn: Cindy Cole 100%
117 Great Oaks Lane 111 Center Street
Roswell, GA 30075 Little Rock, AR 72201
BNY Cust IRA FBO Investor A Alden Enterprises, Investor C
Cleveland H. White 10.7953% Inc. 31.5584%
133 George Lane 5900 Gulf Blvd
Bonneau, SC 29431 St Pete Beach, FL
33706
BNY Cust IRA FBO Investor A The Lincolnshire Trust Investor C
Jermiah J. Leahy 10.6157% 5208 Lincolnshire 25.6605%
1101 N Elm Street #503 Dallas, TX 75287
Greebsboro, NC 27401
BNY Cust IRA FBO Investor A Erna M. Weidner Investor C
Carl Blanks 7.0493% 108 Lariat 9.4741%
3450 Evans Road Apt 120 A San Antonio, TX
Chamblee, GA 30341 78232-1004
Gerd W. Kraemer TTEE Investor A Dean Witter Reynolds Investor C
Gerd W. Kraemer Rev Trust 100% Cust For 7.4296%
DTD 10/12/90 C. Ronald Murray
425 Kings Bridge IRA Rollover Dated
Atlanta, GA 30329 06/14/93
5354 Curtisston Ct
Charleston, SC
29418-2035
BNY Cust Rollover IRA FBO Investor A
Milton E. Syring 97.4009%
4040 E Evans Road
San Antonio, TX 78259-1714
153
<PAGE>
<CAPTION>
NATIONS DIVERSIFIED INCOME FUND
Dean Witter Reynolds Cust For Investor A Jean E. Kellogg and Investor A
James T. Pearce 7.9474% Thomas G. Kellogg 5.0524%
IRA SEP Dated 06/14/93 52109 Tara Drive
PO Box 1986 South Bend, IN 46628
Greenville, SC 29602-1986
NationsBank of Texas NA Primary A Falcon Food Service Investor C
Attn: Adrian Castillo 98.3572% CO Inc. 11.8195%
1401 Elm Street 11th Floor Attn: J. B. Kraft
Dallas, TX 75202-2911 President
12753 Pineacre Lane
West Palm Beach, FL
33414
Stephens Inc. Primary B Robert F. Fortin & Investor C
Attn: Cindy Cole 100% Donna J. Fortin JTTEN 6.8883%
111 Center Street 10600 Montclair Way
Little Rock, AR 72201 Duluth, GA 30155
BNY Cust Investor A Dean Witter Reynolds Investor C
Rollover IRA FBO 11.1938% Cust for 6.1567%
William D. Patterson Linda G. Walker
1742 Hilltop IRA Rollover Dated
Kingwood, TX 77339 06/14/93
7 Salley Street
Spartanburg, SC
29301-2403
BNY Cust IRA FBO Investor A Stuart K. Colonna TTEE Investor C
James L. Bowen Jr. 8.949% Bayshore Concrete 5.3948%
195 Springhill Drive Products Corp.
Tifton, GA 31794 Retirement Savings
Plan
1 Bayshore Road PO
Box 230
Cape Charles, VA
23310
J. David Dalton TTEE Investor A
Lowcountry 6.1418%
Orthopaedics Associates P/S/P
Dated 08-05-87
9300 Medical Plaza Drive
Charleston, SC 29405
NATIONS STRATEGIC FIXED INCOME FUND
Bankers Trust Co. Cust FBO Investor A Dean Witter Reynolds Investor B
Dimensions Health Corp 8.1986% Cust For 6.3371%
9200 Basil Court Suite 500 Robert A. Pierce
Landover, MD 20785 IRA Rollover Dated
06/14/93
10 Lavington Court
Columbia, SC
29209-1944
Merchantile Safe Dep & Trust Investor A Dean Witter Reynolds Investor B
Co. 7.2555% Cust for 5.1675%
Ttree Ira L. Allen
Case Communications Defined IRA Rollover Dated
Benefit Plan A/C #3400306 02/06/98
U/A DTD 05/28/1984 1008 Greeway Lane
766 Old Hammonds Ferry Road Richmond, VA
Linthicum, MD 21090 23226-1515
Alden Enterprises Inc. Investor C Dean Witter Reynolds Investor B
5900 Gulf Blvd 20.0526% Cust for 5.1576%
St Pete Beach, FL 33706 Drayton L. Nance Jr. Md
IRA Rollover Dated 08/15/97
7715 North Rd PO Box 98 North,
SC 29112-0098
154
<PAGE>
<CAPTION>
Summerville Pediatrics PA Investor C BNY Cust Investor A
Money Purchase Pension Plan 10.6709% Rollover IRA FBO 32.6139%
312 Midland Parkway William D. Patterson
Summerville, SC 29485-8114 1742 Hilltop
Kingwood, TX 77339
John M. Lewis & Investor C BNY Cust Rollover IRA Investor A
Robert V. Dipauli & 8.2859% FBO 12.7572
John H. Vaughan TTEES FBO James L. Payne
St Joe Communications Inc. Box 434
Employees Salary Deferral Plan Hemphill, TX 75948
502 Fifth Street
Port St Joe, FL 32456
BNY Cust IRA FBO Investor C Anne Valcourt GDN FBO Investor A
James A. Blanchard 7.2802% Danyel 11.1014%
9 Las Brisas Chaniequa Solange
Austin, TX 78746 Valcourt
C/O H.R. Chaplin
9930 W. Broadview Drive
Bay Harbor Island, FL
33154
Carver Development Board Investor C BNY Cust Rollover IRA Investor A
Capital Fund 7.0239% FBO 9.6787%
226 North Hackberry C. Broughton Williams
San Antonio, TX 787202 Jr.
2222 2nd Street, SE
Moultrie, GA
31768-0000
Erna M. Weidner Investor C BNY Cust Rollover IRA Investor A
108 Lariat 6.0109% FBO 6.6314%
San Antonio, TX 78232-1004 Helen M. Fulghum
38656 Post Road
Winston, GA 30187
Summerville Pediatrics PA Investor C BNY Cust Rollover IRA Investor A
Money Purchase Pension Plan 5.0688% FBO 5.31%
312 Midland Parkway Jean S. Ramey
Summerville, SC 29485-8114 25 Templewood Drive
Greenville, SC 29611
NationsBank of Texas NA Primary A BNY Cust Rollover IRA Investor A
Attn: Adrian Castillo 92.4447% FBO 5.2531%
1401 Elm Street 11th Floor Michael D. Turner
Dallas, TX 75202-2911 Box 927
Eden, TX 76837
Stephens Inc. Primary B
Attn: Cindy Cole 100%
111 Center Street
Little Rock, AR 72201
NATIONS EMERGING GROWTH FUND
NFSC FEBO #179-689050 Investor A Howard Sodikoff TTEE Investor C
Douglas K. Higgins 6.5153% FBO 5.2826%
101 W. Randol Mill Rd Ste 150 Oak Ridge Toyota Inc.
Arlington, TX 76011-5810 Retirement Savings Plan
PO Box 10247
Lynchburg, VA 24506
Citicorp USA Inc Cust For Investor A NationsBank of Texas NA Primary A
Marlboro Equity Partners 5.2438% Attn: Adrian Castillo 92.6829%
One Sansome Street 24th Floor 1401 Elm Street 11th
San Francisco, CA 94104 Floor
Dallas, TX 75202-2911
155
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<CAPTION>
Dave Respess & Investor C Barnett Bank NA Succ Primary A
William C. Myers & 11.128% TTEE 6.9292%
Greg Holmes & Lori Wallace & Barnett Pension-Large
James W. Clark TTEES FBO Cap Equity
Carver Machine Works 401(k) U/A DTD 9/19/79
Plan Attn: Mut FD Dept M/C
129 Christian Camp Road 572-1270
Washington, DC 27889 PO Box 40200
Jacksonville, FL
32003-0200
John M. Lewis & Investor C Stephens Inc. Primary B
Robert V. Dipauli & 9.6707% Attn: Cindy Cole 100%
John H. Vaughan TTEES FBO 111 Center Street
St Joe Communications Inc. Little Rock, AR 72201`
Employees Salary Deferral Plan
502 Fifth Street
Port St Joe, FL 32456
Dan Denkarik TTEE for the Investor C BNY Cust Rollover IRA Investor A
Lakeland Battery Profit 8.6111% FBO 85.3806%
Sharing Bernice Schneider
Plan DTD 7-1-84 1623 NE 172 Street
41840 S. Combee Road North Miami Beach, FL
Lakeland, FL 33801 33162-1430
C. A. Porterfield & Investor C Wilma F. Hamilton & Investor A
Rosalee Moxley & 7.4318% James H. Hamilton & 13.37%
Frank Minton TTEES FBO James H. Hamilton JTTEN
Starmount Company Employees PO Box 281
Tax Deferred Savings Plan Pine Level, NC 27568
PO Box 10349
Greensboro, NC 27404-0349
Tatsushi T. Kubo, Max W. Investor C
Dahlgren & John Dahlgren 7.3361%
TTEES FBO
Epic Products International
Corporation 401(k) Plan
2801 Randal Mill Road
Arlington, TX 76005
NATIONS FL INTER. MUNICIPAL BOND FUND
Joseph J. Jillson Investor A Sarah A. Barlow TTEE Investor A
3537 SW Corporate PKWY 54.0833% Sarah A. Barlow Trust 31.0531%
Palm City, FL 34990-8151 U/A DTD 07/19/1990
8400 Vamo Road Apt 664
Sarasota, FL 34231
Harry Singer Family LTD Investor A Selma Lifsher Trustee Investor A
A Colorado LTD Partnership 12.4165% Selma Lifsher Trust 25.553%
2960 Wentworth Dated 3-2-89
Weston, FL 33332 19355 Turnberry Way
Apt PHA
Aventura, FL 33180
Doris R. Bomstein and Investor C Robert N. Parsell Jr. Investor A
Stanford Bomstein TTEES 35.3114% and 14.1646%
Doris R. Bomstein Trust Inez G. Parsell JTWROS
U/A/D 8/20/91 207 East 25th Street
3000 S Ocean Blvd Apt 1201 Sanford, FL 32779-0000
Boca Raton, FL 33432
156
<PAGE>
<CAPTION>
Lynn Fain Friedman Trust DTD Investor C Ben M. Turk and Linda Investor A
7/5/94 29.4837% A. Turk 6.3104%
Lynn Fain Friedman TTEE JTWROS
5817 Midhill Street 210 Crown Pointe
Bethesda, MD 20817 Circle #100
Longwood, FL 32779-0000
Sandford and Doris R. Bomstein Investor C Jerry Jacobs and Investor A
TTEES 28.0696% Candice Jacobs 5.9781%
Sanford Bomstein Trust UAD JTWROS
11/4/91 306 Brantley Harbor
3000 South Ocean Blvd #1201 Drive
Boca Raton, FL 33431 Longwood, FL 32779-0000
NationsBank of Texas NA Primary A
Attn: Adrian Castillo 99.0439%
1401 Elm Street 11th Floor
Dallas, TX 75202-2911
NATIONS NC INTER. MUNICIPAL BOND FUND
James B. Sommers Investor A Donald H. Gabriel Investor C
237 Cherokee Road 11.8812% 3216 Champaign Street 5.4021%
Charlotte, NC 28207 Charlotte, NC
28210-0000
W. Frank Dowd, Jr. Investor A Roger W. Simmons and Investor C
PO Box 35430 6.9978 Mary R. Simmons JTTEN 5.3712%
Charlotte, NC 28235-5430 150 River Holl Drive
Advance, NC 27006
NFSC FEBO #042072 Investor A Ethel L. Clowes Investor C
Ron F. Robine & 6.2518% 3137 Burke Mill Court 5.2877%
Cathy G. Robine Winston Salem, NC
18512 Square Sail Road 27103
Cornelius, NC 28031
Barbara B. Coyner Investor C NationsBank of Texas NA Primary A
513 Lake Boone Trail 20.4711% Attn: Adrian Castillo 99.9448%
Raleigh, NC 27608-1027 1401 Elm Street 11th
Floor
Dallas, TX 75202-2911
J. Robert Stout & Investor C Dorothy P. Stroud Investor A
Maggie S. Stout 14.7853% 155 HWY 58 South 36.0801%
TTEES FBO J. Robert Stout Kinston, NC 28504
Revocable
PO Box 35343
Greensboro, NC 27425
Anna B. Steele Investor C David C. Lavoie Cust Investor A
2041 Georgia Avenue 9.5558% Douglas K. Lavoie Utma 22.1728%
Winston-Salem, NC 27104 NC
5410 McApline Farm Road
Charlotte, NC 28226
W. Joseph Selvia and Investor C David C. Lavoie Cust Investor A
Jay P. Selvia JTTEN 8.8047% Rebecca T. Lavoie Utma 22.1728%
5730 Phillips Bridge Road NC
Winston Salem, NC 27104-3323 5410 McApline Farm Road
Charlotte, NC 28226
William F. Cox Investor C Charles M. Gulledge Investor A
3225 Bermuda Village 8.7975 4600 Belvoir Court 8.9552%
Advance, NC 27006-9478 Charlotte, NC 28270
157
<PAGE>
<CAPTION>
Thomas H. Blount and Investor C Karen Elizabeth Ritchie Investor A
Doris J. Blount JT TEN 5.4146% 16029 Hollingbourne 7.1107%
207 W 11th Street Road
Washington, DC 27889 Huntersville, NC 28078
NATIONS TX INTER. MUNICIPAL BOND FUND
Edith M. Thalman Trust Investor A NationsBank of Texas NA Primary A
U/A DTD 4/28/1998 29.0638% Attn: Adrian Castillo 100%
5710 E 106th Street 1401 Elm Street 11th
Tulsa, OK 74137-7038 Floor
Dallas, TX 75202-2911
Orsinger Investments LTD Investor A James Robert Mallory Investor B
2206 Camelback Drive 11.8379% and 11.2838%
San Antonio, TX 78209-4262 Faith K. Mallory JTTEN
2400 Winton Terrace
East
Ft Worth, TX 76109
Motco Investor A Montine T. Wisdom Investor B
PO Box 17001-trust 10.5923% 6335 W. Northwest HWY 11.043%
San Antonio, TX 78217 #1318
Dallas, TX 75225-3533
Plains National Bank Ttee Investor A Oliver Roofing Systems Investor B
Giles W. Dalby Mineral Trust 7.6092% PO Box 180191 8.1776%
#2 Austin, TX 78778
PO Box 271
Lubbock, TX 79408
First National Huntsville Co Investor A A. G. Martin and Investor B
Ttee 6.3954% Nellie L. Martin 7.4552%
L L Moore Family Key Trust JTTEB
PO Box 659 2011 32nd Street
Huntsville, TX 77342-0659 Lubbock, TX 79411
Orsinger Investments LTD Investor C Reggie D. Bradford & Investor A
2206 Camelback Drive 98.8117 Sharon A. Bradford 85.8037%
San Antonio, TX 78209-4262 3306 Oak Hill Drive
Garland, TX 75043
NATIONS TN INTER. MUNICIPAL BOND FUND
Bob G. Long Investor A Gustave J. Crispyn Investor B
PO Box 2666 16.6003% Trustee 8.3627%
Hermitage, TN 37076 Joseph A. Crispyn Trust
Dated 07-21-97
2382 Cat Tail Pond Road
Johns Island, SC
29455-6101
Marshall T. Polk, III Investor A Mildred M. Crispyn TTEE Investor B
PO Box 90148 14.7803% Timothy J. Crispyn 7.3761%
Nashville, TN 37209-0148 Trust
DTD 7-21-97
2382 Cat Tail Pond Road
Johns Island, SC
29455-6101
Joseph L. Dilorenzo Investor A Ellen Aston Paull Investor B
310 Watercress Drive 7.5563% 1407 N Weston Lane 6.9073%
Franklin, TN 37064 Austin, TX 78733
Ralph S. Graham Ttee Investor A Joanne B. Stegall Investor B
Ralph S. Graham Rev Liv Trust 7.1813% 517 Cameo Terrace 5.7712%
U/A DTD 08/14/1990 Chesapeake, VA 23320
PO Box 235
Big Sandy, TN 38221
158
<PAGE>
<CAPTION>
James R. Kellam III Investor A Donald W. Henderson Investor B
3605 Sycamore Lane 6.9136% 2919 Ft Campbell Blvd 5.0983%
Nashville, TN 37215-1937 Hopkinsville, KY 42240
Stephens Inc. Investor C Edward H. Waelterman & Investor B
Attn: Cindy Cole 99.597% Mary L. 5.0983%
111 Center Street Ellersieck Cottees
Little Rock, AR 72201 Edward H. &
Cornelia Waelterman Tr
U/A
12/6/78
4 Count Fleet Circle
Florissant, MO
63033-2209
NationsBank of Texas NA Primary A Stephens Inc. Investor A
Attn: Adrian Castillo 100% Attn: Jim Clark 34.1682%
1401 Elm Street 11th Floor Nationsbank
Dallas, TX 75202-2911 NC1-002-33-31
101 South Tryon Street
Charlotte, NC 28255
John O. Colton Investor B Stephens Inc. Investor A
6211 Jocelyn Hollow Road 22.8875% Attn: Jim Clark 26.9716%
Nashville, TN 37205-3213 Nationsbank
NC1-002-33-31
101 South Tryon Street
Charlotte, NC 28255
Robert R. Hayes and Investor B Stephens Inc. Investor A
Vira E. Hayes JTTEN 14.0134% Attn: Jim Clark 22.0725%
400 Bryants Lane Nationsbank
Woodbury, TN 37190-1641 NC1-002-33-31
101 South Tryon Street
Charlotte, NC 28255
Win Communication Corp Investor B Stephens Inc. Investor A
Attn: Bob Poole 12.8097% Attn: Jim Clark 16.7877%
6755 Jimmy Carter Blvd Nationsbank
Norcross, GA 30071-1702 NC1-002-33-31
101 South Tryon Street
Charlotte, NC 28255
NATIONS INTERMEDIATE MUNICIPAL BOND FUND
NFSC FEBO #W52-000019 Investor A NationsBank of Texas NA Primary A
Frank B. Comfort 14.1138% Attn: Adrian Castillo 99.8823%
4912 Cedar Drive 1401 Elm Street 11th
West Des Moines, IA 50266 Floor
Dallas, TX 75202-2911
Vatco Investor A Linda Sloan Mundy TTEE Investor A
C/O The Trust Company of Carl and Anne Mundy 44.7608%
Virginia Memorial
6800 Paragon Place Suite 237 Education Trust U/A
Richmond, VA 23230 DTD 07/16/97
R-1 Quarters MCB
Quantico, VA 22134
Enterprise Trust & Investor A George Gray Investor A
Investments Co. 5.9688% 1708 Riverside Drive 16.2499%
15425 Los Gatos Blvd #150 Holly Hill, FL 32117
Los Gatos, CA 95032
Gerhard Kleinschmidt and Investor C Ronald W. Pietsch and Investor A
Gwendolyn Kleinschmidt JTWROS 32.9196% Carole J. Pietsch JTTEN 11.7314%
101 Oak Creek Trail 16811 Brushy Fork Road
Aledo, TX 76008 Newar, OH 43056-0000
Eugene R. Allspach and Investor C Kevin Carl Connor and Investor A
Joann M. Allspach JTWROS 26.2854% Cynthia J. Pietsh 10.2094%
3760 Darcus Street JTWROS
Houston, TX 77005-3704 127 Dolores Court
Holly Hill, FL 32117
159
<PAGE>
<CAPTION>
Charles W. Doolin Investor C Robert L. Derrick and Investor A
3508 Harvard Avenue 19.526% Carolyn K. Derrick 5.9621%
Dallas, TX 75205-0000 JTTEN
712 Woodside Trails
Unit 201
Ballwin, MO 63021
Neal S. Platzer and Investor C
Jack Crosby JTTEN 14.2207%
Special Account
1410 Lost Ridge Circle
Seabrook, TX 77586-4514
NATIONS SHORT TERM MUNICIPAL INCOME FUND
Robert E. Esrey Trust Investor A NFSC FEBO #w52-000019 Investor A
Robert E. Esrey Ttee U/A 18.8335% Frank B. Comfort 5.1411%
11-30-94 4912 Cedar Drive
C/O Cohen Esrey Estate Co. West Des Moines, IA
4435 Main Street STE 100 50266
Kansas City, MO 64111-1856
Julius W. Erving Investor A Donald E. Steen & Investor C
Two Magic Place 7.5409% Trudy K. Steen JTWROS 56.0964%
Maitland, FL 32810 5715 Thames Court
Dallas, TX 75252
Edd Price Jr. and Lynn Price Investor A Christopher H. Williams Investor C
Jtten 7.2854% 9531 Gadwell Terrace 27.9218%
5600 Oakbrook Pkwy Suite 120 Cherterfield, VA
Norcross, GA 30093 23838-5289
Thurman D. Kitchin Investor A Eugene R. Allspach and Investor C
PO Box 1479 7.0996% Joann M. Allspach 12.3916%
Winter Park, FL 32790 JTWROS
3760 Darcus Street
Houston, TX 77005-3704
Henry F. Figon Trusthenry Investor A NationsBank of Texas NA Primary A
Frigon Tteedtd 03/23/98 5.8324% Attn: Adrian Castillo 99.7998%
Attn: Susan Riley 1401 Elm Street 11th
PO Box 18 Floor
Maysville, MO 64469 Dallas, TX 75202-2911
NATIONS VA MUNICIPAL BOND FUND
NationsBanc Montgomery Secs Investor A Stephens Inc. Investor C
737-00016-17 54.6716% Attn: Cindy Cole 99.6455%
Attn: Mutual Funds - 4th 111 Center Street
Floor Little Rock, AR 72201
600 Mongomery Street
San Francisco, CA 94111
Rodney M. Carlson and Investor A NationsBank of Texas NA Primary A
Joyce L. Carlson Jtten 8.3604% Attn: Adrian Castillo 100%
3608 South Creek Court 1401 Elm Street 11th
Chesapeake, VA 23325 Floor
Dallas, TX 75202-2911
Rebecca C. Bell Investor A Roy R. Martine & Investor A
1092 Oaklawn Drive 7.1435% Kathleen H. Martine 95.1388%
Culpeper, VA 22701 JTWROS
4009 Tottenham Court
Richmond, VA
23233-1771
160
<PAGE>
<CAPTION>
Jessie E. Spells Investor A
14927 Boydell Drive 6.2441%
Centreville, VA 22020-1534
NATIONS MD MUNICIPAL BOND FUND
Carol C. House & Investor A NFSC FEBO #W38-001570 Investor B
Frank W. House Jtwros 49.6874% William R. Gee 5.2654%
4210 Leeward Place Anne Duer Gee
Bethesda, MD 20816 15 Spyglass
Timonium, MD 21093
Charles E. Chlan Investor A Betty J. Hallmark TTEE Investor B
Sole Proprietorship 12.686% Betty J. Hallmark Rev 5.1504%
7200 Bel Air Road Intervivos
Baltimore, MD 21206 Trust DTD 7-1-86
614 Old Country Road
Severna Park, MD
21146-4702
Raymond A. Turetsky and Investor A Walter F. Engelhaupt & Investor A
Bess H. Turetsky Jtten 12.4283% Vivian K. Engelhaupt & 69.7163%
11220 Woodson Avenue Stephen Engelhaupt
Kensington, MD 20895-1427 JTTEN
3514 Hiss Avenue
Baltimore, MD 21234
Dona L. Lechliter and Investor A Stephens Inc. Investor A
Stephen C. Lechliter Jtten 6.6983% Attn: Jim Clark 9.9653%
4002 Saul Road Nationsbank
Kensington, MD 20895 NC1-002-33-31
101 South Tryon Street
Charlotte, NC 28255
Richard E. Ireland and Investor A Stephens Inc. Investor A
Mary E. Ireland Jtten 5.8161% Attn: Jim Clark 8.328%
1423 Grouse Court Nationsbank
Frederick, MD 21702 NC1-002-33-31
101 South Tryon Street
Charlotte, NC 28255
Stephens Inc. Investor C Stephens Inc. Investor A
Attn: Cindy Cole 99.4909% Attn: Jim Clark 7.3087%
111 Center Street Nationsbank
Little Rock, AR 72201 NC1-002-33-31
101 South Tryon Street
Charlotte, NC 28255
NationsBank of Texas NA Primary A
Attn: Adrian Castillo 98.4282%
1401 Elm Street 11th Floor
Dallas, TX 75202-2911
NATIONS NC MUNICIPAL BOND FUND
NFSC FEBO #X68-102709 Investor A David C. Lavoie Cust Investor A
Edward John Moshy & 61.5601% Douglas K. Lavoie Utma 22.3728%
Virginia Moshy NC
221 Tennwood Court 5410 McApline Farm Road
Durham, NC 27712 Charlotte, NC 28226
Stephens Inc. Investor C David C. Lavoie Cust Investor A
Attn: Cindy Cole 99.6411% Douglas K. Lavoie Utma 22.3728%
111 Center Street NC
Little Rock, AR 72201 5410 McApline Farm Road
161
<PAGE>
<CAPTION>
Charlotte, NC 28226
NationsBank of Texas NA Primary A Charles M. Gulledge Investor A
Attn: Adrian Castillo 95.6537% 4600 Belvoir Court 8.434%
1401 Elm Street 11th Floor Charlotte, NC 28270
Dallas, TX 75202-2911
Dorothy P. Stroud Investor A Karen Elizabeth Ritchie Investor A
155 HWY 58 South 36.4054% 16029 Hollingbourne 7.1749%
Kinston, NC 28504 Road
Huntersville, NC 28078
NATIONS SC MUNICIPAL BOND FUND
Donna R. Cart Investor A Stephens Inc. Investor C
1140 Partridge Road 48.5334% Attn: Cindy Cole 6.7846%
Spartanburg, SC 29302-3328 111 Center Street
Little Rock, AR 72201
Cuppia Investments LP Investor A NationsBank of Texas NA Primary A
PO Drawer 22449 30.8709% Attn: Adrian Castillo 100%
Hilton Head Island, SC 1401 Elm Street 11th
29925-2386 Floor
Dallas, TX 75202-2911
Charles J. Engelbach and Investor A C. Clarke Moore and Investor A
Mary A. Engelbach Jtten 5.1599% Michael K. Neil TTEES 98.2111%
PO Box 1006 C W F Spencer Jr
N Myrtle Beach, SC 29598 Residual Trust
U/A DTD 03/23/67
PO Box 230
Rock Hill, SC 29731
Olga Weinstein Investor C
PO Box 31455 93.1902%
Charleston, SC 29417-1455
NATIONS FL MUNICIPAL BOND FUND
National Financial SVS Corp Investor A Selma Lifsher Trustee Investor A
For the Exclusive Benefit of 68.4849% Selma Lifsher Trust 25.708%
Our Dated 3-2-89
Customers 19355 Turnberry Way
Church Street Station Apt PHA
PO Box 3908 Aventura, FL 33180
New York, NY 10008-3908
Stephens Inc. Investor C Robert N. Parsell Jr. Investor A
Attn: Cindy Cole 99.6414% and 14.2505%
111 Center Street Inez G. Parsell JTWROS
Little Rock, AR 72201 207 East 25th Street
Sanford, FL 32779-0000
NationsBank of Texas NA Primary A Ben M. Turk and Linda Investor A
Attn: Adrian Castillo 42.7262% A. Turk 6.3487%
1401 Elm Street 11th Floor JTWROS
Dallas, TX 75202-2911 210 Crown Pointe
Circle #100
Longwood, FL
32779-0000
Barnett Banks Trust Company NA Primary A Jerry Jacobs and Investor A
FBO Gene J. Dodson 5.1532% Candice Jacobs 6.0144%
U/A 9/21/94 JTWROS
Attn: Income Collections 306 Brantley Harbor
PO Box 40200 Drive
Jacksonville, FL 32203-0200 Longwood, FL
32779-0000
162
<PAGE>
<CAPTION>
Sarah A. Barlow TTEE Investor A
Sarah A. Barlow Trust 31.2415%
U/A DTD 07/19/1990
8400 Vamo Road Apt 664
Sarasota, FL 34231
NATIONS GA MUNICIPAL BOND FUND
Hunter R. Hughes III Investor A Stephens Inc. Investor C
C/O Rogers and Hardin 64.843% Attn: Cindy Cole 99.6414%
2700 Cain International Tower 111 Center Street
Atlanta, GA 30327 Little Rock, AR 72201
Lucy M. Barrett Investor A NationsBank of Texas NA Primary A
4 Halfmoon Court 7.7627% Attn: Adrian Castillo 99.969%
Savannah, GA 31411-2218 1401 Elm Street 11th
Floor
Dallas, TX 75202-2911
William P. Handley and Investor A Jan R. H. Moggre Investor A
Susan K. Handley Jtten 6.2827% 9850 Terrace Lake 51.3877%
6098 Lively Road Pointe
Cumming, GA 30040 Roswell, GA 30076
Robert A. Solheim & Investor A James F. Sowinski Investor A
Dianne O. Solheim Jtten 6.2203% C/O Serologicals Inc. 31.6918%
44271 Loch Highland Parkway 780 Park North Blvd
Roswell, GA 30025 #110
Clarkson, GA
30021-0000
Jerry D. Clements and Investor A Harold J. Tenoso Investor A
Elsie A. Clements Jtwros 5.4789% C/O Serologicals Inc. 14.8113%
1000 Applewood Drive Apt 184 780 Park North Blvd
Roswell, GA 30076-0000 #110
Clarkson, GA
30021-0000
NATIONS TN MUNICIPAL BOND FUND
Jerry L. Benefield & Investor A Miriam R. Hildebrand Investor B
Evelyn S. Benefield Jtwros 73.0913% 884 Edmondson Pike 14.4325%
4036 Barfield Road Brentwood, TN 37027
Murfreesboro, TN 37129-4506
Allene Ellis & Joyce Rose Investor A Stephens Inc. Investor A
Jtten 10.6939% Attn: Jim Clark 33.0733%
2544 Bearwallow Road Nationsbank
Ashland City, TN 37015-4506 NC1-002-33-31
101 South Tryon Street
Charlotte, NC 28255
Frank W. Condurelis and Investor C Stephens Inc. Investor A
Jane Condurelis JTTEN 93.4203% Attn: Jim Clark 27.4693%
806 Brentview Drive Nationsbank
Bashville, TN 37220 NC1-002-33-31
101 South Tryon Street
Charlotte, NC 28255
Stephens Inc. Investor C Stephens Inc. Investor A
Attn: Cindy Cole 6.5556% Attn: Jim Clark 24.0709%
111 Center Street Nationsbank
Little Rock, AR 72201 NC1-002-33-31
101 South Tryon Street
Charlotte, NC 28255
NationsBank of Texas NA Primary A Stephens Inc. Investor A
Attn: Adrian Castillo 99.9446% Attn: Jim Clark 15.3865%
1401 Elm Street 11th Floor Nationsbank
Dallas, TX 75202-2911 NC1-002-33-31
101 South Tryon Street
Charlotte, NC 28255
163
<PAGE>
<CAPTION>
NATIONS TX MUNICIPAL BOND FUND
Edith M. Thalman Trust Investor A Jay L. Willmann and Investor C
U/A DTD 4/28/1998 56.5539% Catherine B. Willmann 99.5566%
5720 E 106th Street JTTEN
Tulsa, OK 74137-7038 2918 Kassarine Pass
Austin, TX 78704-4655
Motco Investor A NationsBank of Texas NA Primary A
PO Box 176001-Trust 23.9904% Attn: Adrian Castillo 99.9677%
San Antonio, TX 78204 1401 Elm Street 11th
Floor
Dallas, TX 75202-2911
Liberto Investments LTD Investor A Reggie D. Bradford & Investor A
621 S Flores 6.2242% Sharon A. Bradford 86.8451%
San Antonio, TX 78204 3306 Oak Hill Drive
Garland, TX 75043
NATIONS DISCIPLINED EQUITY FUND
MAC & Co A/C MSTF 1002012 Investor A BBTC NA Primary A
Mutual Fund Operations 9.7183% TR Barnett Employee 13.3628%
PO Box 3198 SVGS & Thrift PL U/A/D
Pittsburgh, PA 15230-3198 12/31/84
Attn: Income
Collections
PO Box 40200
Jacksonville, FL
32203-0200
Dan Denkarik TTEE For the Investor C Stephens Inc. Primary B
Lakeland Battery Profit 14.3644% Attn: Cindy Cole 100%
Sharing 111 Center Street
Plan DTD 7-1-24 Little Rock, AR 72201
41840 S. Combee Road
Lakeland, FL 33801
Summerville Pediatrics PA Investor C BNY Cust Investor A
Money Purchase Pension Plan 12.8936% Rollover IRA FBO 15.7058%
312 Midland Parkway William D. Patterson
Summerville, SC 29485-8114 1742 Hilltop
Kingwood, TX 77339
James B. Ford and Investor C BNY Cust Rollover IRA Investor A
Joanne W. Ford JTTEN 7.4648% FBO 6.1434%
25 Century Blvd Suite 605 James L. Payne
Nashville, TN 37214 Box 434
Hemphill, TX 75948
Richard A. Royds TTEE Investor C J. David Dalton TTEE Investor A
Miller Family Trust 5.3554% Lowcountry 5.9683%
2900 South Tower Pennzoil Orthopaedics
Place Associates P/S/P
Houston, TX 77002 Dated 08-05-87
9300 Medical Plaza
Drive
Charleston, SC 29405
NationsBank of Texas NA Primary A Anne Valcourt GDN FBO Investor A
Attn: Adrian Castillo 47.0631% Danyel 5.3461%
1401 Elm Street 11th Floor Chaniequa Solange
Dallas, TX 75202-2911 Valcourt
C/O H R Chaplin
9930 W. Broadview Drive
Bay Harbor Island, FL
33154
164
<PAGE>
<CAPTION>
BBTC NA Primary A
Retirmt PL & TR Of BBI & 18.462%
Affiliates U/A/D 9/19/79
Attn: Income Collections
PO Box 40200
Jacksonville, FL 32203-0200
NATIONS EQUITY INDEX FUND
Barnett Bank Administrator Investor A NationsBank of Texas NA Primary A
Carnival Corp Retirement Plan 35.5834% Attn: Adrian Castillo 70.0126%
Attn: Lowell Zemnick 1401 Elm Street 11th
3655 NW 87 Avenue Floor
Miami, FL 33178-2418 Dallas, TX 75202-2911
W. S. Avant Jr. Investor A NationsBank of Texas Primary A
7711 Louis Pasteur #810 7.7136% TTEE 22.8665%
San Antonio, TX 78229-0000 NB 401K Plan
U/A DTD 01/01/1983
PO Box 2518
Houston, TX 77252-2518
Katherine Marie Ashby and Investor A Carn & Co #02174401 Primary B
James Lincoln Ashby Jtwros 6.004% Hobbs Group LLC 401K 99.9862%
4016 Murphy Road Plan
Nashville, TN 37209-4911 Attn: Mutual Funds
Star
PO Box 96211
Washington, DC
20090-6211
National Investor Services Investor A Stephen Inc For the Investor A
Corp 5.8276% Exclusive 100%
For the Exclusive Benefit of Benefit of Our
Our Customers
Customers 111 Center Street
55 Water Street 32nd Floor Little Rock, AR 72201
New York, NY 10041-3299
NATIONS MANAGED INDEX FUND
Charles Schwab & Co. Inc. Investor A Roy R. Martine & Investor A
Special Custody Account 13.699% Kathleen H. Martine 29.0351%
For Benefit of Customers JWROS
Attn: Mutual Funds 4009 Tottenham Court
101 Montgomery Street Richmond, VA
San Francisco, CA 94104 23233-1771
C.A. Porterfield & Investor C Sarah A. Barlow TTEE Investor A
Rosalee Moxley & 16.3994% Sarah A. Barlow Trust 9.7142%
Frank Minton TTEES FBO U/A DTD 07/19/1990
Starmount Company Employees 8400 Vamo Road, Apt 664
Tax Deferred Savings Plan Sarasota, FL 34231
PO Box 10349
Greensboro, NC 27404-0349
Rosemary H. Pettigrew and Investor C Selma Lifsher Trustee Investor A
June H. Tilghman Co-TTEES FBO 13.0125% Selma Lifsher Trust 7.9936%
G Lester Hash Trust U/A/D Dated 3-2-89
9-14-78 19355 Turnberry Way
250 Orlando Avenue Apt PHA
Indialantic, FL 32903-3421 Aventura, FL 33180
165
<PAGE>
<CAPTION>
C.A. Porterfield & Investor C Jan R. H. Moggre Investor A
Rosalee Moxley & 11.1219% 9850 Terrace Lake 7.9295%
Frank Minton TTEES FBO Pointe
Starmount Company Employees Roswell, GA 30076
Capital Accumulation Plan
PO Box 10349
Greensboro, NC 27404-0349
NationsBank of Texas NA Primary A C. Clarke Moore and Investor A
Attn: Adrian Castillo 73.7455% Michael K. Neil TTEES 6.6035%
1401 Elm Street 11th Floor C W F Spencer Jr
Dallas, TX 75202-2911 Residual Trust
U/A DTD 03/23/67
PO Box 230
Rock Hill, SC 29731
Barnett Bank NA Succ TTEE Primary A James F. Sowinski Investor A
Barnett Pension-Laerge Cap 21.1512% C/O Serologicals Inc. 6.0242%
Equity 780 Park North Blvd
U/A DTD 9/19/79 #110
Attn: Mut Fd Dept M/C 572-1270 Clarkson, GA
PO Box 40200 30021-0000
Jacksonville, FL 32203-0200
Pamela S. Keene and Primary B
William Steven Keene JTWROS 99.4547%
2016 Englewood Drive
Apex, NC 275002
NATIONS MANAGED SMALL CAP INDEX
Charles Schwab & Co Inc. Investor A Barnett Bank NA Succ Primary A
Special Custody Account 44.9497% TTEE 13.0881%
For Benefit of Customers Barnett Pension-Laerge
Attn: Mutual Funds Cap Equity
101 Montgomery Street U/A DTD 9/19/79
San Francisco, CA 94104 Attn: Mut Fd Dept M/C
572-1270
PO Box 40200
Jacksonville, FL
32203-0200
Dade Community Foundation Inc. Investor C Barnett Bank NA TTEE - Primary A
200 South Biscayne Blvd Ste 21.8886% Barnett Employees 6.0699%
2780 Savings &
Miami, FL 33131-2343 Thrift Plan U/A DTD
12/31/1984 -
LFG BLD GR FD
Attn: Mut FD Dept M/C
F19-100-03-01
PO Box 40200
Jacksonville, FL
32203-0200
C.A. Porterfield & Investor C NationsBank of Texas NA Primary B
Rosalee Moxley & 11.587% Attn: Adrian Castillo 99.9928%
Frank Minton TTEES FBO 1401 Elm Street 11th
Starmount Company Employees Floor
Capital Accumulation Plan Dallas, TX 75202-2911
PO Box 10349
Greensboro, NC 27404-0349
C.A. Porterfield & Investor C Roy R. Martine & Investor A
Rosalee Moxley & 11.1106% Kathleen H. Martine 8.8718%
Frank Minton TTEES FBO JWROS
Starmount Company Employees 4009 Tottenham Court
Tax Deferred Savings Plan Richmond, VA
PO Box 10349 23233-1771
Greensboro, NC 27404-0349
166
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<CAPTION>
Dean Witter Reynolds Cust For Investor C BNY Cust Investor A
Timothy H. Maguire 5.7479% Rollover IRA FBO 8.3487%
IRA Rollover William D. Patterson
3825 Riverhollow Court 1742 Hilltop
Oviedo, FL 32765-9206 Kingwood, TX 77339
NationsBank of Texas NA Primary A J. David Dalton TTEE Investor A
Attn: Adrian Castillo 68.8926% Lowcountry 5.0388%
1401 Elm Street 11th Floor Orthopaedics
Dallas, TX 75202-2911 Associates P/S/P
Dated 08-05-87
9300 Medical Plaza
Drive
Charleston, SC 29405
NATIONS EMERGING MARKETS FUND
Charles Schwab & Co Inc. Investor A Munawar H. Hidayatallah Investor C
Special Custody Account 12.0748% 1000 Louisiana Ste 13.709%
For Benefit of Customers 5900
Attn: Mutual Funds Houston, TX 77002-5014
101 Montgomery Street
San Francisco, CA 94104
Robert Kadlec Investor A Summerville Pediatrics Investor C
380 Rector Place Apt 4H 5.3546% PA 7.9296%
New York, NY 10280 Money Purchase Pension
Plan
312 Midland Parkway
Summerville, SC
29485-8114
BNY Cust IRA Rollover FBO Investor A NationsBank of Texas NA Primary A
Steven W. Duff 5.3356% Attn: Adrian Castillo 99.9108%
1965 Broadway 1401 Elm Street 11th
New York, NY 10023 Floor
Dallas, TX 75202-2911
Marcus J. Dash Investor C Obie & Co Primary B
4900 Northside Drive 37.6123% FBO Barron Orendaine 99.9718%
Atlanta, GA 30327 P/S
#02096 2689500
Attn: Mutual Fund
Unit (16 HCB 09)
PO Box 200547
Houston, TX 77216-0547
Hi-Tech Communications Inc. Investor C
401(k) Plan 26.7968%
PO Box 1569
League City, TX 77574-1569
NATIONS PACIFIC GROWTH FUND
Ron Underwood & Investor A Dean Witter Reynolds Investor C
David Brown Ttees 12.7107% Cust For 8.953%
Dallas Heart Group Jean M. De Ru
401K Plan IRA Standard DTD
11520 N Central Expwy #105 06/14/93
Dallas, TX 75243 2664 Sharondale Drive
Atlanta, GA 30305-3858
Walter J. Nott Investor A William D. Ratliff III Investor C
8320 Fulham Court 9.8516% 201 Main Street Suite 8.917%
Richmond, VA 23227 2200
Ft. Worth, TX
76102-0000
167
<PAGE>
Helen Goh & Investor A NationsBank of Texas NA Primary A
Jeffery M. Kadet Jtwros 5.6289% Attn: Adrian Castillo 97.8217%
Himonya Garden #9 1401 Elm Street 11th
4-14-18 Himonya Floor
Merguro-Ku Tokyo 152 Japan Dallas, TX 75202-2911
Deeb Oweis and Investor C Obie & Co Primary B
Mohammad Oweis TTEES FBO 49.6072% FBO Barron Orendaine 99.9732%
Amtec International Inc. P/S
Profit Sharing Plan #02096 2689500
1200 Woodruff Road A-2 Attn: Mutual Fund
Greenville, SC 29607 Unit (16 HCB 09)
PO Box 200547
Houston, TX 77216-0547
Stephens Inc for the Exclusive Investor C
Benefit of Our Customers 14.7102%
111 Center Street
Little Rock, AR 72201
NATIONS GLOBAL GOVERNMENT INCOME FUND
NationsBank Corporation Investor A Stephens Inc. Primary B
NC1-007-23-01 99.7095% Attn: Cindy Cole 100%
100 North Tryon Street 111 Center Street
Charlotte, NC 28255 Little Rock, AR 72201
Dean Witter Reynolds Cust For Investor C Dixie Restaurant Investor B
Linda G. Walker 83.8062% Equipment Co Inc. 80.4721
IRA Rollover Dated 06/14/93 2734 Spring Garden Road
7 Sally Street Winston Salem, NC
Spartanburg, SC 29301-2403 27106-5714
Stephens Inc for the Exclusive Investor C Dean Witter Reynolds Investor B
Benefit of Our Customers 15.9767% Cust For 7.8018%
111 Center Street Sandra D. Riggs
Little Rock, AR 72201 IRA Standard Dated
08/08/94
1608 Summerwood Trail
Hixson, TN 37343
NationsBank of Texas NA Primary A Stephens Inc. for the Investor B
Attn: Adrian Castillo 99.3291% Exclusive 6.8472%
1401 Elm Street 11th Floor Benefit of our
Dallas, TX 75202-2911 Customers
111 Center Street
Little Rock, AR 72201
NATIONS INTERNATIONAL GROWTH FUND
Kleinwort Benson Invest MGT Investor A Stephens Inc. Primary B
LTD 7.1719% Attn: Cindy Cole 100%
Client Account 111 Center Street
Attn: Andy Poile Little Rock, AR 72201
PO Box 191 20 Fenchurch
London England EC3P 3DB
BNY Cust IRA FBO Investor C William E. Prettyman Investor B
Richard E. Snowbarger 15.2863% Jr. 47.5473%
Box 3884 5393 Royal Mile Blvd
Telluride, CO 81435 Salisbury, MD 21801
Philworld Inc. Investor C Rafael G. Herrera and Investor B
DBA Waldo Pizza 6.1125% Patricia A. Herrera and 7.3056%
Attn: Phil Bourne Enrique M. Acevedo
7433 Broadway Street JTTEN
Kansas City, MO 64114-1529 7880 San Felipe #130
Houston, TX 77063-1626
168
<PAGE>
<CAPTION>
NationsBank of Texas NA Primary A Dean Witter Reynolds Investor B
Attn: Adrian Castillo 88.6645% Cust for 5.8012%
1401 Elm Street 11th Floor Susan Iley
Dallas, TX 75202-2911 IRA STD/Rollover DTD
08/16/94
4656 East Grey Fox
Circle
Gum Spring, VA 23065
Northern Trust Co TTEE Primary A
FBO Burlington Resources 6.3607%
A/C #22-46370
PO Box 92956
Chicago, IL 60675-2956
NATIONS U.S. GOVERNMENT BOND FUND
ISTCO Investor A Humphrey Farrington & Investor C
A Partnership 24.4174% McClain 18.7394%
PO Box 523 Money Purchase Pension
Belleville, IL 62222 Pla-Seg
FBO Norman Humphrey
PO Box 900
Independence, MO
64501-0900
Gable & Gotwals Inc Pension Investor A Carla J. Worley Investor C
Plan 6.169% CNSV William Cody 14.8844%
Segregated FBO Adwan Worley
Bank of Oklahoma NA TTEE HC 62 Box 116
Attn: Trust Securities Salem, MO 65560-8705
PO Box 2180
Tulsa, OK 74101-2180
NationsBank of Texas NA Primary A Ruth Lee Parr Investor C
Attn: Adrian Castillo 99.8413 PO Box 102 14.7541%
1401 Elm Street 11th Floor Warsaw, IL 62379-0102
Dallas, TX 75202-2911
Stephens Inc. Primary B Dean Witter Reynolds Investor C
Attn: Cindy Cole 100% Cust For 9.0264%
111 Center Street Mildred Deluca
Little Rock, AR 72201 PO Box 250 Church
Street Station
New York, NY
10008-0250
Mary Louise Anderson Investor B BNY Cust IRA FBO Investor C
1412 Baldwin Mill Road 21.9222% Richard E. Snowbarger 5.1261%
Jarrettsville, MD 21084-1904 Box 3884
Telluride, CO 81435
Anna M. Zumas Investor B
8706 Roper Road 9.814%
Baltimore, MD 21234
NATIONS SMALL COMPANY GROWTH FUND
Wendel & Co Investor A NationsBank of Texas NA Primary A
C/O BNY MTL FD REORG DPT 12.533% Attn: Adrian Castillo 70.7435%
PO Box 1066 1401 Elm Street 11th
New York, NY 10268-1066 Floor
Dallas, TX 75202-2911
Majorie McCarthy Robins TTEE Investor C BBTC NA Retirmt PL & TR Primary A
of the Majorie McCarthy 8.6217% Of BBI & Affiliates 12.4858%
Robins Rev Liv Trust U/A DTD U/A/D 9/19/79 Attn:
5-30-1903 45 Loren Woods Income Collections PO
Saint Louis, MO 63124-1903 Box 40200 Jacksonville,
FL 32203-0200
169
<PAGE>
<CAPTION>
Dale H. Wiewel Investor C Stephens Inc. Primary B
RR 1 7.4453% Attn: Cindy Cole 100%
Rowler, IL 62338-9801 111 Center Street
Little Rock, AR 72201
Dean Witter For the Benefit of Investor C
Members of Springdale 7.0765%
Policemens
Pension and Relief Fund
Church St Station - PO Box 250
New York, NY 10277-1763
NATIONS MANAGED VALUE INDEX FUND
Charles Schwab & Co. Inc. Investor A Charles Schwab & Co. Primary A
Special Custody Account 55.4389% Inc. 44.031%
For Benefit of Customers Special Custody Account
Attn: Mutual Funds For Benefit of
101 Montgomery Street Customers
San Francisco, CA 94104 Attn: Mutual Funds
101 Montgomery Street
San Francisco, CA
94104
NFSC FEBO #179-499730 Investor A NationsBank of Texas NA Primary A
John A. Fink 5.894% Attn: Adrian Castillo 14.4542%
831 Phaeton Way 1401 Elm Street 11th
Auburn, IN 46706 Floor
Dallas, TX 75202-2911
Benjamin Bryson Turner Investor C Strafe & Co. Primary A
20920 Decora Drive 72.5031% FAO Melling Forging 7.8056%
Cornelius, NC 28031-6656 Co. UAW
Acct #2835621514
PO Box 160
Westerville, OH
43086-0160
Dean Witter Reynolds Inc. C/F Investor C
Linda Crawford 27.3218%
Rothe Converted IRA Dated:
06/19/98
2644 Horseshoe Bend Road
Marietta, GA 30064-4416
NATIONS MANAGED SMALLCAP VALUE INDEX FUND
Charles Schwab & Co. Inc. Investor A NationsBank of Texas NA Primary A
Special Custody Account 87.5362% Attn: Adrian Castillo 22.5416%
For Benefit of Customers 1401 Elm Street 11th
Attn: Mutual Funds Floor
101 Montgomery Street Dallas, TX 75202-2911
San Francisco, CA 94104
Christian G. Scheurer and Investor C Michael Larkin TR Primary A
Janice F. Scheurer JTWROS 68.1554% UA 01-06-98 12.7243%
621 E 32nd Terrace Courtland P. Larkin &
Hutchinson, KS 67502-2907 Patricia R. Larkin
Irrev Family Trust
8665 Bay Colony Drive
Apt 702
Naples, FL 341
Janet Beer Garrett TTEE Investor C Stephens, Inc. Primary B
Martin M. Beer Irrevocable 28.9492% Attn: Cindy Cole 100%
Educational Trust D 111 Center Street
U/A DTD 12/01/97 Little Rock, AR 72201
40 Deerhaven Lane
Asheville, NC 28803
170
<PAGE>
<CAPTION>
Charles Schwab & Co. Inc. Primary A
Special Custody Account 53.4757%
For Benefit of Customers
Attn: Mutual Funds
101 Montgomery Street
San Francisco, CA 94104
NATIONS MARSICO FOCUSED EQUITIES FUND
Charles Schwab & Co. Inc. Investor A Charles Schwab & Co. Primary A
Special Custody Account 46.5521% Inc. 53.992%
For Benefit of Customers Special Custody Account
Attn: Mutual Funds For Benefit of
101 Montgomery Street Customers
San Francisco, CA 94104 Attn: Mutual Funds
101 Montgomery Street
San Francisco, CA
94104
Geneviene M. Galliford Investor C NationsBank of Texas NA Primary A
2325 Shore Sands Court #301 33.7419% Attn: Adrian Castillo 22.4672%
Virginia Beach, VA 23451-0000 1401 Elm Street 11th
Floor
Dallas, TX 75202-2911
Dean Witter For the Benefit Investor C Stephens Inc Primary A
of the 13.9732% Attn: Cindy Cole 9.4655%
Friedman Liv Trust 111 Center Street
PO Box 250 Church Street Little Rock, AR 72201
Station
New York, NY 10008-0250
Harvey A. Cook and Investor C FTC & Co. Primary A
Kathi W. Cook JTTEN 11.1109% Data Lynx House Acct 8.3874%
801 Ond Drive 04/13/98
West Columbia, SC 29170-2521 PO Box 173736
Denver, CO 80217-3736
Gregg Freishtat Investor C
2078 Runfroe Lake Drive 9.2337%
Dunwoody, GA 30338
NATIONS MARSICO GROWTH & INCOME FUND
Charles Schwab & Co. Inc. Investor A Dean Witter For the Investor C
Special Custody Account 54.3349% Benefit of 5.0006%
For Benefit of Customers Berhard Von Ruecker
Attn: Mutual Funds PO Box 250 Church
101 Montgomery Street Street Station
San Francisco, CA 94104 New York, NY
10008-0250
Edd Price Jr. and Investor A Charles Schwab & Co. Primary A
Lynn Price JTTEN 6.4849% Inc. 65.6716%
5600 Oakbrook Pkwy, Suite 120 Special Custody Account
Norcross, GA 30093 For Benefit of
Customers
Attn: Mutual Funds
101 Montgomery Street
San Francisco, CA
94104
Dean Witter For the Benefit of Investor C Stephens Inc. Primary A
Ramson Inc. 61.2996% Attn: Cindy Cole 19.5815%
PO Box 250 Church Street 111 Center Street
Station Little Rock, AR 72201
New York, NY 10008-0250
171
<PAGE>
<CAPTION>
Wallace J. Davis and Investor C
Connie S. Davis JTTEN 9.0757%
1418 E Sevier Avenue
Kingsport, TN 37664
NATIONS TAX EXEMPT FUND
Ronald Dozoretz Investor B Joann Beall Reisinger Investor C
240 Corporation Blvd 6.9787% TTEE 16.0404%
Norfolk, VA 23502-0000 Joann Beall Resinger
Trust
DTD 08/15/93
1730 Peartree Lane
Crofton, MD 21114
Hare & Co, Bank of New York Investor B Rollie Ted Phillips Investor C
Attn: Stif/Master Note 5.9024% 921 Cochran Court 100%
One Wall Street 2nd Floor Hillsville, VA
New York, NY 27602 24343-1448
Michele D. Snyder Investor B J. M. Tucker and Investor A
10001 Abbey Drive 5.6365% Juanita Tucker Ten 98.4455%
Potomac, MD 20854-5431 Com
109 Westpark Drive,
Suite 400
Brentwood, TN
37027-5032
Alvin C. Copeland Investor B Roy R. Martine & Investor A
1405 Airline HWY 5.4257% Kathleen H. Martine 26.4987%
Metairie, LA 70001 JTWROS
4009 Tottenham Court
Richmond, VA
23233-1771
NationsBank of Texas NA Primary A Sarah A. Barlow TTEE Investor A
Attn: Adrian Castillo 90.6369% Sarah A. Barlow Trust 8.8657%
1401 Elm Street 11th Floor U/A DTD 07/19/1990
Dallas, TX 75202-2911 8400 Vamo Road Apt 664
Sarasota, FL 34231
Barnett Bank Primary A James F. Sowinski Investor A
Attn: Bill Lendzian 5.9224% C/O Serologicals 7.4385%
PO Box 40200 FL9-100-03-09 780 Park North Blvd
Jacksonville, FL 32203-0200 #110
Clarkston, GA 30021
NationsBank of Texas NA Primary B Selma Lifsher Trustee Investor A
Attn: Adrian Castillo 99.5194% Selma Lifsher Trust 7.2954%
1401 Elm Street 11th Floor Dated 3-2-89
Dallas, TX 75202-2911 19355 Turnberry Way
Apt PHA
Aventura, FL 33180
National Financial For the Daily Shares Jan R. H. Moggre Investor A
Exclusive 99.002% 9850 Terrace Lake 7.2369%
Benefit of Our Customers Pointe
200 Liberty Street Roswell, GA 30076
1 World Financial Center
Attn: Mutual Funds 5th Floor
New York, NY 10281
J. Douglas Perry and Investor C William L. Shaw Investor A
Patricia W. Perry JTTEN 13.8118% 12912 Shaw Place 6.4818%
4600 Ocean Front Avenue Silver Spring, MD
Virginia Beach, VA 23451-2521 20904-3465
172
<PAGE>
Calvin H. Price and Investor C C. Clark Moore and Investor A
Doroethy W. Price JTWROS 83.8315% Michael K. Neil TTEES 6.0266%
2900 Old Well Lane C W F Spenser Jr.
Gastonia, NC 28054-6626 Residual Trust
U/A DTD 03-23-67
PO Box 230
Rock Hill, SC 29731
NATIONS VA INTER. MUNICIPAL BOND FUND
Frances C. Jarrett Investor C NationsBank of Texas NA Primary A
4704 Ocean Front 13.2144% Attn: Adrian Castillo 100%
Virginia Beach, VA 23451 1401 Elm Street 11th
Floor
Dallas, TX 75202-2911
Ethel M. Crowe Investor C Roy R. Martine & Investor A
120 Falcon Drive 8.2842% Kathleen H. Martine 94.3104%
Charlottesville, VA 22901 JTWROS
4009 Tottenham Court
Richmond, VA
23233-1771
NATIONS INTERNATIONAL VALUE FUND
BNY Cust IRA Rollover FBO Investor C NFSC FEBO #W23-000582 Investor B
Arved E. White 99.9393% Elizabeth A. Ezenna 14.8437%
14810 Forest Lodge Circle 915 Peachwood Bend
Houston, TX 77070 Houston, TX 77077
BBTC NA Primary A Nicholas E. Lansing & Investor B
Retirmt PL & TR Of BBI & 42.7604 Carla S. Lansing JTTEN 7.5732%
Affiliates RR 1 Box 212
U/A/D 9/19/79 Ursa, IL 62376-9801
Attn: Income Collections
PO Box 40200
Jacksonville, FL 32203-0200
NationsBank of Texas NA Primary A Mary Anna Montalbano Investor B
Attn: Adrian Castillo 9.7719% Separate Property 7.3955%
1401 Elm Street 11th Floor 6043 Crab Orchard
Dallas, TX 75202-2911 Houston, TX 77057
Stephens Inc. Primary B
Attn: Cindy Cole 100%
111 Center Street
Little Rock, AR 72201
NATIONS EQUITY INCOME FUND
NationsBank Of Texas NA Primary A BNY Cust Rollover IRA Investor A
Attn: Adrian Castillo 96.9943% FBO 85.3803%
1401 Elm St 11th Floor Bernice Schneider
Dallas, TX 75202-2911 1623 NE 172 Street
North Miami Beach, FL
33162-1430
Stephens Inc Primary B Wilma F. Hamilton & Investor A
Attn: Cindy Cole 100% James H. Hamilton & 13.3701
111 Center St James H. Hamilton JTTEN
Little Rock, AR 72201 PO Box 281
Pine Level, NC 27568
173
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<CAPTION>
NATIONS MANAGED VALUE FUND
Stephens Inc. Primary B
Attn: Cindy Cole 100%
111 Center Street
Little Rock, AR 72201
NATIONS GOVERNMENT MONEY MARKET FUND
Patricia Trout And Larry A. Investor C Michael Johnson Investor C
Trout 61.0873% Custodian For 38.9127%
JTTEN April Johnson FL/UTMA
9510 Redbird Lane 445 NE 94th Street
Alpharetta, GA 302040 Miami, FL 331380
NATIONS SHORT-TERM MUNICIPAL INCOME FUND
Joseph Carter and Investor B Paragon Assets II Investor B
Diane Carter JTWROS 20.3155% 4520 King Street #205 5.3898%
3000 W 117th Street Alexandria, VA
Leawood, KS 66211-2923 22302-1302
NFSC FEBO #W15-000515 Investor B Walter V. Abbey Investor A
William L. Spadoni 8.5262% Revocable Trust 100%
Julia S. Spadoni Walter V. Abbey
PO Box 1019 Trustee DTD 8-22-90
Myrtle Beach, SC 29578 430 Royal Palm Way
Boca Raton, FL 33432
Irene K. Ritz Investor B Joe P. Simon & Investor A
8211 Anita Road 8.4903% Michaelette Sanders 53.0122%
Baltimore, MD 21208-1939 JTTEN
38861 Kilimanjaro Dr
Palm Desert,CA
92211-7076
Edward W. Karrels Investor B Jerry W. Phillips Investor A
6 Abbeywood Court 8.2625% 2901 Wilkinsville Rd 46.9878%
Nashville, TN 37215 Gaffney, SC 29340
</TABLE>
As of August 1998, NationsBank Corporation and its affiliates owned of
record more than 25% of the outstanding shares of the Companies acting as agent,
fiduciary, or custodian for its customers and may be deemed a controlling person
of the Companies under the 1940 Act.
SUITABILITY OF NATIONS TREASURY FUND
FOR INVESTMENT BY MUNICIPAL INVESTORS
The Public Funds Investments Act (the "Act"), enacted by the Texas
legislature in 1987, as amended on June 14, 1989, and effective on August 28,
1989, permits Texas municipalities and certain other similar entities that hold
public funds to invest in certain types of financial instruments. These entities
include an incorporated city or town, a county, a public school district, a
district or authority created under Article III, Section 52(b) (i) or (2), or
Article XVI, Section 59 of the Texas Constitution, an institution of higher
education as defined by Section 61.003 of the Texas Education Code, a hospital
district, a fresh water supply district, or any nonprofit corporation or public
funds investment pool created under Chapter 791, Texas Government Code, acting
on behalf of any of such entities (the "Entities"). The Act permits Entities to
invest in U.S. Treasury securities, certain repurchase agreements related
thereto, and in certain mutual funds that invest in such securities. Special
counsel to NFT with respect to the Treasury Fund has rendered an opinion to the
effect that, assuming that an Entity complies with applicable law, and that
limitations in the Act with respect to the amount of funds in the control of the
Entity that can be invested in NFT are met, the Entity may invest in the
Treasury Fund of NFT when duly authorized by its governing body.
174
<PAGE>
SCHEDULE A
DESCRIPTION OF RATINGS
The following summarizes the highest six ratings used by Standard &
Poor's Corporation ("S&P") for corporate and municipal bonds. The first four
ratings denote investment-grade securities.
AAA - This is the highest rating assigned by S&P to a debt obligation
and indicates an extremely strong capacity to pay interest and repay
principal.
AA - Debt rated AA is considered to have a very strong capacity to pay
interest and repay principal and differs from AAA issues only in a small
degree.
A - Debt rated A has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than debt in
higher-rated categories.
BBB - Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than for those in
higher-rated categories.
BB, B - Bonds rated BB and B are regarded, on balance as predominantly
speculative with respect to capacity to pay interest and repay principal
in accordance with the terms of the obligation. Debt rated BB has less
near-term vulnerability to default than other speculative issues.
However, it faces major ongoing uncertainties or exposure to adverse
business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. Debt
rated B has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity
or willingness to pay interest and repay principal.
To provide more detailed indications of credit quality, the AA, A and
BBB, BB and B ratings may be modified by the addition of a plus or minus sign to
show relative standing within these major rating categories.
The following summarizes the highest six ratings used by Moody's
Investors Service, Inc. ("Moody's") for corporate and municipal bonds. The first
four denote investment grade securities.
Aaa - Bonds that are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally
referred to as "gilt edge." Interest payments are protected by a large or
by an exceptionally stable margin and principal is secure. While the
various protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position of
such issues.
Aa - Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there may
be other elements present which make the long-term risks appear somewhat
larger than in Aaa securities.
A - Bonds that are rated A possess many favorable investment
attributes and are to be considered upper medium grade obligations. Factors
giving security to principal and interest are considered adequate, but
elements may be present which suggest a susceptibility to impairment
sometime in the future.
Baa - Bonds that are rated Baa are considered medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present
but certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics as
well.
C-1
<PAGE>
Ba - Bonds that are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not as
well safeguarded during both good times and bad times over the future.
Uncertainty of position characterizes bonds in this class.
B - Bond that are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may
be small.
Moody's applies numerical modifiers (1, 2 and 3) with respect to
corporate bonds rated Aa through B. The modifier 1 indicates that the bond being
rated ranks in the higher end of its generic rating category; the modifier 2
indicates a mid-range ranking; and the modifier 3 indicates that the bond ranks
in the lower end of its generic rating category. With regard to municipal bonds,
those bonds in the Aa, A and Baa groups which Moody's believes possess the
strongest investment attributes are designated by the symbols Aal, A1 or Baal,
respectively.
The following summarizes the highest four ratings used by Duff & Phelps
Credit Rating Co. ("D&P") for bonds, each of which denotes that the securities
are investment grade.
AAA - Bonds that are rated AAA are of the highest credit quality. The
risk factors are considered to be negligible, being only slightly more than
for risk-free U.S. Treasury debt.
AA - Bonds that are rated AA are of high credit quality. Protection
factors are strong. Risk is modest but may vary slightly from time to time
because of economic conditions.
A - Bonds that are rated A have protection factors which are average
but adequate. However risk factors are more variable and greater in periods
of economic stress.
BBB - Bonds that are rated BBB have below average protection factors
but still are considered sufficient for prudent investment. Considerable
variability in risk exists during economic cycles.
To provide more detailed indications of credit quality, the AA, A and
BBB ratings may modified by the addition of a plus or minus sign to show
relative standing within these major categories.
The following summarizes the highest four ratings used by Fitch
Investors Service, Inc. ("Fitch") for bonds, each of which denotes that the
securities are investment grade:
AAA - Bonds considered to be investment grade and of the highest
credit quality. The obligor has an exceptionally strong ability to pay
interest and repay principal, which is unlikely to be affected by
reasonably foreseeable events.
AA - Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated AAA. Because bonds
rated in the AAA and AA categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is
generally rated F-1+.
A - Bonds considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than bonds with higher ratings.
BBB - Bonds considered to be investment grade and of satisfactory
credit quality. The obligor's ability to pay interest and repay principal
is considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these
bonds, and therefore impair timely payment. The likelihood that the ratings
of these bonds will fall below investment grade is higher than for bonds
with higher ratings.
C-2
<PAGE>
To provide more detailed indications of credit quality, the AA, A and
BBB ratings may be modified by the addition of a plus or minus sign to show
relative standing within these major rating categories.
The following summarizes the two highest ratings used by Moody's for
short-term municipal notes and variable-rate demand obligations:
MIG-1/VMIG-1 -- Obligations bearing these designations are of the best
quality, enjoying strong protection from established cash flows, superior
liquidity support or demonstrated broad-based access to the market for
refinancing.
MIG-2/VMIG-2 -- Obligations bearing these designations are of high
quality, with ample margins of protection although not so large as in the
preceding group.
The following summarizes the two highest ratings used by S&P for
short-term municipal notes:
SP-1 - Indicates very strong or strong capacity to pay principal and
interest. Those issues determined to possess overwhelming safety characteristics
are given a "plus" (+) designation.
SP-2 - Indicates satisfactory capacity to pay principal and interest.
The three highest rating categories of D&P for short-term debt, each of
which denotes that the securities are investment grade, are D-1, D-2, and D-3.
D&P employs three designations, D-1+, D-1 and D-1-, within the highest rating
category. D-1+ indicates highest certainty of timely payment. Short-term
liquidity, including internal operating factors and/or access to alternative
sources of funds, is judged to be "outstanding, and safety is just below
risk-free U.S. Treasury short-term obligations." D-1 indicates very high
certainty of timely payment. Liquidity factors are excellent and supported by
good fundamental protection factors. Risk factors are considered to be minor.
D-1 indicates high certainty of timely payment. Liquidity factors are strong and
supported by good fundamental protection factors. Risk factors are very small.
D-2 indicates good certainty of timely payment. Liquidity factors and company
fundamentals are sound. Although ongoing funding needs may enlarge total
financing requirements, access to capital markets is good. Risk factors are
small. D-3 indicates satisfactory liquidity and other protection factors which
qualify the issue as investment grade. Risk factors are larger and subject to
more variation. Nevertheless, timely payment is expected.
The following summarizes the two highest rating categories used by Fitch
for short-term obligations each of which denotes that the securities are
investment grade:
F-1+ securities possess exceptionally strong credit quality. Issues
assigned this rating are regarded as having the strongest degree of assurance
for timely payment.
F-1 securities possess very strong credit quality. Issues assigned this
rating reflect an assurance of timely payment only slightly less in degree than
issues rated F-1+.
F-2 securities possess good credit quality. Issues carrying this rating
have a satisfactory degree of assurance for timely payment, but the margin of
safety is not as great as for issues assigned the F-1+ and F-1 ratings.
Commercial paper rated A-1 by S&P indicates that the degree of safety
regarding timely payment is strong. Those issues determined to possess extremely
strong safety characteristics are denoted A-1+. Capacity for timely payment on
commercial paper rated A-2 is satisfactory, but the relative degree of safety is
not as high as for issues designated A-1.
C-3
<PAGE>
The rating Prime-1 is the highest commercial paper rating assigned by
Moody's. Issuers rated Prime-1 (or related supporting institutions) are
considered to have a superior capacity for repayment of senior short-term
promissory obligations. Issuers rated Prime-2 (or related supporting
institutions) are considered to have a strong capacity for repayment of senior
short-term promissory obligations. This will normally be evidenced by many of
the characteristics of issuers rated Prime-1, but to a lesser degree. Earnings
trends and coverage ratios, while sound, will be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
For commercial paper, D&P uses the short-term debt ratings described
above.
For commercial paper, Fitch uses the short-term debt ratings described
above.
Thomson BankWatch, Inc. ("BankWatch") ratings are based upon a
qualitative and quantitative analysis of all segments of the organization
including, where applicable, holding company and operating subsidiaries.
BankWatch ratings do not constitute a recommendation to buy or sell securities
of any of these companies. Further, BankWatch does not suggest specific
investment criteria for individual clients.
BankWatch long-term ratings apply to specific issues of long-term debt
and preferred stock. The long-term ratings specifically assess the likelihood of
untimely payment of principal or interest over the term to maturity of the rated
instrument. The following are the four investment grade ratings used by
BankWatch for long-term debt:
AAA - The highest category; indicates ability to repay principal and
interest on a timely basis is extremely high.
AA - The second highest category; indicates a very strong ability to
repay principal and interest on a timely basis with limited incremental
risk versus issues rated in the highest category.
A - The third highest category; indicates the ability to repay
principal and interest is strong. Issues rated "A" could be more vulnerable
to adverse developments (both internal and external) than obligations with
higher ratings.
BBB - The lowest investment grade category; indicates an acceptable
capacity to repay principal and interest. Issues rated "BBB" are, however,
more vulnerable to adverse developments (both internal and external) than
obligations with higher ratings.
Long-term debt ratings may include a plus (+) or minus (-) sign to
indicate where within a category the issue is placed.
The BankWatch short-term ratings apply to commercial paper, other senior
short-term obligations and deposit obligations of the entities to which the
rating has been assigned. The BankWatch short-term ratings specifically assess
the likelihood of an untimely payment of principal or interest.
TBW-1 The highest category; indicates a very high likelihood
that principal and interest will be paid on a timely
basis.
TBW-2 The second highest category; while the degree of safety
regarding timely repayment of principal and interest is
strong, the relative degree of safety is not as high as
for issues rated "TBW-1".
TBW-3 The lowest investment grade category; indicates that while
more susceptible to adverse developments (both internal
and external) than obligations with higher ratings,
capacity to service principal and interest in a timely
fashion is considered adequate.
C-4
<PAGE>
TBW-4 The lowest rating category; this rating is regarded as
non-investment grade and therefore speculative.
The following summarizes the four highest long-term debt ratings used by
IBCA Limited and its affiliate, IBCA Inc. (collectively "IBCA"):
AAA - Obligations for which there is the lowest expectation of
investment risk. Capacity for timely repayment of principal and interest
is substantial such that adverse changes in business, economic or
financial conditions are unlikely to increase investment risk
significantly.
AA - Obligations for which there is a very low expectation of
investment risk. Capacity for timely repayment of principal and interest
is substantial. Adverse changes in business, economic or financial
conditions may increase investment risk albeit not very significantly.
A - Obligations for which there is a low expectation of investment
risk. Capacity for timely repayment of principal and interest is strong,
although adverse changes in business, economic or financial conditions
may lead to increased investment risk.
BBB - Obligations for which there is currently a low expectation of
investment risk. Capacity for timely repayment of principal and interest
is adequate, although adverse changes in business, economic or financial
conditions are more likely to lead to increased investment risk than for
obligations in other categories.
A plus or minus sign may be appended to a rating below AAA to denote
relative status within major rating categories.
The following summarizes the two highest short-term debt ratings used by
IBCA:
A1+ When issues possess a particularly strong credit feature, a rating
of A1+ is assigned.
A1 - Obligations supported by the highest capacity for timely
repayment.
A2 - Obligations supported by a good capacity for timely repayment.
C-5
<PAGE>
NATIONS FUND TRUST
FILE NOS. 2-97817; 811-4305
PART C
OTHER INFORMATION
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits
- -------- ---------------------------------
(a) Financial Statements:
Included in Part A:
Per Share Income and Capital Changes
Included in Part B:
Audited Financial Statements for Nations Government Money Market, Nations
Tax Exempt, Nations Value, Nations Capital Growth, Nations Emerging Growth,
Nations Disciplined Equity, Nations Equity Index, Nations Managed Index,
Nations 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, 1998
<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 Post-Effective Amendment No. 57, filed November 5, 1998.
(1)(b) Certificate pertaining to classification of shares dated May 17,
1985, is incorporated by reference to Post-Effective Amendment No.
57, filed November 5, 1998.
(1)(c) Amendment dated July 27, 1987, to Declaration of Trust is
incorporated by reference to Post-Effective Amendment No. 57, filed
November 5, 1998.
(1)(d) Certificate and Amendment to Declaration of Trust, dated September
13, 1989, is incorporated by reference to Post-Effective Amendment
No. 57, filed November 5, 1998.
(1)(e) Certificate pertaining to classification of shares dated August 24,
1990, is incorporated by reference to Post-Effective Amendment No.
57, filed November 5, 1998.
(1)(f) Certificate and Amendment dated November 26, 1990 to Declaration of
Trust, is incorporated by reference to Post-Effective Amendment No.
57, filed November 5, 1998.
(1)(g) Certificate pertaining to classification of shares dated July 18,
1991, is incorporated by reference to Post-Effective Amendment No.
57, filed November 5, 1998.
(1)(h) Amendment dated March 25, 1992, to Declaration of Trust is
incorporated by reference to Post-Effective Amendment No. 57, filed
November 5, 1998.
(1)(i) Certificate relating to classification of shares dated March 26,
1992, is incorporated by reference to Post-Effective Amendment No.
57, filed November 5, 1998.
(1)(j) Amendment dated September 21, 1992, to Declaration of Trust is
incorporated by reference to Post-Effective Amendment No. 57, filed
November 5, 1998.
(1)(k) Certificate pertaining to classification of shares creating
"Investor B" Shares of the money market funds and creating "Investor
C Shares" of the Non-Money Market Funds and relating to the
establishment of Nations Intermediate Bond Fund and
<PAGE>
Nations Tennessee Municipal Bond Fund, dated March 26, 1993, is
incorporated by reference to Post-Effective Amendment No. 57, filed
November 5, 1998.
(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. 57, filed November 5, 1998.
(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 21, 1993, is
incorporated by reference to Post-Effective Amendment No.
57, filed November 5, 1998.
(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, dated March 24, 1994,
is incorporated by reference to Post-Effective Amendment No. 57,
filed November 5, 1998.
(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. 57, filed November 5, 1998.
(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. 57, filed November 5, 1998.
(2)(a) Amended and Restated Code of Regulations as approved and adopted by
Registrant's Board of Trustees and last amended April 13, 1995, is
incorporated by reference to Post-Effective Amendment No. 57, filed
November 5, 1998.
(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, dated January 1, 1996, is incorporated
by reference to Post-Effective Amendment No. 57, filed November 5,
1998.
<PAGE>
(5)(b) Sub-Advisory Agreement among NBAI, TradeStreet Investment
Associates, Inc. ("TradeStreet") and the Registrant, dated January
1, 1996, is incorporated by reference to Post-Effective Amendment
No. 57, filed November 5, 1998.
(5)(c) Sub-Advisory Agreement among NBAI, Marsico Capital Management, LLC
and the Registrant, dated December 31, 1997, is incorporated by
reference to Post-Effective Amendment No. 57, filed November 5,
1998.
(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. 57, filed November 5, 1998.
(7) None.
(8) Mutual Fund Custody Agreement between Registrant and The Bank of New
York, dated October 19, 1998, is incorporated by reference to
Post-Effective Amendment No. 57, filed November 5, 1998.
(9)(a) Administration Agreement between Stephens Inc. and Registrant, dated
September 1, 1993, is incorporated by reference to Post-Effective
Amendment No. 57, filed November 5, 1998.
(9)(b) Co-Administration Agreement between The Boston Company Advisors,
Inc. and Registrant is incorporated by reference to Post-Effective
Amendment No. 57, filed November 5, 1998.
(9)(c) Shareholder Administration Agreement for Trust B Shares (now known
as Primary B Shares) is incorporated by reference to Post-Effective
Amendment No. 57, filed November 5, 1998.
(9)(d) Transfer Agency and Services Agreement dated June 1, 1995, between
Registrant and The Shareholder Services Group, Inc., is incorporated
by reference to Post-Effective Amendment No.
57, filed November 5, 1998.
(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. 57, filed
November 5, 1998.
(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
<PAGE>
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. 57, filed November 5, 1998.
(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. 57, filed November 5, 1998.
(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.
57, filed November 5, 1998.
(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. 57, filed November 5, 1998.
(9)(i) Cross Indemnification Agreement dated June 27, 1995, between the
Trust, Nations Fund, Inc. and Nations Fund Portfolios, Inc., is
incorporated by reference to Post-Effective Amendment No. 57, filed
November 5, 1998.
(9)(j) Form of Shareholder Servicing Agreement relating to Primary B Shares
is incorporated by reference to Post-Effective Amendment No. 57,
filed November 5, 1998.
(9)(k) Shareholder Servicing Plan for Investor A Shares is incorporated by
reference to Post-Effective Amendment No. 57, filed November 5,
1998.
(9)(l) Forms of Shareholder Servicing Agreement for Investor A Shares are
incorporated by reference to Post-Effective Amendment No. 57, filed
November 5, 1998.
(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. 57, filed November 5, 1998.
(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. 57, filed November 5, 1998.
<PAGE>
(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. 57, filed November 5, 1998.
(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. 57, filed November 5, 1998.
(10) Opinion and Consent of Counsel to be filed by amendment.
(11) Consent of Independent Accountants, PricewaterhouseCoopers 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. 57, filed November 5,
1998.
(15)(b) Form of Sales Support Agreement for Investor A Shares is
incorporated by reference to Post-Effective Amendment No. 57, filed
November 5, 1998.
(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. 57, filed November 5, 1998.
(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. 57, filed November 5, 1998.
(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. 57, filed November 5, 1998.
<PAGE>
(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. 57, filed November 5,
1998.
(15)(g) Shareholder Administration Plan for Primary B Shares is incorporated
by reference to Post-Effective Amendment No. 57, filed November 5,
1998.
(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, incorporated by reference to
Post-Effective Amendment No. 58, filed November 13, 1998.
(19) Powers of Attorney for Edmund L. Benson, Charles B. Walker, A. Max
Walker, Thomas S. Word, Jr., William H. Grigg, James Ermer, Thomas
F. Keller and Richard H. Rose, are incorporated by reference to
Post-Effective Amendment No. 31, filed January 31, 1994.
Item 25. Persons Controlled By or Under Common Control with Registrant
- -------- -------------------------------------------------------------
Registrant is controlled by its Board of Trustees.
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
<PAGE>
employees. Indemnification of Registrant's administrator, principal
underwriter, custodian, and transfer agent is provided for,
respectively, in:
1. Administration Agreement with Stephens Inc.;
2. Co-Administration Agreement with First Data Investors Services
Group, Inc.;
3. Distribution Agreement with Stephens Inc.;
4. Custody Agreement with 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
<PAGE>
notify the indemnifying party of the commencement thereof, the indemnifying
party shall be entitled to participate therein and, to the extent that it shall
wish, to assume the defense thereof, with counsel satisfactory to such
indemnified party, and, after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party shall not be liable to such indemnified party under such
subsection for any legal expenses of other counsel or any other expenses, in
each case subsequently incurred by such indemnified party, in connection with
the defense thereof other than reasonable costs of investigation.
Registrant has obtained from a major insurance carrier a directors'
and officers' liability policy covering certain types of errors and omissions.
In no event will Registrant indemnify any of its trustees, officers, employees,
or agents against any liability to which such person would otherwise be subject
by reason of his/her willful misfeasance, bad faith, gross negligence in the
performance of his/her duties, or by reason of his reckless disregard of the
duties involved in the conduct of his/her office or arising under his/her
agreement with Registrant. Registrant will comply with Rule 484 under the
Securities Act of 1933 and Release No. 11330 under the 1940 Act, as amended, in
connection with any indemnification.
Insofar as indemnification for liability arising under the Securities
Act of 1933, as amended, may be permitted to trustees, officers, and controlling
persons of Registrant pursuant to the foregoing provisions, or otherwise,
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by Registrant of expenses
incurred or paid by a trustee, officer, or controlling person of Registrant in
the successful defense of any action, suit, or proceeding) is asserted by such
trustee, officer, or controlling person in connection with the securities being
registered, Registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
Item 28. Business and Other Connections of Investment Adviser
(a) To the knowledge of Registrant, none of the directors or officers of
NBAI, the adviser to the Registrant's portfolios, or TradeStreet, the
sub-investment adviser, except those set forth below, is or has been, at any
time during the past two calendar years, engaged in any other business,
profession, vocation or employment of a substantial nature, except that certain
directors and officers also hold various positions with, and engage in business
for, the company that owns all the outstanding stock (other than directors'
qualifying shares) of NBAI or TradeStreet, respectively, or other subsidiaries
of NationsBank Corporation.
(b) NBAI performs investment advisory services for the Registrant and
certain other customers. NBAI is a wholly owned subsidiary of NationsBank, N.A.
("NationsBank"), which in turn is a wholly owned banking subsidiary of
NationsBank Corporation. Information with respect to each director and officer
of the investment adviser is incorporated by reference to Form
<PAGE>
ADV filed by NBAI with the Securities and Exchange Commission pursuant to the
Investment Advisers Act of 1940 (file no. 801-49874).
(c) TradeStreet performs sub-investment advisory services for the
Registrant and certain other customers. TradeStreet is a wholly owned subsidiary
of NationsBank, which in turn is a wholly owned banking subsidiary of
NationsBank Corporation. Information with respect to each director and officer
of the sub-investment adviser is incorporated by reference to Form ADV filed by
TradeStreet with the Securities and Exchange Commission pursuant to the
Investment Advisers Act of 1940 (file no. 801-50372).
(d) Marsico performs sub-investment advisory services for the Registrant
and certain other customers. Information with respect to each director and
officer of the sub-investment adviser is incorporated by reference to a Form ADV
filed by Marsico with the Securities and Exchange Commission pursuant to the
Investment Advisers Act of 1940 (file no. 801-54914).
Item 29. Principal Underwriter
- -------- ---------------------
(a) Stephens Inc., distributor for the Registrant, does not presently act
as investment adviser for any other registered investment companies, but does
act as principal underwriter for Nations Fund, Inc., Nations Annuity Trust,
Nations Fund Portfolios, Inc., Nations Institutional Reserves, Nations LifeGoal
Funds, Inc., the Overland Express Funds, Inc., Stagecoach Inc., Stagecoach
Funds, Inc. and Stagecoach Trust and is the exclusive placement agent for Master
Investment Trust, Managed Series Investment Trust, Life & Annuity Trust and
Master Investment Portfolio, all of which are registered open-end management
investment companies, and has acted as principal underwriter for the Liberty
Term Trust, Inc., Nations Government Income Term Trust 2003, Inc., Nations
Government Income Term Trust 2004, Inc. and Nations Managed Balanced Target
Maturity Fund, Inc., closed-end management investment companies.
(b) Information with respect to each director and officer of the principal
underwriter is incorporated by reference to Form ADV filed by Stephens Inc. with
the Securities and Exchange Commission pursuant to the Investment Advisers Act
of 1940 (file #501-15510).
(c) Not applicable.
Item 30. Location of Accounts and Records
- -------- --------------------------------
(1) NBAI, One NationsBank Plaza, Charlotte, North Carolina 28255 (records
relating to its function as Investment Adviser).
(2) TradeStreet, One NationsBank Plaza, Charlotte, North Carolina 28255
(records relating to its function as sub-adviser).
(3) Marsico, 1200 17th Street, Suite 1300, Denver, Colorado 80202 (records
relating to its function as sub-adviser to Nations Marscio Focused
Equities Fund and Nations Marsico Growth & Income Fund).
<PAGE>
(4) Stephens Inc., 111 Center Street, Little Rock, Arkansas 72201
(records relating to its function as Distributor).
(5) Stephens Inc., 111 Center Street, Little Rock, Arkansas 72201
(records relating to its function as Administrator).
(6) The First Data Investors Services Group, Inc., One Exchange Place,
Boston, Massachusetts 02109 (records relating to its function as
Co-Administrator and Transfer Agent).
(7) NationsBank, 1401 Elm Street, Dallas, Texas 75202 (records
relating to its function as Sub-Transfer Agent).
(7) The Bank of New York, 90 Washington Street, New York, New York
10286 (records relating to its function as 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.
<PAGE>
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 April, 1999.
NATIONS FUND TRUST
By: *
------------------------------
A. Max Walker
President and Chairman
of the Board of Trustees
By: /s/ Richard H. Blank, Jr.
------------------------------
Richard H. Blank, Jr.
*Attorney-in-Fact
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to the Registration Statement has been signed below by
the following persons in the capacities and on the date indicated:
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<S> <C> <C>
* President and Chairman April 15, 1999
- ------------------------ of the Board of Directors
(A. Max Walker) (Principal Executive Officer)
/s/ Richard H. Blank, Jr. Treasurer and Secretary April 15, 1999
- ------------------------ (Principal Financial and
(Richard H. Blank, Jr.) Accounting Officer)
* Trustee April 15, 1999
- ------------------------
(Edmund L. Benson, III)
* Trustee April 15, 1999
- ------------------------
(James Ermer)
* Trustee April 15, 1999
- ------------------------
(William H. Grigg)
* Trustee April 15, 1999
- ------------------------
(Thomas F. Keller)
* Trustee April 15, 1999
- ------------------------
(Carl E. Mundy, Jr.)
* Trustee April 15, 1999
- ------------------------
(Charles B. Walker)
* Trustee April 15, 1999
- ------------------------
(Thomas S. Word)
* Trustee April 15, 1999
- ------------------------
(James B. Sommers)
/s/ Richard H. Blank, Jr.
- ------------------------
Richard H. Blank, Jr.
*Attorney-in-Fact
</TABLE>
