<PAGE> 1
[GRAPHIC DEPICTING TREE]
[NATIONS FUNDS LOGO]
Government
& Corporate
Bond Funds
Annual Report For The
Year Ended March 31, 1999
[GRAPHIC DEPICTING BUILDING]
<PAGE> 2
[GRAPHIC DEPICTING BASKETS]
This report is submitted for
the general information of
shareholders of Nations Funds.
This material must be preceded or
accompanied by a current Nations
Funds prospectus.
Nations Funds Distributor:
Stephens Inc., Stephens Inc., which
is not affiliated with Bank of
America National Trust and
Savings Association or
NationsBank, N.A., is not a bank,
and securities offered by it are not
guaranteed by any bank or insured
by the FDIC, Stephens Inc., member
NYSE, SIPC.
Nations Funds Investment Adviser:
NationsBanc Advisors, Inc.
NOT FDIC-
INSURED
May Lose Value
No Bank Guarantee
<PAGE> 3
Presidents'
Message
Dear Shareholder:
We'd like to thank you for being a part of the
Nations Funds family. Your continued trust and
confidence are greatly appreciated. Many noteworthy
events have taken place during the past year. Let's
take a look.
A ROLLER-COASTER-RIDE OF A YEAR
We know the past 12 months have proved to be quite an
unsettling time for investors. You've seen major
market indexes reach all-time highs, even after the
significant market volatility of late summer-early
fall 1998. Much of the volatility was attributed to
financial crises in Brazil and Russia, the continuing
malaise in Asia, as well as a slowdown in U.S.
corporate earnings growth. However, the Federal
Reserve Board came to the rescue in late September
with the first of three successive cuts in interest
rates. By year-end, investors were feeling confident
once again and many stocks had soared, moving the Dow
Jones Industrial Average closer to the 10,000
milestone.*
While some stock indexes had another impressive year
of double-digit performance -- the Standard & Poor's
500 Composite Stock Price Index (S&P 500)** of
large-company stocks was up 18.46% for the 12 months
ending March 31, 1999 -- focusing on these particular
indexes doesn't give you the complete picture. For
example, during the same 12-month period, the
Standard & Poor's MidCap 400 Index*** posted a gain
of only 0.43% and the Russell 2000 Index(+) of
small-company stocks actually posted negative
performance of -16.20%. There was even divergence
among the stocks in the S&P 500, with the performance
of the 25 largest stocks accounting for approximately
70% of the Index's return.
THE VALUE OF ADVICE
Diversification, along with a long-term perspective,
are among the best tools for investors to weather
changing markets and create a balanced investment
portfolio. That's where the value of professional
financial advice comes in. The role of a good
financial adviser, especially during volatile times,
is to help you make smart investment decisions that
help you pursue your long-term goals. During last
year's downturn in
* The Dow Jones Industrial Average is a
price-weighted index of 30 of the largest, most
widely held stocks traded on the New York Stock
Exchange. It is unmanaged and unavailable for
investment.
** The Standard & Poor's 500 Composite Stock Price
Index is an unmanaged index of 500 widely
held common stocks. It is unavailable for investment.
*** The Standard & Poor's MidCap 400 Index is a
market-value weighted index that measures
the market value of 400 domestic stocks chosen for
market size, liquidity and industry
representation. It is unmanaged and unavailable for
investment.
+ The Russell 2000 Index is a capitalization-weighted
index that includes 2,000 of the smallest stocks
representing approximately 11% of the U.S. equity
market. It is unmanaged and unavailable for
investment.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
<PAGE> 4
Presidents'
Message continued...
the markets, many mutual fund shareholders who
invested through a financial adviser remained calm
and ignored short-term corrections.
Today, these same investors are probably glad they
did, as the markets continue their generally upward
trend. Of course, history tells us that these trends
do not continue indefinitely, and our belief is that
the best way to weather changing market conditions is
by working with a professional financial adviser.
YOUR MANAGERS OF DISTINCTION(SM)
Financial advisers are there to guide and assist you,
but it also helps to invest with a company that has
experienced fund managers who have weathered various
market cycles over time. At Nations Funds, we call
them our Managers of Distinction(SM).
In bringing you the wide range of funds we offer,
we've carefully selected a roster of specialized
investment management firms. Nations Funds Managers
of Distinction(SM) are all seasoned and
well-respected investment firms. We are pleased to
bring this talent together in one place to offer you
a variety of distinct money management styles.
And, our fund family should get even better with the
completion of our merger with Pacific Horizon
Funds -- the largest merger in mutual fund
history -- anticipated for May. Together, the new
Nations Funds family will be able to offer you an
even broader selection of mutual funds.
Of course, customer service continues to be of
tremendous importance to us and, for the second year
in a row, Nations Funds received the Key Honors award
for superior customer support from DALBAR, Inc. -- an
independent evaluator of customer service in the
mutual fund industry. Our commitment is to provide
you with the best products and services, and we will
seek to continue to do so in the coming year.
We are excited about the past year and the
opportunities ahead of us. If you have any questions
or comments on your annual report, please contact us
at 1.800.321.7854 or e-mail your comments to us via
our Web site at www.nationsbank.com/nationsfunds.
Once again, thank you for being a part of the Nations
Funds family.
Sincerely,
<TABLE>
<S> <C>
/s/ A. Max Walker /s/ Robert H. Gordon
A. Max Walker Robert H. Gordon
President and Chairman President
of the Board NationsBanc Advisors, Inc.
</TABLE>
March 31, 1999
P.S. On May 21, 1999, the Nations Funds/Pacific
Horizon Funds merger was successfully completed.
<PAGE> 5
Table
Of
Contents
<TABLE>
<S> <C>
NATIONS FUNDS SPECTRUM 2
ECONOMIC OVERVIEW 4
PORTFOLIO COMMENTARY
Nations Short-Term Income Fund 7
Nations Short-Intermediate Government Fund 13
Nations Government Securities Fund 18
Nations Strategic Fixed Income Fund 23
Nations U.S. Government Bond Fund 30
Nations Diversified Income Fund 35
FINANCIAL STATEMENTS
Statements of Net Assets 41
Statements of Operations 57
Statements of Changes in Net Assets 58
Schedules of Capital Stock Activity 60
Financial Highlights 66
Notes to Financial Statements 78
</TABLE>
<TABLE>
<S> <C>
---------------------------------------------------------------------------------
Nations Funds [Dalbar Logo]
Recognized For
Outstanding DALBAR, Inc., is a well-respected research firm
Customer Service that measures customer service levels and
establishes benchmarks in the financial services
In recognition of our industry.
commitment to retail
shareholders through
consistently providing
superior customer service,
Nations Funds was awarded
DALBAR Key Honors in 1997
and 1998.
---------------------------------------------------------------------------------
</TABLE>
<PAGE> 6
<TABLE>
<CAPTION>
THE
NATIONS FUNDS
FAMILY AT A GLANCE
POTENTIAL RETURN
GROWTH & INCOME
------------------
CURRENT INCOME
- ------------------------------------------------------------------------------------------------------------------------------
LIQUIDITY
- ----------------------------------------------
MONEY SHORTER INTERMEDIATE LONGER TERM LARGE
MARKET MATURITY MATURITY DOMESTIC CAPITALIZATION
FUNDS BOND FUNDS BOND FUNDS BOND FUNDS VALUE FUNDS
- ----- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
*Nations *Nations Short- *Nations *Nations *Nations
Prime Fund Intermediate Strategic Fixed Diversified Value Fund
Government Income Fund Income Fund
*Nations Government Fund *Nations
Money Market *Nations *Nations Managed
Fund *Nations Government U.S. Government Value Index
Short-Term Securities Fund Bond Fund Fund
*Nations Income Fund
Treasury Fund *Nations *Nations *Nations
*Nations Short- Intermediate Municipal Balanced Assets
*Nations Tax Term Municipal Municipal Income Fund Fund
Exempt Fund Income Fund Bond Fund
*Nations
*Nations State-Specific
State-Specific Long-Term
Intermediate Municipal Bond
Municipal Bond Funds
Funds
</TABLE>
RISK (VARIABILITY)
2
<PAGE> 7
<TABLE>
<CAPTION>
[NATIONS FUNDS LOGO]
INVESTMENTS FOR A LIFETIME(SM)
POTENTIAL RETURN
AGGRESSIVE GROWTH
-----------------------------------------------------------------------------
GROWTH
- -------------------------------------------------------------------
GROWTH & INCOME
- -------------------------------------------
LARGE
CAPITALI- LARGE MID SMALL REGION-SPECIFIC
ZATION CAPITALIZATION INTERNATIONAL CAPITALIZATION CAPITALIZATION INTERNATIONAL
FUNDS GROWTH FUNDS EQUITY FUNDS FUNDS FUNDS FUNDS
- ----- ------------ ------------ ----- ----- -----
<S> <C> <C> <C> <C> <C>
*Nations *Nations *Nations *Nations *Nations *Nations
Marsico Growth Marsico Focused International Emerging Small Company Emerging
& Income Fund Equities Fund Value Fund Growth Fund Growth Fund Markets Fund
*Nations *Nations *Nations *Nations
Equity Disciplined International Managed
Index Fund Equity Fund Growth Fund SmallCap
Index Fund
*Nations *Nations *Nations
Managed Capital Growth International *Nations
Index Fund Fund Equity Fund Managed
SmallCap
*Nations *Nations Value Index
Equity Strategic Equity Fund
Income Fund Fund
RISK (VARIABILITY)
</TABLE>
LIFEGOAL PORTFOLIOS
*LifeGoal Income And Growth Portfolio
*LifeGoal Balanced Growth Portfolio
*LifeGoal Growth Portfolio
3
<PAGE> 8
Economic
Overview
The U.S. economy expanded strongly and the stock
market surged for the 12 months ending March 31,
1999.
Declining interest rates, confident consumers,
healthy corporate capital spending and an expanding
housing industry all helped propel the economy and
fuel a persistent rally in stocks, particularly of
large-capitalization companies. It was an
event-filled period, punctuated by abrupt changes in
investor sentiment and even some signs of a slowing
of growth in the middle of the year. Through it all,
the nation's Gross Domestic Product (the market value
of the goods and services produced) grew. In 1998,
the growth rate was an estimated 3.6%, only slightly
less than the healthy 3.9% growth rate of 1997.
Upon closer examination, the story of the 12-month
period actually was a tale of two economies -- a
strong consumer economy and a weak industrial sector.
Solid employment growth and increased real disposable
personal income translated to a high level of
consumer confidence. Industries linked closely to
consumer behavior -- including autos, housing and
retail -- were quite strong. At the same time, a
number of factors contributed to weakness on the
industrial side of the economy. The economic problems
of some of our key trading partners, combined with
the strength of the U.S. dollar, led to sluggishness
in exports. While the evidence remains mixed, the
worst of these problems for industrial industries may
be ending. The most recent view of the National
Association of Purchasing Managers, for example, is
that manufacturing conditions in the U.S. may have
bottomed.
Inflation, as measured by the Consumer Price Index,
averaged 1.5% in 1998, following a 2.3% rise in 1997.
Lower food and energy prices, combined with cheaper
import prices, contributed significantly to the tame
inflation picture. The low inflation rate came
despite a low unemployment rate of 5% or less for
most of the year. In the past, low unemployment
accompanied by growth in money supply has tended to
fuel inflation. However, that did not happen last
year, as concerns about a worldwide credit crunch,
global recession and deflation acted as a brake on
inflation. The U.S. Federal Reserve Board moved away
from its tight monetary policy stance of early 1998
and cut short-term interest rates three successive
times in the fall, easing the availability of credit
and liquidity. As we entered the second calendar
quarter of 1999, economists were debating what the
next move of the Federal Reserve Board might be.
If the economic story during the period was split
into two sections -- consumer and industrial -- the
year in the stock market
Source for all statistical data -- TradeStreet
Investment Associates, Inc.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
4
<PAGE> 9
Economic
Overview continued...
was divided into three periods. For the first seven
months, the market steadily progressed, peaking in
July. Then, the market abruptly reversed course,
diving in August through early October as
international concerns -- starting with the
devaluation of the Russian ruble -- overwhelmed
relatively benign reports about the U.S. economy.
However, the Federal Reserve Board's actions helped
restore confidence, and the market went on to new
highs in late 1998 and early 1999.
The fiscal year also encompassed several different
periods for bond market investors. Earlier in the
year, investor uneasiness about the possibility of a
revival of inflation worried the bond market, and
interest rates tended to rise and bond prices slumped
going into the summer of 1998. That situation changed
dramatically with the Russian economic crisis of
April. Fears about a global economic slowdown drove
investor dollars toward only the highest quality
securities -- principally U.S. Treasuries, and
interest rates fell sharply. This period of investor
anxiety ended in early October, however, as the
Federal Reserve Board's intervention calmed the
markets. For the remainder of the fiscal year,
corporate and mortgage-backed securities -- with
yield spread advantages over U.S.
Treasuries -- tended to return to favor.
International economic forces continue to send mixed
signals. In early 1999, we could see scattered signs
of an economic turnaround in Southeast Asia. Japan
was beginning to reform its banking system, and
investors were waiting to see the impact of an
injection of 40 trillion yen into the banking system.
Japan suffered through its worst economic performance
in 50 years during 1998. The key to its economic
rebound will be how quickly the business community,
consumers and investors regain confidence. Worth
watching will be whether Japan's export industry can
grow. Elsewhere, the international scene provided
additional signs of progress. The International
Monetary Fund (IMF) finally received funding from the
U.S. Congress, easing investor concerns. The
devaluation of the real -- the Brazilian
currency -- seemed to be postponed, but Brazil's
government remained under pressure to carry out
needed economic reforms.
But if U.S. investors found reasons for guarded
optimism in some international developments, they
also found sources for concern. China appeared unable
to meet its ambitious growth targets and Hong Kong's
economy remained under pressure. The world continued
to watch to see whether China would feel pressure to
devalue its currency. Meanwhile, the ability of
Russia to pay its bills remained in doubt and the
Russian domestic political situation raised questions
as Foreign Minister Primakov took over day-to-day
decision-making from an ailing Boris Yeltsin.
5
<PAGE> 10
Economic
Overview continued...
Our outlook for 1999 calls for a possible slowing,
but not reversal, of the domestic economic expansion.
In light of reports of a slowdown in employment
growth, a reduction in capital spending and continued
sluggishness in international trade, we think
economic expansion may have peaked. However, we still
see room for continued growth in 1999 at lower levels
than in 1998, perhaps at a rate of between 3% and
3.5%.
Viewing the domestic stock market in early 1999, the
big question is whether the third quarter of 1998
represented a bottom for earnings and for stock
prices. Given expectations of a slowing of U.S.
economic growth and continued sluggishness in the
global economy, investors are concerned about
corporate earnings expectations for 1999. However, we
do not think the most recent stock market levels
reflected these investor concerns.
In the bond market, we see the potential of a more
stable interest rate climate over the next several
months, with the possibility of less dramatic changes
in investor sentiment than we saw over the past 12
months.
We believe the direction of the markets will depend
greatly on the economy's ability to continue to move
forward at a controlled pace.
C. Thomas Clapp
Chief Equity Investment Officer
TradeStreet Investment Associates, Inc.
March 31, 1999
6
<PAGE> 11
Nations
Short-Term Income
Fund Fixed Income Management
Team Commentary*
<TABLE>
<S> <C>
In the following interview, the team shares its views on
Nations Short-Term Income Fund's performance for the
12-month period ended March 31, 1999, and its outlook
for the future.
PORTFOLIO MANAGEMENT PLEASE DESCRIBE THE FUND'S INVESTMENT STYLE AND PHILOSOPHY.
The Fund is managed by the Fixed The Fund's objective is to seek high current income
Income Management Team of consistent with minimal fluctuation of principal by
TradeStreet Investment Associates, investing in investment-grade debt securities.
Inc., investment sub-adviser to Traditionally, the Fund has maintained a heavy weighting in
the Fund. the investment-grade corporate and asset-backed sectors
INVESTMENT OBJECTIVE because these sectors can be expected to outperform U.S.
The Fund seeks high current income Treasuries over market cycles. Within the corporate sector,
consistent with minimal the Fund focuses on issuers with improving credit
fluctuation of principal. The Fund fundamentals. In the past, performance has been helped by
invests in investment grade debt our discovery, in advance of the market, of companies with
securities. the potential for credit ratings upgrades. We believe
PERFORMANCE REVIEW performance also has been enhanced by our strategy of
For the 12-month period ended rotating among different sectors of the fixed income market,
March 31, 1999, Nations Short-Term depending on where we see the more attractive valuations.
Income Fund Investor A Shares The Fund generally does not make significant changes in
provided shareholders with a total duration -- the sensitivity to changes in interest
return of 5.85%.** rates -- in anticipation of movements in interest rates.
WHAT WERE ECONOMIC AND MARKET CONDITIONS LIKE DURING THE
REPORTING PERIOD?
Conditions during the past 12 months can be broken down into
three fairly distinct periods. The first of these periods
was from April through July 1998; the second was from August
through October 1998; and the third was from November 1998
through March 1999.
The first period, April through July, was characterized by
relative calm in the financial markets. The U.S. economy
continued to expand, despite some signs of modest slowing in
the rate of growth.
</TABLE>
*The outlook for this Fund may differ from that
presented for other Nations Funds mutual
funds.
**The performance shown includes the effect of fee
waivers by the investment adviser, which
have the effect of increasing total return. It does
not reflect the maximum front-end sales
charge of 1.00%, which may apply to purchases of
Investor A Shares. For standardized
performance, please refer to the "Fund Performance"
table.
Source for all statistical data -- TradeStreet
Investment Associates, Inc.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
7
<PAGE> 12
Nations
Short-Term Income
Fund Fixed Income Management
Team Commentary continued...
<TABLE>
<S> <C>
Most domestic investors were more concerned about foreign
events, as Japan continued to struggle in an attempt to fix
its economy and Russia's stock market plummeted. During this
period, U.S. Treasuries performed particularly well as
interest rates declined. In general, as interest rates
decline, bond prices tend to rise, especially for
higher-grade securities, including U.S. Treasuries.
The second period, August through October, defined the past
year. The Russian government's default on part of its
external debt triggered market turmoil throughout the world.
Any signs of weakness in other economies quickly became
exaggerated and international investors flocked to the
reduced risk and liquidity of U.S. Treasury bonds. It became
harder to sell non-Treasury debt issues as liquidity -- the
ease of trading -- evaporated in those markets. Faced with
heightened global demand for U.S. government bonds, yields
on U.S. Treasury securities fell sharply across the maturity
spectrum, with the greatest declines experienced by the
shorter-maturity securities. To illustrate, from the end of
July to the end of October, the yield on the 30-year U.S.
Treasury bond fell by 0.53% while the yield on the two-year
U.S. Treasury note fell by an astounding 1.49%. In reaction
to the loss of confidence and liquidity in international
financial markets, the U.S. Federal Reserve Board (the Fed)
reduced short-term interest rates three successive times in
the fall of 1998 by a total of 0.75%. Before the Fed's
actions, the widespread weakness in international markets
had caused some economists to question whether the domestic
economy could avoid falling into recession. During the
three-month period, corporate bonds underperformed U.S.
Treasuries of comparable maturities by the widest margins
since Lehman Brothers began tracking this data in 1990.
In hindsight, the fears of a global economic meltdown seem
overblown. During the subsequent November 1998 through March
1999 period, the U.S. economy showed few signs of
significant slowing. Gross Domestic Product (the market
value of the goods and services produced) for the fourth
quarter of 1998, for example, grew at an annualized rate of
6.0%, well above Wall Street expectations. Unemployment
remained near generation lows, consumer confidence remained
high, and inflation continued to be a non-issue. In
addition, international market volatility declined. Some
regions, such as Asia, excluding Japan, showed signs of
improvement. All of these factors combined to bring renewed
confidence to the financial markets. As a result, interest
rates rose as investors left the safe haven of the U.S.
Treasury market. Corporate
</TABLE>
8
<PAGE> 13
Nations
Short-Term Income
Fund Fixed Income Management
Team Commentary continued...
<TABLE>
<S> <C>
bonds, asset-backed bonds, and mortgages all outperformed
U.S. Treasuries as the memory of the fall of 1998 faded.
WHAT INVESTMENT DECISIONS CONTRIBUTED TO THE FUND'S
PERFORMANCE?(+)
The increase in emphasis on Several decisions over the past year helped Fund
corporate bonds late in 1998 was a performance, with the most notable coming in the fourth
positive contributor to Fund quarter of 1998 when we increased the Fund's emphasis on
performance. corporate bonds. Up to that time, corporate bonds had gone
through a period of significant underperformance. As a
result, the difference -- or spread -- between the yields
offered by corporate bonds and by U.S. Treasury securities
had widened substantially, with corporate bonds paying
greater yield premiums than had been seen since our last
recession in the early 1990s. The Fund used this opportunity
to increase its weighting of corporate bonds and decrease
the weightings of U.S. Treasury and U.S. agency securities.
In addition to this movement into corporate securities, we
also reduced the Fund's emphasis on the financial sector of
the corporate market in favor of industrial issues. These
actions aided Fund performance late in the 12-month period.
WHAT INVESTMENT DECISIONS HINDERED OVERALL FUND PERFORMANCE
DURING THE PERIOD?
Although the increase in emphasis on corporate securities
helped performance late in 1998, the Fund's heavy weighting
in corporate bonds and asset-backed securities held back
performance earlier in the year. U.S. Treasuries were the
"golden asset class" during this period. Over the full
12-month period, U.S. Treasuries outperformed corporate
bonds, asset-backed and mortgage-backed securities of
comparable maturities. As a result, the Fund's maintenance
of a relatively small weighting in U.S. Treasuries and U.S.
agencies hurt performance for the full period.
WHAT ECONOMIC DEVELOPMENTS DO YOU ANTICIPATE FOR THE
REMAINDER OF 1999?
We expect the domestic economy to slow from its torrid
growth pace of the fourth quarter of 1998. However, the
economy should remain relatively strong, with Gross Domestic
Product (the market value of the goods and services
produced) growing between 3.0% and 3.5% for 1999. Inflation
should remain in check, with the Consumer Price Index
finishing the year below 2.5%. In this environment,
corporate
+Portfolio characteristics are subject to change and may not
be representative of current characteristics.
</TABLE>
9
<PAGE> 14
Nations
Short-Term Income
Fund Fixed Income Management
Team Commentary continued...
<TABLE>
<S> <C>
bonds and asset-backed securities -- those asset classes
historically favored by the Fund -- should perform well. A
word of caution is in order, however. The U.S. stock market
provides a potential risk to this rosy scenario because
valuation levels on large-capitalization stocks have reached
unprecedented heights. Some analysts believe a sizable
market correction is overdue. Any large downturn in stocks
could lead to renewed weakness in corporate bonds and
asset-backed securities. In addition, the international
economy could always throw us a curve ball, as we learned in
1998.
Despite our attention to these risks, we remain optimistic
for 1999 because of the continued strength of the U.S.
economy.
</TABLE>
10
<PAGE> 15
Nations
Short-Term Income
Fund
PORTFOLIO BREAKDOWN (AS A % OF NET ASSETS AS OF 3/31/99)
[PIE CHART]
0.3% Other
1.6% Investment Companies
2.4% Foreign Bonds and Notes
2.5% U.S. Treasury Obligations
4.3% U.S. Government and Agency Obligations
4.4% Mortgage-Backed Securities
26.4% Asset Backed Securities
58.1% Corporate Bonds and Notes
PORTFOLIO HOLDINGS WERE CURRENT
AS OF MARCH 31, 1999, ARE
SUBJECT TO CHANGE AND MAY NOT BE
REPRESENTATIVE OF CURRENT HOLDINGS.
<TABLE>
<C> <S> <C>
TOP TEN HOLDINGS
-------------------------------------------------
1 GE Capital Mortgage Services, Inc.,
Series 1997-HE4, Class A3, 6.590%
12/25/12 2.9%
-------------------------------------------------
2 EQCC Home Equity Loan Trust, Series
1998-1, Class A4F, 6.459% 03/15/21 2.8%
-------------------------------------------------
3 Chase Manhattan Auto Owner Trust,
Series 1996-C, Class A-4, 6.150%
03/15/02 2.6%
-------------------------------------------------
4 Spiegel Master Trust, Series 1995-A,
Class A, 7.500% 09/15/04 2.5%
-------------------------------------------------
5 Premier Auto Trust, Series 1997-2,
Class A5, 6.320% 03/06/02 2.5%
-------------------------------------------------
6 ERAC USA Finance Company, 7.500%
06/15/03 2.5%
-------------------------------------------------
7 Union Planters National Bank, Notes,
6.470% 10/29/99 2.2%
-------------------------------------------------
8 Heller Financial Inc., 5.875%
11/01/00 2.2%
-------------------------------------------------
9 Paine Webber Group Inc., 7.700%
02/11/00 2.1%
-------------------------------------------------
10 Federal National Mortgage Association
(FNMA) Certificates, 6.000% 11/01/03 2.1%
-------------------------------------------------
THE TOP TEN HOLDINGS ARE PRESENTED TO ILLUSTRATE
EXAMPLES OF THE INDUSTRIES AND SECURITIES IN
WHICH THE FUND MAY INVEST.
</TABLE>
11
<PAGE> 16
Nations
Short-Term Income
Fund Performance
GROWTH OF $10,000 INVESTMENT
[PRIMARY A RETURN CHART]
<TABLE>
<CAPTION>
MERRILL LYNCH|1-3
SHORT-TERM|INCOME|$13,846 YEAR|TREASURY|INDEX|$14,207
------------------------- ---------------------------
<S> <C> <C>
Oct. 2|1992 10000 10000
'1992' 9815 10018
10124 10239
10295 10350
10480 10498
'1993' 10536 10560
10431 10507
10389 10516
10488 10620
'1994' 10484 10620
10817 10976
11192 11329
11361 11499
'1995' 11646 11789
11673 11827
11783 11947
11968 12144
'1996' 12192 12375
12262 12456
12497 12730
12725 12980
'1997' 12902 13198
13080 13392
13288 13597
13608 14016
'1998' 13686 14122
Mar. 31|1999 13846 14207
</TABLE>
[INVESTOR A RETURN CHART]
<TABLE>
<CAPTION>
MERRILL LYNCH|1-3
SHORT-TERM|INCOME|$13,986 YEAR|TREASURY|INDEX|$14,207
------------------------- ---------------------------
<S> <C> <C>
Oct. 2|1992 10000 10000
'1992' 9914 10018
10226 10239
10399 10350
10586 10498
'1993' 10642 10560
10536 10507
10494 10516
10594 10620
'1994' 10590 10620
10926 10976
11305 11329
11476 11499
'1995' 11764 11789
11791 11827
11902 11947
12089 12144
'1996' 12315 12375
12386 12456
12623 12730
12354 12980
'1997' 13032 13198
13212 13392
13422 13597
13746 14016
'1998' 13824 14122
Mar. 31|1999 13986 14207
</TABLE>
<TABLE>
<S> <C> <C>
AVERAGE ANNUAL TOTAL RETURN
Investor A Shares
Since Inception NAV** MOP*
(10/2/92 through
3/31/99) 5.30% 5.14%
</TABLE>
The charts to the left show
the growth in value of a
hypothetical $10,000
investment in Investor A
Shares of Nations Short-Term
Income Fund from the
inception of the shareclass.
Figures for the Merrill
Lynch 1-3 Year Treasury
Index, an unmanaged index
comprised of U.S. Treasury
securities with maturities
of 1-3 years, include
reinvestment of dividends.
It is unavailable for
investment. The performance
of Primary A and Investor C
Shares may vary based on the
differences in sales loads
and fees paid by the
shareholders investing in
each class.
[CHART LEGEND]
TOTAL RETURN (AS OF 3/31/99)
<TABLE>
<CAPTION>
Investor A Investor B Investor C
Primary A Primary B NAV MOP NAV CDSC*** NAV CDSC
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Inception Date 9/30/92 6/28/96 10/2/92 10/2/92 6/7/93 6/7/93 10/2/92 10/2/92
- -------------------------------------------------------------------------------------------------------
1 YEAR PERFORMANCE 6.07% 5.70% 5.85% 4.78% 5.70% 5.70% 5.64% 4.64%
- -------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL RETURNS
3 YEARS 6.07% -- 5.85% 5.49% 5.69% 5.69% 5.68% 5.68%
5 YEARS 6.04% -- 5.83% 5.61% 5.66% 5.66% 5.65% 5.65%
SINCE INCEPTION 5.54% 5.19% 5.30% 5.14% 5.25% 5.25% 5.11% 5.11%
</TABLE>
THE PERFORMANCE SHOWN REPRESENTS PAST PERFORMANCE AND IS NOT PREDICTIVE OF
FUTURE RESULTS. A MUTUAL FUND'S SHARE PRICE AND INVESTMENT RETURN WILL VARY WITH
MARKET CONDITIONS, AND THE PRINCIPAL VALUE OF SHARES, WHEN REDEEMED, MAY BE
WORTH MORE OR LESS THAN THEIR ORIGINAL COST. Average annual returns are
historical in nature and measure net investment income and capital gain or loss
from portfolio investments assuming reinvestment of dividends.
*Figures at maximum offering price (MOP) reflect the maximum front-end sales
charge of 1.00%.
**Figures at net asset value (NAV) do not reflect any sales charges. Investor A
Shares are available with a reduced or waived sales charge only under certain
circumstances as described in the prospectus.
***Figures at CDSC reflect the maximum applicable contingent deferred sales
charge.
The performance shown includes the effect of fee waivers by the investment
adviser, which have the effect of increasing total return.
12
<PAGE> 17
Nations
Short-Intermediate Government
Fund Fixed Income Management
Team Commentary*
<TABLE>
<S> <C>
In the following interview, the team shares its views on
Nations Short-Intermediate Government Fund's performance for
the 12-month period ended March 31, 1999, and its outlook
for the future.
PORTFOLIO MANAGEMENT PLEASE DESCRIBE THE FUND'S INVESTMENT STYLE AND PHILOSOPHY.
The Fund is managed by the Fixed The Fund offers shareholders a low-volatility,
Income Management Team of high-credit-quality approach to investing in the bond market
TradeStreet Investment Associates, by focusing primarily on U.S. Government securities and
Inc., investment sub-adviser to mortgage-backed securities.
the Fund.
WHAT WERE ECONOMIC AND MARKET CONDITIONS LIKE DURING THE
INVESTMENT OBJECTIVE REPORTING PERIOD?
The Fund seeks high current income The 12-month period was a generally favorable time for
consistent with modest fluctuation investing in short- and intermediate-term government
of principal. The Fund invests securities. Declining oil and commodity prices and turmoil
primarily in securities issued or surrounding global financial concerns provided a favorable
guaranteed by the U.S. Government, backdrop for fixed income investing, despite persistent
its agencies or instrumentalities. strength in the U.S. economy and equity markets.
PERFORMANCE REVIEW The fiscal period began in the spring of 1998 amid investor
For the 12-month period ended concerns that the U.S. economy could have been growing too
March 31, 1999, Nations strongly, and with fears that the Federal Reserve Board
Short-Intermediate Government Fund might raise short-term interest rates to stave off potential
Investor A Shares provided inflationary pressures. Amid these concerns, yields on bonds
shareholders with a total return stayed firm after having risen early in the year, and bond
of 4.76%.** prices were soft. However, the fears of possible excessive
growth and a revival of inflation were headed off by reports
of declining oil and commodity prices, and interest rates
started to decline modestly into early summer.
A major turning point came in August 1998 when the Russian
government defaulted on part of its debt. This unexpected
action came at a time when many institutions were using
leverage -- borrowed money -- to invest in bonds. Leverage
tends to exaggerate the impact of relatively minor changes
in prices. As a result of the Russian default, many
investors immediately tried to unwind their borrowed
positions. In financial markets throughout the world,
investors attempted to sell any securities that carried
credit or
</TABLE>
*The outlook for this Fund may differ from that
presented for other Nations Funds mutual funds.
**The performance shown includes the effect of fee
waivers by the investment adviser, which have
the effect of increasing total return. It does not
reflect the maximum front-end sales charge of
3.25%, which may apply to purchases of Investor A
Shares. For standardized performance, please
refer to the "Fund Performance" table.
Source for all statistical data -- TradeStreet
Investment Associates, Inc.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
13
<PAGE> 18
Nations
Short-Intermediate Government
Fund Fixed Income Management
Team Commentary continued...
<TABLE>
<S> <C>
currency risk and sought the highest quality instruments. As
a result, the spread -- the difference between
yields -- between the highest quality debt instruments and
lower quality instruments widened dramatically as investors
sought out the relative safety of quality bonds. Equity
markets throughout the world also suffered sharp declines in
the wake of the Russian default. To restore confidence and
stability to the markets, the Federal Reserve Board lowered
short-term interest rates three successive times in the fall
of 1998, by a total of .75%. This prompt action quickly
calmed investor fears, restoring confidence to the financial
markets. Throughout this entire period, the U.S. economy
kept growing as consumers remained confident and continued
to spend.
As international economic problems The impact of these changing cross-currents on the U.S.
caused a global flight to quality, government bond market varied as the period progressed. The
investors sought out the relative differences between the yields on short-term and long-term
safety and stability of U.S. government securities remained relatively stable in the
government securities. early spring, but the difference subsequently narrowed as
declining oil prices and reduced fears of inflation pulled
long-term interest rates down. A period of relative
stability ended abruptly in August 1998, however, with the
Russian bond default. The resulting global "flight to
quality" had the greatest benefit to the highest quality and
lowest risk instruments -- U.S. Treasury securities -- and
investors in short-term U.S. government securities were
rewarded.
After the Federal Reserve Board lowered interest rates and
restored confidence to the markets in the fall, investors
returned to search for the yield premiums offered by
non-U.S. Treasury securities. During the fourth calendar
quarter of 1998, money flowed into the mortgage, corporate
and asset-backed securities markets.
Early 1999 was marked by relative stability in the bond
markets, with the Federal Reserve Board leaving short-term
interest rates unchanged. This relatively stable environment
appeared to reward fixed-income strategies that emphasized
yield.
</TABLE>
14
<PAGE> 19
Nations
Short-Intermediate Government
Fund Fixed Income Management
Team Commentary continued...
<TABLE>
<S> <C>
WHAT INVESTMENT DECISIONS CONTRIBUTED TO THE FUND'S
PERFORMANCE, AND WHAT DECISIONS DETRACTED FROM
PERFORMANCE?***
As U.S. Treasury securities rallied in the third calendar
quarter, performance was hurt by the Fund's emphasis on the
income advantage offered by mortgage-backed and government
agency securities. However, this underperformance by
non-U.S. Treasury securities created opportunity and we
shifted additional assets into mortgages and U.S. agency
securities to take advantage of their widening yield
advantage. These securities offered even more of an income
advantage than they had offered before the third quarter.
This strategy worked well late in the year, as
mortgage-backed and U.S. agency securities outperformed U.S.
Treasuries. Throughout the period, the Fund maintained
enough of a presence in the U.S. Treasury market to ensure
sufficient liquidity to protect the portfolio.
WHAT ECONOMIC DEVELOPMENTS DO YOU ANTICIPATE DURING THE REST
OF 1999?
We believe U.S. economic growth shows only modest signs of
slowing and inflation should remain under control as
continued gains in productivity offset pressure to raise
prices. Given this economic outlook, we do not anticipate
any significant actions by the Federal Reserve Board to
either raise or lower short-term interest rates. In this
environment, we expect yields to remain relatively stable,
fluctuating within relatively narrow ranges. This should be
a very good environment for investments in mortgage-backed
securities. While we retain this positive outlook, we also
watch for potential risks that could upset this trading
range environment. Among these risks are the possibilities
of an unexpectedly strong rebound in Japan's
economy -- which could lead to inflationary pressures -- or
a large and protracted decline in the domestic equity
markets.
HOW ARE YOU POSITIONING THE FUND TO TAKE ADVANTAGE OF THESE
ANTICIPATED DEVELOPMENTS?
The Fund has increased its allocation to mortgages and
agency securities because of the added income they offer
over U.S. Treasuries in a relatively stable environment. As
always, the Fund will seek performance advantages by
balancing short-term and longer-term maturities. These
strategies should support performance, especially if the
bond market continues to show greater stability than it did
in 1998.
***Portfolio characteristics are subject to change and may
not be representative of current characteristics.
</TABLE>
15
<PAGE> 20
Nations
Short-Intermediate Government
Fund
PORTFOLIO BREAKDOWN (AS A % OF NET ASSETS AS OF 3/31/99)
[PIE CHART]
0.2% Short Term Investments
4.6% Investment Companies
27.5% U.S. Treasury Obligations
28.0% U.S. Government and Agency Obligations
38.8% Mortgage-Backed Securities
0.9% Other
PORTFOLIO HOLDINGS WERE CURRENT
AS OF MARCH 31, 1999, ARE
SUBJECT TO CHANGE AND MAY NOT BE
REPRESENTATIVE OF CURRENT HOLDINGS.
<TABLE>
<C> <S> <C>
TOP TEN HOLDINGS
-------------------------------------------------
1 Federal Home Loan Mortgage
Corporation (FHLMC), 5.000% 01/15/04 7.0%
-------------------------------------------------
2 Federal National Mortgage Association
(FNMA) Certificates, 7.000% 02/01/29 6.9%
-------------------------------------------------
3 Federal Home Loan Bank (FHLB), 5.125%
02/26/02 6.2%
-------------------------------------------------
4 Federal National Mortgage Association
(FNMA) Certificates, 7.500% 07/01/28 5.8%
-------------------------------------------------
5 Federal Home Loan Bank (FHLB), 4.650%
10/20/00 4.6%
-------------------------------------------------
6 Federal National Mortgage Association
(FNMA), 5.125% 02/13/04 4.6%
-------------------------------------------------
7 Federal National Mortgage Association
(FNMA), 6.650% 11/14/07 3.1%
-------------------------------------------------
8 Federal National Mortgage Association
(FNMA) Certificates, 6.500% 03/01/28 3.0%
-------------------------------------------------
9 Government National Mortgage
Association (GNMA) Certificates,
6.125% 11/20/27 2.8%
-------------------------------------------------
10 Federal Home Loan Mortgage
Corporation (FHLMC), 5.125% 10/15/08 2.6%
-------------------------------------------------
THE TOP TEN HOLDINGS ARE PRESENTED TO ILLUSTRATE
EXAMPLES OF THE INDUSTRIES AND SECURITIES IN
WHICH THE FUND MAY INVEST.
</TABLE>
16
<PAGE> 21
Nations
Short-Intermediate Government
Fund Performance
GROWTH OF $10,000 INVESTMENT
[PRIMARY A RETURN CHART]
<TABLE>
<CAPTION>
SHORT-INTERMEDIATE LEHMAN INTERMEDIATE GOVERNMENT BOND
GOVERNMENT $15,410 INDEX $17,131
-------------------------------- -----------------------------------
<S> <C> <C>
Aug. 5 1991 10000 10000
10088 10363
1991 10569 10862
10412 10748
10874 11165
11255 11655
1992 11171 11616
11594 12051
11771 12287
12031 12546
1993 12047 12565
11832 12332
11712 12263
11766 12358
1994 11735 12345
12177 12859
12629 13459
12806 13668
1995 13168 14125
13047 14028
13059 14122
13278 14365
1996 13561 14697
13541 14694
13896 15104
14218 15491
1997 14517 15833
14710 16072
14948 16370
15401 17134
1998 15444 17177
Mar. 31 1999 15410 17131
</TABLE>
[INVESTOR A RETURN CHART]
<TABLE>
<CAPTION>
SHORT-INTERMEDIATE LEHMAN INTERMEDIATE GOVERNMENT BOND
GOVERNMENT $15,928 INDEX $17,131
-------------------------------- -----------------------------------
<S> <C> <C>
Aug. 5 1991 10000 10000
10427 10363
1991 10924 10862
10762 10748
11239 11165
11633 11655
1992 11547 11616
11983 12051
12167 12287
12435 12546
1993 12452 12565
12230 12332
12105 12263
12161 12358
1994 12129 12345
12587 12859
13053 13459
13236 13668
1995 13611 14125
13486 14028
13498 14122
13724 14365
1996 14017 14697
13996 14694
14362 15104
14696 15491
1997 15004 15833
15204 16072
15450 16370
15918 17134
1998 15963 17177
Mar. 31 1999 15928 17131
</TABLE>
<TABLE>
<S> <C> <C>
AVERAGE ANNUAL TOTAL RETURN
Investor A Shares
Since Inception NAV** MOP*
(8/5/91 through
3/31/99) 6.27% 5.82%
</TABLE>
The charts to the left show
the growth in value of a
hypothetical $10,000
investment in Investor A
Shares of Nations Short-
Intermediate Government Fund
from the inception of the
shareclass. Figures for the
Lehman Intermediate
Government Bond Index, an
unmanaged index comprised of
U.S. government agency and
U.S. Treasury securities,
include reinvestment of
dividends. It is unavailable
for investment. The
performance of Primary A,
Primary B, Investor B, and
Investor C Shares may vary
based on the differences in
sales loads and fees paid by
the shareholders investing
in each class.
[CHART LEGEND]
TOTAL RETURN (AS OF 3/31/99)
<TABLE>
<CAPTION>
Investor A Investor B Investor C
Primary A Primary B NAV MOP NAV CDSC*** NAV CDSC
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Inception Date 8/1/91 6/28/96 8/5/91 8/5/91 6/7/93 6/7/93 6/17/92 6/17/92
- -------------------------------------------------------------------------------------------------------------------
1 YEAR PERFORMANCE 4.97% 4.61% 4.76% 1.32% 4.14% 1.15% 4.05% 3.06%
- -------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL RETURNS
3 YEARS 5.91% -- 5.70% 4.51% 5.17% 4.87% 5.21% 5.21%
5 YEARS 5.63% -- 5.42% 4.72% 4.94% 4.94% 5.01% 5.01%
SINCE INCEPTION 6.44% 6.03% 6.27% 5.82% 4.43% 4.43% 4.89% 4.89%
</TABLE>
THE PERFORMANCE SHOWN REPRESENTS PAST PERFORMANCE AND IS NOT PREDICTIVE OF
FUTURE RESULTS. A MUTUAL FUND'S SHARE PRICE AND INVESTMENT RETURN WILL VARY WITH
MARKET CONDITIONS, AND THE PRINCIPAL VALUE OF SHARES, WHEN REDEEMED, MAY BE
WORTH MORE OR LESS THAN THEIR ORIGINAL COST. Average annual returns are
historical in nature and measure net investment income and capital gain or loss
from portfolio investments assuming reinvestment of dividends.
*Figures at maximum offering price (MOP) reflect the maximum front-end sales
charge of 3.25%.
**Figures at net asset value (NAV) do not reflect any sales charges. Investor A
Shares are available with a reduced or waived sales charge only under certain
circumstances as described in the prospectus.
***Figures at CDSC reflect the maximum applicable contingent deferred sales
charge.
The performance shown includes the effect of fee waivers by the investment
adviser, which have the effect of increasing total return.
17
<PAGE> 22
Nations
Government Securities
Fund Fixed Income Management
Team Commentary*
<TABLE>
<S> <C>
In the following interview, the team shares its views on
Nations Government Securities Fund's performance for the
12-month period ended March 31, 1999, and its outlook for
the future.
PORTFOLIO MANAGEMENT PLEASE DESCRIBE THE FUND'S INVESTMENT STYLE AND PHILOSOPHY.
The Fund is managed by the Fixed The Fund invests primarily in U.S. Treasuries,
Income Management Team of mortgaged-backed securities and government agency bonds. The
TradeStreet Investment Associates, Fund moves strategically among these sectors and among
Inc., investment sub-adviser to securities of varying maturities to seek both high current
the Fund. income and capital appreciation.
INVESTMENT OBJECTIVE WHAT WERE THE ECONOMIC AND MARKET CONDITIONS LIKE DURING THE
The Fund seeks high current income REPORTING PERIOD?
consistent with moderate The economic and market conditions were exceptional for
fluctuation of principal. The Fund investing in U.S. government securities. Solid growth and
invests primarily in low inflation propelled both stocks and bonds to record
intermediate-term securities levels. One of the most significant economic event of the
issued or guaranteed by the U.S. year was the "Asian Contagion", the financial crisis that
Government, its agencies or began in Asia and spread to include most of the emerging
instrumentalities. markets. As a result of the uncertainty and volatility in
PERFORMANCE REVIEW emerging markets, investors sought out the relative safety
For the 12-month period ended of bonds denominated in the U.S. dollar. A rally in U.S.
March 31, 1999, Nations Government Treasuries hit its peak in early October, with the yield on
Securities Fund Investor A Shares the benchmark 30-year U.S. Treasury bond falling to 4.75%,
provided shareholders with a total before retreating to just over 5.00%. As a general rule,
return of 5.16%.** bond prices -- especially U.S. Treasury bond prices -- tend
to rise as interest rates fall.
While values in the U.S. Treasury market surged in the early
fall of 1998 following the decision of the Russian
government to default on part of its external debt, other
capital markets did not fare as well, including the markets
for U.S. stocks and corporate bonds. In general, investors
increased their selling of risk-oriented investments in a
global "flight to quality" that benefited the
highest-quality securities -- U.S. Treasuries -- the most.
In response to this global
</TABLE>
*The outlook for this Fund may differ from that
presented for other Nations Funds mutual funds.
**The performance shown includes the effect of fee
waivers by the investment adviser, which have
the effect of increasing total return. It does not
reflect the maximum front-end sales charge of
4.75%, which may apply to purchases of Investor A
Shares. For standardized performance, please
refer to the "Fund Performance" table.
Source for all statistical data -- TradeStreet
Investment Associates, Inc.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
18
<PAGE> 23
Nations
Government Securities
Fund Fixed Income Management
Team Commentary continued...
<TABLE>
<S> <C>
financial turmoil, and with few signs of any threat from
inflation, the U.S. Federal Reserve Board lowered short-term
interest rates three successive times in the fall of 1998,
by a total of 0.75%. The Federal Reserve Board's actions
provided the liquidity and the confidence to restore
stability to domestic markets and help other economies hurt
by the spreading economic problems of emerging markets.
The Fund's emphasis on the income With confidence restored in the domestic markets, the
advantage of mortgage-backed economy continued to prosper with healthy growth, high
securities helped performance in employment, but little inflation, earning the "Goldilocks
the first half of the reporting Economy" title -- not too strong, not too weak, but just
period. Over the long term we right. Strong domestic growth allowed stocks to rally and
believe this focus should be a low inflation pushed bond yields down and bond prices up.
winning strategy. This was a scenario, however, which most economists say is
unsustainable in the long run. Typically, strong growth
tends to increase inflation, leading to higher interest
rates. However, this tendency did not play out in 1998
because the global economic slowdown acted as a brake on
U.S. domestic growth.
HOW DID YOU MANAGE THE FUND IN THIS ENVIRONMENT?
The Fund performed in line with its peers during this time
period. As a matter of investment philosophy, normally the
Fund maintains about half its portfolio in mortgage-backed
securities because they provide a high level of income.
During the spring, mortgage-backed securities performed
quite well as interest rates stayed within an established
range. The added income of mortgage-backed securities over
U.S. Treasuries rewarded investors. However, as rates
declined in the summer and fall, mortgage-backed securities
performed poorly in relation to U.S. Treasury securities,
which have greater price appreciation potential in declining
interest rate environments. Over the full 12-month period,
Fund performance was in line with the average performance of
funds in the Lipper General U.S. Government Funds
Universe.*** Performance exceeded that of its peers during
the first half of the year, but fell behind during the
second half.
***Lipper Inc. is an independent mutual fund performance
monitor. Funds included in the Lipper General U.S.
Government Funds Universe invest at least 65% of their
assets in U.S. Government and Agency issues.
</TABLE>
19
<PAGE> 24
Nations
Government Securities
Fund Fixed Income Management
Team Commentary continued...
<TABLE>
<S> <C>
WHAT ECONOMIC DEVELOPMENTS DO YOU ANTICIPATE DURING THE REST
OF 1999?
We foresee more stability in the markets. We do not
anticipate a repeat of the volatility in bond prices and
interest rates of 1998. Outside the U.S., the troubled
economies of Asia and Russia seem to be on the road to
recovery. Domestically, inflation continues to be under
control. That being said, real interest rates -- rates
adjusted for inflation -- remain quite high, and interest
rates could drift moderately lower.
HOW IS THE FUND POSITIONED TO TAKE ADVANTAGE OF THIS?(#)
In this projected environment, fixed income securities that
offer a yield advantage -- or spread -- over U.S. Treasuries
should perform better than U.S. Treasuries. Mortgage-backed
securities and U.S. agency bonds should outperform
comparable-duration U.S. Treasuries. This outlook fits
nicely with our strategy of providing a high level of income
by emphasizing mortgage-backed securities. We therefore
expect to look for opportunities to increase portfolio
holdings of mortgage-backed securities to above 50% of the
Fund's assets. We believe mortgage-backed securities offer
more income than agency or U.S. Treasury bonds with little
increase in risk.
In managing the interest rate sensitivity of the Fund -- its
price sensitivity to changes in interest rates -- we do not
expect to vary duration much from a neutral 5.7-year to
6.0-year position. In an environment of relatively stable
interest rates, the potential gains from changing duration
are not justified by the risks. We will focus primarily on
seeking to increase income through sector selection. This
has proven to be a winning strategy over the long run.
#Portfolio characteristics are subject to change and may not
be representative of current characteristics.
</TABLE>
20
<PAGE> 25
Nations
Government Securities
Fund
PORTFOLIO BREAKDOWN (AS A % OF NET ASSETS AS OF 3/31/99)
[PIE CHART]
<TABLE>
<CAPTION>
<S> <C>
3.9% U.S. Government and Agency Obligations
14.5% U.S. Treasury Obligations
70.1% Mortgage-Backed Securities
11.5% Other
</TABLE>
PORTFOLIO HOLDINGS WERE CURRENT
AS OF MARCH 31, 1999, ARE
SUBJECT TO CHANGE AND MAY NOT BE
REPRESENTATIVE OF CURRENT HOLDINGS.
<TABLE>
<C> <S> <C>
TOP TEN HOLDINGS
-------------------------------------------------
1 Federal National Mortgage Association
(FNMA) Certificates, 6.000% 02/01/29 7.5%
-------------------------------------------------
2 Federal Home Loan Mortgage
Corporation (FHLMC) Certificates,
Series 2054, Class UA, 6.500%
09/15/25 6.8%
-------------------------------------------------
3 Federal Home Loan Bank Discount Note,
.000% 04/21/99 5.9%
-------------------------------------------------
4 Federal Home Loan Mortgage
Corporation (FHLMC) Certificates,
7.000% 10/01/27 5.3%
-------------------------------------------------
5 Texas State, Department of Housing
and Community Affairs, Single-Family
Revenue, Series 1997C, (GNMA/FNMA
COLL, MBIA Insured), 6.800% 09/01/29 4.5%
-------------------------------------------------
6 Federal National Mortgage Association
(FNMA) Certificates, 6.565% 07/01/16 4.2%
-------------------------------------------------
7 Federal National Mortgage Association
(FNMA) Certificates, 6.000% 12/01/28 4.0%
-------------------------------------------------
8 Federal Farm Credit Bank (FFCB),
5.450% 12/11/13 3.2%
-------------------------------------------------
9 Federal National Mortgage Association
(FNMA) Certificates, 6.960% 09/05/12 3.1%
-------------------------------------------------
10 Federal National Mortgage Association
(FNMA) Certificates, Principal Strip,
000% 08/27/04 3.1%
-------------------------------------------------
THE TOP TEN HOLDINGS ARE PRESENTED TO ILLUSTRATE
EXAMPLES OF THE INDUSTRIES AND SECURITIES IN
WHICH THE FUND MAY INVEST.
</TABLE>
21
<PAGE> 26
Nations
Government Securities
Fund Performance
GROWTH OF $10,000 INVESTMENT
[PRIMARY A RETURN CHART]
<TABLE>
<CAPTION>
SALOMON BROTHERS MORTGAGE INDEX $18,504
---------------------------------------
<S> <C>
Apr. 17 1991 10000
10202
10767
1991 11243
11184
11634
11977
1992 12071
12425
12688
12803
1993 12919
12647
12579
12680
1994 12735
13408
14102
14387
1995 14872
14817
14918
15233
1996 15673
15692
16263
16731
1997 17124
17404
17701
18165
1998 18319
Mar. 31 1999 18504
<CAPTION>
LEHMAN INTERMEDIATE TREASURY INDEX $17,608 GOVERNMENT SECURITIES $15,421
------------------------------------------ -----------------------------
<S> <C> <C>
Apr. 17 1991 10000 10000
10169 9624
10652 10121
1991 11165 10619
11048 10429
11477 10837
11980 11186
1992 11940 11159
12387 11491
12629 11728
12896 12002
1993 12915 12009
12676 11644
12605 11440
12702 11375
1994 12690 11372
13218 11930
13835 12475
14049 12682
1995 14518 13077
14420 12807
14516 12786
14766 12992
1996 15107 13373
15104 13167
15526 13628
15923 13975
1997 16275 14482
16521 14666
16826 15044
17612 15694
1998 17656 15664
Mar. 31 1999 17608 15421
</TABLE>
[INVESTOR A RETURN CHART]
<TABLE>
<CAPTION>
SALOMON BROTHERS MORTGAGE INDEX $18,504
---------------------------------------
<S> <C>
Apr. 17 1991 10000
10202
10767
1991 11243
11184
11634
11977
1992 12071
12425
12688
12803
1993 12919
12647
12579
12680
1994 12735
13408
14102
14387
1995 14872
14817
14918
15233
1996 15673
15692
16263
16731
1997 17124
17404
17701
18165
1998 18319
Mar. 31 1999 18504
<CAPTION>
LEHMAN INTERMEDIATE TREASURY INDEX $17,608 GOVERNMENT SECURITIES $16,190
------------------------------------------ -----------------------------
<S> <C> <C>
Apr. 17 1991 10000 10000
10169 10104
10652 10625
1991 11165 11148
11048 10949
11477 11378
11980 11744
1992 11940 11716
12387 12064
12629 12312
12896 12601
1993 12915 12608
12676 12225
12605 12011
12702 11942
1994 12690 11939
13218 12525
13835 13097
14049 13315
1995 14518 13729
14420 13448
14516 13423
14766 13639
1996 15107 14040
15104 13824
15526 14308
15923 14671
1997 16275 15204
16521 15397
16826 15794
17612 16477
1998 17656 16445
Mar. 31 1999 17608 16190
</TABLE>
<TABLE>
<S> <C> <C>
AVERAGE ANNUAL TOTAL RETURN
Investor A Shares
Since Inception NAV** MOP*
(4/17/91 through
3/31/99) 6.24% 5.59%
</TABLE>
The charts to the left show
the growth in value of a
hypothetical $10,000
investment in Investor A
Shares of Nations Government
Securities Fund from the
inception of the shareclass.
Figures for the Lehman
Intermediate Treasury Index
track the market value of
U.S. Treasury securities
with maturities of 3 to 10
years. The Salomon Brothers
Mortgage Index is comprised
of 30-year and 15-year GNMA,
FNMA and FHLMC securities
and FNMA and FHLMC balloon
mortgages. Both Indices are
unmanaged and unavailable
for investment. The
performance of Primary A,
Investor B and Investor C
Shares may vary based on the
differences in sales loads
and fees paid by the
shareholders investing in
each class.
[CHART LEGEND]
TOTAL RETURN (AS OF 3/31/99)
<TABLE>
<CAPTION>
Investor A Investor B Investor C
Primary A NAV MOP NAV CDSC*** NAV CDSC
<S> <C> <C> <C> <C> <C> <C> <C>
Inception Date 4/11/91 4/17/91 4/17/91 6/7/93 6/7/93 7/6/92 7/6/92
- -------------------------------------------------------------------------------------------------------------------------
1 YEAR PERFORMANCE 5.41% 5.16% 0.20% 4.53% 0.55% 4.52% 3.52%
- -------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL RETURNS
3 YEARS 6.65% 6.39% 4.68% 5.85% 4.95% 5.91% 5.91%
5 YEARS 6.04% 5.78% 4.75% 5.29% 5.13% 5.30% 5.30%
SINCE INCEPTION 6.48% 6.24% 5.59% 4.46% 4.46% 4.73% 4.73%
</TABLE>
THE PERFORMANCE SHOWN REPRESENTS PAST PERFORMANCE AND IS NOT PREDICTIVE OF
FUTURE RESULTS. A MUTUAL FUND'S SHARE PRICE AND INVESTMENT RETURN WILL VARY WITH
MARKET CONDITIONS, AND THE PRINCIPAL VALUE OF SHARES, WHEN REDEEMED, MAY BE
WORTH MORE OR LESS THAN THEIR ORIGINAL COST. Average annual returns are
historical in nature and measure net investment income and capital gain or loss
from portfolio investments assuming reinvestment of dividends.
*Figures at maximum offering price (MOP) reflect the maximum front-end sales
charge of 4.75%.
**Figures at net asset value (NAV) do not reflect any sales charges. Investor A
Shares are available with a reduced or waived sales charge only under certain
circumstances as described in the prospectus.
***Figures at CDSC reflect the maximum applicable contingent deferred sales
charge.
The performance shown includes the effect of fee waivers by the investment
adviser, which have the effect of increasing total return.
22
<PAGE> 27
Nations
Strategic Fixed Income
Fund Fixed Income Management
Team Commentary*
<TABLE>
<S> <C>
In the following interview, the team shares its views on
Nations Strategic Fixed Income Fund's performance for the
12-month period ended March 31, 1999, and its outlook for
the future.
PORTFOLIO MANAGEMENT WHAT WERE ECONOMIC AND MARKET CONDITIONS LIKE DURING THE
The Fund is managed by the Fixed REPORTING PERIOD?
Income Management Team of The past 12 months will be remembered as one of the most
TradeStreet Investment Associates, volatile periods in fixed income history. The crisis in
Inc., investment sub-adviser to Asia, the Russian default and the devaluation of the
the Fund. Brazilian Real caused dramatic swings in both interest rates
INVESTMENT OBJECTIVE and the spreads between the yields of higher quality and
The Fund seeks total return by lower quality bonds. To calm the markets and restore
investing in investment grade liquidity the Federal Reserve Board (the Fed) lowered short-
fixed income securities. term interest rates three successive times in the fall of
PERFORMANCE REVIEW 1998, by a total of 0.75%. Several examples illustrate the
For the 12-month period ended extent of the volatility during the 12-month period. The
March 31, 1999, Nations Strategic yield on the benchmark 10-year U.S. Treasury note, which was
Fixed Income Fund Investor A at 5.16% on March 19, 1999, fluctuated over a 1.2% range
Shares provided shareholders with during the year, from a high of 5.81% on April 29, 1998 to a
a total return of 5.40%.** low of 4.16% on October 10, 1998. The spreads -- or
differences in yields -- between 10-year, A-rated corporate
bonds and 10-year U.S. Treasury notes started the period at
0.75%, and widened to as much as 1.45% before ending the
period at 1.05%.
International turmoil and the Asian recession also took its
toll on commodities. Demand for oil all but evaporated and
crude oil prices declined from almost $18.00 a barrel to
just under $11.50, before rebounding to $15.00 on strong
U.S. growth and expectations of a quick recovery in Asia.
Throughout this turmoil, the U.S. remained an "oasis of
prosperity" with U.S. Gross Domestic Product (the market
value of the goods and services produced) growing at an
estimated 4.3% for 1998. The U.S. consumer, unfazed by the
recent volatility, continued to spend, pushing the economy
through its ninth year of expansion.
</TABLE>
*The outlook for this Fund may differ from that
presented for other Nations Funds mutual funds.
**The performance shown includes the effect of fee
waivers by the investment adviser, which have
the effect of increasing total return. It does not
reflect the maximum front-end sales charge of
3.25%, which may be applied to purchases of Investor
A Shares. For standardized performance,
please refer to the "Fund Performance" table.
Source for all statistical data -- TradeStreet
Investment Associates, Inc.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
23
<PAGE> 28
Nations
Strategic Fixed Income
Fund Fixed Income Management
Team Commentary continued...
<TABLE>
<S> <C>
Unemployment remained near historical lows as continued
strength in real disposable income translated into a high
consumer confidence. At the same time, the industrial side
of the economy, burdened by slower exports as well as the
effects of the strong dollar, remained sluggish.
Inflation, as measured by the Consumer Price Index (CPI),
remained benign over the past year, increasing only 1.5% in
1998. Huge declines in commodities and weakness on the
manufacturing side of the economy offset relatively full
employment and money supply growth.
The overall performance of the fixed income markets for the
past 12 months was strong, with the benchmark Salomon Broad
Investment Grade Index*** posting a positive return of
6.31%.
The top-performing sector for the period was U.S. agency
debt which outperformed comparable maturity U.S. Treasuries
by 0.44%, followed by U.S. agency mortgage-backed securities
which outperformed U.S. Treasuries by 0.28%. The
worst-performing sector was U.S. corporate bond debt, which
underperformed U.S. Treasuries by 0.60%. AA-rated, A-rated,
and BBB-rated corporate bonds underperformed U.S. Treasuries
by 0.03%, 0.27%, and 1.61%, respectively.
HOW DID YOU MANAGE THE FUND IN THIS ENVIRONMENT?
Despite the volatility in the fixed income markets, we
maintained the Fund's strategy of maximizing income while
carefully controlling risk. While this caused the Fund to
underperform during the third calendar quarter 1998, it was
able to outperform competitors when the markets reversed
course in the final quarter of 1998.
***The Salomon Broad Investment Grade Index is
market-capitalization-weighted and includes fixed-rate
Treasury, Government-sponsored, mortgage and
investment-grade corporates with a maturity of one year or
longer. It is unmanaged and unavailable for investment.
</TABLE>
24
<PAGE> 29
Nations
Strategic Fixed Income
Fund Fixed Income Management
Team Commentary continued...
<TABLE>
<S> <C>
As the yield advantages of WHAT INVESTMENT DECISIONS CONTRIBUTED TO THE FUND'S
mortgage-backed securities and PERFORMANCE?(+)
corporate bonds over U.S. The most important investment decision that was made during
Treasuries grew wider late in the reporting period was to increase the Fund's weightings
1998, we increased our emphasis on in corporate bonds and mortgage-backed securities
those sectors, helping Fund (mortgages) during the fourth quarter. A-rated corporate
performance. bonds were trading as wide as 1.45% over U.S. Treasuries.
The last time investment-grade corporate bonds traded at
these levels was when the U.S. was deep in a recession in
the early 90s. While we believed U.S. economic growth would
slow, we also believed that the combination of strong levels
of consumer spending and an attentive Fed would prevent a
recession. The spread between A-rated corporate bonds and
U.S. Treasury notes have since tightened to 0.80%. U.S.
government agency mortgage-backed securities were trading at
more than 2.00% over 10-year U.S. Treasuries. This was a
level that had not been seen since the infancy of the
mortgage-backed securities market in the middle 80s. The
combination of historically low rates and attractive
mortgage refinancing opportunities increased the supply of
mortgage-backed securities. It was our belief that once the
market absorbed the excess supply, the yield spreads between
mortgages and U.S. Treasuries would tighten to more
reasonable levels and mortgages would outperform U.S.
Treasuries. Mortgages have since tightened 0.40% to 1.60%
over 10-year U.S. Treasury notes.
WHAT INVESTMENT DECISIONS HINDERED THE OVERALL PERFORMANCE
OF THE FUND?
The investment decision that most hindered the performance
for the Fund was our systematic overweighting of
investment-grade corporate bonds and asset-backed
securities. Our process relies on overweighting these
products to seek to add income to the portfolio in exchange
for a slightly higher risk profile. The past 12 months have
been an extremely difficult period for all but the most
liquid sectors of the fixed income markets. Because our
focus is on higher yielding investment-grade corporate bonds
and other "spread" products, the portfolio had a strong
positive return, but the prices of the securities in the
portfolio did not increase as much as comparable maturity
U.S. Treasury securities. However, over the last few months
of the fiscal period, this trend reversed itself and the
portfolio performed extremely well.
+Portfolio characteristics are subject to change and may not
be representative of current characteristics.
</TABLE>
25
<PAGE> 30
Nations
Strategic Fixed Income
Fund Fixed Income Management
Team Commentary continued...
<TABLE>
<S> <C>
WHAT ECONOMIC DEVELOPMENTS DO YOU ANTICIPATE DURING THE REST
OF 1999?
While the consensus of Wall Street economists is for U.S.
Gross Domestic Product to grow at a rate 3.5% in 1999, we
believe that there is a risk that growth may be quicker
because of the momentum of the U.S. economy. The wildcard
over the next year is the timing of Asia's economic
turnaround.
Asia remains a big question mark for the next year, with
many economists calling for a "v" shaped recovery. This
would indicate a recovery as rapid and dramatic as the
initial fall. Although we believe the Asian economies have
bottomed, we suspect that the recovery in the region will be
slower than anticipated. While Korea has recently shown
strength in industrial production and exports, Japan, which
constitutes two-thirds of the region's Gross Domestic
Product, continues to show signs of weakness. If Japan
chooses to monetize its debt by printing currency, they may
cause another round of devaluations in the region. China has
stated its intentions to maintain the value of the Yen, but
if it fails to meet its growth targets and the Yen declines
substantially in value, all bets are off.
Our interest rate outlook for the rest of 1999 is for rates
to remain within a 0.50% range and for the Fed to move from
neutral to a bias towards tightening, or raising short-term
rates. U.S. interest rates are bounded on the high side by
the fact that they are high when compared to the rest of the
world. They are bounded on the low side by the fact that the
U.S. economy is too strong and fully employed to warrant a
large decline in rates.
HOW IS THE FUND POSITIONED TO TAKE ADVANTAGE OF THESE
ANTICIPATED DEVELOPMENTS?
With our expectations of fairly stable interest rates and a
strong U.S. economy, we believe the top-performing sectors
will be the "spread" sectors. These include corporate bonds,
asset-backed securities, and mortgage-backed debt. We
believe these products will add income to the portfolio and,
when spreads revert to more normal levels, the prices of
these securities should increase relative to comparable
maturity U.S. Treasury securities. With this in mind, the
Fund will continue to hold sizeable positions in corporate
bonds, asset-backed and U.S. agency mortgage-backed
securities.
</TABLE>
26
<PAGE> 31
Nations
Strategic Fixed Income
Fund Fixed Income Management
Team Commentary continued...
<TABLE>
<S> <C>
Another area of focus for the coming year is AAA-rated
commercial mortgage-backed securities. These securities are
the highest rated and are backed by loans on commercial
properties. Unlike traditional residential mortgage-backed
securities, the loans underlying these securities are in
many cases prevented from prepayment before maturity. At
1.25% over comparable maturity U.S. Treasuries, these
securities offer little credit risk and a tremendous
increase in yield.
Finally, to seek to maximize the return of the portfolio, we
will look to rotate selectively among high quality sectors
like U.S. agency mortgage-backed and AAA-rated asset-backed
securities. Temporary supply/demand imbalances often create
relative value opportunities among these sectors.
</TABLE>
27
<PAGE> 32
Nations
Strategic Fixed Income
Fund
PORTFOLIO BREAKDOWN (AS A % OF NET ASSETS AS OF 3/31/99)
[PIE CHART]
2.0% Investment Companies
3.8% U.S. Treasury Obligations
4.8% Foreign Bonds and Notes
13.7% Asset-Backed Securities
31.9% Corporate Bonds and Notes
43.8% Mortgage-Backed Securities
PORTFOLIO HOLDINGS WERE CURRENT
AS OF MARCH 31, 1999, ARE
SUBJECT TO CHANGE AND MAY NOT BE
REPRESENTATIVE OF CURRENT HOLDINGS.
<TABLE>
<C> <S> <C>
TOP TEN HOLDINGS
-------------------------------------------------
1 Federal National Mortgage Association
(FNMA) Certificates, 7.00% 02/01/28 7.2%
-------------------------------------------------
2 Federal National Mortgage Association
(FNMA) Certificates, 6.50% 08/01/13 2.5%
-------------------------------------------------
3 Federal National Mortgage Association
(FNMA) Certificates, 6.50% 03/01/29 2.5%
-------------------------------------------------
4 CS First Boston Mortgage Securities
Corporation, Series 1998-C1, Class
A1B, 6.48% 05/17/08 1.7%
-------------------------------------------------
5 GMAC Commercial Mortgage Securities
Inc., Series 1998-C2, Class A2, 6.42%
08/15/08 1.7%
-------------------------------------------------
6 Prudential Securities Secured
Financing Corporation, Series
1998-C1, Class A1B, 6.51% 07/15/08 1.7%
-------------------------------------------------
7 Federal National Mortgage Association
(FNMA) Certificates, 7.50% 02/01/25 1.7%
-------------------------------------------------
8 DLJ Commercial Mortgage Corporation,
Series 1999-CG1, Class A1B1, 6.46%
01/10/09 1.6%
-------------------------------------------------
9 Nomura Asset Securities Corporation,
Series 1998-D6, Class A1B, 6.59%
03/17/28 1.6%
-------------------------------------------------
10 Prudential Securities Secured
Financing Corporation, Series
1999-NRF1, Class A2, 6.48% 01/15/09 1.6%
-------------------------------------------------
THE TOP TEN HOLDINGS ARE PRESENTED TO ILLUSTRATE
EXAMPLES OF THE INDUSTRIES AND SECURITIES IN
WHICH THE FUND MAY INVEST.
</TABLE>
28
<PAGE> 33
Nations
Strategic Fixed Income
Fund Performance
GROWTH OF $10,000 INVESTMENT
[PRIMARY A RETURN CHART]
<TABLE>
<CAPTION>
LEHMAN AGGREGATE BOND
STRATEGIC FIXED INCOME $14,363 INDEX $15,761
------------------------------ ---------------------
<S> <C> <C>
Nov. 19 1992 10000 10000
1992 9782 10161
10246 10581
10523 10861
10847 11145
1993 10820 11151
10511 10831
10383 10720
10436 10785
1994 10440 10826
10913 11372
11557 12064
11725 12301
1995
12221 12825
11914 12598
11928 12669
12102 12904
1996 12456 13291
12355 13216
12769 13702
13176 14156
1997 13486 14573
13629 14800
13928 15146
14352 15787
1998 14421 15841
Mar. 31 1999 14363 15761
</TABLE>
[INVESTOR A RETURN CHART]
<TABLE>
<CAPTION>
LEHMAN AGGREGATE BOND
STRATEGIC FIXED INCOME $14,846 INDEX $15,761
------------------------------ ---------------------
<S> <C> <C>
Nov. 19 1992 10000 10000
1992 10111 10161
10590 10581
10876 10861
11211 11145
1993 11183 11151
10864 10831
10732 10720
10787 10785
1994 10791 10826
11280 11372
11945 12064
12118 12301
1995
12631 12825
12314 12598
12329 12669
12509 12904
1996 12874 13291
12770 13216
13198 13702
13619 14156
1997 13939 14573
14086 14800
14396 15146
14834 15787
1998 14905 15841
Mar. 31 1999 14846 15761
</TABLE>
<TABLE>
<S> <C> <C>
AVERAGE ANNUAL TOTAL RETURN
Investor A Shares
Since Inception NAV** MOP*
(11/19/92 through
3/31/99) 6.41% 5.85%
</TABLE>
The charts to the left show
the growth in value of a
hypothetical $10,000
investment in Investor A
Shares of Nations Strategic
Fixed Income Fund from the
inception of the shareclass.
Figures for the Lehman
Aggregate Bond Index, an
unmanaged index comprised of
the Lehman Government/
Corporate Index, the
Asset-Backed Securities
Index and the
Mortgage-Backed Securities
Index which include U.S.
Treasury issues, agency
issues, corporate bond
issues and mortgage-backed
securities, include
reinvestment of dividends.
It is unavailable for
investment. The performance
of Primary A, Investor B and
Investor C Shares may vary
based on the differences in
sales loads and fees paid by
the shareholders investing
in each class.
[CHART LEGEND]
TOTAL RETURN (AS OF 3/31/99)
<TABLE>
<CAPTION>
Investor A Investor B Investor C
Primary A NAV MOP NAV CDSC*** NAV CDSC
<S> <C> <C> <C> <C> <C> <C> <C>
Inception Date 10/30/92 11/19/92 11/19/92 6/7/93 6/7/93 11/16/92 11/16/92
- -----------------------------------------------------------------------------------------------------------------
1 YEAR PERFORMANCE 5.61% 5.40% 1.94% 4.76% 1.79% 4.90% 3.91%
- -----------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL RETURNS
3 YEARS 6.64% 6.43% 5.28% 5.87% 5.57% 6.02% 6.02%
5 YEARS 6.66% 6.44% 5.74% 5.92% 5.92% 6.06% 6.06%
SINCE INCEPTION 6.61% 6.41% 5.85% 5.24% 5.24% 6.01% 6.01%
</TABLE>
THE PERFORMANCE SHOWN REPRESENTS PAST PERFORMANCE AND IS NOT PREDICTIVE OF
FUTURE RESULTS. A MUTUAL FUND'S SHARE PRICE AND INVESTMENT RETURN WILL VARY WITH
MARKET CONDITIONS, AND THE PRINCIPAL VALUE OF SHARES, WHEN REDEEMED, MAY BE
WORTH MORE OR LESS THAN THEIR ORIGINAL COST. Average annual returns are
historical in nature and measure net investment income and capital gain or loss
from portfolio investments assuming reinvestment of dividends.
*Figures at maximum offering price (MOP) reflect the maximum front-end sales
charge of 3.25%.
**Figures at net asset value (NAV) do not reflect any sales charges. Investor A
Shares are available with a reduced or waived sales charge only under certain
circumstances as described in the prospectus.
***Figures at CDSC reflect the maximum applicable contingent deferred sales
charge.
The performance shown includes the effect of fee waivers by the investment
adviser, which have the effect of increasing total return.
29
<PAGE> 34
Nations
U.S. Government Bond
Fund Fixed Income Committee
Commentary*
<TABLE>
<S> <C>
In the following interview, the Committee shares its views
on Nations U.S. Government Bond Fund's performance for the
12-month period ended March 31, 1999, and its outlook for
the future.
PORTFOLIO MANAGEMENT PLEASE DESCRIBE THE FUND'S INVESTMENT STYLE AND PHILOSOPHY.
The Fund is managed by Boatmen's The Fund is positioned to seek to maximize the long-term
Capital Management, Inc.'s Fixed returns available through the active management of
Income Committee. Boatmen's high-quality fixed income securities. Management has full
Capital Management, Inc., is the discretion with respect to the duration and maturity
investment sub-adviser to the structure, and the average weighted maturity of the Fund can
Fund. be anywhere between five and 30 years. As a result, duration
INVESTMENT OBJECTIVE and average maturity at any time may be significantly above
The Fund seeks total return and or below broad market benchmarks such as the Lehman
preservation of capital by Government Bond Index.***
investing in U.S. government WHAT WERE ECONOMIC AND MARKET CONDITIONS LIKE DURING THE
securities and repurchase REPORTING PERIOD?
agreements collateralized by such In general, the 12-month period was favorable to investing
securities. in U.S. government securities. Domestically, strong economic
PERFORMANCE REVIEW growth was accompanied by low inflation and
For the 12-month period ended stable-to-declining interest rates. Internationally,
March 31, 1999, Nations U.S. uncertainty about global economic growth, rooted in the
Government Bond Fund Investor A Asian economic crisis, encouraged investors to seek the
Shares provided shareholders with relative safety of U.S. Treasury securities. This global
a total return of 5.57%.** "flight to quality" reached its zenith in the weeks
following the Russian government's default on part of its
external debt in August 1998. In the fall, the U.S. Federal
Reserve Board (the Fed) stepped in, lowering short-term
interest rates three successive times. These actions
restored confidence in the world financial markets. While
investors began returning to equity markets and higher-risk
fixed income markets, including corporate bonds in late 1998
and early 1999, U.S. government securities performed very
well during the full 12-month period.
</TABLE>
*The outlook for this Fund may differ from that
presented for other Nations Funds mutual funds.
**The performance shown includes the effect of fee
waivers by the investment adviser, which have
the effect of increasing total return. It does not
reflect the maximum front-end sales charge of
4.75%, which may apply to purchases of Investor A
Shares. For standardized performance, please
refer to the "Fund Performance" table.
***The Lehman Government Bond Index is unmanaged and
represents the return of government
bonds with an average maturity of approximately nine
years. It is unavailable for investment.
Source for all statistical data -- Boatmen's Capital
Management, Inc.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
30
<PAGE> 35
Nations
U.S. Government Bond
Fund Fixed Income Committee
Commentary continued...
<TABLE>
<S> <C>
WHAT INVESTMENT DECISIONS CONTRIBUTED TO THE FUND'S
PERFORMANCE?
Nations U.S. Government Bond Fund's strong performance was
largely the result of the Fund's longer-than-average
duration during most of the past year as bond yields tended
to move down. In general, in a declining interest rate
environment, longer-maturity bonds tend to outperform
shorter-maturity bonds. This is especially true in the U.S.
Treasury market, the highest quality fixed income market.
From the beginning of 1998, we structured the Fund's
investment portfolio consistent with our view that the Asian
economic crisis would slow global growth. We believed the
currency devaluations already experienced in Southeast Asia
would put intense pressure on U.S. companies producing goods
for overseas markets, further softening their already weak
power to control prices. This factor, coupled with declining
commodity prices, would thwart inflationary pressures and
provide a favorable environment for long-term, high-quality
fixed income instruments such as government securities.
This judgment proved to be correct, and the Fund was well
positioned to benefit from the unstable global economic
environment. At the height of the global financial
volatility in the third and fourth calendar quarters of
1998, the Fund maintained a duration above normal
benchmarks, allowing the Fund to take advantage of
heightened demand for U.S. Treasuries in the global flight
to quality. During the fourth calendar quarter, as market
interest rates declined and the Fed lowered short-term
interest rates, we lowered the Fund's duration to be closer
to that of the benchmark's. In general, this active
management of the Fund's duration -- or sensitivity to
interest rate changes -- contributed to the Fund's
performance.
</TABLE>
31
<PAGE> 36
Nations
U.S. Government Bond
Fund Fixed Income Committee
Commentary continued...
<TABLE>
<S> <C>
WHAT ECONOMIC DEVELOPMENTS DO YOU ANTICIPATE DURING THE REST
OF 1999?
In an environment of generally low We anticipate continued low inflation, with the possibility
inflation and declining interest that global economic problems ultimately could slow economic
rates, the decision to concentrate growth in the United States. Such a slowdown could prompt
on longer-maturity government the Fed to lower short- term interest rates again, possibly
securities supported Fund in the second half of 1999. At the end of March 1999, yields
performance. on the 30-year U.S. Treasury continued to be attractive,
based on our outlook for subdued inflation, conservative
monetary policy and slower economic growth. We believe
yields on the 30-year U.S. Treasury Bond should continue to
fluctuate within a range of 5.00% to 5.75%, but that lower
interest rates would be justified if economic growth slows
significantly.
HOW ARE YOU POSITIONING THE FUND TO TAKE ADVANTAGE OF THESE
ANTICIPATED DEVELOPMENTS?(+)
At the end of the Fund's fiscal year on March 31, 1999, the
Fund's duration was maintained at 5.9 years. The Fund
continues to be invested solely in U.S. government
securities. Portfolio allocations, as a percentage of net
assets, were: U.S. Treasury securities, 37%; mortgage-
backed securities, 33%; U.S. Government agency securities,
29%; and cash, 1%.
Given a generally favorable outlook for government
securities, we believe it makes sense to keep portfolio
duration higher than common benchmarks and maintain an
emphasis on mortgage-backed securities, which seem to offer
attractive relative value.
As we monitor the market environment closely, our primary
concerns spring from the recognition that the domestic
economy has remained incredibly resilient, benefiting from
low inflation in spite of high employment. A major
contributor to the health of the economy undoubtedly has
been the increase in the money supply. If not reversed,
however, this trend could lead to a resurgence of inflation
and higher interest rates.
</TABLE>
+Portfolio characteristics are subject to change and
may not be representative of current characteristics.
32
<PAGE> 37
Nations
U.S. Government Bond
Fund
PORTFOLIO BREAKDOWN (AS A % OF NET ASSETS AS OF 3/31/99)
[PIE CHART]
0.8% Investment Companies
29.3% U.S. Government Agency
33.4% Mortgage-Backed Securities
36.5% U.S. Treasury Obligations
PORTFOLIO HOLDINGS WERE CURRENT
AS OF MARCH 31, 1999, ARE
SUBJECT TO CHANGE AND MAY NOT BE
REPRESENTATIVE OF CURRENT HOLDINGS.
<TABLE>
<C> <S> <C>
TOP TEN HOLDINGS
-------------------------------------------------
1 Federal Home Loan Bank (FHLB), 5.63%
03/19/01 7.8%
-------------------------------------------------
2 Federal Home Loan Mortgage
Corporation (FHLMC) Certificates,
5.75% 04/15/08 7.4%
-------------------------------------------------
3 Federal National Mortgage Association
(FNMA) Certificates, 6.00% 03/01/13 6.1%
-------------------------------------------------
4 Federal Home Loan Mortgage
Corporation (FHLMC) Certificates,
5.75% 07/15/03 5.4%
-------------------------------------------------
5 Federal Home Loan Mortgage
Corporation (FHLMC) Certificates,
6.00% 09/01/13 4.8%
-------------------------------------------------
6 Federal National Mortgage Association
(FNMA) Certificates, 6.00% 03/01/13 4.2%
-------------------------------------------------
7 U.S. Treasury Notes, 6.25% 10/31/01 4.1%
-------------------------------------------------
8 U.S. Treasury Notes, 6.25% 02/15/07 4.0%
-------------------------------------------------
9 Federal National Mortgage Association
(FNMA) Certificates, 6.50% 06/01/03 3.9%
-------------------------------------------------
10 Government National Mortgage
Association (GNMA) Certificates,
8.00% 12/01/29 3.5%
-------------------------------------------------
THE TOP TEN HOLDINGS ARE PRESENTED TO ILLUSTRATE
EXAMPLES OF THE INDUSTRIES AND SECURITIES IN
WHICH THE FUND MAY INVEST.
</TABLE>
33
<PAGE> 38
Nations
U.S. Government Bond
Fund Performance
GROWTH OF $10,000 INVESTMENT
[PRIMARY A RETURN CHART]
<TABLE>
<CAPTION>
LEHMAN GOVERNMENT BOND
U.S. GOVERNMENT BOND $13034 INDEX $14170
--------------------------- ----------------------
<S> <C> <C>
Feb. 7 1995 10000 10000
9750 10279
10453 10916
10639 11110
1995 11149 11617
10832 11355
10901 11409
11041 11601
1996 11346 11940
11274 11843
11616 12254
11925 12664
1997 12259 13085
12345 13282
12696 13633
13272 14387
1998 13255 14375
Mar. 31 1999 13034 14170
</TABLE>
[INVESTOR A RETURN CHART]
<TABLE>
<CAPTION>
LEHMAN GOVERNMENT BOND
U.S. GOVERNMENT BOND $13684 INDEX $14170
--------------------------- ----------------------
<S> <C> <C>
Feb. 7 1995 10000 10000
10236 10279
10974 10916
11169 11110
1995 11705 11617
11372 11355
11445 11409
11591 11601
1996 11912 11940
11836 11843
12196 12254
12520 12664
1997 12871 13085
12961 13282
13329 13633
13934 14387
1998 13916 14375
Mar. 31 1999 13684 14170
</TABLE>
<TABLE>
<S> <C> <C>
AVERAGE ANNUAL TOTAL RETURN
Investor A Shares
Since Inception NAV** MOP*
(2/7/95 through
3/31/99) 7.86% 6.61%
</TABLE>
The charts to the left show
the growth in value of a
hypothetical $10,000
investment in Investor A
Shares of Nations U.S.
Government Bond Fund from
the inception of the
shareclass. Figures for the
Lehman Government Bond
Index, an unmanaged index,
represent the return of
government bonds with an
average maturity of
approximately nine years and
include reinvestment of
dividends. It is unavailable
for investment. The
performance of Primary A,
Primary B, Investor B and
Investor C Shares may vary
based on the differences in
sales loads and fees paid by
the shareholders investing
in each class.
[CHART LEGEND]
TOTAL RETURN (AS OF 3/31/99)
<TABLE>
<CAPTION>
Investor A Investor B Investor C
Primary A NAV MOP NAV CDSC*** NAV CDSC
<S> <C> <C> <C> <C> <C> <C>
Inception Date 11/7/94 2/7/95 2/7/95 11/10/94 11/10/94 9/19/97 9/19/97
- -------------------------------------------------------------------------------------------------------------
1 YEAR PERFORMANCE 5.83% 5.57% 0.53% 4.93% 1.04% 5.13% 4.16%
- -------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL RETURNS
3 YEARS 6.59% 6.36% 4.63% 5.68% 4.83% -- --
SINCE INCEPTION 9.23% 7.86% 6.61% 8.21% 8.03% 5.68% 5.68%
</TABLE>
THE PERFORMANCE SHOWN REPRESENTS PAST PERFORMANCE AND IS NOT PREDICTIVE OF
FUTURE RESULTS. A MUTUAL FUND'S SHARE PRICE AND INVESTMENT RETURN WILL VARY WITH
MARKET CONDITIONS, AND THE PRINCIPAL VALUE OF SHARES, WHEN REDEEMED, MAY BE
WORTH MORE OR LESS THAN THEIR ORIGINAL COST. Average annual returns are
historical in nature and measure net investment income and capital gain or loss
from portfolio investments assuming reinvestment of dividends.
*Figures at maximum offering price (MOP) reflect the maximum front-end sales
charge of 4.75%.
**Figures at net asset value (NAV) do not reflect any sales charges. Investor A
Shares are available with a reduced or waived sales charge only under certain
circumstances as described in the prospectus.
***Figures at CDSC reflect the maximum applicable contingent deferred sales
charge.
The performance shown includes the effect of fee waivers by the investment
adviser, which have the effect of increasing total return.
34
<PAGE> 39
Nations
Diversified Income
Fund Fixed Income Management
Team Commentary*
<TABLE>
<S> <C>
In the following interview, the team shares its views on
Nations Diversified Income Fund's performance for the
12-month period ended March 31, 1999, and its outlook for
the future.
PORTFOLIO MANAGEMENT PLEASE DESCRIBE THE FUND'S INVESTMENT PHILOSOPHY AND STYLE.
The Fund is managed by the Fixed Our investment philosophy emphasizes the pursuit of total
Income Management Team of return, based on our belief that the combination of current
TradeStreet Investment Associates, income and price movement ultimately is more important than
Inc., investment sub-adviser to current income alone. We also believe that combining
the Fund. different strategies is the best way to add value over time.
INVESTMENT OBJECTIVE These strategies include making decisions about: allocating
The Fund seeks total return with to different sectors of the fixed income market; rotating
an emphasis on current income by among sectors as the outlook and conditions change;
investing in a diversified selecting individual securities; and managing duration, or
portfolio of fixed income the portfolio's sensitivity to interest rate movements. By
securities. using multiple strategies, we avoid making "big bets" in any
PERFORMANCE REVIEW one area, and we look for each strategy to add the potential
For the 12-month period ended for incremental income without any single strategy
March 31, 1999, Nations dominating returns. The Fund invests in government
Diversified Income Fund Investor A securities and corporate bonds, including high yield
Shares provided a total return of corporate bonds. High yield corporate bonds and government
4.74%.** securities are not highly correlated to one another; they
react differently to changes in interest rates and the
economy. This divergence in performance is the key to this
part of the Fund's strategy, as the Fund balances credit
risk and interest rate risk by allocating assets to the
different sectors as market conditions warrant.
WHAT WERE ECONOMIC AND MARKET CONDITIONS LIKE DURING THE
REPORTING PERIOD?
U.S. Treasuries -- the highest quality securities in the
fixed income market -- were the performance leaders during
the 12-month period, which was dominated by investor fear
and risk avoidance. It also was a period in which a global
"flight-to-quality" favored shorter-maturity U.S.
Treasuries. Yields on two-year U.S. Treasuries, for
</TABLE>
*The outlook for this Fund may differ from that
presented for other Nations Funds mutual funds.
**The performance shown includes the effect of fee
waivers by the investment adviser, which have
the effect of increasing total return. It does not
reflect the maximum front-end sales charge of
4.75%, which may apply to purchases of Investor A
Shares. For standardized performance, please
refer to the "Fund Performance" table.
Source for all statistical data -- TradeStreet
Investment Associates, Inc.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
35
<PAGE> 40
Nations
Diversified Income
Fund Fixed Income Management
Team Commentary continued...
<TABLE>
<S> <C>
example, declined by more than .40%, while yields on 30-year
U.S. Treasuries declined by .25%. As a general rule, bond
prices rise as interest rates decline, especially among
high-grade bonds, including U.S. Treasuries. Throughout the
year, the fear of a global economic slowdown emanating from
the Asian financial crisis caused apprehension in the
financial markets. Investor fears reached their highest
point in the weeks immediately following the Russian
government's decisions in August 1998 to allow the national
currency, the ruble, to devalue and to default on part of
the nation's external debt.
In the face of a crisis of confidence in financial markets
throughout the world, the U.S. Federal Reserve Board reduced
short-term interest rates three successive times in the
fall -- by a total of 0.75%. These actions restored
confidence, liquidity and stability to the markets,
especially helping the performance of corporate bonds and
other fixed-income securities, such as mortgage-backed and
asset-backed securities. However, even with a strong rally
in these sectors toward the end of the fiscal year, U.S.
Treasuries outperformed other fixed income asset classes of
comparable maturities for the full 12-month period.
HOW DID YOU MANAGE THE FUND IN THIS ENVIRONMENT?***
The Fund's active management of We began the period with the Fund defensively positioned,
sector allocation helped with U.S. Treasuries overweighted and corporate bonds
performance, particularly by de- underweighted. We believed that while interest rates were
emphasizing corporate bonds early stable, bond investors were concerned that the Federal
in the year and by emphasizing Reserve Board might raise short-term interest rates to stave
them later. off potential inflation in the face of reports of strong
economic growth and high employment. We believed the
corporate bond sector was overvalued relative to U.S.
Treasury securities and that the incremental yield of
corporate bonds did not justify their added risks. These
concerns also led us to maintain a relatively low weighting
in the high yield sector. Then came August 1998 and the
Russian devaluation and default. It sparked a global flight
to quality that led to a huge rally in U.S. Treasury
securities and underperformance by riskier classes of
securities, including both investment-grade and high yield
corporate bonds. We used this environment as an opportunity
to increase the Fund's emphasis on corporate bonds, which we
believe had taken on more attractive relative value. We
increased the Fund's investment-grade
***Portfolio characteristics are subject to change and may
not be representative of current characteristics.
</TABLE>
36
<PAGE> 41
Nations
Diversified Income
Fund Fixed Income Management
Team Commentary continued...
<TABLE>
<S> <C>
corporate exposure from 48% to 66% of the portfolio and the
high yield corporate exposure from 18% to 21%. The effects
of this change in sector allocation were to increase both
portfolio income and the potential for price appreciation.
At the start of the 12-month period, the Fund's exposure to
the mortgage-backed sector had been reduced because we were
concerned about prepayment risk. That is the risk that
mortgage-backed securities could lose some of their value as
more homeowners refinance their mortgages to take advantage
of lower interest rates. The Fund's mortgage-backed
securities (mortgages) allocation remained relatively stable
throughout the year. During the U.S. Treasury rally of the
fall of 1998, U.S. Treasury securities substantially
outperformed mortgages. While we had modestly increased our
emphasis on mortgages from 13% to 16% of the Fund's
portfolio, we preferred to place greater emphasis on
corporate bonds.
WHAT INVESTMENT DECISIONS CONTRIBUTED TO THE FUND'S
PERFORMANCE?
Our active management of sector allocation, especially as it
affected corporate bond investments, was a significant
contributor. The Fund outperformed competitors early in the
period when we de-emphasized corporate bonds that we
believed were overvalued. However, after the sector
performed poorly, our decision to increase the Fund's
emphasis on corporate securities helped performance, as the
Fund was able to benefit from improving valuations. Our
investment process drives this type of active sector
rotation. By sticking to our discipline, the Fund was able
to generate strong returns.
WHAT INVESTMENT DECISIONS HINDERED OVERALL PORTFOLIO
PERFORMANCE DURING THE PERIOD?
Performance was held back in the final fiscal quarter -- the
first calendar quarter of 1999 -- by our decision not to
increase the Fund's emphasis on corporate securities even
more than we had. The Fund did not participate fully in the
rally in investment-grade and high yield corporate bonds as
those sectors improved.
</TABLE>
37
<PAGE> 42
Nations
Diversified Income
Fund Fixed Income Management
Team Commentary continued...
<TABLE>
<S> <C>
WHAT ECONOMIC DEVELOPMENTS DO YOU ANTICIPATE DURING THE REST
OF 1999?
We expect that the domestic economy may grow even faster
than generally expected by Wall Street, as evidenced by the
rapid expansion during the first quarter of 1999. If other
economies around the world join in this unexpectedly fast
growth, U.S. Gross Domestic Product (the market value of
goods and services produced) could expand more quickly than
the 2.5% rate that the Federal Reserve Board has established
as its "comfort zone." However, we expect that interest
rates in the U.S. will be relatively stable for the
remainder of 1999, as the anticipated benign inflation
picture will likely offset strong domestic growth.
While prospects for improvement in the global economy seem
likely, we have learned over the last few years that
unexpected events can have significant impacts. Currently,
the greatest risks appear to be concentrated in Asia.
Japan's attempts to stimulate its economy could affect other
Asian currencies. If, for example, China were to devalue its
currency, the financial markets could be hit with another
bout of "Asian flu."
HOW IS THE FUND POSITIONED TO TAKE ADVANTAGE OF THESE
ANTICIPATED DEVELOPMENTS?
In an environment of stable interest rates and strong
domestic economic growth, we will continue to emphasize the
sectors that offer yield advantages over U.S. Treasuries,
including corporate bonds and mortgage-backed securities. We
anticipate that the incremental income and potential for
further recovery in these sectors may help them outperform
U.S. Treasuries in the months ahead. In the projected
environment of stable interest rates, we believe security
selection will be a key component of performance. We will
continue to attempt to identify candidates for credit rating
upgrades.
</TABLE>
38
<PAGE> 43
Nations
Diversified Income
Fund
PORTFOLIO BREAKDOWN (AS A % OF NET ASSETS AS OF 3/31/99)
[PIE CHART]
0.8% Investment Companies
0.9% Foreign Bonds and Notes
1.3% Other
3.3% Municipal Bonds and Notes
16.3% Mortgage-Backed Securities
17.7% U.S. Treasury Obligations
59.7% Corporate Bonds and Notes
PORTFOLIO HOLDINGS WERE CURRENT
AS OF MARCH 31, 1999, ARE
SUBJECT TO CHANGE AND MAY NOT BE
REPRESENTATIVE OF CURRENT HOLDINGS.
<TABLE>
<C> <S> <C>
TOP TEN HOLDINGS
-------------------------------------------------
1 Comdisco Inc., 6.130% 08/01/01 1.8%
-------------------------------------------------
2 Government National Mortgage
Association (GNMA) Certificates,
7.500% 09/15/28 1.7%
-------------------------------------------------
3 Federal National Mortgage Association
(FNMA) Certificates, 7.000% 05/01/28 1.7%
-------------------------------------------------
4 Tenet Healthcare Corporation, Sr.
Notes, 8.000% 01/15/05 1.6%
-------------------------------------------------
5 Federal Home Loan Mortgage
Corporation (FHLMC) Certificates,
6.500% 10/01/12 1.6%
-------------------------------------------------
6 Viacom Inc., 8.250% 08/01/22 1.6%
-------------------------------------------------
7 GTE Corporation, 7.900% 02/01/27 1.6%
-------------------------------------------------
8 Louis Dreyfus Natural Gas
Corporation, Sr. Sub. Notes, 9.250%
06/15/04 1.5%
-------------------------------------------------
9 Conseco Finance TR II, 8.700%
11/15/26 1.5%
-------------------------------------------------
10 Washington Mutual Inc., 8.206%
02/01/27 1.5%
-------------------------------------------------
THE TOP TEN HOLDINGS ARE PRESENTED TO ILLUSTRATE
EXAMPLES OF THE INDUSTRIES AND SECURITIES IN
WHICH THE FUND MAY INVEST.
</TABLE>
39
<PAGE> 44
Nations
Diversif ied Income
Fund Performance
GROWTH OF $10,000 INVESTMENT
[PRIMARY A RETURN CHART]
<TABLE>
<CAPTION>
LEHMAN GOVERNMENT/CORPORATE BOND
DIVERSIFIED INCOME $15,401 INDEX $15,052
-------------------------- ---------------------------------
<S> <C> <C>
Nov. 25 1992 10000 10000
1992 9656 10171
10285 10574
10691 10802
11081 11046
1993 11165 11065
10862 10840
10697 10775
10784 10864
1994 10859 10852
11424 11328
12272 11893
12486 12091
1995 13098 12517
12674 12413
12709 12491
12953 12712
1996 13387 13023
13271 13009
13742 13393
14094 13754
1997 14501 14049
14704 14268
15091 14536
15463 15189
1998 15555 15234
Mar. 31 1999 15401 15052
</TABLE>
[INVESTOR A RETURN CHART]
<TABLE>
<CAPTION>
DIVERSIFIED INCOME $16,169 LEHMAN
-------------------------- BROTHERS GOVERNMENT/CORPORATE BOND
INDEX $15,052
-----------------------------------
<S> <C> <C>
Nov. 25 1992 10000 10000
1992 10138 10171
10798 10574
11225 10802
11633 11046
1993 11721 11065
11404 10840
11230 10775
11821 10864
1994 11401 10852
11994 11328
12883 11893
13109 12091
1995 13751 12517
13306 12413
13343 12491
13599 12712
1996 14055 13023
13932 13009
14427 13393
14796 13754
1997 15224 14049
15437 14268
15843 14536
16234 15189
1998 16330 15234
Mar. 31 1999 16169 15052
</TABLE>
<TABLE>
<S> <C> <C>
AVERAGE ANNUAL TOTAL RETURN
Investor A Shares
Since Inception NAV** MOP*
(11/25/92 through
3/31/99) 7.86% 6.86%
</TABLE>
The charts to the left show
the growth in value of a
hypothetical $10,000
investment in Investor A
Shares of Nations
Diversified Income Fund from
the inception of the
shareclass. Figures for the
Lehman Government/Corporate
Bond Index, an unmanaged
index comprised of U.S.
Government, U.S. Treasury
and agency securities,
corporate and yankee bonds,
include reinvestment of
dividends. It is unavailable
for investment. The
performance of Primary A,
Investor B and Investor C
Shares may vary based on the
differences in sales loads
and fees paid by the
shareholders investing in
each class.
[CHART LEGEND]
TOTAL RETURN (AS OF 3/31/99)
<TABLE>
<CAPTION>
Investor A Investor B Investor C
Primary A NAV MOP NAV CDSC*** NAV CDSC
<S> <C> <C> <C> <C> <C> <C> <C>
Inception Date 10/30/92 11/25/92 11/25/92 6/7/93 6/7/93 11/9/92 11/9/92
- -------------------------------------------------------------------------------------------------------------
1 YEAR PERFORMANCE 5.00% 4.74% -0.27% 4.11% -0.77% 4.09% 3.09%
- -------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL RETURNS
3 YEARS 6.98% 6.71% 4.99% 6.12% 5.23% 6.23% 6.23%
5 YEARS 7.50% 7.23% 6.19% 6.66% 6.35% 6.74% 6.74%
SINCE INCEPTION 8.14% 7.86% 7.04% 6.23% 6.11% 7.47% 7.47%
</TABLE>
THE PERFORMANCE SHOWN REPRESENTS PAST PERFORMANCE AND IS NOT PREDICTIVE OF
FUTURE RESULTS. A MUTUAL FUND'S SHARE PRICE AND INVESTMENT RETURN WILL VARY WITH
MARKET CONDITIONS, AND THE PRINCIPAL VALUE OF SHARES, WHEN REDEEMED, MAY BE
WORTH MORE OR LESS THAN THEIR ORIGINAL COST. Average annual returns are
historical in nature and measure net investment income and capital gain or loss
from portfolio investments assuming reinvestment of dividends.
*Figures at maximum offering price (MOP) reflect the maximum front-end sales
charge of 4.75%.
**Figures at net asset value (NAV) do not reflect any sales charges. Investor A
Shares are available with a reduced or waived sales charge only under certain
circumstances as described in the prospectus.
***Figures at CDSC reflect the maximum applicable contingent deferred sales
charge.
The performance shown includes the effect of fee waivers by the investment
adviser, which have the effect of increasing total return.
40
<PAGE> 45
NATIONS FUNDS
Nations Short-Term Income Fund
STATEMENT OF NET ASSETS MARCH 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
(000) (000)
- -----------------------------------------------------------------
<C> <S> <C>
ASSET-BACKED SECURITIES -- 26.4%
ASSET-BACKED -- AUTO LOANS -- 7.5%
$ 7,900 BankBoston RV Trust, Series 1997-1, Class
A-7,
6.480% 07/15/08......................... $ 8,022
11,000 Chase Manhattan Auto Owner Trust, Series
1996-C, Class A-4,
6.150% 03/15/02......................... 11,089
1,917 Keystone Auto Grantor Trust, Series
1996-B, Class A,
6.150% 04/15/03++....................... 1,925
10,400 Premier Auto Trust, Series 1997-2, Class
A5,
6.320% 03/06/02......................... 10,527
--------
31,563
--------
ASSET-BACKED -- CREDIT CARD RECEIVABLES -- 11.4%
3,380 American Express Master Trust, Series
1992-2, Class A,
6.600% 05/15/00......................... 3,392
4,000 Chase Credit Card Master Trust, Series
1998-3, Class A,
6.000% 08/15/05......................... 4,037
7,000 Discover Card Master Trust, Series
1995-2, Class A,
6.550% 02/18/03......................... 7,094
6,350 Household Affinity Credit Card Master
Trust I, Series 1993-1, Class B,
5.300% 09/15/00......................... 6,350
5,000 Metris Master Trust, Series 1997-1, Class
B,
7.110% 10/20/05......................... 5,114
5,500 Prime Credit Card Master Trust, Series
1992-2, Class B2,
7.950% 11/15/02......................... 5,596
5,980 Sears Credit Account Master Trust, Series
1998-1, Class A,
5.800% 08/15/05......................... 5,995
10,300 Spiegel Master Trust, Series 1995-A,
Class A,
7.500% 09/15/04......................... 10,527
--------
48,105
--------
ASSET-BACKED -- HOME EQUITY LOANS -- 7.5%
2,581 EQCC Home Equity Loan Trust, Series
1996-2, Class A2,
6.700% 09/15/08......................... 2,596
11,477 EQCC Home Equity Loan Trust, Series
1998-1, Class A4F,
6.459% 03/15/21......................... 11,606
12,000 GE Capital Mortgage Services, Inc.,
Series 1997-HE4, Class A3,
6.590% 12/25/12......................... 12,122
5,000 Residential Asset Securities Corporation,
Series 1999-KS1, Class AI3,
6.110% 05/25/24......................... 4,991
--------
31,315
--------
TOTAL ASSET-BACKED SECURITIES
(Cost $110,603)......................... 110,983
--------
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
(000) (000)
<C> <S> <C>
CORPORATE BONDS AND NOTES -- 58.1%
BANKING AND FINANCE -- 7.9%
$ 4,300 Banponce Financial Corporation, MTN,
6.560% 04/22/99......................... $ 4,302
3,000 Chase Capital II,
5.470%** 02/01/27....................... 2,836
7,000 First Chicago NBD Corporation, Sr. Notes,
6.250% 07/21/00......................... 7,073
6,000 Golden State Holdings,
6.750% 08/01/01......................... 6,016
4,000 Popular Inc., MTN,
6.375% 09/15/03......................... 3,994
9,000 Union Planters National Bank, Notes,
6.470% 10/29/99......................... 9,077
--------
33,298
--------
BROKERAGE SERVICES -- 10.3%
4,500 Donaldson Lufkin and Jenrette
5.875% 04/01/02......................... 4,496
3,400 Goldman Sachs Group LP, Notes,
5.900% 01/15/03++....................... 3,371
4,000 Lehman Brothers Holdings Inc.,
6.500% 07/18/00......................... 4,027
6,600 Lehman Brothers Holdings Inc.,
6.890% 10/10/00......................... 6,660
7,000 Morgan Stanley Dean Witter and Company,
7.580% 06/11/01......................... 7,277
3,000 Morgan Stanley Dean Witter and Company,
MTN,
6.090%** 03/09/11....................... 3,015
8,800 Paine Webber Group Inc.,
7.700% 02/11/00......................... 8,939
5,000 Salomon Smith Barney Holdings Inc.,
7.980% 03/01/00......................... 5,114
--------
42,899
--------
CAPTIVE FINANCE -- 1.1%
4,500 AT&T Capital Corporation,
6.875% 01/16/01......................... 4,584
--------
ENERGY -- 1.1%
4,355 Coastal Corporation,
10.000% 02/01/01........................ 4,649
--------
ENTERTAINMENT -- 4.0%
8,000 Paramount Communications, Sr. Notes,
7.500% 01/15/02......................... 8,324
5,100 Time Warner, Pass-Thru,
6.100% 12/30/01++....................... 5,140
3,145 Viacom Inc.,
8.250% 08/01/22......................... 3,318
--------
16,782
--------
FINANCIAL SERVICES -- 12.4%
3,500 American General Finance, MTN,
6.520% 06/23/00......................... 3,547
7,100 Aristar Inc., Notes,
6.125% 12/01/00......................... 7,147
7,000 Avco Financial Services,
5.750%** 01/23/06....................... 6,978
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
41
<PAGE> 46
NATIONS FUNDS
Nations Short-Term Income Fund
STATEMENT OF NET ASSETS (CONTINUED) MARCH 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
(000) (000)
- -----------------------------------------------------------------
<C> <S> <C>
CORPORATE BONDS AND
NOTES -- (CONTINUED)
FINANCIAL SERVICES -- (CONTINUED)
$ 7,450 Chrysler Financial Company, LLC,
5.250% 10/22/01......................... $ 7,375
6,500 Finova Capital Corporation,
6.250% 08/15/00......................... 6,546
1,500 Ford Motor Credit Company, MTN,
5.670% 02/15/01......................... 1,504
1,000 Ford Motor Credit Company, MTN,
6.110% 12/28/01......................... 1,008
5,000 General Motors Acceptance Corporation,
MTN,
7.375% 06/22/00......................... 5,116
3,250 General Motors Acceptance Corporation,
MTN,
6.700% 04/30/01......................... 3,316
9,000 Heller Financial Inc.,
5.875% 11/01/00......................... 9,025
--------
51,562
--------
HEALTHCARE -- 1.3%
5,600 HEALTHSOUTH Corporation, Sr. Notes,
6.875% 06/15/05......................... 5,289
--------
INDUSTRIAL -- 9.0%
7,000 Comdisco Inc.,
6.130%** 08/01/01....................... 7,027
6,525 Comdisco Inc., MTN,
6.500% 06/15/00......................... 6,575
3,786 Hertz Corporation,
7.000% 04/15/01......................... 3,869
8,000 J. Seagram and Sons,
6.250% 12/15/01......................... 8,032
6,750 PDV America Inc., Gtd. Sr. Notes,
7.750% 08/01/00......................... 6,659
5,500 Waste Management Inc.,
6.500% 12/15/02......................... 5,573
--------
37,735
--------
INSURANCE -- 1.2%
5,000 AON Corporation,
7.400% 10/01/02......................... 5,232
--------
PUBLISHING -- 1.5%
6,350 News America Holdings,
7.450% 06/01/00......................... 6,476
--------
RETAIL -- FOOD -- 0.7%
3,000 Safeway Inc.,
5.875% 11/15/01......................... 3,005
--------
RETAIL -- GENERAL -- 1.8%
7,300 Sears Roebuck Acceptance, MTN,
6.230% 07/12/00......................... 7,366
--------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
(000) (000)
- -----------------------------------------------------------------
<C> <S> <C>
TRANSPORTATION -- 3.2%
$10,100 ERAC USA Finance Company,
7.500% 06/15/03++....................... $ 10,527
3,000 Ryder System Inc., MTN,
7.320% 11/01/00......................... 3,064
--------
13,591
--------
UTILITIES -- DIVERSIFIED -- 2.6%
8,299 Columbia Gas System, Series A,
6.390% 11/28/00......................... 8,393
2,500 Transcontinental Gas Pipeline,
8.875% 09/15/02......................... 2,711
--------
11,104
--------
TOTAL CORPORATE BONDS AND NOTES
(Cost $242,772)......................... 243,572
--------
FOREIGN BONDS AND NOTES -- 2.4%
2,250 Banco Latinoamericano,
7.050% 07/19/99++....................... 2,260
8,000 Banco Latinoamericano,
7.000% 09/24/99++....................... 8,014
--------
TOTAL FOREIGN BONDS AND NOTES
(Cost $10,254).......................... 10,274
--------
MORTGAGE-BACKED SECURITIES -- 4.4%
FEDERAL HOME LOAN MORTGAGE CORPORATION
(FHLMC) CERTIFICATES -- 0.3%
774 5.500% 07/01/01.......................... 771
455 7.500% 09/01/01.......................... 459
--------
1,230
--------
FEDERAL NATIONAL MORTGAGE ASSOCIATION
(FNMA) CERTIFICATES -- 3.6%
1,434 6.000% 06/01/01.......................... 1,437
8,699 6.000% 11/01/03.......................... 8,611
691 6.500% 08/01/04.......................... 695
2,380 6.000% 11/01/04.......................... 2,386
1,041 7.500% 11/01/09.......................... 1,074
686 7.500% 11/01/25 685
--------
14,888
--------
RESIDENTIAL ACCREDITED LOANS (REMIC) -- 0.5%
2,295 6.750% 09/25/27.......................... 2,290
--------
TOTAL MORTGAGE-BACKED SECURITIES
(Cost $18,469).......................... 18,408
--------
U.S. GOVERNMENT AND AGENCY OBLIGATIONS -- 4.3%
FEDERAL HOME LOAN MORTGAGE CORPORATION
(FHLMC) -- 1.1%
4,800 5.000% 01/15/04.......................... 4,686
--------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
42
<PAGE> 47
NATIONS FUNDS
Nations Short-Term Income Fund
STATEMENT OF NET ASSETS (CONTINUED) MARCH 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
(000) (000)
- -----------------------------------------------------------------
<C> <S> <C>
U.S. GOVERNMENT AND AGENCY
OBLIGATIONS -- (CONTINUED)
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) -- 3.2%
$ 5,000 5.625% 03/15/01.......................... $ 5,038
3,500 4.625% 10/15/01.......................... 3,447
5,000 5.250% 01/15/03.......................... 4,963
--------
13,448
--------
TOTAL U.S. GOVERNMENT AND AGENCY
OBLIGATIONS
(Cost $18,190).......................... 18,134
--------
U.S. TREASURY OBLIGATIONS -- 2.5%
U.S. TREASURY NOTES -- 2.5%
2,500 5.625% 12/31/99.......................... 2,515
8,000 4.750% 02/15/04.......................... 7,878
--------
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $10,321).......................... 10,393
--------
</TABLE>
<TABLE>
<CAPTION>
SHARES
(000)
- ---------
<C> <S> <C> <C>
INVESTMENT COMPANIES -- 1.6%
(Cost $6,613)
6,613 Nations Cash Reserves#..................... 6,613
--------
TOTAL INVESTMENTS
(Cost $417,222*)................... 99.7% 418,377
--------
OTHER ASSETS AND
LIABILITIES (NET).................. 0.3%
Receivable for investment securities
sold...................................... $ 1,002
Receivable for Fund shares sold............ 962
Interest receivable........................ 4,783
Prepaid expenses........................... 6
Payable for Fund shares redeemed........... (2,047)
Investment advisory fee payable............ (107)
Administration fee payable................. (59)
Shareholder servicing and distribution fees
payable................................... (8)
Due to custodian........................... (1,006)
Dividends payable.......................... (2,015)
Accrued Trustees'/Directors' fees and
expenses.................................. (18)
Accrued expenses and other liabilities..... (182)
--------
TOTAL OTHER ASSETS AND
LIABILITIES (NET).................. ..... 1,311
--------
NET ASSETS.......................... 100.0% $419,688
========
NET ASSETS CONSIST OF:
Distributions in excess of net investment
income.................................... $ (3)
Accumulated net realized loss on
investments sold.......................... (5,674)
Net unrealized appreciation of
investments............................... 1,155
Paid-in capital............................ 424,210
--------
NET ASSETS................................. $419,688
========
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------
<C> <S> <C> <C>
PRIMARY A SHARES:
Net asset value, offering and redemption
price per share ($397,467,199/40,615,707
shares outstanding).......................
$9.79
========
PRIMARY B SHARES:
Net asset value, offering and redemption
price per share ($10/1 shares
outstanding)..............................
$9.79
========
INVESTOR A SHARES:
Net asset value and redemption price per
share ($14,651,541/1,497,204 shares
outstanding)..............................
$9.79
========
Maximum sales charge....................... 1.00%
Maximum offering price per share........... $9.89
INVESTOR B SHARES:
Net asset value and offering price per
share+ ($5,824,657/595,197 shares
outstanding)..............................
$9.79
========
INVESTOR C SHARES:
Net asset value and offering price
per share+ ($1,744,182/178,235 shares
outstanding)..............................
$9.79
========
</TABLE>
- ---------------
* Federal Income Tax Information: Net unrealized appreciation of investment
securities was comprised of gross appreciation of $2,270 and gross
depreciation of $1,117 for Federal income tax purposes. At March 31, 1999,
the aggregate cost of securities for Federal income tax purposes was
$417,224.
** Variable rate note. The interest rate shown reflects the rate in effect at
March 31, 1999.
++ Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers.
+ The redemption price per share is equal to net asset value less any
applicable contingent deferred sales charge.
# Money market mutual fund registered under the Investment Company Act of 1940,
as amended, and sub-advised by TradeStreet Investment Associates, Inc.
ABBREVIATIONS:
MTN -- Medium Term Note
SEE NOTES TO FINANCIAL STATEMENTS.
43
<PAGE> 48
NATIONS FUNDS
Nations Short-Intermediate Government Fund
STATEMENT OF NET ASSETS MARCH 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
(000) (000)
- -----------------------------------------------------------------
<C> <S> <C>
MORTGAGE-BACKED SECURITIES -- 38.7%
COMMERCIAL MORTGAGE-BACKED SECURITIES -- 1.2%
$ 2,841 Vendee Mortgage Trust, Series 1993-1,
Class D,
7.000% 11/15/12........................ $ 2,846
5,000 Vendee Mortgage Trust, Series 1994-3A,
Class 1H,
6.500% 12/15/01........................ 5,054
---------
7,900
---------
FEDERAL HOME LOAN MORTGAGE CORPORATION (FHLMC)
CERTIFICATES -- 1.4%
4 6.500% 09/01/03......................... 4
63 6.000% 07/15/04......................... 63
8,818 7.000% 12/01/25......................... 8,953
---------
9,020
---------
FEDERAL NATIONAL MORTGAGE ASSOCIATION
(FNMA) CERTIFICATES -- 27.5%
3,475 6.150% 03/01/08......................... 3,482
12,898 6.270% 06/01/08......................... 13,020
4,882 8.000% 12/01/09......................... 5,013
15,815 7.000% 11/01/13......................... 16,162
8,257 6.000% 12/01/13......................... 8,198
5,560 9.000% 04/01/16......................... 5,994
9,825 8.500% 04/01/17......................... 10,340
3,014 6.500% 04/01/26......................... 3,003
19,420 6.500% 03/01/28......................... 19,337
36,637 7.500% 07/01/28......................... 37,658
1,682 7.000% 10/01/28......................... 1,706
1,597 7.000% 10/01/28......................... 1,619
1,536 7.000% 11/01/28......................... 1,557
3,992 7.000% 12/01/28......................... 4,048
2,295 7.000% 12/01/28......................... 2,327
43,789 7.000% 02/01/29......................... 44,410
---------
177,874
---------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA)
CERTIFICATES -- 8.6%
11,172 9.000% 02/15/08......................... 11,537
7,266 7.500% 02/15/24......................... 7,500
6,311 7.500% 04/15/24......................... 6,515
2,494 7.500% 04/15/26......................... 2,571
18,027 6.125% 11/20/27......................... 18,293
9,239 7.000% 01/16/28......................... 9,320
---------
55,736
---------
TOTAL MORTGAGE-BACKED SECURITIES
(Cost $249,385)........................ 250,530
---------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
(000) (000)
- -----------------------------------------------------------------
<C> <S> <C>
U.S. GOVERNMENT AND AGENCY OBLIGATIONS -- 28.0%
FEDERAL HOME LOAN BANK (FHLB) -- 10.8%
$ 30,000 4.650% 10/20/00......................... $ 29,709
40,000 5.125% 02/26/02......................... 39,770
---------
69,479
---------
FEDERAL HOME LOAN MORTGAGE CORPORATION (FHLMC) --9.5%
46,000 5.000% 01/15/04......................... 44,907
17,500 5.125% 10/15/08......................... 16,546
---------
61,453
---------
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) -- 7.7%
30,000 5.125% 02/13/04......................... 29,461
20,000 6.650% 11/14/07......................... 20,284
---------
49,745
---------
TOTAL U.S. GOVERNMENT AND AGENCY
OBLIGATIONS
(Cost $181,036)........................ 180,677
---------
U.S. TREASURY OBLIGATIONS -- 27.5%
U.S. TREASURY INFLATION INDEX -- 0.8%
5,000 3.625% 07/15/02......................... 4,967
---------
U.S. TREASURY NOTES -- 26.7%
32,500 4.625% 11/30/00......................... 32,302
12,000 4.500% 01/31/01......................... 11,895
20,000 5.000% 02/28/01......................... 20,003
16,000 6.625% 06/30/01......................... 16,525
27,000 5.625% 12/31/02......................... 27,392
49,000 5.500% 02/28/03......................... 49,506
15,000 4.750% 11/15/08......................... 14,449
---------
172,072
---------
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $178,429)........................ 177,039
---------
SHORT TERM INVESTMENTS -- 0.2%
(Cost $1,000)
1,000 Student Loan Marketing Association FRN,
4.722%** 08/02/99...................... 1,000
---------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
44
<PAGE> 49
NATIONS FUNDS
Nations Short-Intermediate Government Fund
STATEMENT OF NET ASSETS (CONTINUED) MARCH 31, 1999
<TABLE>
<CAPTION>
SHARES VALUE
(000) (000)
- -------------------------------------------------------------------
<C> <S> <C> <C>
INVESTMENT COMPANIES -- 30.2%
(Cost $194,460)
194,460 Nations Cash Reserves#.................... $ 194,460
---------
TOTAL INVESTMENTS
(Cost $804,310*).................. 124.6% 803,706
---------
OTHER ASSETS AND
LIABILITIES (NET)................. (24.6)%
Receivable for investment securities
sold..................................... $ 4,810
Receivable for Fund shares sold........... 951
Interest receivable....................... 6,073
Prepaid expenses.......................... 9
Collateral on securities loaned........... (164,779)
Payable for Fund shares redeemed.......... (2,283)
Investment advisory fee payable........... (221)
Administration fee payable................ (92)
Shareholder servicing and distribution
fees payable............................. (24)
Due to custodian.......................... (226)
Dividends payable......................... (2,811)
Accrued Trustees'/Directors' fees and
expenses................................. (31)
Accrued expenses and other liabilities.... (143)
---------
TOTAL OTHER ASSETS AND
LIABILITIES (NET)........................ (158,767)
---------
NET ASSETS......................... 100.0% $ 644,939
=========
NET ASSETS CONSIST OF:
Accumulated net realized loss on
investments sold......................... $ (12,367)
Net unrealized depreciation of
investments.............................. (604)
Paid-in capital........................... 657,910
---------
NET ASSETS................................ $ 644,939
=========
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------
<C> <S> <C> <C>
PRIMARY A SHARES:
Net asset value, offering and redemption
price per share ($589,092,313/
143,776,804 shares outstanding)..........
$4.10
=========
PRIMARY B SHARES:
Net asset value, offering and redemption
price per share ($273,393/66,727 shares
outstanding).............................
$4.10
=========
INVESTOR A SHARES:
Net asset value and redemption price per
share ($44,792,677/10,932,336 shares
outstanding).............................
$4.10
=========
Maximum sales charge...................... 3.25%
Maximum offering price per share.......... $4.24
INVESTOR B SHARES:
Net asset value and offering price per
share+ ($9,590,559/2,340,731 shares
outstanding).............................
$4.10
=========
INVESTOR C SHARES:
Net asset value and offering price per
share+ ($1,189,885/291,101 shares
outstanding).............................
$4.09
=========
</TABLE>
- ---------------
* Federal Income Tax Information: Net unrealized depreciation of investment
securities was comprised of gross appreciation of $2,018 and gross
depreciation of $4,299 for Federal income tax purposes. At March 31, 1999,
the aggregate cost of securities for Federal income tax purposes was
$805,987.
** Variable rate note. The interest rate shown reflects the rate in effect at
March 31, 1999.
+ The redemption price per share is equal to net asset value less any
applicable contingent deferred sales charge.
# Money market mutual fund registered under the Investment Company Act of 1940,
as amended, and sub-advised by TradeStreet Investment Associates, Inc. A
portion of this amount represents cash collateral received from securities
lending activity (Note 7). The portion that represents cash collateral is
$164,779.
ABBREVIATIONS:
FRN -- Floating Rate Note
SEE NOTES TO FINANCIAL STATEMENTS.
45
<PAGE> 50
NATIONS FUNDS
Nations Government Securities Fund
STATEMENT OF NET ASSETS MARCH 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
(000) (000)
- ------------------------------------------------------------------
<C> <S> <C>
ASSET-BACKED SECURITIES -- 1.0%
(Cost $1,524)
ASSET-BACKED -- OTHER -- 1.0%
$ 1,524 Export Funding Trust, Series 1995-A, Class
A,
8.210% 12/29/06.......................... $ 1,717
--------
MORTGAGE-BACKED SECURITIES -- 74.4%
COMMERCIAL MORTGAGE-BACKED
SECURITIES -- 4.7%
3,000 Commercial Mortgage Asset Trust, Series
1999-C1, Class A1,
6.250% 08/17/06.......................... 3,028
4,973 Morgan Stanley Capital I, Series 99-WF1,
Class A1,
5.910% 04/15/08.......................... 4,934
--------
7,962
--------
FEDERAL HOME LOAN MORTGAGE CORPORATION (FHLMC)
CERTIFICATES -- 20.2%
174 6.500% 03/01/00........................... 174
34 10.000% 07/01/01.......................... 35
523 8.500% 09/01/01........................... 531
246 9.000% 02/01/02........................... 251
1,250 10.000% 05/01/05.......................... 1,316
327 8.500% 01/01/06........................... 334
5,000 7.440% 09/20/06........................... 5,177
255 8.000% 08/01/07........................... 264
147 8.500% 02/01/08........................... 153
144 8.500% 03/01/08........................... 150
43 7.500% 08/01/08........................... 44
654 6.500% 01/01/09........................... 661
342 9.000% 05/01/09........................... 359
121 8.000% 09/01/09........................... 126
65 9.000% 12/01/16........................... 69
60 8.500% 03/01/17........................... 64
55 8.000% 05/01/17........................... 58
7 8.500% 06/01/17........................... 8
20 8.500% 06/01/17........................... 21
98 9.500% 04/01/18........................... 105
44 10.000% 09/01/18.......................... 47
39 9.500% 06/01/20........................... 42
1,959 8.500% 09/01/20........................... 2,064
8 9.500% 09/01/20........................... 8
119 9.500% 06/01/21........................... 129
8,816 7.000% 10/01/27........................... 8,952
1,537 Series 2023, Class B,
6.500% 01/15/13.......................... 1,537
11,425 Series 2054, Class UA,
6.500% 09/15/25.......................... 11,441
--------
34,120
--------
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA)
CERTIFICATES -- 35.1%
448 6.000% 05/01/01........................... 448
105 8.500% 11/01/01........................... 105
686 7.000% 11/01/02........................... 692
152 8.000% 04/01/06........................... 155
2,485 6.135% 08/01/08........................... 2,487
60 8.250% 04/01/09........................... 63
47 8.250% 04/01/09........................... 49
143 7.500% 06/01/09........................... 146
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
(000) (000)
- ------------------------------------------------------------------
<C> <S> <C>
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA)
CERTIFICATES -- (CONTINUED)
$ 100 8.000% 06/01/09........................... $ 103
295 8.500% 12/01/11........................... 310
5,000 6.960% 09/05/12........................... 5,272
5,000 6.875% 09/24/12........................... 5,241
2,417 12.500% 09/01/15.......................... 2,771
1,402 12.500% 10/01/15.......................... 1,593
6,837 6.565% 07/01/16........................... 7,049
170 9.000% 12/01/16........................... 177
50 8.500% 02/01/17........................... 52
27 8.500% 07/01/21........................... 29
3,231 7.000% 12/18/22........................... 3,264
1,787 6.990% 06/01/23........................... 1,864
2,968 6.750% 03/18/28........................... 2,980
6,908 6.000% 12/01/28........................... 6,715
13,000 6.000% 02/01/29........................... 12,638
7,500 Principal Strip,
.000% 08/27/04........................... 5,250
--------
59,453
--------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA)
CERTIFICATES -- 14.4%
22 11.750% 09/15/00.......................... 23
35 11.750% 12/15/00.......................... 35
15 11.000% 03/15/01.......................... 16
74 9.500% 03/15/04........................... 78
72 9.500% 04/15/04........................... 75
3 13.000% 01/15/11.......................... 4
31 13.000% 02/15/11.......................... 36
9 13.000% 02/15/11.......................... 11
16 13.000% 04/15/11.......................... 19
4,232 7.500% 09/15/13........................... 4,374
15 9.000% 06/15/18........................... 16
22 10.000% 10/15/18.......................... 24
127 10.500% 12/15/20.......................... 140
676 8.000% 02/15/23........................... 708
294 7.000% 06/15/23........................... 299
1,155 9.000% 03/15/27........................... 1,235
5,000 6.000% 12/23/27........................... 4,859
5,000 6.500% 04/15/28........................... 4,980
5,000 6.500% 04/15/28........................... 4,979
2,267 8.500% 02/20/29........................... 2,386
--------
24,297
--------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION II (GNMA)
CERTIFICATES -- 0.0%+
27 11.000% 10/20/20.......................... 30
--------
TOTAL MORTGAGE-BACKED SECURITIES
(Cost $126,054).......................... 125,862
--------
MUNICIPAL BONDS AND NOTES -- 4.5%
(Cost $7,390)
7,390 Texas State, Department of Housing and
Community Affairs, Single-Family Revenue,
Series 1997C, (GNMA/FNMA COLL, MBIA
Insured),
6.800% 09/01/29.......................... 7,554
--------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
46
<PAGE> 51
NATIONS FUNDS
Nations Government Securities Fund
STATEMENT OF NET ASSETS (CONTINUED) MARCH 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
(000) (000)
- ------------------------------------------------------------------
<C> <S> <C>
U.S. GOVERNMENT AND AGENCY OBLIGATIONS -- 4.1%
FEDERAL FARM CREDIT BANK (FFCB) -- 3.2%
$ 5,875 5.450% 12/11/13........................... $ 5,480
--------
FEDERAL HOME LOAN BANK (FHLB) -- 0.9%
1,450 6.020% 03/10/04........................... 1,440
--------
TOTAL U.S. GOVERNMENT AND AGENCY
OBLIGATIONS
(Cost $7,321)............................ 6,920
--------
U.S. TREASURY OBLIGATIONS -- 15.3%
U.S. TREASURY BONDS -- 3.8%
4,500 8.000% 11/15/21........................... 5,655
800 5.250% 02/15/29........................... 756
--------
6,411
--------
U.S. TREASURY STRIPS -- 11.5%
56,250 Interest only 11/15/16.................... 19,511
--------
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $26,980)........................... 25,922
--------
SHORT TERM INVESTMENTS -- 5.9%
(Cost $9,974)
10,000 Federal Home Loan Bank
Discount note 04/21/99................... 9,974
--------
</TABLE>
<TABLE>
<CAPTION>
SHARES
(000)
- ---------
<C> <S> <C> <C>
INVESTMENT COMPANIES -- 2.2%
(Cost $3,642)
3,642 Nations Cash Reserves#..................... 3,642
--------
TOTAL INVESTMENTS
(Cost $182,885*)................... 107.4% 181,591
--------
OTHER ASSETS AND LIABILITIES (NET).. (7.4)%
Receivable for investment securities
sold...................................... $ 4,656
Receivable for Fund shares sold............ 352
Interest receivable........................ 1,012
Prepaid expenses and other assets.......... 129
Collateral on securities loaned............ (2,268)
Payable for Fund shares redeemed........... (444)
Investment advisory fee payable............ (72)
Administration fee payable................. (24)
Shareholder servicing and distribution fees
payable................................... (50)
Due to custodian........................... (20)
Dividends payable.......................... (778)
Payable for investment securities
purchased................................. (14,817)
Accrued Trustees'/Directors' fees and
expenses.................................. (13)
Accrued expenses and other liabilities..... (107)
--------
TOTAL OTHER ASSETS
AND LIABILITIES (NET)..................... (12,444)
--------
NET ASSETS.......................... 100.0% $169,147
========
</TABLE>
<TABLE>
<CAPTION>
VALUE
(000)
- -------------------------------------------------------------------
<C> <S> <C> <C>
NET ASSETS CONSIST OF:
Distributions in excess of net investment
income.................................... $ (388)
Accumulated net realized loss on
investments sold.......................... (8,363)
Net unrealized depreciation of
investments............................... (1,294)
Paid-in capital............................ 179,192
--------
NET ASSETS................................. $169,147
========
PRIMARY A SHARES:
Net asset value, offering and redemption
price per share ($119,658,854/12,130,048
shares outstanding).......................
$9.86
========
INVESTOR A SHARES:
Net asset value and redemption price per
share ($19,167,448/1,943,087 shares
outstanding)..............................
$9.86
========
Maximum sales charge....................... 4.75%
Maximum offering price per share........... $10.35
INVESTOR B SHARES:
Net asset value and offering price per
share+ ($30,108,566/3,052,129 shares
outstanding)..............................
$9.86
========
INVESTOR C SHARES:
Net asset value and offering price per
share+ ($212,570/21,549 shares
outstanding)..............................
$9.86
========
</TABLE>
- ---------------
* Federal Income Tax Information: Net unrealized depreciation of investment
securities was comprised of gross appreciation of $933 and gross depreciation
of $2,489 for Federal income tax purposes. At March 31, 1999, the aggregate
cost of securities for Federal income tax purposes was $183,147.
+ The redemption price per share is equal to net asset value less any applicable
contingent deferred sales charge.
+ Amount represents less than 0.1%.
# Money market mutual fund registered under the Investment Company Act of 1940,
as amended, and sub-advised by TradeStreet Investment Associates, Inc. A
portion of this amount represents cash collateral received from securities
lending activity (Note 7). The portion that represents cash collateral is
$2,268.
SEE NOTES TO FINANCIAL STATEMENTS.
47
<PAGE> 52
NATIONS FUNDS
Nations Strategic Fixed Income Fund
STATEMENT OF NET ASSETS MARCH 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
(000) (000)
- -----------------------------------------------------------------
<C> <S> <C>
ASSET-BACKED SECURITIES -- 13.7%
ASSET-BACKED -- AUTO LOANS -- 3.4%
$25,000 Distribution Financial Services RV
Trust, Series 1999-1, Class A4,
5.84% 04/15/09........................ $ 25,027
10,000 Ford Credit Auto Owner Trust, Series
1997-B, Class CTFS,
6.65% 04/15/03........................ 10,132
15,000 Ford Credit Auto Owner Trust, Series
1998-A, Class B,
5.95% 10/15/02........................ 15,014
11,625 Premier Auto Trust, Series 1998-1,
Class B,
5.92% 10/06/04........................ 11,603
----------
61,776
----------
ASSET-BACKED -- CREDIT CARD RECEIVABLES -- 5.1%
15,000 First USA Credit Card Master Trust,
Series 1997-6, Class B,
6.58% 03/17/05........................ 15,263
20,000 Metris Master Trust, Series 1996-1,
Class B,
6.80% 02/20/02........................ 20,144
15,000 Metris Master Trust, Series 1997-1,
Class B,
7.11% 10/20/05........................ 15,342
10,000 Prime Credit Card Master Trust, Series
1992-2, Class B2,
7.95% 11/15/02........................ 10,175
21,300 Standard Credit Card Master Trust,
Series 1995-9, Class B,
6.65% 10/07/07........................ 21,506
10,000 World Financial Network Credit Card
Master Trust, Series 1996-B, Class A,
6.95% 04/15/06........................ 10,435
----------
92,865
----------
ASSET-BACKED -- HOME EQUITY LOANS -- 5.2%
11,103 Amresco Residential Securities Mortgage
Loan Trust, Series 1996-2, Class A1,
7.43% 05/25/27........................ 11,194
14,713 First Alliance Mortgage Loan Trust,
Series 1994-2, Class A1,
7.63% 07/25/25........................ 15,237
7,500 First Plus Home Loan Trust, Series
1997-3, Class A4,
6.80% 03/10/12........................ 7,528
15,300 First Plus Home Loan Trust, Series
1997-4, Class A4,
6.57% 04/10/13........................ 15,271
16,274 IMC Home Equity Loan Trust, Series
1997-1, Class A3,
6.82% 10/25/11........................ 16,289
16,500 IMC Home Equity Loan Trust, Series
1997-7, Class A3,
6.54% 11/20/12........................ 16,583
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
(000) (000)
- -----------------------------------------------------------------
<C> <S> <C>
ASSET-BACKED -- HOME EQUITY
LOANS -- (CONTINUED)
$ 127 The Money Store Home Equity Trust,
Series 1993-D, Class A2,
5.07% 02/15/18........................ $ 126
15,000 WFS Financial Owner Trust, Series
1997-B, Class CTFS,
6.55% 10/20/04........................ 15,292
----------
97,520
----------
TOTAL ASSET-BACKED SECURITIES
(Cost $250,479)....................... 252,161
----------
CORPORATE BONDS AND NOTES -- 31.9%
AEROSPACE AND DEFENSE -- 0.7%
12,500 Raytheon Company,
6.75% 08/15/07........................ 12,815
----------
BANKING AND FINANCE -- 11.4%
20,000 Banponce Financial Corporation, MTN,
6.55% 10/10/00........................ 20,096
16,955 Crestar Financial Corporation,
6.50% 01/15/18........................ 16,739
18,250 Dominion Capital Trust I,
7.83% 12/01/27........................ 18,358
15,750 ERAC USA Finance Company,
6.95% 03/01/04........................ 15,743
19,500 ERAC USA Finance Company,
6.63% 02/15/05........................ 19,036
12,500 FCB/NC Capital Trust I, Gtd. Notes,
8.05% 03/01/28........................ 12,288
18,000 Ford Motor Credit Company,
5.75% 02/23/04........................ 17,834
23,520 General Motors Acceptance Corporation,
6.15% 04/05/07........................ 23,359
25,000 Goldman Sachs Group, LP,
6.63% 12/01/04........................ 25,226
15,250 Salomon Smith Barney Holdings, MTN,
6.63% 11/30/00........................ 15,503
15,000 Union Planters Capital Trust,
8.20% 12/15/26........................ 15,453
8,500 Wilmington Trust Corporation,
6.63% 05/01/08........................ 8,459
----------
208,094
----------
BROKERAGE SERVICES -- 0.9%
17,250 Morgan Stanley Dean Witter and Company,
MTN,
6.09%** 03/09/11...................... 17,336
----------
ENERGY -- 0.5%
8,500 Occidental Petroleum,
6.40%** 04/01/13...................... 8,381
----------
ENTERTAINMENT -- 1.5%
10,000 Time Warner Inc.,
7.75% 06/15/05........................ 10,719
15,000 Time Warner Inc.,
8.11% 08/15/06........................ 16,595
----------
27,314
----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
48
<PAGE> 53
NATIONS FUNDS
Nations Strategic Fixed Income Fund
STATEMENT OF NET ASSETS (CONTINUED) MARCH 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
(000) (000)
- -----------------------------------------------------------------
<C> <S> <C>
CORPORATE BONDS AND NOTES -- (CONTINUED)
FINANCIAL SERVICES -- 3.9%
$16,000 Bear Stearns Companies Inc.,
6.65% 12/01/04........................ $ 16,211
11,750 Household Finance Corporation,
5.88% 02/01/09........................ 11,190
19,500 Lehman Brothers Holdings,
6.63% 04/01/04........................ 19,491
15,000 Newcourt Credit Group,
6.88% 02/16/05........................ 15,286
10,000 Paine Webber Group Inc., MTN,
7.30% 10/15/03........................ 10,332
----------
72,510
----------
HEALTHCARE -- 1.0%
19,750 HEALTHSOUTH Corporation, Sr. Notes,
6.88% 06/15/05........................ 18,654
----------
INDUSTRIAL -- 4.8%
10,000 Blount Inc.,
7.00% 06/15/05........................ 9,764
13,000 Comdisco Inc.,
6.13%** 08/01/01...................... 13,050
11,675 Georgia-Pacific Corporation,
9.88% 11/01/21........................ 12,978
10,000 PDV America Inc., Gtd. Sr. Notes,
7.75% 08/01/00........................ 9,866
16,200 PDV America Inc., Gtd. Sr. Notes,
7.88% 08/01/03........................ 15,243
15,000 USA Waste Services Inc.,
7.13% 10/01/07........................ 15,466
10,818 Xerox Capital Trust I, Gtd. Notes,
8.00% 02/01/27........................ 10,967
----------
87,334
----------
INSURANCE -- 0.6%
10,000 Liberty Mutual, Notes,
7.88% 10/15/26........................ 10,217
----------
PUBLISHING -- 1.2%
8,500 News America Holdings Inc., Gtd. Deb.,
10.13% 10/15/12....................... 9,805
10,315 News America Holdings Inc., Sr. Notes,
9.50% 07/15/24........................ 12,909
----------
22,714
----------
RETAIL -- FOOD -- 0.7%
13,000 Safeway Inc.,
7.00% 09/15/07........................ 13,638
----------
RETAIL -- GENERAL -- 0.8%
15,000 Sears Roebuck Acceptance Corporation,
MTN,
6.69% 04/30/01........................ 15,280
----------
TELECOMMUNICATIONS -- 0.9%
15,500 GTE Corporation,
6.60% 09/22/05........................ 15,813
----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
(000) (000)
- -----------------------------------------------------------------
<C> <S> <C>
TELEPHONE COMPANIES -- REGIONAL
CARRIERS -- 1.5%
$25,000 New England Telephone and Telegraph,
9.00% 08/01/31........................ $ 27,589
----------
TRANSPORTATION -- 0.7%
12,200 Norfolk Southern Corporation,
7.35% 05/15/07........................ 13,018
----------
UTILITIES -- TELECOMMUNICATIONS -- 0.8%
13,000 New York Telephone,
9.38% 07/15/31........................ 14,532
----------
TOTAL CORPORATE BONDS AND NOTES
(Cost $588,576)....................... 585,239
----------
FOREIGN BONDS AND NOTES -- 4.8%
17,500 AB Spintab,
7.50%** 08/14/49...................... 17,882
12,000 Abbey National plc,
7.35%** 10/29/49...................... 12,159
15,000 Banco Latinoamericano,
7.00% 09/24/99++...................... 15,025
10,000 Banco Latinoamericano,
7.20% 05/28/02........................ 10,266
10,000 Bank of Scotland,
7.00%** 11/29/49...................... 9,877
10,000 Enterprise Oil plc,
6.70% 09/15/07........................ 9,817
13,000 Skandinaviska Enskilda, FRN,
8.13%** 09/06/49...................... 12,815
----------
TOTAL FOREIGN BONDS AND NOTES
(Cost $89,581)........................ 87,841
----------
MORTGAGE-BACKED SECURITIES -- 43.7%
COMMERCIAL MORTGAGE-BACKED SECURITIES -- 15.7%
23,675 Commercial Mortgage Asset Trust, Series
99-C1, Class A3,
6.64% 09/17/10........................ 23,838
31,260 CS First Boston Mortgage Securities
Corporation, Series 1998-C1, Class
A1B,
6.48% 05/17/08........................ 31,258
20,000 DLJ Commercial Mortgage Corporation,
Series 1998-CG1, Class A1B,
6.41% 05/10/08........................ 20,135
30,000 DLJ Commercial Mortgage Corporation,
Series 1999-CG1, Class A1B1,
6.46% 01/10/09........................ 30,298
31,000 GMAC Commercial Mortgage Securities
Inc., Series 1998-C2, Class A2,
6.42% 08/15/08........................ 31,231
30,000 GMAC Commercial Mortgage Securities
Inc., Series 1999-C1, Class A2,
6.18% 05/15/33........................ 29,815
30,000 Morgan Stanley Capital Trust I, Series
1999-WF1, Class A2,
6.21% 09/15/08........................ 29,777
30,000 Nomura Asset Securities Corporation,
Series 1998-D6, Class A1B,
6.59% 03/17/28........................ 30,246
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
49
<PAGE> 54
NATIONS FUNDS
Nations Strategic Fixed Income Fund
STATEMENT OF NET ASSETS (CONTINUED) MARCH 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
(000) (000)
- -----------------------------------------------------------------
<C> <S> <C>
MORTGAGE-BACKED SECURITIES -- (CONTINUED)
COMMERCIAL MORTGAGE-BACKED
SECURITIES -- (CONTINUED)
$30,000 Prudential Securities Secured Financing
Corporation, Series 1999-NRF1, Class
A2,
6.48% 01/15/09........................ $ 30,141
31,000 Prudential Securities Secured Financing
Corporation, Series 1998-C1, Class
A1B,
6.51% 07/15/08........................ 31,182
----------
287,921
----------
FEDERAL HOME LOAN MORTGAGE CORPORATION (FHLMC)
CERTIFICATES -- 2.8%
1 9.00% 04/01/01......................... 1
1 9.00% 06/01/01......................... 1
60 9.00% 01/01/05......................... 62
353 8.00% 11/01/09......................... 365
205 8.00% 04/01/10......................... 212
354 6.50% 04/01/11......................... 358
24,247 7.00% 06/01/11......................... 24,804
1,171 6.50% 11/01/11......................... 1,185
375 6.50% 10/01/12......................... 379
2,629 8.50% 11/01/26......................... 2,763
488 7.00% 12/01/26......................... 495
21,173 7.00% 07/01/28......................... 21,500
----------
52,125
----------
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA)
CERTIFICATES -- 14.5%
45,769 6.50% 08/01/13......................... 46,207
29,895 7.50% 02/01/25......................... 30,728
10,578 6.50% 04/01/26......................... 10,539
130,496 7.00% 02/01/28......................... 132,343
46,314 6.50% 03/01/29......................... 46,116
----------
265,933
----------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA)
CERTIFICATES -- 10.7%
3 11.00% 07/15/00........................ 3
13 11.00% 11/15/00........................ 14
10,341 8.00% 12/01/09......................... 10,617
2 13.00% 01/15/11........................ 3
11 13.00% 01/15/11........................ 13
20 13.00% 01/15/11........................ 23
12 13.00% 02/15/11........................ 14
3,430 7.00% 10/01/11......................... 3,506
22,021 6.50% 03/01/13......................... 22,231
18,480 6.50% 04/01/13......................... 18,656
202 8.00% 05/15/17......................... 212
7 8.00% 05/15/17......................... 7
138 9.00% 07/15/17......................... 148
8,470 8.00% 11/01/23......................... 8,827
24,317 7.50% 12/15/23......................... 25,109
2,321 8.50% 02/15/25......................... 2,455
102 7.00% 03/01/27......................... 103
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
(000) (000)
- -----------------------------------------------------------------
<C> <S> <C>
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA)
CERTIFICATES -- (CONTINUED)
$23,934 6.50% 09/01/27......................... $ 23,831
9,582 7.00% 11/01/27......................... 9,718
19,378 6.50% 05/15/28......................... 19,306
29,159 7.00% 07/15/28......................... 29,630
21,971 7.50% 07/20/28......................... 22,562
----------
196,988
----------
TOTAL MORTGAGE-BACKED SECURITIES
(Cost $805,033)....................... 802,967
----------
U.S. TREASURY OBLIGATIONS -- 3.8%
U.S. TREASURY NOTES -- 0.8%
13,650 6.50% 08/15/05......................... 14,473
----------
U.S. TREASURY STRIPS -- 3.0%
12,000 Principal only 05/15/17................ 4,039
31,000 Interest only 05/15/18................. 9,817
56,000 Principal only 02/15/27................ 11,087
120,000 Principal only 11/15/21................ 31,059
----------
56,002
----------
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $73,366)........................ 70,475
----------
</TABLE>
<TABLE>
<CAPTION>
SHARES
(000)
- ---------
<C> <S> <C> <C>
INVESTMENT COMPANIES -- 5.2%
(Cost $94,925)
94,925 Nations Cash Reserves#.................... 94,925
----------
TOTAL INVESTMENTS
(Cost $1,901,960*)................ 103.1% 1,893,608
----------
OTHER ASSETS AND
LIABILITIES (NET)................. (3.1)%
Receivable for investment securities
sold..................................... $ 31,105
Receivable for Fund shares sold........... 4,493
Interest receivable....................... 17,146
Prepaid expenses.......................... 24
Collateral on securities loaned........... (57,664)
Payable for Fund shares redeemed.......... (2,882)
Investment advisory fee payable........... (778)
Administration fee payable................ (240)
Shareholder servicing and distribution
fees payable............................. (16)
Due to custodian.......................... (52)
Dividends payable......................... (9,115)
Payable for investment securities
purchased................................ (37,952)
Accrued Trustees'/Directors' fees and
expenses................................. (55)
Accrued expenses and other liabilities.... (771)
----------
TOTAL OTHER ASSETS AND
LIABILITIES (NET)........................ (56,757)
----------
NET ASSETS......................... 100.0% $1,836,851
==========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
50
<PAGE> 55
NATIONS FUNDS
Nations Strategic Fixed Income Fund
STATEMENT OF NET ASSETS (CONTINUED) MARCH 31, 1999
<TABLE>
<CAPTION>
VALUE
(000)
- --------------------------------------------------------------------
<C> <S> <C> <C>
NET ASSETS CONSIST OF:
Undistributed net investment income....... 1
Accumulated net realized gain on
investments sold......................... $ 10,032
Net unrealized depreciation of
investments.............................. (8,352)
Paid-in capital........................... 1,835,170
----------
NET ASSETS................................ $1,836,851
==========
PRIMARY A SHARES:
Net asset value, offering and redemption
price per share
($1,798,154,713/181,123,922 shares
outstanding).............................
$9.93
==========
INVESTOR A SHARES:
Net asset value and redemption price per
share ($32,118,800/3,235,161 shares
outstanding).............................
$9.93
==========
Maximum sales charge...................... 3.25%
Maximum offering price per share.......... $10.26
INVESTOR B SHARES:
Net asset value and offering price per
share+ ($5,439,971/547,960 shares
outstanding).............................
$9.93
==========
INVESTOR C SHARES:
Net asset value and offering price per
share+ ($1,137,193/114,542 shares
outstanding).............................
$9.93
==========
</TABLE>
- ---------------
* Federal Income Tax Information: Net unrealized depreciation of investment
securities was comprised of gross appreciation of $7,508 and gross
depreciation of $16,088 for Federal income tax purposes. At March 31, 1999,
the aggregate cost of securities for Federal income tax purposes was
$1,902,188.
** Variable rate note. The interest rate shown reflects the rate in effect at
March 31, 1999.
++ Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers.
+ The redemption price per share is equal to net asset value less any
applicable contingent deferred sales charge.
# Money market mutual fund registered under the Investment Company Act of 1940,
as amended, and sub-advised by TradeStreet Investment Associates, Inc. A
portion of this amount represents cash collateral received from securities
lending activity (Note 7). The portion that represents cash collateral is
$57,664.
ABBREVIATIONS:
FRN -- Floating Rate Note
MTN -- Medium Term Note
SEE NOTES TO FINANCIAL STATEMENTS.
51
<PAGE> 56
NATIONS FUNDS
Nations U.S. Government Bond Fund
STATEMENT OF NET ASSETS MARCH 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
(000) (000)
- -----------------------------------------------------------------
<C> <S> <C>
MORTGAGE-BACKED SECURITIES -- 53.7%
FEDERAL HOME LOAN BANK (FHLB) -- 12.5%
$ 9,200 5.63% 03/19/01........................... $ 9,253
2,750 5.13% 09/15/03........................... 2,705
3,000 5.80% 09/02/08........................... 2,983
--------
14,941
--------
FEDERAL HOME LOAN MORTGAGE CORPORATION (FHLMC)
CERTIFICATES -- 20.9%
6,435 5.75% 07/15/03........................... 6,483
8,970 5.75% 04/15/08........................... 8,890
5,803 6.00% 09/01/13........................... 5,768
3,911 6.00% 08/01/28........................... 3,806
--------
24,947
--------
FEDERAL NATIONAL MORTGAGE ASSOCIATION
(FNMA) CERTIFICATES -- 16.8%
3,000 5.75% 04/15/03........................... 3,026
4,682 6.50% 06/01/03........................... 4,710
7,384 6.00% 03/01/13........................... 7,331
5,033 6.00% 03/01/13........................... 4,997
--------
20,064
--------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA)
CERTIFICATES -- 3.5%
4,000 8.00% 12/01/29........................... 4,168
--------
TOTAL MORTGAGE-BACKED SECURITIES
(Cost $64,579)........................... 64,120
--------
U.S. TREASURY OBLIGATIONS -- 37.5%
U.S. TREASURY BONDS -- 23.0%
19,175 8.00% 11/15/21........................... 24,094
2,000 6.13% 11/15/27........................... 2,076
1,350 5.25% 02/15/29........................... 1,276
--------
27,446
--------
U.S. TREASURY NOTES -- 8.1%
4,800 6.25% 10/31/01........................... 4,934
4,500 6.25% 02/15/07........................... 4,736
--------
9,670
--------
U.S. TREASURY STRIPS -- 6.4%
4,000 Interest only 08/15/14................... 1,601
8,500 Principal only 08/15/05.................. 6,032
--------
7,633
--------
TOTAL U.S. TREASURY
OBLIGATIONS
(Cost $45,463)........................... 44,749
--------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
(000) (000)
- -----------------------------------------------------------------
<C> <S> <C>
SHORT TERM INVESTMENTS -- 10.6%
$ 2,000 AFS, Commercial Paper,
Discount note 04/21/99.................. $ 1,995
2,100 AGC, Commercial Paper,
Discount note 04/21/99.................. 2,094
3,000 Ford Motor Credit Corporation, Commercial
Paper,
Discount note 04/14/99.................. 2,995
3,000 General Electric, Commercial Paper,
Discount note 04/14/99.................. 2,995
2,600 General Motors Acceptance Corporation,
Commercial Paper,
Discount note 04/14/99.................. 2,595
--------
TOTAL SHORT TERM INVESTMENTS
(Cost $12,674)........................... 12,674
--------
</TABLE>
<TABLE>
<CAPTION>
SHARES
(000)
--------
<C> <S> <C> <C>
INVESTMENT COMPANIES -- 23.9%
(Cost $28,489)
28,489 Nations Cash Reserves#..................... 28,489
--------
TOTAL INVESTMENTS
(Cost $151,205*)................... 125.7% 150,032
--------
TOTAL OTHER ASSETS AND LIABILITIES
(NET)............................. (25.7)%
Receivable for Fund shares sold............ $ 340
Interest receivable........................ 1,636
Receivable from investment advisor......... 26
Prepaid expenses........................... 2
Collateral on securities loaned............ (27,570)
Payable for Fund shares redeemed........... (322)
Administration fee payable................. (17)
Shareholder servicing and distribution fees
payable................................... (21)
Due to custodian........................... (11)
Dividends payable.......................... (495)
Payable for investment securities
purchased................................. (4,167)
Accrued Trustees'/Directors' fees and
expenses.................................. (8)
Accrued expenses and other liabilities..... (52)
--------
TOTAL OTHER ASSETS AND
LIABILITIES (NET)......................... (30,659)
--------
NET ASSETS......................... 100.0% $119,373
========
NET ASSETS CONSIST OF:
Undistributed net investment income........ $ 23
Accumulated net realized gain on
investments sold.......................... 107
Net unrealized depreciation of
investments............................... (1,173)
Paid-in capital............................ 120,416
--------
NET ASSETS................................. $119,373
========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
52
<PAGE> 57
NATIONS FUNDS
Nations U.S. Government Bond Fund
STATEMENT OF NET ASSETS (CONTINUED) MARCH 31, 1999
<TABLE>
<CAPTION>
- -------------------------------------------------------------------
<C> <S> <C> <C>
'
PRIMARY A SHARES:
Net asset value, offering and redemption
price per share ($109,027,658/10,819,096
shares outstanding).......................
$10.08
========
INVESTOR A SHARES:
Net asset value and redemption price per
share ($2,311,425/229,366 shares
outstanding)..............................
$10.08
========
Maximum sales charge....................... 4.75%
Maximum offering price per share........... $10.58
INVESTOR B SHARES:
Net asset value and offering price per
share+ ($6,778,510/672,669 shares
outstanding)..............................
$10.08
========
INVESTOR C SHARES:
Net asset value and offering price per
share+ ($1,255,198/124,558 shares
outstanding)..............................
$10.08
========
</TABLE>
- ---------------
* Federal Income Tax Information: Net unrealized depreciation of investment
securities was comprised of gross appreciation of $155 and gross depreciation
of $1,328 for Federal income tax purposes. At March 31, 1999, the aggregate
cost of securities for Federal income tax purposes was $151,205.
+ The redemption price per share is equal to net asset value less any
applicable contingent deferred sales charge.
# Money market mutual fund registered under the Investment Company Act of 1940,
as amended, and sub-advised by TradeStreet Investment Associates, Inc. A
portion of this amount represents cash collateral received from securities
lending activity (Note 7). The portion that represents cash collateral is
$27,570.
SEE NOTES TO FINANCIAL STATEMENTS.
53
<PAGE> 58
NATIONS FUNDS
Nations Diversified Income Fund
STATEMENT OF NET ASSETS MARCH 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
(000) (000)
- -----------------------------------------------------------------
<C> <S> <C>
CORPORATE BONDS AND NOTES -- 59.7%
AEROSPACE AND DEFENSE -- 2.2%
$ 5,025 Lockheed Martin Corporation,
7.750% 04/15/23......................... $ 5,364
3,375 Raytheon Company,
7.375% 07/15/25......................... 3,335
--------
8,699
--------
BANKING AND FINANCE -- 10.5%
4,795 Amsouth Bank of Alabama,
6.450% 02/01/18......................... 4,796
2,775 Dominion Capital Trust I,
7.830% 12/01/27......................... 2,791
4,025 ERAC USA Finance Company,
6.625% 02/15/05......................... 3,929
3,500 FCB/NC Capital Trust I, Gtd. Notes,
8.050% 03/01/28......................... 3,441
5,500 Golden State Holdings,
6.750% 08/01/01......................... 5,515
3,925 Popular Inc., MTN,
6.375% 09/15/03......................... 3,919
3,480 Union Planters Trust,
6.500% 03/15/18......................... 3,402
5,560 Washington Mutual Inc.,
8.206% 02/01/27......................... 5,829
4,465 Western Financial Savings Bank,
Sub. Deb.,
8.500% 07/01/03......................... 3,642
5,225 Wilmington Trust Corporation,
6.625% 05/01/08......................... 5,200
--------
42,464
--------
CAPTIVE FINANCE -- 1.4%
5,345 AT&T Capital Corporation,
6.875% 01/16/01......................... 5,445
--------
CONTAINERS AND PACKAGING -- 2.4%
4,500 BWAY Corporation, Sr. Sub. Notes,
10.250% 04/15/07........................ 4,815
4,870 Owens-Illinois, Inc.
7.150% 05/15/05......................... 4,795
--------
9,610
--------
ENERGY -- 2.8%
4,910 Barrett Resources Corporation, Sr. Notes,
7.550% 02/01/07......................... 4,794
2,000 Occidental Petroleum Corporation, Sr.
Deb.,
10.125% 09/15/09........................ 2,338
3,635 Occidental Petroleum Corporation, Sr.
Deb.,
9.250% 08/01/19......................... 4,109
--------
11,241
--------
ENTERTAINMENT -- 4.0%
4,745 Time Warner, Inc.,
7.250% 10/15/17......................... 4,893
6,085 Viacom Inc.,
8.250% 08/01/22......................... 6,420
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
(000) (000)
- -----------------------------------------------------------------
<C> <S> <C>
ENTERTAINMENT -- (CONTINUED)
$ 2,750 Viacom Inc.,
7.500% 07/15/23......................... $ 2,727
2,045 Walt Disney Company,
5.125% 12/15/03......................... 1,998
--------
16,038
--------
FINANCIAL SERVICES -- 5.7%
4,045 Bear Stearns Company,
6.625% 01/15/04......................... 4,105
4,500 Lehman Brothers Inc.,
11.625% 05/15/05........................ 5,593
3,300 Morgan Stanley Finance plc, Gtd. Sub.
Deb.,
8.030%** 02/28/17....................... 3,539
5,385 Paine Webber Group Inc., Sr. Notes,
7.625% 10/15/08......................... 5,665
3,735 Travelers Group Inc.,
7.300% 05/15/02......................... 3,885
--------
22,787
--------
GAS -- 1.5%
5,555 Louis Dreyfus Natural Gas Corporation,
Sr. Sub. Notes,
9.250% 06/15/04......................... 5,888
--------
HEALTHCARE -- 4.6%
4,100 Genesis Health Ventures Inc., Sr. Sub.
Notes,
9.250% 10/01/06......................... 3,526
3,805 HEALTHSOUTH Corporation, Sr. Notes,
6.875% 06/15/05......................... 3,594
4,795 Quorum Health Group, Inc., Sr. Sub.
Notes,
8.750% 11/01/05......................... 4,723
6,680 Tenet Healthcare Corporation, Sr. Notes,
8.000% 01/15/05......................... 6,596
--------
18,439
--------
INDUSTRIAL -- 12.2%
3,450 Alaris Medical Systems,
9.750% 12/01/06......................... 3,493
4,000 Allied Waste North America,
7.375% 01/01/04......................... 3,880
4,840 Beckman Instruments Inc.,
7.050% 06/01/26......................... 4,665
3,805 Blount Inc.,
7.000% 06/15/05......................... 3,715
3,700 Coltec Industries Inc.,
7.500% 04/15/08......................... 3,756
7,240 Comdisco Inc.,
6.130%** 08/01/01....................... 7,269
2,600 Fisher Scientific International, Sr.
Notes,
7.125% 12/15/05......................... 2,314
3,850 Georgia-Pacific Corporation,
9.500% 12/01/11......................... 4,700
3,410 J. Seagram and Sons,
6.250% 12/15/01......................... 3,423
1,125 PDV America Inc., Gtd. Sr. Notes,
7.750% 08/01/00......................... 1,110
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
54
<PAGE> 59
NATIONS FUNDS
Nations Diversified Income Fund
STATEMENT OF NET ASSETS (CONTINUED) MARCH 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
(000) (000)
- -----------------------------------------------------------------
<C> <S> <C>
CORPORATE BONDS AND NOTES -- (CONTINUED)
INDUSTRIAL -- (CONTINUED)
$ 5,430 PDV America Inc., Gtd. Sr. Notes,
7.875% 08/01/03......................... $ 5,109
5,500 Waste Management Inc.,
6.500% 12/15/02......................... 5,573
--------
49,007
--------
INSURANCE -- 3.6%
6,450 Conseco Finance Trust II,
8.700% 11/15/26......................... 5,846
5,375 Jefferson-Pilot Capital Trust, Series A,
8.140% 01/15/46......................... 5,410
3,000 Leucadia National Corporation, Sr. Sub.
Notes,
8.250% 06/15/05......................... 3,097
--------
14,353
--------
MEDIA -- 1.2%
4,735 Primedia Inc.,
7.625% 04/01/08......................... 4,717
--------
PUBLISHING -- 1.2%
4,190 News America Holdings Inc., Gtd. Deb.,
10.125% 10/15/12........................ 4,833
--------
TELECOMMUNICATIONS -- 3.3%
5,820 GTE Corporation,
7.900% 02/01/27......................... 6,201
2,000 Jones Intercable Inc., Sr. Notes,
9.625% 03/15/02......................... 2,105
4,500 Rogers Cablesystems Limited, Deb.,
10.000% 12/01/07........................ 5,051
--------
13,357
--------
TRANSPORTATION -- 1.2%
3,950 Federal Express Corporation, Notes,
9.650% 06/15/12......................... 4,806
--------
UTILITIES -- DIVERSIFIED -- 1.9%
2,500 Niagara Mohawk Power Company,
7.125% 07/01/01......................... 2,534
4,840 Niagara Mohawk Power Company,
7.250% 10/01/02......................... 4,929
--------
7,463
--------
TOTAL CORPORATE BONDS
AND NOTES
(Cost $243,562).......................... 239,147
--------
FOREIGN BONDS AND NOTES -- 0.9% (Cost $3,252)
4,500 United Mexican States, Senior Notes,
6.250% 12/31/19......................... 3,510
--------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
(000) (000)
- -----------------------------------------------------------------
<C> <S> <C>
MORTGAGE-BACKED SECURITIES -- 16.3%
COMMERCIAL MORTGAGE-BACKED SECURITIES -- 1.0%
$ 3,978 Morgan Stanley Capital I, Series 99-WF1,
Class A1,
5.910% 04/15/08......................... $ 3,947
--------
FEDERAL HOME LOAN MORTGAGE CORPORATION (FHLMC)
CERTIFICATES -- 3.8%
5,196 7.000% 07/01/11.......................... 5,316
6,463 6.500% 10/01/12.......................... 6,528
3,409 7.000% 07/01/28.......................... 3,462
--------
15,306
--------
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA)
CERTIFICATES -- 7.3%
1,227 7.000% 06/01/11.......................... 1,254
3,801 7.000% 09/01/11.......................... 3,885
2,616 7.000% 08/01/25.......................... 2,653
1,512 6.500% 05/01/26.......................... 1,506
4,123 6.500% 02/01/27.......................... 4,105
1,701 7.000% 04/01/27.......................... 1,725
1,759 6.500% 05/01/27.......................... 1,751
456 9.000% 05/01/27.......................... 484
4,632 8.000% 01/01/28.......................... 4,819
6,594 7.000% 05/01/28.......................... 6,689
--------
28,871
--------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA)
CERTIFICATES -- 4.2%
2,088 8.000% 07/15/24.......................... 2,181
2,955 8.000% 09/15/24.......................... 3,087
2,202 7.500% 08/15/26.......................... 2,269
2,317 9.000% 08/15/26.......................... 2,477
6,776 7.500% 09/15/28.......................... 6,984
--------
16,998
--------
TOTAL MORTGAGE-BACKED SECURITIES
(Cost $64,011).......................... 65,122
--------
MUNICIPAL BONDS AND NOTES -- 3.3%
3,520 Massachusetts State, Port Authority,
Revenue Refunding, Taxable Series 1998C,
6.350% 07/01/07......................... 3,508
5,610 Nebraska, Investment Finance Authority,
Single-Family Revenue, Taxable Series
1998B, (GNMA COLL),
6.550% 09/01/07......................... 5,731
4,000 Virginia State, Housing Development
Authority, Commonwealth Mortgage,
Taxable Series 1998F, Sub-Series F-1,
6.550% 04/01/14......................... 3,927
--------
TOTAL MUNICIPAL BONDS AND NOTES
(Cost $13,089).......................... 13,166
--------
U.S. TREASURY OBLIGATIONS -- 17.6%
U.S. TREASURY BONDS -- 15.1%
12,785 9.125% 05/15/09.......................... 14,821
7,750 12.000% 08/15/13......................... 11,286
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
55
<PAGE> 60
NATIONS FUNDS
Nations Diversified Income Fund
STATEMENT OF NET ASSETS (CONTINUED) MARCH 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
(000) (000)
- -----------------------------------------------------------------
<C> <S> <C>
U.S. TREASURY OBLIGATIONS -- (CONTINUED)
U.S. TREASURY BONDS -- (CONTINUED)
$ 2,920 10.625% 08/15/15......................... $ 4,376
23,940 8.125% 05/15/21.......................... 30,396
--------
60,879
--------
U.S. TREASURY NOTES -- 1.1%
4,000 6.625% 05/15/07.......................... 4,313
--------
U.S. TREASURY STRIPS -- 1.4%
15,000 Interest only 02/15/16................... 5,450
--------
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $72,356).......................... 70,642
--------
</TABLE>
<TABLE>
<CAPTION>
SHARES
(000)
- ---------
<C> <S> <C> <C>
INVESTMENT COMPANIES -- 7.6%
(Cost $30,218)
30,218 Nations Cash Reserves#..................... 30,218
--------
TOTAL INVESTMENTS
(Cost $426,488*)................... 105.4% 421,805
--------
OTHER ASSETS AND
LIABILITIES (NET).................. (5.4)%
Receivable for Fund shares sold............ $ 1,667
Interest receivable........................ 7,303
Prepaid expenses and other assets.......... 48
Collateral on securities loaned............ (27,094)
Payable for Fund shares redeemed........... (1,213)
Investment advisory fee payable............ (170)
Administration fee payable................. (56)
Shareholder servicing and distribution fees
payable................................... (118)
Due to custodian........................... (18)
Dividends payable.......................... (2,080)
Accrued Trustees'/Directors' fees and
expenses.................................. (19)
Accrued expenses and other liabilities..... (39)
--------
TOTAL OTHER ASSETS AND
LIABILITIES (NET)......................... (21,789)
--------
NET ASSETS.......................... 100.0% $400,016
========
</TABLE>
<TABLE>
<CAPTION>
VALUE
(000)
- -------------------------------------------------------------------
<C> <S> <C> <C>
NET ASSETS CONSIST OF:
Undistributed net investment income........ $ 13
Accumulated net realized gain on
investments sold.......................... 6
Net unrealized depreciation of
investments............................... (4,683)
Paid-in capital............................ 404,680
--------
NET ASSETS................................. $400,016
========
PRIMARY A SHARES:
Net asset value, offering and redemption
price per share ($317,936,500/30,827,293
shares outstanding).......................
$10.31
========
INVESTOR A SHARES:
Net asset value and redemption price per
share ($12,954,350/1,256,025 shares
outstanding)..............................
$10.31
========
Maximum sales charge....................... 4.75%
Maximum offering price per share........... $10.82
INVESTOR B SHARES:
Net asset value and offering price per
share+ ($67,651,285/6,559,496 shares
outstanding)..............................
$10.31
========
INVESTOR C SHARES:
Net asset value and offering price per
share+ ($1,474,199/142,941 shares
outstanding)..............................
$10.31
========
</TABLE>
- ---------------
* Federal Income Tax Information: Net unrealized depreciation of investment
securities was comprised of gross appreciation of $3,530 and gross
depreciation of $8,255 for Federal income tax purposes. At March 31, 1999,
the aggregate cost of securities for Federal income tax purposes was
$426,530.
** Variable rate note. The interest rate shown reflects the rate in effect at
March 31, 1999.
+ The redemption price per share is equal to net asset value less any
applicable contingent deferred sales charge.
# Money market mutual fund registered under the Investment Company Act of 1940,
as amended, and sub-advised by TradeStreet Investment Associates, Inc. A
portion of this amount represents cash collateral received from securities
lending activity (Note 7). The portion that represents cash collateral is
$27,094.
ABBREVIATIONS:
MTN -- Medium Term Note
SEE NOTES TO FINANCIAL STATEMENTS.
56
<PAGE> 61
NATIONS FUNDS
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED MARCH 31, 1999
<TABLE>
<CAPTION>
SHORT- STRATEGIC U.S.
SHORT-TERM INTERMEDIATE GOVERNMENT FIXED GOVERNMENT DIVERSIFIED
INCOME GOVERNMENT SECURITIES INCOME BOND INCOME
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS)
INVESTMENT INCOME:
Interest.................................... $26,638 $40,406 $10,725 $121,611 $ 9,875 $26,656
Securities lending.......................... 3 637 48 323 41 38
------- ------- ------- -------- ------- -------
Total investment income................. 26,641 41,043 10,773 121,934 9,916 26,694
------- ------- ------- -------- ------- -------
EXPENSES:
Investment advisory fee..................... 2,581 4,142 1,018 11,202 1,052 2,298
Administration fee.......................... 445 712 173 1,925 181 395
Transfer agent fees......................... 180 310 85 768 90 163
Custodian fees.............................. 34 57 23 182 50 40
Legal and audit fees........................ 62 80 51 127 60 63
Registration and filing fees................ 37 90 17 28 43 84
Trustees'/Directors' fees and expenses...... 15 15 15 15 15 15
Amortization of organization costs.......... -- -- -- -- 1 --
Interest expense............................ -- -- --* 4 --* --
Other....................................... 76 20 26 243 31 --
------- ------- ------- -------- ------- -------
Subtotal................................ 3,430 5,426 1,408 14,494 1,523 3,058
Shareholder servicing and distribution fees:
Primary B Shares.......................... -- 2 -- -- -- --
Investor A Shares......................... 43 121 51 82 6 32
Investor B Shares......................... 59 100 317 36 35 669
Investor C Shares......................... 13 11 3 12 13 16
------- ------- ------- -------- ------- -------
Total expenses.......................... 3,545 5,660 1,779 14,624 1,577 3,775
Fees waived by investment advisor and/or
distributor............................... (1,345) (1,421) (230) (1,892) (495) (489)
Fees reduced by credits allowed by the
custodian................................. (4) (18) (7) (9) (1) (7)
------- ------- ------- -------- ------- -------
Net expenses............................ 2,196 4,221 1,542 12,723 1,081 3,279
------- ------- ------- -------- ------- -------
NET INVESTMENT INCOME....................... 24,445 36,822 9,231 109,211 8,835 23,415
------- ------- ------- -------- ------- -------
NET REALIZED AND UNREALIZED GAIN/(LOSS) ON
INVESTMENTS:
Net realized gain/(loss) on investments..... 647 674 2,056 16,587 2,128 2,481
Net change in unrealized appreciation/
(depreciation) of investments............. 120 (3,584) (2,701) (23,298) 1,275 (8,154)
------- ------- ------- -------- ------- -------
Net realized and unrealized gain/(loss) on
investments............................... 767 (2,910) (645) (6,711) 3,403 (5,673)
------- ------- ------- -------- ------- -------
NET INCREASE/(DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS................. $25,212 $33,912 $ 8,586 $102,500 $12,238 $17,742
======= ======= ======= ======== ======= =======
</TABLE>
- ---------------
* Amount represents less than $500.
SEE NOTES TO FINANCIAL STATEMENTS.
57
<PAGE> 62
NATIONS FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SHORT-INTERMEDIATE
SHORT-TERM INCOME GOVERNMENT GOVERNMENT SECURITIES
------------------------- ------------------------- -------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
3/31/99 3/31/98 3/31/99 3/31/98 3/31/99 3/31/98
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS)
Net investment income............. $ 24,445 $ 19,243 $ 36,822 $ 37,218 $ 9,231 $ 6,517
Net realized gain/(loss) on
investments..................... 647 720 674 11,733 2,056 5,090
Net change in unrealized
appreciation/(depreciation) of
investments..................... 120 1,879 (3,584) 7,139 (2,701) 1,541
-------- -------- -------- -------- -------- --------
Net increase/(decrease) in net
assets resulting from
operations...................... 25,212 21,842 33,912 56,090 8,586 13,148
Distributions to shareholders from
net investment income:
Primary A Shares................ (23,117) (18,262) (33,806) (33,404) (6,592) (4,158)
Primary B Shares................ -- (25) (14) (633) -- (31)
Investor A Shares............... (942) (499) (2,497) (2,413) (1,111) (547)
Investor B Shares............... (318) (270) (451) (427) (1,513) (1,711)
Investor C Shares............... (69) (186) (55) (341) (16) (70)
Distributions to shareholders from
net realized gain on
investments:
Primary A Shares................ -- -- -- -- -- --
Primary B Shares................ -- -- -- -- -- --
Investor A Shares............... -- -- -- -- -- --
Investor B Shares............... -- -- -- -- -- --
Investor C Shares............... -- -- -- -- -- --
Net increase/(decrease) in net
assets from Fund share
transactions.................... 65,679 152,468 (77,344) 256,635 52,362 6,945
-------- -------- -------- -------- -------- --------
Net increase/(decrease) in net
assets.......................... 66,445 155,068 (80,255) 275,507 51,716 13,576
NET ASSETS:
Beginning of year................. 353,243 198,175 725,194 449,687 117,431 103,855
-------- -------- -------- -------- -------- --------
End of year....................... $419,688 $353,243 $644,939 $725,194 $169,147 $117,431
======== ======== ======== ======== ======== ========
Undistributed net investment
income/(distributions in excess
of net investment income) at end
of period....................... $ (3) $ 6 $ -- $ 33 $ (388) $ (340)
======== ======== ======== ======== ======== ========
</TABLE>
- ---------------
(a) Represents financial information for the Pilot U.S. Government Securities
Fund from September 6, 1996, which was reorganized into U.S. Government Bond
on May 23, 1997.
SEE NOTES TO FINANCIAL STATEMENTS.
58
<PAGE> 63
NATIONS FUNDS
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
<TABLE>
<CAPTION>
STRATEGIC FIXED INCOME U.S. GOVERNMENT BOND DIVERSIFIED INCOME
------------------------ ----------------------------------------- ------------------------
YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED PERIOD ENDED YEAR ENDED YEAR ENDED
3/31/99 3/31/98 3/31/99 3/31/98 5/16/97(A) 3/31/99 3/31/98
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 109,211 $ 89,290 $ 8,835 $ 7,602 $ 5,972 $ 23,415 $ 17,450
16,587 35,164 2,128 6,491 923 2,481 4,926
(23,298) 22,748 1,275 (2,480) 1,509 (8,154) 6,008
---------- ---------- --------- -------- -------- -------- --------
102,500 147,202 12,238 11,613 8,404 17,742 28,384
(107,116) (87,058) (8,563) (7,479) (5,885) (18,940) (12,929)
-- (963) -- -- -- -- (9)
(1,854) (849) (105) (57) (36) (765) (696)
(180) (121) (142) (31) (51) (3,613) (3,659)
(60) (53) (28) (36) -- (98) (157)
(10,814) -- (6,877) (1,853) (7,085) (2,686) --
-- -- -- -- -- -- --
(198) -- (93) (16) (55) (115) --
(20) -- (77) -- (76) (603) --
(7) -- (55) (18) -- (16) --
142,950 667,457 (144,617) 115,224 8,194 65,986 94,444
---------- ---------- --------- -------- -------- -------- --------
125,201 725,615 (148,319) 117,347 3,410 56,892 105,378
1,711,650 986,035 267,692 150,345 146,935 343,124 237,746
---------- ---------- --------- -------- -------- -------- --------
$1,836,851 $1,711,650 $ 119,373 $267,692 $150,345 $400,016 $343,124
========== ========== ========= ======== ======== ======== ========
$ 1 $ 245 $ 23 $ 27 $ 22 $ 13 $ 38
========== ========== ========= ======== ======== ======== ========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
59
<PAGE> 64
NATIONS FUNDS
SCHEDULES OF CAPITAL STOCK ACTIVITY
<TABLE>
<CAPTION>
SHORT-TERM INCOME
YEAR ENDED YEAR ENDED
MARCH 31, 1999 MARCH 31, 1998
-------------------- --------------------
SHARES DOLLARS SHARES DOLLARS
--------------------------------------------
<S> <C> <C> <C> <C>
(IN THOUSANDS)
PRIMARY A SHARES:
Sold...................................................... 9,560 $ 95,118 6,441 $ 62,959
Issued in exchange for:
Assets of Common Trust Short-Term Income Fund (Note
9).................................................... -- -- 28,299 275,916
Institutional Shares of Emerald Short-Term Fixed Income
Fund (Note 9)......................................... 9,960 97,328 -- --
Issued as reinvestment of dividends....................... 220 2,155 381 3,717
Redeemed.................................................. (13,100) (129,838) (19,897) (194,447)
------- --------- ------- ---------
Net increase/(decrease)................................... 6,640 $ 64,763 15,224 $ 148,145
======= ========= ======= =========
PRIMARY B SHARES:
Sold...................................................... -- $ -- 9 $ 86
Issued as reinvestment of dividends....................... -- -- 1 13
Redeemed.................................................. -- -- (109) (1,059)
------- --------- ------- ---------
Net increase/(decrease)................................... -- $ -- (99) $ (960)
======= ========= ======= =========
INVESTOR A SHARES:
Sold...................................................... 649 $ 6,379 1,373 $ 13,399
Issued in exchange for Retail Shares of Emerald Short-Term
Fixed Income Fund (Note 9).............................. 394 3,850 -- --
Issued as reinvestment of dividends....................... 73 754 47 463
Redeemed.................................................. (1,019) (10,035) (657) (6,431)
------- --------- ------- ---------
Net increase/(decrease)................................... 97 $ 948 763 $ 7,431
======= ========= ======= =========
INVESTOR B SHARES:
Sold...................................................... 338 $ 3,306 118 $ 1,154
Issued as reinvestment of dividends....................... 28 276 24 231
Redeemed.................................................. (242) (2,369) (243) (2,426)
------- --------- ------- ---------
Net increase/(decrease)................................... 124 $ 1,213 (101) $ (1,041)
======= ========= ======= =========
INVESTOR C SHARES:
Sold...................................................... 118 $ 1,168 132 $ 1,284
Issued as reinvestment of dividends....................... 5 46 12 118
Redeemed.................................................. (251) (2,459) (258) (2,509)
------- --------- ------- ---------
Net increase/(decrease)................................... (128) $ (1,245) (114) $ (1,107)
======= ========= ======= =========
Total net increase/(decrease)............................... 6,733 $ 65,679 15,673 $ 152,468
======= ========= ======= =========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
60
<PAGE> 65
NATIONS FUNDS
SCHEDULES OF CAPITAL STOCK ACTIVITY (CONTINUED)
<TABLE>
<CAPTION>
SHORT-INTERMEDIATE GOVERNMENT
YEAR ENDED YEAR ENDED
MARCH 31, 1999 MARCH 31, 1998
-------------------- --------------------
SHARES DOLLARS SHARES DOLLARS
--------------------------------------------
<S> <C> <C> <C> <C>
(IN THOUSANDS)
PRIMARY A SHARES:
Sold...................................................... 24,666 $ 103,136 27,055 $ 111,321
Issued in exchange for:
Pilot Shares of Pilot Intermediate U.S. Government
Securities Fund (Note 9).............................. -- -- 57,273 230,815
Assets of Common Trust Short Intermediate U.S.
Government Fund (Note 9).............................. -- -- 67,261 275,769
Issued in exchange for assets of Common Trust Two-Year
Government Bond
Fund (Note 9)........................................... 1,373 5,670 -- --
Issued as reinvestment of dividends....................... 241 1,013 1,029 4,167
Redeemed.................................................. (43,680) (181,917) (84,345) (345,875)
------- --------- ------- ---------
Net increase/(decrease)................................... (17,400) $ (72,098) 68,273 $ 276,197
======= ========= ======= =========
PRIMARY B SHARES:
Sold...................................................... -- $ -- 841 $ 3,495
Issued as reinvestment of dividends....................... 3 13 121 499
Redeemed.................................................. -- -- (5,154) (21,231)
------- --------- ------- ---------
Net increase/(decrease)................................... 3 $ 13 (4,192) $ (17,237)
======= ========= ======= =========
INVESTOR A SHARES:
Sold...................................................... 1,415 $ 5,858 3,995 $ 16,124
Issued in exchange for:
Class A Shares of Pilot Intermediate U.S. Government
Securities Fund (Note 9).............................. -- -- 343 1,382
Issued as reinvestment of dividends....................... 435 1,802 402 1,664
Redeemed.................................................. (2,930) (12,131) (3,360) (13,463)
------- --------- ------- ---------
Net increase/(decrease)................................... (1,080) $ (4,471) 1,380 $ 5,707
======= ========= ======= =========
INVESTOR B SHARES:
Sold...................................................... 628 $ 2,651 141 $ 569
Issued as reinvestment of dividends....................... 69 286 71 289
Redeemed.................................................. (740) (3,109) (530) (2,150)
------- --------- ------- ---------
Net increase/(decrease)................................... (43) $ (172) (318) $ (1,292)
======= ========= ======= =========
INVESTOR C SHARES:
Sold...................................................... 131 $ 539 22 $ 91
Issued as reinvestment of dividends....................... 11 47 46 187
Redeemed.................................................. (290) (1,202) (1,716) (7,018)
------- --------- ------- ---------
Net increase/(decrease)................................... (148) $ (616) (1,648) $ (6,740)
======= ========= ======= =========
Total net increase/(decrease)............................... (18,668) $ (77,344) 63,495 $ 256,635
======= ========= ======= =========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
61
<PAGE> 66
NATIONS FUNDS
SCHEDULES OF CAPITAL STOCK ACTIVITY (CONTINUED)
<TABLE>
<CAPTION>
GOVERNMENT SECURITIES
YEAR ENDED YEAR ENDED
MARCH 31, 1999 MARCH 31, 1998
------------------ ------------------
SHARES DOLLARS SHARES DOLLARS
----------------------------------------
<S> <C> <C> <C> <C>
(IN THOUSANDS)
PRIMARY A SHARES:
Sold...................................................... 2,562 $ 25,739 1,578 $ 15,624
Issued in exchange for:
Institutional Shares of Emerald U.S. Government
Securities Fund (Note 9)............................... 4,567 45,329 -- --
Assets of Common Trust Government Bond Fund (Note 9).... 598 5,957 -- --
Issued in exchange for assets of Common Trust Mortgage
Backed Securities Fund (Note 9)......................... -- -- 4,714 45,209
Issued as reinvestment of dividends....................... 43 420 22 214
Redeemed.................................................. (3,293) (33,049) (4,265) (41,843)
------ -------- ------ --------
Net increase/(decrease)................................... 4,477 $ 44,396 2,049 $ 19,204
====== ======== ====== ========
PRIMARY B SHARES:+
Sold...................................................... -- $ -- 11 $ 104
Issued as reinvestment of dividends....................... -- -- 1 5
Redeemed.................................................. -- -- (92) (902)
------ -------- ------ --------
Net increase/(decrease)................................... -- $ -- (80) $ (793)
====== ======== ====== ========
INVESTOR A SHARES:
Sold...................................................... 230 $ 2,311 225 $ 2,194
Issued in exchange for:
Retail Shares Emerald U.S. Government Securities Fund
(Note 9)............................................... 1,879 18,654 -- --
Issued as reinvestment of dividends....................... 59 597 31 306
Redeemed.................................................. (1,084) (10,876) (446) (4,439)
------ -------- ------ --------
Net increase/(decrease)................................... 1,084 $ 10,686 (190) $ (1,939)
====== ======== ====== ========
INVESTOR B SHARES:
Sold...................................................... 430 $ 4,314 65 $ 646
Issued as reinvestment of dividends....................... 94 952 104 1,005
Redeemed.................................................. (742) (7,449) (1,033) (9,993)
------ -------- ------ --------
Net increase/(decrease)................................... (218) $ (2,183) (864) $ (8,342)
====== ======== ====== ========
INVESTOR C SHARES:
Sold...................................................... --* $ 2 1 $ 4
Issued as reinvestment of dividends....................... 1 10 4 41
Redeemed.................................................. (54) (549) (126) (1,230)
------ -------- ------ --------
Net increase/(decrease)................................... (53) $ (537) (121) $ (1,185)
====== ======== ====== ========
Total net increase/(decrease)............................... 5,290 $ 52,362 794 $ 6,945
====== ======== ====== ========
</TABLE>
- ---------------
* Amount represents less than 500 shares.
+ There were no longer any public shareholders of the Primary B Share class as
of March 31, 1998.
SEE NOTES TO FINANCIAL STATEMENTS.
62
<PAGE> 67
NATIONS FUNDS
SCHEDULES OF CAPITAL STOCK ACTIVITY (CONTINUED)
<TABLE>
<CAPTION>
STRATEGIC FIXED INCOME
YEAR ENDED YEAR ENDED
MARCH 31, 1999 MARCH 31, 1998
-------------------- --------------------
SHARES DOLLARS SHARES DOLLARS
--------------------------------------------
<S> <C> <C> <C> <C>
(IN THOUSANDS)
PRIMARY A SHARES:
Sold...................................................... 49,350 $ 494,694 47,819 $ 478,101
Issued in exchange for:
Institutional Shares of Emerald Managed Bond Fund (Note
9).................................................... 7,464 74,663 -- --
Pilot Shares of Pilot Diversified Bond Fund (Note 9).... -- -- 9,935 96,657
Assets of Common Trust Strategic Fixed Income Fund (Note
9).................................................... -- -- 99,909 987,102
Assets of Common Trust Fixed Income Fund for Personal
Trusts (Note 9)....................................... -- -- 2,475 24,459
Assets of Common Trust Bond Fund (Note 9)............... 6,909 69,407 -- --
Assets of Common Trust Intermediate Bond Fund (Note
9).................................................... 7,156 71,850 -- --
Issued as reinvestment of dividends....................... 1,534 16,762 2,279 22,603
Redeemed.................................................. (59,014) (593,850) (93,155) (930,753)
------- --------- ------- ---------
Net increase/(decrease)................................... 13,399 $ 133,526 69,262 $ 678,169
======= ========= ======= =========
PRIMARY B SHARES:+
Sold...................................................... -- $ -- 319 $ 3,147
Issued as reinvestment of dividends....................... -- -- 63 622
Redeemed.................................................. -- -- (3,420) (34,139)
------- --------- ------- ---------
Net increase/(decrease)................................... -- $ -- (3,038) $ (30,370)
======= ========= ======= =========
INVESTOR A SHARES:
Sold...................................................... 1,498 $ 14,738 2,649 $ 26,507
Issued in exchange for:
Class A Shares of Pilot Diversified Bond Fund (Note
9).................................................... -- -- 18 179
Retail Shares of Emerald Managed Bond Fund (Note 9)..... 258 2,583 -- --
Issued as reinvestment of dividends....................... 162 1,692 63 628
Redeemed.................................................. (1,281) (12,595) (792) (7,946)
------- --------- ------- ---------
Net increase/(decrease)................................... 637 $ 6,418 1,938 $ 19,368
======= ========= ======= =========
INVESTOR B SHARES:
Sold...................................................... 331 $ 3,313 77 $ 771
Issued in exchange for:
Class B Shares of Pilot Diversified Bond Fund (Note
9).................................................... -- -- 35 344
Issued as reinvestment of dividends....................... 17 175 10 101
Redeemed.................................................. (65) (688) (76) (755)
------- --------- ------- ---------
Net increase/(decrease)................................... 283 $ 2,800 46 $ 461
======= ========= ======= =========
INVESTOR C SHARES:
Sold...................................................... 74 $ 740 145 $ 1,446
Issued as reinvestment of dividends....................... 5 51 5 50
Redeemed.................................................. (58) (585) (167) (1,667)
------- --------- ------- ---------
Net increase/(decrease)................................... 21 $ 206 (17) $ (171)
======= ========= ======= =========
Total net increase/(decrease)............................... 14,340 $ 142,950 68,191 $ 667,457
======= ========= ======= =========
</TABLE>
- ---------------
+ There were no longer any public shareholders of the Primary B Share class as
of March 31, 1998.
SEE NOTES TO FINANCIAL STATEMENTS.
63
<PAGE> 68
NATIONS FUNDS
SCHEDULES OF CAPITAL STOCK ACTIVITY (CONTINUED)
<TABLE>
<CAPTION>
U.S. GOVERNMENT BOND
YEAR ENDED YEAR ENDED PERIOD ENDED
MARCH 31, 1999 MARCH 31, 1998(A) MAY 16, 1997(B)
----------------------- --------------------- ---------------------
SHARES DOLLARS SHARES DOLLARS SHARES DOLLARS
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS)
PRIMARY A SHARES:
Sold..................................... 1,191 $ 12,083 13,487 $139,974 2,306 $ 23,888
Issued as reinvestment of dividends...... 517 5,293 102 1,062 42 436
Redeemed................................. (16,293) (168,334) (2,714) (27,813) (1,599) (16,630)
------- --------- ------ -------- ------ --------
Net increase/(decrease).................. (14,585) $(150,958) 10,875 $113,223 749 $ 7,694
======= ========= ====== ======== ====== ========
INVESTOR A SHARES:
Sold..................................... 87 $ 882 168 $ 1,746 52 $ 568
Issued as reinvestment of dividends...... 10 125 5 46 9 90
Redeemed................................. (54) (556) (59) (612) (49) (501)
------- --------- ------ -------- ------ --------
Net increase/(decrease).................. 43 $ 451 114 $ 1,180 12 $ 157
======= ========= ====== ======== ====== ========
INVESTOR B SHARES:
Sold..................................... 615 $ 6,346 98 $ 1,029 38 $ 400
Issued as reinvestment of dividends...... 20 206 2 20 10 108
Redeemed................................. (59) (711) (153) (1,564) (16) (165)
------- --------- ------ -------- ------ --------
Net increase/(decrease).................. 576 $ 5,841 (53) $ (515) 32 $ 343
======= ========= ====== ======== ====== ========
INVESTOR C SHARES:
Sold..................................... 6 $ 80 146 $ 1,516 -- $ --
Issued as reinvestment of dividends...... 6 77 2 25 -- --
Redeemed................................. (15) (108) (20) (205) -- --
------- --------- ------ -------- ------ --------
Net increase/(decrease).................. (3) $ 49 128 1,336 -- --
======= ========= ====== ======== ====== ========
Total net increase/(decrease).............. (13,969) $(144,617) 11,064 $115,224 793 $ 8,194
======= ========= ====== ======== ====== ========
</TABLE>
- ---------------
(a) U.S. Government Bond Investor C Shares commenced operations on September 19,
1997.
(b) Represents financial information for the Pilot U.S. Government Securities
Fund from September 6, 1996, which was reorganized into U.S. Government Bond
on May 23, 1997.
SEE NOTES TO FINANCIAL STATEMENTS.
64
<PAGE> 69
NATIONS FUNDS
SCHEDULES OF CAPITAL STOCK ACTIVITY (CONTINUED)
<TABLE>
<CAPTION>
DIVERSIFIED INCOME
YEAR ENDED YEAR ENDED
MARCH 31, 1999 MARCH 31, 1998
-------------------- --------------------
SHARES DOLLARS SHARES DOLLARS
----------------------------------------------
<S> <C> <C> <C> <C>
(IN THOUSANDS)
PRIMARY A SHARES:
Sold...................................................... 8,342 $ 88,223 12,275 $128,837
Issued as reinvestment of dividends....................... 1,269 13,365 881 9,155
Redeemed.................................................. (3,803) (40,256) (3,173) (33,726)
------ -------- ------ --------
Net increase/(decrease)................................... 5,808 $ 61,332 9,983 $104,266
====== ======== ====== ========
PRIMARY B SHARES:+
Sold...................................................... -- $ -- 23 $ 233
Issued as reinvestment of dividends....................... -- -- 1 8
Redeemed.................................................. -- -- (28) (291)
------ -------- ------ --------
Net increase/(decrease)................................... -- $ -- (4) $ (50)
====== ======== ====== ========
INVESTOR A SHARES:
Sold...................................................... 394 $ 4,150 302 $ 3,115
Issued as reinvestment of dividends....................... 56 585 43 452
Redeemed.................................................. (326) (3,419) (366) (3,776)
------ -------- ------ --------
Net increase/(decrease)................................... 124 $ 1,316 (21) $ (209)
====== ======== ====== ========
INVESTOR B SHARES:
Sold...................................................... 1,627 $ 17,162 521 $ 5,490
Issued as reinvestment of dividends....................... 247 2,704 211 2,204
Redeemed.................................................. (1,502) (15,942) (1,529) (15,884)
------ -------- ------ --------
Net increase/(decrease)................................... 372 $ 3,924 (797) $ (8,190)
====== ======== ====== ========
INVESTOR C SHARES:
Sold...................................................... 66 $ 692 57 $ 603
Issued as reinvestment of dividends....................... 8 81 10 104
Redeemed.................................................. (129) (1,359) (199) (2,080)
------ -------- ------ --------
Net increase/(decrease)................................... (55) $ (586) (132) $ (1,373)
====== ======== ====== ========
Total net increase/(decrease)............................... 6,249 $ 65,986 9,029 $ 94,444
====== ======== ====== ========
</TABLE>
- ---------------
+ There were no longer any public shareholders of the Primary B Share class as
of March 31, 1998.
SEE NOTES TO FINANCIAL STATEMENTS.
65
<PAGE> 70
NATIONS FUNDS
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD.
<TABLE>
<CAPTION>
NET INCREASE/ DISTRIBUTIONS
NET ASSET NET REALIZED (DECREASE) IN DIVIDENDS IN EXCESS
VALUE NET AND UNREALIZED NET ASSET FROM NET OF NET
BEGINNING INVESTMENT GAIN/(LOSS) ON VALUE FROM INVESTMENT INVESTMENT
OF PERIOD INCOME INVESTMENTS OPERATIONS INCOME INCOME
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SHORT-TERM INCOME
PRIMARY A SHARES
Year ended 3/31/1999...................... $ 9.77 $0.56 $ 0.02 $ 0.58 $(0.56) --
Year ended 3/31/1998...................... 9.68 0.56 0.09 0.65 (0.56) --
Year ended 3/31/1997#..................... 9.76 0.58 (0.08) 0.50 (0.58) --
Period ended 3/31/1996(a)#................ 9.84 0.20 (0.08) 0.12 (0.20) --
Year ended 11/30/1995#.................... 9.48 0.61 0.36 0.97 (0.61) --
Year ended 11/30/1994#.................... 10.01 0.50 (0.51) (0.01) (0.48) $(0.02)
PRIMARY B SHARES:
Year ended 03/31/1999..................... $ 9.77 $0.52 $ 0.02 $ 0.54 $(0.52) --
Year ended 03/31/1998..................... 9.68 0.53 0.09 0.62 (0.53) --
Period ended 03/31/1997*#................. 9.71 0.41 (0.03) 0.38 (0.41) --
INVESTOR A SHARES
Year ended 3/31/1999...................... $ 9.77 $0.54 $ 0.02 $ 0.56 $(0.54) --
Year ended 3/31/1998...................... 9.68 0.54 0.09 0.63 (0.54) --
Year ended 3/31/1997#..................... 9.76 0.56 (0.08) 0.48 (0.56) --
Period ended 3/31/1996(a)#................ 9.84 0.19 (0.08) 0.11 (0.19) --
Year ended 11/30/1995#.................... 9.48 0.59 0.36 0.95 (0.59) --
Year ended 11/30/1994#.................... 10.01 0.48 (0.51) (0.03) (0.46) $(0.02)
INVESTOR B SHARES
Year ended 3/31/1999...................... $ 9.77 $0.52 $ 0.02 $ 0.54 $(0.52) --
Year ended 3/31/1998...................... 9.68 0.53 0.09 0.62 (0.53) --
Year ended 3/31/1997#..................... 9.76 0.55 (0.08) 0.47 (0.55) --
Period ended 3/31/1996(a)#................ 9.84 0.19 (0.08) 0.11 (0.19) --
Year ended 11/30/1995#.................... 9.48 0.57 0.36 0.93 (0.57) --
Year ended 11/30/1994#.................... 10.01 0.47 (0.51) (0.04) (0.45) $(0.02)
INVESTOR C SHARES
Year ended 3/31/1999...................... $ 9.77 $0.52 $ 0.02 $ 0.54 $(0.52) --
Year ended 3/31/1998...................... 9.68 0.53 0.09 0.62 (0.53) --
Year ended 3/31/1997#..................... 9.76 0.55 (0.08) 0.47 (0.55) --
Period ended 3/31/1996(a)#................ 9.84 0.19 (0.08) 0.11 (0.19) --
Year ended 11/30/1995#.................... 9.48 0.57 0.36 0.93 (0.57) --
Year ended 11/30/1994#.................... 10.01 0.46 (0.51) (0.05) (0.44) $(0.02)
</TABLE>
- ---------------
+ Annualized.
++ Total return represents aggregate total return for the period indicated,
assumes reinvestment of all distributions, and does not reflect the
deduction of any applicable sales charges.
# Per share net investment income has been calculated using the monthly
average share method.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
(b) The effect of interest expense on the operating expense ratio was less than
0.01%.
(c) The effect of the fees reduced by credits allowed by the custodian on the
operating expense ratio, with and without waivers and/or expense
reimbursements, was less than 0.01%.
(d) Amount is less than $1,000.
SEE NOTES TO FINANCIAL STATEMENTS.
66
<PAGE> 71
NATIONS FUNDS
FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
WITHOUT WAIVERS
AND/OR EXPENSE
REIMBURSEMENTS
---------------
RATIO OF RATIO OF NET RATIO OF
TOTAL NET ASSET NET ASSETS OPERATING INVESTMENT OPERATING
DISTRIBUTIONS DIVIDENDS VALUE END OF EXPENSES TO INCOME TO PORTFOLIO EXPENSES TO
FROM AND END OF TOTAL PERIOD AVERAGE AVERAGE TURNOVER AVERAGE
CAPITAL DISTRIBUTIONS PERIOD RETURN++ (000) NET ASSETS NET ASSETS RATE NET ASSETS
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
-- $(0.56) $9.79 6.07% $397,467 0.50%(c) 5.70% 64% 0.80%(c)
-- (0.56) 9.77 6.89 331,961 0.56(b)(c) 5.75 66 0.86(c)
-- (0.58) 9.68 5.25 181,455 0.55(b) 5.97 172 0.85
-- (0.20) 9.76 1.19 179,957 0.55+ 6.07+ 73 0.88+
-- (0.61) 9.84 10.48 169,291 0.56 6.32 224 0.86
$(0.02) (0.52) 9.48 (0.11) 176,712 0.50 5.23 293 0.82
-- $(0.52) $9.79 5.70% $ --(d) 0.85% 5.35% 64% 1.40%
-- (0.53) 9.77 6.58 --(d) 0.91(b)(c) 5.40 66 1.21(c)
-- (0.41) 9.68 3.95 953 0.90(b)+ 5.62+ 172 1.20+
-- $(0.54) $9.79 5.85% $ 14,652 0.70%(c) 5.50% 64% 1.05%(c)
-- (0.54) 9.77 6.67 13,688 0.76(b)(c) 5.55 66 1.06(c)
-- (0.56) 9.68 5.04 6,169 0.75(b) 5.77 172 1.05
-- (0.19) 9.76 1.13 2,810 0.75+ 5.87+ 73 1.08+
-- (0.59) 9.84 10.29 2,969 0.76 6.12 224 1.06
$(0.02) (0.50) 9.48 (0.33) 2,490 0.71 5.02 293 1.03
-- $(0.52) $9.79 5.70% $ 5,825 0.85%(c) 5.35% 64% 1.80%(c)
-- (0.53) 9.77 6.51 4,602 0.91(b)(c) 5.40 66 1.21(c)
-- (0.55) 9.68 4.89 5,536 0.90(b) 5.62 172 1.20
-- (0.19) 9.76 1.08 7,339 0.90+ 5.72+ 73 1.23+
-- (0.57) 9.84 10.10 8,873 0.91 5.97 224 1.21
$(0.02) (0.49) 9.48 (0.46) 16,550 0.85 4.88 293 1.17
-- $(0.52) $9.79 5.64% $ 1,744 1.01%(c) 5.19% 64% 1.80%(c)
-- (0.53) 9.77 6.51 2,992 0.91(b)(c) 5.40 66 1.21(c)
-- (0.55) 9.68 4.89 4,063 0.90(b) 5.62 172 1.20
-- (0.19) 9.76 1.07 6,121 0.90+ 5.72+ 73 1.23+
-- (0.57) 9.84 10.08 6,056 0.91 5.97 224 1.21
$(0.02) (0.48) 9.48 (0.51) 8,102 0.89 4.84 293 1.21
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
67
<PAGE> 72
NATIONS FUNDS
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD.
<TABLE>
<CAPTION>
NET INCREASE/
NET ASSET NET REALIZED (DECREASE) DIVIDENDS DISTRIBUTIONS
VALUE NET AND UNREALIZED IN NET ASSET FROM NET FROM NET
BEGINNING INVESTMENT GAIN/(LOSS) ON VALUE FROM INVESTMENT REALIZED
OF PERIOD INCOME INVESTMENTS OPERATIONS INCOME CAPITAL GAINS
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SHORT-INTERMEDIATE GOVERNMENT
PRIMARY A SHARES
Year ended 3/31/1999...................... $4.12 $0.22 $(0.02) $ 0.20 $(0.22) --
Year ended 3/31/1998...................... 3.99 0.23 0.13 0.36 (0.23) --
Year ended 3/31/1997#..................... 4.07 0.23 (0.08) 0.15 (0.23) --
Period ended 3/31/1996(b)#................ 4.14 0.07 (0.07) 0.00 (0.07)(a) --
Year ended 11/30/1995#.................... 3.93 0.24 0.21 0.45 (0.24)(a) --
Year ended 11/30/1994..................... 4.28 0.23 (0.33) (0.10) (0.23)(a) $(0.02)
PRIMARY B SHARES
Year ended 3/31/1999#..................... $4.12 $0.21 $(0.02) $ 0.19 $(0.21) --
Year ended 3/31/1998...................... 3.99 0.21 0.13 0.34 (0.21) --
Period ended 3/31/1997*#.................. 4.02 0.16 (0.03) 0.13 (0.16) --
INVESTOR A SHARES
Year ended 3/31/1999...................... $4.12 $0.21 $(0.02) $ 0.19 $(0.21) --
Year ended 3/31/1998...................... 3.99 0.22 0.13 0.35 (0.22) --
Year ended 3/31/1997#..................... 4.07 0.22 (0.08) 0.14 (0.22) --
Period ended 3/31/1996(b)#................ 4.14 0.07 (0.07) 0.00 (0.07)(a) --
Year ended 11/30/1995#.................... 3.93 0.23 0.21 0.44 (0.23)(a) --
Year ended 11/30/1994..................... 4.28 0.22 (0.33) (0.11) (0.22)(a) $(0.02)
INVESTOR B SHARES
Year ended 3/31/1999...................... $4.12 $0.19 $(0.02) $ 0.17 $(0.19) --
Year ended 3/31/1998...................... 3.99 0.20 0.13 0.33 (0.20) --
Year ended 3/31/1997#..................... 4.07 0.20 (0.08) 0.12 (0.20) --
Period ended 3/31/1996(b)#................ 4.14 0.07 (0.07) 0.00 (0.07)(a) --
Year ended 11/30/1995#.................... 3.93 0.21 0.21 0.42 (0.21)(a) --
Year ended 11/30/1994..................... 4.28 0.20 (0.33) (0.13) (0.20)(a) $(0.02)
INVESTOR C SHARES
Year ended 3/31/1999...................... $4.12 $0.19 $(0.03) $ 0.16 $(0.19) --
Year ended 3/31/1998...................... 3.99 0.20 0.13 0.33 (0.20) --
Year ended 3/31/1997#..................... 4.07 0.21 (0.08) 0.13 (0.21) --
Period ended 3/31/1996(b)#................ 4.14 0.07 (0.07) 0.00 (0.07)(a) --
Year ended 11/30/1995#.................... 3.93 0.22 0.21 0.43 (0.22)(a) --
Year ended 11/30/1994..................... 4.28 0.20 (0.33) (0.13) (0.20)(a) $(0.02)
</TABLE>
- ---------------
* Short-Intermediate Government Primary B Shares commenced operations on June
28, 1996.
+ Annualized.
++ Total return represents aggregate total return for the period indicated,
assumes reinvestment of all distributions, and does not reflect the
deduction of any applicable sales charges.
# Per share net investment income has been calculated using the monthly
average share method.
## Amount represents less than 0.01%.
(a) Includes distribution in excess of less than $0.01 per share.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
(c) The effect of interest expense on the operating expense ratio was less than
0.01%.
(d) The effect of the fees reduced by credits allowed by the custodian on the
operating expense ratio, with and without waivers and/or expense
reimbursements, was less than 0.01%.
SEE NOTES TO FINANCIAL STATEMENTS.
68
<PAGE> 73
NATIONS FUNDS
FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
WITHOUT WAIVERS
AND/OR EXPENSE
REIMBURSEMENTS
---------------
RATIO OF RATIO OF NET RATIO OF
TOTAL NET ASSET NET ASSETS OPERATING INVESTMENT OPERATING
DIVIDENDS VALUE END OF EXPENSES TO INCOME TO PORTFOLIO EXPENSES TO
AND END OF TOTAL PERIOD AVERAGE AVERAGE TURNOVER AVERAGE
DISTRIBUTIONS PERIOD RETURN++ (000) NET ASSETS NET ASSETS RATE NET ASSETS
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$(0.22) $4.10 4.97% $589,092 0.58%(d) 5.36% 242% 0.78%(d)
(0.23) 4.12 9.11 663,833 0.61 5.53 538 0.81
(0.23) 3.99 3.72 371,118 0.63(c)(d) 5.73 529 0.83(d)
(0.07) 4.07 0.07 399,915 0.63+ 5.32+ 189 0.86+
(0.24) 4.14 11.70 425,200 0.60 5.88 328 0.80
(0.25) 3.93 (2.23) 433,278 0.59 5.76 133 0.80
$(0.21) $4.10 4.61% $ 273 0.93%(d) 5.01% 242% 1.38%(d)
(0.21) 4.12 8.74 261 0.96 5.18 538 1.16
(0.16) 3.99 3.31 16,980 0.98+(c)(d) 5.38+ 529 1.18+(d)
$(0.21) $4.10 4.76% $ 44,793 0.78%(d) 5.16% 242% 1.03%(d)
(0.22) 4.12 8.89 49,478 0.81 5.33 538 1.01
(0.22) 3.99 3.51 42,468 0.83(c)(d) 5.53 529 1.03(d)
(0.07) 4.07 0.00## 57,381 0.83+ 5.12+ 189 1.06+
(0.23) 4.14 11.48 64,848 0.80 5.68 328 1.00
(0.24) 3.93 (2.41) 77,128 0.77 5.58 133 0.98
$(0.19) $4.10 4.14% $ 9,591 1.38%(d) 4.56% 242% 1.78%(d)
(0.20) 4.12 8.35 9,815 1.34 4.80 538 1.54
(0.20) 3.99 3.10 10,788 1.23(c)(d) 5.13 529 1.43(d)
(0.07) 4.07 (0.13) 13,789 1.23+ 4.72+ 189 1.46+
(0.21) 4.14 11.02 14,893 1.20 5.28 328 1.40
(0.22) 3.93 (2.81) 10,974 1.19 5.16 133 1.40
$(0.19) $4.09 4.05% $ 1,190 1.34%(d) 4.60% 242% 1.78%(d)
(0.20) 4.12 8.45 1,808 1.31 4.83 538 1.51
(0.21) 3.99 3.21 8,334 1.13(c)(d) 5.23 529 1.33(d)
(0.07) 4.07 (0.10) 11,820 1.13+ 4.82+ 189 1.36+
(0.22) 4.14 11.15 13,206 1.10 5.38 328 1.30
(0.22) 3.93 (2.80) 16,725 1.17 5.18 133 1.38
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
69
<PAGE> 74
NATIONS FUNDS
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD.
<TABLE>
<CAPTION>
NET
INCREASE/ DISTRIBUTIONS DISTRIBUTIONS
NET ASSET NET REALIZED (DECREASE) DIVIDENDS IN EXCESS IN EXCESS
VALUE NET AND UNREALIZED IN NET ASSET FROM NET OF NET OF NET
BEGINNING INVESTMENT GAIN/(LOSS) VALUE FROM INVESTMENT INVESTMENT REALIZED
OF PERIOD INCOME ON INVESTMENTS OPERATIONS INCOME INCOME CAPITAL GAINS
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
GOVERNMENT SECURITIES
PRIMARY A SHARES
Year ended 3/31/1999#...... $ 9.90 $0.58 $(0.05) $ 0.53 $(0.57) -- --
Year ended 3/31/1998....... 9.39 0.55 0.51 1.06 (0.55) -- --
Year ended 3/31/1997#...... 9.67 0.60 (0.30) 0.30 (0.58) -- --
Period ended
3/31/1996(a)#............ 9.86 0.52 (0.19) 0.33 (0.50) $(0.02) --
Year ended 5/31/1995#...... 9.80 0.64 0.06 0.70 (0.60) -- --
Year ended 5/31/1994....... 10.46 0.64 (0.61) 0.03 (0.58) (0.02) $(0.05)
INVESTOR A SHARES
Year ended 3/31/1999#...... $ 9.90 $0.56 $(0.05) $ 0.51 $(0.55) -- --
Year ended 3/31/1998....... 9.39 0.52 0.51 1.03 (0.52) -- --
Year ended 3/31/1997#...... 9.67 0.58 (0.30) 0.28 (0.56) -- --
Period ended
3/31/1996(a)#............ 9.86 0.50 (0.19) 0.31 (0.48) $(0.02) --
Year ended 5/31/1995#...... 9.80 0.61 0.06 0.67 (0.57) -- --
Year ended 5/31/1994....... 10.46 0.62 (0.61) 0.01 (0.56) (0.02) $(0.05)
INVESTOR B SHARES
Year ended 3/31/1999#...... $ 9.90 $0.49 $(0.04) $ 0.45 $(0.49) -- --
Year ended 3/31/1998....... 9.39 0.47 0.51 0.98 (0.47) -- --
Year ended 3/31/1997#...... 9.67 0.54 (0.30) 0.24 (0.52) -- --
Period ended
3/31/1996(a)#............ 9.86 0.47 (0.19) 0.28 (0.45) $(0.02) --
Year ended 5/31/1995#...... 9.80 0.58 0.06 0.64 (0.54) -- --
Period ended 5/31/1994*.... 10.49 0.54 (0.64) (0.10) (0.49) (0.01) $(0.05)
INVESTOR C SHARES
Year ended 3/31/1999#...... $ 9.90 $0.49 $(0.04) $ 0.45 $(0.49) -- --
Year ended 3/31/1998....... 9.39 0.48 0.51 0.99 (0.48) -- --
Year ended 3/31/1997#...... 9.67 0.55 (0.30) 0.25 (0.53) -- --
Period ended
3/31/1996(a)#............ 9.86 0.47 (0.19) 0.28 (0.45) $(0.02) --
Year ended 5/31/1995#...... 9.80 0.57 0.06 0.63 (0.53) -- --
Year ended 5/31/1994....... 10.46 0.55 (0.61) (0.06) (0.50) (0.01) $(0.05)
</TABLE>
- ---------------
<TABLE>
<C> <S>
* Government Securities Investor B Shares commenced operations
on June 7, 1993.
+ Annualized.
++ Total return represents aggregate total return for the
period indicated, assumes reinvestment of all distributions,
and does not reflect the deduction of any applicable sales
charges.
# Per share net investment income has been calculated using
the monthly average share method.
(a) Fiscal year end changed to March 31. Prior to this, the
fiscal year end was May 31.
(b) Amount represents less than $0.01.
(c) The effect of interest expense on the operating expense
ratio was less than 0.01%.
(d) The effect of the credits allowed by the custodian on the
operating expense ratio, with and without waivers and/or
expense reimbursements, was less than 0.01%.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
70
<PAGE> 75
NATIONS FUNDS
FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
RATIO OF RATIO OF NET
TOTAL NET ASSET NET ASSETS OPERATING INVESTMENT
DISTRIBUTIONS DIVIDENDS VALUE END OF EXPENSES TO INCOME TO PORTFOLIO
FROM AND END OF TOTAL PERIOD AVERAGE AVERAGE TURNOVER
CAPITAL DISTRIBUTIONS PERIOD RETURN++ (000) NET ASSETS NET ASSETS RATE
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
-- $(0.57) $9.86 5.41% $119,659 0.73%(d) 5.70% 600%
-- (0.55) 9.90 11.65 75,796 0.85(c)(d) 5.63 303
$ 0.00(b) (0.58) 9.39 3.18 52,606 0.80 6.28 468
-- (0.52) 9.67 3.41 55,962 0.80+ 6.36+ 199
(0.04) (0.64) 9.86 7.55 39,909 0.76 6.69 413
(0.04) (0.69) 9.80 0.06 44,536 0.73 6.08 56
-- $(0.55) $9.86 5.16% $ 19,167 0.98%(d) 5.45% 600%
-- (0.52) 9.90 11.37 8,509 1.10(c)(d) 5.38 303
$ 0.00(b) (0.56) 9.39 2.92 9,852 1.05 6.03 468
-- (0.50) 9.67 3.20 11,662 1.05+ 6.11+ 199
(0.04) (0.61) 9.86 7.29 10,928 1.01 6.44 413
(0.04) (0.67) 9.80 (0.11) 14,044 0.90 5.91 56
-- $(0.49) $9.86 4.53% $ 30,109 1.58%(d) 4.85% 600%
-- (0.47) 9.90 10.78 32,391 1.63(c)(d) 4.85 303
$ 0.00(b) (0.52) 9.39 2.51 38,807 1.45 5.63 468
-- (0.47) 9.67 2.85 50,958 1.45+ 5.71+ 199
(0.04) (0.58) 9.86 6.86 56,155 1.41 6.04 413
(0.04) (0.59) 9.80 (1.09) 56,313 1.38+ 5.43+ 56
-- $(0.49) $9.86 4.52% $ 213 1.59%(d) 4.84% 600%
-- (0.48) 9.90 10.84 735 1.58(c)(d) 4.90 303
$ 0.00(b) (0.53) 9.39 2.67 1,835 1.30 5.78 468
-- (0.47) 9.67 2.83 2,558 1.48+ 5.68+ 199
(0.04) (0.57) 9.86 6.76 2,945 1.51 5.94 413
(0.04) (0.60) 9.80 (0.69) 5,265 1.48 5.33 56
<CAPTION>
WITHOUT WAIVERS
AND/OR EXPENSES
REIMBURSEMENTS
---------------
RATIO OF
OPERATING
EXPENSES TO
AVERAGE
NET ASSETS
---------------
<S> <C>
0.84%(d)
0.99(d)
0.94
0.95+
0.94
0.94
1.09%(d)
1.24(d)
1.19
1.20+
1.19
1.11
1.84%(d)
1.77(d)
1.59
1.60+
1.59
1.59+
1.84%(d)
1.72(d)
1.44
1.63+
1.69
1.69
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
71
<PAGE> 76
NATIONS FUNDS
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD.
<TABLE>
<CAPTION>
NET
INCREASE/ DISTRIBUTIONS
NET ASSET NET REALIZED (DECREASE) DIVIDENDS IN EXCESS DISTRIBUTIONS
VALUE NET AND UNREALIZED IN NET ASSET FROM NET OF NET FROM NET
BEGINNING INVESTMENT GAIN/(LOSS) VALUE FROM INVESTMENT INVESTMENT REALIZED
OF PERIOD INCOME ON INVESTMENTS OPERATION INCOME INCOME CAPITAL GAINS
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
STRATEGIC FIXED INCOME
PRIMARY A SHARES
Year ended 3/31/1999....... $10.03 $0.59 $(0.04) $ 0.55 $(0.59) -- $(0.06)
Year ended 3/31/1998....... 9.62 0.58 0.41 0.99 (0.58) -- --
Year ended 3/31/1997#...... 9.93 0.58 (0.20) 0.38 (0.58) -- (0.11)
Period ended
3/31/1996(a)............. 10.22 0.19 (0.29) (0.10) (0.19) -- --
Year ended 11/30/1995...... 9.32 0.59 0.90 1.49 (0.59) -- --
Year ended 11/30/1994...... 10.55 0.53 (0.89) (0.36) (0.51) $(0.02) (0.34)
INVESTOR A SHARES
Year ended 3/31/1999....... $10.03 $0.57 $(0.04) $ 0.53 $(0.57) -- $(0.06)
Year ended 3/31/1998....... 9.62 0.56 0.41 0.97 (0.56) -- --
Year ended 3/31/1997#...... 9.93 0.56 (0.20) 0.36 (0.56) -- (0.11)
Period ended
3/31/1996(a)............. 10.22 0.18 (0.29) (0.11) (0.18) -- --
Year ended 11/30/1995...... 9.32 0.57 0.90 1.47 (0.57) -- --
Year ended 11/30/1994...... 10.55 0.51 (0.89) (0.38) (0.49) $(0.02) (0.34)
INVESTOR B SHARES
Year ended 3/31/1999....... $10.03 $0.51 $(0.04) $ 0.47 $(0.51) -- $(0.06)
Year ended 3/31/1998....... 9.62 0.51 0.41 0.92 (0.51) -- --
Year ended 3/31/1997#...... 9.93 0.52 (0.20) 0.32 (0.52) -- (0.11)
Period ended
3/31/1996(a)............. 10.22 0.16 (0.29) (0.13) (0.16) -- --
Year ended 11/30/1995...... 9.32 0.53 0.90 1.43 (0.53) -- --
Year ended 11/30/1994...... 10.55 0.47 (0.89) (0.42) (0.45) $(0.02) (0.34)
INVESTOR C SHARES
Year ended 3/31/1999....... $10.03 $0.51 $(0.04) $ 0.47 $(0.51) -- $(0.06)
Year ended 3/31/1998....... 9.62 0.52 0.41 0.93 (0.52) -- --
Year ended 3/31/1997#...... 9.93 0.53 (0.20) 0.33 (0.53) -- (0.11)
Period ended
3/31/1996(a)............. 10.22 0.17 (0.29) (0.12) (0.17) -- --
Year ended 11/30/1995...... 9.32 0.54 0.90 1.44 (0.54) -- --
Year ended 11/30/1994...... 10.55 0.47 (0.89) (0.42) (0.45) $(0.02) (0.34)
</TABLE>
- ---------------
<TABLE>
<C> <S>
+ Annualized.
++ Total return represents aggregate total return for the
period indicated, assumes reinvestment of all distributions,
and does not reflect the deduction of any applicable sales
charges.
# Per share net investment income has been calculated using
the monthly average share method.
(a) Fiscal year end changed to March 31. Prior to this, the
fiscal year end was November 30.
(b) Amount represents less than $0.01.
(c) The effect of the credits allowed by the custodian on the
operating expense ratio, with and without waivers and/or
expense reimbursements, was less than 0.01%.
(d) The effect of interest expense on the operating expense
ratio was less than 0.01%.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
72
<PAGE> 77
NATIONS FUNDS
FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
WITHOUT WAIVERS
AND/OR EXPENSES
REIMBURSEMENTS
---------------
RATIO OF RATIO OF NET RATIO OF
TOTAL NET ASSET NET ASSETS OPERATING INVESTMENT OPERATING
DISTRIBUTIONS DIVIDENDS VALUE END OF EXPENSES TO INCOME TO PORTFOLIO EXPENSES TO
FROM AND END OF TOTAL PERIOD AVERAGE AVERAGE TURNOVER AVERAGE
CAPITAL DISTRIBUTIONS PERIOD RETURN++ (000) NET ASSETS NET ASSETS RATE NET ASSETS
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
-- $(0.65) $ 9.93 5.61% $1,798,155 0.68%(c) 5.86% 107% 0.78%(c)
-- (0.58) 10.03 10.53 1,681,990 0.72(c)(d) 5.86 244 0.83(d)
$(0.00)(b) (0.69) 9.62 3.90 947,277 0.71(c) 5.98 368 0.81(d)
-- (0.19) 9.93 (1.04) 823,890 0.72+ 5.49+ 133 0.83+
-- (0.59) 10.22 16.45 823,098 0.71 6.05 228 0.81
-- (0.87) 9.32 (3.58) 550,697 0.68 5.43 307 0.76
-- $(0.63) $ 9.93 5.40% $ 32,119 0.88%(c) 5.66% 107% 1.03%(c)
-- (0.56) 10.03 10.30 26,054 0.92(c)(d) 5.66 244 1.03(d)
$(0.00)(b) (0.67) 9.62 3.70 6,345 0.91(c) 5.78 368 1.01(d)
-- (0.18) 9.93 (1.11) 6,440 0.92+ 5.29+ 133 1.03+
-- (0.57) 10.22 16.22 6,662 0.91 5.85 228 1.01
-- (0.85) 9.32 (3.76) 967 0.86 5.25 307 0.94
-- $(0.57) $ 9.93 4.76% $ 5,440 1.48%(c) 5.06% 107% 1.78%(c)
-- (0.51) 10.03 9.73 2,662 1.47(c)(d) 5.11 244 1.58(d)
$(0.00)(b) (0.63) 9.62 3.23 2,109 1.36(c) 5.33 368 1.46(d)
-- (0.16) 9.93 (1.26) 2,496 1.37+ 4.84+ 133 1.48+
-- (0.53) 10.22 15.70 2,578 1.36 5.40 228 1.46
-- (0.81) 9.32 (4.21) 2,145 1.33 4.78 307 1.41
-- $(0.57) $ 9.93 4.90% $ 1,137 1.40%(c) 5.14% 107% 1.78%(c)
-- (0.52) 10.03 9.87 943 1.42(c)(d) 5.16 244 1.53(d)
$(0.00)(b) (0.64) 9.62 3.38 1,068 1.21(c) 5.48 368 1.31(d)
-- (0.17) 9.93 (1.22) 299 1.22+ 4.99+ 133 1.33+
-- (0.54) 10.22 15.87 227 1.21 5.55 228 1.31
-- (0.81) 9.32 (4.14) 41 1.43 4.68 307 1.51
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
73
<PAGE> 78
NATIONS FUNDS
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD.
<TABLE>
<CAPTION>
NET
NET ASSET NET REALIZED INCREASE/ DIVIDENDS DISTRIBUTIONS
VALUE NET AND UNREALIZED (DECREASE) IN FROM NET FROM NET
BEGINNING INVESTMENT GAIN/(LOSS) NET ASSET VALUE INVESTMENT REALIZED
OF PERIOD INCOME ON INVESTMENTS FROM OPERATIONS INCOME CAPITAL GAINS
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
U.S. GOVERNMENT BOND
PRIMARY A SHARES
Year ended 3/31/1999#.................. $10.37 $0.52 $ 0.07 $0.59 $(0.52) $(0.36)
Period ended 3/31/1998*................ 10.19 0.48 0.31 0.79 (0.48) (0.13)
Period ended 5/16/1997................. 10.53 0.41 0.17 0.58 (0.41) (0.51)
Year ended 8/31/1996................... 11.20 0.61 (0.22) 0.39 (0.61) (0.45)
Period ended 8/31/1995(b).............. 10.00 0.56 1.20 1.76 (0.56) --
INVESTOR A SHARES
Year ended 3/31/1999#.................. $10.37 $0.50 $ 0.07 $0.57 $(0.50) $(0.36)
Period ended 3/31/1998*................ 10.20 0.46 0.30 0.76 (0.46) (0.13)
Period ended 5/16/1997................. 10.54 0.39 0.17 0.56 (0.39) (0.51)
Year ended 8/31/1996................... 11.19 0.59 (0.20) 0.39 (0.59) (0.45)
Period ended 8/31/1995 (b)............. 10.48 0.37 0.71 1.08 (0.37) --
INVESTOR B SHARES
Year ended 3/31/1999#.................. $10.37 $0.44 $ 0.07 $0.51 $(0.44) $(0.36)
Period ended 3/31/1998*................ 10.19 0.41 0.31 0.72 (0.41) (0.13)
Period ended 5/16/1997................. 10.52 0.34 0.18 0.52 (0.34) (0.51)
Year ended 8/31/1996................... 11.19 0.51 (0.22) 0.29 (0.51) (0.45)
Period ended 8/31/1995(b).............. 10.05 0.46 1.14 1.60 (0.46) --
INVESTOR C SHARES
Year ended 3/31/1999#.................. $10.37 $0.44 $ 0.07 $0.51 $(0.44) $(0.36)
Period ended 3/31/1998**............... 10.41 0.25 0.09 0.34 (0.25) (0.13)
</TABLE>
- ---------------
* The financial information for the fiscal periods prior to May 23, 1997
reflects the financial information for the Pilot U.S. Government Securities
Fund's Pilot Shares, Class A Shares and Class B Shares, which were
reorganized into the Primary A Shares, Investor A Shares and Investor B
Shares, respectively, as of May 23, 1997.
** U.S. Government Bond Investor C Shares commenced operations on September 19,
1997.
+ Annualized.
++ Total return represents aggregate total return for the period indicated,
assumes reinvestment of all distributions, and does not reflect the
deduction of any applicable sales charges.
# Per share net investment income has been calculated using the monthly average
share method.
(a) The effect of the fees reduced by credits allowed by the custodian on the
operating expense ratio, with and without waivers and/or expense
reimbursements, was less than 0.01%.
(b) The Pilot U.S. Government Securities Fund's Pilot Shares, Class A Shares and
Class B Shares commenced operations on November 7, 1994, February 7, 1995
and November 10, 1994, respectively.
(c) The effect of interest expense on the operating expense ratio was less than
0.01%.
SEE NOTES TO FINANCIAL STATEMENTS.
74
<PAGE> 79
NATIONS FUNDS
FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
WITHOUT WAIVERS
AND/OR EXPENSE
REIMBURSEMENTS
---------------
RATIO OF RATIO OF NET RATIO OF
TOTAL NET ASSET NET ASSETS OPERATING INVESTMENT OPERATING
DIVIDENDS VALUE END OF EXPENSES TO INCOME TO PORTFOLIO EXPENSES TO
AND END OF TOTAL PERIOD AVERAGE AVERAGE TURNOVER AVERAGE
DISTRIBUTIONS PERIOD RETURN++ (IN 000'S) NET ASSETS NET ASSETS RATE NET ASSETS
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$(0.88) $10.08 5.83% $109,028 0.59%(a)(c) 5.06% 270% 0.87%(a)
(0.61) 10.37 7.84 263,428 0.60(a)+ 5.26+ 188 0.86(a)+
(0.92) 10.19 5.62 148,082 0.62+ 5.60+ 58 0.77+
(1.06) 10.53 3.46 145,066 0.65 5.61 87 0.82
(0.56) 11.20 18.03 137,261 0.62+ 6.45+ 132 0.87+
$(0.86) $10.08 5.57% $ 2,311 0.84%(a)(c) 4.81% 270% 1.12%(a)
(0.59) 10.37 7.51 1,927 0.85(a)+ 5.01+ 188 1.11(a)+
(0.90) 10.20 5.44 734 0.87+ 5.35+ 58 1.07+
(1.04) 10.54 3.44 632 0.85 5.44 87 1.07
(0.37) 11.19 10.41 87 0.82+ 5.76+ 132 1.12+
$(0.80) $10.08 4.93% $ 6,779 1.44%(a)(c) 4.21% 270% 1.87%(a)
(0.54) 10.37 7.14 1,004 1.40(a)+ 4.46+ 188 1.66(a)+
(0.85) 10.19 4.99 1,529 1.62+ 4.60+ 58 1.77+
(0.96) 10.52 2.43 1,237 1.65 4.60 87 1.82
(0.46) 11.19 16.19 146 1.62+ 5.19+ 132 1.87+
$(0.80) $10.08 5.13% $ 1,255 1.34%(a)(c) 4.31% 270% 1.87%(a)
(0.38) 10.37 3.50 1,332 1.45(a)+ 4.41+ 188 1.71(a)+
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
75
<PAGE> 80
NATIONS FUNDS
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD.
<TABLE>
<CAPTION>
NET
INCREASE/
NET ASSET NET REALIZED (DECREASE) DIVIDENDS DISTRIBUTIONS
VALUE NET AND UNREALIZED IN NET ASSET FROM NET FROM NET
BEGINNING INVESTMENT GAIN/(LOSS) VALUE FROM INVESTMENT REALIZED
OF PERIOD INCOME ON INVESTMENTS OPERATIONS INCOME CAPITAL GAINS
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
DIVERSIFIED INCOME
PRIMARY A SHARES
Year ended 3/31/1999#............. $10.55 $0.66 $(0.14) $ 0.52 $(0.66) $(0.10)
Year ended 3/31/1998.............. 10.11 0.65 0.44 1.09 (0.65) --
Year ended 3/31/1997#............. 10.42 0.69 (0.18) 0.51 (0.69) (0.13)
Period ended 3/31/1996(b)......... 10.82 0.23 (0.40) (0.17) (0.23) --
Year ended 11/30/1995............. 9.67 0.73 1.15 1.88 (0.73) --
Year ended 11/30/1994#............ 10.88 0.74 (1.06) (0.32) (0.74)(a) (0.15)
INVESTOR A SHARES
Year ended 3/31/1999#............. $10.55 $0.63 $(0.14) $ 0.49 $(0.63) $(0.10)
Year ended 3/31/1998.............. 10.11 0.63 0.44 1.07 (0.63) --
Year ended 3/31/1997#............. 10.42 0.66 (0.18) 0.48 (0.66) (0.13)
Period ended 3/31/1996(b)......... 10.82 0.22 (0.40) (0.18) (0.22) --
Year ended 11/30/1995............. 9.67 0.71 1.15 1.86 (0.71) --
Year ended 11/30/1994#............ 10.88 0.72 (1.06) (0.34) (0.72)(a) (0.15)
INVESTOR B SHARES
Year ended 3/31/1999#............. $10.55 $0.57 $(0.14) $ 0.43 $(0.57) $(0.10)
Year ended 3/31/1998.............. 10.11 0.57 0.44 1.01 (0.57) --
Year ended 3/31/1997#............. 10.42 0.61 (0.18) 0.43 (0.61) (0.13)
Period ended 3/31/1996(b)......... 10.82 0.21 (0.40) (0.19) (0.21) --
Year ended 11/30/1995............. 9.67 0.66 1.15 1.81 (0.66) --
Year ended 11/30/1994#............ 10.88 0.67 (1.06) (0.39) (0.67)(a) (0.15)
INVESTOR C SHARES
Year ended 3/31/1999#............. $10.55 $0.57 $(0.14) $ 0.43 $(0.57) $(0.10)
Year ended 3/31/1998.............. 10.11 0.58 0.44 1.02 (0.58) --
Year ended 3/31/1997#............. 10.42 0.63 (0.18) 0.45 (0.63) (0.13)
Period ended 3/31/1996(b)......... 10.82 0.21 (0.40) (0.19) (0.21) --
Year ended 11/30/1995............. 9.67 0.66 1.15 1.81 (0.66) --
Year ended 11/30/1994#............ 10.88 0.67 (1.06) (0.39) (0.67)(a) (0.15)
</TABLE>
- ---------------
<TABLE>
<C> <S>
+ Annualized.
++ Total return represents aggregate total return for the
period indicated, assumes reinvestment of all distributions,
and does not reflect the deduction of any applicable sales
charges.
# Per share net investment income has been calculated using
the monthly average share method.
(a) Includes distribution in excess of less than $0.01 per
share.
(b) Fiscal year end changed to March 31. Prior to this, the
fiscal year end was November 30.
(c) The effect of the fees reduced by credits allowed by the
custodian on the operating expenses ratio, with and without
waivers and/or expense reimbursements, was less than 0.01%.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
76
<PAGE> 81
NATIONS FUNDS
FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
WITHOUT WAIVERS
AND/OR EXPENSE
REIMBURSEMENTS
---------------
RATIO OF RATIO OF NET RATIO OF
TOTAL NET ASSET NET ASSETS OPERATING INVESTMENT OPERATING
DIVIDENDS VALUE END OF EXPENSES TO INCOME PORTFOLIO EXPENSES TO
AND END OF TOTAL PERIOD AVERAGE TO AVERAGE TURNOVER AVERAGE
DISTRIBUTIONS PERIOD RETURN++ (IN 000'S) NET ASSETS NET ASSETS RATE NET ASSETS
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$(0.76) $10.31 5.00% $317,937 0.70%(c) 6.27% 94% 0.80%(c)
(0.65) 10.55 11.07 263,840 0.73(c) 6.27 203 0.83(c)
(0.82) 10.11 4.97 152,070 0.75(c) 6.73 278 0.85(c)
(0.23) 10.42 (1.59) 65,081 0.77+ 6.49+ 69 0.87+
(0.73) 10.82 20.11 64,800 0.80 7.03 96 0.93
(0.89) 9.67 (3.05) 22,298 0.74 7.31 144 0.95
$(0.73) $10.31 4.74% $ 12,954 0.95%(c) 6.02% 94% 1.05%(c)
(0.63) 10.55 10.80 11,946 0.98(c) 6.02 203 1.08(c)
(0.79) 10.11 4.71 11,662 1.00(c) 6.48 278 1.10(c)
(0.22) 10.42 (1.67) 13,332 1.02+ 6.24+ 69 1.12+
(0.71) 10.82 19.82 13,150 1.05 6.78 96 1.18
(0.87) 9.67 (3.26) 10,819 0.96 7.09 144 1.17
$(0.67) $10.31 4.11% $ 67,651 1.55%(c) 5.42% 94% 1.80%(c)
(0.57) 10.55 10.18 65,248 1.55(c) 5.45 203 1.65(c)
(0.74) 10.11 4.18 70,631 1.50(c) 5.98 278 1.60(c)
(0.21) 10.42 (1.83) 84,692 1.52+ 5.74+ 69 1.62+
(0.66) 10.82 19.22 90,887 1.55 6.28 96 1.68
(0.82) 9.67 (3.77) 55,058 1.49 6.56 144 1.70
$(0.67) $10.31 4.09% $ 1,474 1.56%(c) 5.41% 94% 1.80%(c)
(0.58) 10.55 10.27 2,090 1.46(c) 5.54 203 1.56(c)
(0.76) 10.11 4.44 3,343 1.25(c) 6.23 278 1.35(c)
(0.21) 10.42 (1.77) 3,454 1.33+ 5.93+ 69 1.43+
(0.66) 10.82 19.22 3,582 1.55 6.28 96 1.68
(0.82) 9.67 (3.77) 2,636 1.49 6.56 144 1.70
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
77
<PAGE> 82
NATIONS FUNDS
NOTES TO FINANCIAL STATEMENTS
Nations Fund Trust (the "Trust"), Nations Fund Portfolio's ("Nations
Portfolios") and Nations Fund, Inc. (the "Company") are each registered under
the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
investment company. At March 31, 1999, the Trust offered thirty-eight separate
portfolios and the Company offered nine separate portfolios. These financial
statements pertain only to the U.S. government and corporate bond portfolios of
the Trust and the Company (each a "Fund" and collectively, the "Funds"). The
Global Government Income Fund of Nations Portfolios liquidated its final class
on December 14, 1998. Financial statements for the other portfolios of the Trust
and the Company are presented under separate cover. The Funds currently offer
five classes of shares: Primary A Shares, Primary B Shares, Investor A Shares,
Investor B Shares and Investor C Shares. Primary B Shares are not currently
offered to the public except for the Short Intermediate Government Fund.
Shareholders of a Fund have equal voting rights on matters affecting all
shareholders of the Fund. In addition, each class of shares of a Fund has
exclusive voting rights on matters that relate solely to its class and separate
voting rights on matters in which the interests of one class differ from the
interests of any other class.
1. SIGNIFICANT ACCOUNTING POLICIES
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures in the financial statements. Actual
results could differ from those estimates. The following is a summary of
significant accounting policies followed by the Funds in the preparation of
their financial statements.
Securities Valuation: Securities are valued using broker quotations or prices
provided by a pricing service approved by the Board of Trustees/Directors.
Certain prices provided by brokers or the pricing service may be based on a
matrix pricing system, which considers such factors as security prices, yields
and maturities. The value of mortgage-backed securities can be significantly
affected by changes in interest rates. Certain securities may be valued by one
or more principal market makers. Securities for which market quotations are not
readily available are valued by the investment advisor under the supervision of
the Board of Trustees/Directors. Short-term investments that mature in 60 days
or less are valued at amortized cost.
Securities Transactions and Investment Income: Securities transactions are
accounted for on trade date. Realized gains and losses are computed based on the
specific identification of securities sold. Interest income, adjusted for
accretion of discounts and amortization of premiums, is earned from settlement
date and recorded on an accrual basis. Dividend income is recorded on
ex-dividend date. Each Fund's investment income and realized and unrealized
gains and losses are allocated among its classes based upon the relative net
assets of each class of shares.
Securities purchased or sold on a when-issued or delayed-delivery basis may be
settled a month or more after trade date; interest income is not accrued until
settlement date. At the time a Fund enters into such transactions, it instructs
the custodian to segregate assets with a current value at least equal to the
amount of its when-issued or delayed-delivery purchase commitments.
Stripped mortgage-backed securities are derivative multi-class mortgage
securities structured so that one class receives most, if not all, of the
principal from the mortgage assets, while the other class receives most, if not
all, 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 an interest-only
security. The fair market value of these securities is unusually volatile in
response to changes in interest rates.
Dividends and Distributions to Shareholders: It is the policy of each Fund to
declare dividends from net investment income daily and to pay such dividends
monthly. Each Fund will distribute net realized capital gains (including net
short-term capital gains), at least annually after the fiscal year in which the
capital gains were earned, unless offset by any available capital loss
carryforward. Income distributions and capital gain distributions on a Fund
level are determined in accordance with Federal income tax regulations which may
differ from generally accepted accounting principles.
Certain reclassifications are made to each Fund's capital accounts to reflect
income and gains available for distribution (or available capital loss
carryforwards) under Federal income tax regulations.
78
<PAGE> 83
NATIONS FUNDS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
These reclassifications are due to different book and tax accounting for
organization costs, paydowns and the Fund's use of the tax accounting practice
known as equalization.
Reclassifications for the year ended March 31, 1999 were as follows:
<TABLE>
<CAPTION>
INCREASE/
(DECREASE) INCREASE/
INCREASE/ UNDISTRIBUTED (DECREASE)
(DECREASE) NET ACCUMULATED
PAID-IN INVESTMENT NET REALIZED
CAPITAL INCOME GAIN/(LOSS)
(000) (000) (000)
-----------------------------------------
<S> <C> <C> <C>
Short-Term Income............ $ 111 $ (8) $ (103)
Short-Intermediate
Government.................. (194) (33) 227
Government Securities........ 2,517 (47) (2,470)
Strategic Fixed Income....... -- (245) 245
U.S. Government Bond......... 948 (1) (947)
Diversified Income........... -- (24) 24
</TABLE>
Federal Income Tax: Each Fund intends to continue to qualify as a regulated
investment company by complying with the applicable requirements of the Internal
Revenue Code of 1986, as amended, and by distributing substantially all of its
earnings to its shareholders. Therefore, no provision is made for Federal income
or excise taxes.
Expenses: General expenses of the Trust or the Company are allocated to the
Funds based upon their relative net assets or other expense allocation
methodologies determined by the nature of the expense. Expenses directly
attributable to a Fund or class of shares are charged to such Fund or class.
Expenses not directly attributable to any class of shares are prorated based on
the relative net assets of each class. The Funds bear all costs in connection
with their organization, including the fees and expenses of registering and
qualifying their shares for distribution under Federal and state securities
regulations. All such costs were amortized on a straight-line basis over a
period of five years from commencement of operations.
2. INVESTMENT ADVISORY FEE, SUB-ADVISORY FEE, ADMINISTRATION FEE AND RELATED
PARTY TRANSACTIONS
Each of the Trust and the Company has entered into an investment advisory
agreement (the "Investment Advisory Agreements") with NationsBanc Advisors, Inc.
("NBAI"), a wholly-owned subsidiary of NationsBank, N.A. ("NationsBank"), which
in turn is an indirect wholly-owned banking subsidiary of Bank of America
Corporation, a bank holding company organized as a Delaware corporation,
pursuant to which NBAI provides investment advisory services to the Funds. Under
the Investment Advisory Agreements, NBAI is entitled to receive an advisory fee,
calculated daily and payable monthly, based on the following annual rates
multiplied by the average daily net assets of each Fund:
<TABLE>
<CAPTION>
ANNUAL
RATE
------
<S> <C>
Short-Term Income, Short-Intermediate Government,
Strategic Fixed Income, U.S. Government Bond,
Diversified Income...................................... 0.60%
</TABLE>
<TABLE>
<CAPTION>
FEES ON FEES ON FEES ON
NET ASSETS NET ASSETS NET ASSETS
UP TO BETWEEN $100 EXCEEDING
$100 MILLION AND $250 MILLION $250 MILLION
----------------------------------------------
<S> <C> <C> <C>
Government Securities.... 0.65% 0.55% 0.50%
</TABLE>
Each of the Trust and the Company, except for U.S. Government Bond Fund, has
entered into a sub-advisory agreement with NBAI and TradeStreet Investment
Associates, Inc. ("TradeStreet"), a wholly-owned subsidiary of NationsBank,
pursuant to which TradeStreet is entitled to receive a fee from NBAI at the
annual rate of 0.15% of each Fund's average daily net assets.
The Trust has, on behalf of the U.S. Government Bond Fund, entered into a
sub-advisory agreement with NBAI and Boatmen's Capital Management, Inc.
("Boatmen's), a wholly-owned subsidiary of NationsBank, pursuant to which
Boatmen's is entitled to receive a fee from NBAI at the annual rate of 0.15% of
the Fund's average daily net assets.
Stephens Inc. ("Stephens") serves as the co-administrator of the Trust and the
Company. On February 3, 1999, NBAI began serving as co-administrator of the
Funds with Stephens. Under the new arrangement, Stephens and NBAI are entitled
to receive a combined fee, computed daily and paid monthly at the annual rate of
0.12% of each Fund's average daily net assets. Prior to February 3, 1999, First
Data Investor Services Group, Inc. ("First Data"), a wholly-owned subsidiary of
First Data Corporation, served as co-administrator. Stephens and First Data were
entitled to receive a combined fee, computed daily and paid monthly, at the
annual rate of 0.10% of each Fund's average daily net assets. Effective February
3, 1999, The Bank of New York ("BNY") began serving as the sub-administrator of
the Trust and the Company pursuant to an agreement with NBAI, and NBAI ceased to
serve as sub-administrator. For the year ended March 31,
79
<PAGE> 84
NATIONS FUNDS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1999, Stephens earned $2,363,726 from the Funds for its administration services,
of which $371,341 was paid to NBAI for its services.
The investment advisor, sub-advisors and distributor may, from time to time,
voluntarily reduce their fees payable by each Fund. For the year ended March 31,
1999, the investment advisor agreed to voluntarily reimburse expenses and waive
advisory fees as follows:
<TABLE>
<S> <C>
Short Term Income.......................................... 0.30%
Short Intermediate Government.............................. 0.20%
Government Securities...................................... 0.11%
Strategic Fixed Income..................................... 0.10%
U.S. Government Bond....................................... 0.28%
Diversified Income......................................... 0.10%
</TABLE>
Effective October 19, 1998, BNY began serving as the custodian of the Trust's
and the Company's assets. Previously, NationsBank of Texas, N.A. ("NationsBank
of Texas") served as custodian until May 6, 1998, when it was merged with
NationsBank. BNY acted as sub-custodian to the Funds until that date. For the
year ended March 31, 1999, NationsBank (and its predecessor, NationsBank of
Texas, N.A.) earned $21,184 for providing such services. For the year ended
March 31, 1999, expenses of the Funds were reduced by $46,634 under expense
offset arrangements with BNY. The Funds could have invested a portion of the
assets utilized in connection with the expense offset arrangements in an income
producing asset if they had not entered into such arrangements.
First Data serves as the transfer agent for the Funds' shares. NationsBank of
Texas also served as the sub-transfer agent for the Primary Shares of the Funds
until it merged with NationsBank on May 6, 1998. NationsBank began serving as
the sub-transfer agent for the Primary Shares of the Funds on that date and is
providing the same services as were previously provided by NationsBank of Texas.
For the year ended March 31, 1999, NationsBank of Texas and NationsBank earned
approximately $27,888 for providing such services.
Stephens serves as distributor of the Funds' shares. For the year ended March
31, 1999, the Funds were informed that the distributor received $3,185,987 in
front end sales charges for sales of Investor A Shares and $354,230 in
contingent deferred sales charges from shares which were subject to such
charges. A substantial portion of these fees is paid to affiliates of
NationsBank.
The Trust and the Company pay each unaffiliated Trustee or Director an annual
fee of $1,000 ($3,000 for the Chairman of the Board), plus $500 per Fund and an
additional $1,000 for each in-person board meeting, and $500 for each telephonic
board meeting attended. The Trust and the Company also reimburse expenses
incurred by each unaffiliated Trustee or Director in attending such meetings.
The Trust's and the Company's eligible Trustees or Directors, respectively, may
participate in non-qualified deferred compensation and retirement plans which
may be terminated at any time. All benefits provided under these plans are
unfunded and any payments to plan participants are paid solely out of the Funds'
assets. Income earned on each plan participant's deferral account is tied to the
rate of return of the eligible mutual funds selected by the participants or, if
no funds are selected, to the rate of return of Nations Treasury Fund, a
portfolio of the Company. The expense for the deferred compensation and
retirement plans is included in "Trustees'/Directors' fees and expenses" in the
Statements of Operations.
Certain Funds have made daily investments of cash balances in the Nations Cash
Reserves, a portfolio of Nations Institutional Reserves, pursuant to an
exemptive order received from the Securities and Exchange Commission. For the
year ended March 31, 1999, the Funds earned $5,780,480, which is included in
interest income, in the aggregate from such investments.
A significant portion of each Fund's Primary A Shares represents investments by
fiduciary accounts over which NationsBank and its affiliates have either sole or
joint investment discretion.
3. SHAREHOLDER SERVICING AND
DISTRIBUTION PLANS
The Trust and the Company each have adopted a shareholder administration plan
for Primary B Shares of each Fund and shareholder servicing plans and
distribution plans for the Investor A, Investor B and Investor C Shares of each
Fund. The administration plan permits the Funds to compensate institutions for
shareholder administration services provided to their customers that own Primary
B Shares. The shareholder servicing plans permit the Funds to compensate or
reimburse servicing agents for shareholder services provided by the servicing
80
<PAGE> 85
NATIONS FUNDS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
agents. The distribution plans, adopted pursuant to Rule 12b-1 under the 1940
Act, permit the Funds to compensate or reimburse the distributor (and for
Investor A Shares, the distributor and/or selling agents) for activities or
expenses primarily intended to result in the sale of the classes' shares.
Payments are made at an annual rate, as a percentage of average daily net assets
set from time to time by the Board of Trustees/Directors, and are charged as
expenses of each Fund directly to the applicable class. A substantial portion of
the expenses incurred pursuant to these plans is paid to affiliates of
NationsBank and NBAI.
At March 31, 1999, the rates in effect and plan limits, as a percentage of
average daily net assets, were as follows:
<TABLE>
<CAPTION>
CURRENT PLAN
RATE LIMIT
-------------------
<S> <C> <C>
Primary B Administration Plan:
Short-Term Income and Short-Intermediate
Government................................ 0.35% 0.60%
Other Income Funds(4)....................... 0.50 0.60
Investor A Distribution Plan:
Short-Term Income, Short-Intermediate
Government and Strategic Fixed Income..... 0.20* 0.25
Other Income Funds(3)....................... 0.25 0.25
Investor B Distribution Plan:
Short-Term Income........................... 0.10 0.75
Short-Intermediate Government and Strategic
Fixed Income.............................. 0.55 0.75
Other Income Funds(3)....................... 0.60 0.75
Investor C Distribution Plan:
Short-Term Income........................... 0.75** 0.75
Short-Intermediate Government............... 0.51 0.75
U.S. Government Bond........................ 0.50 0.75
Strategic Fixed Income...................... 0.47 0.75
Other Income Funds(2)....................... 0.75*** 0.75
Investor B and Investor C Shareholder
Servicing Plans............................. 0.25 0.25
</TABLE>
- ---------------
* In addition, a separate shareholder servicing plan has been adopted for the
Investor A Shares of the Short-Term Income Fund.
** Reflects a rate change effective January 19, 1999 from .10%.
*** Reflects a rate change effective January 19, 1999 from .60%.
4. PURCHASES AND SALES OF SECURITIES
The aggregate cost of purchases and proceeds from sales of securities, excluding
long-term U.S. government securities and short-term investments, for the year
ended March 31, 1999 were as follows:
<TABLE>
<CAPTION>
PURCHASES SALES
(000) (000)
---------------------
<S> <C> <C>
Short-Term Income......................... $278,571 $214,947
Short-Intermediate Government............. 213,279 103,673
Government Securities..................... 123,015 119,674
Strategic Fixed Income.................... 440,739 416,252
Diversified Income........................ 20,967 31,972
</TABLE>
The aggregate cost of purchases and proceeds from sales of long-term U.S.
government securities for the year ended March 31, 1999 were as follows:
<TABLE>
<CAPTION>
PURCHASES SALES
(000) (000)
------------------------
<S> <C> <C>
Short-Term Income...................... $ 50,186 $ 48,593
Short-Intermediate Government.......... 1,398,063 1,623,024
Government Securities.................. 912,901 864,673
Strategic Fixed Income................. 1,742,105 1,500,987
U.S. Government Bond................... 462,965 630,959
Diversified Income..................... 397,600 319,854
</TABLE>
5. SHARES OF BENEFICIAL
INTEREST/CAPITAL STOCK
As of March 31, 1999, an unlimited number of shares of beneficial interest
without par value were authorized for the Trust and 480,000,000,000 shares of
$.001 par value capital stock were authorized for the Company. The Trust's
Declaration of Trust and the Company's Articles of Incorporation authorize the
Board of Trustees/Directors to classify or reclassify any authorized, but
unissued shares into one or more additional classes or series of shares. See
Schedule of Capital Stock Activity.
6. LINE OF CREDIT
The Trust and the Company participate in an uncommitted line of credit provided
by BNY 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 0.50% on an annualized basis. Each participating Fund maintains
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.
At March 31, 1999, there were no loans outstanding under this Agreement. For the
year ended March 31,
81
<PAGE> 86
NATIONS FUNDS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1999, borrowings by the Funds under the Agreement were as follows:
<TABLE>
<CAPTION>
AVERAGE
AMOUNT AVERAGE
OUTSTANDING INTEREST
FUND (000) RATE
- --------------------------------------------------------------------
<S> <C> <C>
Government Securities....................... $ 2 6.04%
Strategic Fixed Income...................... 20 6.22
U.S. Government Bond........................ 5 5.36
</TABLE>
The average amount outstanding was calculated based on daily balances in the
period.
7. SECURITIES LENDING
Under an agreement with BNY, the Funds can lend their portfolio securities to
approved brokers, dealers and other financial institutions. Loans are
collateralized by cash, in an amount at least equal to the market value of the
securities loaned. The cash collateral received is invested in Nations Cash
Reserves, a portfolio of Nations Institutional Reserves. A portion of the income
generated by the investment of the collateral, net of any rebates paid by BNY to
borrowers, is remitted to BNY as lending agent, and the remainder is paid to the
Fund. Generally, in the event of counterparty default, the Fund has the right to
use the collateral to offset losses incurred. There would be a potential loss to
the Fund in the event the Fund is delayed or prevented from exercising its right
to dispose of the collateral. The Fund bears the risk of loss with respect to
the investment of collateral.
At March 31, 1999, the following Funds had securities on loan:
<TABLE>
<CAPTION>
MARKET VALUE OF MARKET VALUE
LOANED SECURITIES OF COLLATERAL
FUND (000) (000)
- ----------------------------------------------------------------------
<S> <C> <C>
Short-Intermediate Government...... $161,264 $164,779
Government Securities.............. 2,221 2,268
Strategic Fixed Income............. 55,598 57,664
U.S. Government Bond............... 26,954 27,570
Diversified Income................. 26,079 27,094
</TABLE>
8. CAPITAL LOSS CARRYFORWARD
At March 31, 1999, the following Funds had available for Federal income tax
purposes the following unused capital losses expiring March 31:
<TABLE>
<CAPTION>
2002 2003 2004 2005
FUND (000) (000) (000) (000)
- -----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Short-Term Income.................... $4,900 $ 651 -- $ 13
Short-Intermediate Government........ 974 -- -- 6,939
Government Securities................ -- 4,250 -- 2,302
</TABLE>
Under the current tax law, capital losses realized after October 31, may be
deferred and treated as occurring on the first day of the following fiscal year.
For the year ended March 31, 1999, the following Funds elected to defer losses
occurring between November 1, 1998 and March 31, 1999 under these rules:
<TABLE>
<CAPTION>
POST-OCTOBER CAPITAL
LONG TERM
LOSS DEFERRAL
FUND (000)
- --------------------------------------------------------------------
<S> <C>
Short-Intermediate Government................. $330
Government Securities......................... 211
</TABLE>
9. REORGANIZATIONS
ACQUISITION OF THE PILOT FUNDS
On May 23, 1997, the U.S. Government Bond Fund, a newly established portfolio,
acquired the assets and certain liabilities of the Pilot U.S. Government
Securities Fund pursuant to a plan of reorganization approved by its
shareholders. The acquisition was accomplished by a tax-free exchange of shares
of the U.S. Government Bond Fund in an amount equal to the outstanding shares of
the Pilot U.S. Government Securities Fund. The financial statements of the U.S.
Government Bond Fund reflect the historical financial results of the Pilot U.S.
Government Securities Fund prior to the reorganization. Additionally, the fiscal
year end of the Pilot U.S. Government Securities Fund for financial reporting
purposes was changed to coincide with that of the Company.
On May 16, 1997 and May 23, 1997, certain Funds, as listed below (each an
"Acquiring Fund"), acquired the assets and certain liabilities of The Pilot
Funds, also listed below (each an "Acquired Fund"), in a tax-free reorganization
in exchange for shares of the Acquiring Fund, pursuant to a plan of
reorganization
82
<PAGE> 87
NATIONS FUNDS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
approved by the Acquired Funds' shareholders. The number and value of shares
issued by the Acquiring Fund are presented in the Schedule of Capital Stock
Activity. Net assets and unrealized appreciation/ (depreciation) as of the
reorganization date were as follows:
<TABLE>
<CAPTION>
ACQUIRED
FUND
TOTAL NET ASSETS OF UNREALIZED
TOTAL NET ASSETS OF TOTAL NET ASSETS OF ACQUIRING FUND APPRECIATION/
ACQUIRING ACQUIRED ACQUIRED FUND ACQUIRING FUND AFTER ACQUISITION (DEPRECIATION)
FUND FUND (000) (000) (000) (000)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Short-Intermediate Pilot Intermediate
Government U.S. Government
Securities Fund $232,196 $448,240 $ 680,436 $(2,073)
Strategic Fixed Pilot Diversified Bond
Income Fund 97,180 976,333 1,073,513 378
</TABLE>
ACQUISITION OF THE EMERALD FUNDS
On May 15, 1998, certain Funds, as listed below (each an "Acquiring Fund"),
acquired the assets and certain liabilities of The Emerald Funds, also listed
below (each an "Acquired Fund"), in a tax-free reorganization in exchange for
shares of the Acquiring Fund, pursuant to a plan of reorganization approved by
the Acquired Fund's shareholders. The number and value of shares issued by the
Acquiring Fund are presented in the Schedule of Capital Stock Activity. Net
assets and unrealized appreciation as of the reorganization date were as
follows:
<TABLE>
<CAPTION>
ACQUIRED
TOTAL NET ASSETS OF FUND
TOTAL NET ASSETS OF TOTAL NET ASSETS OF ACQUIRING FUND UNREALIZED
ACQUIRING ACQUIRED ACQUIRED FUND ACQUIRING FUND AFTER ACQUISITION APPRECIATION
FUND FUND (000) (000) (000) (000)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Short-Term Income Emerald Short-Term
Fixed Income Fund $101,178 $ 355,256 $ 456,434 $ 525
Government Emerald U.S.
Securities Government Securities
Fund 63,983 122,410 186,393 856
Strategic Fixed Emerald Managed Bond
Income Fund 77,246 1,848,855 1,926,101 9
</TABLE>
CONVERSION OF COMMON TRUST FUNDS
On August 22, 1997 and November 12, 1997, certain Funds, as listed below (each
an "Acquiring Fund"), acquired the assets of certain common trust funds, managed
by NationsBank, also listed below (each an "Acquired Fund"), in a tax-free
exchange for shares of the Acquiring Fund. The number and value of shares issued
by the Acquiring Fund are presented in the Schedule of Capital Stock Activity.
Net assets and unrealized appreciation/(depreciation) as of the conversion date
were as follows:
<TABLE>
<CAPTION>
TOTAL NET ASSETS OF
TOTAL NET ASSETS OF TOTAL NET ASSETS OF ACQUIRING FUND
ACQUIRING ACQUIRED ACQUIRED FUND ACQUIRING FUND AFTER CONVERSION
FUND FUND (000) (000) (000)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Short-Term Income NationsBank Common Trust Short-
Term Income Fund $275,916 $ 201,134 $ 477,050
Government NationsBank Common Trust Mortgage
Securities Backed Securities Fund 45,209 100,213 145,422
Strategic Fixed NationsBank Common Trust
Income Strategic Fixed Income Fund 987,102 1,095,670 2,082,772
Strategic Fixed NationsBank Common Trust Fixed
Income Income Fund for Personal Trusts 24,459 2,082,772 2,107,231
Short-Intermediate NationsBank Common Trust Short
Government Intermediate U.S. Government Fund 275,770 609,542 885,312
<CAPTION>
ACQUIRED
FUND
UNREALIZED
APPRECIATION/
ACQUIRING (DEPRECIATION)
FUND (000)
- ------------------ --------------
<S> <C>
Short-Term Income
$ 169
Government
Securities (31)
Strategic Fixed
Income 4,085
Strategic Fixed
Income 145
Short-Intermediate
Government 1,293
</TABLE>
On April 17, 1998, certain Funds, as listed below (each an "Acquiring Fund"),
acquired the assets of certain common trust funds, managed by NationsBank, also
listed below (each an "Acquired Fund"), in a tax-free exchange for shares of the
Acquiring Fund. The number and value of shares
83
<PAGE> 88
NATIONS FUNDS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
issued by the Acquiring Fund are presented in the Schedule of Capital Stock
Activity. Net assets and unrealized appreciation/(depreciation) as of the
conversion date were as follows:
<TABLE>
<CAPTION>
TOTAL NET ASSETS OF
TOTAL NET ASSETS OF TOTAL NET ASSETS OF ACQUIRING FUND
ACQUIRING ACQUIRED ACQUIRED FUND ACQUIRING FUND AFTER CONVERSION
FUND FUND (000) (000) (000)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Government NationsBank Common Trust $ 5,957 $ 117,450 $ 123,407
Securities Government Bond Fund
Strategic Fixed Common Trust Bond Fund 69,407 1,705,412 1,774,819
Income
Strategic Fixed NationsBank Common Trust 71,850 1,774,819 1,846,669
Income Intermediate Bond Fund
Short-Intermediate NationsBank Common Trust Two- 5,670 722,445 728,115
Government Year Government Bond Fund
<CAPTION>
ACQUIRED
FUND
UNREALIZED
APPRECIATION
ACQUIRING (DEPRECIATION)
FUND (000)
- ------------------ --------------
<S> <C>
Government $ 70
Securities
Strategic Fixed 398
Income
Strategic Fixed (2)
Income
Short-Intermediate 11
Government
</TABLE>
10. SUBSEQUENT EVENTS
The Trust and the Company were each parties to Agreements and Plans of
Reorganization with Pacific Horizon Funds, Inc. (a family of mutual funds
advised by Bank of America NT&SA, an indirect wholly-owned subsidiary of Bank of
America Corporation) pursuant to which the assets and liabilities (net) of the
Pacific Horizon Flexible Income Fund and Short-Term Government Fund of
$36,135,739 and $19,247,346 were acquired in a tax-free reorganization in
exchange for shares of the Nations Diversified Income and Short-Intermediate
Government Funds, respectively, on May 14, 1999.
Effective May 14, 1999, the maximum contractual advisory and combined
co-administration fees payable by the Funds changed. At that time, the maximum
contractual advisory fee that NBAI is entitled to receive from the Funds
decreased, as a percentage of the respective Fund's average daily net assets, as
follows: Short-Term Income--0.30%; Short-Intermediate Government--0.30%;
Government Securities--0.15%; Strategic Fixed Income--0.20%; U.S. Government
Bond--0.10%; and Diversified Income--0.10%. At the same time, the combined
co-administration fee payable to NBAI and Stephens increased by 0.10% of the
respective Fund's average daily net assets.
84
<PAGE> 89
NATIONS FUNDS
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS, DIRECTORS AND TRUSTEES OF NATIONS FUNDS
In our opinion, the accompanying statements of net assets, and the related
statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
the Nations Short-Term Income Fund, Nations Short-Intermediate Government Fund,
Nations Government Securities Fund, Nations Strategic Fixed Income Fund, Nations
U.S. Government Bond Fund, and Nations Diversified Income Fund (portfolios of
Nations Fund Trust or Nations Fund, Inc., hereafter referred to as the "Funds")
at March 31, 1999, and the results of each of their operations, the changes in
each of their net assets and the financial highlights for the periods indicated,
in conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Funds' management; our responsibility
is to express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with generally
accepted auditing standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at March 31, 1999 by
correspondence with the custodian, provide a reasonable basis for the opinion
expressed above. The financial statements of Nations U.S. Government Bond Fund,
formerly Pilot U.S. Government Securities Fund, for the period ended May 16,
1997 were audited by other independent accountants whose report dated June 20,
1997 expressed an unqualified opinion on those statements.
PricewaterhouseCoopers LLP
Boston, Massachusetts
May 28, 1999
85
<PAGE> 90
NATIONS FUNDS
TAX INFORMATION (UNAUDITED)
For the fiscal year ended March 31, 1999, the amount of long-term capital gains
designated by the Trust and/or the Company were as follows:
<TABLE>
<CAPTION>
FUND TOTAL
---------- ----------
<S> <C>
Strategic Fixed Income.................................... $6,977,903
U.S. Government Bond...................................... 3,734,311
Diversified Income........................................ 2,428,587
</TABLE>
86
<PAGE> 91
[GRAPHIC DEPICTING BASKETS]
<PAGE> 92
[NATIONS FUNDS LOGO] --------------
BULK RATE
P.O. Box 32602 U.S. POSTAGE
Charlotte, NC 28234-4602 PAID
Toll Free 1-800-982-2271 N READING, MA
PERMIT NO.
105
--------------
AR5 IN96120 3/99
